​A Housing Bubble "doesn't just warp the real estate market, the knock-on effects can throw a region's entire economy into disarray."
Bloomberg via Visual Capitalist

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House Price to Rent Ratio ... Canada Ranks 2nd
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House Price to Income Ratio​ ... Canada Ranks 2nd
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Real House Prices ... Canada Ranks 3rd
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Household Debt to GDP​ ... Canada Ranks 5th

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The Canada Mortgage and Housing Corp. (CMHC) defines a household as being in “core housing need” if it “falls below at least one of the adequacy, affordability or suitability standards and would have to spend 30% or more of its total before-tax income to pay the median rent of alternative local housing that is acceptable (meets all three housing standards).” thecanadianencyclopedia.ca

"estimated that approximately 35,000 Canadians experience homelessness on any given night, and at least 235,000 Canadians are homeless in any given year."​ AND  According to the Canadian Observatory on Homelessness, mass homelessness in Canada emerged around this time (1987 Conservatives) as a result of government cutbacks to social housing and related programs starting in 1984 (Conservatives). In 1993 (Liberals), federal spending on the construction of new social housing came to an end. In 1996 (Liberals) the federal government transferred responsibility for most existing federal low-income social housing to the provinces.

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​Conclusion from Statistics Canada’s Insights on Canadian Society.

Using data from the 2016 SFS, this study looked at the association between the debt-to-asset and debt-to-income ratios and financial distress, while controlling for various socioeconomic characteristics. Three financial distress indicators were considered—missing non-mortgage payments, missing mortgage payments and taking out a payday loan.

The varied results call for a nuanced interpretation. The first point to note is that the debt-to-asset ratio tells a more consistent story than the debt-to-income ratio. Across all three distress indicators, people in the highest debt-to-asset groups have a higher probability of reporting distress. However, after controlling for other factors, the debt-to-income ratio is not associated with the measures of financial distress since the results are not statistically significant.

The debt-to-asset ratio might be a more predictive indicator because debtors can often sell assets to make debt payments, even if they do not have the income to make payments. Alternatively, those who own homes often have access to home equity lines of credit. These results are important because they suggest that the debt-to-asset ratio is a better indicator of financial precariousness than the debt-to-income ratio.

Additionally, some demographic groups face relatively higher probabilities of reporting financial distress, including lone-parent families, and “other” family types. Conversely, families whose major income earner had a university degree, were less likely to be in financial distress. Similarly, homeowners with or without a mortgage were less likely to miss payments or take out payday loans.

Financial distress has many dimensions and can take multiple forms. Future measurement should provide additional details, such as the frequency at which specific financial services are used when under financial duress. More research will be needed to better comprehend the extent to which Canadians are facing financial difficulties.

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​As Cities Grow, So Do the Numbers of Homeless Joseph Chamie, July 13, 2017 Homelessness is a mark of failure for communities in providing basic security. Based on national reports, about 2 percent of the world’s population may be homeless. Another 20 percent lacks adequate housing, reports demographer Joseph Chamie. Such statistics come with a caveat. Obtaining accurate numbers is difficult, mostly due to wild variations in definitions around the globe. Also, measuring homelessness is costly: Cities may under-count due to embarrassment while individuals avoid officials due to shame and fear of arrest and harassment. Reasons for homelessness include “shortages of affordable housing, privatization of civic services, investment speculation in housing, unplanned and rapid urbanization, as well as poverty, unemployment and family breakdown,” Chamie explains. “Also contributing is a lack of services and facilities for those suffering from mental illness, alcoholism or substance abuse and displacement caused by conflicts, natural disasters and government housing policies.” Even people with jobs can struggle to keep homes. As experts debate whether the issue can be resolved or not, some governments offer support programs while others do what they can to chase the homeless off to other locales. – YaleGlobal

Prominent Canadian economist David Rosenberg is warning that record household debt levels in the country will hinder economic growth...
​(ie: your income, your cash flow, your ability to service your debt)

​‘Maxed out’: 48% of Canadians on brink of insolvency, survey says.

Whaaaat?

48% - of Canadians are $200 or less away from financial insolvency every month.

35% - say an interest rate increase would move them towards bankruptcy.

54% - worry about their ability to repay debts. 

40% - said they won’t be able to cover all living and family expenses in the next 12 months without taking on more debt. 

​55% - say they are $200 or less away from the financial brink in Atlantic Canada.

51% - say the same thing in Quebec.
​
48% - say the same thing in Ontario.

