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In Canada, We’re in Okay Shape

In Canada, We’re in Okay Shape

In the entire industrialized world, can you guess which country has not had a single bank fail, and has not called for bailouts or government intervention?

This is a question writer Fareed Zakaria asks in a February 16, 2009 Newsweek article.

You may have guessed the answer. It's Canada.

In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world, says Zakaria. The US ranked 40th and Britain's ranked 44th.

Overall up here in Canada, we’re proving that smaller can indeed be better, and in many ways this is good news for real estate.

Despite a global economic crisis, Canadian banks have plenty of capital in reserve (think of it as equity) to protect against calamity. Canada's regulator requires banks to hold 7% of their capital in reserve, which acts as an insurance policy against potential losses.

In 2008, the TD Bank ranked 15th-largest in North America. Today it’s the fifth-largest – and that’s not because it has grown, says Zakaria. It’s because the others have shrunk.

“What accounts for the genius of the Canadians?” asks Zakaria.

“Common sense,” is his answer.
Since 1993, deregulation of the financial industries has occurred in the US and Europe.

In Canada this has not happened. As a result, Canadian banks are leveraged at 18 to 1, US banks, 26 to 1, and European banks, 61 to 1, according to Zakaria.

I think our well-run banks and our strong monetary policy have been prudent investments for us.

In Canada, we have also not faced the same housing crisis as that of the US. One reason is that we don’t have a sub-prime mortgage market. The other, according to Zakaria, is our government’s aversion to allowing mortgage interest deductibility which costs the US government $100 billion a year, and acts as an incentive to home ownership.

Has this worked?

In the US, 68% of Americans own their own homes. In Canada where we have no similar incentives – our rate of home ownership is 68.4%.

The US is running trillion dollar deficits. In Canada federally, we’ve had 12 years of budget surpluses.

In comparing our countries, Zakaria notes that in the US health care costs 15.2% of the GDP. Here, our health-care system costs 9.7%.

In the US Americans can expect to live to 78 years of age. Here we live to 81.

We also have very different immigration policies, which benefit Canada, if we believe Zakaria.

According to him, it’s very difficult to immigrate to the US, which is hurting that country.

In contrast in Canada we have a Skilled Worker Visa Program which lets immigrants become permanent residents based on a point system that takes into account education, work experience, age and language abilities. If a prospective immigrant earns 67 out of 100 points (a Ph.D. is worth 25 points), s/he can become a full-time resident.

All of this works in Canada’s favour, says Zakaria, who points to Microsoft’s opening of a research center in Richmond, BC in 2007 because it needed to staff the center with "highly skilled people affected by immigration issues in the U.S."

How does all of this affect REALTORS®?

Overall, although our market is experiencing more than a cyclical dip –it’s down largely the result of complex economic factors worldwide - we do have good fiscal and banking policies. Our country is not spiraling into debt. We have a high rate of homeownership, we’re healthy and we welcome skilled immigrants.

When the market comes back, we’ll be in fine shape.

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