Welcome to the second, less frequently-posted decade of RevMod.

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Tuesday, March 30, 2010

We will now begin our descent. Fasten your seatbelts.

I don't think I'm a genius for predicting interest rates were due to rise, but apparently many people were surprised by this sudden turn of events, and are responding to the change by.... er, assuming a mountain of debt while they're still allowed to. But don't worry - this couple won't spend more than they can afford. They're both personal fitness trainers! I gather that's a lucrative career.

So, today. A day later. The Conference Board of Canada says that twenty percent of Canadians can't afford their housing. But instead of laying the responsibility on the shoulders of housing inflation completely disconnected from the rest of the economy, "The report found that private-sector developers have tended to focus on building homes that are aimed at higher income Canadians." Just to be clear, one builder in Edmonton will sell you a 1200 square foot house in Leduc for $320K. Going by a standard affordability calculation, which says that historically a house should cost about three times the family's annual income, this would be aimed at higher income Edmontonians, the average family earning just over $90K/year. But I don't think anyone is mistaking 1200 sq. ft. as a mansion, nor Leduc as a lucrative location. In other words, I think the Conference Board of Canada is smoking crack.

The easy money has been flowing, and it's kept housing prices hyperinflated. But this isn't the tulip bubble - the Conference Board's report makes clear that overpriced homes have real consequences for real people. The piper will have to be paid. The day will arrive sooner than anyone seems to think.

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