First the US, Now Britain...

"British house prices fall sharply in March, by MATT FALLOON, Reuters, April 8, 2008 "

House prices fell 2.5 per cent during last month, the Halifax said, more than six times as much as analysts had forecast and the largest monthly decline since September 1992.

The annual three-month rate of house price inflation stood at 1.1 per cent. Six months ago, that rate was in double figures.

House prices do not usually fall 2.5% in a healthy market. The housing bulls in Canada (I've been reading some of these real estate agent blogs out there) keep saying that Canada is different than the US. We have no subprime. Our economy is growing. We are producing jobs. The housing market remains healthy.

Look, I don't dispute most of these facts, with the exception of the economy is growing possibly.


However, you could probably have said the same thing in Britain a few months ago.

A bit of history here based on my limited knowledge of British real estate:

The funny thing is that in 2004-05, Britain's housing market slowed sharply for a few months (to no growth after 20% appreciation in earlier years) after the BoE raised interest rates sharply. The British economy had a magical soft landing. And then housing and the economy reignited in recent years. I believe the same thing happened in Australia.

Some of the more worldly US real estate bulls in 2005/06 used the British example to say that the same will happen in the US. Housing would rest for a few months or quarters and then grow nicely and the economy would have a soft landing. Now we know that housing didn't just slow, it cratered in the US. Soft landing? Whatever (even the bulls don't believe that bull anymore).

And now in Britain, in 2008, their housing is now following the US example as it went from superheated to cratering in just a few months...

If you want to be a bull on housing, that's fine. That makes a market. But to use the "Canada doesn't have a subprime problem" to justify that the Canadian market will not fall is silly. Not every bubble is the same. Was there a subprime market in Canadian housing in 1989? Was there a subprime market in the Nasdaq in 2000? To look for the same catalyst to end a bubble is a starting point but not an ending point.

Besides, I don't believe that subprime was the true cause of the bubble in the US. There were a host of problems in the US of which subprime was but one factor. Some of the others were low interest rates, lax regulation, government encouragement as a way to lessen the impact of the imploding Nasdaq bubble in the early 2000s, price, inventory buildups, animal spirits, etc...

Clearly most of the G7 housing markets experienced a boom (bubble?) in the past ten years. There is some correlation between all of these markets, as this is a global economy with correlated financial markets and economies.

Every market has its unique characteristics but most G7 countries had bubbles, in my opinion.

When a bubble turns, it can turn fast. Bubbles don't correct. They implode. They fall farther and faster than 99% of us expect. The US in 2006-08 case in point. Britain in 2008 another. Canada's turn may be coming. Clearly, the turn in Canada is not here as of March 2008. However, this does not mean that the turn isn't coming. (I will outline some scenarios of the turn in future posts)

Remember, we don't have subprime in Canada. We have overprime...Overextended buyers and overly long amortizations.