Moody's: Some Canadian Banks More Exposed Than Others, No Duh!

From the Financial Post:  Some banks more exposed than others to overleveraged consumers: Moody’s

Rising consumer debt has left Canadians as well as the banks vulnerable to economic shocks, but some banks are better protected than others, says Moody’s Investors Service.
The biggest single asset on the balance sheets of the big banks is residential mortgages.

While all the banks have taken advantage of insurance from the Canada Mortgage and Housing Corp., some of them remain heavily exposed to potential defaults.

 According to Moody’s, the Royal Bank of Canada is the most susceptible with 24% of its total managed assets made up of uninsured loans. Next is Bank of Nova Scotia at 21%, CIBC at 20%, Toronto-Dominion Bank and National Bank of Canada both at 18%, with Bank of Montreal the most protected at 14%.

Consumer debt especially home loans has been steadily increasing for the past decade as Canadians took advantage of low interest rates and availability of mortgage insurance.

“Canadian household debt as a share of personal disposable income stood at a record 150.8% at the end of June this year.” said Moody’s analyst David Beattie, the author of the report. “We are concerned that, while taking advantage of low interest rates, consumers are also taking on debt the may not be able to service when rates inevitably go up.”

No doubt has household credit exploded in the past decade.

Total household debt has exploded by 135% between 2000 to 2010.
Mortgage debt has exploded by 131% between 2000 to 2010.
Consumer debt has exploded by 146% between 2000 to 2010.
This is at a time when the average weekly wage increased by 30%.

“Canadian household debt as a share of personal disposable income stood at a record 150.8% at the end of June this year.” said Moody’s analyst David Beattie, the author of the report. “We are concerned that, while taking advantage of low interest rates, consumers are also taking on debt the may not be able to service when rates inevitably go up.”

If Canadian banks have any uninsured loans from over indebted Canadian consumers, it does not take a rocket scientist to figure out that the banks will take a hit.  The good thing for the banks is that most of the loans are insured, but because they are insured by the taxpayer, guess who will pay if there are any substantial defaults by Canadian consumers?

CMHC: Growth of Mortgage Credit Slowing. That Is True, But It Is Still Growing At 7%

CMHC is saying that the growth of mortgage credit is slowing.
From the globe and mail

The rate at which Canadians have been racking up new mortgage debt has slowed in recent months, lending credence to the theory that the country’s housing market will hold up, Canada Mortgage and Housing Corp. suggests. 
“The level of household debt remains a concern but there are encouraging signals,” it said.
The growth of mortgage debt has significantly decelerated since March, particularly in recent months, it said.

Here is how it looks.  It has not "significantly decelerated."

While they are right that mortgage debt has slowed in the last 4 months. It has not been by much.

I doubt the recent mortgage rules have had much to do with "slowing mortgage credit growth".  If anything, I see a consumer who is bloated with debt getting ready to deleverage had more to do with "slowing mortgage credit growth."

The slowing of mortgage credit was so negligible it did not deserve a press release, but I am thinking that a release was put out to say " we do not need more mortgage tightening" which we all know could not be further away from the truth.

This is how mortgage loosening and mortgage tightening compare with mortgage credit growth year over year since 2005.

Breaking Down Saskatoon's Population Growth

From the City of Saskatoon Budget

POPULATION AND DEMOGRAPHIC ISSUES AND TRENDS
Saskatoon’s strong economy has resulted in substantial population increases in recent years. According to the most recent population update by Statistics Canada, the Saskatoon Census Metropolitan Area (CMA) was the fastest growing CMA in Canada from July 2009 to July 2010. According to Stats Canada, the population of the Saskatoon CMA—which includes cities and towns such as Martensville, Warman and Delisle—came in above 265,000 people as of July 1, 2010. Since 2007, the Saskatoon CMA has grown by almost 25,000 people.

 

Projections indicate that Saskatoon’s population will continue to grow. If Saskatoon were to continue growing at an annual rate of 2.5%, the city’s—not the CMA—population would be nearly 265,000 by 2016.The following graph shows high and medium population growth projections for Saskatoon.

