by Doug Casey, Casey Research:

Get ready for a 40% plunge.

That’s David Rosenberg’s message to investors. Rosenberg, as you may know, is one of today’s top economists. But unlike most economists, he’s actually worth listening to.

You see, Rosenberg doesn’t work for the government or some think tank. Instead, he oversees nearly $9 billion at Gluskin Sheff + Associates, one of Canada’s biggest money managers.

But here’s the thing: Rosenberg wasn’t referring to U.S. stocks when he issued this warning. He was talking about Toronto’s housing market. Bloomberg View reported last week:

David Rosenberg, an economist at Canadian investment firm Gluskin Sheff, notes that it would take a decline of more than 40 percent to restore the historical relationship between prices and household income.

• Regular readers know exactly what Rosenberg is talking about…

That’s because I’ve been writing about Toronto’s housing bubble for months.

In April, I showed you run-down shacks in Toronto that were selling for C$1 million. Two weeks later, I told you Toronto’s housing market was in a “bubble of historic proportions.” I even explained how this mania was spreading across Canada like a cancer.

Not only that, I told readers how to protect themselves from this coming crisis. If you took my advice, you made the right move.

That’s because Canada’s crisis has gone from inevitable to imminent in just a few weeks.

I’ll explain why in a minute. But you first have to understand why I keep writing about this.

• Canada’s housing market is defying gravity…

Just look at the chart below. It shows Canada’s Teranet National Bank House Price Index, which tracks housing prices across Canada.

You can see that housing prices in Canada barely fell during the 2008–2009 financial crisis. The average house in Canada now sells for 122% more than it did in 2009.

In Toronto, one of Canada’s hottest real estate markets, housing prices are rising at around 30% per year. This is the type of price appreciation that you only see toward the tail end of real estate bubbles.

• And yet, many Canadians still think their housing market is perfectly healthy…

Even a few Dispatch readers are in denial.

In fact, several Canadian readers recently wrote in to tell me that I was clueless. They said I didn’t understand Canada’s financial system, which they say is much safer than the U.S. financial system.

Their arguments went something like this…

Canadian banks are more conservative than U.S. banks. Therefore, a Canadian housing crash couldn’t possibly trigger the kind of financial crisis that the U.S. had a decade ago.

This argument isn’t just wrong—it’s delusional. And that’s because Canada is sitting on a powder keg of debt.

You can see what I mean below. This chart compares the level of Canadian household debt with personal income. The blue line represents the average Canadian. The green line represents the average American.

Since 2009, Canada’s household debt to personal income ratio has jumped 30%. Canadians now have far more debt than Americans had at the peak of the last U.S. housing boom.

As if that weren’t alarming enough, more than half of all Canadians come within $200 of financial insolvency each month, according to a recent survey by research group Ipsos.

At this point, it wouldn’t take much for Canadians to start defaulting in droves. That would kill Canada’s housing market. It would also create huge problems for Canadian lenders.

The good news is that mortgage default rates in Canada are still low. But that could soon change.

Read More @ CaseyResearch.com