Should we be more like Canada?

This is complete BS. I am very familiar with the Canadian market- every single loan there would be subprime by US standards- the rates for all mortgages reset every 5 years- many canadians put down about 5% and right now have interest rates of less than 3%. And everyday in the National Post/Financial Post are articles about Canadians growing debt levels. This guy Fritz putting 40% down is an anomaly not the norm. I know people who took out 200% mortgages with 0 down on the value of their homes in Canada.

The one way we should be like them- their taxes are lower and they have more services like healthcare and free education.

The 30 year fixed rate mortgage is largely a U.S. product. Outside of the U.S. they use the term fixed rate but mean variable, except the rates are not explicitly tied to a formula...They come with terms like tracker loans, etc and are often tied to a banks general lending rate.

USA should copy these ones from Canada:

* "Canadians are debt-averse," "People here don't leverage."
* Canadian tax law is neutral: Interest on mortgage payments is not deductible, a fact that encourages home buyers to make larger down payments and avoid withdrawing equity. I'd add that property taxes shouldn't be deductible either.

The 1st residency is the biggest liability of the household, not the biggest asset. Middle class Americans are the problem imho as the rich do seem to not confuse what assets and liabilities are. In fact, they always exclude their 1st residency from net worth calculations. Middle class people in USA are stupid enough to put their own home 1st in their net worth calculation. But this seems to me to be a unique USA feature. The middle class in Switzerland, the top wealth management country, understands that investable assets are what you need to be rich, not a money pit. They are renters proud of their big portfolios, how many middle class Americans can say that? Americans still think that renters are losers, even as the 2nd wave of foreclosures lead by prime borrowers is hitting.

Is Generation X gonna get this right? Or are they going to be obsessed with housing as older Americans are?

The u.s. needs to eliminate the mortgage interest deduction or less ideally replace it with a more lmited credit. By definition it is not fair and of benefit to all, it benefits the higher bracket tax payers more and many people cannot utilize it. It also creates housing distortions just like all subsidies distort resource allocations and costs.

95-5 LTV loans are common in Canada, and yes, the mtge rates reset after 5ish years. Which means that you may look good now on paper, but in 5 years, with a higher interest rate, ruh-roh lookout!

Things are looking pretty bubblicious in the GTA (Greater Toronto Area). People have forgotten 1989 - the year housing prices dropped 20% in 12 months and stayed low for 7 years.

No, we should not.

I do about 10% of business in Canada, which is on par with them being about 1/10th the size of the U.S. by population. Just about every client discusses at some point, at their own initiation, how they do x,y,z because of the oppressive tax regime.

As far as deductibility of interest, changing that wouldn't make any sense for the consumer. You put money in the bank and you pay income taxes on that interest, why shouldn't you have a deduction? The bank that collects the interest on your mortgage pays taxes on that interest income. The government should not have it one way.

5thGenNYer: "This is complete BS. I am very familiar with the Canadian market- every single loan there would be subprime by US standards- the rates for all mortgages reset every 5 years..."

ME: Uhhh, no YOU are full of BS. A variable rate loan is NOT the same as sub-prime!!!! What Riversider says is true - the US is almost unique in having fixed rate mortgages. MOST other countries have variable rate ones. And the Canadian mortgages require MUCH more documentation and money down than not only sub-prime or alt-a loans, but than FHA loans! Ergo, Canada had NO housing bubble and NO credit crises.

"And while U.S. housing has remained sluggish, the Canadian market is showing so much life..."

See, Socialism works. So much for the free market!

I beg to differ that the Canadian housing market is not bubblicious. Houses are up easily 300% in Toronto over the last 15 years, without a corresponding increase in income (and I'm not cherry picking examples).

Having lived in equal parts on both sides of the border, a comparison to Canada's typical loan regime to the sub-prime mess in the United States is laughable. There is no comparison. Yes, Canadians pay a lot of taxes, but so do Americans. The primary difference being (without pejorative judgment one way or the other) that in Canada, taxes are spent primarily on social programs, healthcare and education, while in the U.S., taxes are spent primarily for defense and military purposes. It is also true that the rich in Canada shoulder a much higher proportion of the tax burden, leading many wealthier Americans to call it "oppressive." Canadian banks are also much more highly regulated and risk adverse, which is why there was no comparable credit crisis amongst Canadian banks.

I agree with the author's tenant in the article that consumer behavior (whether it is chicken or the egg first), is a significant part of these differences in the equations. Look at the news headlines in America today....thousands of people lining up at Apple stores nationwide literally for days to purchase a $200 new iphone (when their current, older generation iphone probably still works fine). Now, I have to assume that at least some if not many of those folks are unemployed to have such time to burn, which begs the question - what are they doing purchasing a $200 phone they probably don't even need? Such scenes do not occur with such regularity and cultural prominence in Canada.

Is Canada perfect? No. But there are lessons the U.S., both the government and the consumer, could benefit by learning.

> how they do x,y,z because of the oppressive tax regime.

uf, here in NYC the thing i do is to consume as much of my very heavily subsidize leisure as possible. working for a wage just doens't make sense financially for the 2nd earner if you have kids. as politicians opt for higher FICA taxes instead of cuts to SS and Medicare the 15% tax will be raised for the 21st time to who knows what. ...

hence, here in USA i'm beginning to see a trend on the young towards single income households and a lot of elderly complaining that the young don't work hard enough and want vacations (uf, i have to hear a lot of this during my recent vacations)... anybody is seeing the same trend out there?

