The Canadian economic outlook is ‘uncertain’ and that sets a high bar for interest rate changes according to Bank of Canada Governor Poloz:
“The situation hasn’t changed much, as far as I can see,” Mr. Poloz said in the Q&A session following a speech in Toronto Monday evening.
He said the wide range of uncertainties that the bank outlined in its October rate decision, when it said it had considered a rate cut but opted to hold the line until more clarity had emerged on such issues as the U.S. election, the pace of Canadian trade, the evolution of the housing market and the impact of Canadian infrastructure spending “is still present. It’s only been a few weeks.”
Read the full article over at the Globe and Mail.
How do normal people afford to live in Vancouver?
That’s easy – Payday loans!
The cost of payday loans in B.C. can work out to the equivalent of an annual interest rate of more than 500 per cent, the FCAC report notes. And payday loan use has “grown especially rapidly” in B.C., according to a January report from Vancity, with British Columbians “using payday loans at an increasingly higher per capita rate than residents of other provinces.”
Read the full article over in the Vancouver Sun.
Southseacompany linked to this article in the Globe and Mail that talks about the CMHCs vulnerability to rising interest rates:
The most dramatic scenario involved a severe and prolonged global economic depression that sent unemployment soaring to 13.5 per cent and triggered a 25-per-cent drop in national home prices.
In that case CMHC said its mortgage insurance business could lose more than $3.1-billion over five years. However CMHC said it would have more than 200 per cent of its required minimum capital, even after accounting for stricter capital requirements that OSFI is expected to introduce in January. Insurance companies are required to stop writing new insurance business if their capital ratio falls below 100 per cent of its required minimum level and are insolvent when their capital levels hit zero.
CMHC’s stress testing comes amid heightened concerns over the health of the Canadian housing market. Last month, the housing agency issued its first “red” warning for Canada’s housing market as a whole, saying it now sees “strong evidence of problematic conditions” in six of the country’s largest housing markets.
In yet another scenario the Crown corporation said its insurance business would lose more than $2-billion if Canada experienced a “U.S.-style” housing correction, where home prices drop by 30 per cent and the unemployment rate rises to 12 per cent.
Read the full article here.
House prices never go down in Vancouver, except when they do.
But what about Toronto? The city that seldom thinks about BC?
Prices are up 11.8 per cent from a year earlier.
“In fact, there’s anecdotal information that suggests that foreign investors … are now turning to other cities that are not as expensive as Vancouver, because even that market’s gotten out of reach for wealthy foreign buyers.”
A separate report from real estate agents showed a 2.4 per cent monthly rise in sales in October and a 14.6 per cent surge in annual prices as buyers rushed to get into the market before tighter mortgage rules could take effect.
Taken together, the data showed Canada’s market cooling in most markets outside of Toronto, where a building boom and rising household indebtedness have spurred fears of a U.S.-style collapse if borrowing costs, already rising, spike further.
“Almost all seems to be well in Canada’s housing market, with most regions enjoying moderate sales activity and price gains, Alberta’s hard-hit market stabilizing, and Vancouver’s zany market returning to earth,” Guatieri said in a research note.
“However, accelerating prices in Toronto and its surrounding areas will only increase the chance of a correction if interest rates rise too sharply … and the chance of that happening is now somewhat higher under a new U.S. president.”
Read the full article over at BNN.ca
Canadian debt is now almost triple the size of the national economy. How did we get here? A decade long housing boom!
While Canada boasts the lowest government debt load among Group-of-Seven countries, household debt is the highest of its peers, the Basel, Switzerland-based BIS said last month in its quarterly report. In September, Statistics Canada reported household liabilities rose to 100.5 percent of GDP, exceeding the size of its economy for the first time.
Canada was the only developed country showing early signs of stress in its domestic banking system amid “unusually high” credit growth relative to GDP, the BIS said.
“This debt overhang represents one thing and one thing only: a pervasive constraint on Canada’s economic growth potential,” David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. said by phone from Toronto. “When you get to levels on total debt that makes even the Italians blush, you know you’re in a straitjacket.”
Read the full article over at Bloomberg.