More on BOC housing market risk speech

The BoC release a speech on Monday with a significant portion dedicated to the housing market:

http://www.bankofcanada.ca/en/speeches/2010/sp110110.html

This speech reminds us several times that rate policy is to be used to control inflation, and that housing is only one factor of many that affect inflation. Unfortunately the speech glosses over that housing is the sole factor affecting inflation currently, and how low rates have contributed to housing being the sole factor driving inflation.

“As Canada’s economic growth moves towards its potential, it is expected that a robust housing market, supported by exceptionally low interest rates, will continue to work as an important engine pulling the Canadian economy out of recession. This has implications for monetary policy, which, as I’ve said, aims to achieve the Bank’s inflation target of 2 per cent over the medium term. It’s important to remember that this target is symmetrical; that is, we are equally concerned about whether inflation is above target or below target – as we expect it to be until 2011. The revival of the housing market is one factor that is helping us to achieve our inflation target, and it is a powerful means through which monetary stimulus affects the economy. Of course, we need to keep a close eye on the housing market, along with all other sectors of the Canadian economy, to ensure that we are providing the right amount of monetary stimulus. In setting monetary policy, we view housing – or the exchange rate, the energy sector, the auto industry, or any other factor – through the prism of our inflation target.”

The speech then reiterates a previous comment from Mark Carney, that the BoC should not be managing the risk of financial institutions:

“An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks. These include capital requirements for institutions, leverage ratios, loan-to-value ratios, terms and conditions for mortgage insurance, and a variety of other measures. These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions.

Using these instruments to safeguard the whole financial system – not just individual institutions – is the essence of the macroprudential approach. Macroprudential supervision is one of several concepts in a current global initiative to strengthen supervision and regulation in the wake of the global financial crisis. In Canada, a system-wide, or macroprudential, approach is the shared responsibility of the Department of Finance and all of the federal financial regulatory authorities, including of course the Bank of Canada, the Office of the Superintendent of Financial Institutions, and the Canada Deposit Insurance Corporation. Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system.”

Now Carney has officially passed the buck to Flaherty to cool the housing bubble. What remains to be seen is how Carney will reach target inflation
without housing being the sole factor if Flaherty does implement the proposed changes to cool the housing market. The BoC had predicted GDP growth to return to normal by now, yet the numbers are far less than predicted.

Oh, lastly this wonderful quote:

“Using the current path of household indebtedness, and alternative assumptions about how quickly interest rates may increase, the simulation generates a scenario indicating that, by the middle of 2012, almost one in ten Canadian households would have a debt-service ratio that makes them vulnerable to economic shocks.”

In 2 years if the BoC does nothing, 1 in 10 of us are in trouble. Thus why the BoC is taking the opportunity to pass the buck now.

-taylor192

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jim
10 years ago

I loved this well written article and great website. Very informative. Keep up the good work!

Anonymous
Anonymous
10 years ago

@patriotz:

In other words eight people move into a house that used to have just two occupants.

—–

There's a name for that: 'Kitsalanofication'. Funny, it used to be the Russians that didn't have any single family dwellings. Seems like we’re headed there now! What happened?

Anonymous
Anonymous
10 years ago

scullboy, if you suspect that some posters are fems, they are fems who make good money to think in real estate. After all posting online is anonymous and genderless. Take a chill pill. Marry a rich cougar and all your pecuniary problems solved.

scullboy
10 years ago

"I’m so happy scullboy is out of town. He’s missing out on a great world event. I’ll think about that bozo when I sit at GM Place watching hockey games while sipping my $7 beer." *ahem* AHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA! Um, you seem to think about me a *lot* SupraLadyBoy. Admittedly I have that affect on a lot of girly Asian boys. I know, I know…. you've heard about virile Maritime men and what we're swingin' under our kilts. It's gotta be tough, you and all your ladyboy friends servicing those fat old Daddy types. That's how you're getting into the Olympic events, right? I mean those call center jobs aren't exactly high paying. Only you and your little girlfriends would be stupid enough to pay 7 bucks for that watered down moose piss. Luckily it only takes …. what…. a shot and… Read more »

patriotz
10 years ago

@smartmoney: I have an issue with 85% of the current tax revenue of all levels of government going into wages and benefits of civil servants. That is complete nonsense, the only level of government that spends that kind of money on its own employees (which is what I assume you mean by "civil servants") is the school boards. Municipalities come next but they have much higher capital costs. Public sector employees account for 17% of all employment in Canada. But public sector spending is about 35% of GDP. Obviously spending on government employees must be far smaller than you claim. For example: Of the $223.9 billion in federal spending in 2007, about one-third was dedicated to social security payments, family allowances and income assistance. International activities such as national defense, foreign diplomacy and international assistance totaled 10% of federal spending,… Read more »

patriotz
10 years ago

@stagnate:

the poor ones tend to pool their resources accross a sizeable family grouping. they tend to target the type of product the boomers are downsizing from.

In other words eight people move into a house that used to have just two occupants. Yeah, that's just the ticket to keep demand up to supply.

😉

stagnate
stagnate
10 years ago

mino3: i understand what you are saying, boomer selling is a bearish factor but well down the list. there are already a lot more boomers in downsizing situations than upsizing, but that hasn't had much bearish effect on the market. locally here there are significant numbers of wealthy immigrants and the poor ones tend to pool their resources accross a sizeable family grouping. they tend to target the type of product the boomers are downsizing from.

oneangryslav2
oneangryslav2
10 years ago

Hey, how many of you would be interested in getting together in person for drinks? We could call it our 1st annual VanConInfConf[erence].