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​But this is not new news because since the July 2008 commodity peak, the Canadian Balance of Trade has been negative for 77% of the time (monthly prints). Also the Federal Direct Investment metrics have been negative for the last 20 years and the spread has widened in the last 3. CLICK CHART TO ENLARGE

...and the Yield Curve

The flattening of the yield curve is a signal from the bond market that it is worried about the economy and its ability to continue to grow. In addition, it is a signal that future inflation is nowhere to be seen. One outcome of an inverted yield curve is a weakening in bank lending as banks begin to earn less profits from making loans. In the most recent earnings announcements, the banks have already made this clear as they expect net interest margins to contract. This is because a bank’s role is to borrow funds at usually lower short-term rates and lend those funds at usually higher longer-term interest rates. The spread between these two rates represents the banks’ profits.

However, with an inverted yield curve, the spread between the short-term and long-term rates narrows and the banks’ incentives to lend are greatly reduced. Not only is the profit margin eroded by the yield curve, but the banks could become worried about the possibility of an economic slowdown. As banks become less incentivized to extend credit (make loans) to their customers, it results in a vital lifeline of the economy being choked off. PacificaPartners.ca

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The Bank of Canada acknowledged that our current economic slowdown is now “more pronounced and widespread” than it had previously forecast.

Global economic momentum is slowing.

Our economic slowdown has been sharper than expected.

Housing and consumption have slowed, and business investment and exports haven’t picked up the slack as the BoC had hoped.

Inflation expectations have been lowered.

Uncertainty is increasing.

Our output gap is widening because debt is choking off growth, and that is a powerful, long-term headwind, which will continue to exert itself long after global trade networks have been re-established.

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While China’s characteristics are unique, there is a distinct pattern of policy activism that can be seen globally that has been of limited effectiveness in curbing house price appreciation. The housing market crash that occurred a decade ago was global in nature... IMF, April 2018 ​ CLICK CHART TO ENLARGE

CLICK CHART TO ENLARGE ​Apparently it's still global and a lot of us are in the deep end of the debt pool now. Makeway for China as the water level rises.

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​Between January and October last year (2017), according to recent data from Southwestern University of Finance and Economics, Chinese household leverage rose more than eight percentage points, from 44.8 percent to 53.2 percent of GDP -- a record increase.

By contrast, between 2009 and 2015, households had added an average of just three percentage points to their debt-to-GDP ratio each year, and that includes a large jump of 5.5 percentage points in 2009 as banks ramped up lending in response to the global financial crisis. Before 2009, household debt levels had hovered around 18 percent of GDP for five years. In other words, the debt burden for Chinese consumers has nearly tripled in the past decade. 

Part of that rapid debt expansion has been deliberate. China’s government has encouraged increased borrowing and spending on items like cars and houses, to boost both consumption and investment. At the G-20 summit in February 2016, China’s sober central bank chief Zhou Xiaochuan remarked that rising household leverage had “a certain logic to it.”

At the same time, a generational shift is unfolding. Younger, urban Chinese are proving more willing to bring their consumption forward to today rather than pushing it off to the future as their parents did. 

Most worryingly, though, skyrocketing home prices seem to be driving much of the increase in household debt. Andrew Polk, Bloomberg, February 2018
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China's economy is headed for a difficult decade.
Michael Pettis, March 2018

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My recent update of Foreign Direct Investment on my Canadian Household Debt, GDP,  and Balance of Trade chart demonstrates that Canadian Capital would rather flee than fight.

​The Canadian Imperial Bank of Commerce anticipates it will issue half as many new mortgages in the latter part of the year as it did in the same period of 2017 amid cooling in the real estate market. Times Colonist May 23, 2018

David Rosenberg: Ottawa created the debt monster that Canada now faces.
"47% of residential mortgages
​are set to roll over for renewal next year."

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, joins BNN Bloomberg to provide his take on the Canadian economy as Bank of Canada Governor Stephen Poloz sounds the alarm on household debt in this country. Originally aired on May 2, 2018 on BNN Bloomberg

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"With portfolios still weighted towards equity, but overweight in cash and shorter-duration fixed income, we can afford to sit still into next week and allow the market to choose its path."

Intermediate-Term Picture Remains Bearish

​On a intermediate-term basis, both of our weekly “sell signals” remain, and as shown below, the market once again failed at its overhead trend line last week as well as the downtrend resistance from the previous peaks. These failures keep downward pressure on the market as prices continue to follow the “path of least resistance.”

