Maybe it’s the looming end of summer. Maybe the fact everybody’s house has started to devalue. Maybe it’s just me. Whatever. But the number of dog-head comments I’ve blocked from this site in the last couple of weeks has shattered old records.

And, hell, I’m just getting started. If anonymous Internet weenies are saying those things about my wife now, just imagine what happens next year. Thank goodness I keep her safely locked up.

One theme is not what happens over the course of the next six months (which seems predictable enough), but rather the next five years. Between now and 2015 is a pivotal time, especially after the events of the last two years. The federal government will be $600 billion in debt, and have to raise taxes. Interest rates will creep higher. Many unemployed will never be employed, especially the gray ones. An army of house-heavy and income-light Boomers will be selling homes. And asset values will deflate, while energy costs rise.

Given these near-certainties, why would the property market rekindle? If you have the bulk of your net worth in real estate, how can you not suffer? And if you currently don’t have a house, why on earth would you want one? If the goal is finding financial security faster, it looks like renters will win hands-down over owners for at least the next half-decade.

This brings me to Phoenix, where about 1.6 million people live in the city and 4 million in the urban area.

Five years ago there were 60,926 permits issued for the construction of new houses in that Sunbelt city, and real estate values danced higher. Sellers wallowed. Then the market started to erode and by 2007 local realtors were singing the praises of a ‘rare and temporary’ buyers market. But price reductions did not stop at 15%.

Last year there were 8,600 new permits – an 86% decline from 2005. Last month median home prices dropped another 2.3%, to $129,900. In June of 2006, that number was $262,000, for a plunge of just over 50% in the price of an average home.

Despite being half price, and with mortgage rates at historic lows, buyers are shunning Phoenix houses. Sales last month fell 29%. There are 17,814 houses now repossessed by lenders, some of which are included in the 9,504 currently on MLS. Virtually no new homes are being constructed and it’s forecast that conditions will worsen in 2011.

Seems there’s only thing buoying the spirits of the remaining realtors: Canada. Stories about the incredible deals in the burbs of this desert city appearing in places like this blog are emailed around with yellow smileys at the end. And through Canadian eyes, this place is a screaming buy.

But here’s my point: What lies between Phoenix and, say, Calgary? Or Mississauga? Risk-averse bankers? Smarter citizens? Better politicians? Ethical realtors?

Perhaps. But the greatest differentiator is more elusive. Confidence. When a market loses this, deflation sets to work. As the US experience should have taught us, nothing – not cheap mortgages, not free government money, not low prices and not even a tax system that lets you deduct interest payments – can coax it back. This is a human reality – not an American one – and all should take heed.

As I stated above, the problems which lie immediately ahead of us are greater than those we grouse about now. Demographics alone has the power to sink Canadian real estate values, not to mention a withering tax climate and an economy grafted to the hip of the staggering American behemoth. Should enough young people realize they have a far more secure future not swallowing the real estate drug, there could be a touch of Arizona everywhere.

Smart people will ponder this. If I’m remotely right, the best defence against what is coming is less real estate and more financial assets.

As they know in the desert, one thing’s precious above all. Liquid.