RE bulls and RE bears would be seated at separate tables…just kidding, although Supraboy would have to sit in the corner by himself.

Any interest?

ReadyToPop
ReadyToPop
10 years ago

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year.

America slides deeper into depression as Wall Street revels

(but we borrow like there's no tomorrow….RTP)

VHB
VHB
10 years ago

VHB. I remember that guy. Wait, I AM that guy!

mino3
mino3
10 years ago

I've been following local blogs since VHB. What does that have to do with anything?

Anonymous
Anonymous
10 years ago

@mino3: You must be newbie here everyone else knows that Vanman represent bears on the blogs since 2004.

Anonymous
Anonymous
10 years ago

http://www.howestreet.com/articles/index.php?arti

"This is a very strange time – I've never seen anything quite like it – with no good places to be, at least as far as Americans in America are concerned. Maybe Canadians are next – their real estate market hasn't really collapsed yet. If I still owned property in Canada – I used to live in Vancouver – I'd hit the bid tomorrow morning. The same in Australia, China, and the UK."

gvrdpropertyowner
gvrdpropertyowner
10 years ago

@stagnate: 25% of British Columbians will be over the age of 65 within twenty years— and, yes, this statistic accounts for the effect of migration.

mino3
mino3
10 years ago

@stagnate: Come on, the immigration argument again? Immigrants are not rich, in fact Canada has a problem of immigrants living off welfare. Here's a couple links from Google; there are plenty more.

http://global-economics.ca/immigrationquebecontarhttp://www.canadaimmigrants.com/statistics.asp

These people are not going to be buy real estate at current valuations from boomers. Not even close.

trackback

[…] from space889 at vancouvercondo.info 13 Jan 2010 10:26 am – “I note more and more Asians here in La Jolla. I’m thinking that in ten years La Jolla will […]

mino3
mino3
10 years ago

@The Van Man: You live in a very simple world. It must be nice. You paid off your house, so most boomers must have too. Some old guy is healthy, so most boomers must be too.

I'll keep it simple for you: the retirement wave will cause more supply than demand in RE over the next generation. In other words, the fundamentals will worsen. Bad for real estate. Real prices would drop even in a healthy market, but since we're in a super bubble (locally), they will collapse.

jesse
10 years ago

Drachen: "Since there will be a record breaking number of people downsizing, moving into old age homes and dying over the next 25 years it IS bound to have an effect on prices"

There is significant underutilization of SFHs as baby boomers' children leave home. This is backed up by data from the suburbs showing population declines in established (SFH) neighbourhoods.

There are three primary classes of boomers selling: those who want to downsize because they don't like the extra space, and those who HAVE to downsize because it's their retirement nest egg or their health deteriorates. We will soon find out who's been the grasshopper. On average I expect significantly more grasshoppers than buyers.

stagnate
stagnate
10 years ago

the boomer effect is more pertinent in markets where there is little or no immigration. i wouldn't expect it to be a big factor here. garth turner- for entertainment purposes only. has been wrong too many times to be taken seriously.

Supraboy
Supraboy
10 years ago

I realized here that people here are very negative and hoping for a crash. The bears here are constantly covering their ears to good news and only hope for bad news. What's wrong with seeing your next door neighbors get rich? Life sucks so live with it. I see so many cheerleaders hoping for a raise in interest rates. You guys are so stupid. The fed has been talking about raising rates but they have no balls to do it because they know there will be an economic meltdown. This 'raise rates' talk has been going on for ages and it ain't happening boys and girls. Get with the program. The fed will do what it takes to prop up the economy. Unemployment rate is stabilizing, money is all over the place. Just look at the olympics, people can fork… Read more »

The Van Man
The Van Man
10 years ago

Even in the most expensive town that we live in (Vancouver, BC), AS LONG AS you have your home paid off, you CAN survive with minimum wage. Which is why there are boomers who work as Wal-Mart greeters, MCDs, etc… To say that boomers will sell in droves when they are 65s is a bit too far fetched. Mr. Garth Turner was well known to sell this idea in the 1990s through his then Turner's Report and his Millennium TV outlet. I did miss the cute East Indian chick that hosted that show though. If 60% of the boomers had their homes paid off, which I suspect they do in Vancouver (ours were years ago), this means they won't be selling. Boomers are healthier than ever — people still exercise. The current extreme ultra-runner record holder in British Columbia is… Read more »

smartmoney
smartmoney
10 years ago

#30 Drachen, I have an issue with 85% of the current tax revenue of all levels of government going into wages and benefits of civil servants. That definatley is not the issue at all with what is going on south of the border. Your knee must have jerked up and smacked you upside the head. Instead of schoolbooks we have indexed diamond studded pensions, what is right about that? Instead of an audit on competancy we have the BCTF trying to negotiate a moratorium on testing, why? Instead od reduceing the fat we have unions agitating for bigger concessions from the minority government for support, why? When the tax revenue needed for hospitals and seniors gets 100% siphoned off the greedy socialist unions and you're personal tax bite go's from 70% to 100%, then I suspect thosse who support the… Read more »

Anonymous
Anonymous
10 years ago

@Drachen:

I beleive the book was titled: "Boom, Bust and Echo"

Drachen
Drachen
10 years ago

Yeah well, this isn't really the place for politics, but there's a pretty huge difference between "They're way ahead in the polls." and "They're ahead by less than the margin of error in the polls but I think they'll recover soon in spite of the fact that I just pointed out some reasons why they'll sink further in the polls, oh and I forgot to mention I don't really know anything about politics." (Which is paraphrasing your new amended version of your original statement and adding some personal observation)