Archive for the ‘predictions’ Category

About that BOC / IMF conspiracy…

Monday, March 23rd, 2015

Now normally when you hear about a conspiracy lawsuit against the Bank of Canada, the International Monetary Fund and the Queen of England you would assume Lizard People are involved right?

But in this case the government has already exhausted all but one chance to have the case thrown out and their last chance expires in the next week.

Is it possible the tin foil hats might have something here? Certainly it helps that their lawyer has a history of winning unlikely cases.

So what’s it all about?  Here’s what the Epoch Times says:

Toronto-based COMER and its fellow plaintiffs Ann Emmett and William Krehm are suing over fundamental changes to the Bank of Canada’s role that were made in 1974 when the bank stopped making loans to the government.

The Bank of Canada (BoC) was founded in the Great Depression and played a major role loaning money to the government. It helped finance Canada’s war effort during World War II and could loan money to the government, without interest, if it chose to do so. Any profits the BoC made were returned to the government minus the Bank’s operating expenses. That last point remains the case today, with $1.7 billion sent to the Receiver General annually.

COMER alleges that by no longer providing these loans, the Bank and others named in the suit have forced the government to finance budget deficits by borrowing from private markets and paying hundreds of billions of dollars in interest. Last year, $28 billion—over 10 percent of the federal government’s $277 billion in expenditures—went to servicing the debt.

That’s more than what was spent on National Defence ($21.5 billion) and nearly as much as the Canada health transfer ($30.5 billion).

The Bank of Canada Act allows, or as COMER alleges—requires—the BoC to give the federal government loans up to a total value of one-third of the government’s predicted annual revenues. For provincial governments it is a quarter of those revenues. The loans have to be repaid within the first quarter of the next fiscal year. At that point, the government just needs to pay back the loan with incoming revenues, and take out another loan to make up any deficit.

So in essence, unless our translator has the lizard people language interpretation incorrect, this case is about the national debt and the Bank of Canada’s failure to loan money to the Government of Canada for free.

What do you think? Lizard People are coming to eat your children of something is going to change?

Read the full article here.

Are you ready for higher interest rates?

Tuesday, January 27th, 2015

That seems like a really weird question as rates continue to drop.

But over at the Vancouver Sun, Barbara Yaffe says ‘Prepare now for interest rate shock‘.

On top of the Bank of Canada recent surprise .25% rate cut there are a number of people predicting another cut coming this year, so why worry about interest rates at all?

The size of the average mortgage on a dwelling in Greater Vancouver is $400,000, reports Jeff Johnson, mortgage broker at Cloverdale-based Dominion Lending Centres Canadian Mortgage Experts, with offices in B.C. and Alberta.

That jumbo figure is based on the average 2014 value of a Vancouver property, $801,000, and a Canadian Association of Mortgage Professionals survey last year showing the average equity position assumed by borrowers is 50 per cent.

Johnson notes that if interest rates rise in 2015 by even just half a percentage point, monthly payments on a typical variable rate $400,000 mortgage could increase by $100 to $1,872.

“And this is the best case scenario, as rates could continue to slowly increase (thereafter).”

Elyea points out such increases would be coming on top of 2015 hikes imposed on B.C. residents for MSP premiums, car insurance and BC Hydro.

And it is worth remembering British Columbians have more modest employment earnings than elsewhere in Canada. The B.C. average weekly wage last year was about $890, compared to $940 across Canada.

Ok, sure. But we know all that already. How long have we been hearing the warnings about ‘being ready’ for rate increases while they just stay down at record lows or continue to drop?

It’s like that old story ‘The Boy who cried Wolf’.  Eventually the villagers get sick of hearing all the false warnings, learn to ignore them and live happily ever after.

RBC first to cut mortgage rate

Monday, January 26th, 2015

Last week when the Bank of Canada announced their surprise rate cut none of the big banks seemed to be in a rush to announce lower lending rates on mortgages.

We asked which will be the first lender to lower mortgage rates and now we have the answer:

RBC is the first to cut mortgage rates as bond yields plunge.

Royal Bank, the country’s second-biggest lender by assets, offered a five-year fixed rate of 2.84 per cent on Jan. 24, down from 2.94 per cent last week, according to rate-tracking website Ratespy.com. That’s below RBC’s posted rate of 4.84 per cent. The bank also trimmed its three-, seven-, and 10-year rates, according to CanadianMortgageTrends.com, an industry news website.

Race to the bottom or just a good time to renew?

BOC chops rate in race for bottom

Wednesday, January 21st, 2015

If you’ll recall you’ve been warned many times by a number of government talking heads that rates could go up at any time.

Today the Bank of Canada finally took action and cut rates by a quarter from 1% to 0.75%.

