Are the swirling winds of change blowing towards a Nexus point?

HAM... or Hot Asian Money... has been a prominent feature of our real estate bubble.

As China pumped more stimulus money, per capita, than the Americans into their economy a huge bubble has been blowing.

One of the benefits has been China's real estate.

Buoyed by inflated real estate values, wealthy Chinese have extracted equity and utilized equity to leverage real estate purchases overseas. And Vancouver has been a primary beneficiary.

But what happens when the bubble begins to burst?

One of the first consequences is the access to easy money disappears... and with it the free flow of money to locales such as the Village on the Edge of the Rainforest.

HAM is basically AWOL in the Vancouver Spring Real Estate market and all indications are the situation in China is worsening.

Mish Shedlock noted on his blog yesterday that the Real Estate Crash in China is Underway.

Citing an excellent report (China Real Estate Unravels) by Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing, Mish notes that Chinese developers, burdened by 70% leverage ratios and loans threatening to come due, rushed to complete projects already in their pipeline, to put those units onto the market and raise cash.

That rush to complete inflated real estate investments, investments that were allegedly up 23.5% in the first quarter.

But other statistics from the report tell the real story.

• Year-on-year sales in Q1, for all real estate, was down 14.6%.
• Residential property sales were down 17.5%
• Office sales were down -10.2%
• Sales in January-February were a disaster, falling 20.9% overall, compared to the first two months of 2011, -24.7% for residential.
• Total amount of floor space “for sale” was up 35.5%, compared to the same date last year
• Floor space of residential units “for sale” grew 47.4%.
• At the end of 2011, total floor space “under construction” was roughly 4.6 times the floor space sold
• A year and a half worth of excess inventory is hidden somewhere in the pipeline
• New starts in April fell 14.6% year-on-year and 27.0% month-on-month, for property as a whole
• Housing starts fell -14.4% year-on-year and -23.4% month-on-month
• Office starts fell -21.0% year-on-year in April, and -45.1% compared to March
• Retail property starts fell -18.7% year-on-year, and -36.8% compared to March
• Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year
• Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.

Chovanec notes:

"Clearly a crash is underway and the Chinese soft-landing thesis is collapsing.

The “resilient” growth in real estate investment that seemed to promise a “soft landing” is not very resilient at all. It’s more like the last gasp of a market that’s running out of steam. Once the surge in completions plays out, the declining number of new starts will become the pipeline, and growth in property investment will flatten or go negative.

Property investment accounts for roughly a quarter of gross Fixed Asset Investment (FAI), and net FAI accounts for over half of China’s GDP growth. As I noted in January, in a back-of-the-envelope thought exercise, if property investment plateaus (growth falls to zero), it could shave as much as 2.6 percentage points off of real GDP growth. If it fell 10% (in real, not nominal terms) it could bring GDP growth down to 5.3%.

At the time I first saw this dynamic in the data, when the Q1 numbers came out, I figured it would take several months to begin playing out. But the April numbers suggest it is already happening.

Chovanec notes if real estate investment drops by 10%, GDP will come in at 5.3%. But what if real estate investment falls by 20% or 25%?

Moreover, why shouldn't it?

The real estate crash in China has arrived and is underway.  The GDP crash will follow shortly.

What comes after that?

After that comes the second consequence for the Village on the Edge of the Rainforest... the panic sale of overseas assets to meet financial demands at home.

All of which is shaping up to hit us just as the OFSI rule changes come into effect.

The swirling winds of change are blowing towards a convergence point that can only be described as the perfect storm combining the Boomer Trigger, the China Trigger and the Speculator Trigger with upcoming mortgage rule changes.

People email me and say my prediction of a collapse in real estate values here of 70-85% is completely unrealistic and they just can't see how it could possibly come to pass.

Not only do I think it is very easy to see... I sometimes think my estimate may be underestimating the full extent of what may play out.

