Wednesday, April 11, 2012

Andrew Coyne is a Moron

I expect this from the Star, but the National Post? Andrew Coyne has written a piece that will surely come back to haunt him someday (or perhaps never, as the memory of sheeple can be measured in nanoseconds). Nevertheless, here's my rebuttal to Coyne's anti-housing bubble article.

For years Maclean’s has been shuddering in terror of the imminent collapse of the Canadian housing market. From the relative calm of its late 2007 cover story (“Buy? Sell? Panic?”), the magazine soon picked up signals of the coming apocalypse. “House prices start to fall,” the magazine announced the following summer. By autumn, with the world financial crisis in full swing, so was Maclean’s. “Canada’s Looming Real Estate Crisis,” the cover shouted: “Why house prices may soon fall through the floor.”
As the months wore on, and the cataclysm failed to arrive, Maclean’s remained ever hopeful of a real collapse. But durned if prices, after a brief dip, resumed rising. By June 2008, a grumpy Maclean’s was warning readers “Don’t believe the housing hype,” insisting there are “plenty of signs that the Canadian housing market is still on some very shaky ground,” even if “average home prices are up more than 16 per cent this year.”

So far we're in agreement. Establishment and alternative media like to sensationalize. Just look at the title of this post, it worked didn't it? Unfortunately for Maclean's (and for the rest of us) certain measures taken by the federal government and the Bank of Canada prevented any real estate correction in 2007. In fact, as Coyne points out, by June 2008 home prices started their trek back up. And, as Coyne doesn't point out, by June 2009 the recession was over! So no housing bubble, eh?

Fast forward through several more stories in the same vein and by this year the magazine and others were in even less doubt: Canada was in a housing bubble. Why, just look at the numbers. For starters, there’s the oft-repeated fact that Canadians are carrying debts worth 153% of their annual income. That’s true: but other countries’ citizens manage much heavier debt loads, from the spendthrift Swiss (200%) to the feckless Dutch (260%) to the profligate Danes (320%).

Switzerland, the Netherlands and Denmark are all in credit bubbles, exemplified by real estate. You moron. And Canada wasn't in a housing bubble (notice the past tense) Canada is in a housing bubble.

We may be carrying almost as much debt as the Americans before the crash, but with nothing like the same risk factors, from subprime mortgages to small regional banks, that made their economy such a firetrap.

It had more to do with the Fed's monetary policy and government-protected industries like Fannie and Freddie. See any parallels? The low interest rates from the BoC? The drivel coming from the CMHC?

And if we’re mentioning how Canadians’ debts have grown, we should surely also mention that their assets have as well: still five times as large as their debts.
Assets meaning house and the wealth effect it creates. As many Americans have found out the hard way, the price of your assets can rise or fall, but the debt remains.

Mortgage costs, interests and principal combined, are currently running at about 30% of disposable income — again, higher than a few years ago, but barely half what they were in the early 1990s.

The early 1990s? You mean when interests rates were low and we had a real estate correction?

Yes, house prices were still rising as of year-end, but more slowly than before, as even the Maclean’s piece acknowledges — though somehow it cites this as evidence for its doomsday thesis. But then, what doesn’t? If prices were rising quickly, that would be proof of housing “mania.” If they fell a little, that would be the bubble starting to burst. And if they fell a lot? Look out below!

Here's your evidence for the doomsday thesis.

The truth is the real estate market is cooling slightly, helped by a modest tightening of lending regulations. It’s true that a rise in interest rates from current, historically low levels would put some homeowners in distress, but they’d have to spike a long way before the damage grew widespread

Whatever you say Coyne, whatever you say.

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