In Canadian debt we trustThere was an inflexion point for US markets when household debt surpassed household income. People kept saying it was a liquidity crisis initially but it was truly a solvency crisis. People took on too much debt and were walking on a financial tightrope. In the US, this peaked above 120 percent. Canada is well on its way above 160 percent:
Canada has enjoyed many years of the global commodities boom and now finds itself contending with a market full of debt and inflated housing values. Short of oil rising back up to $80 a barrel and higher Canada is likely going to face some short-term pain. The housing market is due for a correction. Those of us in California realize that booms and busts can occur all of a sudden but the events leading up to this are largely foreseeable.
I’m sure many in Canada assume that home values will simply continue to go up and just because banks check incomes doesn’t mean squat. As the above data shows, households are already deep in the quicksand of massive debt. It is all dandy when everything is going up including oil. When oil gets smashed as it did, it came on quickly. Canada has their versions of $700,000 crap shacks usually in the form of condos. Hey, at least with a crap shack you don’t have to share a common wall. When you look at the Canadian housing market it makes the US look like a frugal uncle.
Housing Market: Toronto Condo Analysis Uncovers Spectre Of Irresponsible Lending
A report from an equity research firm into the Toronto condo market raises serious questions about the possibility of irresponsible mortgage lending, and suggests that, with the market turning down, some investors could be risking their retirement nest-eggs by buying condos.
In an effort to determine what’s behind the big run-up in condo prices in Toronto in recent years, market analysis firm Veritas sent “mystery shoppers” to two unnamed Toronto condo projects still under construction.
To their surprise, the researchers found that “no mortgage pre-approval was needed to buy a unit. … Only a valid driver’s licence was required to purchase a unit, along with a down payment cheque.”
Analyst is predicting crash that could cut home prices in half
Canadian Prime Minister Stephen Harper
In an interview published in the Globe and Mail today, MacBeth predicts a serious crash in house prices as soon as this coming spring, and advises people with large mortgages to sell, and rent.. His book, When the Bubble Bursts, forecasts a drop of up to 50 per cent in housing prices.
But Harper told a New York business audience that he did not anticipate a housing crisis in Canada, and that that there was no comparison between the Canadian housing market now and the U.S. market before the crash of 2008.
He said only small percentage of Canadian households would be vulnerable to interest rate hikes or a downturn in prices.
MacBeth disagreed, saying real estate should not be regarded as a sure investment and a crash is necessary to bring debt levels into line.
He also advised people to sell their condos.
If energy prices remain near current levels, Canada's economy is in trouble
DYI Comments: Canada over the past 20 years or so has morphed into a commodity driven export country. Their primary commodity is OIL as many Canadian economist's have termed their country a PetroState. As commodity prices soared and sub atomic low interest rates those Canadian dollars went into real estate setting off a massive boom. Now the world wide economy is in the doldrums so have commodity prices especially oil. The bloom will soon be off the rose as average residential single family homes dropping by 50% and condos by 70%. For real estate investors keep your powder dry massive bargains will arrive soon north of the 49th parallel.
DYI
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NYSE Margin Debt Drifts Higher in November
December 22, 2014
by Doug Short
DYI Comment: Time will tell but it appears that margin debt is rolling over. If this is accurate the long awaited market drop will soon begin.
DYI
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