New lending rules may have curtailed big banks from issuing risky loans, but Canadians in their everlasting effort to keep up with the Joneses, will go to any length to make sure they are as indebted as their neighbours.
A recently released article from the Canadian Press shows that Canadians are virtually willing to go to the mafia just for a taste of home ownership. When group-think mentality intersects with Keynesian economics, we get massive bubbles that leave giant, exploding messes when popped.
With home ownership rates approaching 70%, the stigma of being part of the 30% grows and growing with it is the lack of financial common sense.
It should only take a second to recognize how toxic the majority of mortgages in Canada are. There are enough reports that indicate that nearly half of Canadians are struggling with their current payments and a tiny quarter-point rise in interest rates is considered devastating. This inevitably leads to skyrocketing interest rates in an effort to make lending attractive again, since no one in their right mind, including these alternative lenders, will want to make such risky loans for such low returns from current interest rates.
All those adjustable rate mortgages after their first of many five year resets will be in dire straits. The fact that Canada thought it dodged a bullet in the subprime crisis of 2008 and learnt nothing from its neighbour in the process, means that when the first wave of defaults come rolling in, many Canadians will meet their goal of keeping up with the Joneses. The Joneses will be broke.
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