The meltdown in the subprime market in the US is already affecting the lumber industry in BC. No one's buying homes, so no one needs to build any more which means all those lumber exports from BC won't be needed. Whether we get infected with a credit meltdown or not, the US ecomomy will drag all sectors both north and south of the border down with it. The question is, is there anything on the horizon which is going to help cushion the blow? It sure would be nice to believe there was something going to prevent that from happening. It was also nice to believe in Santa Claus.

I believe what Stoneleigh is recommending is not to pay down your mortgage but to get rid of it by selling your property in favour of renting. For myself I'm on a VRM (variable rate mortgage) and considering locking it in for the long term. I'm not over leveraged but I also don't think it's going to be raining fire and brimstone in the near term. However I'm also not entirely convinced that interest rates are headed up anytime soon. The Fed might have to relax rates and let inflation take over for awhile. Of course if Japan and China start dumping the greenback the Fed might have to move the other way to try and stem that tide. I'm almost having as much fun as I would in Vegas.

Easy money was not a localized phenomenon, and credit tightening won't be either IMO, although it may take time to spread from one jurisdiction to another. I would argue that the US in the early stages of a credit crunch, and that the same should happen here within a year (at a guess). Just as irrational exuberance was an over-reaction to the upside, it's converse will be an over-reaction to the downside, meaning very tight money and deflation.

I wouldn't carry a mortgage, even a low fixed-rate one, unless it represented only a very small percentage of the value of the home. Deflation magnifies the value of debt, making it a far greater burden at a time when the price of the asset would be falling and the ability to ensure the means to make payments would become increasingly doubtful. Real interest rates (the nominal rate minus inflation) are very high during deflation, even if the nominal rate is low (ie nominal rate minus negative inflation). In addition, the real estate market can go illiquid very quickly, which can make it very difficut to extract oneself later if it turns out to be necessary.