Canada's Housing Bubble

Jonathan Tonge July 6, 2009  www.americacanada.blogspot.com

DOUBLING OF CANADIAN MORTGAGE DEBT AND HOME PRICES NOT SUPPORTED BY INCOMES, GDP OR INFLATION.
Bad credit got us in this mess. We are now told that bad credit will get us out of it. It's a lie. We are worse off in 2009 then we were in 2008.

HOME PRICES DOUBLED SINCE 2001:

That volatile spike seen at the end of the price graph has alot to do with buyer emotions. Buyers have been fed by the media, realtors, government and friends that now is the time to buy. It also has to do with the excess liquidity the fed has pumped into the Canadian banking system. This is what caused the US housing bubble in 2001-6. Unfortunately for Canadians, our home prices are already 50K US higher then when the US bubble peaked and about double the current prices. Our average incomes are over 5K US less per year than Americans.

The big Canadian banks are currently approving loans for 600-800K for gross family incomes in the neighbourhood of 120-175K per year. These individuals are lucky to clear 90-115K of income a year. The banks would never loan this money out if these loans were not being insured by taxpayers via CHMC.

MORTGAGE DEBT HAS DOUBLED SINCE 2002:

Nominally mortgage debt has doubled. Less inflation, mortgage debt has grown by 75%.



NORTH AMERICA'S GDP GROWTH RATE CONTINUES TO SHRINK

Despite the doubling of mortgage debt, Canada's economic growth rate has been shrinking (it was -5.4% in Q1 2009). One has to question how much it would have actually grown if debt hadn't exploded.

Note that Canada's GDP growth has been almost identical to that of the US.

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