Canada’s housing bubble has burst and prices have started to fall. Sales have dipped for 8 straight months as buyer interest has begun to wane. Housing sales in November dropped 12 percent from the same month last year, while previously-hot markets of Vancouver and Toronto saw declines of 28.6% and 16% respectively. Despite the media’s repeated predictions of a “soft landing”, Canada’s real estate market is headed for a bloodbath that will end in a wave of foreclosures, higher unemployment, slower growth, bigger budget deficits, and an aggressive campaign to implement harsh austerity measures aimed at dismantling the social safety net. This is the real objective of bubblemaking, to abolish the publicly funded programs that provide vital assistance for the poor, the elderly, the sick and the unemployed. Ballooning deficits provide the rationale for an assault on the institutions that protect individuals from the ravages of free market capitalism.
As was true in the US, Canada’s massive bubble was created by government and central bank policies intended to shift more of the nation’s wealth to large financial institutions via reckless credit enhancement. Low interest rates, lax lending standards, bogus appraisals, and giveaway gov insurance programs have all fueled a real estate boom which has more than doubled housing prices since 2002. At the same time, “household debt in Canada has risen by 135 percent, while disposable income and nominal GDP have risen by 54 per cent. Household debt growth over the past decade has risen nearly three times as fast as income growth, a trend that is clearly unsustainable. The average Canadian now has a record-high debt load equal to 154 per cent of their disposable income.” (“Is household debt threatening Canada’s economy”, The Globe and Mail) Actually, things are worse than the article suggests. Currently, the household debt-to-income ratio is 165 percent, up from 137 percent in 2007. That means that regulators, big finance, and the BOC have all been working together to inflate the gigantic bubble that’s is now beginning to unwind.
When the government guarantees 100% of every mortgage, then there are going to be a lot of bad mortgages. Also, prices will go up sharply, although those prices will not be supported by fundamentals, (wage growth, high unemployment, and demographics) but by easier access to credit, which is the basis for any asset-price bubble. The bottom line is this: Housing prices do not double in less than 10 years without government and Central Bank involvement. Canada’s housing bubble is policy, that much is certain. The goal of that policy will become clearer as prices fall and members of the Stephen Harper administration and the BOC call for painful restructuring of the economy, and “shared sacrifice” by all parties excluding the corporations and big finance.
This is a good description of what’s happening in Canada, where the levers of political power are controlled by big business. The government, the banks and the BOC have all joined forces to effect changes that will strengthen their grip on political power, enhance corporate profits, and shift more of the nation’s wealth to privately-owned businesses.
“Harper’s Conservative government has totally unshackled Canada’s banks, and allowed them to run wild with reckless lending; exactly as occurred in the U.S…..Harper’s government has been rapidly building Canada’s own “Fannie Mae”: The Canada Mortgage and Housing Corporation.
The CMHC has been buying-up mortgages so fast that the Harper government has had to raise its legal borrowing limit twice just since the Conservatives took power, and will soon raise it a third time as it nears its new limit of $600 billion. In proportionate terms, it is now larger than Fannie Mae (at its peak), and this occurs as a Euro Pacific Capital report reveals that, “once small, Canada’s sub-prime mortgage industry is now booming.” It goes on to report that there are now $500 billion in “high-risk mortgages” in Canada’s housing market — nearly half of the entire mortgage market.
That’s what Canada’s housing bubble is really all about. It is a stealth attack on working people and the institutions the keep them from abject poverty.