NEW YORK — Canada is being feted in international circles after coming through the financial crisis relatively unscathed, but the accolades may be unwarranted.

That’s the conclusion of a leading U.S. economist who’s crunched the numbers and determined two factors that may take Canada down a notch or two: the housing market looks due for a U.S.-style drop; and, without oil, the country would be in trouble.

Robert Shiller, the Yale professor who correctly predicted the 1987 stock market collapse and the recent U.S. housing market meltdown, said Canada’s robust financial health compared to other nations is largely due to a random run-up in oil prices in the midst of the global financial crisis.

“It’s a major export for Canada and it went to US$140 a barrel in 2008, right when Canada needed it,” Prof. Shiller said in an interview Tuesday.

Canada’s economic output fell roughly 4.2% from its peak in 2007 to its trough in 2009 — even with the oil price surge, while the U.S. saw a near-identical decline.

“It seems that if the country didn’t have that boost from oil, it would have done worse than the United States,” Prof. Shiller said.

While many economists, market observers and Canadian politicians trumpeting Canada’s success like to highlight the country’s differences from the United States, Prof. Shiller said that historical economic data show they are very much alike, with both economies heavily influenced by a similar human psychology, a theme he explored in a 2009 book he co-authored called “Animal Spirits.”

“Our countries are like two peas in a pod,” he said. “A lot of the differences are random, like the oil shock.”

If the historical statistics serve as a guide, Canada looks to be headed for a big drop in home prices, although any decline probably won’t be as pronounced as the U.S. housing bust, he said.

U.S. home prices adjusted for inflation surged 79% between 1990 and their peak in 2005. Canada’s gained about 45% over the same period and have continued marching higher, up to about a 50% gain currently, said Prof Shiller.

“I’m a little worried about the Canadian housing market. Fifty per cent seems like a lot in 20 years,” he said. “I suspect the same forces are in operation in Canada, although maybe somewhat attenuated because mortgage institutions are more responsible there.”

Prof. Shiller, who helped develop the widely followed Standard & Poor’s Case-Shiller for the U.S. housing market, picked apart the Canadian economic data in preparation for his keynote presentation last week at a Manhattan conference promoting investment opportunities in Canada.

After Canada’s International Trade Minister Peter Van Loan opened the conference with remarks touting the country’s financial might, Prof. Shiller called Canada “a purely random success story.”

“I’m not a salesperson, so I gave Canada a bland view,” he said. “It’s the same thing on both sides of the border.”

Calgary and Vancouver appear to be the biggest possible housing bubbles in Canada, he said.

“Vancouver feels bubbly like San Francisco,” he said. “There’s a West Coast culture that extends from Seattle down to San Diego.”

He advises Calgary homeowners worried about their home values to hedge their bets by shorting oil. “If oil prices go down, your home prices is going to go down with it,” he said.

Prof. Shiller said he owns a house near Yale in New Haven, Conn., and a summer home, both for nostalgic reasons, not as investments, and he believes it makes more sense for most people to rent and put the savings in a diversified portfolio. “People should think of buying a home as risky. They should maybe put some money in housing, but invest all over...and maybe take part in the Chinese Miracle.”

Financial Post

jwhitman@nationalpost.com