In the wake of the US mortgage meltdown and housing market collapse, many Canadian politicians bragged about how Canada had avoided the same problem.
And while we certainly didn’t see a full-blown housing collapse in our country at the time, there are disturbing similarities between where Canada’s housing market is now, and where the US housing market was before the crisis.
Take a look at the chart below comparing Canada’s housing market to that of the US pre-crisis:
Of particular importance is the house price x income. It shows Canadian homes are less affordable than American homes were at the height of the crisis.
That’s a big concern.
It’s important to note how quickly a crisis can happen. For the longest time, people just thought the US housing market was slowing down (a “correction”). But once people started to realize the market wasn’t going up anytime soon, high indebtedness and reduced confidence began to snowball into a massive crisis.
Canadians are already facing stagnant or even declining wages, and increasing levels of personal debt. This has put our economy in a dangerously fragile position.
At a moment like this, the slightest thing can be the straw that breaks the camels back. In that context, we need to think about the fact that the impending carbon tax will make our economy even weaker. That could push Canada closer to a crisis and possible housing market collapse.
What should be done to prevent a possible housing market collapse?
To reduce the chance of a crisis, we need to strengthen the financial position of Canadians. That means we need to put more money back in the pockets of Canadians. We need lower taxes – particularly for middle-class and low-income people, and the carbon tax has to be cancelled.
The reason for this is simple. The more Canadians are paying in taxes, the harder it is to make ends meet. The harder it is to pay the bills, the more debt Canadians will carry. The more debt Canadians carry the more vulnerable we are to a housing market collapse, which could bring down our entire economy.
As we get closer to a potential crisis, the government must act now to put monebacky in the pockets of Canadians. Otherwise, we might not be laughing at America’s past housing woes much longer.
Photo – Twitter