A cautionary tale on mortgages from Canada
In the years ahead, Greece should take great care regarding its enthusiasm for North American-style mortgages as a vehicle for encouraging homeownership.
It should look no further than Canada, where a recent report says Canadians are carrying the highest personal debt levels of all G7 countries – much attributed to homeownership.
The report, by the Canada Mortgage and Housing Corporation (CMHC), the federal housing agency, says that around three quarters of household debt in Canada stems from mortgages. More specifically, it says: “Household debt in Canada has been rising inexorably. At the time of the recession in 2008, it stood at about 80% of the size of the economy, in 2010 it rose to 95%, and by 2021 debt exceeded its size. By contrast, household debt in the US fell from 100% of GDP in 2008 to about 75% in 2021.”
Considering the roots of the 2008 US housing crisis, characterized by high levels of personal debt and heavy mortgage foreclosures, the Canada-US comparison cannot be ignored.
Great care must be exercised to ensure local Greek citizens do not overextend themselves in a Greek real estate market that is becoming increasingly globalized
What’s extremely concerning is the amount of debt Canadians owe – now more than the value of Canada’s entire economy. Further, around the same time as the Canadian report, the International Monetary Fund declared that Canadian mortgages have the highest risk of default in the world of 38 “mostly advanced economies.” On this list, Greece ranks at the low end of the risk spectrum (fifth from the bottom).
Today, here in Greece, the major banks are proselytizing the value of mortgages with special programs, fast-track applications and incentives. Yet, it is imperative to remember that banks have a vested interest in “selling” their customers on products such as mortgages – products their clients may not necessarily need or be able to afford.
On the heels of the decade-long economic crisis, and with the subsequent financial impacts of the Covid crisis, the war in Ukraine and related uncertainty, great care must be exercised to ensure local Greek citizens do not overextend themselves in a Greek real estate market that is becoming increasingly globalized – with rising housing prices across the Attica region and the country.
In Canada, with the average in two Canadian cities, Toronto and Vancouver, being almost 1.2 million Canadian dollars (830,000 euros), questions now abound as to whether homeownership in Canada remains a dream worth pursuing.
Unlike Greece, Canada does not have a model where families typically hand down properties from one generation to the next. This begs the question: Is Greece chasing a system of homeownership that may be the source of future economic uncertainty or, even, a whole new crisis?
If the Greek housing market requires any change, perhaps the focus should be on making additional modifications to improve and streamline some of the complex laws and bureaucracy around property legalization and ownership to facilitate property sales and expedited intergenerational transfer. This could, appropriately, tie in with the recently re-elected government’s priority to make government even more efficient.
With the forthcoming return to investment-grade status, Greece and its economy are tacking in a good direction. However, following too closely in North America’s footsteps on housing may not ultimately bode well for Greece in the future.
Andrew Tzembelicos is a Greek-Canadian writer, editor and communications consultant currently based in Athens.
