House of Cards

How much are home owners betting on the past being repeated into the future?

King says roughly two out of three mortgages underwritten this year have been for a variable rate term, compared to a typical 25 to 30 percent share. She says this is part of a larger trend of homeowners opting for variable rate mortgages.

“Over the past decade or more, rolling a variable rate mortgage from month-to-month has consistently been less expensive than a fixed mortgage rate. In essence, a generation of homeowners has experienced nothing but declining rates and lower monthly interest payments,” she says.

“This expectation will be hard to change.”

As evidence of the damage a low-interest rate policy causes, King says we only need to look at the U.S. real estate bubble.

“The U.S. homeowner was lured down a very similar path by the Federal Reserve at the turn of the century. Indeed, in late 2000 the spread between a 1-year ARM [adjustable rate mortgage] and a 30-year conventional mortgage was as narrow as 30bps…households did not start to sour on ARMs until 2004 when the Fed finally started to raise the funds rate. By that time longer term mortgage rates were also on the rise and moving out of the affordability reach of many U.S. homeowners.”

As for Canada, King believes a 2-percent rise in interest rates will push a fixed rate mortgage beyond the reach of the average home owner.

From the article ‘Canada’s House of Cards‘ on BNN.

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Anonymous
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Anonymous

Think these folks are for whole lot of hurt

Anonymous
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Anonymous

smart bears said for so many years that interest rate has nowhere but goes up. has it gone up? five years fixed is 3.59%. meanwhile, smart bears wonder from one rental to the next.

whydoItry
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whydoItry

Really, only a 2 percent rise!

Boy, Oh boy, are buyers underestimating the risk of home ownership!

Anonymouse
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Anonymouse

The president of the European Central Bank said to expect very low inflation (around 1.8%) for the next 10 years. It's possible we might see the same, and perhaps low interest rates with it, in Canada.

chilled
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chilled

The Realturds® and property pimps were/are right, we are going to see low interest rates for a very long time. We are witnessing the devaluation of money right before our very eyes!! Celebrate your multimillion dollar shack but please don't utter a word when a loaf of bread costs 50 bucks.

Call em as I see em
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Call em as I see em

@Anonymouse:

"The president of the European Central Bank said to expect very low inflation (around 1.8%) for the next 10 years."

The same group who created this mess in the first place. You know the one they didn't see coming. I think I will pass on relying on their forecast.

space889
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space889

@Anonymouse: Unless they manage to balance supply and demand perfectly to achieve that low 1.8% inflation rate, it's more likely because of slow growth and recessions which also means lower income growth and employment, especially youth employment which in turn will lower future growth rates. So overall it's more likely to a long term negative for the economy and your personal income.

patriotz
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@Anonymouse:

"The president of the European Central Bank said to expect very low inflation (around 1.8%) for the next 10 years."

Which necessarily means stagnant or falling nominal personal incomes.

Does that mean it's a good time to buy a house? Ask the Japanese.

Miracle
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Miracle
"The president of the European Central Bank said to expect very low inflation (around 1.8%) for the next 10 years. It’s possible we might see the same, and perhaps low interest rates with it, in Canada." "The same group who created this mess in the first place. You know the one they didn’t see coming. I think I will pass on relying on their forecast." Agreed. Might as well just ask Mervyn King about inflation in the UK. He said in 2008: "The current period of above-target inflation, although very marked, will be temporary and inflation will return to the 2pc target." http://www.telegraph.co.uk/finance/economics/2794… Same again in 2010: http://www.guardian.co.uk/business/2010/feb/10/vi… Inflation in the UK is running about 4.7% now. Still "temporary". http://www.businesstoday-eg.com/economy-policies/… Basically, the are planning to keep interest rates low indefinitely, and they are either lying or incomptetent when it comes… Read more »
rp1
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rp1
@Anonymouse: "The president of the European Central Bank said to expect very low inflation (around 1.8%) for the next 10 years" That might be true if people continue to believe that Europe is solvent. The last interest rate I saw for Greece was 188%. Ireland and Portugal are on deck, Spanish and Italian bonds are under siege. The problem with these countries is that governments can not pay, and they are in an intractable situation with lower economic growth. Canada took an enormous gamble in re-inflating the housing bubble and bullshitting everyone about our banks. Our governments today can not pay their obligations, and those are increasing while economic growth is slowing. In my view we traded some pain yesterday for much more pain tomorrow, squandering a relatively strong position in the process. But in my world things add up,… Read more »
Best place on meth
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Active Member
Best place on meth

Greek PM has announced intent to hold a referendum on the debt deal.

