This unprecedented exposure exists in the context of a Canadian mortgage market that is subject to more stringent checks and balances than in the United States. For instance, almost all Canadian mortgages are full recourse, mortgage interest is not tax-deductible, and high-ratio lending standards are generally prudent. These factors help instil responsibility and discipline on both homeowners and lenders.
Nonetheless, the central position of housing assets and liabilities on the balance sheets of both households and financial institutions means that any housing excesses could generate important vulnerabilities in the financial system. Housing market developments in Canada and abroad A review of the recent history is instructive.