Saskatoon’s strong population growth has been driven primarily by international immigration. As shown in the chart below approximately 46% of all population growth in the Saskatoon CMA has come from international immigration. Moreover, the population data reveals significant increases in both net interprovincial (more people moving from other provinces) and intraprovincial (more people moving from Saskatchewan communities) migration. This means more people are moving to—rather than moving from—Saskatoon from other cities and communities across Canada and Saskatchewan.
Only four short years ago, the reverse was true.

Another important component of population growth is the number of births over deaths, referred to as the “natural increase in population”. As shown below, the Saskatoon CMA is experiencinga “baby boom” of sorts. This positive trajectory indicates that more day care spaces, schools and recreation facilities will be required to accommodate the this growth.

URBAN ABORIGINAL POPULATION
Stats Canada’s most recent population updates revealed that the Saskatoon CMA has the
youngest population of all CMAs across Canada (median age = 35.4 years). Calgary (35.8 years) and Edmonton (36.0 years) were next on the list. The key driver behind this statistic is Saskatoon’s growing young aboriginal population.
 As shown in the chart below, at 9.3 %, Saskatoon has the second highest percentage of
Aboriginal residents of all major cities in Canada.

How does the average Saskatoon house price, weekly wage, unemployment rate and participation rate compare to other cities

While the average wage for Saskatchewan in September increased by 6.9% compared to a year earlier, the average wage for Saskatoon increased by 2.7%, which is less than inflation.  We also know the Saskatoon job market is down over 6000 jobs or 4.3% from the spring 2010 peak, the participation rate is now at 68.5%, down from spring 2010 peak of 73.7% and the unemployment rate is at 5.7%, which is up from the high 3's from a few years ago.

I'm not saying this is a bust, but it's hardly a boom when looking at jobs and wages over the last couple of years, especially since Saskatoon is leading or near the lead when looking at population growth.  But there are quite a few projects in the pipeline that will happen in Saskatoon shortly and as long as the household credit spigots are kept wide open, this just might all be a blip for now.

With that said, let's take a quick look at how Saskatoon compares to other major cities in Canada.

Saskatoon's average house price in October was higher than Regina's and Edmonton, but to be fair to Edmonton, they are down considerably from their peak.  For instance, a single family house in Edmonton is now down $63,131 or 14.8% from the peak.  Have they reached bottom? Or is a second leg downward upon them around the corner?

The average house price in Saskatoon is higher than in Edmonton or Regina but the average wage is considerably lower in Saskatoon by 11% and 8% respectively.
 *Note this is just one month's data, but the average difference between these cities over the last year shows that Edmonton is anywhere from 6% to 14% higher while Regina is anywhere from 4% to 12% higher than Saskatoon.

Vancouver is in absolute bizarro land.  Saskatoon is at the upper end of second tier cities with high valuations of average house price to average wage.

Saskatoon's unemployment rate is right in the middle, not boom levels, but not bust levels either.

While I have known the job market in Saskatoon has been regressing over the last year or so, I did not realize the drop in the participation rate was so pronounced. But with the increase of population I should have known better.  Duh! To lose over 5% in just a couple of years is significant and is worth paying attention to going forward.

City of Saskatoon recognizes that "housing affordability has eroded in Saskatoon"

From the 2012 Budget

HOUSING AFFORDABILITY
Because of increasing economic activity in Saskatoon, as noted earlier, home prices have also
increased. While this has created new wealth for many homeowners in Saskatoon, it has also
eroded housing affordability in the city. Since 2005, as shown in the chart below, the median
price of a home has grown faster than the median income, resulting in an erosion of housing
affordability.

Source: City of Saskatoon, Conference Board of Canada

To get a better sense of housing affordability, analysts typically utilize a tool called the Median
Multiple Affordability Index. The Median Multiple is widely used for evaluating urban markets,
and has been recommended by the World Bank and the United Nations and is used by the
Harvard University Joint Center on Housing. It is determined by dividing median house prices by
gross annual median income. A rating, or multiple, of 3.0 or less is considered to be affordable. The chart below shows the Index in the Saskatoon context. Since 2007, housing affordability has eroded in Saskatoon. For 2010, the index is forecasted to be 4.3.

