Interest Rates Are Too High!

Now this is interesting.. More than one third of Canadians between the ages of 30 and 39 think that current interest rates are about average or high.

Seriously.

There are a whole bunch of people out there that think these record low interest rates are normal or better yet, think that they are high.

I think perhaps it’s not the rates that are high.

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Anon
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Anon

Of course interest rates are too high! Where are we supposed to get money to pay for interest while the global economy is shrinking?

patriotz
Member

Do keep in mind that in all likelihood these people are not talking about the BoC rate, GIC rate or mortgage rates but the rates charged on credit cards, car loans, payday loans and what have you.

These rates have not followed the BoC rate down because the weak economy – which is behind the low BoC rate – means an increased risk premium, i.e. the lenders have to price in a higher risk of not being repaid.

You may recall Jack Layton promising to cap credit card rates during the election campaign. This would actually result in cards simply becoming unavailable to those with poor credit ratings, which is a good thing in my view, but not what he had in mind.

Patiently Waiting
Member
Patiently Waiting
Despite rising vacancy rates and the increasing costs of old buildings, Metro Vancouver apartment buildings remain popular investments. “Apartment buildings are a low-risk investment, offer secure income streams and are the most easily financed commercial real estate commodity of all, thanks to rates guaranteed by the Canada Mortgage and Housing Corporation.” … "Asked why rising vacancy rates — up to 2.8 per cent in April from 2.2 per cent in April 2011 — aren’t hindering investment, Keenan said that apartment vacancy has always been low in Metro Vancouver and “the slight upward spike currently being experienced is temporary and not worthy of great concern.” Note: this is not a spike. Vacancies have been gradually trending higher for about three years now and there is no reason offered for why this will change. Regardless, this is a good thing because these… Read more »
bummed-out-renter
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bummed-out-renter

I had a mortgage at 9.95% and I thought that was good at the time (early 90s). Also had a car loan in 1980 at 16.5%. Back then money was worth something.

TNT
Guest
TNT

Income gap rising faster in Canada than many of its peers, including U.S.: study

A new study says Canada is rapidly catching up to the United States as a country divided between haves and have-nots.
http://ca.finance.yahoo.com/news/Income-gap-risin

very soon we will become like China or US where you have top 1% of ultra rich and masses of impoverished..god help us all

Patiently Waiting
Member
Patiently Waiting

I want to demand something be done…but its too late, consequences are going to happen.

"Canadians continued to rack up debt in the second quarter of the year as they took advantage of low interest rates, Statistics Canada said Tuesday.

The ratio of credit market debt to personal disposable income crept to 148.7 per cent in the July-September period, topping the old record of 147.3 set in the previous quarter. Credit market debt includes mortgages and consumer loans."

http://www.cbc.ca/news/business/story/2011/09/13/

DudeWhoReadsThisBlog
Guest
DudeWhoReadsThisBlog

@ #3 Patiently Waiting

I saw that article as well and was wondering if these investors are anticipating a RE crash and are positioning themselves for the inevitable rental market demand increases as people flee ownership.

Thoughts?

patriotz
Member

@DudeWhoReadsThisBlogALotButNeverContributes:

That is a fallacy. If the % of owner-occupied dwellings falls, the % of rental dwellings has to increase. There is no net increase in rental demand versus supply.

Think about it.

Patiently Waiting
Member
Patiently Waiting

@DudeWhoReadsThisBlogALotButNeverContributes: Maybe, but they better hope the local economy picks-up too. Last I heard, migration figures weren't good.

From what we've seen in the US, landlords don't cash-in during a RE crash if the local economy isn't producing decent jobs.

Patiently Waiting
Member
Patiently Waiting

@DudeWhoReadsThisBlogALotButNeverContributes: One thing mentioned in the article is how landlords expect better yields with turnover.

But the flipside is they're often replacing a reliable tenant with an unknown. Just the process of finding new tenants has costs in itself, especially with a vacancy rate closing in on 3%.

Do they know something we don't know about the vacancy rate? They clearly expect it to go down. IMHO it will be steady for a while. But who knows.

registered
Member
registered

10 Patiently Waiting Says: "One thing mentioned in the article is how landlords expect better yields with turnover."

An economic belief system which posits consumers abandoning your product translates into rising prices belongs to the "Wish Upon a Star" school. Turnover means tenants are finding better value elsewhere. Reacting to the new market realities by raising prices isn't a cunning plan.

N
Guest
N

@patriotz:

"These rates have not followed the BoC rate down because the weak economy – which is behind the low BoC rate – means an increased risk premium, i.e. the lenders have to price in a higher risk of not being repaid."

That one way of looking at it. The other is that, as credit tightens, and people are less secure about their jobs, they will tolerate higher rates. So credit card companies can get away with gouging.

chip
Guest
chip

There are few things more important to a functioning adult than a grasp of basic economics — from understanding interest rates to taxes and the simple tenets of free markets.

Yet where is this taught in school?

I finished university thinking I knew a lot about history, but it was only after learning economics and reading books like the Cash Nexus by Niall Ferguson that I understood history is usually the history of money. For example, Britain didn't perennially defeat France because they had a better navy; it was because they could fund a better navy through borrowing as a creditworthy nation, whereas France historically defaulted and therefore ran short of funds.

