So where are these higher interest rates anyways?
Here was Mark Carney in December 2009 (ht “Anonymous”):
The governor of the Bank of Canada warned Wednesday [Dec 18 2009] that consumers and banks should not be lulled into a false sense of security because of low interest rates.
In a speech in Toronto, Mark Carney, said both parties have a responsibility not to take risks that could derail the recovery.
Consumers are helping Canada’s economic recovery outpace that of its G7 partners, Carney said, but that the recovery remains vulnerable to over-indulgence.
“When risks are still manageable is precisely the best time to act,” Carney told a business audience. “We must be vigilant, and all parties must fulfill their responsibilities.”
Bank of Canada Governor Mark Carney is again urging homebuyers and banks to be prudent warning that not only will interest rates rise, but over the life of any mortgage, rates could be “much higher” than they are now.
“With monetary policy continuing to be set to achieve the inflation target, our institutions should not be lulled into a false sense of security by low interest rates,” he said in the speech Wednesday to the Vancouver Board of Trade. “Similarly, households will need to be prudent in their borrowing, recognizing that over the life of a mortgage, interest rates will often be much higher.”
And don’t bank on housing prices rising much further, he added, noting that Canadian home prices as a share of income have climbed well above their historical average and that investment in residential real estate has reached what in the past have been peaks.
“The average level of housing prices nationally now stands at nearly four-and-a-half times average household disposable income,” he said. “This compares with an average ratio of three-and-a-half over the past quarter century.
I’m sure rates will rise but from what I see there is
- a lack of private investment
- a looming house price bubble in Canada and parts of Asia
- chronically high unemployment
- an environment where all levels of government seem focused on balancing budgets.
Not exactly what one would call an environment for positive real rates. At some point in the future, when unemployment drops and the economy is running on all cylinders again, interest rates will rise, but it doesn’t look like it’s today. So when Carney barks at people for taking on too much debt and worrying households about rates going up, does he not think that people read Aesop’s Fables as children?