(Source: Worthwhile Canadian Initiative)
We all know that the proximate cause of the US recession was the bursting of its housing market bubble: it blew up banks, laid waste to personal balance sheets, and left millions of people stuck in homes whose mortgages were more than their market value.
And then Canada went into recession. Unfortunately, this set up the following error of logic that was repeated in all-too-many Canadian newsrooms:
The US is in recession because its housing market blew up.
1. Canada is in recession.
2. Therefore, Canada’s housing market must be blowing up as well.
3. And so it was the fate of any number of hapless Canadian journalists to be given assignments to bash out pieces that fit this narrative. But these exercises were all doomed to failure. The decline in house prices in Canada is a symptom of the recession, not its cause.
Read Stephen Gordon’s full oversold story here regarding how the decline in house prices in Canada is a symptom of the recession, not its cause.