Going down?

At least one person thinks that Global Recession MkII is about to cause Mr. Carney to slash interest rates in Canada. The prediction is a 75% drop from the rock bottom 1% to a rocker bottomer .25%

This could be really good news for the few people who’ve built up good credit and cash. I can think of at least two cases where debt levels rose so high that property prices were crashing while interest rates were dropping.

There are many places in that big country just to the south of us where you can buy a house for half what it cost a few years ago and you can lock in for ridiculously low mortgage rates. Japan also saw home prices dropping while interest rates fell. Heck it even happened here in Vancouver at the start of the eighties.

Only a moron would think that a housing market crash means no one is buying and everyone loses their job. Someones always buying, they just don’t always pay the same price.

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mattymatt123
Guest
mattymatt123

hopefully way down!

jesse
Member

If Carney is going to lower interest rates, my bet is there will be further tightening on household debt accumulation. He has stated repeatedly, even using superlatives in doing so, that household debt levels are unsustainable once rates trend higher. That's a big signal to me that the government will not let household debt levels increase.

SunBlaster
Guest
SunBlaster

He wont let it grow as he did with national debt!

Never Again
Guest
Never Again

If Carney is going to lower interest rates, my bet is there will be further tightening on household debt accumulation. He has stated repeatedly, even using superlatives in doing so, that household debt levels are unsustainable once rates trend higher. That’s a big signal to me that the government will not let household debt levels increase.

_______

Oh yes, the 13 months of repeated threats of looming rate increases and "concern" over household debt levels has really prompted him to action!

Sorry, but the big "C" is a big "P#%$$*"

No tightenting on the horizon my friend..

Flip Flop
Guest
Flip Flop

with the introduction of lower rates, you gotta wonder if he'll try for further tightening of the CMHC rules, to offset what should be a fundemental increase in demand. not that it will really matter; this market is toast either way.

jesse
Member

@Never Again: "No tightenting on the horizon my friend"

My horizon extends a wee bit past yours. Tightening comes in all sorts of zany ways.

Never Again
Guest
Never Again

"My horizon extends a wee bit past yours. Tightening comes in all sorts of zany ways"

______

Ooooh…how obtuse!

I am glad you know what "my" horizon is….lol

rob
Guest
rob
In the coming crash lower interest rates will not help housing. It may keep those in VR mortgages above water (as in not forced into foreclosure) and it may result in a tightened supply in Vancouver but once people are tapped out, they're tapped out. Once prices start dropping the realization that the price is too darn high will set in and the monthly affordability will get thrown out the window. This may slow the bleed but it will not stop it. What happens next is a lost generation of home buyers who will continue to rent at a steep discount to owning. It has happened before (in Japan) and it will happen again (here). Where lower interest rates will help is with businesses that need to borrow at lower costs to support industries and jobs that are highly inefficient… Read more »
registered
Member
registered

8 rob Says:"Where lower interest rates will help is with businesses that need to borrow at lower costs …"

Does anyone know what this typically means to the dotted line of a business loan? It's worth weighing that, for all the finger wagging, this also makes consumer loans cheaper for more borrowing and more consumption, driving the other side of the business equation. Call me crazy but I'm not that trusting of Carney's motives, his paternalistic posturing notwithstanding.

whydoItry
Guest
whydoItry

Yes, there is someone always buying.

But are there enough of them?

patriotz
Member

@whydoItry:

There are ALWAYS enough buyers.

The question is how much they are willing and able to pay. Houses sit unsold because the owners are asking too much, not because there aren't enough buyers.

patriotz
Member

@rob:

"Where lower interest rates will help is with businesses that need to borrow at lower costs"

One little problem – lower BoC rates mean a weak economy which means higher default risk which means higher spread to BoC rates which means lending rates may not go down at all.

Even for mortgages which the government guarantees, defaults cost lenders expenses which they don't get back which means that lower BoC rates don't necessarily mean lower mortgage rates.

This isn't just theory – take a look at the corporate bond market in 2008/2009.

kansai92
Guest
kansai92

Haha, the solution to a debt problem is encourage people to get into more debt. I love it!