Jason- you have to be kidding me that there's no housing bubble in Canada. I've lived on both sides of the border and have family who live there and grew up there and the prices there are hugely inflated-as nyc10023 noted prices are up 300% in Toronto. Its similar in other major cities like Montreal and Vancouver. And it doesnt matter if 30 yr fixed is only unique to the US- its still not very "prime"- when youre rate resets to double or triple or more every five years- 30 year fixed is much safer.

"single income households and a lot of elderly complaining that the young don't work hard enough and want vacations (uf, i have to hear a lot of this during my recent vacations)... anybody is seeing the same trend out there?"

YES, and (outside of NY, mostly) buying a house 3 doors down from grandma's free on-demand babysitting service.

From what I've read the subprime market is Canada is a fraction of that in the U.S. Also the u.s. subprime adjustable rate loan is designed to be refinanced or self destruct. The margins are roughly 600 basis points and kick in in year two or three for much of the product...

> YES, and (outside of NY, mostly) buying a house 3 doors down from grandma's free on-demand babysitting service.

interesting! i'm more and more convinced that many of those of us not participating in the labor force in our 20s-30s with little kids and the other parent working at a nice stable job with good benefits will just never participate.

but today i saw the other side of the coin. my doctor told me she was having her 5th, and that grandma's took care of her first 2 only, so from the 3er on she has tons of paid help at home. was wondering whether she gets any net wage at all (with high taxes, childcare, maid ...) but maybe she wouldn't care if she has family money and works doing what she loves. if that's the case, it would make working not a chore but a luxury and leisure almost a non-brainer for the commoners. wasn't this work/leisure choice exactly the opposite less than 100 years ago?

And them Canadians, they can't even keep their earthquakes to themselves like normal red-blooded people:

http://www.nypost.com/p/news/national/quake_rocks_eastern_wXxT0c9Elt5oLpvtVPR86I

"The primary difference being (without pejorative judgment one way or the other) that in Canada, taxes are spent primarily on social programs, healthcare and education, while in the U.S., taxes are spent primarily for defense and military purposes."

And as a result, the U.S. has pretty much stabilized the entire Western World since World War II. Canada doesn't spend money on military and defense because, like the "friends" of the big bully on the playground, it doesn't HAVE to.

You're welcome, Canada!

Notadmin: that may seem so from the insular confines of the SAHM-world, esp. in NYC metro areas. But many couples are very short-sighted as to the actual monetary benefits of having both parents work. It is difficult to get back into the work force having spent X years at home. So it's not just a question of whether the 2nd wage is sufficient for babysitting + work expenses. And most people simply don't know what the law is with respect to alimony, asset division, child support.

Alimony: very few people get this
Asset division: if you're lucky, 50-50 of what's acquired post-marriage, minus inherited.
Child support: max to the sole physical custody parent & ZERO to 50-50 joint physical custody parents & most of the time, the richer spouse (unless we're talking Mr. Revlon) will fight for 50-50 physical custody to avoid paying CS.

One thing I've noticed about Canada, and in particular, college-educated working women - most of them go back to work because of the 1-year parental leave policy. Yes, it can be oppressive on businesses, but in the long run, 2 or 3 years out of the workforce for a parent (usually a woman) means that re-entry isn't a problem and society doesn't lose out on half of its workforce.

concur on all points 5th gen. prices wildly up on RE in GTA - redick bidding wars on grossly overpriced properties that haven't been touched in 30+ yrs and are in average neighborhoods. and the 1 yr parental leave? - try multi year - one friend leaves Gov job working in Veterans Administration - and yes we have to give them their props for participation in Afghan war - she's out of work 8 count'em years and goes back to her job with the same non existent skills she had when she left. can't even manage email. everyone goes to their local bank branch at the strip mall and get's a mortgage like it's 19xx with a 5 yr term then goes thru the reset dance. Some very marginal low earned income folks with alot of spending getting these mortgages. The bubble will happen sit tight

Lived in Canada for 20+ years - women generally go back to work as you really do need two incomes to live in places like Toronto and Vancouver. Taxes are high and mortgages are not tax deductible, but I pay as much tax living in NYC when you include FICA and other goodies as I did in Canada. The benefit here is really that incomes are higher, but housing prices are considerably higher here along with Coop/Condo fees compared to Toronto or Vancouver. What counts is that the end of it all in NY you are at the center of the world, and in Toronto you are just a wannabe...

The good thing about canada is that the taxes are way less- even in Quebec- the most taxed province

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2010-Personal-Tax

and their ranked much higher than we are and their education- university is very inexpensive as are private schools-i know people in quebec who pay about $6k/kid for private school. its higher in other provinces that are not taxed as much as quebec but still much cheaper than than 25-30k in the US.

http://teachersunionexposed.com/international.cfm

http://resource.educationcanada.com/salaries.html/

But in terms of the real estate there its definitely a huge bubble- many loans are 5% down and 2% interest rates.i think if you could get a mortgage like that in the US the RE market would be doing well here too.

The elite private schools in Toronto cost just as much as NYC privates. Quebec is a diff. story.