Hello Inflation.

Inflation is surging ahead, but as long as we can keep the global economy nice and F***ed up, interest rates should stay at record lows. Free money!

Core inflation, which excludes volatile elements such as gas and food, surprised economists by jumping to 2.2 per cent in September annualized from 1.9 per cent in August. Headline inflation also surged higher, to 3.2 per cent annualized, as clothing, tuition fees, car prices and transportation costs all contributed to higher prices for consumers.

Economists had expected an overall annual rate of 3.1 per cent in September and a core rate of two per cent.

Jimmy Jean, economic strategist with Desjardins Capital Markets, called the CPI “pop” a short-term issue as tuition is a one-off event, clothing prices are seasonal, and auto prices are playing catch-up.

“From the Bank of Canada’s perspective, we don’t believe this to be much of a worry as it is not indicative of broad-based accelerating price pressures,” he said in a note.

Mark Carney, governor of the central bank, is universally expected to maintain the benchmark lending rate at one per cent, with many economists now projecting a resumption in policy tightening no earlier than the second half of 2012 as external headwinds are still the most pressing issue for the Canadian economy.

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patriotz
Member

Should be self-evident but not to a lot of people – for consumers, the real interest rate should be calculated not on consumer price inflation but wage inflation, because consumers are on the sell side of labour and on the buy side of consumer goods.

How's the median household income in BC been doing?

patriotz
Member

Islamic lender’s troubles put homeowners in limbo

Dozens of Muslim homeowners are complaining that they have been left in limbo by a disintegrating “sharia-compliant” mortgage arrangement, putting a focus on the emergence of parallel banking systems in Canada…

Some critics suggest such practices amount to mortgage by another name. Another critique is that they invite abuse of “the poorest sections of homeowners in the Muslim world, who have been told, ‘If you deal with banks that deal with interest, you will go to hell,’” said Tarek Fatah, a liberal Toronto Muslim who points out what he regards as fundamentalist practices.

Of course "Islamic lenders" charge interest too, they just give it another name. It's yet another form of toxic mortgage.

registered
Member
registered

FTA: "…surprised economists…"

Of high predictive value would be a study correlating the appearance of the words "surprised" or "unexpected" with "economist" in mass media. A single noun capturing the phenomenon is a consideration: whistlinginthedarkomist, paidopinionomist….

Londonernow
Member
Londonernow
The Central Bank of Canada, along with the central banks of the UK and the US, are trying to tackle the current "asset deflation problem" by trying to get interest rates low enough so that the real yield on these assets (primarily real estate and stocks) is higher than any alternatives (i.e. cash). They want people to borrow more to buy and support these already too inflated asset prices. The problem is that people in these countries already have too much debt and so the Central bank policies are creating price rises (at least in their domestic currencies) in goods (food & energy) and I can't see wages following – unless there is some sort of import restrictions put on low wage countries (i.e. China). Ultimately, the standard of living in these countries (Canada, UK and US) will fall until… Read more »
Frank
Guest
Frank

@Londonernow:

Outstanding post and that is exactly what they are doing. Of course you need to follow the money. Who owns to assets- stocks, Commercial RE, Residential portfolios, etc big money. Who owns GICs lots of little investors. So the choice is clear.

space889
Member
space889

Rent vs Buy – beyond the numbers because it's more about just the numbers.

btw, a North Vancouver townhouse will be appreciating 7% for 10 years from $600K+ to $1.2M+! As the Sun says, it would be very hard for an investor to beat that with stocks/bonds/commodities!

http://www.vancouversun.com/business/rent+that+qu

patriotz
Member

@space889:

"The housing crash that crippled the U.S. didn’t happen in Canada for several reasons."

There's only one reason Canada why hasn't had a nationwide crash – yet – and that's because it has taken us until 2011 to get to the price/income, price/rent, and consumer debt/income numbers that the US got to in 2006.

Boombust
Guest
Boombust

"There’s only one reason Canada why hasn’t had a nationwide crash – yet – and that’s because it has taken us until 2011 to get to the price/income, price/rent, and consumer debt/income numbers that the US got to in 2006."

Exactly.

Alum
Guest
Alum

With rising inflation comes higher rents for who are waiting on the sidelines.