What happened to common sense.

In a low interest environment, your supposed to invest in machinery and technology or pay down debt.

ReadyToPop
Guest
ReadyToPop

With the CPI running in excess of 3%, I don't see any changes. I think it will rise in the new year.

Never Again
Guest
Never Again
With the CPI running in excess of 3%, I don’t see any changes. I think it will rise in the new year. ____ Wishful thinking my friend… There has been a significant difference between CPI and "emergency" interest rates for three years now… And no rate hikes… While you might care, and where common sense means a hike should be on the horizon, the feds and BOC don't care… No hikes forthcoming…. Let's just all say hello to a Japanese style interest rate environment… Another decade or two of penalizing savers, pensioners, and the financially prudent… I will be leaving this country shortly and returning when the mess has been sorted out in a decade. I refuse to pay for the mistakes of the masses and the moronic political "leadership"… Lets just see if CRA clamps down on me when… Read more »
ReadyToPop
Guest
ReadyToPop

There has been a significant difference between CPI and “emergency” interest rates for three years now…

That's not true

Anonymous
Guest
Anonymous

@Never Again:

"I will be leaving this country shortly and returning when the mess has been sorted out"

Just curious where you would go? Aren't interest rates low everywhere?

jesse
Member

@Never Again: Best of luck with your move, I'm a bit more optimistic than you, is all. Let's say I'll probably be seriously but vicariously looking at Vancouver real estate the second half of this decade.

But I don't discount worst-case it could be longer.

Never Again
Guest
Never Again

Just curious where you would go? Aren’t interest rates low everywhere?

______

Yes, they are low, but then again, RE has crashed in those jurisdictions where rates remain low. I can handle a low interest rate environment where I can buy a place that is half of what it was a few years ago. I cannot handle a low interest rate environment where I have to wait another half decade or decade for prices to be reasonable.

Personally, I am heading to the Middle East (UAE, Oman, Qatar) to make my tax free income.

I will come back one prices have collapsed, and the low interest environment will benefit me more (as it looks like rates will still be low then).

specuskeptic
Member

CPI over 3 and lowered prime? Starts with "stag" and ends with "flation"

Ultraman
Guest
Ultraman

Condo glass towers are a POS. Of course those in Vancouver are immune.

http://www.huffingtonpost.ca/2011/11/14/torontos-

Dyugle
Guest
Dyugle
I have done a little work on interest rates and the price of housing. The as long as interest rates rise then there is no drop in the house prices. Once they start falling, then the top is in until the interest rates bottom out. The bottom in interest rates is usually when the housing market also finds a bottom. BUT, and this is a big BUT, the interest rates need to fall at least 2% below the PREVIOUS LOW point to entice new buyers into the market. This starts the whole upward trend again. It is now not possible to lower interest rates down 2% below the last low point. This is a problem and they may not be able to turn the market around again. Comparing to the U.S. they were not able to get their interest rates… Read more »
mac
Guest
mac
I really find it hard to believe that even lower interest rates will keep either foreign buyers from coming in faster as they feel it's 'risk on' as long as interest rates are low in Canada. And I can't imagine our local mommies and daddies not selling up to these folks and continuing to pass on the few hundred thousand buck to their kids to get them into leaky condos. It seems like a stretch of the imagination into more of what you want to believe to foresee a house price correction if BOC rates go even lower. As we speak our leaders both provincial and federal are over in China begging for access to markets and greater and more indepth economic activities between the two countries/province. All political parties, all governments all around the world are set on money… Read more »
Best place on meth
Member
Best place on meth

@patriotz:

>>>There are ALWAYS enough buyers.<<<

Not necessarily, there's a limit to the rate of home ownership and we're currently at 70%.

There's also a limit to debt and we're at 158% debt to income.

There just might not be enough buyers in the near future even at lower prices.

Best place on meth
Member
Best place on meth

@Ultraman:

Nice.

I think I just heard the Toronto condo market go pop.

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