Here is another take on the medium multiple for Saskatoon compared to Canada.

 

And one more take on Saskatoon's unaffordability.

The average weekly wage in Saskatoon increased by 2.7% in Sept compared to Sept of 2010.  (Don't get Saskatoon confused with the 6.9% average wage increase of Saskatchewan)  And jobs are down by about 6000 (4.3%) since the peak in the spring of 2010.  

No bust, but no boom in jobs or wages either lately for Saskatoon.

The Economist: Canadian Housing Market Overvalued By Over 25 Percent

 From the Economist: The bursting of the global housing bubble is only halfway through

MANY of the world’s financial and economic woes since 2008 began with the bursting of the biggest bubble in history. Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom. Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark. But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued.

To assess the risks of a further slump, we track two measures of valuation. The first is the price-to-income ratio, a gauge of affordability. The second is the price-to-rent ratio, which is a bit like the price-to-earnings ratio used to value companies. Just as the value of a share should reflect future profits that a company is expected to earn, house prices should reflect the expected benefits from home ownership: namely the rents earned by property investors (or those saved by owner-occupiers). If both of these measures are well above their long-term average, which we have calculated since 1975 for most countries, this could signal that property is overvalued.

Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble.

 In 2005, the Economist wrote: In come the Waves The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops 
They were right back then, just as they are today.

Average Saskatchewan Weekly Wages And Jobs Up, Saskatoon Sucking Hind Titty

Saskatchewan recorded the second highest average weekly wage at $906 for September 2011
The amount of workers in Saskatchewan has also hit a record high of 457,800 workers.

But Saskatoon is sucking hind titty?
The average wage in Saskatoon is not increasing like Saskatchewan's.  Saskatoon's average weekly wage in September 2011 was $851. 

While Saskatchewan's average weekly wage increased by 6.9% from September 2010 September 2011, Saskatoon's average weekly wage increased by 2.7% in the same time period.

And the job market in Saskatoon is not blowing the skirt off anybody either.  Employment for September 2011 is down 4.3% from the peak, which was in the spring of 2010.

It is of no surprise to me that Saskatoon is not booming when looking at wage growth and job growth.  I have followed this quite closely.  CIBC reported on this almost a year ago. If you are looking for a boom, you will find it in household debt. A lower average weekly wage at $851 and higher house prices of well over 320k compared to a place like Regina ( Regina weekly wage is at $923 for Sept 2011, house price is at 289k) would suggest higher levels of debt in Saskatoon.  When we wonder how the average house price can double in just a few short years, these two graphs prove that people do not buy homes, people with mortgages buy homes.

Triple Your Money With A 1 yr Greek Bond, And A Chart For European Bond Yields

How much higher can this bond go?

Here are some links for European Government Bond Yields.  Courtesy of Bloomberg.  When there are days in which markets are going crazy in Europe, this chart is a must.  Check on Italian 10 year bond yields, when they are over 7%, it is ever closer for SHTF time.

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

Saskatoon Property Taxes Could Increase by 5.71% in 2012, Will Your Wage?

The 2012 City of Saskatoon budget can be found here.

From the Star Phoenix City of Saskatoon unveils 2012 draft budget, proposes 4.71 per cent tax hike

The City of Saskatoon has tabled a 2012 draft budget that proposes a tax increase of 4.71 per cent, much of which comes from hikes to police spending.
Heading into deliberations next month, the proposed operating budget weighs in at $345.3 million, up from $325.4 million this year, while the capital budget sits at $340 million, down from $351 million due to Circle Drive South nearing completion.
The capital budget funds major infrastructure while the operating budget pays the day-to-day costs such as salaries and fuel. The tax hike equates to $70 annually for the average homeowner (with a home assessed at $200,000).

Notice the sentence I put in bold; a tax increase of 4.71 per cent, but the title of my post says 5.71%. Here is how it goes.

