Canada’s Housing Bubble: The American Version

Watching the Canadian Housing Bubble bloom (literally) in my back yard, I can’t help but make some comparisons, and ask “is this really happening?” The great thing about Statistics Canada (unlike the U.S.) is that they keep records of everything. I think they even have an average of Dudley Do-Right’s train-track rescues.

So I ran some numbers, and even some correlation statistics to make sure what I was seeing was real. Here’s what I found

debt

Seeing this made me crunch more numbers. The Pearson r2 was 0.79. Yes, that’s SQUARED for housing prices to debt, with an MOE of 1.43 on p=0.05. The other data that I compared was household debt to revolving credit, CPI and the Canadian U3 rate. None of those correlated to much (r2=0.29 for revolving credit). That makes the housing bubble real enough for me.

So what’s Canada’s monetary policy doing to fuel this bubble? Not much, other than issuing new housing permits at a greater level than before the recession.

GDP Canada

Permits

The Canadian M2 is nothing like the states. There was stimulus in 2008 as deflation and a shrink in GDP came along with the recession, but that’s to be expected in any advanced economy.

Now let’s compare that to the Fed Data for the U.S. along the same time period, that shows a largely different picture in housing as well as M2 (of course). My housing data is only available from 2009 forward, so I can’t look at pre-recession debt levels.

US GDP

house

Other than household debt going down in the face of housing prices in the U.S., what’s more striking is that in the U.S., a 0.5% GDP growth is something that will get most politicians in Washington, and most Wall Streeters drowning their sorrows in the corner bar. In Canada, a 0.5% GDP growth seems to be cause for celebration at the corner bar. Nominal GDP growth for Canada is supposed to be the same for the U.S. in non-recession times: 2%.

Economists shouldn’t be the only ones to pay attention to what the Canadian Housing Bubble will produce, but Sociologists and Political Scientists as well. There is no AIG in Canada, so taxpayers will be on the hook directly, as mortgages default with U6 rates. Watching the M2 in Canada will be a nice indicator for how the “socialized” version of Capitalism will play out.

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