It ain’t exactly the Super Bowl, but waiting for Canadian real estate to crash is now a US spectator sport. I mean, listen to this: “It is clear that the Canadian housing market has undergone a debt-fueled asset price inflation.” Such a statement is worthy of this pathetic blog (where it can be safely ignored, like John Baird), but it takes on a new import coming from a global investment site which (horrors) horny Asians might read.

In fact, the Canuckistan housing melt is big news. Last week Bloomberg was the first to pounce on documents released by the bank regulator in Ottawa throwing up alarm over Canadian subprimes, condo dangers and the exposure of lenders to meltdown. Then The Economist magazine estimated prices here could be too high by a riveting seventy per cent. Now the Wall Street Journal has jumped on the exposure Canada’s federal government has to excessive mortgage lending, in the wake of CMHC nearing its lending limit and the inevitability of a correction

“For years, Canadian bankers have argued that government backing of the country’s riskiest mortgages makes a U.S.-style housing and banking crisis unlikely,” the paper reported. “But as Canadian personal and mortgage borrowing continues to climb, international watchdogs have called on the government to better assess the risk that the high debt load now poses–not to the country’s banking system–but to government coffers.”

Hmmm. Lenders at risk. Government at risk. What else could possibly go wrong?

Well, according to Seeking Alpha, just about everything. In a two-parter cheerfully entitled, “Canadian Housing Market Collapse, the investment site compares and contrasts the American market and ours in terms of asset overvaluation. How this happened is irrelevant. The important thing to remember is that all assets eventually return to the mean which, for real estate, is usually determined by inflation.

US house prices, for example, tracked inflation fairly tightly until about 2000, when cheap rates and a distrust of stocks sent real estate ballistic. When the inevitable correction happened (deflation – returning prices to the mean) this asset class lost about a quarter of its total decline in the first year, three-quarters by the end of the second year and about 90% after three years. After five years now, it’s nearing the bottom. And in Canada we haven’t yet started.

Here house prices also grew along with the inflation rate until about the time Nortel crashed, and mortgage rates plopped. Then the surge began, lifting values close to 80%. Now a detached home in Toronto commands $750,000 and one in Vancouver is $1.1 million. The average Canadian house, for the first time, costs twice what Americans pay. Our personal debt surpasses theirs (another record) and Toronto has 300% more condo towers under construction than does New York.

So what happens next?

Says Alpha: “On average, housing prices will correct by about 25-30% across Canada, with some of the extremely overvalued markets (i.e.: Vancouver) declining more like 40% or more. If the Canadian housing market crash behaves like the USA one, expect most of the losses to occur in the first two years, and then slow down after that. Canadian banks will suffer, and may need a bailout. They are over-leveraged and over-exposed to housing market debt. I will not be surprised to see a Canadian banking crisis emerge in the next few years, and government bailouts to go with them.”

A Van house costing $800,000 today, we’re told, will eventually sell for $502,743, while the average $475,000 Toronto home will end up being $371,462. And this whole process will last as long as the American melt – something like five years.

Credible analysis? Actually it’s not far off the conclusions this oversexed blog reached in the sordid past, although a housing crash would end up being more F’s problem than that of the big banks, thanks to CHMC. But the big news here is that Canadian real estate is famous! In all the wrong ways! We’re screwed!

Imagine you’re in Guangdong, overseeing your industrial empire brimming with peasant labourers, feeling all horny about the west side of Vancouver, sipping tea and reading your Wall Street Journal and suddenly happen upon a story warning of Canadian collapse. This is how hot Asian money gets a cold.

Meanwhile, of course, mortgage rates are going up.

BMO killed off its 2.99 Special, now the Royal has raised rates on its four-year fixed by almost half a point, and bumped the fiver to 4.04%. The other banks will follow – just weeks ahead of the next federal budget expected to move again to deflate the gasbag before it ignites. Neither the feds nor Brother Carney at the BoC were happy with the mortgage war, the media slobbering it engendered nor the deluge of new borrowing.

