Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Canadian Housing Market Reminiscent
of U.S. Housing Market of 2006

Wednesday, March 28th, 2012
By for Profit Confidential

A familiar bubble north of the border…

Canada’s economy has been hailed as one of the better performing economies in the world since the financial crisis hit in 2007. Canada’s job market has stayed relatively stable, which is why the housing market has been so strong.

Canadian home prices have increased steadily since the financial crisis hit, which I’m sure will come as a big shock to the average American.

In 2011, average home prices increased 4.3% in Canada, but in the final quarter of the year, it slowed to just a 1.1% rise. Thus far in 2012, the slowdown in the appreciation of home prices has continued.

Building permits in Canada have been contracting over the last four months after rising steadily most of last year. The global economic slowdown has pressured the jobs market in Canada, which in turn is putting pressure on home prices and the housing market.

The Bank of Canada, very similar to the Federal Reserve here in the U.S., has kept interest rates at record lows and is looking to keep its one-percent target rate at least till 2013.

  • The Two Most Important Pictures Investors Will See This Year

    Within the next 90 days, a new economic catastrophe will be headed our way.

    It will blindside most Americans. And this time, the government and the Federal Reserve will not be able to help.

    It will cause a surge in personal bankruptcies and massive layoffs. It will make the recession of 2008 pale in comparison.

    It will crash retirement plans: I'm talking stocks, bonds, maybe even your own bank account.

    To get a firsthand look at what we're so worried about now, a catastrophe that has already been set in motion, I urge you to...

    See the two most important pictures investors will see this year FREE when you click here.

Very similar as well are the inflation numbers that are coming out of Canada. The country’s Consumer Price Index (CPI) increased at an annual rate of 2.6% in February from January’s 2.5% rate. This is the fastest rate of inflation the country has experienced in three years!

All of the major inflation components rose, including home prices and the housing market. Food, gas, the cost of electricity and items like car insurance all jumped higher. With this backdrop, the Bank of Canada is talking about raising interest rates sooner than later.

Shockingly, the major Canadian banks have actually lowered mortgage rates in the housing market to historic lows. Ads like this one are popping up in major newspapers all over the country.

Royal Bank Canada

(Source: Globe and Mail, Mar. 12, 2012)

If this sends a chill down my readers’ spines, it should. Canadian banks are responding to the slowing housing market and are trying to reinvigorate home prices and the housing market.

Unlike the Federal Reserve’s response in 2007, the Bank of Canada is extremely worried about the housing market in Canada, repeatedly warning that Canadians are getting into too much debt.

I’ve spoken to people in the hottest parts of the housing market in Canada: the cities of Toronto and Vancouver. There are more condo buildings going up in Toronto (over 100 planned) than any other city in the world. People are buying into the Canadian housing market believing that home prices “can’t go down.” This is similar to the feeling in America before U.S. housing prices started to collapse.

It gets worse. When the housing market finally popped toward the end of 2007 here in the U.S., the average American’s debt-to-income level was 127%. This means that the average American had $1.27 of debt for every dollar of disposable income earned. Since the end of 2007, the average American has been trying to pay down the debt and we are—in 2012; four years later—somewhere in the neighborhood of 1-to-1 currently (that is one dollar of debt for every dollar of disposable income).

In Canada, currently, the average Canadian is setting record levels of debt-to-income among industrialized nations. For every dollar of disposable income Canadians are earning, they are taking on very close to $1.51 of debt.

It may be a year or two away, but Canada is set up potentially for a very nasty, very protracted fall in home prices.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this morning up eight percent for the year. The bear market rally started strong this year, but is starting to lose steam as it fails to move higher up on the 13,000 ladder.

There are cracks starting to develop in the stock market’s advance, but they are early ones. In particular, the number of bearish stock advisors is falling rapidly. The current trend among stock advisors is more bulls and less bears, something we start to see near a market top.

What He Said:

“I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures and the construction market. These events will dampen the U.S economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year.” Michael Lombardi in PROFIT CONFIDENTIAL, August 23, 2007. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

VN:F [1.9.22_1171]
Rating: 0.0/10 (0 votes cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.