The biggest driver for the proposed hike is policing, which alone accounts for a tax increase of three per cent.  City services make up about one per cent of the budget hike while Saskatoon Fire and Protective Services make up 0.75 per cent of the hike.

That equates to about the 4.71 per cent but there could be 1 more per cent added to that.

An October report from city infrastructure staff recommended phasing in an eight-year hike to get funding from $5 million per year to $18 million, which is considered the point at which roads would no longer deteriorate year over year. The proposal would increase property taxes one per cent, or $1.3 million, in 2012, but the city administration hasn’t included the plan in the draft budget.

Saskatoon could experience an almost 6% increase in taxes.  But what will probably happen, is that with some cutting of more services and raising revenue from others the tax hike will come in around 4%, just to make it look good.

Will your wage increase by 5.71%? 
Highly unlikely, wage growth for a total year has not done that probably since the 80's.

Heck, the last time the average wage in Saskatoon experienced year over year growth of over 3% was in August of 2010 when it was 3.6% compared to August 2009.

Anybody else still waiting for the wage boom?  Oh, and if you think wage growth year over year has been bad this year, wait till you see job growth or shall I say regression for Saskatoon since 2009.

The Canadian Consumer Credit Bubble Part 2: Why We Should Be Worried About Deleveraging Households

In the first post we established that Canadians have experienced a huge expansion in credit.  So much, I believe we are in a credit bubble. So how big is it?

Well, if the United States credit bubble is a yard stick, Canada measures up quite well.  The United States credit bubble peaked at 97% of GDP.

Canada has just passed 90%.

This is how debt to income compares for the two countries.

Why Canadians Should Be Worried About High Levels Of Household Debt and Falling Home Prices
From Bloomberg: How Household Debt Contributes To Unemployment

The weakness in household balance sheets and the associated pullback in spending are directly responsible for the lion’s share of employment losses in the U.S. economy. This deficiency remains the most significant impediment to a robust recovery.

Our research suggests that 65 percent of the job losses from 2007 to 2009 came from the drop in household spending induced by the collapse in home prices and its effect on a highly levered household sector.

The declines in consumption are far too large to be explained by the drop in house prices alone. It was the combination of collapsing home values and high debt levels that proved disastrous. High-debt areas have been plagued with delinquencies, deleveraging, and the inability to refinance into lower rates -- all characteristics of overleveraged households.

Basically, the US had fake economic growth which was hidden for a few years and it worked until US consumers hit their credit limit.  They then puked and job associated with housing and consumer spending industries got walloped.  They have not recovered and will not anytime soon.

A bursting real estate and credit bubble in Canada would lead to a decline in consumer spending and would definitely add to the unemployment rate. How much is hard to say.  One question to ask is "how much have the real estate and credit bubbles inflated Canada's job market"?  We won't know until after the fact. But the bubbles have inflated many industries in Canada.

Consider the leveraging part of credit growth in our economy a big party. It has been going on for quite some time.  But as everyone knows, the longer the party, the harder the hangover.  The deleveraging part is the  hangover.  The hangover, which is actually the fix, will take years to get back to a healthy state.  And Canada won't see a US style regression,  a Canadian one that is just even 40% of what the US is experiencing, will be painful enough but will be needed to fix over indebtedness by Canadians.

Property transactions plunge in China’s big cities

From the Globe and Mail Property transactions plunge in China’s big cities

some key notes:

The number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times.

While the government has been trying to rein in sky-high property prices, a Chinese real estate slump would have a significant ripple effect on the global economy. Property construction accounted for more than 13 per cent of China’s economy last year.


In October, however, property transactions fell 39 per cent year on year in China’s 15 biggest cities, according to government data. Nationwide, transactions dropped 11.6 per cent, accelerating from a 7 per cent fall in September.

