Canada’s Housing Market Smackdown – OpEd


There’s no question that Canada’s gigantic housing bubble is going to burst. It’s just a matter of when.

Housing prices in Canada have more than doubled in the last 10 years, and in cities like Toronto and Vancouver, prices are up more than 140 per cent. But the soaring prices have nothing to do with wages which have remained relatively flat during the same period. What’s really driving housing prices is debt. Low interest rates and lax lending standards have created a speculative frenzy that’s pumped up a monstrous asset-price bubble that threatens to crash the economy and send unemployment skyrocketing. Now take a look at this from People’s World:

“The Canadian government requires that buyers only pay 5 per cent down payments… However, for buyers who do not have 5 per cent, the 6 major banks offer no down payment mortgages or cash back mortgages where they loan the buyer the 5 per cent down payment, offering 100 per cent financing. The banks also give mortgages to the self-employed and new immigrants without verifying income….(“Canada’s dirty little sub prime loan secret threatens to sink housing market”, Tim Pelzer, People’s World)

Sound familiar? This is exactly what happened in the US, isn’t it? Loans were issued to anyone who could fog a mirror including those who couldn’t even verify their income. Subprime, Alt-A, adjustable rates, ARMs, cash-back mortgages, piggybacks, ninjas, liar’s loans, no verification, no-down, interest-only, etc. were conjured up by the banks so they could grind out the maximum number of mortgages, bundle them up as securities, and sell them off to pension funds, insurance companies and big institutional investors.  This is the scam that brought the global financial system to its knees. Now we’re seeing a similar con in Canada.

Naturally, one would expect the government to do whatever-it-takes to “cool” the market to avoid the kind catastrophe that leveled the US, but that hasn’t been the case. In fact, Prime Minister Stephen Harper hasn’t lifted a finger to tighten regulations or reign in the Central Bank’s “accommodative” monetary policy. It’s almost like Harper wants the bubble to burst. Take a look at this:

“The federal government has insured all these low down or no down payment mortgages through the Canadian Mortgage and Housing Corporation (CHMC), a state housing agency whose 10 member Board of Governors is heavily represented by the Housing industry — 3 developers, 1 real estate broker and 1 partner in a plumbing, renovation company. The CHMC would be the Canadian equivalent of the US government-backed Freddy Mac and Fanny Mae insurance holders. The banks therefore can lend money to house buyers with zero risk. By removing risk from lenders who do not have to worry about the credit worthiness of the borrower, the government has encouraged imprudent lending practices, according to Turner. The Harper government even increased the agency’s insurable loan limit to $600 billion in 2009, an amount larger than the national debt.” ….(“Canada’s dirty little sub prime loan secret threatens to sink housing market”, Tim Pelzer, People’s World)

“Zero risk”, means free money. By underwriting the toxic mortgages that the banks are generating, the CHMC is providing a multi-billion dollar subsidy to the financial terrorists who are bent on destroying the economy.  And who is the chief enabler of this swindle?

Why Stephen Harper, of course.  Otherwise, he never would have increased “the agency’s insurable loan limit to $600 billion.” This is how the system works now; the big money guys situate their operatives at the head of government,  grab everything that isn’t bolted to the floor, and then make for the exits. And, that’s not all. There’s a second phase to this public fleecing. You see, all those toxic mortgages are going to create an ocean of red ink that will have to be mopped up by Canadian taxpayers. That will send the budget deficits  through the roof which will give Harper the justification he needs to slash government spending, crush the unions, cut medical and pension benefits, privatize more publicly owned assets and dismantle the social safety net. Funny how that works, isn’t it? It almost looks like it was planned that way.

As always, the present sting requires some cooperation on the part of the victims, that is, a large cross-section of the population must be willing to borrow enormous sums of money that they’ll never be able to repay. And, so they have. Canadians have loaded up on debt in the last decade pushing the debt-to-income ratio to an eyewatering 151 per cent by the end of last year. At the same time “Canada’s ratio of household debt to disposable income has risen by 40 per cent”…and “its ratio of house prices to income is now 30 per cent above its historical average” (“Look Out Below”, The Economist) In an economy that is barely growing, and where unemployment is still hovering above 7 per cent, this cannot go on forever. The slightest headwind or uptick in interest rates will reverse the surge in prices and put the market into a downward spiral.

When the day of reckoning finally arrives, there’s bound to be considerable pain, especially since nearly 7.5 per cent of the workforce is employed in construction-related jobs. (“some 27 per cent of Canada’s employed depend on the bubble.”) In the US that number has slipped to just 4 per cent. We can also expect to see a sharp increase in foreclosures,  defaults and bank failures. Canada’s banks avoided much of the post-Lehman Brothers fallout, because they were not heavily involved in derivatives trading. They probably won’t be that lucky this time. The deleveraging cycle that follows the unwinding of a massive asset bubble, will slow personal consumption, constrain growth and bear down on bank balance sheets like a Force 5 hurricane.

