The previous post noted that the Globe and Mail is writing a number of insightful articles about debt in Canada. I also noted that, especially for people who are concerned about real estate markets, the fact that the articles focus on individuals is misleading. If you are not one of those individuals then what you would really like to know is the extent of systemic risk.
Part 1 looked at the poor quality of the available data. This second part looks at some of the mechanisms which might link real estate markets, debt and systemic risk. It starts with two related questions:
- If there were a problem in a real estate market, whose problem is it?
- What is the mechanism which creates a worrisome link to another market?
Clear answers to these questions are critical, if only because house prices can fall at any time regardless of whether there is a bubble. Continue reading