Who needs to save when your house is your retirement plan? Sound familiar? It should. That is what nearly everyone in the US thought five short years ago.

Amazingly, in spite of a mammoth collapse in US home prices, our lovely neighbors to the North seem to think “It’s different in Canada”.

With that attitude comes the revelation Canadians’ household debt reaches record levels.

Canadians’ debt-to-income ratio now ranks first among 20-advanced countries in the OECD and a new study suggests the recession did little to dampen the country’s enthusiasm for taking on household debt.

The level of household income soared to an average of more than $40,000, according to a report from the Certified General Accountants Association of Canada.

“We were a little bit surprised that throughout the recession we continued to take on debt,” Rock Lefebvre, a vice president for CGA Canada, told CTV News Channel.

Household debt reached an all-time high of $1.41 trillion, according to the report. If spread out evenly among Canadians, every man, woman and child would owe $41,740 — more than two-and-a-half times greater than 20 years ago.

Lefebvre said Canadians used to save up to 20 per cent of their disposable income as recently as the 1980s but that number is now less than one per cent. “Consumerism has taken hold (in Canada) and people who have access to credit, are taking advantage of it,” he said.

Article Comments

A quick perusal of the comments shows the same nonsensical arguments we heard here in the states, plus one rather unusual comment as well.

JMB says: I don’t think this report tells the whole story. First-time mortgage buyers are taking on the most debt. Also, household net worth has been increasing significantly (it rose 1.6% (to $5.9 trillion) back in Feb alone). We definitely need to control our individual credit, but I don’t feel the picture is nearly as bleak as some would like to paint it.

Mish replies: Oh really? And what happens when the home price collapses along with the stock market? The answer as so many in the US found out: The debt remains and household net worth collapses.

Dalevan says: Debt can be a positive depending on timing and use of the funds. Economics 101 supports borrowing to buy hard assets such as real estate as a hedge in times of inflation. The property appreciates with inflation while the bank eats the loss in purchasing power of the dollars.

Mish replies: Just outside Canada (please consult a map for directions) there is a place called the United States of America where the realities of paying too much for real estate has firmly sunk in. Cash-strapped homeowners underwater in their mortgages and out of a job, are walking away from mortgages en masse. Canadians do not have that option and those buying property in Canada at bubble prices will become debt slaves for life.

RuralGirl says: I understand that we as a nation carry a lot of debt. But, what kind of debt is it? Mortgages? Student loans? That isn’t the same as running out and racking up thousands of dollars on a credit card. For people who are 35 and above, it is a lot easier to be debt free than those of us who are younger. We don’t have the cheap education and cheap housing. It’s pretty easy to be debt free when university cost $20,000 and a house a little more than that. So yes, we will have debt. But it doesn’t mean we are irresponsible, greedy, or materialistic. We’re just trying to make it in today’s society. You’ll be thankful for us when we’re paying your old age security :).

Mish replies: No, our generation will not be thankful for anything, even handouts. And RuralGirl, you better learn that home prices do not always go up and student loans are no guarantee of a job. Yes, price does matter.

Island Girl says: Actually, we would have been foolish to save 20% of our income. We have no debt, but have used our money to do major renovations and upgrades to our home before the HST comes in for BC. We’ve saved thousands and increased our home value by tens of thousands. If we left it in the bank we’d get about 1% interest and then pay taxes on the interest.. Just don’t spend money you don’t have.

Mish replies: Good grief.

I Like Taxes says: I like taxes. I like paved roads. I like plowed, paved roads with street and traffic lights. I like bridges, they help me get over things. I like parks. I like that the country doesn’t run for profit, but if there is extra money, it is put directly back into the paved roads, street and traffic lights, parks…etc. Not into the pockets of a few executives.

Mish replies: Well there is someone who will always be happy, and at an increasingly happy rate.

The $100K Agent Question For Vancouver Condos

Poster “Botox4U2” is talking about condo prices at The Brook in Vancouver.

Botox says ….

This is a new building with an open house every Saturday and Sunday. You can call them to book a viewing appoint at other times OR you could pay a 3rd party salesman $50 – $100k to show you the unit. Perhaps they’ll even drive you there in the new Porsche.

The developers of The Brook, like other owners, do not need to hire RE agents to sell their units. They can sell directly to the public if they want to.

So the $100K question is why do they think engaging an agent – who is paid by them, not the buyer – is going to put more money in their pockets than simply dropping the prices and undercutting the competition? Hint: buyers are stupid.

Beijing Property Prices Collapse

Across the Pacific Beijing Home Prices Plunge 31.4%

The average transaction price of commercial residential properties in Beijing for the week ended May 9 fell 1,790 yuan per square meter or 9.6 percent week-on-week to 16,898 yuan per square meter, reports The Beijing News, citing statistics released by Beijing Real Estate Information Network.

Compared with the week ended April 11, the average transaction price of commercial residential properties in Beijing plunged 31.43 percent to 7,744 yuan per square meter.

In the last weeks of April, the transaction volume of commercial residential properties in Beijing decreased by 10.34 percent, 11.39 percent and 30.82 percent respectively. Average transaction price was flat at between 22,000 yuan to 23,000 yuan per square meter.

Vancouver Condo Housing Inventory Doubles Since Beginning of 2010

Inquiring minds are reading Inventory: Double Double on the Vancouver Condo Blog.

While you’ve been watching the big milestones on the growing number of houses, condos and townhouses for sale in Vancouver (15,000! 16,000! 17,000!) there’s a little milestone you may have missed: The doubling of number of units for sale since the beginning of the year. We started off 2010 with 8724 units for sale, which means 17,448 is the magic number.

Could we triple inventory this year? To do that we’d need to hit an inventory of 26,172 places for sale, which would be far higher than any year in recent memory. Have we ever had that many units for sale in Greater Vancouver? The West Side has the biggest head start – they’re already close to 150% of the number of listings from January 1st.

Fast and Furious Decline Coming To Canada

Canadians will not know what hit them when the plunge in real estate prices starts. It will be fast and furious just as is happening in China and just as happened with condo prices in the US.

Sentiment on condos changed in the US very quickly, in some places overnight. The same is happening in Canada. At first inventory rises, then a “head for the hills” mentality sets in. By then it’s too late as the pool of greater fools has already run out.

Next time, home prices won’t come back.


Housing inventory doubled, not just condos as my headline for this story suggested.

Mike “Mish” Shedlock
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