Blogs & Comment

Zero Hedge attacks Canada again

Canada's housing market comes under fire, but the criticism may be misplaced.

People walk past new homes that are for sale in Oakville, Ont., on April 14, 2009. (Photo: Nathan Denette/CP)

Zero Hedge is back at it again. This time the U.S. blogger targeted Canadian banks, suggesting they could be in as bad a shape as European banks. Now his blog is taking aim at the Canadian love affair for homeownership: a guest post by Ben Rabidoux, the Canadian blogger at The Economic Analyst, presents data that suggests Canadian homes may be dangerously overvalued. 

However, as one commentator noted, it may have also been useful to include an analysis based on affordability measures. These don’t paint as dire a picture because they include mortgage rates in the cost of carrying a mortgage. There is more to benchmarking house prices than just income and GDP.

Of course, mortgage rates could climb upward from their low levels and potentially pop the bubble. But it’s unlikely such an increase would occur unless the economy was also picking up and generating more jobs and income—factors that would moderate or offset the impact of rate hikes.

To its credit, the Zero Hedge post didn’t infer a U.S.-style crash was inevitable. A more subdued and lengthy adjustment could alternatively be in store.

Specifically, one could argue that some of the hotter markets, like Vancouver and Toronto, may experience a moderate correction while the rest of the Canadian housing market adjusts through a period of flat, to modestly rising, house prices.

A big caveat is the commodity boom. If commodity prices and shipments plunge, the Canadian economy and employment could be hit hard. Perhaps, then, it’s not so much a spike in mortgage rates that is to be feared, as an economic slowdown in emerging and other countries.