Sunday, April 24, 2011

Nice Summary of Bubble Arguments in the Star

Housing prices to drop 25%, forecaster predicts
“The recent housing boom has resulted in the largest rises in house prices ever seen in Canada, which have been similar in magnitude to those during the recent boom in the U.S.,” said Capital Economics analyst David Madani in a report released Thursday. “Unfortunately, the subsequent falls in prices could also be just as severe as those elsewhere.”

And the bubble denier:
“The price run-up in Canada has been based on strong economic fundamentals and demand from owner-occupants, whereas in the U.S., housing production was in excess of the demand that was justified by economic conditions,” said Toronto housing economist Will Dunning. “There was a large element of speculation in the U.S. that has not been present in Canada.
Everyone said this in the U.S. too. Problem is, speculators holding houses hides the oversupply. As well, anyone who buys in fear of "being priced out forever" IS a speculator, whether they plan to live in the house or not.

As in the U.S., financial innovation and very low interest rates have allowed Canadian consumers to take on more debt, and house prices are high relative to income, says Madani.
Anytime you see the words "financial innovation" substitute "ponzi scheme". You'll do better.

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