Haddow Press Experiment

Alberta’s Housing Bubble Slowly Deflating?

CBC news had an interesting article on the relative momentum of the Canadian housing “bubble” as compared to the bubble being experienced by our neighbors to the south, the US. Not exactly predicting a burst (or at the very least, a deflation) in the near (NEAR) future, the article was looking medium-term to what might happen based on the differing spending habits of Canadians versus Americans.

In recent weeks, analysts have been debating an impending North American housing slowdown and the form it may take. Some say when market drops it will do so with a resounding crash, while others see a more gradual decline.

We’d all prefer the latter scenario, of course. Who can sleep well at night knowing that the new-found value in their REAL ESTATE investment is bound to crumble? Canadians, thank your fellow homeowners for being a bit more thrifty than our American friends.

One of the big differences between Canadian and American homebuyers, [Mark Chandler, an economist with Scotia Capital says], is that “U.S. (homebuyers) have been taking a lot more out in terms of mortgage equity withdrawal.”

I think this statement just solidifies what I was writing about in my post “Housing Bubble Risks - Part 2“, that some people (apparently more Americans than Canadians) tend to borrow against false equity in their homes. Well, perhaps the equity isn’t EXACTLY false, but it certainly isn’t guaranteed in the medium term when those loans are going to be fully due. I’m not ragging on our American friends. Don’t get me wrong. But there are subtle differences in attitude being enforced by our repsective Big Brothers that are leading vastly different habits and results.

That said, from an Alberta perspective there seems to be more “americanized” inidicators flowing through the provincial economy than the national ecomony as a whole. An oil-rich province with a labour shortage has a sense of stability among the short-term dreamers that may or may not be real.

“Practically every indicator at our disposal tells us that we are very late in the cycle and the historical record also strongly suggests that the next wave after the Fed has inverted the entire yield curve is either a hard landing or a very bumpy soft landing,” [David Rosenberg, North American economist for Merrill Lynch] said in a note.

So what’s that mean for home-owners, home-buyers, and the consumer in general? If you own a home, it’s getting more prudent to sit-tight (or take the money and run, if you don’t mind jumping back in at high RISK!) If you are looking, be prepared to take on a HUGE mortgage and loose some equity in the medium term. And if you are renting a flat somewhere without any equity at all, decorate: you might be there for a while.

This is a follow-up to my (popular) entry: Alberta’s Housing Bubble

Popularity: 21% [?]

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