That could be the end of the deal right there.

Makaya
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Makaya

@Best place on meth: And MF Global went bankrupt betting against European debt… What a crazy world we live in!

VanRant
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VanRant

China is popping the housing bubble now rather than the harder landing in the future.

"Premier Wen reconfirmed the mainland government is going to cool down the property market"

http://news.businessweek.com/article.asp?document

Anonymous
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Anonymous

@Miracle: Very true. I think it is quite clear that BoE and other central banks are openly targeting a reduction of real debt burden through currency devaluations.

My feeling is that they should just state their new mission, rather than pretend they are still targeting inflation. it would at least save the credibility of the institutions.

Devore
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Devore

@Anonymous: Reduction of whose debt burden? Are wages pacing inflation?

Makaya
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Makaya

MF Global went bankrupt today, but it's all good, its CEO Jon Corzine, may get a $12 million Golden Parachute, paid by Goldman Sachs…

http://www.zerohedge.com/news/did-jon-corzine-jus

Is there something wrong here? (sarcasm)

Anonymous
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Anonymous

@Devore: reduction of government liabilities for once. And, just as well, reductions of other nominal liabilities, both secured and unsecured. I think this is a fact.

Salaried (wage) workers are paying for this. After all, it is redistribution of a kind.

Devore
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Devore

@Anonymous: But public debt is growing even faster than inflation, so where is the reduction? Debt servicing is going up as well, even with these low rates, so no win there either. It's solving a debt problem with more debt.

If home debtors think inflation will save them, all they will have to look forward to are higher taxes and higher prices, which will impinge on their debt repayment plans.

jesse
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@Anonymous: "it would at least save the credibility" BoE came very close: they outright apologized to "savers". Here's King: ‘I would desperately like to get back to a world as soon as possible with normal levels of interest rates we need to encourage people to save,’ he said. ‘I have enormous sympathy with the predicament that savers, and particularly those who are retired, face. They are suffering from the consequences of an economic crisis which they did not cause or are responsible for.' ‘But this is a situation where Britain, on its own, cannot easily get out of it. The only way to return to a situation with full employment, steady growth and a balanced economy is to make sure other countries expand their spending. ‘We are doing [quantitative easing] because there is not enough money in the economy.' Lots… Read more »
Anonymous
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Anonymous

@jesse:

Any guesses?

Too easy…buy Vancouver RE!!!

ReadyToPop
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ReadyToPop

@jesse

‘But this is a situation where Britain, on its own, cannot easily get out of it. The only way to return to a situation with full employment, steady growth and a balanced economy is to make sure other countries expand their spending.

‘We are doing [quantitative easing] because there is not enough money in the economy.’

Not enough money in the hands of savers either. I guess they won't be spending it in the economy. Lots of "spending" is being funnelled into debt. Ball and chain anyone?

patriotz
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@VanRant:

"China is popping the housing bubble now rather than the harder landing in the future."

Dictatorships do have their advantages.

Looks like the Central Committee decided the choice is between riots today and revolution tomorrow, and has chosen the former.

paulb.
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paulb.

New Listings 185

Price Changes 164

Sold Listings 123

TI:16404

Have a great Halloween!

http://www.laurenandpaul.ca

Donald Trump
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Donald Trump

With my flaxen hair, patented lacquer styling, cold laser beam bourgousie stare…what could possibly go wrong ?

BTW: Yer Fired !

Donald Trump
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Donald Trump

#5 @chilled:

The Realturds® and property pimps were/are right, we are going to see low interest rates for a very long time. We are witnessing the devaluation of money right before our very eyes!! Celebrate your multimillion dollar shack but please don’t utter a word when a loaf of bread costs 50 bucks.

=============================================

Think of positive, like buddy Anthony Robbins . Day old bread will only be $25.

I have a Weimar Republic wheelbarrow I can lease cheap, Prime + 25%

BTW: The rest of you are FIRED.

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