2008 February 02 Saturday
Popping Of Housing Bubble Crashing Canadian Lumber Towns

In some Canadian lumber towns unemployment has gone from single digits to more than half their populaces in less than a year.

Similar events are playing out across the Canadian hinterlands, where at least 139 sawmills -- many of which depend on the U.S. market for most of their sales -- have been forced to close indefinitely or reduce shifts over the past 18 months, according to Canadian government statistics.

...

In this era of interconnected economies, when globalization can take away as fast as it can give, the bite of the U.S. subprime-mortgage crisis is perhaps as visible in this Canadian town as in any U.S. community. With wood demand and prices plummeting along with U.S. housing starts, three of Mackenzie's five sawmills have shut down indefinitely, while the others have cut shifts -- propelling the town's unemployment rate from single digits to more than 70 percent since August.

That includes the loss of Mackenzie's largest employer, the two AbitibiBowater mills, which closed so abruptly Jan. 11 that thousands of felled tree logs remain piled up on its icing lot, awaiting processing by new multimillion-dollar saws that now sit dormant. Six of Mackenzie's eight logging camps, where tree cutters and haulers dined on early morning breakfasts of flapjacks before gathering wood in the sub-zero mountain air, have closed. Five of the seven town councilors or their spouses have lost their jobs. Laid-off locals cluster in Mackenzie's recreational center to tap the newly created job assistance center and debate over coffee whether to follow those who are abandoning town in search of work.

The housing boom illustrates the costs of artificial money supply inflation. As the price of oil went up the amount of money that flowed abroad and then back into the US as bond purchases skyrocketed. At the same time the Chinese took their trade surplus money and used it to buy US bonds. This lowered US interest rates unnaturally and caused an asset price inflation in the United States. That asset price inflation caused a huge misallocation of capital toward the housing industry and its supplier industries such as lumber. Much of that investment was excessive and ultimately a waste.

The costs to the lumber companies or construction companies tell only part of the story. The people who incurred expenses to move to get jobs and built housing in boom towns lost money too.

The appreciation of the Canadian dollar against the US dollar due to the Alberta oil sands boom has made the downturn in the Canadian housing industry even more severe. Canadian non-oil goods are getting priced out of the US market due to Alberta oil exports.

Share |      By Randall Parker at 2008 February 02 09:10 PM  Economics Housing


Comments
Wolf-Dog said at February 2, 2008 11:27 PM:

Despite the fact that had a housing bubble in the United States, the home percentage of home ownership has not gone up significantly, which leads me to believe that the huge number of houses that were built, were actually bought by the upper class for investment purposes. Also, the of house equity has actually gone down because a lot of people were borrowing against the house in order to spend and finance their life-styles beyond their means. But now, we have a major transfer of wealth (not in the direction wanted by Robin Hood.)

Robert Hume said at February 5, 2008 8:08 AM:

And who benefited? The folks who flipped houses, the folks who took out money from their houses and will now walk away and rent, the folks who got to live in a house way above their means for a while, living the American Dream, and will now rent as they normally would have, folks who took the real-estate agent and mortgage lender fees and ran.

Who lost? Folks whose pension funds depended on the resulting bonds, folks who live in those depressed neighborhoods through no fault of their own, folks like those Canadians who invested either personally or with their money in the false boom.

The reckless won and the solid citizens lost. That's what happens when PC gets a hold.


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