Canada Day, 2011.
Gas is $1.42 a litre, and a five-year mortgage hovers close to 8%. Effects of the crash of Autumn, 2008 are still being felt, even a year into an â€˜officialâ€™ recovery. Unemployment is chronic and the federal governmentâ€™s deficit will still top $40 billion with no hope of a balanced budget for at least half a decade. As a temporary measure, the GSTâ€™s been raised 1%.
Chrysler Canada is gone, of course, along with the notion of daily newspapers and network television. Newspapers and TV still exist but everyday publishing and local TV news are in their death throes. As for Chrysler, all that remains is a $4 billion bill which will never be paid.
The big story is real estate. Just two dozen months after the market entered a classic suckerâ€™s rally, replete with roaring prices, multiple offers and predictions of ever-higher valuations, homeowners despair. Since the summer of 2009, when the national average house price reached its zenith â€“ despite a recession â€“ homes have eroded by 15% overall, and as much as 44% in some areas of British Columbia.
Among those most impacted: first-time buyers, lured into in 2009 homeownership by historic low teaser interest rates, offers of no-money-down financing from the big banks and credible predictions made by respected groups such as the Canadian Real Estate Association, that the market had â€œreturned to pre-recession levels.â€
Cassy Luneau and her husband Vache, both 27, spent Canada Day on a Parliament Hill bench, which has been their residence since deserting their home in Mississauga three months ago.
â€œWeâ€™re still in shock,â€ she says. â€œI mean, we listened to the real estate guy, and read the papers about housing getting more and more expensive, so we did what everybody was doing â€“ what our parents wanted. We got a mortgage from the bank and they gave us a gift of money just for closing, to help pay for it. We just wanted a nice new house with stainless and granite and stuff. How were we supposed to know mortgage rates would go up and house prices go down, so after, like, a year we owed more than the place was worth. We couldnâ€™t afford to sell it, and with Vache losing his job at the airport, we couldnâ€™t afford to stay. So we came here. I mean, itâ€™s all their fault, right? The politicians. I hate the bloodsuckers.â€
Canada Day, 2009.
This week the most authoritative gauge of US house prices showed they tumbled 18% in the latest period. The Case-Shiller Index indicates American real estate has lost 34% of its value since peaking two and a half years ago.
The best guess is that while the pace of the price decline has moderated a little, it will continue for another two years. By that time, American homes will have eroded by between 40% and 50%, more than during the Great Depression, wiping out the life savings of millions of middle-class families.
By the middle of 2009, house prices are back at 2003 levels. Itâ€™s reasonable to assume another 10%-15% decline, putting them at 2000 levels by sometime in late 2010. Thus, an entire decade will have been lost. This comes amid news the Obama administration is seriously considering bulldozing sections of cities such as Flint and Detroit to wipe out housing stock, create natural areas and try to stem a real estate-induced urban collapse.
Will this happen in Canada?
Dozers, unlikely. A price correction, absolutely.
We continue to run roughly two years behind the Americans in this real estate saga. There is no escape.
Hence, two years from now, some heartbroken people will wish they might have read these words.
For Garth's latest podcast, click here.