This weeks' ATW focusses on the elephant in the room. Canada's Housing Market and its super-heated temperature. We all have anecdotal examples of this, where entry-level homes in derelict condition are fetching prices previously in the realm reserved for luxury homes. But far beyond these are the real-estate numbers from coast-to-coast, where new highs are being set weekly. This should raise alarm bells with Canadians, who predictably, are too busy excitedly talking up the value of their home with their equally-excited colleagues and friends giddy from their seeming new-found wealth.
The best cautionary tale I've read concerning false-riches comes not from a renowned economist (there are such people, I can assure you!), but from celebrated Canadian author Margaret Atwood. In 2008 she wrote Payback: Debt and the Shadow Side of Wealth. In it she explores the depressing issue of Debt from a moral or ethical perspective and examines how, throughout history, debt has been considered sinful and other times fashionable. This would be the era of the latter. Debt as fashion, an opportunity to show-off to others how much you're good-for. The oohing and awing from those impressed with how much a friend just paid for their new abode, then serve as the inspiration of others determined to top that with an even greater show of extravagance when they trade up.
But trading up is leveraging up. And as Atwood correctly points out, the dark side -the shadow side of home over-paid for by a purchaser, is debt. The debt is certain, the price of the home less so. Forgotten in the madness of crowds is that prices of all asset classes fluctuate -even houses. With interest rates set to increase over the next 12-18 months, our concern is that Canadian's find out too late Atwoods' cautionary message about recklessly accumulating debt: that Payback is just around the corner.
"Another friend of mine used to maintain that airplanes stayed up in the air only because people believed -against reason- that they could fly: without that collective delusion sustaining them, they would instantly plummet to Earth."
A sobering thought when we turn our gaze to the soaring price of Canadian Real Estate.