Ratings agency Moody’s believes a severe economic shock should see Canadian house prices plunge as much as 44 per cent. The assessment has Canada joining the ranks of Australia, Spain and the United Kingdom in the club of high flyers where a run-a-way housing market has seen housing market fundamentals shift from sustainable to “overheated”.
“As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most due to the misalignment of current house prices with historic fundamentals,” Moody’s said.
According to Moody’s, house prices in Canada has “far outstripped” growth in incomes, leaving the country exposed to significant shocks.
After a brief period of cooling, house prices in Australia could be about to make a short term resurgence. Unusually low interest rates (easy money) was one of the contributing factors to house asset bubbles around the world, and it would appear the Reserve Bank’s three per cent cash rate setting combined with the unrelenting property spruiker has the green shoots sprouting once more.
But with asset prices and household debt still sitting at close to records high, our market, like Canada’s could be just an economic shock away from tipping. Just in case, the RBA has quietly increased the Committed Liquidity Facility to $380 billion…
Stock markets hitting all-time highs in recent weeks have triggered renewed talks of GFC 2, a more severe and damaging version of GFC 1. After much of the world spent more than they earned for a good portion of last decade the only ‘solution’ governments have found so far is to go on bigger spending sprees to help stave of recession. Leaders may literally avoid recession and in making these bubbles bigger, plunge countries into depression.
The majority of the world’s financial issues sit unresolved, slowing forming into a head. China turned to fixed asset investment to stave off the effects of the GFC, in turn leading to a large fixed asset and debt bubble. America has lost count what round of quantitative easing they are now in, not to mention the fiscal clift, sequesters and debt ceilings. Eurozone is simply a mess, and now Japan has joined the bandwagon with the aim to end years of deflation with a boost to its quantitative easing programs.
As Nouriel Roubini outlook stands, “short-term bullish, long-term catastrophic.”
» Moody’s ‘stress’ analysis assesses 44% decline in Canadian housing prices – The Financial Post, 11th March 2013.
» Mother of all bailout funds – The Age, 6th March 2013.