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Not Here? Housing Market Policy and the Risk of a Housing Bust

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  • Jim MacGee

    (University of Western Ontario)

Abstract

Can a US-style housing bust happen in Canada? Recent swings in Canadian house prices have raised concerns about the possibility. To evaluate the likelihood of a US style housing market crash in Canada, this paper examines what caused the US housing boom and bust from 2000 to 2009. A decline in underwriting standards played an essential role in the US housing market boom and dramatic bust. While monetary policy was very similar in both countries from 2000 to 2008, housing markets (especially the subprime component) were structured and regulated differently in each. Canadian housing policies, which avoided the sharp decline in underwriting standards seen in the US, worked well in reducing the possibility of a housing bust in Canada during 2008-2009, and continue to mitigate the risk of a massive wave of defaults in the future.

Suggested Citation

  • Jim MacGee, 2010. "Not Here? Housing Market Policy and the Risk of a Housing Bust," e-briefs 105, C.D. Howe Institute.
    • Handle: RePEc:cdh:ebrief:105
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    File URL: https://www.cdhowe.org/public-policy-research/not-here-housing-market-policy-and-risk-housing-bust
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    References listed on IDEAS

    as
    1. Martin Gervais & Manish Pandey, 2008. "Who Cares About Mortgage Interest Deductibility?," Canadian Public Policy, University of Toronto Press, vol. 34(1), pages 1-24, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Pierre Siklos & Andrew Spence, 2010. "Faceoff: Should the Bank of Canada Release its Projections of the Interest Rate Path? – The Cases For and Against," C.D. Howe Institute Backgrounder, C.D. Howe Institute, issue 134, October.
    2. Bob Baldwin & Brian FitzGerald, 2010. "Seeking Certainty in Uncertain Times: A Review of Recent Government-Sponsored Studies on the Regulation of Canadian Pension Plans," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 310, September.
    3. James MacGee, 2012. "The Rise in Consumer Credit and Bankruptcy: Cause for Concern?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 346, April.
    4. Clyde Goodlet, 2010. "Too Big to Fail: A Misguided Policy in Times of Financial Turmoil," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 311, October.
    5. Joseph L. Breeden & Jose J. Canals-Cerda, 2016. "Consumer risk appetite, the credit cycle, and the housing bubble," Working Papers 16-5, Federal Reserve Bank of Philadelphia.
    6. Benjamin Dachis, 2010. "Picking up Savings: The Benefits of Competition in Municipal Waste Services," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 308, September.
    7. Kevin D. Moore & William Robson & Alexandre Laurin, 2010. "Canada’s Looming Retirement Challenge: Will Future Retirees Be Able to Maintain Their Living Standards upon Retirement?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 317, December.
    8. Robert McKeown, 2017. "How Vulnerable Is The Canadian Banking System To Fire-sales?," Working Paper 1381, Economics Department, Queen's University.
    9. David C. Allan & Philippe Bergevin, 2010. "The Canadian ABS Market: Where Do We Go From Here?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 315, November.
    10. David Longworth, 2010. "Warding Off Financial Market Failure: How to Avoid Squeezed Margins and Bad Haircuts," C.D. Howe Institute Backgrounder, C.D. Howe Institute, issue 135, December.
    11. Philippe Bergevin & David Laidler, 2010. "Putting Money Back into Monetary Policy: A Monetary Anchor for Price and Financial Stability," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 312, October.
    12. Stuart Landon & Constance Smith, 2010. "Energy Prices and Alberta Government Revenue Volatility," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 313, November.
    13. Andrew Green & Michael Trebilcock, 2010. "The Eco-Fee Imbroglio: Lessons from Ontario’s Troubled Experiment in Charging for Waste Management," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 316, December.

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    More about this item

    Keywords

    Financial Services; housing bust; real estate; Canadian housing policies; US-style housing bust;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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