The Canadian housing market is deep into bubble territory. We all know that bubbles can go on for longer than most people think but with the crash in oil prices and people fully believing their own hype, the market is set up for a big fall from grace. Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.
By mybudget360.com. [The article* was originally posted under the title The Canadian housing market will implode in dramatic fashion: 5 charts highlighting the inevitable pop to Canada’s real estate boom. An almost identical article** by $hane Obata was posted on SoberLook.com under the title The Canadian housing market – in charts. Who plagiarized from whom is unknown as no attributions were provided in either of the aforementioned articles.]
It is interesting how most from the outside can see what is coming but those within the system just can’t accept the fact that prices are massively overvalued…Virtually all analysts did not see the massive correction in oil hitting late in 2014 – but it did.
Many within Canada especially those tied to the real estate industry are deep into a trance believing they are immune to the economic rules that apply to all economies. The economy is dependent on oil and construction and both of those industries are taking hits yet, somehow, home prices will continue to move up – just because.
Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.
#1 – Canadian Housing Market Didn’t Correct During Global Recession
Unlike the U.S. housing market that did suffer a dramatic correction, Canada’s housing market continued going up right through the global recession. Households in the U.S. did deleverage, mostly by force of foreclosures and bankruptcies, while in Canada many households simply double-downed right through the Great Recession.
#2 – Canadian Consumer Debt Is Now Massive
Canadian households are deeper in debt relative to income compared to what the Americans were at the apex of the credit-induced bubble. Take a look at this chart:
Credit card debt and personal lines of credit are expanding much faster than mortgage debt which is already going off the charts. Look at the light blue line of income growth. This is a debt induced boom and all the data points to this. [A look at the chart below shows that]…Canadians are not using their debt any more wisely than the Americans did.
Now you have the circular business environment where you need real estate to stay inflated to keep things going…
#3 – Canadian Economy Is Heavily Dependent On Construction
As the chart below shows a big part of the economy in Canada depends on construction at nearly twice the percentage of the U.S. economy…so building must go on to sustain the current structure – but the structure is built on massively inflated prices. What happens when the rate of growth slows down?
#4 – Home Prices In Vancouver/Victoria and Toronto Overvalued
Take a look at some of the most inflated cities in the world. Vancouver and Toronto take the cake here:
Vancouver is enjoying the flood of hot money from foreign money especially from China…and is also fully dependent on that hot money continually flowing in.
#5 – Canada Has One Of the Most Inflated Housing Markets In the World
Canada’s housing market is one of the most inflated in the world with…prices overvalued by 35% relative to historical income levels.
Of course people will say this does not matter thanks to low interest rates on mortgages but debt is debt. Let us see how someone feels when they buy a condo and see the price plummet by 20 percent how easy it is to swallow that big monthly payment especially with stagnant income growth.
Canada’s housing market is going to have a meeting with reality soon. As we all know [from our experience] in the U.S., bubbles can go on for much longer than we think but, inevitably, bubbles pop, [and when they do,] they make a loud sound.
[The above article is presented by Lorimer Wilson, editor of www.munKNEE.com and www.FinancialArticleSummariesToday.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Original sources: *http://www.mybudget360.com/canada-housing-bubble-canadian-real-estate-bubble-set-for-bust/ (If you enjoyed this post click here to subscribe to a complete feed and stay up to date with today’s challenging market!); **http://soberlook.com/2015/02/the-canadian-housing-market-in-charts.html (Content copyright 2009-2015. SoberLook.com. All rights reserved; Subscribe here to the Daily Shot newsletter)
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