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November 13th, 2009 at 11:09 pm
@dingbat:
Rates are based on the BOC overnight. The charter banks adjust to that depending on the risk of the loan but the core rate is set by the government.
Here’s a primer
November 13th, 2009 at 9:36 pm
@stagnate:
Thank you stagnate – that’s the most sensible answer i’ve read to a post in a long time. No one knows for sure. Many here claim that because of this or that stat, rate, whatever, the market will turn around for SURE this time. The one thing that seems certain is that none of rules appear to be working in the manner we thought they would.
No one here figured our market could withstand and actually rebound amidst the US and world meltdown. Yes, the Gov of Canada bailed the system out with CMHC and bad debt purchases from the banks’ books, BUT who knows when this type of “rule breaking / bending” will stop? Maybe there will be enough messing with the system by the Fed / BOC / IMF etc to prevent this mess from correcting our markets for the next 3, 5, 10, 15 years. If this is so, then I will never own or pay off a house before i retire. Continuing to pay rent when i’m on a pension won’t be fun. Life’s tough enough when i have an above-average income.
Here’s hoping…
November 13th, 2009 at 8:49 pm
purp, no one knows for sure, we’re sort of in uncharted territory. interest rates are an uneasy mix of government intervention and bond markets. likely government intervention will increase over the foreseeable future, how it’s going to look to joe smith walking into a bmo is hard to say.
November 13th, 2009 at 8:42 pm
@YLTNBoomerang:
I’m hardly a “star” but I’ll take a stab at it. Long term rates are low because of two possible reasons. The first is that inflation is expected to be low for some time. The second, slightly related, reason is that there is lots of saving and little investing. What that means is that a large proportion of money is being invested (“saved”) in safe instruments like government debt, which is driving down interest rates on that debt. Usually other private investments will compete with government bonds and drive up yields but for the most part private investments are currently not popular with investors. That is why governments can run huge deficits and still finance them on the cheap.
When will this turn around? One possibility is that inflation increases, brought on by a shift in government monetary policy, forcing long term yields up; the other is a rebound in private investment that will force governments to compete at higher rates.
On a related note, if you have lots of money in the bank, what do you think the bank is doing with it? They are trying to spend it, but on stuff that’s low risk. Mortgages seem to qualify as low risk. Do you know where your money sleeps at night?
November 13th, 2009 at 8:31 pm
I’m curious about the relationship between the rate set by the central bank which sets variable mortgage rates and the bond market which controls the long term fixed rates. Some folks are predicting a rise in long term rates due to the massive government borrowing. If fixed rates went up, would that drive gov’t to raise the prime rate? How this scenario would play out is not clear to me, any econ geniuses out there?
November 13th, 2009 at 8:13 pm
@dingbat:
“…tend to believe that it will be 10-20 years before rates will be “significantly” higher than it is today. It’s not something that can be easily switched on and off. Raising rates too fast, and our banks will see foreclosures which puts themselves at risk.”
But Canadian banks do not fear foreclosure because Canada has the CMHC to backstop the banks through mortgage insurance, and then, Canadian taxpayers. Criminally Minded Housing Con.
Rates can’t easily be switched on or off? Rates went up really fast in the early 80′s. The system is a balancing act and I suspect events can set up a wild oscillation, no matter how much better(?) the BOC tries to control it.
November 13th, 2009 at 7:01 pm
YLT, interest rates aren’t particularly low, consider the inflation rate has been hovering around zero. yes the government authorities have played a role in countering the credit crunch, given the amount of debt out there an argument can be made that credit markets should have stayed seized. the government has an interest in reflation; shouldn’t be a big suprise to anyone that it’s business as usual. i agree with your musing that an inflationary shock is unlikely to benefit vancouver that much. deflation is a longshot. indeed five years of stagnation is on the menu.