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Tues Post #2: A Day Made of Glass

Saw this over on Mike 'Mish' Shedlock's blog and was wow'd by it so I thought I would share it.

It's a promotional video by Corning for Photovoltaic Glass and it's possibilities.

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Mon Post #1: Like ripples from a rock cast into a still pond...

On Saturday we shared with you a blog post by well known US blogger Mike 'Mish' Shedlock as he compared the bubble in Vancouver with the bursting bubble in Ireland.

In a reflection of the power of the global village that is the internet, the story has been picked up by a number of sources including the website Business Insider.

Headlined 'See What $890,000 Buys in a Housing Bubble and After the Bubble Pops', it's further evidence that Vancouver's reputation as a city firmly ensconced in a housing bubble is now solidifying in the mindset of investors around the world.

It is only a matter of time before investors, even potential wealthy Asian HAM buyers, begin to completely shun our market. Catching such a public and well known 'falling knife' is not something savvy investors do.

You can almost hear the ticking of the housing time bomb, MOPE not withstanding.

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Sat Post #2: Another Vancouver comparison, this time with Ireland

Well know US economic blogger, Mike 'Mish' Shedlock, paused today to take another gander at Vancouver's Real Estate mania and held up a comparison to a recent sale that just completed in Ireland.

As faithful readers know, Ireland has already seen it's massive credit induced housing bubble collapse.

Prices on the Shamrock Isle continue to dramatically correct. At the height of its' bubble, Ireland was very similar to Vancouver with it's huge disconnect between fundamentals and bloated real estate prices.

With today's post, Shedlock takes a look at what $899,000 will buy you in Vancouver vs Ireland.

There is this 1 bedroom beauty at 2119 East 3rd Ave, Vancouver, MLS® Number V934050, listing Price: $899,500

Or we have this tear down at 1016 East 7th Ave, MLS® Number V930461, Listing Price: $899,000 (In Detroit you could pick up a piece of crap like this in a similar neighbourhood for $250 - $500... see yesterdays posts).

Or you could have bought this property in Donegal, Ireland for $860,000.

It's a stunning 55 room hotel sitting on 3.2 acres of land overlooking the Donegal coastline and set against spectacular scenery. The hotel sold yesterday at a cut-price property auction for the jaw dropping equivalent of $860,000 CDN.

It's truly amazing.

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Financial pain in the Australian housing collapse

Excellent story on the Australian verison of 60 Minutes which is covering the Australian housing collapse. You can watch the whole segment here.

From the intro to the story:

• We dodged a bullet this week. The Reserve Bank decided to keep interest rates on hold yet again. And with good reason. Record numbers of Australians are struggling to keep up with their mortgage repayments. Home ownership has never been tougher or more thankless. A generation ago, buying a house was the done thing - the one investment that was considered as good as money in the bank. If you didn't own the roof over your head, you'd failed in some way.   Not anymore. Now, renting might just put you ahead of the game.

As American blogger Mish Shedlock has noted, this story is so sad because Australians had every warning in the world. All they had to do was watch the US housing bubble burst.

It is a lesson that Canadians, particulary those here in the Village on the Edge of the Rainforest, have ignored.  You simply cannot explain anything to anyone with a firm conviction "It's Different Here". As Mish says, "Australian homeowners are now finding out they do not own their home. Instead, their home owns them."

Before too long we here in Vancouver will learn that harsh lesson too.

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Speaking of 'Tulip Mania'

It's 2011 and there is definitely an emerging 'theme' to real estate for the early part of this year.

As you know, for the past six months there has been a dramatic decline in the number of real estate sales. Yet the average price of houses seems to be rising - huh?

Realtor Larry Yatkowsky commented on this right off the bat as the New Year started.

• "Vancouver real estate’s New Year is starting off with a bang. For the first time in many months, the aggregate number of properties for sale in the lower mainland has tumbled below the 17,000 mark. Vancouver Realtors® began whispering in the early part of December that it was becoming more difficult to find quality homes for their buyers."