The falloff in transactions has affected developers’ cash flows and, in some cases, their ability to repay bank loans. Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were cited by the International Monetary Fund this month as one of the Chinese financial sector’s biggest risks.
The fear is that the impact of a bursting of the Chinese property bubble could yield a crisis just as dramatic as the one now unfolding in Europe. Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were flagged by the International Monetary Fund this month as one of the major risks hanging over the Chinese financial sector.
“Before property prices drop 30 per cent, one needs to think how much sales are down and, more importantly, how much construction is down. Not only will that impact on steel and cement, but it also would mean a drop in industrial production, investment and jobs,” one analyst said.

The effects of China's real estate bubble bursting are yet to be determined. But according to TD Bank, a hard landing by China would wipe 30% to 40% off of commodity prices.
also read:
A housing crash in China would devastate commodities.
China is coming in for a landing, the only question is it a soft landing like what the World Bank thinks or is it a hard landing?

The Canadian Consumer Credit Bubble Part 1

It is no secret that the Canadian consumer is more important to Canada's economy than ever before.

It is one of the main reasons why Canada rebounded from the recession so well.

Here we see that household debt has exploded by 307% since 1991.

This has been helped by falling interest rates.

And a falling savings rate.

But this is at a time when the average weekly wage has grown by 54% while inflation has grown by 41% since 1991.

And if we put it all together we see why the debt to income ratio is at alarming levels.

So why should Canadians be worried about high levels of houshold debt?
Stick around for Part 2.

Stonebridge Delivers Affordability, Really?

From the Star Phoenix, Stonebridge Delivers Affordability

The doors open today to North Prairie Development's newest show home in Stonebridge, located at 1326 Rempel Cres.

The model home is a preview of North Prairie's latest streetscape development, comprised of 20 homes on Senick Crescent.

Andrew Williams, single family housing manager with North Prairie Developments, says the project features four different styles of their popular Craftsman Series homes, including a bungalow, a bi-level, a modified bi-level and a twostorey . The show home is an inviting 1,104-square-foot, threebedroom bungalow.

Priced from $331,900 and up, the Craftsman Series delivers all the amenities new homeowners desire, including three generously sized bedrooms, two full bathrooms and attached double garages.

Priced from $331,900 and this is affordable? Really?  First, I have to admit the positive feedback loop of high house prices over a few years may make the average reader of the SP believe that a new detached home for $331,900 is "affordable".  Let's run some numbers and see who can afford this affordable home.

With $17,000 down (5%) at a 25 year mortgage with a 5 year fixed rate at 4% with CMHC insurance brings us a payment of $1656 a month.  Add in homeowners insurance of $83 a month, property taxes of $300 and the monthly payment hits $2039.  Notice I did not add in monthly maintenance or utility costs which would push the monthly cost well over $2,500. And also remember that there is no concrete driveway and sidewalk, a basement that is most likely "unfinished so you can develop to your own taste" and a yard that has no grass, fence, deck, flowers or trees.

Cost of these items:

Driveway, sidewalk, grass, sprinklers, fence, deck, trees: ~ $20,000

Basement professionally done ~ $30,000

And you are not going to outfit this house with appliances from Kijiji add $5,000

You are now in it for the long haul, might as well buy a big screen TV, living room and bedroom sets add $5,000.

So in reality, this  $331,900 "affordable home" could realistically cost close to $400,000 to get it up to snuff.  For simplicity sake, a $400,000 mortgage with all monthly costs of a home would be around $3,000 a month.

So tell me, who can afford a $3,000 a month home?

How about two first time buyers coming out of post secondary school with loads of student loan debt and maybe a car loan?  Highly unlikely.  And actually, well over half ( probably closer to 60%) of ALL households in Saskatoon could not afford this "affordable" home at $3,000 a month even with all time low interest rates and a "booming economy".

The people who are buying this type of home are a) trade up buyers with equity b)trade down buyers with equity c)first time buyers with debt and decent paying jobs who enjoy being house poor ( and who probably do not know the REAL cost of buying a new home).

I should be clear that most first time buyers who buy a home like this, are not finishing and furnishing the home completely right off the bat.  But the costs of the completely finished home should be counted, whether it is done in the first year or the fifth year. In the last few years, buyers of these types of homes, could count on borrowing money from their HELOC to complete the home because of real estate appreciation.  With homeowners only able to borrow up to 80% of a homes value now, and rapid gains of appreciation gone that will not be happening again anytime soon.

