Yet that didn't stop the Toronto market from sliding 30-50%, from levels that, statistically, weren't even as 'bubbly' as they are today.
I thought the root cause of the US crash was an epidemic of lending amounts of money to people who could not possibly ever afford to repay. Not subprime, not CDO's.The 5% arrears in the US is a systematic failure. The US market crash is a result of subprime loans leveraged with CDOs.
The Canadian lenders have CMHC to insure all their sub-prime stuff. But CMHC ultimately takes the losses, not the banks. That's why the banks have been under very little pressure. Its an implicit method of robbing the taxpayers, versus the explicit bailouts that have been required in the USA.I don't believe Canadian lenders widely used financial instruments such as CDOs to hedge. So they didn't have the "insurance policy" which allowed them to do high risk lending. I could be wrong here, but I don't know where to find the information for this.
Well, all you have to do is compare US cities, to Canadian cities, to predict the 30%-50% drop. Compare Houston against Calgary. Dallas against Edmonton. Toronto against San Francisco. Vancouver against Seattle. Windsor against Detroit. Atlanta or Chicago against, say, Winnipeg. There's no reason why a house should cost 2-3 years worth of labour income in Atlanta, but 4-6 now in Winnipeg. There's no reason why you can buy a nice 2500-3000 square foot house with a big lot and pool in Houston for $250-$300k, but struggle to find anything comparable in Calgary for less than $700k.Where are you seeing the data that suggests a 30%-50% drop over 5 years?
Asset types need not be correlated. For instance, the tech stocks kept going down in 2003-2004, while the housing bubble was inflating.The current equity market is expecting a recovery some time in 2010. If unemployment keeps rising and the current economy doesn't recover, you won't get returns anywhere, not just real estate.
Bad news may very well be a good thing for the equity markets, as higher unemployment = lower labour costs and a greater length of time in a low interest rate environment, which is definitely beneficial for the commodities and export industries.Any bad news that comes out, equity market will be the first to react since that is the most volatile.
For instance, with all the out of work tradesmen these days, labour costs in the oilsands are coming down dramatically. Millions of laid-off tradespeople around North America are now competing for limited oilsands jobs, which means that there's not going to be many of those $200k a year paycheques going around. This means big profits for the oilsands developers ahead, which will show up in stock market returns.