Declining inventory leads to bidding wars as buyers fight over a shrinking pool of available inventory.

Interestingly a similar situation has been developing in Australia.

Australia has also gone through a stretch where listings have been declining. Predictions by realtors Down Under have called for R/E prices to remain stable or grow by 5-6% in 2011 due to an underlying shortage of properties.

But new figures suggest that the Aussie shortage has been overblown and that the figures "dispel the myth of property undersupply in most cities, and says certain capitals such as Brisbane are actually recording a dangerously high level of properties on the market."

And just who do you think propagated that 'myth'?

During the 2008/2009 slowdown, the local real estate industry urged sellers to pull listings off the market. This was a strategy, done on purpose in order to create 'demand' and stave off further declines.

The same strategy was urged by the Industry during the Fall months as the media was besieged with month after month of negative press regarding declining sales.

In Australia, the Reserve Bank is contemplating another rate increase and it is suggested that such a move could accelerate a downturn just as the pent up supply from a contrived 'shortage' hits the Spring market.

Is the lack of supply a R/E fueled lie? Is the truth more a case of the fact that there is no lack of supply, just speculators sitting on a lot of inventory that can/will be put on the market in short order?

American blogger Mike "Mish" Shedlock thinks so and examines the Australian developments in this eerily familiar sounding post title: Australia's "Tulip Mania" About To Crash, As Housing Shortage Proves A Massive Myth.

I say 'eerily familiar' because it was just yesterday I was comparing the situation in the Vancouver suburb of Richmond in the same 'Tulip Mania' fashion.

Mish concludes that:

• "The day of reckoning has finally arrived for Australia. A day of reckoning awaits Canada, China, and the UK as well. It's too late now to do much of anything except:
  
  * Exit the Australian stock market
  * Get out of the Australian dollar
  * Pick up some popcorn
  * Stay on the sidelines and watch the collapse unfold"

I'd personally recommend getting the Costco size case of 'Jiffy Pop' myself.

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Canadian Borrowing Gone Mad

I was working on a post compiling many of this week's debt warnings and rationalizations when I came upon this post by Mish Shedlock.

Mish says it better than what I had prepared, so check out his full post.

Also... adding to this week's round of debt warnings is this Carney piece in the Toronto Star where Carney warns that "the hard part of the recovery is just starting."

Intestingly, came across info that today on BBC Radio 4 (which is designed to serve as offshore radio and is part of the Royal Navy's system of Last Resort Letters - a system that in the event of a suspected catastrophic attack on the United Kingdom, submarine commanders check for a broadcast signal from Radio 4 to verify annihilation of the homeland) the Money Program panel had the consensus view that interest rates would go up substantially in the new year.

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More on the Hyperinflation Debate

If you are not aware, this week the United States is pumping a massive amount of money into the markets (POMO) in an attempt to stimulate inflation. This is the number one reason why Gold/Silver have been taking off in value lately.

The Bank of International Settlements (BIS) has come out with a report comparing Japan with the United States as both embark on the same solution to the economic crisis (QE).

As Zero Hedge notes, the report show us that "Japan, even during its two-decade long deflationary process is far better equipped to handle the economic collapse that is unravelling for an entire generation of Japanese consumers. Which is why the Fed is now actively pumping $5 billion in the market every other day to stimulate inflation, and the stock market, as this is now the Keynesian system's Maginot line. The Fed can not allow mass perception of the the double dip to become entrenched as that would be the proverbial game over. What has worked in Japan for 20 years will fail miserably when applied in the US, simply because US consumers are in a far, far worse shape than their Japanese counterparts."

Coincidentally our friend, Gonzalo Lira has also come out with a post examining the Japan/US comparison. I'll summarize it here but I know some of you will want to read the full post so I invite you to click the link and go to Lira's blog.

