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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January 23rd, 2010 at 5:20 pm
I loved this well written article and great website. Very informative. Keep up the good work!
January 14th, 2010 at 12:44 pm
@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?
January 14th, 2010 at 10:43 am
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.
January 14th, 2010 at 5:47 am
“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 a half of the stuff to get you buzzed enough to go on your back for Daddy. I’m sure thoughts of me will be going through your head at the time too…. “Damn that scull boy with his boyish good looks, I’ll be he’s so manly in his kilt and big…. swingin…. sporran….”
And since I’m speaking to one of ‘em now maybe you can tell me, is your obsession simple jealousy or are you just starvin’ for a real man? Is it bitterness over what you can never have? C’mon dude, I’m dyin’ to know.
And for the rest of you, yeah admittedly it’s a vulgar post but I had to address Supra’s obsession…. it was getting a little disturbing.
Those Asian fem boys can be so clingy and they never take “no” for an answer…..
January 14th, 2010 at 4:52 am
@smartmoney:
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:
http://www41.statcan.ca/2008/3.....00-eng.htm
Not mentioned above is debt service costs, which by themselves make your 85% figure impossible.
BTW doctors are not government employees, although of course almost all of their income comes from the government. Similarly many other people in the private sector such as construction workers.
January 14th, 2010 at 4:16 am
@stagnate:
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.
January 14th, 2010 at 1:52 am
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.
January 14th, 2010 at 1:35 am
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?
January 13th, 2010 at 11:19 pm
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)
January 13th, 2010 at 11:14 pm
VHB. I remember that guy. Wait, I AM that guy!
January 13th, 2010 at 10:58 pm
I’ve been following local blogs since VHB. What does that have to do with anything?
January 13th, 2010 at 10:41 pm
@mino3: You must be newbie here everyone else knows that Vanman represent bears on the blogs since 2004.