Joseph Barbuto, Director of Research at the Economic LongWave Research Group, has a stark message for anyone holding most of their net worth in Canadian real estate. Home prices will return to two to four times income. History says so. The only question is how Canada gets there.
Topics covered:
► Barbuto's prediction for Canadian home prices: a return to two to four times income over the coming decade, consistent with every real estate bubble deflation in recorded history by his long-wave modelling, with his AI bubble model producing the same answer
► The 1930s versus Japan debate: Barbuto arguing the 1930s is actually the better outcome because you get it over with quickly, the psychology resets, new institutions get built, and the recovery starts, while Japan's two and a half decade drag is the worst possible scenario and the one Canada risks if it tries to manage rather than resolve the contraction
► The pension question: Barbuto confirming that real estate bubbles tied to private debt are the ones that devastate economies and pension systems, unlike stock market bubbles which are healthy and contained, with historical examples from the 1990s, 1930s, 1870s, and 1830s all tied to private debt
► Canada's five unique factors that make this downturn unlike any previous one: the largest private debt bubble in Canadian history by his modelling, shrinking demographics with no historical precedent since Confederation, leverage from the zero interest rate bound which has never occurred before, baby boomers about to flood the market with supply, and governments already running structural deficits with no fiscal cushion
► Baby boomers as the cause of both the great inflation and the coming great deflation: the same generation that drove housing demand in the 1970s is about to release that supply, with Canada's fertility rate at 1.25 as of 2024 and Barbuto's modelling suggesting the next baby boom is not expected until the 2040s
► Why immigration cannot solve the structural demographic problem: it is cyclical, collapses when unemployment spikes above 10% as happened in the 1930s and 1870s, and older workers do not replace the demographic foundation that a baby boom provides
► The Canada distinction from the 1930s: no Canadian banks failed during the Great Depression while thousands failed in the US, because Canadian banks were spreading losses amongst themselves, but Barbuto's point is that the economic winter still arrived through the collapse of borrowing and lending driven by fear
► China's situation: a real estate bubble combined with collapsing demographics and a shrinking population, but with one advantage over Canada in that it has identified innovation as its path forward and is already leading in several technology areas
► Barbuto's long-term vision: real estate returns to its historical role as a utility at two to four times income, the false debt-fuelled economy deflates, and the next upwave is built on innovation, commodities, and energy
Is Canada's real estate correction going to be fast and painful or slow and prolonged?
Let us know what you think in the comments.
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