Japan went through an equities and real estate boom during the 1980’s — a boom that was really a bubble. And like all bubbles, it eventually burst in 1990. Since then, Japan has been lost and the Japanese government has spent a fabulous amount of money for domestic stimulus that hasn’t helped at all. Japan is in full-on deflation—in every sense of the word.

Now a lot of people believe America is set to begin its own version of Japan’s Lost Decades and Lira argues it will be something completely different.

Lira notes the rationale for a similar path is simple and superficially persuasive:

• Just like Japan in 1990, the United States went through a bubble in equities and real estate, which eventually popped in 2007–‘08. Since then — just like Japan — the U.S. has been experiencing deflation. Just like Japan, the U.S. now has zombie banks, the so-called “Too Big To Fail”. Just like the Japanese government, the U.S. government is spending - spending - spending, so as to prop up aggregate demand. The Federal Reserve — just like the Bank of Japan — is issuing enormous sums of money in order to prop up aggregate asset price levels — the Fed’s policies are so reminiscent of the BoJ’s money printing that Bernanke & Co. have borrowed the term outright: Quantitative easing.
  
  Everything screams Just Like Japan—right? So according to the “Japan Is Us” camp, 2010 through at least 2015 will be just like Japan between 1990 and 2010: Sluggish growth, stagnation — and most important of all, deflation, deflation, deflation.
  
  But there is one key difference that the Japan Is Us crowd conveniently ignore. They ignore it out of blindness, or incompetence, or—occasionally—out of malice. They ignore this key issue like the elephant in the room that’s gone and got drunk, and is now making a fool of himself: Balance of payments. Balance of payments (BOP) is the measure of a country’s total exchange with the rest of the world.

Lira notes that this 'current account' is the key metric, it's all about the trade surplus or deficit.

The U.S. current account has been negative for a long, long time (since 1973). Japan, on the other hand, has a current account surplus.

To finance this massive current account deficit, the U.S. has sold assets to the rest of the world, which are Treasury bonds. And as everyone knows, Treasuries might be called “assets” by the sophisticates, but they are really nothing more complicated than a loan. In other words, Americans and their government have gone into massive debt with the rest of the world, in order to finance all this spending.

Japan, meanwhile, has been carrying a current account surplus. Therefore, the Japanese government has been borrowing money not from overseas, but from its own citizen’s savings. All of the Japanese government’s stimulus spending has been paid for by the Japanese people.

This is the main difference between the United States and Japan and Lira argues it should be obvious — and ominous — what this difference means.

• The U.S.— unlike Japan—cannot pay back its loans: Because the United States is broke. The Federal government is running deficits of around 10% of GDP. America as a whole has racked up $7.5 trillion in current account deficits over the last 25 years — over 50% of total GDP — with no end in sight.
  
  So the United States — unlike Japan — has been spending what it does not have. The U.S. — unlike Japan — depends on the rest of the world to lend it money to continue on this spending spree. Americans — unlike Japan — do not produce enough to self-finance its government’s stimulus programs.
  
  Therefore — unlike Japan — the United States will eventually be unable to pay the Treasury bonds it has issued. Therefore... there will be a collapse in the Treasury bond market (triggering) a panic in Treasuries (that) will mean a run up of commodities — which will bring about the death of the dollar, and hyperinflation in America.
  
  But even if you don’t subscribe to my hyperinflationary scenario — even if you think I’m full of shit on this issue (and plenty of sensible people think I’m full of it to the brim) — it’s obvious that Japan is not like the United States—it’s obvious to anyone who looks at the situation evenhandedly: The contrast in the two countries’ balance of payments is enough to show definitively and unequivocally that they are not the same.
  
  The source of the two countries’ funding is key: One produces its own stimulus from its current account surplus, while the other borrows it from abroad, adding more debt on top of its already existing debt. Therefore, one country’s spending and stimulus programs — Japan’s — are sustainable, while the other’s — America’s — is not. Which means that the mechanisms for this fiscal debt—sovereign bonds—are rock solid in Japan, but lethal in America.

