Friends and colleagues who own homes in Canada are the very pictures of smug. They seem convinced the markets in which they happily reside will keep rising forever. Or at the very least, never drop.It's all about the debt.
And any discussion of the subject usually involves condescending lectures about how Americans, who are only beginning to recover from a six-year nightmare of foreclosures, could have used a dose of Canadian common sense and prudence.
As was the case in America when I arrived here nine years ago, Canadians have for years been so desperate to avoid being left behind by a surging housing market that they've been stretching themselves beyond reasonable financial limits to jump in, thus of course ensuring continued surges.
In the process, household debt has doubled, going from a manageable 75 per cent of household income in the early 1990s to 150 per cent today.
Worse, as the Bank of Canada has been pointing out, Canadian debt is disproportionately concentrated in the most vulnerable households, defined as those devoting 40 per cent or more of household income to paying interest charges.
. . .
The central bank's analysis suggests that if interest rates rise to 4.25 by mid-2015, fully one fifth of all Canadian debt would be held by those households least able to finance it.
"My base case expectation would be that most markets in Canada over the next two years would see a pullback of housing prices of 10 to 15 per cent."That's Don Drummond, former chief economist at TD. Back to Neil:
If you take that tax refund into consideration, prices in Ottawa are now approaching or equal to prices in Washington, DC., a city steeped in wealth and power. Seen from this distance, by a longtime expat, that is just unmoored from reality.