Will Canada’s home prices crash?

Will Canada's home prices crash?

Will Canada's home prices crash? Is Canada’s economy in trouble? Economist Paul Krugman thinks so. Mr. Krugman thinks our economy “ought to be vulnerable to a big deleveraging shock”.

In the US’s case, that shock was the housing crisis brought on by toxic mortgage-backed assets. But the same thing isn’t happening here.

The newspapers, economists and the general public in Canada have been predicting a housing crash for years and frankly when you look at the numbers from an historical point of view, our housing prices and our debt levels are very very high.

But we need a “shock”, an “event” and that’s just not happening.

What’s happening, I think, is that the air is slowly being let out of the balloon. The housing market is showing signs that it may devalue itself. The number of sales are certainly slowing down and prices have stabilized. Prices are still up in many parts of Canada, down in others and stable here in Kitchener Waterloo.

I am Canadian

Canadians are not Americans, just ask a Canadian. We have different banking cultures. Canadian Banks are modeled after Scottish Banks. American Banks, to me, seem more like retail businesses. I still remember the savings and loans scandal from the Clinton years. I don’t remember what it was all about, but I remember it didn’t happen in Canada.

There was a great quote in the Huffington Post’s article about Paul Krugman’s concerns, “The people betting against the Canadian banks “have no idea of the difference between the Canadian and U.S. housing markets.”

More than a headline

It’s never good to take a little bit of knowledge and apply it to a different scenario. We all do this. It’s how we make sense of the world. But it’s really a judgement, not deductive reasoning. We have to read the whole book not just the Coles Notes. As Seth Godin said in his blog post today:

“You’re probably smart enough to ‘get it’ merely by reading the 140 character summary of just about anything. But of course, that doesn’t mean you understand it, or that it changed you. All it means is that you were quickly able to sort it into an appropriate category, to make a decision about where it belongs in your mental filing cabinet.” 

If you apply that thought to comparing the US and Canada’s banks, housing market or economy, you can see why Mr Paul Krugman hedged his own bets and used the word “ought”.

Here’s the quote again:

Canada “ought to be quite vulnerable to a big deleveraging shock despite its boring banks.”

That’s news.

 

Photo credit: Bank Crash

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