Lira argues that you are seeing a promotion of the 'Japan Is Us' point of view and that is leading money managers to do the hard sell and lead their clients into Treasury bonds — because if you were in Japan in 1990, their sovereign bonds turned out to be the smartest investments in the long run.

But the U.S. is not Japan and US Treasuries have been under performing.

Lira suggests

• "That’s why so many people keep insisting that Japan Is Us! - Japan Is Us! - Japan Is Us! They are selling their clients on something, or else trying to explain away their underperformance, by sheer force of personality — while ignoring the blindingly obvious fact that the U.S. is not Japan.

Which, of course, brings Lira to his foil in this debate, Mish Shedlock:

• One prominent blogger in particular has been going insane, insisting day after day that Japan Is Us, to the point of psychosis — evidence to the contrary be damned. Every day, this blogger — Michael “Mish” Shedlock — bangs on the same old tired drum. Mr. Shedlock is affiliated with Sitka Pacific, whose performance leaves something to be desired. There are, apparently, a number of Sitka Pacific clients quite nervous about the direction of their investments. So it is reasonable to question whether Mr. Shedlock is ranting and raving how the U.S. is following the deflationary spiral that Japan did because he genuinely believes what he is saying, or because he is trying to convince someone — maybe his clients, maybe himself — of something that he knows in his bones might not be true.
  
  What is true is that anyone who has made bets that Japan Is Us will soon find out if they were wise bets, or foolish ones. The Treasury bubble is soon to burst — so we’ll know the fate of the American economy soon enough.

Back to you, Mish Shedlock.

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Video clip on Bubbles

I promised a colleague I would repost these video clips from Chris Martenson on asset bubbles, the pattern they follow and past historical bubbles. It comes in two parts...

And finally, for what it's worth...

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I don't think 'HAM' got the memo

As previously noted, on June 12th we heard about how 'Hot Asian Money' (HAM) was maintaining property value on the west side of the City of Vancouver. Headlining the message was our buddy Cameron Muir from the BC Real Estate Association:



So here's Cameron - in the MIDDLE of the month of June - telling us 'HAM' is going to maintain property values on the west side of the city of Vancouver.

Well... lo and behold the latest Real Estate Board of Greater Vancouver (REBGV) statistics for the month of June 2010 are now out and things in June don't quite reflect Muir's appraisal of the situation..

Seems the 'Ham" didn't get the memo from Cameron.

The REBGV in June reported total sales of 2,972 which is the 2nd lowest sales total for June in the last 8 years. Only June, 2008 (when the world financial markets were imploding into the greatest credit crisis and subsequent recession since the Great Depression) had lower sales.

In addition to significant drop in sales, there has been a substantial rise in unsold inventory (17,564); it'ss double what it was 6 months ago (Jan/10).

These conditions combined to drive the overall REBGV benchmark price for all housing in all areas down by just over $10,000 from May to June.

But $10,000 is the average of all areas in Greater Vancouver combined.

On the west side of Vancouver, where all the supposed 'HAM' money was supporting real estate values, the benchmark price for detached homes dropped a significant $91,000 from May to June.

And up in toney West Vancouver, home of all the luxury properties the 'HAM' is supposed to be snapping up, the one month drop in apartment prices has been a significant 11.5% off the previous month's benchmark price.

As the blog Vancouver Condo Info notes with the clever graphic above, you could have gotten a free luxury car by waiting a month to buy.

We will see if the downward trend continues.

Brian Ripley, CEO, Oakes Ripley & Associates, certainly thinks it will. He was on BNN yesterday and not only does he think the downward trend will continue but he believes Vancouver is in for a signficant collapse.

You can see the Ripley interview here.

Meanwhile, stateside, noted American blogger Mike Shedlock (Mish's Global Economic Trend Analysis) has also taken note of these recent statistics and wrote:

"This pattern is quite similar to how things cascaded in the US once the top was in.

