What, me worry? Housing will sizzle in '10: CMHC

These sellers were touched by a video from potential buyers featuring their baby signing an offer. But they sold for more to somebody else. Money can’t buy ya love – or a functioning economy.

News hit on Sunday house prices in Australia are still rising, despite slightly higher interest rates. This should surprise nobody. The Australian government’s been giving people the equivalent of $19,000 each to buy a home. In the US, Washington’s been paying new homebuyers $8,000 each, a part of its stimulus package.

So much government money’s been spent everywhere that public debt has exploded to historic highs. Sure as hell has happened here, with a $56 billion deficit. Stateside, there’ll now be about 20 years of trillion-dollar budget shortfalls.

But here’s the thing. Not working.

For example, in the past three days -  the bankruptcy of the massive finance company, CIT. That means all its shareholders are wiped out, the $2.3 billion CIT got as a public bailout is lost and tens of billions more will vaporize.

Ford Canada has shuttered an entire car assembly plant south of London, in St. Thomas. It’s a bitter blow to 1,500 families, and another stake in the heart of the real estate market of southwestern Ontario.

The latest economic numbers for the country suck. In fact, they showed contraction in September – negative growth – after being dead the month before. At the same time, the inflation number for the last three reporting periods has had a minus sign in front of it. That’s deflation, which is something Ottawa thought $56 billion could chase away.

These, and a host of other indicators, are telling us government is falling into a trap of its own making. When people are paid to buy houses and cars and do home renos, when they’re handed borrowed money at rates close to zero and when screwed-up, failed companies are thrown free cash, how can anything be normal? Supply and demand is fried. People make really, really bad decisions just because stuff is free. Asset bubbles form, and stimulus-riddled economic indicators start to lie.

This is one reason the stock market’s probably in for a wild ride in November. The slide in Japan Sunday night followed on the heels of a substantial loss on Wall Street Friday. Increasingly investors are arriving at the same thought: there’s no way corporate earnings are going to sustain this ride.

So I’d say if you were part of the 30% market bonanza of the last few months, this might be the time to hit the sidelines. Actually, last week would have been better.

As for the bigger picture – jobs, real estate, iPhone sales – I can only repeat what I’ve been saying here for some time now. There are consequences to the actions being taken. They’ll include higher taxes, higher rates, less growth, falling prices and a housing correction. The people most at risk are those who have taken the bait, borrowed their brains out, bought into an asset bubble and believed a crisis bred of too much credit could be solved by more loans.

Buckle up.