Even with all the recent warnings of a housing bubble that is no longer limited to just Vancouver and Toronto, you’ll still find lots of media coverage that dismisses bubble talk or explains it away as an ‘ownership premium’.
It’s not difficult to see why this is – there are thousands of people who’s incomes depend upon the housing market.
Whether its condo marketer Bob Rennie or a random realtor, they all have their day to day income tied to the health of the real estate market and conveniently are given ‘expert’ status and quoted by the local media.
That makes an article opener like this all the more shocking to newspaper readers:
Is there a housing bubble in the Lower Mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that’s precisely what we’re about to witness in Metro Vancouver.
Canadian mortgage brokers are freaking out about new refinancing rules proposed by the OSFI which has taken over responsibility for the CMHC. Reasonably enough, they’re asking for clarification about proposals to require banks to check income and current house value before refinancing.
Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.
“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).
“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”
Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.
..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.
Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.
The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.
That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.
The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.
Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?
You’ve probably noticed lots of eye rolling around here anytime someone mentions how Canadian banks are so different from US banks. The Canadian Centre for Policy Alternatives is now pointing out in a report that Canadian banks actually received a multibillion dollar bailout from October 2008 to July 2010. The government is being accused of offering ‘liquidity support’ that is much higher than originally reported.
All told, the study counts $114 billion worth of guarantees and financial aid for Canada’s big banks from government agencies such as the Bank of Canada and the Canada Mortgage and Housing Corp.
MacDonald combed through financial reports from government institutions as well as quarterly reports from the banks themselves.
He says the government has been obfuscating the true cost of supporting the banks.
“A healthy and resilient banking sector cannot operate under a shroud of secrecy. Details of the massive taxpayer support Canadian banks received should be released in the name of transparency and accountability,” MacDonald said.
They also point out that the heads of Canada’s big banks received large raises during the time this ‘liquidity support’ was offered.