I hope you’re ready. The second half could be a killer.

Let’s say you’re a realtor afraid the feds will squash you like a bug in the next budget. Whaddya do? Right. Fudge the numbers. And starting at noon Monday, that’s exactly what will happen. Real estate boards in Toronto, Vancouver, Calgary and Montreal are banding together with the mothership, CREA, to launch the Home Price Index. The goal: to make real estate look stable. Predictable. Safe.

Bubble? What bubble? You’re delusional, F. Go back to screwing seniors out of their pensions. We’re good here. Scoot.

As you may know, the finance minister’s expected to drop his 2012 budget next month. Besides starting to goose the age at which wrinkly people can access public pensions (as I detailed in the last post), the elfin deity is expected to address a housing market responsible for turning Canadians into voracious debt piggies. Odds are the 30-year mortgage will be toast, and he might even find the courage to ban the practice of banks giving people down payments in the guise of ‘cash back’ home loans.

Of course he has to decide whether or not CMHC will be granted more debt ceiling, now that it’s burned through its $600 billion allotment. And while at it, he might follow lenders’ reluctant lead and outlaw ‘stated income’ mortgages which allow self-employed Vancouver hairdressers to get $500,000 mortgages.

The impetus for all this is a massive run-up in real estate values of the kind announced on Friday by the realtor cartel in godless GTA, followed by The Mold House incident. As you may have heard, the average Toronto-area house (including a billion condos) now sells for $463,534, up 9% in a year. During that same year, family incomes fell 1% relative to inflation and household debt reached an all-time crescendo.

Worse, if you strip condos out, the average detached home in 416 is selling for $743,993, which is a gain of 15% in twelve months. That’s roughly equivalent to anything that happened during the American housing bubble which, sadly, ended in tears.

And it’s getting worse, at least in some areas, among people who get aroused by fungus.

The City of Toronto put three properties up for sale – run-down dumps which had formerly been used for community housing (unneeded now that poor people have been banned). They attracted 72 bids and orgiastic frenzy among a few dozen realtors. By quitting time a boarded-up semi-detached house full of mold and in need of a total gut, listed for $495,000, sold for $770,000. Here it is…

“It basically shows that there is a lack of supply on the market and, until that changes, prices are going to continue to rise,” realtor Brian Prashad told the media. (His client bid on three-storey home listed for $995,000 that went for $1.111 million, and is a total junker.) There are 11,009 houses for sale in Toronto right now, compared with just over 12,000 a year ago.

Of course, there would have been no sales and price surge without BMO’s 2.99 Special, no-money-down bank mortgages, 30-year amortizations or CMHC to wipe away lender risk. And while realtors may rejoice at the steamy market in 416 (one of the only places still delusional), it’s helped make the average house unattainable to the average family. That’s bad politics.

Enter the MLS Home Price Index. It’s clearly designed to obfuscate. Say the realtors, “HPI provides a less volatile measure of home prices and home price change compared to traditional average and median measures, which can swing dramatically in response to changes in the share of very expensive or inexpensive home sales from one time period to the next.”

In other words, it’s likely the beginning of the end of real estate boards publishing monthly average or median prices, instead referring media and the house horny to an index, designed to move in a far narrower range. The Vancouver board has used a similar fudger for some time, calling it a ‘benchmark.’ Monthly releases there no longer even give the average selling price of SFHs, for fear of scaring the crap out of everyone.

This is as regressive as it is cynical. By removing raw data further from public scrutiny, the real estate monopoly’s found a way to easily misrepresent market conditions, smooth out trend lines and stabilize a volatile and emotional commodity – just when the whole thing’s in danger of imploding.

But will the property virgins, impressionable cash-drenched foreign buyers and house-porn-loving urban masses fall for such a transparently manipulative trick?

Of course they will. This is Canada. It’s different here.

So over to F, to save us.

OMG.