November 13th, 2009 at 6:54 pm
While we’ll be due for a rate hike come July/August 2010, I tend to believe that it will be 10-20 years before rates will be “significantly” higher than it is today. It’s not something that can be easily switched on and off. Raising rates too fast, and our banks will see foreclosures which puts themselves at risk. That said, I’m hardly an economist. Perhaps someone can shed light on what drives interest rates up (besides keeping up with the US and rest of the World).
November 13th, 2009 at 6:51 pm
Everyone seems concerned that interest rates may stay low for a while, keeping house prices high for who-knows-how-long.
In fact, the opposite is true. Continued ultralow interest rates will just exacerbate the situation, making the crash even worse.
Why? I believe it was Patriotz who pointed out, several weeks ago, the concept of “elasticity of supply”. That basically means that whenever prices of a given item vastly exceed the cost to produce it, supply tends to ramp up to to the point where the supply curve shifts, and, voila, prices drop.
Think about it: right now it costs about 100-200k per unit in labour and materials to build an average apartment unit (Olympic Village fiasco notwithstanding). If they’re selling for 400k, it doesn’t take a genius to figure out that there’s a massive profit to be made for each one.
Developers have noticed this, which is why they are all clamoring to restart project that were put on hold a year ago. This will continue, guaranteed. As long as interest rates stay low, they have a huge financial incentive to build, build, build.
And once the oversupply gets big enough, kaboom, it’s over. This is exactly what happened in Japan 20 years ago, an more recently Miami, LA, and Phoenix.
Low interest rates are NOT going to make prices go higher – quite the opposite.
November 13th, 2009 at 5:56 pm
@YLTNBoomerang:
“are we gonig to have to wait 5 years for the mortgages of those last to the table to reset to finally see it pop?”
No, because people won’t be able to afford to buy once rates go up, it MIGHT mean it will take up to 5 years to really play out but it won’t stop a burst on a shorter term.
BOC dropped rates to stimulate economic activity and I suspect to keep the housing market propped up until the Cons can get another shot at a majority (they wish).
Gold is already in a bubble.
Maybe green, maybe the new biotech, maybe “nanotech” (and people who claim they’re working with nanotech since the real thing doesn’t exist yet).
You can always profit from a bubble. But most people don’t. The trick to buying/selling in a volatile market is to buy when everyone else is selling and sell when everyone else is buying (and never never look back and say “I could have made 20% more if I’d held on ’till the peak”). Buy low sell high. If you try to buy at the lowest and sell at the highest you will get burned more often than not.
November 13th, 2009 at 5:16 pm
same here, YLTNBoomerang.
Canada is a resource based economy just like Australia, and both countries are now benefiting from China’s thirst for metals and energy. Australia has hiked their rates, but we are still post-Bush, post-Greenspan and pro-helicopter-Ben.
November 13th, 2009 at 5:09 pm
I’m a little confused as to why rates are so low in Canada right now – can some econ star explain to me?
When dot.bomb blew up, rates were dropped to stimulate a recovery and people flocked to tangible investments like housing hence the next bubble. When this bubble popped in the US, UK, etc. rates slammed back down to try and stimulate spending again and to stop people from losing their homes – our housing market stayed bubbly and BOC predicted no recession so why did we drop rates, just because big brother did? While this has served to stop the bubble from bursting, are we gonig to have to wait 5 years for the mortgages of those last to the table to reset to finally see it pop? Are we going to have 5 years of stagnation?
It pretty much seems that the instant gratification the world today requires has made us dependant on bubble economies so we will see a new bubble – is it gold? is it greentech? I have no idea but my next question is whether we will be able to profit from the next bubble if the current one does not burst? What if, for example, the rest of the world begins to inflate a great big greentech bubble like the dot.coms of 2000, will Vancouver be left out of the game as our existing bubble has left the city to expensive to participate in the next one?
Sorry for the randomness…
November 13th, 2009 at 4:34 pm
where are VHB and freako? … proud homeowners.
