If we keep predicting a correction, which I think we all agree is coming, sooner or later we'll be right.
China is slowing down much faster than people think it is ... One of the potential butterfly effects of China is Canada. Everyone thinks Canada is a nation that is extremely prudent in their lending practices, and that it's very natural resource rich and doesn't carry many debts. Canadian household debt to income is now 100%. It's higher than the US. Canadian home prices are now, on a median, 9 times median income. Does anybody know where US housing prices got (median home price to median income) at the height of the subprime bubble? It hit 7.
Where Canadian housing sits today is completely unsustainable. The question is, if China slows down, what happens to the resource areas of Canada? One is mining, one is energy. You look at the forward curve for energy. The crude curve is so backwardated ...
All the prescriptions for a problem in Canadian housing are out there. We're starting to see inventories build very rapidly. When you look at these equations the brokers put out, they give months of inventory. Two variables, one is inventory, two is the velocity. So you can't look just at the months, you have to look at the aggregate inventory and how long it's taking you to sell them.
It sure looks to me like all of a sudden, Canada is coming to a halt. Volumes are drying up. 9 times median income. I don't know when Canadian housing breaks, but if we're right about China, in the next 12 months it's going to be a real problem. There are similar scenarios to the US housing problem that exist in Canada. They're not all the same, but there are some similarities that are worth paying attention to. If you're looking at Canada, I advise you to be extremely cautious.
The other thing to consider is, if the taps are turned on, and we get strong, if not hyper inflation then people who own real estate will actually owe less...the price of the loan doesn't change, they may correct the prices by inflating away the debt.
Not a good solution, and difficult to achieve if you overpaid to begin with but, if you paid a reasonable amount, could be very beneficial in the long run.
I wouldn't bet against the collapse of the Japanese economy. Look at the debt to gdp ratio. 2/1!! That is a HUGE hole to climb out of.Is this the Canadian real estate crash the American experts have been predicting for the last 7 years, or is it a new one?
Is he still betting on a collapse of the Japanese economy? 5 years ago he predicted it could not last 2 more years.
I think he's assuming more that one will be able to raise the rent proportionally to inflation. This is the theory Robert Kiyosaki uses to justify high debt levels. As long ad it's cash flow positive, who cares about the amount of fiat money he owes when the Fed can print 85 billion a month. When the dollar is worthless, he will pay it off with gold. It's effectively short selling the US dollar. He is of course betting that the dollar is beyond salvage, and interest rates won't be raised in the process.You're assuming salaries will rise with inflation, and interest rates will remain low.
If both happen, only savers get hurt.
If neither happen, it will be a disaster.
The Japanese central bank (under instruction from Abe) has made it clear that it wants a cheaper Yen, and increase yields on JGBs.Kyle's explanations, the numbers, and his logic make sense to me (regarding Japan). So I agree with him that Japan will, eventually, have a steep decline in the Yen and JGBs
That's a pretty good deal. Where are you buying?Personally, I'm a Canadian real estate bear...but that doesn't stop me from picking up cheap properties if they become available and will cash flow.
I just picked up a 1000 sq.ft. 2 bedroom today for 85k (found out today) get possession in 30 days, have a renter lined up for 1125/month. Similar units have sold in the place for $125k+, so I'm pricing in a decline and getting good cash flow. Figure I could survive a fairly aggressive correction with it.
Real estate is much more of a local than global market...that's why Vancouver will always remain high...even in a downturn.