Friday, October 22, 2010

Be careful what you wish for in case it comes true....

So goes the saying, and it may be very true about our RE.

There was a real eye-opening article in the Globe and Mail (hat tip to Paul B who posted the link at Vancouver Condo)

It illustrates just how dependant we have become on the RE circus in Canada, thanks to the relentless pumping of the last decade..

That has dramatic implications for employment and consumer spending levels – and for an economy that has grown accustomed to relying on housing-related spending for about 20 per cent of its gross domestic product.

20% is no joke. According to the article we are already contracting with sales down 45% from last year and prices at last year's levels and housing starts are down 20% too. So what would a contraction mean? Well it would mean major job losses, especially amongst construction workers, and Real estate agents and renovators. the problem is these fields do not have skills which are easily transferable to other areas.

Luckily Canada is not a one trick pony. We have wheat and oil and gas and gold and commodities galore. Hopefully the housing contraction will not happen at the same time as a commodity slow down or we could get into trouble pretty fast.

Lucifer's children

What is it with these banks? One by one their economics departments are coming out with reports on how over-leveraged Canadians are and how much trouble they could be in with either a small rise in interest rates or a drop in the economy. They put the blame squarely on the shoulders of the over-priced housing market, with Vancouver coming in for special mention again and again.

And yet..these same banks are coming up with ever more creative ways to squeeze Canadians into debt. Remember 'You are richer than you think', remember the Bank of Montreal ads where the guy uses home equity for holidays.. how about TD!! and the cash-back mortgage! That is exactly what they were doing in the US before the bust.

Don't the idiots in the marketing department talk to the economics department? Maybe they don't - maybe they have different mandates. How about the old guys pulling down the multimillion dollar salaries at the top. Shouldn't they be looking at the reports and call their mortgage departments and say..."hey Frank go easy on the home equity-porn ads'.

Maybe they don't spend enough time off the golf courses and off the boards of directors of other companies to actually run their businesses properly.

Or maybe they think the tax-payer will just pick up the losses via the CMHC.



  1. Fish,
    you dont get it , do you? Canada has found the perfect economic growth model. Increase the population through immigration then build houses. No other country in the world has such a lax immigration policy as Canada. And canada has the land and resources to keep this model going for a very very very long time.
    20% of GDP from RE is here to stay and increase in the future. There is nothing wrong with the model and RE will stay very valuable in this country for decades to come. No crash on the horizon.

  2. I think the lax immigration policy started a couple of hundred years ago, when the first European settlers left their starving and over-crowded homelands and said to the First Nations folk..'Don't kill us, we don't want your land, we just want to set up a few trading out-posts. look we will even give you this piece of paper with Treaty stamped on it, to prove it'. Well we know how that ended..LOL