By Josh Barro
Stephen Marche wrote for us on July 15 that Canadian households are wealthier than American ones for the first time. Marche attributes this to “a fiscally conservative form of socialism.” This is a sort of eat-your-peas principle, which led Canada to stick with plain vanilla banking and fiscal rectitude while the United States ran huge budget deficits and allowed Wall Street to run amok.
Whatever the merits of this approach (and it has some) it isn’t the principal reason Canadian household wealth surpassed that in America. To understand why that happened, you need to see the chart above, which shows the trend in home prices in Canada (blue) and the United States (black) since the start of the year 2000. (If you are reading this on a Bloomberg terminal, use 97 <GO> to view the chart.)
American home prices more than doubled from 2000 through 2006, and then cratered. Canadian home prices rose a bit more slowly, but unlike in the U.S., they have kept going up, up, up. Prices in America's 20 largest housing markets are 36 percent higher than they were twelve years ago; in Canada's 11 largest, they are up 125 percent.
The most valuable asset that the typical household owns is its home. Since Canada isn’t done with its housing bubble, it’s no surprise that households up north are now wealthier than those down here. Until the bubble bursts, that is.
(Josh Barro is lead writer for the Ticker. Follow him on Twitter.)
Read more breaking commentary from Josh Barro and other Bloomberg View columnists and editors at the Ticker.
-0- Jul/19/2012 15:45 GMT