"Bubbles are best Identified by excessive credit, valuation not excessive," James Chanos, a New York hedge find managers and w ell-
Known short selling 
In trod a commentary by Stephen Jarislowsky over-valuation of the property market in Montreal, the above text argues that there is not a housing bubble as a bubble of mortgage credit in Canada.
It must be understood as a manifestation of a more general problem of over-indebtedness of households.
We illustrate through the case mortgage lending structures, joint actions and policies of the financial sector and the Canadian government that helped create and sustain that bubble and that creates a situation of great fragility for working families in debt. We
souligons non-viability of this medium-term business strategy of large banks (which actively participates in the Desjardins Group) and insist that it hinders the development of an alternative model, cooperative or collective access to home ownership and housing, a more ecologically and socially sustainable.
This alternative model would involve first to question the current system based on private ownership and exclusive and funding practices that it enables and transform this heritage in leverage and financial assets.
Our analysis has three sections: in the first section we examine the question of the presence or absence of a housing bubble in Canada, in a second section, we situate the issue of growth of mortgage debt in the problem broader household debt in Canada and examines the financial mechanisms of conversion of property assets with leverage debt, in a final section we present the various measures of public policy that helped create this situation and we conclude with an overview of some alternatives.
The current text contains sections 1 and 2 while the last section and the conclusion will be added shortly.
1. General observations about a bubble in the housing market "Canadian" What is a bubble?
For there to be a bubble on an asset price thereof shall not only grow at an exponential rate, but we must note 1. an exponential increase in the number of transactions, 2. movement in prices driven by purchases / sales that represent immediate capital gains (the transaction as such should generate a higher price), 3. funding of its credit transactions with leverage increasingly important, 4. the emergence of speculators - who specialize in buying and selling assets, 5. production assets based on speculative gains rather than an actual offer.
Are we in a housing bubble in Canada in 2010?
Strictly speaking, there is no yet housing bubble in Canada, yet ...., factors 1 and 2 are not yet sufficiently widespread and strong, the factor 3 is very important, factors 4 and 5 (appearance specialist of "buy and flip , speculative real estate projects) do not seem to be developed. But the factor 3, related to the credit issue, creates tensions very important.
In a recent note the Economic Research Service of the Desjardins movement while expressing concern over the rising prices in the resale sector, spoke of "overheating" but stresses that there is no clear indication of the formation a bubble in real estate. According
index "Teranet" National Bank (http://www.housepriceindex.ca/Default.aspx) measuring the increase in pan Canadian home values, there are strong regional and sectoral disparities in the market Canadian residential real estate. It appears that pressures the strongest upward pressure on prices is most evident in two large urban areas, Toronto and Vancouver. Montreal has certainly a strong and steady growth in property values, particularly in the multiplex, but it seems mostly caused by a gap between supply and demand.
A credit bubble housing? By
cons if we resume our criteria for a bubble situation and apply them to the residential mortgage sector, one can consider that the financial asset bubble of a kind known unbearable especially when you add the more general credit which is accessible households.
The price dynamics of the residential real estate is linked to this credit bubble in two ways. On the one hand the increase in property prices contributed to levels of mortgage debt higher and higher (especially for first buyers), then more perverse, liquidity in the mortgage market allows an expansion of credit supply that validates and sustains price inflation. The self-reinforcing process will determine the intensity of bubble growth and the possibility that this will become a real estate bubble present on all major housing markets in Canada.
In this sense, data compiled by the OECD show that in Canada the ratio of home prices vs income households experiencing a growth path that progresses at a pace important decade. Certainly, growth was less intense in Canada compared to other Anglo-Saxons during the key years of the housing bubble was in 2002 - 2005, but since it is growing persistently, even after the bubble values are stagnant or down elsewhere.
Why is worrisome?
In macroeconomic terms,
this concern (especially the Bank of Canada) as it unfolds in a context of interest rates particularly low. Financing costs of credit to households and are artificially low. In fact, interest rates are at historically low levels not only for 2 years in response to the financial crisis of 2007 to 2008, but they are historically very low for nearly a decade. In the past ten years, households have accumulated a mortgage debt with a cost in terms of very low interest, they are extremely sensitive to interest rate shock. This shock would impact on any huge economic recovery Sachat that over 60% of Canadian GDP depends on consumer spending in many current and sustainable household.
