Wednesday, September 2, 2009

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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