Monday 3 pm update: Well, it’s as suspected. The realtors have launched an index which is described thusly: “The MLS(R) HPI is calculated using a sophisticated statistical model that is a hybrid of both the repeat sales and hedonic price approaches.” You can read all about it here. Hedonics. Damn, that’s what we’ve being missing.

Days ago I called retired people living in trailers on CPP, ‘losers’. Many blog dogs took offense. Which tells you how screwed we are. One of our myths is that the government will look after you when you wrinkle and shrivel and grow hair in the awful places. In reality, public pensions may keep you alive, but barely.

Worse, the system of income support we have now will soon be under attack, which should scare the crap out of every forty-something with a fat mortgage, two kids and 90% of net worth in a house. In case you had any illusions, the average amount of Canada Pension paid to people at age 65 is just $512 (you can double that if you contribute for a lifetime, but most don’t). And also at 65, everybody gets the Old Age Supplement. The average here is $504 (the max is $540).

So, that’s a grand a month – $12,000 a year. For a couple who both worked the average number of years, income is double that. Now name a single Canadian city where two people can afford rent, food, a car (or transit), cable, insurance, clothes, meds and a few simple Victoria’s Secret cherry red teddys with embroidered transparent organza bodice inset, on twenty-four large? Can’t be done.

And yet an apparently huge number of Boomers (and their house horny kids) are headed in precisely that direction. More people are retiring with a mortgage than ever before. Over 70% have no other pensions. Half the population have no savings. Debt is rampant and third of all households can’t pay their monthly bills.

And yet seven in ten Canadians have the most costly single possession of our society – a house. What’s wrong with this picture? Why would a blogger – whose parents (68 and 65) sold a $400,000 in Toronto, ended up broke after paying down debt, and face living in a buggy Muskoka trailer on the public stipend – defend them? There’s no justification for blowing through six decades of life and having nothing to show for it but a defensive 39-year-old.

CPP and OAS were never intended to finance anyone’s life, and never will. They exist as retirement supplements to money you’re expected to save and invest – skimpy little safety nets to round up the income that RRSPs and TFSAs and non-registered investments provide.

So what’s gone wrong? Sure, interest rates have tanked, so Canadians’ fav investment – GICs – pay next to nothing (that isn’t going to change). Yeah, financial markets have been scary for a few years and many people got creamed buying high and selling low (Nortel). Few employers offer pensions now, and even plump public-sector plans are under-funded and uncertain. But mostly, it’s been the historic concentration of wealth in real estate that’s truly messed with our heads.

Gone are the days when people waited until they had 20% or 25% for a house down payment. Now they buy with 5% down which means zero equity after closing costs and a new deck plus 60-inch flat screen. They have a baby or two, move up, spend more and borrow more. By age 40 millions of them have all kinds of stuff and obligations, but no actual money and precious little equity. It’s a financial death spiral.

The stuff I hear is sad. I sit with way too many couples on the path to nowhere. Their laser focus is on getting a hunk of real estate, and nothing else comes close. They can recite the current table of fixed and variable mortgage rates, but have no idea a TFSA is not a savings account or an RRSP is not a thing. I see middle-aged couples with zero savings frantically trying to pay down mortgages with rates less than inflation. It never occurs to them they have no diversification, way more risk and are paying back a 2.5% loan with money that could be earning 6%.

And daily on this pathetic blog we hear from house-heavy Boomers who simply can’t sell their properties. Too late they realized real estate can turn cold and illiquid. It’s an experience vast numbers of retiring homeowners are about to discover. So if you think a house is a financial strategy any more, think again. The coming tidal wave of wrinkly sellers will change your mind fast.

But here’s the news: Public pensions, as piddly as they are, will soon be under attack.

Over the next two decades the number of old retired farts will double. The cost of OAS alone will go from $36 billion a year to $108 billion. The bulbous generation will suck off $2.8 trillion more in retirement benefits than the taxes collected to support it.