In terms of political economy and social
these developments have several consequences. First it helps to maintain the over-indebtedness model of consumption and unequal distribution of wealth that is not viable on both ecological and social plans. Second, it makes possible a model of access to housing and residential property precarious and fragile young households and families from the majority employed, employees who have not benefited from growth in the last decade in terms of progression income.
But more importantly, these developments required a turn pushing towards alternative solutions to the shortage of affordable housing, accessible and quality in urban, peri-urban and rural areas. Indeed, the current model favors not only (still) urban sprawl in the dormitory towns on the outskirts of Montreal, but an evolution of urban residential real estate on the island of Montreal oriented investments that do not meet any criterion environmental and social sustainability.
The model of private property rather promotes investments that increase the value of their homes through additions and renovations of their aspects "Conspicuous" when homes are not just used as leverage to consumer spending which have nothing lasting or link with the buildings in question. Current developments are therefore an obstacle to the development of green alternatives and collective break with a model dominated by individual ownership is becoming less viable urban and financial.
2. Household debt and housing sector
In Canada, despite the financial crisis of 2007 - 2008 and the recession of 2008 - 2009, household debt has continued to grow at a rate following the same pattern of acceleration before 2007. As shown in the chart above, we have therefore set ourselves apart from other liberal economies in particular the United Kingdom and the United States that we followed since the '80s. We continue walking alone toward the over-indebtedness, albeit from a lower level of household debt that the United States and the United States, but at a higher speed. At that rate our debt level should exceed the other two economies by 2011. On a
strictly economic terms this means that banks have continued to increase their lending to households regardless of the recession and the deterioration of household balance sheets, while consumers continue to demand more credit, hoping that evolution of their future income will support the weight of this additional debt, despite the relative stagnation of incomes for the past thirty years.
For the former, the banking sector, the business strategy through consumer debt has not been revised despite the crisis and recession. For the latter, the strategy maintains consumption through debt has not been revised. In 2 cases the viability of this regime of over-indebtedness is not questioned, why?
In the case of banks, they are competing in debt for households, none can afford to shut down or tighten first, they would lose customer revenue streams. In the case of households, stagnant incomes and ease of obtaining credit has come to blur the line between active and passive, between wages and credit.
Rising home prices and in fact the size of the average mortgage debt came to dock with This process of expansion of unsustainable consumer debt. Stowage in this case means more than this bill! The two forms of debt are linked by financial innovations that banks offer to households to turn their real estate assets in debt leverage.
The multiple economic roles of mortgage debt
Mortgage debt is no longer used only to purchase a residential property, as more and more real estate assets are converted into credit levers. As the report by their incessant noise commercials financial, banks have developed instruments to "liberate" the value locked in the bricks, concrete and wood of a residence. The value of the building would happen to a possible sale of the property market becomes a source of immediate liquidity and indeterminate, without purpose and limitations.
tools are many and they have proliferated over the past decade, that is to say as well that the regime was growing indebtedness of households and progressed as the price of homes on the market for sale and resale. Whether it is through mortgage refinancing, mortgage reversed or establishment of credit line attached to the fairness of property, these instruments have two problematic features in the current context.
First, they are directly dependent on a steady and even accelerated in the value of residential properties and thus linked to the vibrant resale market and possibly a bubble in this market segment. But they are particularly sensitive to any sustained fall in property prices, let alone a major correction as is the case in the United Kingdom and the United States. Then, by the increasing value of real estate assets, the level of household debt is somehow obscured in two complementary ways:
- by the effect of virtual balance sheet growth of the market value of assets real estate web deterioration of the relationship between debt and household disposable income;
- then the systematic conversion of consumer debt into mortgage debt in mortgage refinancing or transfer balances from one credit card to a line mortgage. This causes a decrease fictional "wrong debts ", the consumer credit in favor of an increase of" good debt "which is in theory a real estate asset.
short, for several years now, banks compete to offer working families of transformation mechanisms of residential real estate assets using leverage, and a large share of this debt is used to validate a consumer who is on the ecologically and socially unsustainable. Curious paradox, or contradiction is typical of financial capitalism, which seems more fixed, stable, solid and immovable heritage property is turned into a fluid power, potential and evanescent.
3. Economic and political factors behind the credit bubble to households
(forthcoming)
4. Alternatives and options
(Forthcoming)
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