What Does Canada’s Housing Bubble Mean for the U.S.?Kevin Douglas
The warning signs are all over: the U.S. is rapidly approaching another economic disaster, similar to the one in 2008—if not larger. But what about other world economies? Are they more stable? As it turns out, Canada is currently experiencing its own economic bubble—and when it bursts, it could spell disaster for the U.S. as well.
Canada’s Housing Bubble
Currently, just as in the States, debt in Canada is cheap. Interest rates are low, and as a result many Canadians are taking the opportunity to increase their personal debt load. Banks are handing out longer amortization periods for mortgages as well—i.e. the set period of time it takes to pay them back. Many of the mortgages approved last year had repayment periods of over 25 years.
The problem? The Canada Mortgage Housing Corporation won’t insure a mortgage with an amortization period that long. This means Canada is currently at the peak of a very large housing bubble. Housing prices are rising and overall wealth is currently high. But when the bubble bursts, those values will plummet—while the amount of debt stays the same.
Moreover, certain powerful groups, such as Mortgage Professionals Canada, are refusing to admit the problem, or do anything to mitigate the inevitable crash. They’re choosing instead to try to keep the bubble intact for as long as possible.
To some degree this is understandable. Other portions of the Canadian economy, such as exports and business spending, are having troubles. Thus, higher housing prices and lower interest rates are helping to keep the financial system afloat. But if something isn’t done soon, the fallout from when the bubble does burst will be catastrophic.
The Economic Bubble’s Effects on the United States
Canada’s current economic plight is unfortunate. But what does that have to do with the U.S.? It turns out our financial systems are more intertwined than you’d think. In the wake of the 2008 crash, the strength of Canada’s economy helped to boost our own, mitigating the effects of our recession. Our largest export market; we’re reliant on the stability of our neighbors to the north, and their continued financial success, to this day.
As we previously mentioned, the U.S. economy is already on precarious footing at the moment, with another crash potentially just on the horizon. Our own housing bubble is nearing its bursting point, and the markets are poised to plummet.
If Canada’s housing bubble bursts before ours does, it could trigger a domino effect that sends us spiraling down sooner than anticipated. If it breaks after ours, or at the same time, it will take away the cushion that we had in the previous recession, making the effects of this one much worse.
So with economic catastrophe looming, not only for us, but our allies to the north as well, what can you do to keep yourself and your wealth safe? You need a safe haven asset; something that maintains its value in the face of economic crisis and keep your savings intact, even if markets collapse.
Property used to be a great safe haven that would appreciate in value over time. But with both Canada and the U.S. caught in housing bubbles, it’s no longer a reliable investment. Even bonds, one the most reliable of investments, are losing money.
Gold and silver, however, remain safe havens. As physical assets they maintain their buying power over time, and increase in value over the course of years. So if you have your nest egg in a gold IRA, which gives you the flexibility to hold both paper assets and physical precious metals, when it comes time for you to retire your investment is protected, no matter what the economy—either here or in Canada—is doing.