Realbiz pointed out this story in the Globe and Mail this morning: A recent report from Merrill Lynch Canada is warning of a Canadian housing market crash and mortgage meltdown similar to the one currently eating away at the US economy:
Canadian households are more financially overextended than their counterparts in the United States or Britain, a report issued by Merrill Lynch Canada economists David Wolf and Carolyn Kwan says.
“We’re just now starting to see house prices fall in Canada, and sharp rises in unsold home inventories increasingly imply that this will not be a transitory phenomenon … From this perspective, the absence of a Canadian credit crunch to date may be cause for concern, not comfort,” their report says.
They say it’s only a matter of time before the “tipping point” is reached and the housing and credit markets crack in Canada.
Stephen Harper was asked to comment on this at a campaign stop in Vancouver, where he rejected the economists conclusion:
“Firstly, we have seen that the housing market and the construction market are much stronger in Canada than in the United States. We don’t have the same situation here with mortgages as was the case in the United States with the subprime mortgages there. And so therefore I think our market is in a much stronger position.”
Merrill Lynch Canada says the main concern is the way Canadian households have overextended themselves and carry a large quantity of debt. The housing and construction market may currently be stronger than it is in the US, but there’s no guarantee that it will stay that way:
“What worries us is that Canadian households have been running a larger financial deficit than households in either the U.S. or the U.K.,” the Merrill report says. “… After 40 years of net saving, Canadian households moved into sustained deficit in 2002. In 2007, household net borrowing amounted to 6.3 per cent of disposable income, a wider deficit than in the U.K. and not far off the peak U.S. shortfall seen in 2005.”
The economists say the data imply that Canada’s household sector is now overextending itself as much as the United States or Britain ever did.