Monday, January 30, 2012

On thing you can say about the MSM -- They like yesterday's story

Ok, so for more than a year, the governor of the Bank of Canada, Canada's minister of finance and a number of "important folks" have been making a point in speeches that Canadians are borrowing too much and are taking on too much debt, usually to buy a condo in Toronto or Vancouver.  Well guess who's finally joined the party, but the Main Stream Media (that's what MSM means).  Anyway suddenly the papers are awash (awash I tell you) with stories about the forthcoming large scale bankruptcy of Canadian facing impossible mortgages.

First off, yes Canadian have taken on too much debt, there is frothiness in the market, as is normal for any real estate market that has had a virtually uninterrupted boom for the past 13 years., but (and its an important But) comparing what's going on in Canada with the situations that has afflicted our American cousins miss the point.  First off, Canadian have seen a constant improvement in national income -- granted the mean has not improve as much as the average (that means that rich folks are lots richer and ordinary folks are more or less the same), but still national income has risen, the Bank of Canada has taken action (more than a year ago) to reduce market frothiness by reducing the term and the amount that can be borrowed -- forcing more savings in the housing complex.  Finally, Canadian banks were not crazy, there is really no such thing as "liar loans" in Canada -- all mortgage have to demonstrate income, and the independence of valuers is well established.

Clearly, Canada is overdue for a correction (13 years is a really, really long time for a real estate boom), and Canada will get a correction, but it will not be on the scale that our American friends have seen, because mortgage in most of Canada are full recourse -- yes the  are secured on the building, but in Canada (mostly) a mortgage is a personal liability -- you cannot walk away from your house.

Moreover, with lower loan to value (and no such thing as a 30 year fixed mortgage) the risk is lower.  No one knows what kind of correction Canada will have in 2012 (or 2013) but it will not be on the scale that has been observed in the US, moreover, a large percentage of the frothiness is in condos -- multi unit projects that are suitable (for a price) for the rental market in cities such as Toronto and Vancouver (actually in Montreal too, if truth is told -- there are lots of new downtown condos being build here too).

Anyway. the MSM has just figured out that a correction is in the cards -- now they are talking end of the world kind of outcome for Canada -- as if we were as crazy as our American cousins!

Aside from that, things are quiet in the stats front in Canada...


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