Speaking to reporters, Mr. Poloz said the oil price drop is “unambiguously bad” for the Canadian economy, prompting the bank to take out what he called an “insurance policy” against future risks, such as weak inflation and a household debt squeeze. But he denied the move was calculated to send the Canadian dollar lower.

“Market consequences will be what they are,” he said.

The rate cut sent the loonie plummeting below 81 cents (U.S.).

Mr. Poloz, who acknowledged that oil dominated the bank’s discussions leading up to Wednesday’s rate decision, said he’s ready to cut rates again if prices fall further.

“The world changes fast and if it changes again, we have room to take out more insurance,” he said.

The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadian households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.

In the comments section here, Dave asked the question: How much of the BC economy is tied to Oil and Alberta?

I would like to know how much of a hit the damage to Alberta will be to BC. It seems to me that everybody underestimates the economic impact. I think our statistics don’t capture the role of Alberta in our economy. I think I read that Westjet estimated 5,000 people in the Okanagan work in the oil patch. And that’s just them trying to estimate things for their benefit (i.e. people who buy plane tickets). How many work from home on their computers? Or only make a few trips per year and don’t get picked up the radar? How many work in the Okanagan but for companies that service the oil patch? Add it all up and there is a LOT of employment related to Alberta.

 

Deutsche Bank: Canada is 63% overvalued

Tuesday, January 13th, 2015

If there was a competition for ‘most bearish outlook’ on Canadian real estate Deutsche Bank would take home the prize.

When local banks say real estate is overvalued in Canada they usually go with a safe 10-20% figure.  The Bank of Canada recently said 10-30% overvalued which is pretty damn bearish, but not quite as extreme as this.

Research by Deutsche Bank chief international economist Torsten Slok even manages to out-bear the Economist Magazines estimations:

Broken down, Slok sees the market as being 35-per-cent overvalued when compared to incomes, and 91-per-cent overvalued when compared to rents. That’s a more bearish assessment than most. The Bank of Canada estimates the market is overvalued by between 10 per cent and 30 per cent.

But those are similar numbers to those at the Economist magazine, which for years has been calling Canada’s housing market overvalued. It pegs the overvaluation at 32 per cent, when compared to incomes, and 75 per cent, when compared to rents.

“Canada is in serious trouble,” reads the title of a chart from Slok’s report, showing Canada’s household debt, as a percentage of income, climb to 50 per cent above current levels in the U.S.

See the charts and read the full article here.

 

How to prepare for interest rate hikes.

Tuesday, January 6th, 2015

We should be well and deep into the ‘boy who cried wolf’ territory by now.

How long have you heard warnings that interest rates may be going up?

We’ve all become so used to hearing that it’s going to be a big surprise if they do.

The CBC has an article that says interest rates will go up this year and here are 4 ways Canadians should prepare.

#3 is ‘don’t rush to buy a home':

Higher interest rates could also lead to a correction in the housing market.

“The big issue as far as I can see is that people panic and think they have to get into the housing market before interest rates climb. But they have to recognize the overall long-term impact of interest rates actually climbing,” says Laurie Campbell, CEO of Credit Canada Debt Solutions.

Homebuyers who rush out to purchase homes to beat a spike in rates could end up with homes dropping in value.

“I think people have to be vigilant about any big purchases they may be making in the next little while. Housing in particular,” Heath says. “If someone is considering purchasing a house, they have to really look at more normal interest rates during their budgeting.”

Read the full article here.

As oil, so goes Real Estate?

Wednesday, December 17th, 2014

Over at the CBC Don Pittis notes that what goes up can also go down.

Specifically, he notes that in the oil market there were a number of ‘experts’ with access to detailed data and analysis, yet seemed to be as surprised as anyone at the drop in oil prices.

Canadas housing market is of course a completely different beast, and we don’t really lack for ‘experts’ noting that prices are a bit out of sync with reality.  When the Finance Minister speaks up and the Bank of Canada estimates that real estate is as much as 30% overpriced nationwide that’s not exactly ‘without warning’.

Pittis notes another key difference between oil and housing is of course the liquidity of the market:

This is one example of how housing is different from oil. While oil trades on big, well-informed central trading desks by large corporations, housing is a market made of individual, many of whom have only bought and sold a house once in their life.

Partly because of that, housing is an illiquid market. Unlike stocks or oil, you can’t just sell a house at today’s price and get out. You have to go through the long process of finding another individual who wants to buy your exact house at a price at which you are willing to sell.

In previous housing downturns that has meant a stock of overpriced houses builds up because buyers are unwilling to pay the price sellers expect.

At that point, prices in the market are set by people who have to sell immediately and will take the price offered. Sudden divorces. A new job across the country. A death in family. People who can’t afford to keep up their payments. Overpriced properties waiting for their price actually fall in value while the seller waits.

Read the full article here.

Builders stop building in a bubble?

