The Canadian Real Estate Association (CREA) released a new report last week indicating that home prices will stabilize, and remain stable for some time. This means that Canadian homeowners are unlikely to experience a US-style decline in the value of their homes.

While the relationship between average price and income has recently been cited as signifying a US-style correction in Canadian home prices, these warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics, CREA says.

Home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. By contrast, income generally follows an orderly upward trend over time. For home prices to keep pace with incomes, they must rise faster during housing booms to make up for periods of little or no price growth.

Canadian home prices were stagnant throughout most of the 1990s, while incomes continued rising, making housing more affordable. Over the past decade, home prices have climbed sharply as mortgage interest rates declined.

The Canadian housing market is now widely thought to be at, or very near, the top of a cycle, and the ratio of home prices to incomes is

currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle. History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again.

The correction in US home prices has sparked fears that Canadian home prices may share a similar fate but, according to CREA, warnings to this effect ignore solid Canadian mortgage market trends.

Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle. Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. These trends are expected to help Canada avoid a US-style housing crisis.

The correction in US home prices is set against a massive oversupply of homes due to distress sales, combined with a drop in housing demand spurred by unemployment. The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices.

Click here to view the full CREA report.

In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.

But as a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.

Mortgage Fraud
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Following are some red flags for mortgage fraud:

• Someone offers you money to use your name and credit information to obtain a mortgage
• You are encouraged to include false information on a mortgage application
• You are asked to leave signature lines or other important areas of your mortgage application blank
• The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
• The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution

“Straw Buyer” Scheme
Because of the recent recession, more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to avoid foreclosure in the US.
Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.

Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

The Fallout for Lenders
Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.

Canadian precedents have been set in which banks are held responsible for mortgage fraud. The BC Court of Appeals recently ruled that “the lender – not the rightful property owner – is the

one out of luck in a fraudulent mortgage scheme” and that lenders “must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.

Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently sued a former bank employee over an alleged mortgage fraud scheme. And the most recent mortgage fraud story currently in the news involves Bank of Montreal and likely the largest mortgage fraud case Canada has ever seen.

Title Fraud
Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is the case with mortgage fraud.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

Here’s what happens with title fraud: A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

Following are ways you can protect yourself from title fraud:

• Always view the property you are purchasing in person
• Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable
• Make sure your representative is a licensed real estate agent
• Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
• Ask for a copy of the land title or go to a registry office and request a historical title search
• In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
• Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
• Ask to see receipts for recent renovations
• When you make a deposit, ensure your money is protected by being held “in trust”
• Consider the purchase of title insurance