Vancouver Condo Info » debt

Low rates forever

The Pope — Thu, 26 Jan 2012 16:21:39 +0000

Looks like the US fed isn’t very optimistic about the recovery. They say Japan style interest rates until 2014. Will this help a US house price recovery, or will buyers wait if they know there’s no rush for bargain rates?

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Carney cries wolf again.. will it come?

wreckonomics — Mon, 23 Jan 2012 08:45:44 +0000

Mark Carney is making new remarks about some Canadian real estate markets being “probably overvalued“.

It was the second time in recent days that Bank of Canada Governor Mark Carney voiced concern about property prices, which surged after the financial crisis as borrowing costs tumbled.
“We see that in a number of real estate markets in Canada, valuations are at a minimum, firm; in others, they’re probably overvalued. So there are risks there. We’re watching it closely. We’re working with our partners, the federal government, the superintendent of financial institutions,” he said in an interview on “Question Period” on CTV.

“Measures have been taken. They’ve been effective. We’ll keep up that vigilance. If more needs to be done, I’m sure the appropriate authorities will take those measures.”
The federal government has tightened mortgage regulations several times in a bid to prevent a property bubble from forming. Finance Minister Jim Flaherty said on January 17 that the government is watching the housing market closely and is ready to intervene if needed, but is not about to do so now.

Yes, the federal government has tightened mortgage regulations “several times”.. Here’s a timeline of those changes courtesy of Burbs Boy:

Jan 2006 – Minority Conservative Government elected
Feb 2006 – 25 year increase to 30 year on test basis
Jul 2006 – 30 year test affirmed and also increased to 35 year
Jul 2007 – 35 year increase to 40 year
Oct 2008 – 40 year decrease to 35 year
Mar 2010 – 35 year decrease to current 30 year

This post was submitted by wreckonomics.

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Big banks and the housing market alarm

Eddie — Wed, 11 Jan 2012 08:35:12 +0000

There are a few banks out there making noise about the Canadian housing market. Let’s see, what are their names again? Oh, here they are.. Some place called CIBC and Royal Bank and then one called Toronto Dominion. They seem particularly concerned about the market in Vancouver and Toronto.

CIBC chief executive officer Gerry McCaughey told analysts and investors in Toronto that the housing market is “leaning heavily into an area that might be peaking,” and instead will begin to soften.

His comments came as the heads of Royal Bank of Canada and Bank of Montreal also expressed concern over cooling housing prices, particularly in the condo markets in Toronto and Vancouver, where capacity is significantly overbuilt.

And from the second link:

British Columbia is forecast to have it worse, said senior economist Jacques Marcil, and will likely see “a signifcant correction” this year. Indeed, he said in a report today, the Vancouver market likely peaked last year.

The report, which examined the country’s provincial economies, projects home resales in British Columbia will sink 3.7 per cent this year, while prices decline 3.5 per cent.

This post was submitted by Eddie.

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Feeling bearish on Canadian housing?

Karl Marx Carney — Thu, 05 Jan 2012 08:18:52 +0000

Over at the Financial Post there’s an editorial that’s pessimistic about the Canadian real estate market:

The arithmetic is simple, and some of the warning signals look uncomfortably like those of the days before the market implosion that brought the 1980s to a thumping, crashing close.

Start with resale home prices. A “matched sales” approach to measuring prices tracks, over time, multiple sales of the same properties — this reduces the likelihood of measurements getting skewed by cyclical or regional shifts in the price mixes of homes that happen to be selling. Over the past ten years, prices so measured, in Canada’s major markets, have doubled, increasing at more than 7% per year, at a time when consumer price inflation generally had been running at about 2%.

So why is that a problem? Because average wages have not been running much ahead of inflation, and that means that house prices have steadily been bubbling out of reach of workers’ abilities to afford them. The house price-to-income ratio last peaked and then plummeted from 1989 to 1991, and the ratio regained its prior peak in 2004-05. Since then? It has climbed steadily higher yet, the ratio now far outstripping anything seen in the past 20 years.

Eventually that makes housing affordability a problem, and quickly so when interest rates start to rise. Housing looks affordable now, given that mortgages remain on the market at rates near their all-time lows. However, carrying costs relative to income would rocket upward, were rates one or two percentage points higher. Such rate increases are not in the cards in Canada today — but they will arrive all the same, and sooner rather than later if inflation continues to test the upper bound of its target range, as it did through 2011.

Read the full article here.

This post was submitted by Karl Marx Carney.

