The Canadian housing market will implode in dramatic fashion: 5 charts highlighting the inevitable pop to Canada’s real estate boom.
The Canadian housing market is deep into bubble territory. We all know that bubbles can go on for longer than most people think. But with the crash in oil prices and people fully believing their own hype, the market is setup for a big fall from grace. It is interesting how most from the outside can see what is coming but those within the system just can’t accept the fact that prices are massively overvalued. Just like bubbles can grow to outsized proportions, corrections can hit quickly. Virtually all analysts did not see the massive correction in oil hitting late in 2014. But it did. Many within Canada especially those tied to the real estate industry are deep into a trance believing they are immune to the economic rules that apply to all economies. The economy is dependent on oil and construction and both of those industries are taking hits. Yet somehow, home prices will continue to move up just because? Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.
The evolution of low wage America: The most common jobs by state in 1978 to 2014. The destruction of the manufacturing industry.
The US continues to see a widening gap between the army of low wage workers, the highly paid small upper-class, and a dwindling middle class. We’ve already shown through IRS tax data that households make a lot less than people think. The US has been on a very steady trend towards having a massive pool of low wage labor with nearly non-existent fringe benefits. Benefits have been decreasing while the cost of healthcare and planning for retirement is surging. It is always interesting to look at Census and BLS data for employment figures. There was a fascinating report looking at the most common jobs per state over time, starting in 1978. The evolution is interesting and what we can take from the report is that the secretarial position went from being very common to being virtually non-existent. And today, truck drivers are the most common job in many states thanks to the obvious reality that you can’t outsource a big rig trucker driver (although I’m sure driverless technology will soon handle that in a few years).
The largest bracket of tax payers in the United States is made up by those making $15,000 a year or less: Half of all federal taxes paid by those making $250,000 or more. Sample $50,000 budget.
New IRS tax filing data sheds an interesting light on the American economy. Americans for the most part comply with paying their taxes as measured against other countries. However, when we look at tax data we get an interesting picture on the low wage economy. As it turns out, the largest tax bracket comes in the form of those making $15,000 or less per year (this group makes up 25% of tax filings). What the data also finds is that households making $250,000 a year or more make up 2.4% of filers but pay 26% of all federal income tax. So when we hear about large spending proposals we have two ways to fund them. It means higher taxes or simply more deficit spending. We’ve already covered how inflation is really hitting the family budget even though we continue to hear stories to the contrary. Just look at the actual numbers on real life spending. The IRS data always gives us a nice look at how household spending is measuring up.
Market indicators suggesting a correction is coming: On Black Tuesday Shiller PE Ratio was at 30. Today it is at 26.2 and volatility is back in a big way.
Volatility is back in a big way for the global economy. Not that it went away but for a couple of years central banks fooled the public into believing that perpetual debt was a good way to rejuvenate the markets. There will be no free lunch. Oil crashed rather dramatically. Greece is reigniting further issues with the Euro. Russia is on the brink of recession. Half of Americans live paycheck to paycheck. Inflation is alive and well only if you bother to look. Overall volatility is back in a big way in the global markets. The Baltic Dry Index which is a good measure of shipping goods has collapsed. You would think that if demand were so healthy, shipping goods would be soaring. The only thing soaring is stock markets based on inflated values. The S&P 500 is overvalued by 60 percent looking at historical price-to-earnings ratios. The Shiller PE Ratio was at 30 on Black Tuesday. Today it is at 26.2 with the historical average being closer to 16.
Comparing the inflated cost of living today from 1938 to 2015: US Dollar losing an enormous amount of purchasing power since 1938.
People have a hard time understanding how inflation erodes their purchasing power. Little by little the cost of everything goes up and people simply assume this is normal in an economy. The $2 movie ticket becomes a $8 movie ticket. That can of tuna just got smaller but the price remains the same. The cost of going to college went from manageable to needing large student debt merely to complete a four year degree. Inflation is argued to be a purely monetary outcome. You have too much money, in the form of cash or credit in today’s case, chasing fewer goods. In our current economy, debt is the fuel accelerating inflation. You can see this in items like housing, cars, and college where debt is the primary fuel driving prices higher. The big problem today is that incomes are simply not rising fast enough to keep up with the rise in other expenses. Over time, inflation has a big destructive power. I thought it would be useful to look at the cost of typical items in 1938 and compare them to where things stand in 2015.
Profits of doom: For-profit colleges are the resurrection of subprime mortgage lenders for the college industry.
At a time when the cost of a college education is being thoroughly questioned, there is one area we should all agree on. For-profit colleges are largely a distraction to fixing our higher education system and operate as the subprime lenders in college education. For-profit colleges claim they are trying to provide an education to those shunned from the traditional college system. But this twisted logic was also used in the subprime fiasco. What good is it giving someone a $500,000 loan on a home when they make $25,000 per year? By the time the loan unravels healthy commissions were made and the financial disaster cleanup is left to tax payers and those taking on the loan. If for-profit education was such an obvious deal, why did the industry spend $4.2 billion in marketing in 2009? For-profit colleges provide low quality education with an incredibly high sticker cost that is financed by a lifetime of student debt. If we are serious about tackling the student debt problem we need to first address the for-profit education system.
When working leads to food stamp usage and the rise of dollar stores: Food stamp usage is still near record levels even in the face of a dropping unemployment rate.
Food stamp usage surges when the economy enters into a recession. That is no surprise. In fact, this is the design of the program. A safety net when things get bad. But if we are to believe headline indicators, the economy is improving so we should see food stamp usage decline substantially. It has not. Thanks to the low wage recovery, you have a new class of working poor. We still have an incredibly high number of Americans on food stamps as we start 2015. Dollar stores have done a great job capitalizing on this army of people needing low cost items to buy. Instead of selling trivial junk, many dollar stores now make most of their volume through food sales. Working and being on food stamps doesn’t seem like a perfect combination but it is if you are one of the millions in the low wage economy. As we will highlight in this article, we are finding a high number of Americans unable to dig themselves out of the hole set from the Great Recession.