November 13th, 2009 at 3:55 pm
@gork:
Dave never accounts for inflation in his calculations. You have to take that into consideration when you’re reading anything he’s posted.
November 13th, 2009 at 3:54 pm
Also, between 1998 and 2007 wages in BC increased 19.3%.
During that same time period we experienced 22.7% inflation.
So… REAL wages aren’t growing at all, they’re shrinking.
November 13th, 2009 at 3:27 pm
@Dave:
My predictions are still on track actually, thanks for asking.
In the late ’80s and early ’90s net population growth in BC was in the 100k range, in the last 5 years it’s been in the 50k range. So, weak population growth.
See data HERE
“money is cheap, it might stay that way” (to paraphrase you) is hardly an argument, more of a daydream really.
“Real estate didn’t collapse and the US is now out of the recession. We will follow.” Again, you say these things like they’re facts when many of the top economists in Canada doubt that’s true and many of the top economists in the United States think they may re-lapse into recession in 2010. Wholly unsubstantiated off the cuff remarks are your hallmark but get serious here, try to at least find SOMETHING other than hot air to support your statements.
November 13th, 2009 at 3:10 pm
Dave, would also be interested in which sectors the wage growth you mention is happening. Maybe the average wage is going up because a lot of folks with lower wages got laid off?
November 13th, 2009 at 3:02 pm
Dave,here some seasonally adjusted BC unemployment data points:
Jan 08: 4.4%
Jan 09: 6.1%
Sep 09: 7.4%
Oct 09: 8.3%
see a pattern there?
Also how do you define a ‘strong real estate market’ that you think we’ll see here? An ever rising market or one that’s more like Switzerland/Germany?
November 13th, 2009 at 2:39 pm
What wage growth???
November 13th, 2009 at 2:26 pm
@Drachen:
Wrong? Hardly. Read em and weep:
http://vancouvercondo.info/200.....e-yet.html
How are your predictions doing again?
Future supply is going to be slow to recover because of the lag time in housing starts and housing completions. A year ago, we had a major drop in new starts and that is only now starting to recover. We will see this lack of supply show up in about another year.
Real estate didn’t collapse and the US is now out of the recession. We will follow.
Money is cheap. It’s almost free. Short term rates have room to go up, while still keeping money cheap.
Immigration has been strong. Google that yourself but recent newspaper articles have referenced the data.
Did I mention that wage growth is strong as well?
November 13th, 2009 at 2:16 pm
@Dave:
Ok, one at a time;
Construction: Meh, we’re overbuilt already, a drop in new construction won’t cause prices to go up. And… If it did cause prices to go up new construction would go up (duh!).
Economic recovery: Well this is premised on real estate NOT collapsing in Canada. Circular argument.
Continued Low interest rates: BOC says they’ll raise rates in the summer. Where do you get any evidence to support this assumption?
Continued strong immigration: Immigration is weak. Has been for some time. Percentage-wise we are at a low point for immigration to BC, not a high point.
Strong housing demand: Again, circular argument, you’re putting the cart before the horse.
So… 0 out of 5… About par for you. 3 wrong answers + 2 answers that are only true if your conclusion is true = Dave
November 13th, 2009 at 2:02 pm
@crabman:
Major drop in new construction + Economic recovery + continued low interest rates + continued strong immigration + strong housing demand = don’t hold your breath on a real estate correction
November 13th, 2009 at 1:55 pm
@Dave:
Overbuilt housing market + overextended borrowers + post Olympic slowdown + rising interest rates = ???.
November 13th, 2009 at 1:32 pm
Presto instant ecomomies. China GDP belies that fact. If consumer prices go down or if consumer habits retrench, Oh Oh spagettio, the Great Wall of Bullshit will coming tumbling down. Manufactred crap don’t make an economy when the other guy stops buying it. What happens to Chinas GDP if they have to rely on their own consumers who are making the princely sum of 1 dollar a day?