Housing Collapse Cascade Pattern

• Volume drops precipitously
• Prices soften a bit
• Inventory levels rise slowly
• High-end home prices remain relatively steady for a brief while longer
• The real estate industry tries to convince everyone it's "business as usual" and homes are affordable because rates are low
• Bubble denial kicks in with media articles everywhere touting the "fundamentals"
• Stubborn sellers hold out for last year's prices as volume continues to shrink
• Inventory levels reach new highs
• Builders start offering huge incentives to clear inventory
• Some sellers finally realize (too late) what is happening
• Price declines hit the high-end
• Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
• Gimmicks do not work
• Price declines escalate sharply at all price levels
• The Central Bank issues statements that housing is fundamentally sound
• Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt
  

Some of those may happen simultaneously or in a different order, but the whole mess starts with a huge plunge in volume.

I am now confident the peak in Canadian housing insanity is finally in.

- Mish"

So am I. Let's see what happens.

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It's Different Here

Last September I wrote a post about Mike "Mish" Shedlock, a top indie blogger from the United States. His blog (MISH'S Global Economic Trend Analysis) is consistently rated one of the top blogs on the internet.

On Saturday he posted an email he received from Canada defending the Canadian Housing Market and gave his reply. You can see it on his site here. I am going to reprint it here. Needless to say, I agree wholeheartedly with Mish.

• In response to (a post I made titled) Canada's Household Debt Reaches Record $42,000 a Person, I received an email from Paul Kilby of Canada (city unknown), who thinks it's different in Canada. After correcting at least 20 typos and spelling errors,
  Paul writes...
  
  As a Canadian I take great umbrage at yet another irresponsible bearish article from you.
  
  Reasons:
  
  1)Your type of advice has lost investors a double over the past 15 months,
  2)You have no understanding of how high ratio mortgages are funded in Canada(hint: Its not the cowboy Fannie, Freddie, package them and sell them as AAA debts etc),
  3)Canada's vast natural resources and tiny population largely insulate us from all but the direst long lasting downturn which we are obviously not having worldwide nor are we likely to,
  4)Our banks are very solidly capitalized and would require a 25% downturn in real estate values to even begin to dent this solid position as well as vast defaults on other debts. That's nationwide. We are not, I repeat not, oversupplied in housing in the vast majority of the country,
  5) Barring a worldwide collapse that would make 08-early09 look like child's play what calamity do you have in mind that would knock Canadian RE values for such a loop,
  
  Even you must admit the most likely scenario now is a world muddling through the next 3 to 5 years, hardly the stuff real estate collapses are made of.
  
  Do I think we will have a correction in overheated markets (Van to Calgary. Yes, but nationally this will likely translate into a 10 to 15 % overall decline and likely take 18 months to 2 years to complete.
  
  In case you haven't noticed, Bernanke, Geithner et al will not permit asset prices to collapse worldwide, the US dollar be damned. As an American this must be very upsetting to you but please don't pretend to know anything of Canada s economic position as you clearly don't.
  
  Paul Kilby
  
  
  Dear Paul...
  
  It is not different in Canada no matter what you think.
  
  However, let's start at the beginning of your rant. For starters, I did not cost anyone in Canada a dime. Most of my readers believe as I do and were not about to plunge into an overheated market no matter what I said.
  
  The rest are fools like yourself who think laws of economics do not apply to Canada because "It's different here". Those people bought regardless of what I said.
  
  Secondly, I am very aware of how the Canadian mortgage system works. Your system is arguably much worse than the US system of passing the trash to Fannie and Freddie.
  
  Canadian banks can and do directly pass every garbage loan to the Canadian Central Bank. In the US, Fannie and Freddie (in spite of their numerous faults), were actually among the more sane players in avoiding subprime slime.
  
  The worst of the trash in the US went to hedge funds, pension plans, foreign investors, etc.
  
