Canada Overvalued

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Inflationists need a Rally

The Economist ranks Canada's housing as the second most overvalued in relation to both rents and income. This is not news to the readers of these pages who have seen the various Demographia posts and have lived through the faux appraisals untethered from fundamentals.

Our only remaining question is why do high net worth individuals expose themselves to such great risk by continuing to swap cash for negative returns? 

We know why the retail buyer has bought the farm; the government has been subsidizing credit to anyone via CMHC. Ironically that's us taxpayers; we have been blowing up the balloon. Cheap credit has masked the outrageous principal amount before interest that glib marketers tout as affordable. The granite and stainless steel may be fashionable at the moment, but at these prices when you look back from the future, you are buying a hovel.

My case study demonstrates the futility of Vancouver as a port in the storm and now that we have "real" yields breaking out, mortgage lenders are getting ahead of the curve by raising rates to mitigate term risk and not waiting around for the Bank of Canada who is still betting on shorting cash via ZIRP.

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