This is like our government pumping up the bogus economy they have created with phony dollars that will have to paid for in the future.Bullllllllllshiiiiiiiiiitttttt
http://www.zerohedge.com/artic.....ost-cities
November 13th, 2009 at 1:21 pm
@crabman:
Investment is a good leading indicator to consider.
More investment = more jobs = GDP growth = strong real estate market.
November 13th, 2009 at 1:18 pm
@Drachen:
A couple more:
Carmanah. Falcon Software.
BC is an attractive place to live for technology workers. Despite some recent job losses at EA, I think this industry will keep growing over time. Victoria now has direct flights to San Francisco which speaks to the level of high tech industry in that region.
That $2 billion estimate was conservative and probably doesn’t count all the one off home based companies, which is very significant.
November 13th, 2009 at 12:56 pm
@scullboy:
PMD (precision micro-devices)
ACD (I don’t know what it stands for, developers of ACD-See)
My brother in law’s friend started one for tech support, it has 40 or so employees but I don’t know the name.
There, that’s not so hard right? There really is quite a bit of High tech in Victoria for it’s size. The problem is the prices THERE are lower than HERE, so if they’ve got all that good stuff going for them (much higher wages, etc.) and THEIR prices are too high, what’s keeping it going here? (other than Wyle E Coyote physics)
Don’t look down Vancouver… Don’t look down.
November 13th, 2009 at 12:44 pm
This week’s Georgia Straight contains a major Vancouver RE puff piece…
http://straight.com/article-27.....k?page=0,0
November 13th, 2009 at 12:26 pm
@Dave: Not sure what *your* point is here. Some BC companies are making money, investing and contributing to the economy. Therefore….????
@Tony Pepe: Nice find. Too bad he wimps out at the end saying “Despite his concerns, Aceto maintained that the Canadian economy is in much better shape than the U.S., where zero-down and longer amortizations created a massive housing bubble.”
November 13th, 2009 at 12:05 pm
@buff_butler:
Not sure what your point is here. I never said it was net income. I said it was the total investment.
November 13th, 2009 at 11:59 am
From ING’s CEO
http://www.yourhome.ca/homes/r.....ing-bubble
November 13th, 2009 at 11:43 am
that canada vs usa new realty article is really bad. First off shouldn’t an editor proof read it. But what a crock of sh$t the article is. So supposedly lending here is so much more conservative and canadians don’t” buy more house than they can chew”. That must explain all of my coworkers and friends who think a half a million dollar house is cheap. The article states how in the early 90′s the canadian woman couldn’t get a loan with only 15% down. I honestly thought it was gonna flash forward to the present where teh same woman could put nothing down. But no the comparison was with the US a few years back. I think we have more in common with the US a few years ago than with ourselves 15 years ago.
November 13th, 2009 at 10:59 am
“….Bill Gates and Warren Buffett said the worst is over.
Now how many of you will vote this down just because it’s a fact? I bet 90% of you bears are still in denial. You know you’re missing out on a fire sale…… ”
Ya, what would the two richest guys in the world have to gain by syaing that everything is rosy?
November 13th, 2009 at 10:47 am
@Dave: Dave an interesting take on the numbers however revenue is total cash recieved and does not include expenses. The suncor investment represents 1.5b working capital therefore would be income not revenue. For comparison suncor’s revenue in 2008 was 30.1b…. The aggrigate oilsands being many times that.
November 13th, 2009 at 10:34 am
Dave:
I’ll believe it when I see it. How do they develop that number? How do they define “hi tech”? Can anyone name a single “hi tech” office housed in Victoria?
Sorry, the story there seems to be “Someone wrote a paper with unsubstantiated claims.” And actually the story is that the industry generates 2 billion in revenue, NOT that it contributes 2 billion to the local economy.
Big, big difference.
Sorry dude. Fail.