  Canada's policy avoided the bank failures we saw in the US, but at the expense of bloating the central bank balance sheet with garbage. That policy will work until it doesn't.
  
  Paul, I have heard it all. I received taunts in 2005 about my housing crash call, in 2006 about my deflation call, in 2007 about my commercial real estate crash call, also in 2007 about my Europe is as bad as the US currency call.
  
  I even received taunts from deflationists telling me that it was irrational to believe in deflation and gold at the same time.
  
  My second favorite taunt came in October of 2007, the very day the market peaked. That day, I received an email from someone telling me "Mish, we are having Turkey for Thanksgiving and you are the turkey"
  
  My favorite set of taunts came during summer of 2008 when crude hit $140. That week I received numerous emails calling me an idiot for saying all time record lows across the entire curve were coming in US treasuries.
  
  Now, I have you telling me it's different in Canada. You sound just like the clowns who thought it was different in Florida, it was different in Las Vegas, it was different in San Diego, and it was different in Portland.
  
  Well I have news for you. It was not different in any of those places and it is not different in Canada either.
  
  That said, I certainly am not always right, especially on timing.
  
  I freely admit I was surprised that Canada was able to keep its housing bubble going. The same applies to Australia where I greatly sympathize with Australian economist Steve Keen who recently lost a high profile bet on home prices down under.
  
  As for "In case you haven't noticed, Bernanke, Geithner et al will not permit asset prices to collapse worldwide", that is one of the most ridiculous statements I have ever heard, because it it ignores hindsight, which should be 20-20.
  
  The S&P crashed. The Nikkei crashed. China crashed and in spite of world record stimulus from numerous central banks, home prices in the US are still falling.
  
  Thus, regardless of what Bernanke wanted, asset prices did crash, and they never fully recovered, especially housing.
  
  Finally, you tell me it's different in Canada because of natural resources. Pray tell, what percentage of the Canadian population works in mining or natural resources sectors?
  
  A Canadian housing crash is a given. Timing it is the only issue. Furthermore, the bigger the bubble the bigger the crash. Only fools believe "It's different in Canada".
  
  The pool of greater fools always exhausts itself. Timing it is the only problem. One timing indicator that frequently marks the top is taunts from the true believers who think "It's different this time."
  
  It never is.
  

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An American Blogger's Observations

Mike "Mish" Shedlock is a top indie blogger from the United States. His blog (MISH'S Global Economic Trend Analysis) is consistently rated one of the top blogs on the internet.

On Monday he wrote about an interview he was invited to do with Max Keiser. The topic: deflation and the state of the US economy. During the interview Shedlock offered his thoughts on the Canadian Housing Bubble.

Afterwards he was deluged with email defending Canadian banks and the Canadian housing situation.

Here is Mish's response to those email's...

• "[In my interview with Max Keiser], when I mentioned the Canadian housing bubble, I received numerous emails from people telling me that Canadian banks were in better shape than the US, that lending standards on houses were tighter, and that commodities would support Canadian home prices.
  
  Perhaps banks are in better shape but that does not mean they are in good shape. But the real reason we can say Canadian housing is in a bubble is the same reason the US was in an identifiable bubble:
  
  Home prices are standard deviations above rental prices and wages. That may not be true of every city Canada (it was not true in places like Danville, Illinois either), but judging from housing prices in Toronto, Vancouver, etc, it is crystal clear Canada is in trouble.
  
  I cannot quantify exactly how many standard deviations above norm the major Canadian cities are, but a look at home prices and acceleration in appreciation is telling in and of itself. In the US, homes prices to wages and rent were a whopping 3.5 standard deviations from the norm at the peak.
  
  Canadian home prices are a bubble waiting to pop. When the bubble does pop, it will take as long to fix as in the US, 6-8 years minimum, perhaps way longer, depending on how big the bubbles got in each location and the speed of the declines."

Observations with which we wholeheartedly concur.

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