So Stonebridge does not deliver affordability.  Nor do any of the other new areas.

BNN Video: Ways To Short The Canadian Housing Bubble

This link will take you to bnn video.  The first part of the video talks about the Canadian banks.  Talk about the "dramatically overvalued housing market in Canada" does not start until about 4:45.

Saskatchewan Farmland Bubble?

From Farm Credit Canada

Regina, Saskatchewan, November 14, 2011 – According to a new Farm Credit Canada (FCC) Farmland Values Report, the average value of farmland in Saskatchewan increased by 11.6% during the first half of 2011. In the previous two six-month periods, farmland values increased by 2.7 and 2.9% respectively. Farmland values have been rising since 2002 in this province. The FCC report provides important information about changes in land values across Canada and is available at www.farmlandvalues.ca.

Comparatively, the average value of Canadian farmland increased by 7.4% during the first six months of 2011, following gains of 2.1 and 3.0% in the previous two six-month periods. Farmland values remained stable or increased in all provinces. Saskatchewan experienced the highest average increase at 11.6%. The Saskatchewan results appear to mirror the U.S. situation, where double-digit increases in farmland values have been reported in several corn and soybean states. Two contributing factors to the current value increase are the ongoing strength of commodity prices, combined with land values that previously increased at a slower rate than other areas of the country.

“Farmland is more than a production resource – it’s a source of wealth for farmland owners. So it’s not surprising that changes in the price of farmland generate interest from producers and others in the industry,” says Michael Hoffort, FCC Senior Vice-President of Portfolio and Credit Risk. “The upward trend in farmland values appears to have accelerated. Canadian farmland values have risen steadily during the last decade.” Previously, the highest semi-annual average national increase was 7.7% in 2008. The last time the average value decreased was in 2000, when it dropped by -0.6%.

The average national price of farmland has increased by about 8% annually since the commodity price increase began in 2006.

In 1959, on average, the value per acre in Saskatchewan was about $26.
In 1997, on average, the value per acre in Saskatchewan was about $250.
In 2010, on average, the value per acre in Saskatchewan was about $450.
This works out to be a 5.8% compounded rate of return for over 50 years.

The recent double digit increases would suggest that there could be some concern of froth in Saskatchewan farmland.  But it does look like the increases in farmland value have mirrored the increases of commodity prices.  As long as commodity prices stay high, and farmers are making a profit on the land, there should no reason for concern about Saskatchewan farmland.  Hey, it is not Iowa, where the value per acre is hitting $17,000!  Now that is a bubble in farmland!

But I would suggest demographics and the high cost of entering farming will have a negative impact on Saskatchewan farmland in the years going forward especially further away from the larger centers.

CIBC: Canadian Housing Market Overshooting Fundamentals, Soft Landing Expected

CIBC is out with research article here

House prices in Canada rose by 5.5% (year-over-year) in October following a 6.5% increase in September. By province, the largest increase was in Saskatchewan, followed by Ontario.
Mortgages outstanding are now rising by 7% (year-over-year), while the mortgage arrears rate has stabilized at close to 0.4%.

Our assessment is that relative to rent, income and demographics, house prices in Canada are over-shooting. But the fact that prices are overvalued today does not necessarily mean that they will crash tomorrow. After all, a violent market correction needs a trigger such as the sub-prime crisis, which ignited the US real estate meltdown, or abnormally high interest rates as was the case during the 1991 property crash in Canada. That is not on the horizon this time around. The Bank of Canada is very clear about its intention to move slowly, with the first rate hike not expected before late 2012. As well, any objective assessment of the quality of the existing mortgage portfolio in Canada reveals a relatively balanced mortgage market with a small segment of marginal borrowers.

