- the source for market opinions


July 3, 2017 | How they see us

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Now that we’ve all chugged Canuck beer, waved the flag, watched Rick Mercer get wet, been told diversity, gender parity and selfies are good and ignited enough fireworks to clean out the Senate, let’s get back to reality. Nine days away from the start of an interest rate-tightening cycle and 48 hours from the release of some shocking real estate stats, it’s useful to see how some people around the worlds are viewing us.

Take the party hat off.


From Dubai:
“Canadian home prices have gone parabolic since 2010, up 60 per cent despite the plunge in crude oil prices and the election of a Liberal Party Prime Minister in Ottawa. Yet there are now unmistakable signs that the Canadian housing bubble is about to pop. New home sales have plunged even though prices are at record highs. The governor of the Bank of Canada and the CEO of Royal Bank of Canada have warned investors about the lethal risks of leveraged home price speculation. Affordability ratios are in the stratosphere. Canadian household debt to disposable income is at all-time highs, at a staggering 169 per cent. Flippers boast about their offplan “profits” at cocktail parties.

“The coming interest rate rise will be property’s kiss of death. There are rumours of systemic fraud and more mortgage lender failures even as I write. Yes, this time the wolf is here.

“Unlike growth companies on a stock market, a housing bubble is destined to collapse since homes lose value over time due to depreciation and shifts in consumer preferences. Home price spirals destroy, not create, economic value and can often gut the stability of banking systems via default and retail sales due to negative wealth effects on consumer spending. As Santayana said, “those who refuse to learn the lessons of history are doomed to repeat them” – specially when debt is the high-octane fuel that burns homeowners alive.”


From the UK (International Property Forum):
“There is intense speculation at the moment that around 50% of prospective foreign investors are now looking out with Canada after the government introduced the 15% tax. The fact is there are many markets around the world which offer good value, although Canada has made many people rich, where the tax system for overseas investors is nowhere near as onerous. At the end of the day, perhaps some of these critics need to sit down and consider which groups of investors have pushed Canadian property prices to all-time highs? Where would the new build market be without Chinese investors? What does the future hold for the condo market with reduced overseas interest?

“In light of the worldwide economic collapse in 2008/9 governments around the world did whatever they could to attract new investment especially to real estate markets. Overseas investors offered welcome support to real estate prices at a time when markets were in freefall. Fast forward about 10 years and we now see governments around the world looking to penalise overseas investors – the same investors who have supported domestic property markets for some time.”


From the US (Seeking Alpha):
“Since the financial crisis, we’ve stayed away from investing in Canada due to the country’s high level of household debt. Right now, we believe that it’s even more important for investors to avoid Canada as recent weakness in a Canadian mortgage lender may signal that the household debt bubble primarily concentrated in real estate may be ready to burst.

“The reason why household debt is such an important thing to look at has to do with how consumers drive economies. In the US consumers account for almost 70% of GDP. While the figure for Canada is not as high – consumer spending up north is only about 56% of GDP – it’s still the largest part of the Canadian economy. When consumers began building new homes and taking out second mortgages and home equity lines of credit and using that extra money to buy goods and services, it drives economic growth. However, when consumers take on debt it must be paid back eventually. When the housing bubble collapsed in the US, so too did the underpinning of what was driving consumption spending. Because it accounted for such a large percentage of the economy, we had the worst recession since the Great Depression.

We can see eerie similarities between Canada today and the US prior to the great recession.”

From a Global view (BIS):

Yes, the Bank for International Settlements is full of Debbie Downers who think Canadians are about to step into the deep end with cement shoes. But, seriously, this chart is a tad scary. — Garth

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July 3rd, 2017

Posted In: The Greater Fool

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