Harbingers of doom

Andrew Coyne Apr 10, 2012 – 6:00 AM ET | Last Updated: Apr 10, 2012 11:55 AM ET
Even by Maclean’s standards, the cover was alarming. “You’re about to get burned,” screamed the headline, over a picture of a house that was literally on fire. “Canada looks like the us before its devastating housing crash — maybe even worse.” And the kicker, for those still hesitating: “Why it’s officially time to panic.”
This last was doubtless something of a little in-joke. For my old colleagues at Canada’s newsweekly, it is always time to panic, especially about house prices. The magazine’s editors inhabit a world beset by all manner of hitherto undetected demons, from more expensive groceries (“sudden shortages, riots over prices, the world food crisis is about to hit home”) to insomnia (“the truth about a modern epidemic”) to, well, “The Return of Hitler.”
But nothing, nothing frightens the magazine or, it is hoped, its readers, more than real estate. For years Maclean’s has been shuddering in terror of the imminent collapse of the Canadian housing market. From the relative calm of its late 2007 cover story (“Buy? Sell? Panic?”), the magazine soon picked up signals of the coming apocalypse. “House prices start to fall,” the magazine announced the following summer. By autumn, with the world financial crisis in full swing, so was Maclean’s. “Canada’s Looming Real Estate Crisis,” the cover shouted: “Why house prices may soon fall through the floor.”
As the months wore on, and the cataclysm failed to arrive, Maclean’s remained ever hopeful of a real collapse. But durned if prices, after a brief dip, resumed rising. By June 2008, a grumpy Maclean’s was warning readers “Don’t believe the housing hype,” insisting there are “plenty of signs that the Canadian housing market is still on some very shaky ground,” even if “average home prices are up more than 16 per cent this year.”
Fast forward through several more stories in the same vein and by this year the magazine and others were in even less doubt: Canada was in a housing bubble. Why, just look at the numbers. For starters, there’s the oft-repeated fact that Canadians are carrying debts worth 153% of their annual income. That’s true: but other countries’ citizens manage much heavier debt loads, from the spendthrift Swiss (200%) to the feckless Dutch (260%) to the profligate Danes (320%). We may be carrying almost as much debt as the Americans before the crash, but with nothing like the same risk factors, from subprime mortgages to small regional banks, that made their economy such a firetrap. And if we’re mentioning how Canadians’ debts have grown, we should surely also mention that their assets have as well: still five times as large as their debts.
Mortgage costs, interests and principal combined, are currently running at about 30% of disposable income — again, higher than a few years ago, but barely half what they were in the early 1990s. Yes, house prices were still rising as of year-end, but more slowly than before, as even the Maclean’s piece acknowledges — though somehow it cites this as evidence for its doomsday thesis. But then, what doesn’t? If prices were rising quickly, that would be proof of housing “mania.” If they fell a little, that would be the bubble starting to burst. And if they fell a lot? Look out below!
The truth is the real estate market is cooling slightly, helped by a modest tightening of lending regulations. It’s true that a rise in interest rates from current, historically low levels would put some homeowners in distress, but they’d have to spike a long way before the damage grew widespread — a concern, sure, but nowhere near as frightening as, say, the return of Hitler.
Posted in: Financial Post Magazine Tags: Canadian housing bubble, Maclean’s, real estate