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Don’t take debt into retirement

Scott — Thu, 22 Dec 2011 08:25:19 +0000

Here’s David Chilton on using home equity as a substitute for retirement savings:

There are too many risks associated with real estate — even in pricey markets like Vancouver — to justify making it the sole element of a retirement plan, the author and personal finance expert says.

“I don’t like it as a strategy at all because what happens is that anytime you have that kind of exponential rise in real estate it almost always ends up going the other way,” says Chilton. His latest book, The Wealthy Barber Returns, was released in September.

“It may not happen here because there’s so much foreign money coming in. But the potential for a significant pullback is still there.”

House price increases even in super-heated markets are likely to become more muted as the tailwind generated by rock-bottom interest rates eases, he says.

Did I just enter Bizzaro World? Aren’t ‘super heated’ markets often at a greater risk of a pullback?

This post was submitted by Scott.

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Chinese housing bubble collapse

xct — Tue, 20 Dec 2011 08:45:34 +0000

The controlled collapse of the Chinese housing bubble seems to be proceeding right on schedule. If HAM is a factor in BC what affect will this have here?

Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

Sales have plummeted. In Beijing, nearly two years’ worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

“I still haven’t told them,” Li, 29, said of his home’s plummeting value. “It will just make them worry, and it’s already too late.”

Full article in the LA Times.

This post was submitted by xct.

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TD: mortgage rules should be stricter

Eddie — Thu, 15 Dec 2011 08:22:15 +0000

The CEO of TD bank has said in an interview that he thinks the government should make mortgage rules stricter.

Mr. Clark believes cutting the maximum length on federally insured mortgages to 25 years, from 30 years, would be a good step to slow rising household debt, which hit a new record this week, surpassing that of the United States and Britain.

“If you thought the Canadian economy was strong enough to take another adjustment, then we would say take the 30 [year amortization limit] down to 25 and get this back to where it originally was,” Mr. Clark told The Globe and Mail.

“It’s hard to know whether the economy can take another crank like that,” he said, referring to Ottawa’s last round of changes. “But my own gut would tell me that it may turn out that we do have the absorption capacity.”

Now why would a bank that spends tonnes of money on advertising mortgages and essentially makes risk-free income on insured mortgages want the government to tighten up the rules? Could they be seeing consumer debt levels starting to pose a risk to uninsured loans?

This post was submitted by Eddie.

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Canadian household debt hits new record

wreckonomics — Wed, 14 Dec 2011 08:49:08 +0000

It keeps going and going.. Canadian household debt has risen yet again to a new record level of 152.98 per cent of annual disposable income.

Debt continues to rise, per capita net worth is falling and incomes are flat.

How’s this going to end?

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Mortgage discounts turn to premiums

Karl Marx Carney — Thu, 08 Dec 2011 08:16:27 +0000

For those that missed it, there’s an interesting article over at Canadian Mortgage Trends – the major banks have done away with their variable rate discount mortgages and are now charging a premium over prime.

Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.

The banks are well aware of that. They know that pricing above prime impacts consumer psychology.

They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.

That said, banks are not just arbitrarily sticking it to borrowers. The main reason variable rates are worsening is that banks’ costs are rising, and they want to recoup those costs.

Read the full article for more on the factors at play in this move.

This post was submitted by Karl Marx Carney.

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Victoria Crashing

teekay — Wed, 07 Dec 2011 09:05:11 +0000

FishyRE points out that the latest housing market numbers out of Victoria look bad. Really bad.

House prices are down YOY for two years now. Condos are down YOY and flat over two. Attached is down 15% over two years. Yikes.

This post was submitted by teekay.

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Love that Canada housing bubble..

The Pope — Tue, 22 Nov 2011 16:38:28 +0000

Interesting article over at the National Post on the ‘different here‘ argument.

If the Canadian housing market were to collapse, Canadian taxpayers would be hit hard. The federal government is fully liable for any losses incurred by the CMHC, which currently backs somewhere in the order of $600-billion worth of mortgages. It has been bailed-out by the government twice in the past.

The government needs to act quickly to remove the factors that are causing the market to expand so rapidly, as well as to disperse the risk across the financial system. The CMHC should be privatized, much like the Australians successfully did in 1997. Banks and insurance companies should be allowed to do what they do best — assess risk, without standards being forced upon them by government bureaucrats. Doing so would not only spread the risk throughout the financial system and protect taxpayers, it would also reduce the likelihood of Canada experiencing a U.S.-style housing crisis.

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No (more) bailouts

The Pope — Wed, 16 Nov 2011 16:10:35 +0000

Mark Carney says things are gonna change, your bank fails you go out of business. No more bailouts.

