CNN article- “Canada’s coming housing bust; MSM still swallowing CREA’s spin; Swallowing the tough medicine

I came across a couple of articles worth mentioning:

From CNN-Canada’s coming housing bust

“A decelerating economy at home means the labor market (currently running at just under 8% unemployment) will probably soften further. Canadian household debt continues to rise and currently runs at about 144% of disposable income, comparable with rates in the US, although household debt is falling there. As with their American counterparts, debt-sodden Canadians could soon begin putting away those charge cards too.”

I agree completely.  The coming shift in consumer mentality away from consumerism and towards savings and frugality will have the two-fold effect of shrinking aggregate money supply and slowing the velocity of money.  The net result is deflationary pressure, particularly on leveraged assets such as real estate.

“But the Canadian housing market is showing signs of strain. Driven by an overhang of supply and by recent government efforts to tighten lending standards, housing starts in October were down 9.2% compared with September, and down more than 12% in urban areas. Also, housing prices have begun to level off after a decade of scaling ever-greater heights. Over the last ten years, housing prices have increased more than 95% nationwide.

Lower housing prices could hit Canadians fairly hard. Housing accounts for more than 20% of Canada’s GDP, and its employment gains have been fueled by continued spending in the construction industry, which is one of Canada’s largest and fastest growing employment sectors. In October, while the number of workers in Canada’s massive service sector declined by 33,000, construction added 21,000 jobs.

As stated repeatedly on this blog, housing IS the reason for Canada’s economic miracle.  Our country is far too reliant on real estate to generate economic growth.  If you still haven’t read the primer on real estate’s connection with the broader economy, do it!

“Last year the IMF noted that, by some measures, Canadians were paying a larger percentage of their income for housing than Americans did prior to the housing bust.”

“As the long-time Canada bull James Grant noted in July, “the track of Vancouver housing prices matters far beyond the province of British Columbia,” adding that, perhaps, the best place for investors to park their money was in “a country in which a housing bubble has already popped, rather than one — Canada, for instance — in which it is just beginning to deflate.”

Well said!


CREA still serving up spin…MSM eating it up!

Why the mainstream media considers CREA an unbiased source of housing market information is beyond me.  Well, I do have my suspicions.

Remember that CREA is Canada’s national realtor association.  They represent realtors across the country.  Are they at least slightly prone to view the housing market through rosy glasses?  I would suggest so!

So when they come out and say that housing sales and prices are set to fall next year, it’s worth noting.  CREA never acknowledges that housing prices are set to fall until it is blatantly obvious to just about everyone in the entire country.  Then, to maintain some semblance of credibility, they release outlooks like this one.

The funny part is that the MSM takes these reports at face value.  Consider this gem written earlier this week:

Property prices and sales expected to fall in 2011

I agree with CREA’s assertion that home prices and sales are set to decline.  But a 1.3% decline?  Come on!  At least the media took the bait….hook, line, and sinker.


Austerity movement continues to gain traction

In yet another sign of the inevitable move towards austerity, media outlets have carried a number of articles discussing the necessities of fiscal prudence.  Here in Canada, the Post ran the following:

Swallowing the tough medicine

“The failure of stimulus spending to accomplish much other than racking up astronomical sovereign debt while prolonging the West’s economic plight has some governments resorting to austerity programs.”

Shock of all shock!  Stimulus programs did nothing but mask weakness and structural issues such as consumer debt levels and falling aggregate demand.  Go figure!

“In addition, rampant deficits result in a mountain of IOUs to be settled by future generations, if they don’t provoke a sovereign debt crisis first.”

This has been my argument for some time.  Who do you think will be footing the bill for these stimulus measures?  It likely won’t be those who ultimately benefitted the most, it will be future generations who will be saddled with tax increases and a lower standard of living so that we could temporarily maintain the illusion of wealth in our debt-plagued society.

“Policies that are in place now are intended to get the economy back on track,” Mr. Wiggin said. “But ‘back on track’ is the very high-spending, high-debt culture we’ve become addicted to.”

Exactly!  The Keynesian clowns advocating more stimulus don’t get the fact that all they are trying to do is encourage more consumer spending and more indebtedness.  Consumers in the US don’t have the ability to keep borrowing.  They’re maxed out.  And if we’re not maxed out here in Canada yet, we’re darn close!

“The economy does tend to grow faster when debt levels are kept in check,” he said. “If you don’t keep debt levels in check, that’s when disasters happen.”





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3 Responses to CNN article- “Canada’s coming housing bust; MSM still swallowing CREA’s spin; Swallowing the tough medicine

  1. Red Otter says:

    Ben, thank you for your informative blog. You have a way of explaining what is going on that makes sense to me. But I have a question. Why do you say “an American-style meltdown is unlikely”? If Canadians are paying more of their incomes for housing and managed to inflate home prices higher that Americans and are just as in debt as our neighbours to the south, what is so different? To be able to achieve this, our prudent banks must have been involved in less than sound lending practices, fueled by the CMHC (the taxpayer).

    What am I missing?

  2. Pingback: Tweets that mention CNN article- “Canada’s coming housing bust; MSM still swallowing CREA’s spin; Swallowing the tough medicine | Financial Insights --

  3. VJGoh says:

    I don’t really feel like Keynes or a Keynesian approach are to blame here. It’s more of a ‘Garbage In-Garbage Out’ problem. Ostensibly, an economy will bank away its success in good times, and use that rainy-day fund for the bad times. Isn’t the problem with our current style of management that we spend during the good times and SPEND EVEN MORE during the bad times? That’s not Keynesian, that’s just vote-buying.

    I’m not an economist, though. 🙂

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