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At least one country has a bigger housing bubble than Canada does, suggests a prominent financial analyst.
“Readers will be familiar with concerns about the Canadian housing bubble and household debts — warnings from authorities seem to come every week,” writes Hilliard MacBeth of Richardson GMP.
“But there’s another country — Australia — that has an even bigger bubble,” adds MacBeth, known for his bearish takes on Canadian real estate popularized in his 2015 book When the Bubble Bursts: Surviving the Canadian Real Estate Crash.
Australian home prices have quadrupled since 1995, MacBeth notes. Over the same period, Canadian home prices have tripled.
“And it’s not just house prices. The household debt that comes along with inflated house prices could be a more severe problem,” MacBeth adds.
Experts have aired similar concerns about the Canadian market.
Record household debt is sparking fears that borrowers in the Great White North won’t be able to keep up with their mortgage payments if interest rates rise.
The ratio of household debt to GDP is 120 per cent in Australia and 100 per cent in Canada.
Not only that, but in both Canada and Australia, non-financial corporations have racked up considerable debt in recent years alongside households, MacBeth notes.
“Australians and Canadians were very proud of their ability to sail through the [Greater Financial Crisis] with barely a ripple on the water,” MacBeth notes.
Canada experienced a mild recession compared to the US and Australia didn’t even have that more muted challenge.
“But with that pride came complacency and increasing debt loads,” MacBeth says, adding, “And that debt will be the problem.”
The financial advisor points out a key problem for countries that have used debt to shelter their economies from the effects of the Great Recession.
“The total private sector debt pile has to keep growing at ever faster rates, because interest and amortization payments increase faster than GDP,” notes MacBeth.
“So it’s impossible to continue at this pace as servicing debt will eventually overwhelm the economy, even if we make the unrealistic assumption that interest rates never go up,” he adds.