“I’m saying no bailouts,” Carney told the CBC’s George Stroumboulopoulos in a recent interview. “The objective [is] ending ‘too big to fail’.”

Carney was recently named head of the Financial Stability Board, a recently formed international agency with a mandate to oversee the international financial system. In the interview, he says the goal is to bring global rules closer to Canada’s model.

“We’re going to change the rules so the system as a whole is more resilient,” he said. “If a big global bank fails, the system goes on. [Just] that company goes away.

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Going down?

wreckonomics — Mon, 14 Nov 2011 16:20:01 +0000

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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House of Cards

wreckonomics — Mon, 31 Oct 2011 18:27:35 +0000

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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Hello Inflation.

wreckonomics — Mon, 24 Oct 2011 07:01:54 +0000

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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Credit and Duration Mortgage Story

jesse — Thu, 20 Oct 2011 17:34:39 +0000

VMD brought this article to our attention from canadianmortgagetrends.com by Rob McLister: The Incredibly Shrinking Variable Discount

Just weeks ago you could find variable-rate mortgages at prime – 0.80% (P-.80%) or better. Consumers thought they were here to stay, but the tables turned…fast.

Economic troubles and lender profit motives have shrunken variable discounts beyond expectations. Banks are now commonly quoting prime rate, for example, with little discounting.

Once the last few holdout lenders with P-.50% disappear, discounted variables could move towards P-.25%…or worse. Some lenders even suggest that prime or prime plus could be the new normal.

Credit risk seems to have increased of late. Some industry operatives provide some thoughts (emphasis mine):

While variables have cost less than 5-year fixed mortgages a majority of the time in the past, favourites don’t win every game.

More importantly, assumptions are key when it comes to rate studies. Two important factors have impacted the research quoted above:

A multi-decade bias towards falling rates

Use of posted rates (instead of discount rates)

“Interest rates have been trending downward for two decades,” BMO Capital Markets Senior Economist Benjamin Reitzes told us in a recent interview. By default, he says, that’s tilted the table more in favour of variables than it otherwise would be.

Looking ahead, rates are no longer able to drop over one percent. The most we can realistically hope for is an extended period of horizontal rate movement. (The BoC can still cut rates slightly, but the European and American crises and sub-2% core inflation won’t delay hikes forever.)

As a result, Reitzes says, “Going forward, borrowers won’t see the same advantage to variable rates as they have in the past 25 years”

The second factor that’s largely ignored when citing rate research is the actual mortgage rates used for backtesting. Each of the three studies above uses posted rates in their historical analysis…

According to [Moshe] Milevsky, “…The historical probability of doing better with the floating rate mortgage…hovered around 70% to 80%” when the borrower used deep discount rates (based on a 1965-2000 study period).

Using today’s discounts, that 70-80% drops to just 53%, based on our findings from 1970 to 2006. (Obviously today’s spreads would not have applied historically but, as Milevsky maintained in his research above, that is beside the point.)

In other words, the fixed/variable decision would have been a coinflip, based on today’s spreads.

Mortgage loan duration decisions is always a hot topic around dinner tables of real estate investors. Given how shallow the long-short mortgage curve is, it’s an even tougher choice now. Still, looking at either 5-year or variable rates, the difference in payments between owning and renting is evidently still tipping some into ownership; October sales in Vancouver are up year-on-year. I get the sad feeling that people are not heeding the Bank of Canada’s reminder about how 30-year-amortized debt remains past a 5-year mortgage term.

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Village at False Creek and Elections

jesse — Thu, 13 Oct 2011 15:50:58 +0000

It’s been about a year since I did a quick “stress test” on the Millennium Water Village at False Creek development in terms of recouping a loan by liquidation of Millennium’s assets. Well now NPA mayoral candidate Suzanne Anton would like an update on how things are going:

NPA Candidate for Mayor Suzanne Anton is calling on City Hall to release information on sales, social housing and the overall financial position of the Olympic Village project.“The Olympic Village at Southeast False Creek has been an ongoing financial concern for Vancouver residents,” says Anton. “And Mayor Robertson promised during the last election to be open and transparent on this. They need to report on the village by November 1.”A receiver was appointed to oversee the development in November 2010. Anton says the last financial reporting by the city was in April 2011. She believes a report would be of great interest to voters at this point.