Rent is due next week. Thank your landlord if he does not increase it.

anon
Guest
anon

Alum –

landlords (especially those unable to flip their properties) are fighting for good tenants these days – which is why rents aren't rising

Anonymouse
Guest
Anonymouse

@Alum:

"With rising inflation comes higher rents for who are waiting on the sidelines."

Also, the value of their savings is decreasing. For those with mortgages, it's the value of their debt that's decreasing.

Anonymous
Guest
Anonymous

@space889: That 7% gain for the each of the next 10 years looks a little overly optimistic. The gain for the last 5 years total is 18.6%. But I guess, if you want to make your point it's easier just to pull numbers out of your ass.

It's just so flawed.

registered
Member
registered

12 Anonymous Says: @ "That 7% gain for the each of the next 10 years looks a little overly optimistic."

Which is a civil way of saying 'demented'. Who believes a ten year projection on a volatile asset class (see: rest of world) has the slightest validity?

BTW, it's illustrative that the 'analysis' in space889's referenced article failed everywhere else in the world. It was also surprising to see the 0.76 sq/mi sovereign city of Monaco argument escape from RET into the Vancouver Stun's reasoning. That's desperation.

patriotz
Member

@fixie guy:

You cannot assume appreciation before the fact for any asset. That is simply assuming that there is always a greater fool who is willing to buy at a lower and lower yield.

An asset can return only its earnings to all its owners together over time. That means that if you pay more than rental value for a property, either you or a subsequent owner must lose money on it. That's a mathematical certainty.

space889
Member
space889

@fixie guy: What would you expect from Vancouver Sun? Frankly I'm surprised they went with 7% rather than a higher number. Also $1.2M+ for a North Vancouver 10 years+ townhouse? Nobody on the proofread/editing staff did a double take on that??

space889
Member
space889

@patriotz: Actually a more interesting point is that the research by Tsur Sommerville did the rent to buy comparison by subtracting the expected capital gain from the owning cost. So basically the guy is counting on capital appreciation before the fact. Not sure what % appreciation he used as his research showed only that owning is 11% more expensive than renting.

Anonymous
Guest
Anonymous

@space889: Not to mention the 3% mortgage rate for 10 years. It's just pure bunk.

Not much of a name...
Member
Not much of a name...

@space889:

The price to rent ratio of 24.6 suggests that either the property is overvalued or the rent is too low.

From the article.

Using their numbers of 2% appreciation over the 10 year period now results in a price to rent ratio of 39.7. So are rents falling behind or is it that the townhouse is even more overvalued?

Not much of a name...
Member
Not much of a name...

@Not much of a name…: That should have read 2% annual appreciation of rent.

Dave
Member

@patriotz:

Keep believing that.

so stupid
Guest
so stupid

I love that the reporter didn't notice the problem with assuming an annual rent increase of 2% and annual appreciation of 7%.

Here's something to ponder: if rent is only increasing by 2%/year, why is price increasing by 7%/year? Do you see what happens if this continues?

This sort of stupidity/financial illiteracy is why Vancouver now has the biggest property bubble in the world.

rksleung
Member
rksleung

http://www.propertywire.com/news/europe/spain-ave

A couple of questions after reading the above.

1. How come there are always segments of real estate market that keeps on bucking the trend amidst the worst housing crash in Spain?

2. How come those vacation houses can still demand a hefty price tag of over 9M Euros?

3. Seems like we are boasting ourselves how expensive Van is while there are places still are at outrageous prices admidst the worst housing crash in history.

patriotz
Member

@Not much of a name…:

"The price to earnings ratio of 24.6 suggests that either the stock is overvalued or the earnings are too low. "

See how idiotic that sounds? And people were actually saying that in 2000.

Not much of a name...
Member
Not much of a name...

@patriotz: I know it does. I didn't write the article. That's why I stated that with the assumptions in appreciation in rent and the property in question the price to rent becomes even more distorted. Remember, property can only go nowhere but up in Vancouver.

Troll
Guest
Troll

@patriotz:

There’s only one reason Canada why hasn’t had a nationwide crash – yet – and that’s because it has taken us until 2011 to get to the price/income, price/rent, and consumer debt/income numbers that the US got to in 2006.

LOL, nice one. Bears have been calling a crash since 2007.

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