Canada's Housing Bubble

Dec 18, 2010 dailygleaner.canadaeast.com

Before you sign another loan

To free yourself from debt

Take a careful look around

To see who holds the bets

There will be no winners

May not even be a race

Just a lot of starving runners

Staring hunger in the face.

Golden Stairs, by Robert Hunter and Vince Welnick

On the one hand, the timing could not be worse.

On the other hand, it serves as a cautionary tale, and the timing could be ideal.

In a speech delivered Monday to the Economic Club of Canada and later in a media scrum reported on by The Globe And Mail, Bank of Canada Governor Mark Carney said the debt of Canadians is rising, while our average disposable income is shrinking.

In Carney's words, "We've seen a bit of deceleration in the rate of growth of consumer debt, but it's still growing faster than income."

The timing dilemma, of course, is that we are in the last stages of the biggest shopping time of the year. Many businesses rely on Christmas shoppers to make their year's bottom line a success.

That said, it is obvious people often put themselves further in debt to obtain the immediately-desired item.

The same spirit and mentality pervades the minds of many with respect to government funding.

The fact that debts are rising at every level of government does not curb the desire of many people to want what are seen as necessary services to be provided by a central body - the government to the entire populace.

Having individuals pay for these services based on their income earned is an anathema to many.

Wait to buy something until you have the money? No! We'll purchase it on credit, and pay it back slowly.

Cut back on a government service as a way of paring down the debt? No! We don't want to lose any services - but we don't want taxes to rise either.

In theory, the short-term benefit without long term pain would be lovely. However, there needs to be a reckoning - an awareness of the balance sheet.

When the cover of what is billed as Canada's national newspaper indicates that our household debt has risen 6.7 per cent from its already lofty numbers of a year ago, while our average disposable income during the third quarter of 2010 dropped 1.5 per cent, the math is obvious.

Carney's page one graphic quote in Tuesday's edition of The Globe And Mail is the ultimate cautionary tale in a landscape where the low interest rates of recent years are seen as the norm, and the more than 20 per cent interest rates of the early 1980s are but a dim memory.

"Low rates today do not necessarily mean low rates tomorrow," he said.

Or, to put it another way, the chickens will come home to roost. Will the nest they find be made of solid bricks and mortar, or will it be a house of cards?

Long-time Daily Gleaner columnist Wilfred Langmaid is employed by the University of New Brunswick. He resides in Fredericton. His column appears Fridays.