And a response from Ballem:

Market (For Sale) Condominiums

Total sales: 427 sold out of 737 market units (60% sold)

Sales since February 2011 launch: 164 (164 units over 156 days – just over one per day) to mid September 2011

Total rented: 26 market units have been rented

Total market units occupied: 453 out of 737 units (62% occupied)

Market Rental Units

Total rented: 119 out of 119 rental units (100% rented)

Commercial Spaces

TD Bank and Legacy Liquor Store open

Terra Breads: successfully opened Saturday, Sept. 24, 2011

Laundry/Drycleaning Store: tenant improvements under way with anticipated opening by end of year

Urban Fare: scheduled to open in June 2012 but they are attempting to open in May 2012

London Drugs: anticipated to open by end of May 2012

City Owned Commercial Spaces

Creekside Community Centre – Village Kitchen Restaurant scheduled to open in the spring of 2012

Salt Building: City is in negotiations to finalize long term tenancy – in the meantime, the Salt Building is being used for short term tenancies

Affordable Housing

The two City buildings (on Parcels 5 and 9) – both 100% occupied (total of 168 units)

Co-op (Parcel 2) – ~80% occupied (66 of 84 units)

Overall occupancy of the Village is 73%

I think it would be good to get an update on the finances, not just occupancy, as well. As of a year ago, the City had a $530 Million loan, never mind the land value. As this project has progressed things have become rather confusing. I’m hoping the illustrious City managers can clarify the situation, in the interests of “great interest”. I’ll do my best to wade through the accounting but it’s not looking good. There are still 284 units to be sold, it seems and a few plots have been reserved for a cooperative and rental units. For the sake of City taxpayers, let’s hope the greater fool bin hasn’t been bled dry.

© jesse for Vancouver Condo Info, 2011. | Permalink | 75 comments | Add to del.icio.us
Post tags: millennium, sales, vancouver

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IMF thinks you have too much debt

wreckonomics — Thu, 06 Oct 2011 08:12:05 +0000

Those old fogeys at the International Monetary Fund are raising their eyebrows at consumer debt in Canada again.

“Developments on the housing front require increased vigilance, and consideration may need to be given to additional prudential measures to prevent a further buildup in household debt,” the Washington-based IMF says in its latest economic outlook for the Western Hemisphere.

Clearly they don’t understand that it’s different here. Tell ‘em Mr. Flaherty.

For his part, Mr. Flaherty says he’s satisfied he’s done enough to curb the accumulation of mortgage debt.

The finance minister said in New York on Wednesday that he would need to see “clear evidence of a bubble in the housing market in Canada, which we have not seen,” according to a report by Bloomberg News. Mr. Flaherty defined a bubble as “dramatic surges in prices in some part of the country.” He also said the measures he took in January have led to “some softening in the Canadian housing market.”

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China faces subprime credit bubble

Spork — Mon, 19 Sep 2011 07:36:06 +0000

Looks like the money machine in China is showing signs of toppling under it’s own weight:

The audit office said the loans have reached $1.7 trillion (£1 trillion). While some of the money has been used to finance much-needed investments in water systems and roads, a large part has fuelled unbridled construction with a dubious rate of return.
The local governments depend on land sales for 40pc of their revenue so the process has become incestuous and self-feeding. Such reliance on property sales revenues has greatly aggravated the post-bubble crisis in Ireland.
Mr Cheng said China is entering a “very tough period” as growth runs into the inflation buffers, threatening the sort of incipient stagflation seen in the West in the 1970s and leaving the central bank with an unpleasant choice. “The inflation rate and the growth rate are conflicting with each other: it is very troubling,” he said, describing what is known to economists as the Phillips Curve dilemma.

Full article here.

This post was submitted by Spork.

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Heading into a recession with record debt

Jacko — Wed, 14 Sep 2011 07:28:54 +0000

Troll posted a link to this article: Canadians are getting carried away with debt in the current low interest rate environment and may be particularly unprepared for a recession.

At the Toronto edition of the MoneyShow last week, TD deputy chief economist Derek Burleton warned we are in a “balance-sheet recession that will take years to shake off.” As a result, Burleton said, interest rates will stay “very low for a long time.”

At the same show, Danielle Park, of Barrie, Ont.-based Venable Park Investment Counsel Inc., told attendees to “keep your powder dry, pay off debt and use these record low interest rates to get debt free and downsize real estate sooner than later, where necessary: Canada has gone on longer than it ought to have in this cycle.”

So are you taking advantage of record low interest rates and loading up on debt or are you ‘keeping the powder dry’ in the assumption that we’re heading into another recession? As a nation we keep loading up on more debt.

This post was submitted by Jacko.

