Our neighbors to the north in Canada are going to face a serious deleveraging shortly. This isn’t hyperbole or some off the wall call but based on evidence of what happens when economies get into too much back breaking debt. If the largest trading blocs, the US and Europe had to have their day of reckoning how is it that Canada will be immune from the same economic forces of debt? Bubbles do not pop in perfect harmony. They pop in a disorderly and loud fashion and momentum picks up once the unraveling begins. Canada has one of the biggest ongoing housing bubbles and contrary to the rhetoric we see, they have households deeply in debt. In other words, they are leveraging to the hilt just to keep this charade going. Yet this can only go on for so far. Obviously bubbles can last for a very long-time (i.e., US housing from 1997 to 2007) and can surprise many people. Let us take a look at a couple of reasons why Canada is going to face a heavy deleveraging.
Tuesday, April 16, 2013
The coming deleveraging for Canada – My Budget 360
The coming deleveraging for Canada – My Budget 360
You nailed it with this post Bill.
ReplyDeleteHaving spent nearly 25 years in the lending business, one gets to know the boom and bust cycles of an area. Where I live, we have big oilfield incomes and even bigger housing costs. It is not unusual for a young couple to be shopping around for a $400,000 to $500,000 house. When asked about a down-payment, often a blank stare greets the lender. In this area, people just don't get it.
When the bust comes, probably by this fall, the housing prices will sink like the titanic.
Yet no one will listen to reason in my experience. The decision to buy is purely emotional, not financial.
And if we get a credit crisis on top of the bubble unwinding at the same time - then God help us!
Indeed PW a Tsunami.
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