RBC Economist on Canadian housing and debt

Regular commenter Troll pointed out this article in the Financial Post: Just more clanging warning bells about Canadian consumer debt loads and house prices:

Central to Eric Lascelles’ concern is that the availability of cheap credit has driven household debt levels to record highs and soon-to-be-rising interest rates will bear a “palpable” impact on individuals as well as the broader economy.

“The very source of Canada’s relative success during the worst of the credit crunch — a banking sector that kept on lending and households that kept on buying — could yet spell its undoing if newly enlarged household debt loads prove too onerous to bear,” Mr. Lascelles says in a report issued Tuesday.

Further, he adds: “There is a popular misconception that the Bank of Canada cannot afford to raise interest rates because this would prove too damaging for mortgage holders. The opposite is in fact true. The reality is that the Bank of Canada cannot afford to delay raising interest rates, for precisely the same reason. The longer the bank delays, the more marginal borrowers will enter the market and be walloped when rates rise, and the further home prices will go above their equilibrium levels, only to tumble later.”

Once the Bank of Canada raises its key lending rate from the current “astonishingly cheap” one per cent, rising costs of servicing mortgage and other debts will sap consumer spending. Housing prices will fall as lower-tier buyers are forced out of the market by diminished affordability.

The strength that the housing market now provides the economy will morph into an “outright drag” on Canada’s overall growth rate, or gross domestic product, Mr. Lascelles concludes.

Read the full article here.

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keeperofthederp
Guest

https://downandoutinvancouver.wordpress.com/2011/

if anyone wants bull-lulz, this 'woman' claims to have 7 condos in west van – leverage, much?

patriotz
Member

"The reality is that the Bank of Canada cannot afford to delay raising interest rates, for precisely the same reason."

But it's not necessary for the BoC to raise interest rates to stop the rise in household debt. As we all know, the GoC can simply restrict mortgage lending which is the root cause. Unsecured consumer lending (e.g. credit cards) is not very sensitive to BoC rates anyway. And leaving rates low would avoid collateral damage to exporters from a higher dollar.

So why doesn't Jim step up and do the right thing? Maybe afraid of being the fall guy for the inevitable bust?

Anonymous
Guest
Anonymous

welcome to serfdom people

good read

interesting how all you have to do is create a housing bubble on massive credit expansion and when it goes bust demand that governments pay the losses on bad debts to private banks. We don't have that here….do we?

We are handed a rope to hang ourself and with a high dollar any manufacturing or IT development will slowly leave. You can buy cheaper equipment yes but your labor costs are now higher when you export.

Good luck selling the line of ever increasing r/e prices when the economy slows. Just be thankful our banks are sound and will profit because any bad loans are covered by the taxpayer.

Goldman Sachs is everywhere and it loves ponzi insured economies

http://www.youtube.com/watch?v=oRCAy9odWt8

Bailing in BC
Guest
Bailing in BC

@keeperofthederp:

Keeper, what a gem that woman is.

Pride cometh before the fall. When her plan dosn't work out quite as she expects, I hope someone gets right in her face and tells her "YOU reap what you sow…and if you’re broke it’s pretty much YOU’RE(sic) OWN FAULT because YOU SCREWED UP YOUR OWN LIFE!!!"

Can we play with her before we bull-lutz her, Pleeeeeze. I'd love all the gory details.

registered
Member
registered

From the article: "The very thing that lifted the economy from the depths of the recession — Canadians’ passion for owning a home — could also be its undoing, warns the chief economist for RBC Global Asset Management."

Any idiot capable of reading a two dimensional graph – say Sauder's real value curves or Teranet's HPI – understands the bubble started long before 2008. By far the bulk of Canadian appreciation occurred before then.

Alum
Guest
Alum

BOC cannot simply raise the rates. Canadian dollar is at all time high 1.06 USD today.

If they raise rates, we are looking at 1 CAD = 2 USD

who wants that ?

Girlbear
Guest
Girlbear

Lord it is always soooo obvious when someone thinks they should ask rent that = their new mortgage payment…

http://vancouver.en.craigslist.ca/van/apa/2467400

keeperofthederp
Guest

@Bailing in BC:

oh play with her all you like, it's hysterical

i figure because the rest of the blogs are all about READING things, i am attracting the functionally illiterate – both literally and financially. i love the incorrect use of "YOU'RE" in all caps multiple times.

Anonymous
Guest
Anonymous

"BOC cannot simply raise the rates"

Circa 1980, fearing inflation and wanting to protect his wealth, my father put his money into hard assets (rental house, share in a boutique hotel, ice factory, others) because he thought the was no way that interest rate would ever go high enough to prevent said inflation.

