Sentiment Change Alert - Very Sombre RE Article in The G&M

Sentiment may be changing. The fact that these very important problems are now being more broadly aired is encouraging, but even articles such as this one still underestimate the severity of the problem. They largely cling to the ‘responsible Canadian lending’ myth, and only entertain the possibility of relatively small (5%-20%) price drops. – vreaa

Image and excerpts from ‘The long shadow over Canada’s housing market’ by Steve Ladurantaye, Globe and Mail, 22 Oct 2010 -

Wake up, Canada: The house party is over.
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Victor Fiume, president of the Canadian Home Builders’ Association, remembers speaking at a meeting of municipal leaders at the height of the boom. “They were bouncing down the stairs with excitement about what it meant to their tax base.” Many of them are still holding on to those hopes, even as the market slows. “They [now] find it very difficult to believe we can come to such an abrupt halt.”
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A period of stagnation or slowly falling prices, coupled with weak home sales and waning construction activity, would cut off one of the engines that drove impressive economic growth and job creation in the years before the 2008 financial crisis.
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This week, when the Bank of Canada released its latest report on the domestic economy, it specifically mentioned the prospect of “a more pronounced correction in the Canadian housing market” as one of three key risks.
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It all adds up to a simple, unpleasant equation: High debts, plus high home prices, plus high unemployment, plus slow growth in incomes, equals a housing market that’s much different than the one Canadians are used to.
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“Canada doesn’t need a U.S.-style problem to have a problem,” said Alexandre Pestov, a market analyst at Three Bears Research in Toronto. “A Canadian-style issue will do just fine.”
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Housing-related spending – including the rental market and the sale of existing homes – accounts for about 20 per cent of gross domestic product in Canada, the Canada Mortgage and Housing Corp. stated in its annual report released in late September. It’s the highest level CMHC has recorded in a decade, and translated into $307-billion in economic output in 2009.
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About 35 per cent of all jobs created through the recovery can be traced back to construction, according to the Canadian Home Builders’ Association, with home builders accounting for the majority of the activity. But much of the work taking place today harkens back to sales made last year, when the industry set new sales records. “We’re still building houses we sold in the spring,” said Mr. Fiume, the home builders’ president. “But at some point we’re going to finish that work, and the unemployment rate is going to take a hit because we’ll be laying off workers. Then, more than ever, people will understand why it’s important to have a strong housing market.”
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REAL ESTATE BUBBLES The Canadian Centre for Policy Alternatives believes another [bubble] is imminent, because of the way prices have pulled away from inflation [since 2001].