When asked by a reporter last week if Canada has a housing bubble (real estate prices increased by 20 times inflation last year), the official CMHC response was: “it is not clear that this perspective  is supported by the facts.”

Welcome to Canada. Enjoy the ride. Bags are in the seat pocket in front of you.

Facts, of course, are elusive little buggers. You think you have one by the wing or the foot, and then they wiggle away and disappear under a baseboard. But I’d imagine the feds could look at the recent Demographia survey showing Vancouver, Victoria and Toronto on the list as being among the most unaffordable places to live. Or the sidewalk sleepovers of speculators in front of Yaletown or Bloor Street condo sales offices. Or the 87% jump in Toronto sales last month. Or Vancouver’s average $950,000 single family home. Or a national house price surge of 19% in a year when wages went up zero.

Or this blogger in Victoria, who writes me:

I bought a new condo, 2000 sq ft, facing the ocean on ocean frontage in 2007 for $1,200,000 A rental agency has advised me not to take short term tenants since possible damages to the condo may deflate the value.

I partly financed by taking a conventional mortgage on my present home property for $875,000 prime minus .69%. Current rate is 1.56%. My home property is appraised at $1,700,000 (2007).(Prime ocean front). I rejected an offer of $1,600,000 in 2008. The market is firming up again in the Victoria area. We intend to move to the condo when the house is sold. My question: I would love to deduct the mortgage interest on the condo! How can this be done?

Just to put this in Dick-and-Jim terms for the feds: Guy with inflated property borrows 50% of its value to buy a spec property with 72% financing. He is able to get a mortgage at 1.56%, which is the current rate of inflation, which also means the money is free.

Guy is a tool. His action serves only to pump up real estate values further, thanks to absurd interest rates, orchestrated by the Bank of Canada. He now wants to deduct the interest on his free mortgage money from his taxable income, which means other taxpayers (who don’t have $2.7 million in real estate) would pay half his costs for him.

And you think we have not created a casino mentality?

Interestingly enough, even the commercial bankers are now asking Ottawa to slam the on the brakes. Covering their collective posteriors, the lenders have made it known they told F three months ago that mortgage lending rules need to be tightened, if Canada is to avoid the kind of post-bubble carnage that ate the US middle class.

So, they want CMHC to be forced into raising the minimum down payment eligible for insurance from 5% to 10% – and perhaps even trimming back on the max amortization, to 30 years from the current thirty-five. The impact of this would be major, knocking an army of first-time buyers out of the market.

Of course, it would also be the right thing to do. After all, this housing inferno needs constant fuel, and that’s been provided by buyers who have no money – but who do have the CMHC, which by insuring 95% financing guarantees they can borrow as cheaply as the tool in Victoria.

Having said that, it is more than convenient for the commercial mortgage lenders to lay this all on the feds. As this blog has liberally reported, certain of our banks still provide liar loans, while others give cash kickbacks to new equityless borrowers. All of them court mortgage business, cater to first-timers and played a decent role in the housing bubble run-up by approving loans based on postal codes.

I’d think it would be a highly responsible move if they cleaned up their own acts first, not to mention being in their own naked self-interest. If the real estate market implodes and negative equity seeps north, there will be anguish high above King & Bay.

As for the feds, well, we’ll see what F does. The last I heard, he’d rejected down payment changes, since the hot housing market is masking the utter failure of the stimulus program. Yup, the one that’s put us into a $56 billion hole this year.

Sad.

The housing runup has increased the cost of shelter for all Canadians. The gains made will be, at least in part, illusory. The debts incurred will be legacy. The trip back down, nauseating.

Deduct that.

Hear Garth. Nanaimo Sat, Victoria Sun. Conf Ctrs.

Real estate’s a fundamental part of net worth. You should have some.

I have not been propertyless since I was twenty. Probably never will. But I made the decision long ago, having been through real estate booms and busts, the bulk of my net worth would always be elsewhere.

It’s this one tenet of personal finance which has saved me. Instead of buying high, I bought modest. Rather than pile on debt, I scrambled out of it. I sold routinely to take profits and never put them back into real estate. And I don’t have granite countertops in the bunker (pictured above).

But that’s me. I’m unconventional. Liquidity turns me on.

I mention this because most people are so screwed. And real estate has done it. Ever-higher prices have been trumped only by ever-higher expectations. Cheap money for some time has made modest people feel wealthy. Children buy first homes nicer than their parents’ final ones. Consumption replaces wisdom, and HGTV becomes the news.

Debt seems immaterial since so young buyers know they’ll never actually pay it back. All that matters is the carrying cost. The mortgage that was there upon purchase will still be there when it’s sold. You just pray the market keeps rising, and rates behave. But those times are ending.

I thought of this in light of a new survey – one of the many done this time of year by banks. On one hand they pimp us with bushels of near-free money, on the other they guilt us for owning much and possessing little.

This report is clear and stark. Twenty per cent of people are counting on an inheritance or a lottery win to retire. Over 90% are afraid of retirement. Over 50% of those working fear they have e saved too little. And 60% of those under 35 basically have nothing.

I could go on. Seventy per cent of us have no pension. Six in ten have enough in an RRSP to last two years. Millions will be spending a decade or two living on CPP. Max $17,000 a year.

At the same time, close to 70% of Canadian families own real estate, making us one of the most house-hugging nations on earth. We’ve made the collective decision to plow most of our net worth into bricks and dirt, having swallowed the Kool-Aid that values will always rise.

But nothing rises endlessly. All booms end badly, and every bubble bursts. Given the historic debt now gripping each nation, all levels of government and virtually every household, such a path is a dangerous one. Like I said, real estate’s an important asset and most of us should have some. But it is not a substitute for real wealth – the kind you can use for gas, food and your ISP bill.

What’s my point?

Simple. It’s time to take profits. Put them elsewhere.

Live beneath your means. And above fear.