Since the bursting of the first US housing bubble in 2007, one of the
primary explicit goals of the Fed has been to reflate the very same
housing bubble (whose pop, together with the credit bubble, nearly wiped
out the western financial system) as housing, far more than stocks, is
instrumental to the "wealth effect" of the broader population (as
opposed to just the 1%).
Sadly for the Fed, instead of recovering previous highs, median
housing prices (not to be confused with the ultraluxury high end where
prices have never been higher) have stagnated and are now in the
downward phase of the fourth consecutive dead cat bounce, curiously
matching a like amount of Fed monetary injection episodes.
But while the Fed has clearly had a problem with reflating the
broader housing bubble, one which would impact the middle class instead
of just those who are already wealthier than ever before thanks to the
Russel 200,000, one place which not only never suffered a housing bubble
pop in the 2006-2008 years, but never looked back as it continued its
diagonal '
bottom left to top right' trajectory is Canada. As
the chart below shows, the Canadian housing bubble has put all attempts
at listening to Krugman and reflating yet another bubble to shame.
Here is the
Globe and Mail's take:
The gap between the average price of a home in Canada and the United
States widened to a record level in the first quarter of this year,
contrary to what economists would have expected, according to Bank of
Montreal’s chief economist Doug Porter.
Average Canadian home prices were 66 per cent above average U.S.
prices during the first three months of this year, he says. (Note: these
are prices for existing houses and condos, not those that are newly
constructed).
“The main takeaway is that, contrary to all expectations, the
Canadian housing market has just kept on rolling in 2014 even as the
U.S. housing market has paused for breath (after a steep climb out of
the dungeon),” he writes in a research note. “Put it this way, how many
pundits a year ago were calling for Canadian home prices to rise faster
than their U.S. counterparts in any single measure?”
It's worth noting that there are many problems with comparing average
Canadian home prices to average U.S. home prices, not the least of
which is that average prices themselves can be highly misleading. Mr.
Porter is aware that it’s not an apples-to-apples comparison.
“Some may quibble that this doesn’t take the exchange rate into
account, but even adjusting for the Canadian dollar leaves a 50 per cent
price gap,” he writes.
So if indeed the Fed is intent on reflating the housing bubble for
all, not just for some, perhaps it is time to take a look at what the
northern neighbor is doing and do the same. Of course, the question
remains how much more "up and to the right" movement is left in Canadian
home prices, where the Chinese and Russian oligarch bid is, according
to some, an even greater factor in setting marginal prices than in the
US and Hong Kong.
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