Unfortunately, I remember all too well what actually happened.

keeperofthederp
Guest

@Anonymous:

i don't think our contemporary political leadership is nearly so savvy nor do they have the cojones for this.

it's helicopter time (the bernanke kind, not the scams well kind)

N
Guest
N

@Anonymous:

But in the 1980, Canada was just following the leads of the US and the UK. Unilaterally raising interest rates would crush Canadian manufacturing. Canada will wait for the US, and the US will wait until things pick up, which could be a long time.

Van MD
Guest
Van MD
Today on Financial Post RE section, story #1 is juxtaposed by story #2 Story #1: How Bank of America is handling its foreclosure glut http://business.financialpost.com/2011/07/27/how-… " “There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp., which works with lenders, government officials and homeowners to salvage vacant homes. “The best thing we can do to stabilize the market is to get the garbage off.” " Story #2: Canadian home prices surge to new high http://business.financialpost.com/2011/07/27/cana… BUT: " “Given the time lags between home sales and their entry in public land registries, it is possible that the large April and May rises of the composite index were due to front-loading of sales to beat the March effective date of an announced shortening of the maximum amortization period for insured mortgages.” “This spike in… Read more »
patriotz
Member

@N:

"the US will wait until things pick up, which could be a long time."

Could come a lot faster if the bond market loses faith in the US, which means higher interest rates by definition.

Madashell
Guest
Madashell

Ham at work. Just the other day I was in a high end Chinese restaurant at lunch and the wait for table is about one hour. A Chinese man walked in, ask about the wait and handed the matre'd a $50. He was taken to a table right away and I walked out.

specuskeptic
Member

@Alum:

CDN$ value relative to US$ is not a part of the BoC mandate. Inflation is.

superduperbulltime
Guest
superduperbulltime

Meanwhile in real world Canada bond yield / long mortgage rate continue to CRASH hard as investor buy Canada bond like no tomorrow. Bad news for bear. Can never catch break eh?

Extremely rich Van h
Guest

Since ancient times, China is a peace-loving country, if someone dares to defame Great China and infringe the property right for its citizens , we will resolutely crack down on without lenience.自古以来,中国都是一个爱好和平的国家,如果有人入侵我们,我们将坚决打击,决不手软。

http://www.youtube.com/watch?v=UuztXxUPjgE&fe

N
Guest
N

@patriotz:

Agreed. It could go either way.

Madashell
Guest
Madashell

Today's Globe – "U.S. crisis ‘very bad’ but Canadian situation much better, Harper says"

Difference is, US housing bubble popped and destroyed the economy and the Canadian bubble is about to pop!

4SlicesofCheese
Guest
4SlicesofCheese

Its nice that banks are releasing these reports, but go into any RBC or any other bank and ask an "advisor" if there is going to be a housing correction, or hell even a problem, and they will say everythings fine.

So on record the banks are covering their asses, but in the branches they are still peddling the same shit.

patriotz
Member

@Extremely rich Van house owner.:

"You fools! Don't you realize what it means if the Chinese remain? Don't you remember your history? The last time the Chinese came, they stayed a thousand years. The French are foreigners. They are weak. Colonialism is dying. The white man is finished in Asia. But if the Chinese stay now, they will never go. As for me, I prefer to sniff French shit for five years than to eat Chinese shit for the rest of my life."

Ho Chi Minh

vanpire
Guest
vanpire
@Madashell: Ham at work. Just the other day I was in a high end Chinese restaurant at lunch and the wait for table is about one hour. A Chinese man walked in, ask about the wait and handed the matre’d a $50. He was taken to a table right away and I walked out. Get used to it. That's how they got ahead in the old country and that will get them ahead in the new one. People around here need to finally realize that ALL this ridiculous chinese wealth was achieved through bribery, corruption, embezzling of public funds, nepotism, tax evasion, total disregard to environmental issues – the list goes on and on. The hard working chinese people are right were they always were – in sweatshops of mainland provinces, breathing polluted air and drinking poisoned water, their children… Read more »
Girlbear
Guest
Girlbear

Guess none of these people who bought at Jameson House wanted to live in it….

http://vancouver.en.craigslist.ca/search/apa/van?…

Anonymouse
Guest
Anonymouse

@Madashell:

"Ham at work. Just the other day I was in a high end Chinese restaurant at lunch and the wait for table is about one hour. A Chinese man walked in, ask about the wait and handed the matre’d a $50. He was taken to a table right away and I walked out."

I've also seen similar things happen at various bars and clubs around Vancouver. No Chinese involved on those occasions, however.

superduperbulltime
Guest
superduperbulltime

Chinese, French or White bear shit still shit. Crash just around the corner bear just like you say for 10 year.

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