Profiling the Recovery Part IV: Canada

Profiling the Recovery Part IV: Canada

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Knowing – or maybe believing is a better word – that property markets and economies around the world are on the way back up sure is a nice feeling. It may be a short-lived feeling, because according to some there are signs that the short-lived positivity will end as quickly as it begun.

I am not one of the people. But nor am I one of the plastic fantastic optimists that think the only way is up, and that rejoices in reports of UK mortgages doubling, and property in some areas selling for almost the same as it would have at the height of the boom.

The truth is, yes, we are making some headway against the deluge of negative financial news. In fact, a good analogy of the current recession recovery process for me, is a snow plough that has been completely submerged in snow: we have just jumped in and managed to get the engine started, the heat is slowly melting the snow, but we still have a hell of a lot of pushing to do before we clear the drifts.

As you would expect, all the countries of the world are recovering in different ways and at a different pace, depending on the makeup of their economy and the funding and direction of its government’s economic stimulation policies. Nobody knows how strong the recoveries are without the massive injection of cash and stimulation being poured into the world’s markets.

In this series of articles we will profile the G8 nations to track the progress of recovery in their housing markets so far, and attempt to map any possible deep-drifts in the road of stimulus withdrawal ahead.

Part I: America

Part II: United Kingdom

Part III: Spain

Part IV: Canada

Of the three countries covered so far, Canada is the only one that looks likely to turn its current rebound into a full recovery without any dreaded second dips. This is because the Canadian economic stimulus was very measured and targeted.

That said: because the Canadian stimulus worked on a worst case scenario, and Canada’s economy and banking system had remained in pretty good shape, the low interest rates and buyer incentives still created a liquidity surge, which has caused fears over the formation of bubbles. A liquidity surge that caused double-digit growth in Canadian house prices in 2009.

In fact, a lot of people would have liked to have seen interest rates starting to go back up several months ago, for fears that Canadians were borrowing more than they would be able to pay back when rates eventually do go back up.

The government has resisted a rate rise, because it had promised to keep rates at their current historically low levels until at least June of this year. It is inarguable that the debt Canadian’s are taking on now could be storing up trouble, but at the same time, Canadian banks and even borrowers have always been responsible, which is why the economy and banking system was not in as bad shape as that of the US when all this started, we have to believe that if anything the credit crunch will have strengthened, not weakened the sense of responsibility within the Canadian banking structure.

It is also worth mentioning that according to the United Nations, Canadian property is extremely overvalued, and, with the correction experienced into 2008 failing to really correct anything, again, the trouble staved off now could simply be stored up for later. However, in the context of this article, which is to assess the strength of the current rebound, and its chances of becoming a full recovery, Canada is definitely a winner for now. Time and future articles will tell how much of the trouble averted now will come back to bite Canada in the back-side.

Article written by Liam Bailey on behalf of