1. Canada’s Housing, Mortgage and Credit Markets Department of Finance October 2008 Department of Finance October 2008

2. 2 Strong housing price growth in Canada followed a prolonged period of weakness leading to much lower levels than in the U.S. by the mid 2000s. Source: Canadian Real Estate Association; S&P, Fiserv, and MacroMarkets LLC. Existing Home Prices Index = 100 in 1989Q1 U.S. S&P/Case-Shiller home price index Canada 80 100 120 140 160 180 200 220 240 260 280 89Q191Q193Q195Q197Q199Q101Q103Q105Q107Q1

3. 3 IMF: Divergence from price growth suggested by fundamentals (1997-2007) Source: IMF Fall 2008 World Economic Outlook. The IMF definition of fundamental factors includes: disposable income growth per capita, short- and long-term interest rates, credit growth, equity price growth and growth in the working population. Price growth that is not explained by these factors can be interpreted as a measure of over valuation and, therefore, the susceptibility of a correction in house prices. According to the IMF, house price growth in Canada has been fully explained by fundamental factors. Per cent -10 0 10 20 30 40 AustriaGermany Finland Korea Canada PortugalU.S. New ZealandItaly Greece Netherlands DenmarkJapan BelgiumSpain Sweden France NorwayAustralia U.K. Ireland

4. 4 Mortgage debt relative to the value of housing has declined in Canada since 2001 - unlike the U.S. Ratio of Mortgages to the Value of Housing Ratio Canada U.S. 2008Q2: 0.55 2008Q2: 0.31 Source: Statistics Canada; U.S. Federal Reserve 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 2001Q12003Q12005Q12007Q1

5. 5 The share of mortgages in arrears in Canada remains low, suggesting that Canadian households are better able to service their mortgages. Percent of Mortgages in 90-day Arrears Canada U.S. Per cent Source: Canadian Bankers’ Association; Bloomberg 08Q2: 4.5% 08Q2: 0.3% 0 1 2 3 4 5 2002Q12004Q12006Q12008Q1

6. Average Tier 1 Capital Ratios of Major Banks AVG CDN Banks AVG U.S. Banks AVG U.K. Banks AVG Euro Banks 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 Tier 1 Capital Ratio

7. 7 Canadian Interest Rate Spreads Source: Bloomberg Banks' Cost of Funds vs. Government of Canada 0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Oct-00May-01Dec-01Jul-02Mar-03Oct-03May-04Dec-04Aug-05Mar-06Oct-06May-07Dec-07Aug-08 basis points Short term (3-month Bankers' Acceptance vs. T-Bill) Medium term (Merrill Lynch Canadian Financial Index vs. GOC 5-year)