How Canada's Housing Boom Affects the U.S. Auto Market

Canadians emerged from the Great Recession stronger than the United States, and they're plowing that wealth into homes. Household debt as a portion of disposable income is nearing 150 percent up north, exceeding the United States for the first time in more than a decade. Canada's feeling hot!

Too hot, in fact. Skyrocketing household debt is a symptom of a confident consumer, but it's also a potential problem for Canada's central bank, which would like to cool Canada's debt appetite without stomping on its export market:

The problem is that further rate hikes increase the cost of servicing mortgages, which stretch debt-laden households. Higher rates would also attract foreign investors looking for higher-yielding bonds. That would strengthen the loonie further: It's basically at parity with the greenback, which has weakened against most currencies in the last year as the Federal Reserve pursued a loose monetary policy.

A stronger Canadian dollar would make exports pricier--especially to the U.S., Canada's biggest trading partner--and put growth at risk.

More expensive Canadian exports would particularly impact the car market, as about 40 percent of Canada's exports to the United States come from petro and auto products. Read the full story at Bloomberg BusinessWeek.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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