Thursday, November 20th, 2014

Markoz left this comment in yesterdays thread, but it got held up in moderation because it had more than two links:

My wife works at a bank and her boss sent a link to this BIV article entitled, “Nobel economist housing bubble formula shows Vancouver resistant.

Here is a copy of my response (unfortunately the charts I clipped won’t paste into the comment section):
His theory (as presented by the article’s writer at least) is that builders are smart enough to stop building before/when a bubble pops. I’m not sure if he means that a slow down in building is a precursor to a bubble popping or if he means that when sales drop so do housing starts. In Vancouver, housing starts only dropped off significantly well after sales did in 2008.

Vancouver sales began to tank in March or April of 2008.

Residential property sales in Greater Vancouver totalled 2,997 in March 2008, a decline of 16.3 per cent from the 3,582 residential sales recorded in March 2007, and a decline of 25.7 per cent compared to the 4,033 sales in March 2006.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver totalled 3,218 in April 2008, a decline of five per cent from the 3,387 sales recorded in April 2007, and a 3.8 per cent drop from the 3,345 sales in April 2006.

VANCOUVER – The Greater Vancouver housing market continued its re-balance between sales and listings last month. The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver declined 30.7 per cent in May 2008 to 3,002 from the 4,331 sales recorded in May 2007.
All of the above is from the REGBV website: http://www.rebgv.org/monthly-reports?month=May&year=2008
It just kept getting worse:http://www.huffingtonpost.ca/2012/07/04/vancouver-home-sales-10-year-low_n_1649539.html

“This summer, sales went off a cliff,” added Somerville, who is director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.:http://www.canada.com/vancouversun/news/business/story.html?id=e6e0c211-fddd-413b-9a94-3564e20567d8

The financial crisis did not start until Lehman Bros failed on September 15, 2008.

Here are the housing starts specs:

Apparently our builders aren’t as smart as the Nobel Laureate. Starts for all types of homes stayed above the average for 2004-2008 till the end of 2008. They plummeted after the fact. Perhaps the writer is putting his own spin on what Smith said. I wasn’t there so I don’t know.

The other thing to note is that the writer never actually asked Smith if he thought Vancouver was in a bubble. He did a follow up interview with him but seems to have avoided asking the question directly. He says, “Using Smith’s formula for housing bubble-burst scenarios, B.C. and Vancouver do not appear threatened, despite record-high prices in the latter. B.C. housing starts this year are up 3.1% from 2013 and forecast to rise a further 1.4% in 2015, according to Canada Mortgage and Housing Corp.” Why not just ask him what he thought instead of making a supposition?

Hold cash or leverage up?

Monday, November 10th, 2014

This article in the Globe and Mail asks ‘where is the smart money going‘?

Is a drop in oil prices good for the Canadian economy? Will interest rates stay low forever? Nobody knows, but that doesn’t keep us from asking.

Today’s situation amounts to a near total inversion of the markets of a generation ago. “If you look back to, say, 1981, stocks, bonds and real estate were all cheap,” says Jim Giles, chief investment officer at Foresters, a Toronto-based financial services provider with more than $20-billion in assets under management. “Now, the exact opposite is true.”

For investors, this poses a daunting challenge: What do you buy when there’s nothing left to buy – or at least nothing that appears to be a bargain?

For somepeople cash is trash, for others it’s king:

Tim McElvaine, one of Canada’s best-known value investors, has a similar viewpoint. The head of McElvaine Investment Management Ltd. in Victoria is holding about 25 per cent of his fund’s assets in cash, considerably higher than the normal level, as he awaits buying opportunities.

“People will tell you they don’t want to hold cash because it doesn’t yield anything,” he said in an interview. “But the real value of cash is its ability to buy things when prices become attractive.”

Among the reasons to worry about today’s market is that near-zero interest rates have failed to spark any widespread global recovery. The Organization for Economic Co-operation and Development trimmed its global growth forecast this week to 3.3 per cent for this year, reflecting the euro zone’s continuing woes and a slowing Chinese economy.

Read the full article here.

CMHC: Lower house sales in lower mainland over next 2 years

Monday, November 3rd, 2014

The CMHC is predicting declining house sales in the lower mainland over the next couple of years due to higher mortgage interest rates.

“Total housing starts will edge higher as resale market conditions remain balanced and the supply of completed and unabsorbed (unsold) new homes trends lower,” said CMHC B.C. regional economist Carol Frketich.

“Housing demand will be supported by employment and population growth, but tempered by gradually rising mortgage interest rates.”

They are predicting price growth of 1.2 and 1.7% (unclear if this is before or after inflation) and they forecast this based on an assumption of a shift to ‘lower cost housing’.

Which might be good news for anyone trying to sell ‘lower cost housing’ since prices on Vancouver homes under $1.1 million have gone essentially nowhere over the last four years.

 

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