One thing I learned in politics (besides how to duck) was the ability to look at yourself as others see you. Sounds small, but it’s big. Most people simply can’t tell when they are being dickheadish, obdurate or churlish. We exaggerate our importance, get emotional and assume our love life, hernia, house, marriage, anxiety, dog, career or puberty is more special than anyone else’s.
But being in politics means constantly assessing how you’re perceived, rather than how you are. It’s not about you anymore, but those who look to you. It’s humbling, especially when you realize how flawed a person you really are – something critics and opponents ceaselessly point out. They had lots of ammo with me.
I thought of this as I read two analyses of our housing market. Most Canadians see it as buoyant, stable and safe. “Already record home prices rise a further 2.3%, but no bubble seen,” gushed a Globe headline this week. National Bank economist Marc Pinsonneault went so far as to say prices can keep rising but they are “not indicative of an overheating market.” At Scotiabank, head egg Derek Holt chimed in with, “we believe that the Canadian housing market will do better than what many observers, including The Economist, expect.”
(The influential global mag has said we live in bubble territory by every measure, and houses here are seriously overvalued.)
Meanwhile, here’s the American view of Canadian real estate: House prices here will fall by up to 15% as mortgage rates rise and supply swells. But what about the recent increase in sales, especially in Toronto, Cowtown and Vancouver?
“I do think it’s a dead cat bounce,” says the chief investment officer of Sun Life Global Investments, Sadiq Adatia.
By the way, for those unfamiliar with the technical term ‘dead cat bounce,’ it refers to what happens when you toss an expired kitty out a high window. It bounces. But it’s still dead.
“I don’t think the demand is going to be there for housing,” says this guy, who manages $6 billion. And it’s useful to ask why – how this view can be so utterly at odds with what bank-paid Bay Street economists are telling people.
From the perspective of others, we’re delusional. The unemployment rate in Canada has been creeping up while that in the US creeps down. Most people believe the jobless number here will exceed that of the States next year for the first time since the dark days of 2008. Economic growth in Canuckistan will be so slow it’s now anticipated the US Fed will raise interest rates before the Bank of Canada does the same – a total reversal of what most analysts believed a year ago. And – most importantly – household debt is killing us, even as most people are blinded to it.
So, we just hit a new record. The debt-to-disposable-income ratio has notched up again, and it’s pretty much all thanks to more mortgages. Borrowing to buy real estate is rising at an annual rate of about 7%, says StatsCan, and we’re now making payments on $1.11 trillion worth of it. In fact, indebtedness is bloating far faster than incomes or economic growth, after growing more subdued in 2012. Apparently we can’t help ourselves.
The question, looking at the chart above, is whether the red line will keep rising, supporting higher housing house prices, or if it will crest and crash, as did debt levels in the US – sending housing along for the ride. It’s taken five years for that market to struggle from a 30% drop in real estate values to a mere 20% decline. Are we so special that our loans have no consequences?
Nah. We’re not.
The guy now in charge of the central bank, Stephen Poloz, says household debt is the biggest threat to the economy. He worries about that rather than than falling house prices, because the more folks owe, the less they have to invest or spend buying stuff, supporting job creation. Remember, in 2008 it was a credit crisis, not a US housing collapse, which brought the world to the brink.
Days ago a dumper row house in Toronto sold for $470,000 after being for sale for a week at $429,900. There were four offers on a home that last sold 34 months ago for $335,000, and three years prior for $205,000. The winning bidders – two virgins – took an inflated valuation, added 10%, and pretty much ensured they screwed themselves financially. This is what happens when you fail to see yourself as others do.
And here’s the house.
God help us.