In a recent series of speeches and interviews, the head of Canada's third-largest mortgage lender has been warning audiences that the large debt loads Canadians have taken to purchase increasingly expensive houses are making the economy “fragile” and “accident prone.”
Clark says those high house prices will mean Canadians will have to face a lower standard of living because they will be spending more of their income on housing. Either that, or they will force wages to go up, making Canadian workers less competitive and causing job losses.
In an interview with BNN this week, Clark noted home prices have been growing faster than incomes and faster than inflation for years, which means consumers are becoming more indebted — something borne out by data showing Canadians’ debt levels are at an all-time high.
“We’ve learned around the world that when you make the consumer indebted like that, their ability to withstand shocks is dramatically less,” Clark told Bloomberg this week. “So the economy as a whole is more accident prone, more fragile.”
Clark doesn’t see a housing market crash as the inevitable result of this. “We don’t do stupid things that the Americans did that caused their housing collapse,” he said. “We’re not underwriting our mortgages badly.”
And Clark thinks it’s “maybe” still a good time to buy a house, because it looks like interest rates will stay very low for a long time yet, and “so far this has been a winning bet.”
But will it always be? Clark isn’t convinced. He thinks low interest rates are bad for Canada in the long term “because we know the music eventually does stop.”
And he sees a competitiveness problem for Canada in high house prices.
“If we have workers in Toronto who earn same wage as workers in Philadelphia but have to pay twice as much for their house, that puts upward pressure on our wage structure,” Clark said.
And that, in turn, is going to cost jobs, he says.
“It’s not an accident the minimum wage is 40 or 50 per cent higher in Canada [than in the U.S.],” he says.
Clark’s views aren’t shared by all his colleagues. When he made comments like these at a bank conference a few weeks ago, other bank CEOs contradicted him, saying they see little cause for concern in Canada's housing market.
And Clark is no stranger to controversy, though his impending retirement in November of this year may be making him more forthcoming about his opinions. During the Occupy Wall Street movement several years ago, Clark urged the protesters to “stick to their guns” and warned of the damage that widening income inequality could cause.
Original Article
Source: huffingtonpost.ca/
Author: The Huffington Post Canada
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