 Accordingly, while we do not see house prices crashing, we do believe that the housing market in Canada will stagnate in the coming year or two. Further out, the most likely scenario is that the eventual increase in interest rates will lead to a modest decline in prices (probably in the magnitude of 10%). But given relatively modest rate hikes and the current balanced affordability position, the more significant adjustment will be in housing market fundamentals that are likely to catch up with prices in the coming years — paving the way for a healthier housing market later in the decade.

 Indeed a flattening in house prices in the next year or so is a necessary condition for such a soft lending scenario. If the pace of house price increases accelerates during that period, then twelve months from now the likelihood of a violent price correction will be higher than it is now.

It should be pretty interesting to see how much mortgage credit was taken out in Saskatchewan for 2011.  I'll stick my neck out and say over $7 Billion.
In 2005, the total value of mortgages taken out was $2,749,000,000
In 2010, the total value of mortgages taken out was $6,665,500,000
The increase in the average weekly wage in the same time was 22%

And even though GDP in Saskatchewan has grown considerably in the last six years.  Mortgage debt relative to GDP has DOUBLED!  The positive feedback loop with real estate has translated into an economy that is more reliant on real estate now than before.

Saskatchewan May Have The Resources The World Wants, But The World Is Drowning In Debt

Not a day goes by that I do not hear,  "Saskatchewan has the resources the world wants".  Yeah, that is true.  Saskatchewan has loads of oil, gas, potash, uranium plus many agricultural commodities to name a few.
But just because someone wants something, if they are loaded up to their eyeballs in debt, can they have what they want?

From Charles Hugh Smith OftwoMinds The World Is Drowning In Debt

The world's major economies are drowning in debt--Europe, the U.S., Japan, China. We all know the U.S. has tried to save its drowning economy by bailing out the parasite which is dragging it to Davy Jones Locker--the banking/financial sector-- and by borrowing and squandering $6 trillion in new Federal debt and buying toxic debt with $2 trillion whisked into existance on the Federal Reserve's balance sheet.
It has failed, of course, and the economy is once again slipping beneath the waves while Ben Bernanke and the politico lackeys join in a Keynesian-monetary cargo-cult chant: Humba-humba, bunga-bunga. Their hubris doesn't allow them to confess their magic has failed, and rather than let their power be wrenched away, they will let the flailing U.S. economy drown.
Europe has managed to top this hubris-drenched cargo-cult policy--no mean feat. First, it has indebted itself to a breathtaking degree, on every level: sovereign, corporate and private:

Germany, the mighty engine which is supposed to pull the $16 trillion drowning European economy out of the water, is as indebted as the flailing U.S.
Second, the euro's handlers have already sunk staggering sums into hopelessly insolvent debtor nations, for example, Greece, which has 355 billion euros of outstanding sovereign debt and an economy with a GDP around 200 billion euros (though it's contracting so rapidly nobody can even guess the actual size). According to BusinessWeek, the E.U. (European Union), the ECB (European Central Bank) and the IMF (International Monetary Fund) own about $127 billion of this debt.
Since the ECB is not allowed to "print money," the amount of cash available to buy depreciating bonds is limited. The handlers now own over 35% of the official debt (recall that doesn't include corporate or private debt), which they grandly refuse to accept is now worth less than the purchase price. (The market price of Greek bonds has cratered by 42% just since July. Isn't hubris a wonderful foundation for policy?)
In other words, they have not just put on concrete boots, they've laced them up and tied a big knot. We cannot possibly drown, they proclaim; we are too big, too heavy, too powerful. We refuse to accept that all these trillions of euros in debt are now worth a pittance of their face value.
When you're drowning in debt, the only solution is to write off the debt and drain the pool. The problem is, of course, that all this impaired debt is somebody else's asset, and that somebody is either rich and powerful or politically powerful, for example, a union pension fund.

Just for reference, these 9 countries listed account for 50% of the world's GDP.  If we add all of the European Union ( which is mostly likely all indebted like the countries of this infograph) to this list, they account for 65% of the worlds GDP.

