Crying Wolf: Whither Higher Mortgage Rates

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.”

And here he is last week:

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?

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Curiosity
Curiosity
9 years ago

"Tick Tock Says: June 28th, 2011 at 6:30 pm Sorry bears, but not stopping this market until rates go up significantly…and as we discussed the other day…rates are going nowhere fast.. Hahaha…no crash mates, just a slow very long mild deflation… By the time prices come back to your blessed price to income ratios, you will all be dead…" I beg to differ. US has low interest rates. I don't see their slump getting any better. Many factors other than interest rates affect the real estate market. They include employment; whether outside investors continue; whether the banks continue with providing easy general credit; world economies etc. With so many in high debt, the banks may shut down the availability of credit. We currently have low interest rates, but I don't see huge sales per day. Just a guess, but I… Read more »

Anonymous
Anonymous
9 years ago

Is China driving property bubbles abroad?

Chinese buyers have gone abroad on strong yuan, favorable rates

http://www.marketwatch.com/story/is-china-driving

Li Kai Shing
Li Kai Shing
9 years ago
Yalie
Yalie
9 years ago

@Anonymouse: That $25 bottle of OK wine is probably $20 in taxes.. Blame the government for that, along with the fact that you can’t even buy it in a grocery store. Actually, it turns out that BC wines are heavily subsidized through a number of indirect measures. This is partly why we see so much of it in the BCL stores, at prices relatively equal to the generally better stuff from Chile or Australia. They could never compete on equal price/quality levels. I had a long conversation recently with a lawyer who represents the BC wine industry. Apparently the other wine producers are in the process of challenging the BC subsidies (through NAFTA and other channels), and in the opinion of this particular lawyer they have a strong case. The main reason the subsidies have lasted this long is that… Read more »

Karl Marx Carney
Karl Marx Carney
9 years ago

To point out the obvious: remember what happens at the end of that Aesops fable?

The wolf comes and devours the whole village.

Anonymouse
Anonymouse
9 years ago

@McLovin:

That $25 bottle of OK wine is probably $20 in taxes.. Blame the government for that, along with the fact that you can't even buy it in a grocery store.

Patiently Waiting
Patiently Waiting
9 years ago

@McLovin: Value for dollar, it even makes sense to get European wines. For under $15 I can get a drinkable French or Italian red; try that BC.

McLovin
McLovin
9 years ago

Winery bubble you say? I would have to agree. I love to support BC wineries but the prices have gotten so high there is just no value. I find BC wines very overpriced compared to Argentina and Chile for similar quality. I guess its because they are paying workers $10-$15 a hour vs $2 and some single wineries in those places grow more grapes than the top 15 wineries in the OK combined. I wish them luck but when you have to get $25 a bottle just to break even its a tough gig.

Patiently Waiting
Patiently Waiting
9 years ago

Just got back for the Okanagan. Looks like a winery bubble there. Vineyards as far as the eye can see.

Not as many "For Sale" signs as I expected, but barely a "Sold" sign to be seen. It may have reached the point where opportunistic sellers have given up for the next go around, and only the desperate are still trying.

Found a couple of abandoned condo projects in Penticton. Given the weather, work should've been happening if they were still moving forward. One by the waterfront was just a foundation with a forest of rusting rebar sticking out.

Plenty of residental and commercial vacancies, just like in the Lower Mainland.

Best place on meth
Best place on meth
9 years ago

@Tick Tock:

A slow, never-ending equity bleed like the US and Japan would suit me just fine, it would be like Chinese water torture to all the buyers from the last few years.

What were the interest rates in the US and Japan during their meltdowns again?

Best place on meth
Best place on meth
9 years ago

@Laibach:

Most frightening part of that article:

"New homes and condos in Alberta are only covered under a one-year warranty".

So is a $10 toaster.

Tick Tock
Tick Tock
9 years ago

Sorry bears, but not stopping this market until rates go up significantly…and as we discussed the other day…rates are going nowhere fast..