November 13th, 2009 at 9:44 am
Suncor to invest $1.5billion for new oil sands projects next year
http://www.vancouversun.com/Su.....story.html
The high tech business in Victoria alone contributes over $2 billion to our economy.
http://www.timescolonist.com/V.....story.html
November 13th, 2009 at 9:39 am
#9 The Conferance Board report in the Sun is a nice fluff piece and guarantees that everything is priced to perfection including a big boost from the post Olympic crush to get into the best place on earth. BTW I have nice bridge for sale.
November 13th, 2009 at 8:50 am
Far too much of a negative slant in here to have any constructive discussion. “Vancouver Sun claims”. Riiiiight.
November 13th, 2009 at 8:33 am
Happy Friday the 13th!
may all your dream(home)s come true whatever that is…
November 13th, 2009 at 8:00 am
@Anonymous: The conference board forecast for BC in 2010 is pretty rosy. Don’t forget to check out their track record
you can find info on how the Canadian GDP is faring so far here.
2009 Q1 = -2.31%
2009 Q2 = -3.23%
November 13th, 2009 at 7:19 am
“Just talked with an American guy. He didn’t know that the Canadian market was booming…”
And? What else didn’t he know?
November 13th, 2009 at 3:44 am
Vancouver Sun claims:
‘B.C. economy will grow fastest in 2010, report says’
http://www.vancouversun.com/bu.....story.html
November 13th, 2009 at 1:12 am
Bill Gates also said 640K should be enough memory for anybody.
Now STFU Supratard, nobody cares what you think.
November 13th, 2009 at 12:50 am
Bill Gates and Warren Buffett said the worst is over.
http://finance.yahoo.com/news/.....amp;ccode=
Now how many of you will vote this down just because it’s a fact? I bet 90% of you bears are still in denial. You know you’re missing out on a fire sale.
November 12th, 2009 at 11:59 pm
You can lock in for 18 years or so, but the rates are high. It’s the nature of being a smaller country with a flexible exchange rate.
November 12th, 2009 at 11:24 pm
@rp: I understand how buying a house in the face of high inflation could actually make sense in the US, where you can lock into rock bottom rates for the entire term of your mortgage, but in Canada you can get a max of what, 10 year term?!?
Where are rates going to be in 5 or 10 years, and why can’t you lock in for full term rates in this country?
November 12th, 2009 at 11:21 pm
@I,m First: No,no,no! I’m encouraging everyone to buy.
There’s still time to buy!
I want this thing to overcorrect hard, the best way for that to happen is to get more suckers on the boat before it sinks.
November 12th, 2009 at 11:18 pm
It’s an interesting experiment to see if they do fail to create inflation. They are certainly trying. The Fed and Obama have killed the US dollar though monetization and scary finances, which should produce higher prices due to energy there. Meanwhile the massive carry trade they’ve started could potentially create asset bubbles everywhere else in the world. I don’t think it will work.
In fact, I think it will come crashing down terribly. I’m thinking: limit exposure to all expenses such as food, energy, taxes, etc, ake household savings close to the max. Build a mountain of cash and prepare to hunker down and be able to spend little or no money on short notice. I expect shocks in the price of food, energy, everything – one at a time but not all at once. I think it will do to the economy what an earthquake does to a house. So I’m waiting for the other shoe(s) to drop. After all, none of the underlying problems in the financial system were fixed, the people responsible have doubled up on bad behaviour, and they’ve been given the government’s checkbook. What do you think?
November 12th, 2009 at 10:22 pm
Just talked with an American guy. He didn’t know that the Canadian market was booming, he thought we were in the same boat as the US. First thing he asked me is whether the economy is still booming: no, I said, we are just doing as bad as the US in terms of GDP growth and unemployment. OK, maybe a tad better, but not much. Obviously his next question was: how can the market boom if unemployment is high? What would you have answered? The big C (stand for CMHC….or credit…..Canadian government….pick your favorite).
Whatever it is, they are monetizing private liabilities and trying to have a bout of inflation. I hope they fail.
November 12th, 2009 at 10:00 pm
Still time to sell, do it now!