The BRICS account for about 18% of the worlds GDP, but they do account for about 33% of the worlds population.  Their debt load is nowhere near what places like Canada and UK have.  ( Canada has one the largest household debt to GDP ratios in the world)  Good thing Canadian households are prudent with debt, otherwise we might take the top spot. :)

Can the BRICS and the rest of the developing world more than offset the non-growth and debt-deflation problems of the major economies that take up 65% of the worlds GDP? Highly unlikely.  And that is not even mentioning the malinvestment that is taking place in China right now.

A Global View Of The Housing Bubble

From Barry Ritholtz A Global View Of The Housing Bubble

Interesting chart from (of all places) McKinsey, circa October 2009:

“From 2000 through 2007, a remarkable run-up in global home prices occurred (see chart). But that trend has reversed abruptly. In 2008, the value of US residential real estate fell 10 percent; the global average fared only somewhat better, declining by almost 4 percent. We estimate that falling home prices erased more than $3.4 trillion of household wealth in 2008.”

The chart below reads to me as having regular cycles, oscillating within a range. But something happened in the early 2000s to have that range explode upwards.

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Source: McKinsey Quarterly
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Question: How did Europe and Asia and Canada all have a simultaneous housing boom as big if not bigger than that of the US?
Were the Australians compelled to follow the CRA? Did Barney Frank influence the Belgians? Were the US GSEs effecting policy in the UK?
Or might some other factors — like ultra-low rates, excess leverage, demand for junk AAA-rated paper, misaligned incentives, and/or derivatives have been at play?

The New Home Price Index In Canada 1981-2010

This is how the new home price index has changed for various cities in Canada since 1981.

Edmonton and Calgary experienced significant growth in the new home price index in 2005.  Saskatoon was a year later in 2006.  For example, Calgary's new home price index increased 43% between 2005 and 2006 while Saskatoon's increased by 5.6%.  Between 2006 and 2007, Saskatoon's new home price index increased by 39%.  Then the next year, it was 21%. 

What's the problem of using the new home price index as a parameter of housing prices?

Going back to the Western Canadian graph, Vancouver looks pretty crazy in the early 80s compared to now.Why?

From Ben at the economic analyst

From Stats Canada regarding the NHPI:

"In the new housing price survey, reported prices are adjusted for changes in quality of structure and land. This is important because the NHPI attempts to measure changes in price over time of identical houses in consecutive periods. Most often the estimate of the value of the quality change provided by the respondent is used to adjust the reported price to an estimate of "pure" price, unaffected by quality change."

What does this mean in plain English? It simply means that the NHPI quality adjusts its data. Let's say that next year, all new houses are built with gold shingles on the roof. Real gold. Because of this, the price of a new home sky rockets by 100K in the year. The NHPI adjusts for this improved quality to show no increase in the actual price paid. In their eyes it is now an 'apples to apples' comparison, even though it in no way reflects the fact that people just paid 100K more for their new home. However, if gold shingles became the new fad, it would require a significant expansion in debt levels to afford it, and it would likely push the median resale house price even further away from underlying measures of value like the price/rent and price/income multiples.
It also adjusts for significant differences in the average size of dwellings. We know that the average dwelling size has risen markedly in Canada. In fact it has risen from an average of 1050 to nearly double that today. House prices have risen accordingly. Yet the NHPI shows a much more muted rise in prices since it adjusts for the fact that houses are getting larger. If the average new house built next year were to double, it would not show a significant increase in the NHPI despite the fact that it would require substantially more money to purchase a new home. Bizarre!
The real-world accuracy of the NHPI
There's perhaps no better illustration of the real-world accuracy of the NHPI at calculating house price appreciation than the fact that according to the NHPI you can build a brand new home in Vancouver today cheaper than you could in 1993.....and that is in NOMINAL dollars.
Let me repeat: If you bought a new home in Vancouver in the early 90s, someone could build a comparable house today in Vancouver (including land value) for cheaper that you did in the 90s. And that's not even considering inflation.
If that strikes you as laughable (and it should), then you can see why I'm skeptical about using the NHPI as a measure of house price increase. It masks the expansion in debt, as well as the variance from measures of underlying fundamentals.