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.