Just think how history like this would inform voting citizens today?

chip
Guest
chip

The importance of economics with regards to Egypt. How will our schools teach this history?

"The misnamed “Arab Spring,” really a convulsion of a dying society, began with food shortages. Egypt imports half its caloric consumption, 45% of its people are illiterate, its university graduates are unemployable, its $10 billion a year tourism industry is shuttered for the duration, and its foreign exchange reserves are gradually disappearing. In August, the central bank’s reported reserves fell below what the bank calls the “danger level” of six months’ import coverage, or $25 billion, from $36 billion in February, although I suspect that even this number is bloated by $5 to $10 billion of Algerian and Saudi loans and trade credits."
http://pajamasmedia.com/spengler/2011/09/13/endga

patriotz
Member

@N:

"The other is that, as credit tightens, and people are less secure about their jobs, they will tolerate higher rates."

Well nothing surprises me these days, but any rational person would do the opposite. That is, the less secure people are about their income, the less debt and debt servicing expense they should be willing to take on.

jesse
Member

@N: "people are less secure about their jobs, they will tolerate higher rates."

I don't understand this; a credit card company competes for capital like everyone else. They charge high rates to clients because of default risk and other costs, but also because they compete with other investors for capital (and other credit cards for market share).

Same goes for the conspiracy theories why banks raised their "below-prime" VRM mortgage rates last week. Collusion, or just plain old spread? LIBOR has been creeping up all year.

Li Kai Shing
Guest
Li Kai Shing

Hoo Boy:

Was In concubines garden near 41st and Granville. Ravishing Rick was cleanink pool and burying dog shit.

All of sudden…struck black gold…oil and gas was shootink up !

I feel like Jed Clampett (Rick = Jethro….concubine = Ellie Mae)

We now at Lawyers..going to stake claim over much of this Kerrisdale area. This may displace peoplez, but too bad. At least get rid of WASPS and leaching old boomers. (Maybe I get O of B.C.)?

Whole area soon look like Fort McMurray..at least maybe Whalley- Newton.

jesse
Member

@chip: "understanding interest rates to taxes and the simple tenets of free markets."

It isn't taught in school because various schools of thought can't agree on the basic tenets. Does lowering taxes increase revenue? Answer: it depends… who you talk to.

bubba
Guest
bubba
@chip: Well said; I've been doing a fair bit of research on History of "HISTORY INC". By doing so…it all starts to come together. Start with Rothschilds,and when feudalism was dying. them move forward. How may now Rothschilds ("Red Shield" )supported both sides of a given war? Example: When Napoleon was defeated, Rothschilds had a chain of messengers send him the news( FACTS). They then spread rumours that Napoleon had won, causing a crash in British market. Rothchilds then bought up stocks etc. etc. for pennies on the dollar. When the news finally reached the British public, that Napoleon had lost, the markets rose and Rothschilds made a fortune. Same old ….even now. The History taught is BS..lies, sanitized or sufficiently edited, by the victors and their handlers. The US has some leaders and politicians that would have been hung… Read more »
patriotz
Member

@jesse:

To put the issue more simply, how much chance do you think that schools are going to teach kids about how to make the most important financial decision in their lives, that is, you should only buy a house if it's cheaper than renting?

Just consider the obstacles to this and you see that the whole idea is a lost cause.

Devore
Member
Devore

@patriotz:

There is no net increase in rental demand versus supply.

There usually is a decline in demand, as owners-occupiers and renters alike move back in with parents or shack up with others to lower housing costs.

During a housing decline, there is no upward pressure on rents. The exact opposite is the case.

Devore
Member
Devore

No need to come up with fancy theories, just look south of the border 🙂 Unless it's different here.

kansai92
Guest
kansai92

All the damn house pumpers think some of us are bitter cuz we missed out on the BOOM.

You know what, I don't give two sh!ts about your boom.

What I'm pissed about is having my tax dollars to bail out your sorry a$$es when the crap hits the fan.

So you better start friggin appreciating your prudent saving ant cousins, you sorry grasshopper SOBs.

jesse
Member
Worthwhile: Net Worth, Wealth Effects and Recessions According to a report by Bank of Nova Scotia economists Derek Holt and Karen Woods, Canadian businesses have begun to pull back on investment and accumulate inventories which may be a sign that the economy is about to head into another recession. After the surprise second quarter drop in GDP, if there is another drop, it would mean that Canada has slipped into recession ahead of most other countries… Canadian market value of net worth for persons and unincorporated businesses fell by about 21.2 billion dollars in the second quarter of 2011 which would result in a drop in consumer spending using the above Mehra propensity to consume numbers of between 844 million and 1.2 billion dollars – hardly a catastrophic drop. However, what if there is a more spectacular decline in net… Read more »
jesse
Member
@Devore: "During a housing decline, there is no upward pressure on rents." The experience in the US provides some indication on what could happen in Canada and BC during a crash. Rents will fall in the early part of a crash, I think in part because speculators who can't sell become "accidental landlords" and drive rates down. But the US's experience of late is that, after prices fall, rents start increasing again as households are unable to buy and dwellings sit vacant due to foreclosure backlog. The point earlier by Patiently Waiting #3 is an indication that Vancouver's core vacancy rate has been close to 2 standard deviations above its long-term average for 3 years and counting now, and rents have been soft during that time. It should be mentioned that the core vacancy rate does not include vacancies from… Read more »
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