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Interest Rates Are Too High!

wreckonomics — Tue, 13 Sep 2011 07:09:37 +0000

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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Mortgage loan approvals by province

Fri, 09 Sep 2011 07:15:52 +0000

One metric that nicely captures both the credit and mass psychology components of the current Canadian real estate craze is the total dollar amount of mortgage loan approvals as a percentage of GDP.

[...]

The total amount of mortgage debt would be expected to rise, but in a healthy and sustainable real estate market, it would rise in tandem with GDP growth, meaning loan approvals as a percentage of GDP should stay range bound. That they haven’t is but one more indication that this is a market driven by unsustainable dynamics.

http://www.theeconomicanalyst.com/content/mortgage-crazy-look-loan-approvals-province

This post was submitted by Mansur al-Hallaj.

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CMHC breathes a sigh of relief

Teekay — Thu, 25 Aug 2011 08:01:17 +0000

The CMHC is revising it’s forecast for housing starts in the slightly upward direction thanks to the US decision to keep interest rates at rock bottom levels:

The outlook runs contrary to a report in July from TD Economics, which projected that Canada’s housing market was poised to correct over the next two calendar years, with resale activity falling 15.2 per cent and average prices dropping 10.2 per cent.

“A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first-time home buyers are expected to be the chief culprits behind the slowdown,” said the report, prepared by deputy chief economist Derek Burleton and economist Sonya Gulati.

Earlier this summer, BMO Capital Markets warned that the Canadian market could suffer a price setback if there is a rapid rise in interest rates due to higher inflation, an increase in unemployment because of a weak U.S. economy or a slowing in foreign investment.

CMHC, however, projects that despite a slowing in the second half, average resale prices will deliver an overall increase in 2011, and continue to rise, albeit at a more modest pace, in 2012.

Laberge said the key reason for CHMC’s positive outlook is the call later in the summer from U.S. Federal Reserve chairman for interest rates to remain at rock-bottom rates into 2013.

As a result, he said, “We expect mortgage rates will be flat this year and to start increasing only later in 2012.”

Read the full article here.

This post was submitted by Teekay.

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RBC, BMO and the tiny rate ratchets.

rated — Wed, 24 Aug 2011 06:39:30 +0000

Banks are nudging up their variable mortgage rates:

Bank of Montreal later joined Royal in raising its five-year variable closed mortgage to three per cent which, in the case of BMO, represented a 0.15 percentage point increase.

Meanwhile, the Royal’s special variable rate mortgage also increased by a fifth of a point to prime minus 0.45 percentage points, making it 2.55 per cent.

In the past when banks raised variable rates without a corresponding increase in the Bank of Canada rate, they were accused of trying to boost profit margins at the expense of borrowers.

But Royal Bank, which is also Canada’s largest mortgage lender, said the latest increase reflects higher costs in the bond market, where it raises money to finance its mortgage loans.

Bond interest rates have risen due to growing debt fears in the United States and Europe as lenders want higher rates to part with their money in a riskier global economy.

Full article over at CTV.

This post was submitted by rated.

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Economic recovery – u r doing it rong

jesse — Tue, 09 Aug 2011 09:26:52 +0000

Well with S&P downgrading the US from AAA to AA, that should send interest rates for a ride. Yup, interest rates just went for a ride all right, and hard. Below is the Government of Canada 5 year note one-year chart:

Yes, interest rates fell when, normally, a ratings downgrade would increase yields. The story to pay attention to isn’t the S&P downgrade, it’s comments like this from Hon. Jim Flaherty on continuing government-led austerity measures in countries that are not running at full capacity:

European and American leaders have demonstrated they have the “will to act” but more needs to be done to rein in global debt and deficits, Canada’s Finance Minister Jim Flaherty says.

In an interview Monday, Flaherty told Amanda Lang of CBC News that he is most concerned about European sovereign debt, though he noted that the U.S. also needs to tackle its debt and deficit.

“These are fiscal issues; they’re not bank issues, they’re not monetary issues,” Flaherty said. “And it’s very important that Italy, Spain and the others — Portugal, Ireland and Greece — go ahead and implement the programs that they’ve committed to, the fiscal restraint programs, the reforms they’ve committed to. They have to get it done.”

Just throwing it out there… comments like these from Flaherty and others, along with the pudding of actually cutting said governments’ expenditures, may actually be why global stock markets are taking a rather large poo.

What will all this mean for Vancouver and its real estate? Dunno, but two things look baked in for the next few quarters: lower mortgage rates and more employment weakness.

© jesse for Vancouver Condo Info, 2011. | Permalink | 196 comments | Add to del.icio.us
Post tags: economy, mortgage rates, stocks

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