Prospects Look Better In The US - "Ambitious people have left"; "I think we’ll be leaving too."

Whenever we hear fellow Canadians slagging off the USA, we are reminded of the guy who said that you can’t criticize Sigmund Freud without referring to concepts that wouldn’t exist if Freud hadn’t described them in the first place. Yes, the US can be criticized in almost innumerable ways, but ask yourself what your life would be like, materially, culturally, intellectually, without it.
The US ain’t over yet, and that’s a good thing.
‘rp1′, in a comment on these pages [VREAA, 22 May 2011, 11:40pm]  eloquently summarized an argument for currently preferring the US outlook to that of Canada. He also embedded an anecdote in which he describes himself and his family as likely leaving Vancouver. That would be our loss. Here’s his post:

Wall Street cheered a non-existent US recovery in 2009, and 2010 was mediocre, but it does appear the bottom is in for the United States. Do you read CalculatedRisk? If not, here you go: Household formation, Business lending, ISM Manufacturing, Construction spending, and Job openings.
With all five of those things in the black, there is no real doubts of a US recovery. It is happening, largely due to currency debasement and asset and wage deflation. Painful, but they did it. Canada did not.

Canada took the “Greenspan approach” and avoided a sharp recession and purging of debt by holding interest rates at 1% for 3 years. Household debt exploded, everyone bought more house than they could afford at normal interest rates, and now inflation is eating family budgets. Whatever advantages Canada had in 2007 are long gone. We have taken precisely the same sequence of steps that the US did in the 2000′s, with the same results so far.

A closer look at the data is frightening. By most measures, Canadian real estate was fairly valued in the early 2000′s. Not true in the US. Their prices started going up in in 1998. Four years later, with housing already more richly valued than ever before, Greenspan cut interest rates to 1% and housing went up further in defiance of all fundamentals.

Canada started later and rose slower, with a lot of genuine economic growth backing the early rise. But our prices detached from fundamentals by 2005. Interestingly, we seem to have gotten the subprime mortgages first. That would be zero-down, 40 year amortization, with no income verification care of the CMHC. The Economic Analyst has some nice graphs: House prices and rents across Canada, and House prices and inflation.

So in 2008, with housing already more expensive than ever before, the BoC starts slashing interest rates. And guess what happens? House prices rise in defiance of all fundamentals. And we keep interest rates at 1% for how many years? 2009, 2010, 2011? Yup.

In short, we have done the exact same things as the Americans, in a slightly different order, with largely the same result. How much of our economy is now underpinned by housing? What percentage of our job base? How many people put down the minimum and and require low interest rates to service the loan? Those questions had people yelling at Peter Schiff on Fox News in 2006. I’ll make the exact same call for Canada right now. We are toast.

For the US, I think we’ll see a slow but steady recovery driven by manufacturing and consumer spending. The best investment I see is respectable houses with 8% rental yields in Michigan, upper New York, and Ohio. A lot of these are 70k. They could be over 100k in a few years, plus or minus the currency, which I think will be a plus. The courageous long term investor can buy classic homes in Phoenix and fix them.

For young Canadian families, affordable housing is the #1 issue. Canada has not had it for 5 years, and it could be another five years before the combination of a good job and an affordable house appears in this country again. In the meantime, expect a shitstorm of people who expect things for free, so maybe the US is worth trying. The weather is certainly nicer.

For the highly educated and frustrated, why haven’t you moved yet? Seriously. The US has lots of jobs for you, and it is easy thanks to NAFTA to get them. Stop hurting yourselves and go live your life. Living in a different country is interesting, it’s good for you, and you can always come back. Things are not going to get any better here for a while. Certainly not in Vancouver anyways.

And there’s no need to tell the ambitious people. They’ve certainly left. I think we’ll be leaving too. It has been a torturous decision, with family here and everything. But we have our own family to look out for. I’m worried that if we stay we’ll do very poorly. We have not benefitted from the housing mania (the jacuzzi tax credit was particularly painful). We’re just going to be asked to pay for it all. We have already reduced our expectations but now it’s getting ridiculous. What a crummy deal. It’s just too much.”