Neville Bennett, an economic history professor and columnist for New Zeland’s NBR, cites a graph (below) from Trendlines.ca to draw comparison of housing prices in Canada, UK, USA and Australia. And concludes: Canada and Australia are bubbling. I think Canada is in for a terrible fall because it is gripped with a manic fervour for real estate.”

According to his recent column, Canada has weakened lending criteria too much. “Private debt is huge in NZ and Canada (about 150% of GDP). This degree of debt lowers credit worthiness. Standard and Poors have revised NZ’s Banking Industry Country Risk form Group 2 to Group 3 (with Italy, the US and UK). Private debt also lowers consumption and deepens recessions.

“CMHC seems to be highly geared: it had only $11 bln of assets in 2000, and most of its assets now are MBS insured by itself. It seems as leveraged as Fannie Mae which had US$2.3 trillion in guarantees backed by a mere $44 bln in assets as it folded. CMHC is very vulnerable to a small fall in house prices. 

Consumer confidence rises when house prices rise. Consumers borrow to expand their spending. In less than 10 years, consumer spending has risen from 58% to 65% of Canadian GDP. 

In 2011 homes became ATM’s, and the average homeowner had only 34% equity in their home, a fall from 55% only 4 years ago. Meanwhile, Canadians owed $1.53 for every dollar they brought home. Canadians have pulled $220 bln out of their homes in revolving home equity lines of credit (HELOCs): on a per capita basis, this is about three times as much as the Americans borrowed at the peak of their boom.”

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5 Responses to “A major housing bubble in Canada may cause international distress,” says Neville Bennett

  1. Tricia Adams says:

    I am curious about the future development. I think the housing bubble in Canada is already reality, though it does not mean it is not good time to buy real estate there. The resilience of the Canadian housing markey is obviously a great surprise as the prices continue to reach record levels. However, I feel it’s better to be more careful as there are already signs of housing bubble. It’s also beneficial to reflect on the situation in US, there is a lot to learn.

  2. Algy Collins says:

    Yes, but WHICH Canadian housing market? You have several, many thousands of miles apart and evidently not connected, apart from being in the same country! The Chinese buy heavily into Vancouver, as they have done for decades with some Americans also buying there, as they do in Calgary. Toronto is favoured by Americans and Europeans. Values are still climbing despite the various ills affecting the investor countries.

  3. Deven says:

    Still in July 2012, first time sales has gone down but prices still went up and what amazes me that nobody, even at this level, talking about BUBBLE.!!
    It seems to be ok. Forget about prices go downI have been thinking all the time but it does not seem to happen now from 2003, as I recall.
    Probably, Canada will make TORONTO as MANHHATAN style real estate here.

  4. Shaun says:

    It looks like the Canadian government is aware of the situation and is implementing some restrictions to stop the bubble from inflating. With Carney Outlining His Reasons, it appears they are very clear and have a complete understanding of the situation.

  5. Paul says:

    Am I reading the graph wrong, or do the U.K. and Australia have a much bigger problem than Canada?

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