Canada's Housing Bubble

Dec 6th, 2009 Garth Turner greaterfool.ca

Is this a middle class blog? After all, we yak about housing markets, tax strategies, commodity prices and macroeconomics every day. We carve up people who have too much money and dis those with too little. We pontificate like CEOs and gossip-monger like hairdressers. We practice one-upmanship, have no pity and clobber each other with links. We aspire. What else could it be but middle class?

But, I wonder, do we still have a middle? Or is it endangered? And what is the middle class now, anyway?

The middle federal income tax bracket is from $75,769 to $123,184. The average family income is $61,800 (two kids), according to 2007 StatsCan numbers ($75,000 in Alberta). The percentage of us who own homes is 68.4.

But while we’re in the top segment of the planet’s population for income, we’re also at the top of the heap for debt.

British, American and Canadian households are the most indebted in the world, in that order. Our household debt now exceeds 140% of disposable income. Even outstanding student debt is out of control, at more than $13 billion. Mortgage debt has exploded along with house prices, rising by more than $100 billion last year and likely adding far more this year.

Speaking of real estate, what’s the deal when the middle class family struggles to afford the average home? Toronto houses averaged out at $450,000 last month, or almost six times the median income. In Vancouver the average detached home costs more than 10 times income. (When my father was a high school principal in the 1960s his salary was $10,000 and the big two-storey house he bought in the Toronto area cost $18,000 – 1.8 times his income.)

Today personal bankruptcy levels are shooting higher, up 47% in September. We have 74 million credit cards in a country of 32 million people, and have amassed $50 billion in charges.

There are 18 million workers, and only 25% of them have a corporate pension plan. Just 31% contributed to an RRSP last year and 45% have no retirement savings. Eight million people have no pension and no savings of any kind. But of those people, representing 45% of the workforce, we know between a third and 40% are homeowners. So, does that make them middle class?

Canada itself has never had a year this bad for finances. The feds are spending $56 billion more than they take in, Ontario’s spending $24 billion more than it makes and even little Alberta is $7 billion in the red. Our national debt just passed a half trillion dollars again last week, after years of improvement, and will be $620 billion soon. Does this makes us a middle class country, or have we lost it?

After all, only 17% of our economy now originates from actually manufacturing things. More than 60% comes from people borrowing money and buying things from each other. Maybe that’s why the prime minister has been spending weeks in India, China and Korea – visiting our jobs.

In any case, I’m wondering if this middle class thing is not a myth. We may have a lot of stuff, but we have no money. We possess more assets, but have far more debt. We get by today, but blank out tomorrow. We face higher taxes and interest rates, yet save nothing now.

So, where’s the prize?

Oh yeah. Forgot. We have each other.