A new report by the Vanier Institute gives a much truer picture of how Canadians are weathering the current recession than various official accounts.  In truth, it’s hurting – a lot.  Average houselhold debt stands at record-high levels.  The number of mortgages and credit cards in arrears has escalated and personal bankruptcies have exploded.  Unemployment figures are still high, wages have shrunk and net worth fell steeply, although it has recovered somewhat on the strength of current housing prices. 

Perhaps the most revealing part of the Vanier report is its discussion of housing prices.  The author pulls no punches:  “Canada may already be in a housing price bubble”, he says at page 15.  He arrives at this conclusion by comparing historical price / income ratios, as follows: ”Average house prices in October-November 2009 increased to a new high of about $340,000. This is equal to five times the average after tax incomes of Canadian households (all in current dollars). This compares to only 3.2 times in 2000 and an average of 3.7 times over the two decades.” 

Contrast that analysis to Finance Minister Flaherty’s comment this morning that “There’s no clear evidence of a housing bubble.”  Nevertheless, he’s introduced new mortgage lending rules that require all home buyers to meet standards applicable to five-year fixed-rate mortgages, even if they want to borrow money at less expensive rates or for shorter terms.  The government is, essentially, making sure that average Canadians will buy cheaper houses and thus force prices down.  Mr. Flaherty’s policy will work even better if interest rates rise to pre-recession levels.  As the Vanier Institute points out, at 7.5% (the December 2007 mortgage rate), a “buyer could only afford a home worth $242,000 or 29% below the October-November [2009] price.” 

No wonder the banks wanted this policy change.  It looks very much like a recipe for increased bank profits on the backs of ordinary Canadians.  

OK, here's the thing - if F says we're not in a housing bubble, then we're definitely in a housing bubble. This is same genius who stated in August of 2008 that there was no recession coming. This guy has the foresight skills of a blind mole rat, with the ethics to match.  And yes legislatrix, it was F who introduced 0/40 mortgages in the first place. But I have to get in a dig at the banksters too - they do not need federal legislation to tighten up lending  - they can choose to do that themselves. So why won't they and instead quietly lobby F to do something?

It just occured to me: Wasn't it Flaherty who introduced the 40-year Canadian mortgage in the first place? Now, he's twice reduced this time limit with new, more strict mortgage lending rules and the media have applauded him for it.  But I've seen no one point out that it is actually his own errors he's correcting.

As consumers we have to be our own advocates, know  the risks, and know when to say thanks but no.  Regrettably,  the temptation of more credit is hard for people to resist.  What I find scarry, is we really do not know how bad this can get.....  My grandparents did not buy homes or cars on credit, they saved and the paid cash.  By no means were they high earners - a cabinet maker and a hotel waitress.  But they saved, consumed a small amout, invested wisely and retired early. 

In the last 65 years, there has been a dramatic shift in not only our attitude towards debt but also consumption.   Debt is OK, because it gives us what we want today, with the conscquences tomorrow.  (Some people even pay for the facade of frugality.)   Instant gratification is over taking delayed gratification and we have yet to look below the surface of this ice berg, and I am not sure there is a historical precedent of what we can expect.

Further, the left hand is not speaking to the right.  We are addressing many of our current issues individually rather than as a whole and we may be surprised if we started drawing comparrisons from one to the next at how pervasive this issue i.e attitude is.

It is clear from the crazy debt loads of countries and their citizens that stronger regulation is required to prevent us all from sinking this boat we call the economy. 

I'm still not sure I understand why the banks were bailed out at all (even Canadian banks were 'backed' somewhat after the 2008-09 recession). 

I mean, haven't we just (re)created a monster?  The banks profit directly when the public is in debt as much as possible to them.  Thus, they offer us ridiculously high rates of credit on our credit cards, lines of credit, overdrafts and mortgages.

Then, when the banks go too far and have over-extended themselves by taking on risky debt (the public's, who the banks have been profiting from), we (the already over-burdened public, deeply in debt) bail them out for their foolish mistakes.

The banks can't lose in other words.  What a business model!

The rumour is that the banks are afraid to lend money now.  Baloney! Personal anecdotes alone show me that they are throwing high credit limit credit cards, lines of credit and mortgages at people who can't afford them: just as before. 

THIS is why the government has to step in and put in tougher home buying rules and regs.  Because the banks continue to take on risky debt (giving huge mortgages to people who can't afford them).  And why wouldn't they?  Because if the banks fail, the public bails them out. 

Aren't we just setting a course to repeat this pattern?