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Zero-Down Mortgages Stoke U.S. Subprime-Like Fears in Canada

  • Many can’t make down payments after 25 years of rising prices
  • This is fueling risky loan growth that worries policy makers
A housing development under construction in Whitby, Ontario, Canada.
Photographer: Mark Sommerfeld/Bloomberg

They’re the kind of exotic mortgages that one typically associates with the reckless, go-go housing market that gripped the U.S., circa 2005: Put down 5% cash and get 3% back; or, wilder yet, put down nothing at all. So when these products -- and others like them -- started popping up in the normally cautious Canadian financial industry, it raised alarm among policy makers in Ottawa.

This is year twenty-five of the great Canadian housing bull market, a nearly uninterrupted straight line up that has few parallels in the world. At a time of soaring real-estate prices all over the globe, only one major economy -- New Zealand -- has a frothier housing market than Canada, according to an analysis by Bloomberg Economics. And after all those years of price gains, including a 21% surge since the pandemic began, millions of middle-class Canadians have no chance of scrounging together the money needed to make a conventional down payment of 20%.