Burned

Composite of graphic from dead-tree and online editions

Macleans is taking a stab at a seminal cover.

Since 2008, Canada’s ratio of debt to after-tax income has exploded. By the third quarter of 2011, Canadians owed an average of $1.53 for every dollar they brought in, up 40 per cent in the past 10 years and just below where the U.S. was before its housing crash. By the end of 2010, the average homeowner had just 34.3 per cent equity in their home, the lowest level in two decades and a 20 per cent drop in just four years.

And that equity is ephemeral, based as it is on bubble valuations. That's what makes this creeping credit bubble so pernicious, for the middle class especially.

You are poorer than you ever imagined.

Earlier this month, the couple settled on a new build, paying “in the mid-to-high 500s.” But Austin says taking on a larger mortgage than expected was a fair tradeoff for finding a house in their chosen city. The couple say they expect prices to crash, but that doesn’t matter much since they plan to be in their home for at least 10 years.

The mantra of the future walk-aways.

With an average price topping $348,000 in January, Canadian homes are now worth a total of $3 trillion, nearly twice the country’s GDP.

Gosh, too bad housing is a non-productive asset.

“The point of the CMHC is not really to get people into their dream house off the backs of taxpayers,” says Rabidoux.

Why is it someone talking sense sounds so much like an alien from another planet?

The housing boom has helped prop up Canada’s construction industry, which now represents 7.4 per cent of the labour force, higher than it was in the U.S. at the height of its boom. Add in other housing-related industries, such as real estate agents, mortgage brokers and insurance companies, and the sector represents a staggering 27 per cent of the Canadian workforce. In the U.S., those same numbers peaked at 23.5 per cent.

Cut the sector by merely a quarter and what is the resulting unemployment number? Then the downward spiral begins. The growth numbers in this sector were always going to be temporary.

All of the numbers bulls celebrate: low unemployment, high equity, low defaults, they all depend directly on the bubble itself.