Inquiring mind may be interested in an email from Robert Clegg at the University of Calgary regarding housing prices in Canada vs. disposable income.
Robert writes …
Mish, I love your blog and read it daily. I came across this article with respect to Canada’s housing bubble. The articles states, ” Canadians are spending more and more of their disposable income on housing. In Toronto, 44% of disposable income goes to housing and in Vancouver the figure is a whopping 68%. The trend is likely not sustainable.”
Imagine, 68% of your disposable income being spent on housing costs with the remaining disposable income likely being spent on their favorite Top Ramen and KD dinners. This is insane as well as unsustainable. It’s funny that many Canadians seems to think that the 49th parallel has magically created immunity from a housing bust that in their minds is exclusive to the United States. I can’t tell you how many times friends and acquaintances say that Canada’s banks are sound and there was no sub-prime lending and it just can’t happen here. I’m quick to remind them that the loss of one income from a two income family will in essence convert a low credit risk to a poor credit risk akin to that of a sub-prime borrower real fast. Now, multiply this my hundreds of thousands if not millions of borrows and we too have a major problem in Canada no different from that of the US. Wishful thinking really. The proof’s in the pudding and this puddings going to bring a dose of reality to those that are living in fantasy land, way beyond their means and who apparently have missed the global financial crisis that’s been gaining traction and intensity since August 2007.
We’re not only “Hosers” in Canada but we’re royally Hosed as well!!
Robert Clegg, JD, LL.M
Ombudsman, University of Calgary
Is Canada’s housing bubble about to burst?
Here is the article to which Robert Clegg referred: Is Canada’s housing bubble about to burst?
Canadians are spending more and more of their disposable income on housing. In Toronto, 44% of disposable income goes to housing and in Vancouver the figure is a whopping 68%. The trend is likely not sustainable.
The federal government imposed tighter mortgage restrictions months ago specifically to avoid causing a housing bubble. That might have helped, but keeping interest rates at historic lows for so long has flooded the market with buyers anyway. The Bank of Canada is expected to raise interest rates on June 1st, which should do something to reduce buyer demand in the housing market.
But whether that will facilitate the expected drop in average home prices while avoiding a steep decline in the short term, still remains to be seen.
As Robert Clegg suggests, recent Canadian property buyers will indeed be hosed.
A Canadian housing crash is a given. The only thing that remains to be seen is how deep the crash is.
Mike “Mish” Shedlock
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