[LINK] "Bubble or not, Canadian markets in for rude awakening"

[rfmcdonald]

Oh, well, if this analysis holds Canadian economic stability was good while it lasted.

When the bank followed the U.S. Federal Reserve on the path towards microscopic policy rates in the opening months of 2009, it pledged to maintain such an unprecedented degree of stimulus “conditional” on a prolonged period of economic malaise.

The problem, especially for interest rate doves like me, is that instead of seeing a listless economic recovery in Canada, we saw a bounce back of massive proportions. In short order, Canadian employment has soared to record highs while the U.S. is still more than seven million jobs shy of its pre-recession peak.

Canada’s dramatic recovery has been taken as evidence of the fundamental strength of the country’s financial system – but the rebound was founded on a surge in credit growth and housing-related spending that must have the Bank of Canada feeling a bit uneasy.

Bank-wide mortgage lending has risen 10 per cent in the past year, compared with only a 4 per cent rise in wage and salary income. This is clearly not sustainable.

At the peak of our own mania last fall, home prices soared more than 20 per cent on a year-on-year basis and home sales skyrocketed 70 per cent. These data points all have a “U.S.A. circa 2005” feel to them.

The ratio of total household debt to income has surged to 146 per cent, right where the U.S. peaked at the height of its credit bubble. Anecdotal evidence suggests that the home ownership rate has risen to record levels of 70 per cent, also close to where the U.S. peaked out during the housing bubble.

At the peak of our own mania last fall, home prices soared more than 20 per cent on a year-on-year basis and home sales skyrocketed 70 per cent. These data points all have a “U.S.A. circa 2005” feel to them.

David Rosenberg analyses the situation at length.