Four days ago the Bank of Canada torpedoed its estimate for economic growth. The bank boss, Mark Carney, has changed his tune dramatically. The US will not recover for two years, he says.
Others aren’t so cheerful. Yake economist and real estate guru Robert Shiller says the American housing disaster is only half done. In fact, late last week the Canadian Real Estate Association shocked the industry by reporting house sales in Canada this year have fallen off a cliff. Around the entire world, there is nothing so devastating, far-reaching or destructive to wealth as a real estate meltdown. I can only imagine the effect on my street.
No wonder a new poll Sunday shows a majority of Canadians – for the first time in more than a decade – now worry we are sliding into recession. Over half of those surveyed say the Canadian government does not offer confidence or inspiration.
It’s hard to understate the importance of this, since the current government came to power promising competent economic management, lower taxes, trustworthy government, a better deal for families, and hope. Some two years later, families struggle with an identical personal income tax load, pay the highest energy prices in history, see job losses thanks to a runaway dollar and now worry about the value of their homes, where 80% of all net worth resides.
The fear is fear. Mounting fear of the times to come already has people second-guessing real estate purchases, which is why sales are down 22% in Toronto and 36% in Calgary. As sales drop off and sellers outnumber buyers, prices follow. And as housing values decline, so does the equity owners have – a serious issue with mortgage debt at the highest level in history, and the national savings rate at zero. After all, it was a real estate bust which made middle-class Americans feel stressed, which soon sank car sales, Bear Stearns and Home Depot earnings.
Does the Canadian minister of finance understand this?
Apparently not. If he did, he’d have cut income taxes, not consumption taxes. He’d not have approved 40-year mortgages, our own subprimes, in his first budget. He wouldn’t have talked up the dollar like a cheap sideshow barker. He would not have jacked federal spending to an unheard-of level, or squandered a $14 billion annual surplus.
I’ve said it here for months. The nuke waiting to go off is the housing market. The finger on the button’s attached to the minister.
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