On June 5, 2012, Bank of Canada Governor Mark Carney announced that he would hold off on raising interest rates even though housing bubble red flags are waving everywhere from Vancouver Island to Nova Scotia. No matter, the farce must go on. 

Carney knows that if he holds off on raising rates he may be able to lure a few more suckers into the market before the house of cards comes crashing down. Besides, it gives his speculator friends a little extra time to rake in their illicit profits.  Just look at this:

“Some developers, and intermediaries, are in the business of helping speculators flip their rights and pocket a fee for doing so. For instance, Mr. X from Asia pays $15,000 for the right to buy a $300,000 condo, then, when the price of similar units rise to $400,000, he can assign the right, get his deposit back and make the $100,000 difference. There is a frenzy of this speculation going on which makes prices escalate so rights can be bought and resold over and over again before a building is completed.” (“Taxpayers also victims of ‘hot money’ behind Canada’s condo bubbles”, Financial Post)

We’ve seen it all before, right, in Ireland, Spain, UK, the US and now Canada. And every time, the government twiddled its thumbs while the little guys were ripped off by speculators. 

On May 22, 2012, the Organization for Economic Co-operation and Development (OECD) called on the Bank of Canada to raise interest rates saying that “negative real short-term rates are stoking a housing bubble.” 
Naturally, the recommendation has been shrugged off, as has any attempt to  stiffen lending rules to put a damper on speculation.  So, what should we make of this? Why are policymakers–who have access to the same data as us– refusing do anything to mitigate the effects of what is likely to be a very excruciating meltdown? 
Could it be that it’s all part of a plan to use the crisis as a means to dismantle the welfare state and reduce Canada to 3rd world poverty? 
Yup. That sounds about right to me.

Mike Whitney

Mike Whitney writes on politics and finances and lives in Washington state. He can be reached at [email protected]

5 thoughts on “Canada’s Housing Market Smackdown – OpEd

  • June 16, 2012 at 7:02 pm

    “What’s really driving housing prices is debt.”

    Debt? 85% of Vancouver buyers are from mainland China and you say debt is driving housing prices? That’s why David Dodge said raising interest rates wouldn’t affect anything. He was dead on. It won’t.

  • June 16, 2012 at 10:49 pm

    85% of Vancouver buyers are from mainland China??? Really I’d like to see some stats to back that up. Even if some are from Asia. There are barriers beeing put into place that make it much more difficult for HAM. Hot asian money.

  • June 17, 2012 at 2:23 am

    Born and raised in vancouver, I couldn’t agree more. The sad part is most of my friends and family have blindly walked into this Housing Bubble and will be financially devastated by the ensuing POP. The resulting aftermath will dismantle the working middle class and services will mostly likely be cut and jobs lost.

    I’m the white elephant in the room whenever i hint at such a scheme. I’ve been ridiculed and scoffed at on numerous occasions for leaving vancouver and finding work in Northern AB.

    When asked ‘Why would you leave the BPOE and rent elsewhere?’ I respond, Can’t Afford Vancouver. “But you’re an electrical Engineer”. Yeah i know.

    Can’t imagine how people leveraged beyond believe will react when the housing bubble pops.

  • June 18, 2012 at 2:45 am

    Whether intentional or not, the consequence of this easy money policy of the past decade will be the impoverishment of the majority of Canadians. As in the 20′s, at the right time, the bankers will foreclose on possibly millions of Canadians. And those who believe that the government will not allow the banks to do this to Canadians, just need to look South of the border. Even after Obama’s repeated assurances to help distressed (and defrauded) home owners, all that has happened is that trillions have flown to banks. Even after the fraud of Robo-signing came to light, no banker was charged criminally and the banks got off with a few million dollars in fine while untold numbers of homeowners were defrauded out of their properties. Mass foreclosures did happen in Canada during the depression, and will happen again. And don’t expect Harper etal. to come to the rescue of Canadians. So is all this accidental that the Govt.s and Central Banks with the best Economists and models at their disposal were unable to foresee the consequences of their policies? I highly doubt it, and if it was accidental, then the politicians would act in good faith and initiate policies that would correct their mistakes. Then Obama would truly have helped the homeowners and not the banks who caused the problem. Then Harper etal. would not have brought in sub-prime mortgages and emergency rates knowing what had transpired in the US. So I have to conclude that this has all been done deliberately with a specific intent in mind, that being the impoverishment of the Canadian Middle Class. Bad times lies straight ahead and RE prices will the least of the concern of most Canadians in the coming years!

    • June 18, 2012 at 3:37 pm

      Harper this, Harper that… The middle class will be the downfall of the middle class. No one held a gun to these people’s heads and forced them to bid up homes to astronomical levels – something that they are still doing today, despite all the talk about a housing bubble. A lot of people have/had a sense of entitlement and are/were driven by greed. I’m not interested in helping these people at all, they made their bed, they can lie in it. Reality is knocking, and once the door opens, it won’t be pretty. By the way, stop referring to these people as “homeowners”, they are “debtowners” considering the majority of people only have 15% or less equity stake in “their” homes.


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