The weekly chart also shows the rare “buy” and “sell” signals issued on a longer-term basis. Currently, as the market struggles with its current correction process, it is also very close to triggering a more important “sell signal” which could indicate a further correctionary process over the next several months.

Over the last 25-years, these sell signals have only been triggered 5-other times.

1. At the peak of the market prior to the “Asian Contagion”
2. Just prior to the peak of the market in 2000
3. At the peak of the market in 2007
4. At the peak of the market 2011 as QE-2 ended and the U.S.was facing the “debt ceiling debate.” 
5. Near the peak of the market from the collision of the end QE-3, the “taper tantrum” and “Brexit.”

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It is clear that some sort of correlation exists between stock values and real estate values.  Stocks started their recent bull run in 2009.  As you can see from the chart above, real estate values didn’t start moving up steadily until 2012.  So there is a lag here.  But what is interesting is the correction in stock values in 2008 matched up with real estate values.  In fact, real estate values started trending lower before the market crash. DoctorHousingBubble.com

In ​January 2018 the S&P 500, DOW and TSX peaked.

Toronto real estate peaked in 1Q 2017 although condo prices hit a new price high last month. Vancouver prices peaked 3Q 2017 and like Toronto, strata prices are still peaking as of last month. ​ Calgary prices peaked 2Q 2017 with condo prices hitting their high back in 3Q 2016

​U.S. vs Canada Private Debt to GDP

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Steve Keen "Can we avoid another financial crisis?"

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​In December 2017, the 10yr less 2yr Canada Government bond spread narrowed to just 32 beeps away from inversion.

Market history is littered with downturns that followed new Republican presidents: Hoover (1929), Eisenhower (1953), Nixon (1969), Reagan (1981), and Bush (2001). The Trump bubble will likely prove to be the mother of all Republican presidential ebullience bubbles. Trade wars are not positive at all for the markets. They are what exacerbated the Great Depression and they should be one of the key triggers of the bursting of the China bubble.

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Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017

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The Premier of BC Christy Clark is in the news again with her pre-election enticement of no interest loans for 60 months of up to $37,500 to wannabe buyers who need a bigger cash down payment to qualify for a mortgage to purchase real estate in BC's absurd housing market that has been on ice since the summer. BNN Dec 16, 2016

Ontario land transfer tax rebate doubled to $4K for first-time homebuyers. City News November 2016.
​
Ontario’s land transfer tax rises from 0.5 per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto’s land transfer tax is one per cent on the first $55,000 and two per cent on the rest. Toronto offers rebates of up to $3,725 for first-time homebuyers.

Sousa also announced a freeze in the property tax on apartment buildings while the government reviews how the tax burden affects rental market affordability. (​Will landlords pass this along to tenants?)

CHMC Promotions Oct 2016 by the Globe and Mail

• 1992 Allow RRSP withdrawals for home purchase. 
• 1999 Allow purchase with only 5% down payment.
• 2003 Remove house price ceiling on insured mortgages.
• 2003 "Green" mortgage insurance premium reduction and environmental incentives.
• 2005 Self Employed can self declare a 15% gross up of income and access all mortgage insurance products.
• 2005 Amortization increased to 30 years on insured mortgages.
• 2006 Amortization increased to 35 and 40 years on insured mortgages.

Warning from the Bank of Canada:
Risk of household financial stress and a sharp correction in house prices.

Property is an illusion by Satyajit Das

The End of growth as we know it by Satyajit Das - Key themes of his new book "A Banquet of Consequences"

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"Whatever the cause..." ​The WTO in their concluding paragraph from their September 27, 2016 Trade Statistics and Outlook is not sure why global trade growth is declining.

A number of reasons have been advanced to explain the decline in the ratio of trade growth to GDP growth in recent years, including the changes in the import content of demand, absence of trade liberalization, creeping protectionism, a contraction of global value chains (GVCs), and possibly the increasing role of the digital economy and e-commerce, but all have likely played a role. Whatever the cause, the recent run of weak trade, and economic, growth suggests the need for a better understanding of changing global economic relationships. The WTO, and other international organizations, are working hard to understand this current evolution and its implications for continued growth.

On a provincial basis, Ontario has the lowest proportion — 41.1 per cent — of jobs at high risk of automation, while P.E.I. has the highest with over 45 per cent of jobs at high risk of automation over the next 10 to 20 years.

Bob Dylan wins Nobel Prize for Literature
​BBC News October 13, 2016

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