So, expect the CPP age to eventually rise from 65 to 67, as is happening in the US and the UK. Expect to receive OAS only if you need it, not just because your sperm count falls. Expect the feds to again drop the age at which retirement plans turn into taxable income. Expect to lose the ability to take the public pension early, even discounted. Expect marginal tax rates to rise.

And expect Boomers to do to real estate what they did for saving.

Except for trailers.

A year ago it sat like a blemish on a silken face. Its broken and boarded windows beckoning yet more vandals. A dab of inner-city badass in a manicured land. This non-descript 4-bedroom, garage-pasted-on-the-front, face-brick home in a respectable tract of Mississauga was abandoned and decaying last March when a blog dog snapped the picture below (left) and neighbours gossiped about a foreclosure.

Of course, there are literally thousands of identical houses here, in a land of undulating streets devoid of stores or culture, where minivans swim upstram to breed. It also yields a nice insight into the real estate mess we’ve created, thanks to flippers, speckers and unbridled HGTV house lust.

5304 Glen Erin Drive is now for sale, spruced up with shiny hardwood and granite. Asking price: $834,800. Which begs the question – is an utterly unremarkable house on a street of clones in a burb 40 minutes from downtown Toronto worth most of a million dollars?

Increasingly, the world says no.

So far this week the alarm has sounded in many quarters. CMHC running up against its allowable lending ceiling, threatening the entire market. The second-largest mortgage lender cutting off commission salesguys and business owners, plus capping loans. The federal bank regulator warning of Canadian subprimes and a dangerous condo market. F muttering about all this being a ‘matter of concern.’ And now the banks (led by TD) moving to further protect themselves from potential losses by massive increasing rates on unsecured variable LOCs, from 5.5% to 8.5%.

The IMF has warned. So has the Bank of Canada. Plus analysts like Capital Economics (“We’re  not confident we can dodge the bullet and that there won’t be a correction in the Canadian housing market in the not too distant future.”). Bloomberg moved a worrisome piece on the Canadian housing bubble three days ago. And now The Economist, also read globally, has a column headlined: “After years of lecturing America about loose lending, Canada must now confront a bubble of its own.”

As the mag reminds us, there are 173 condo towers being built in Toronto. In New York (population 8,008,000), only 96. Worse, condo insiders estimated up to 80% of all new units in the GTA are gobbled by speculators, convinced prices will rise without end, regardless of supply overwhelming demand.

House prices have doubled since 2002. Household debt has swollen 40% in a decade. Regulators, economists, central bankers and politicians are worried. Lenders are moving quickly to cover their assets. Some markets are already showing signs of severe stress, like Vancouver – as I detailed yesterday, with sales down a sharp 16% and listings popping. And look at this chart of home prices in Victoria – one of the most expensive places in the country to live – at least for now.

So, what comes next? More real estate angst, even as mortgage rates stay at historic lows in the middle of a non-existent winter with the Spring market beckoning. I hear it’s unlikely CMHC will be granted an increase in its already-obese mortgage default insurance activities, once it hits the $600 billion ceiling.

The consequences: A rationing of mortgages to all those horny young couples swimming in hormones rather than cash. Expect fewer loans and higher rates on high-ratio borrowings. This is how Ron Swift, CEO of Pacific Mortgage, puts it to Canadian Mortgage Trends this week: “The result of these restrictions ultimately means there will be an impact on liquidity in the market place. I think this will first impact products that have the higher insurance costs, such as stated income and self-employed. They will either be stopped or the rates charged to these clients will have to be significantly increased. Either way, tightening liquidity, reducing mortgage options or increasing the costs will take some buyers out of the market, which will affect all of us.”

Now, tell me you didn’t see this coming.

When houses here cost twice as much in the US, when Vancouver’s the second least-affordable place on the planet, when icy Toronto becomes the condo capital of the world, when growth in debt swamps gains in income, when lenders get scared, and a flipper wants $834,800 for a Mississauga rescue, how is this a surprise?

Tomorrow: Pity the wrinkled ones.