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After the GFC (Great Financial Crisis), the GHF (Great Canadian Housing Froth)
Michael Babad

This article was published more than 6 years ago. Some information may no longer be current.

Briefing highlights

  • How Canadian home prices have fared
  • Canadians ‘addicted to debt’
  • Sears Canada seeks court protection
  • Buffett rides to Home Capital’s aid
  • Global markets at a glance


How home prices fared

To understand the mounting angst over Canadian home prices, and why we're so "addicted to debt," take a look at what the Bank for International Settlements says in its latest study of global housing markets.

Canada led the world in property price growth last year, according to the BIS, a body made up of the world's central banks, as this chart from its recent report shows.


And just look at how Canada's property market has fared since the financial crisis.


I'd be tempted to say the BIS report could amp up the concerns over Toronto and Vancouver home prices, but for the fact that alarm bells are already ringing just about as loudly as they can.

Observers including the Bank of Canada, the International Monetary Fund, the Organization for Economic Co-operation and Development and others have been warning of inflated markets and swollen mortgage debt for some time.

"Residential property prices increased significantly in almost all advanced economies (AEs) during 2016," BIS statistical analyst Robert Szemere said in the report.

"On average, prices grew by 4 per cent in real terms – i.e. deflated by the consumer price index (CPI) – on a year-on-year basis," he added.

"Their growth was particularly marked in Canada. Prices also rose strongly, though more moderately, in Australia, the United Kingdom and the United States."

Which is why the federal, B.C. and Ontario governments have moved aggressively to cool the markets in Toronto and Vancouver.

Perhaps more interesting is how markets have performed since the financial crisis, which did not hit Canada as hard as it did other countries.

"After a sharp decline following the Great Financial Crisis (GFC) of 2007-09, average real residential property prices in AEs bottomed out in 2011-12," Mr. Szemere said, adding that most advanced economies have since "almost recouped" their losses.

Indeed, real prices in the United States and Britain now are just "modestly below" the levels of 2007.

"The gap was slightly wider for the euro area (by 10 per cent), with important disparities across this region: Real prices are now significantly above their pre-GFC levels in Germany, but they are well below this benchmark in France and even more so in Italy."

And here you go: "Turning to those other AEs which were much less affected by the GFC, real prices are almost comparable to their 2007 levels in Japan, whereas they are significantly above them in Canada and Australia."

This comes amid a new study by the Canadian Centre for Policy Alternatives, which looked at the private sector and warned that we're "addicted to debt."

Senior economist David Macdonald looked not only at consumer debt, for which Canada is infamous, but also at corporate credit, and found that we've rung up $1-trillion worth in the last five years.

Indeed, he noted, Canada's private sector is "racking up debt" at a faster pace than other advanced economies, and companies account for the bulk of it.

"Canada's economic growth has become addicted to private sector debt," Mr. Macdonald said in his study. "Weaning us off it should be our primary public policy concern."

Certain government measures are "steps in the right direction," he said, citing British Columbia's tax on foreign buyers in the Vancouver area and a similar move by Ontario aimed at speculators.

"However, they may well prove to be insufficient, with housing prices already rising again in Vancouver," Mr. Macdonald said.

"The next step should be a speculators' tax of 20 per cent for those selling a secondary residence within one year of purchase, which phases out over longer ownership periods."

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Sears Canada seeks court protection

Sears Canada Inc. on Thursday got court protection from its creditors so it can close 59 stores – including 20 large department stores – and let go about 2,900 of its 17,000 employees to continue operating and possibly sell the business.

Toronto-based Sears said it is closing of 20 of its 94 department stores, plus 15 of its home stores, 10 outlet stores and 14 Hometown locations, The Globe and Mail's Marina Strauss and Joyita Sengupta report.

Insolvent Sears Canada Group operates 225 stores in all under the Sears and Corbeil banners. It got protection from Ontario Superior Court under the Companies' Creditors and Arrangement Act.

Sears said it wants to continue its reinvention plan which entails introducing discounted designer fashions and a new private label line to draw more customers to the stores.

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Buffett rides to Home Capital's rescue

Warren Buffett is coming to the rescue of Home Capital Group Inc., but the Oracle's endorsement won't come cheap for the Canadian alternative mortgage lender, The Globe and Mail's Christina Pellegrini and Jacqueline Nelson report.

One of the world's most famous investors is backing the Toronto-based mortgage company in a financing deal designed to shore up confidence in the firm as it tries to stabilize its cash position after depositors began to rapidly pull money out of savings accounts and guaranteed investment certificates earlier this year.

Mr. Buffett's Berkshire Hathaway Inc. has agreed to indirectly acquire $400-million of Home Capital's common shares – at a steep discount to the current trading price – and provide a new $2-billion line of credit on slightly better terms than the emergency loan it received in April from the Healthcare of Ontario Pension Plan.

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