Last month, Robert Shiller said, “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.” Of course he was the economist who predicted the US housing bubble while others were outright denying the possibility.
The Financial Post article goes on to say: “Shiller and other economists are most worried about household debt, which has ballooned from 75% of household income in 1990, to 150% today.” (Source)
CIBC responded today, and I caught this not so subtle dig: “Yes, the debt-to-income ratio in Canada just broke the American record set in 2006, but as any economist knows, this ratio is more a headline grabber than a serious analytical tool.”
CIBC’s report is entitled: Should We Worry About a US-Style Housing Meltdown?
Their final analysis?
Not all is well in the Canadian housing market. Home prices are overshooting their fundamentals, mainly in large cities such as Toronto and Vancouver. The recent slowing in sales activity will probably be followed by price adjustments in many cities across the country.
But the Canada of today is very different than a pre-recession US, namely as far as borrower profiles are concerned. Therefore, when it comes to jitters regarding a US-type meltdown here at home, the only thing we have to fear is fear itself.
You can download CIBC’s report here