Edmonton Housing Bust

Oh my! Papa Bear! Mark Carney!

It’s been quite a week for BoC Governor Mark Carney. He’s been all over the news, and dropping science faster than a theater major! Came out earlier in the week and told Canadians point blank they had too damn much debt and needed to tighten their belts. Given the timing, most Canadians probably think he was making a last ditch audition for the role of the Grinch. I’m sure that was music to the ears of retailers in particular.

For those of us who recognized this was happening years back, it probably doesn’t seem like much. But we need to read between the lines, and remember that for someone in as political a position as his, to come out with such strong words as he did is no small concession. One can only imagine the words being tossed around behind closed doors. After all, this is a bunch who wouldn’t say “shit” if you took one in their $800 Italian loafers. And it is prose like that which so aptly displays why my foray into public relations was a misguided as it was brief.

But enough of the hyperbole, lets take a look at the data and see what Marky-Mark was talkin’ about (and don’t think that’s not a photoshop that is being worked on). The 3Q National Balance Sheet Accounts data was released Monday, and it was ugly. You may recall back in September some dumbasses were speculating that Canadians appetite for debt may finally be waning.

Upon further review… yeah… not so much.

After the debt-to-disposable income ratio apparently dipping in the spring, the preliminary numbers show that was merely an aberration as come summer we were right back on course, and have now eclipsed the 150% mark, coming in at 150.19%. After the ratio took it’s biggest quarter-to-quarter drop ever in 2Q, it took it’s biggest jump ever in Q3. In the twenty years that data has been kept the quarter-to-quarter fluctuation had only eclipsed 3% two times, and just barely… so that our jump this quarter damn near hitting 5% is no small feat (4.82% to be exact).

The debt-to-GDP figure also continues to climb, albeit more gradually. The preliminary 3Q numbers coming in at an all time high of 94.04%. So it doesn’t seem that we’ve maxed out yet. We’ve now surpassed the comparative U.S. figures, as since their housing market went bust they’ve seen their ratios fall off. At the peak down south their debt-to-disposable-income was close to 160% (their calculations are slightly different, so we’re ballparking it).

In any case, we haven’t been heeding the warnings thus far, and Carney has been one of the few the last couple years telling people to reign it in. We’re also starting to hear rumblings again from the big banks, apparently wanting the Feds to tighten mortgage lending rules even more, perhaps even so far as going back to 25 year amortizations and requiring 10% down payments. In this internet blowhards opinion that would be a great move for the government to make, but this is the same bunch that stripped them to the bone in the first place.

Hope everyone is dug out and/or warm and toasty here in the early days of the holiday season. Everyone at work seems to have largely finished their holiday shopping weeks ago, but as still stressed out with just a couple remaining people to buy for. With almost two weeks left I don’t know why, I don’t even start for at least another week. But then again, I’m guy, and at an age and with a group of friends who are more than happy with receiving bottles of alcohol as presents. Who cares about the thought and effort put in when you can get blasted?!

Thought we’d do something a little different today, and take a look at incomes relative to the exchange rate. The Canadian economy in general, and Alberta in particular, rely heavily on our trade relationship with the United States. So as the exchange rate swings, it can have a massive effect on the viability of projects for foreign entities. For most of my life, in other words the early-80′s on, the exchange rate had typically fluctuated between about 65-85 cents on the dollar.

But that changed in 2007, when suddenly the Canadian dollar gained a great deal of strength, and made a big push towards (and even past) par. It feel off a bit in late ’08, but is now back close to par again. So today I figured we could look at how this has effected the cost of doing business in the province for foreign entities, insofar as incomes are concerned.

We know incomes have risen of late in the province, and not just nominally. And we can see this in the graph above with the blue (Edmonton) and yellow (Calgary) lines. Those two are the median family incomes in Canadian dollars, and are inflation adjusted to 2008 dollars. Because income data takes awhile to get processed we don’t have data any more recent than 2008, but that isn’t a big deal for our purposes today.

The gist of what I’m going to point out today comes from the green and red lines (very festive in an unintentional way), and how they have moved relative to the blue and yellow lines. Those (red and green lines) are derived from the same data, but are converted to US dollars. Here we can see that the cost of doing business in the province has appreciated considerably in the last 15 years, in fact it’s practically doubled over the period. And I remind you again, that isn’t just nominally, that is inflation adjusted.

So, if you were wondering why at one time oil hitting $60 was boom times just a few years ago, but now it’s at $90 and we’re just treading water… that’s why. Well, that and natural gas has been the real commodity driver of the economy, and it’s prices are still low. A double whammy figuring in the exchange rate hovering around par. The cost of labour here has exploded for US companies, and it’s not even really the actual salaries as the exchange rate that’s kills them.

Or maybe you disagree? Food for thought anyway, and something to widdle away your working hours with on a Monday.