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Joined: 28 Dec 2005 Posts: 11965
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Posted: Thu Sep 18, 2014 10:40 pm Post subject: Labor Slack - Canadian Banking |
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Article:
http://econbrowser.com/archives/2014/09/pessimism-about-u-s-growth-rates
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PeakTrader:
The Employment-Population Ratio – 25-54 years shows this has been a very weak employment recovery, particularly from a severe recession.
The employment recovery was also weak after the 2001 recession. However, it recovered from a much higher level of employment.
Because of the steady rise of women in the workforce, until the mid-1990s, there’s still a lot of idle labor.
My only disagreement is the extent of potential employment.
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One reason Canada hasn’t suffered a banking crisis is Canadian houses are much smaller than American houses and Canadian home buyers are much older.
Canadian banks benefit much more at the expense of Canadian home buyers. So, of course, that strengthens the Canadian banking system.
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The bank’s gain is the home buyer’s loss, and vice versa.
“(Canadian) lenders typically have full recourse in cases of default, meaning they can attach all of a borrower’s assets, not only the house. In the U.S. that’s not permitted in 11 states, including California, and foreclosure proceedings are complicated even in the other states.
The standard mortgage in Canada isn’t the 30-year fixed, as it is in the U.S., but a five-year mortgage amortized over 25 years. That means the loan balance has to be refinanced at the end of five years, exposing the borrower to any increase in rates that has occurred in the interim. Prepayment penalties for borrowers hoping to exploit a decline in rates, on the other hand, are very steep.
But Canadian mortgages are also portable — if you move before the five-year term is up you can apply your old mortgage to your new home. (If it’s a more expensive home, you take out a new loan for the excess.).
…mortgage interest isn’t tax-deductible in Canada, so there’s no incentive to over-borrow.
…tighter regulation, little securitization, less borrowing, etc. — and you come close to an explanation for the different experience with delinquencies and defaults in the two countries.
In the U.S., defaults peaked at about 5% of all mortgages, and exceeded 20% for those deregulated subprime loans. In Canada, defaults soared in 2008 and after, just as they did in the U.S. But they topped out at about 0.45% of all mortgages.”
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