Canada

I stumbled upon the chart below the other day, and thought it was worth citing that Cananda seems past due for a meltdown in housing and banking.  It's a bold statement, but i'll dig into some numbers:


a) Canadian household debt to income ratio is dangerously high (see chart, from JPMorgan).

b) Canadian banks are thoroughly under-capitalized   There is no fractional reserve requirement, and they didn't experience a financial crisis in 2008.  The potential for deleveraging is quite large.

c) Mortgage rates are the lowest they have been in decades.

d) Energy markets are currently weak, a foreboding sign for the Canadian economy.

e) Ranking banks in the word by lowest tangible common equity, Canada has 6 banks in the top 21 (see below).  Note the TCE ratios.  Sure we see a lot of familiar names high on this list, but many of these banks went through the financial crisis is 2008 and have been subsequently de-leveraged to a certain extent and possibly bailed out.  The Canadian banks have not had this experience.



f) The dollar value of total outstanding residential mortgages continues to hit all time highs.  As shown below, this number is an increasingly high percentage of GDP.




g) Despite a, d, and f, housing prices remain high. (see below).




h) Ratio of housing prices to rental prices is higher than any other developed nation.  Image from theatlantic.com, january 2013.