If you keep making that face it might stay that way... don't crack your knuckles or you'll get arthritis... don't sit too close to the TV or you'll go blind... don't touch yourself or you'll go blind... Canada's debt rate is unsupportable and the housing bubble is about to burst." All lies we tell to scare our children.
For years now we've been warned that the American subprime housing implosion that kicked off the global recession back in 2007 was only the beginning, that Canada's good fortune in surviving that crisis more or less unscathed was only a temporary reprieve.
We do have our own well-documented housing bubble after all, and we've all been told that it's going to burst any... day... now. On Jan. 9, Maclean's published an article titled, "Great Canadian real estate crash of 2013: The housing bubble has burst and few will remain unscathed," complete with a graphic of buildings looming at odd angles, satanic red flames whip up between them. The article doesn't live up to the title but it paints a bleak picture nonetheless.
And MacLean's is just one of the doomsayers out there foretelling a massive correction of home values that will essentially throw out all the gains in property values that have accumulated since the start of the last housing boom, potentially leaving huge numbers of property owners financially "underwater" — owing more on their homes than their homes are worth on the open market.
I've expressed a few misgivings myself over our low personal savings rates, growing per capita personal debt loads and the fact that home prices have increased so far ahead of the rate of inflation — excesses egged on by low interest rates and mortgage rules that were far too lenient from 2006 to 2012. In 2006, against the advice of the Bank of Canada governor, the Canadian Mortgage and Housing Corporation started allowing people to put less money down when buying homes and to stretch their repayment windows out as long as 40 years. The CMHC did come to its senses and we've returned pre-2006 terms, but too late for millions who purchased homes at prices that are well out of step with inflation and their own earnings.
Personal debt is also an issue, and per capita personal debt is now an average of $1.63 for every dollar earned annually— although to be fair credit card debt is slowly dropping as a share of that debt load, and the rest of it seems to be related to the purchase of homes and cars, business loans, and so on; things that aren't necessarily bad.
And yes, home values have dropped — over 12 per cent in Whistler in the last two assessments rolls from July 2011 and July 2012 — while real estate sales have slowed considerably in places like Toronto and Vancouver. Some people have lost actual money as a result. And when the national lending rate eventually increases (something banks are once again predicting for 2013, but failed to happen in 2010, 2011 and 2012), there could be some people who are no longer capable of making mortgage payments.