The great Canadian housing bust is here

Good article in MacLeans this week offers some useful perspective on the downturn now begun in the Canadian realty market and how this is likely to reverberate through the highly-levered domestic economy. Real estate cycles typically last 10-12 years, and Canada has been in an extended uptrend since 2001. Over this period debt-binging Canadians have bid up home prices so high that even at the lowest mortgage rates in 100 years, families are still having to spend 40 to 80% of their monthly income just to keep the roof over their head. This leaves very little margin for things like peace of mind, economic downturns, under-employment, illness or other cost of living increases.  And then there is the more than half a trillion dollars in low equity, CMHC-backed loans now also hanging over Canadian taxpayers.

“When the financial crisis hit, Ottawa responded by buying up $69-billion worth of bank-owned mortgages, encouraging financial institutions to keep lending. After a brief dip, the housing sector bounced back and carried the economy on its shoulders. But today consumers are tapped out just as a new round of macro-threats has emerged. It’s widely believed that the U.S.—and, hence, Canada—could face another recession unless Republicans and Democrats in Washington are able to agree on a comprehensive deficit-fighting plan. Even if the so-called fiscal cliff (a combination of tax increases and planned spending cuts) is avoided, the U.S. government’s longer-term debt troubles could stalk the economy for years to come. At the same time, the European debt crisis and China’s faltering growth have created a gloomy global outlook, threatening Canada’s large, export-oriented resource sector. With demand for oil falling and increased output from the Bakken shale formation in North Dakota depressing prices, some Canadian energy companies have already cut back on spending, threatening another key economic driver. Suncor, for one, recently said it would review expansion of three major oil sands projects. Talisman Energy is also forecasting spending cuts of as much as 25 per cent next year. The drag is being reflected in GDP. Reduced global demand for oil and gas and manufacturing dragged down the third quarter’s anemic 0.6 per cent growth, as did reduced business investment and a drop in exports, according to Statistics Canada.

Bay Street is getting nervous…”

Read the whole article for some important perspective on how the great Canadian debt bubble is now a headwind for the great white north.  See: Great Canadian real estate crash

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9 Responses to The great Canadian housing bust is here

  1. dan smith says:

    Interesting article However it Is Macleans Magazine Which is to say shallow and at best semi accurate. Born in Vancouver I watched several ‘Bubbles’ since ’73 When average house prices went from ~$50K to 80K 🙂
    Then in early 90’s when the prices doubled again, then collapsed.
    Late 80’s saw massive price increases due to Refugees from Hong Kong, either moving here or hedging their bets.
    That firmly implanted the notion of ‘House as Commodity’ firmly in the minds of most.
    Since 03(?) Vancouver has been a place to park your $$.. ‘safely’ as Asian buyers increasingly joined in. Typically these investments remained unoccupied. Curiously in 0’7(?) the (successful) Mayoralty candidate publicaly stated that the official Unopupied sales comprised 47% of accross the board sales since 04. And he publically doubetd that number suggesting that in his iopinion it was in axcess of 60%.
    Upon Election though.. Not a Single word has been said since.. ever.. Gotta Love Ploliticos.No news there though.
    Investors come here for 2 reasons:
    a) Canada is a safe place to store their $$, typically offering serious untaxed windfall profits as long as the offshore demand and Local Greed maintains.
    b) Access to good quality education for the offspring.. for free., at High school levels and Local fee rates for University.
    Gee Serious profits on the investments and Lo Cost education. Sounds like an attractive opportunity to me.. far better than the Stock market.. where everyone is basically picking each other’s pockets.
    But the Selling off of our cities piece by piece Does keep the locals busy.
    Not surprisingly, any thing which threatens opportunity to tag along for the ride is either squashed or simply not spoken of in public company.
    Another day in Lotusland ..

  2. dave says:

    China’s faltering growth? I guess you missed last weeks blowout export numbers by China

  3. John C says:

    I fear for the Canadian economy. Housing is but one (though very important) component.

    Most Canadians who worry about job security fear places like China or Mexico. But you don’t have to look that far for threats to Canadian labour. How about just south of the border?

    The US currently has cheaper real estate, cheaper labor, and cheaper energy. These are three key business expenses . Do you think that such a disparity in values between our two nations is sustainable? Ask the workers at London’s Caterpillar plant. Or those who toil at GM’s plant in Oshawa.

    The rich, Western nations are currently adjusting to the new global economic reality in which relatively fewer resources are being distributed amongst a much larger population of consumers. The US is usually ahead of Canada when it comes to new trends. Adjusting to the new global reality seems to be no exception.

  4. Sean Bond says:

    As for smaller houses, Andrew says there remains a shortage of single-family homes in cities like Toronto and Vancouver, which should keep demand relatively high. “If you are buying a three- or four-bedroom house right now, then I think you’re going to be okay,” he says.

  5. John C says:

    Never underestimate the deviousness of the Anglo-American money masters. They purposely threw Europe into turmoil to take out the euro as competition for the US dollar. China is extremely vulnerable to destabilization. You can bet the agents of the money masters have a plan to foment chaos in China when/if necessary.

  6. mommybomm says:

    Clucks and Canucks, never learn. So go look at a map….Canada is all tundra anyway.

  7. peter mare says:

    Of course, within Vancouver (and Toronto) there are areas where there were bubbles and not in the place where the “investors” inflated the bubble. In the suburbs, in places where the vrey wealthy are not likely to look, there was no bubble. My condo’s mortgage payments when I bought it 230 years ago are the same! Salaries have increased in 20 years! Probably not as much as they should have, but they have! Of course, the similarities in mortgage payments is related to low interest rates too! Still, salaries –I repeat– have not decreased in 20 years! No way! So, it all depends where you are wanting to buy! You want the million dollar view, then there was a bubble and you might have paid too much for the condo or the house you bought! As for the condo or the house in the suburbs,… not likely or not at all!

  8. michael says:

    mommybomm……product of the American education system? I guess you vote as well?

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