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Mish on the Canadian debt-craze

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An interesting article by Mike Shedlock summarizing the recent Canadian household debt situation: Canadian borrowing gone mad.

Theory has it that Canadian banks are in far better shape than their US counterparts. If so, it’s primarily because the Canadian Central Bank (Bank of Canada) has assumed nearly all the default risk on Canada’s massive property bubble.

Is that supposed to make everyone stand up and salute the Loonie?

One key point that has recently come into the spotlight is Canadian citizens are not in better shape than their US counterparts. All those going “rah rah” over the Loonie, might be advised to consider some of the following articles.

Read the full roundup over at GlobalEconomicAnalysis.

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giggling

@rp1:

"If we abandoned regions of this country to the gangs then there is a good chance you’d see 90% off there too"

But we already did.

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Nicole Foss

For those who may not have heard of us, The Automatic Earth is, by traffic, approximately the 7th most popular finance site on the net. We have been chronicling the credit crunch for the last three years. Prior to that we were editors of The Oil Drum Canada. For anyone who wanted a timely warning about the approaching credit crunch, you could have found it here in August 2007: http://canada.theoildrum.com/node/2871 . For anyone who would like to know more about how we got here and where we're going, check our primer guide here: http://theautomaticearth.blogspot.com/2010/07/jul… . We provide regular global coverage of the credit crunch approximately every second day. I have done three episodes of the Keiser Report (the others are numbers 78 and 98). I also do a monthly slot on Financial Sense Newshour, with Jim Puplava, and travel round… Read more »

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D. Rail

@Renting:

90%? Bring it F*^#$@ng on! Ya!

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rp1

@Yalie: 90% off is Detriot. If we abandoned regions of this country to the gangs then there is a good chance you'd see 90% off there too. Abbotsford, I'm looking at you 🙂

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D. Rail

@Sheesh:

Xborder shopping definitely way, way up. Just try going to Pt Roberts on a Saturday. The lineup for folks crossing the border going to the various mail drops down there is insane!

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Renting

Even doomsday Garth wouldn’t make such idiotic claims.

Garth hardly has a doomsday view. He is bullish on stocks and bonds. He just thinks real estate will correct. Personally I think Garth has the bonds and stocks wrong and has underestimated the amount real estate will correct, although he is from Ontario and mostly commenting on Canada as a whole. Vancouver is in much worse shape and will correct significantly more.

In the end the forecast is still down for real estate by anyone with an objective view. It doesn't matter if it is 30% or 90% real estate is an asset to avoid in Canada.

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Renting

@Dave:

Sounds like a real credible source

Seems like she knows her stuff to me. You can disagree with the end result but clearly we are coming into a credit contraction as the result of a credit bubble. We know your opinion is this will have no effect on housing prices. She thinks a 90% decline on average. My money says she is closer than you.

Speaking of credibility, I know a few people around here who like to comment on things they know little or nothing about. Care to discuss interest rates and bonds again Dave?

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4SlicesofCheese

Sorry OT but came across this article
http://www.businessinsider.com/chinese-mortgage-d…

"What China Has That We Don't: $15 Trillion Of Mortgage-Free Middle Class Home Equity

Current United States Total Home Values – $15 trillion

The mortgage debt on those homes? 80%, give or take a few percentage points

Current China "Lower & Middle Class Only" Home Values – $15 trillion

Mortgage debt on those homes? Zero"

How is this possible?

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Spec

Even Garth "refudiates" 90% as coocoo for cocopuffs. Happy solstice Dave! :-

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Dave

Anybody want to sacrifice a couple renters with me at midnight?

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metalhead

I'm a bear but those two are wack jobs.

30% correction. OK.

90%? Not likely.

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Dave

Happy Solstice fellow pagans.

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Dave

@Renting:

Sounds like a real credible source. Even doomsday Garth wouldn't make such idiotic claims.

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Anonymous

@paradox

Time to redefine your idea of what a newspaper is? 🙂

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paradox

why dont we see this kind of analysis in our newspapers ?
http://ca.finance.yahoo.com/news/Could-U-S-style-…

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Yalie

Think a 90% drop sounds crazy, even to a seasoned bear? What Nicole is talking about is the great de-leveraging that's all but inevitable over the next several years. You can get a glimpse of it here: http://static.seekingalpha.com/uploads/2010/5/24/… Look at the graph carefully. You'll see the gray line, which represents the total ratio of all debt (government, business, consumer) to GDP. Notice it's steady rise over the last 30 years, and the peak just a year ago. This graph is from the US, but Canada's is very similar (sorry don't have a link). These debt cycles are long, and like all bubbles, they tend to be symmetric around their peak. The de-leveraging will likely cause deflation over the next 20 years, just like it did in Japan. And when that happens, banks stop lending, and credit shrinks, which is the… Read more »

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Renting

Another good link for Nicole Foss’ blog:

http://theautomaticearth.blogspot.com/

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Renting

@MB:

Nice link. Got love Nicole Foss' call of a 90% average price decline for Canadian real estate. Personally I see the collapse as 85% max but you never know.

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domus

@MB: Excellent link, thanks. Very impressed by the woman who is being interviewed!

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MB

Canadian housing bubble:

http://www.youtube.com/watch?v=sevM5IstFFY

Starts at 13:40

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space889

@Patiently Waiting: Or maybe the landlords were hoping that some developers will come and buy their place millions of $$ to build the next set of low/mid-rise condo/retail complexes? I have noticed a lot of these new condos/retail buildings going up on Broadway between Cambie and Main. So maybe that's what they are hoping for? Empty building does make the sale easier since the developer don't have to wait until the lease is over or compensate the renters. Many of these buildings are probably bought decades ago with little maintenance/improvements done so the carrying cost are probably pretty low for the landlords. Granted they probably can't hold out forever waiting for the sweetheart deals but they might be able to hold out for longer than most people expect. Also a lot of small time commercial landlords seem to be fairly… Read more »

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paulb.

Hey guys sorry about the numbers. Here is all the way back up and including Monday of last week.

New Listings 596
Price Changes 228
Sold Listings 709

From now on until things pick up I will do a weekly tally every Friday.

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Sheesh

Based purely on the habits of women at my office, I think people are just shopping in the States and online. My co-workers spend PLENTY, just not in Canada. They are constantly crossing the border to take advantage of the exchange rate and to pick up stuff they've bought from US websites (there is a service in Blaine where you can have packages sent).

When you consider the savings (often half the price), it is hard to make the case for supporting local business.

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jesse

@gladimnotyou: "What happened after the crash, people got really selective about what they bought, and looked for really specific deals."

Which is why traffic at malls is not necessarily indicative of the health of the economy. It could be people take longer to shop because:

a) They have more time to shop because they're underemployed and/or

b) They need to take more time to shop to find the best deal.

You can argue that mall traffic INCREASES during a recession. Looking at sales volumes? That doesn't necessarily mean a lot to retailers if margins are thin.

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fixie guy

53 Troll Says: "Wow, you’re really smrt. Thanks for the insight Captain O, available credit has an effect on the amount of money available for RE? Who knew."

No Problem. Me like smrt.

It was worth reiterating because most of you clowns either ignore or appear to know 5/8 of FA what caused the American collapse, hence the laser focus on interest rates. And thank YOU for the wealth of deep insights your cogent reply added.

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