Hahaha…no crash mates, just a slow very long mild deflation…

By the time prices come back to your blessed price to income ratios, you will all be dead…

midnite toker
midnite toker
9 years ago

@painted turtle: Sweet! House wrecking party! I'll get a keg you get the hammers n crowbars

paulb.
paulb.
9 years ago

New Listings 236

Price Changes 132

Sold Listings 188

TI:16099

My website: http://www.laurenandpaul.ca

Laibach
Laibach
9 years ago

@CanuckDownUnder:

The best developers quote ever:

"If you buy a car and 10 years later your engine goes bonkers, you can't go back to the car manufacturer and say your car isn't built right," he said.

Best place on meth
Best place on meth
9 years ago

@CanuckDownUnder:

"when they did their rent vs. own calculations"

Bwaaahaaahaa!

Hey Mr. Real Estate Agent – what's the monthly payment on this baby!?

CanuckDownUnder
CanuckDownUnder
9 years ago

Via Mike Fotiou's blog: I wonder how many of these condo owners even thought about this kind of repair bill when they did their rent vs. own calculations (if they even bothered).

"Owners are facing bills of between $77,000 and $189,000 each to pay for repairs to the roof, eaves, balcony and parkade in a building where a one bedroom penthouse suite is currently listed for sale at $317,000."

But hey, at least there's no evidence of subprime lending in Canada, right?

"Mohsan Najati bought his condo two years ago and soon noticed leaks. He said he can't afford the repairs.

"I'm already in debt, so I don't have any options," he said. "I already have a second mortgage. I don't have equity. I don't have any cash. I don't have anything. So I am already actually foreclosed.""

http://www.cbc.ca/news/canada/calgary/story/2011/

Tiger Clan
Tiger Clan
9 years ago

"Either a sign of ethnic ghetto-ization or the economy….take your pick…sad either way."

From my post, I was leaning towards for the first sign you mentioned….

Li Kai Shing
Li Kai Shing
9 years ago

Ahhh ….hell with Beachball versus Puck.

Canned schmucks piss away more money to sign Bieksucks.

I actually BC Lions fan

Do Canned Schmucks have cheerleaders?

NO!

Football has cheaper beer, nachos on par, and free fights.

Designate section for cheaper beer….end zone is good …usually basement suite troglodyte renters(West Van is worst) are rednecks wanting good fight, cause not get lucky…6/49 or otherwise.

Rest of us cheer, steal their nachos… and not pay cover charge for UFC…which is dumbest sport ever.

UFC? …if guys want to hug …..move to West End.

bubba
bubba
9 years ago

@Tiger Clan:

Nah….disagree.

Too major a shift.

Either a sign of ethnic ghetto-ization or the economy….take your pick…sad either way.

Our dry grad is geared for END of exams…last time to chill together before the REAL world absorbs them.

…. tiger mom's focussing on offspring ? leaves them as flooding an already overcrowded field of future cab drivers with PhD's

Tiger Clan
Tiger Clan
9 years ago

"Some of us are attributing it to the economy."

Or some students have heard how boring dry grad can be…

Or more likely…

Some of the Vancouver students are busy preparing for their first year at UBC and getting a "head start" – tiger moms are still busy at work despite their kids graduation…

bubba
bubba
9 years ago

For what it's worth…

If you know what Dry Grad is….just got some numbers for one I am volunteering at.

The Grad Class (2011)for the school is approx 230 students.

Only 179 students have bought tickets to attend (event is tomorrow ).

That's almost 50 students that will not attend (ie 20 % of the grad class).

(2) years ago….all but (2) students attended Dry Grad.

Some of us are attributing it to the economy.

Anonymous
Anonymous
9 years ago

@space889:

"As well my main point is that you are basing your entire conclusion about Chinese housing market based off a bunch of photos taken at a point in time for different locations."

I haven't stated any conclusions…just noting flaws in your argument.

Li Kai Shing
Li Kai Shing
9 years ago

Burnaby ?

Is proof Shite runs uphill !!!

Assholes there pucker up and create major suction.

PS I give you update on Beachball vs Puck ..major decision soon !!!

Many Franks
Many Franks
9 years ago

Anyone catch Stephen Hume's editorial on the riot? See http://www.vancouversun.com/news/Opinion+World+cl… — it's a brilliant bit of accidental satire. Paris, London, and New York have riots, and now so do we — welcome to world-class status, Vancouver! We have arrived!