Category Archives: predictions

More supply in a bubble leads to a bigger crash

Southseacompany pointed out this article:

“The BC government has promised to tackle the housing affordability crisis in Metro Vancouver by “aggressively” increasing supply. A new study coming out of Princeton suggests that the NDP government may want to reconsider that strategy. In Economic Consequences of Housing Speculation, researchers link increased supply to a more severe crash when the bubble bursts”

“But Zhenyu Gao, Michael Sockin, Wei Xiong found that “housing speculation, anchored, in part, on extrapolation of past housing price changes, led not only to greater price increases and more housing construction during the boom in 2004 to 2006, but also to more severe economic downturns during the subsequent bust in 2007 to 2009.”

Read the full article here

How resilient is CMHC to a US style housing crash?

Kabloona points out this article asking yet again how this country would fare in a US style housing market crash, but particularly how the CMHC would fare:

Canada Mortgage and Housing Corp., which protects financial institutions in the case of consumer default and is 100 per cent backed by Ottawa, said in a release Wednesday that it looked at anti-globalization, earthquakes, a steep oil price fall and a U.S.-style housing correction to see how its insurance portfolio would hold up. It did not look at a combination of any of those scenarios.

The verdict is a U.S.-style correction would be its worst scenario for its insurance program with a cumulative loss of $217 million from 2017 to 2022 which would come on top of a need for the Crown corporation to suspend its dividends to Ottawa. CMHC paid Ottawa a special dividend of $4 billion in June because of excess capital and issued a $240 million dividend in August.

Read the full article here.

Mortgage carrying costs to rise 8% next year

Scotiabank is forecasting a big bump in mortgage carrying costs:

New buyers can expect home ownership to become even less affordable next year as mortgage costs rise, while current owners will be largely insulated from higher rates.

Add it all up, and the bank forecasts that Canada’s housing market seems to have “peaked” and is expected to cool down from its recent breathtaking pace.

Read the full article here.

BIS warns on interest rates

From southseacompany: another warning about rates knocking back growth.

“The world has become so used to cheap credit that higher interest rates could derail the global economic recovery, the Bank for International Settlements has warned.”

“After cutting interest rates to all-time lows and pumping trillions of dollars into markets to boost growth in the aftermath of the global financial crisis, central banks are now preparing to tighten their monetary policies.”

“All this underlines how much asset prices appear to depend on the very low bond yields that have prevailed for so long.”

Read the full article here.

The Triple Rate Hike Year

It’s been so long since rates were rising we’ve forgotten what it’s like, and yet it seems the tide is turning. Southseacompany points out this article over at the Financial Post: Three rate hikes this year?

The Bank of Canada raised interest rates on Wednesday, surprising many, and left the door open to more rate hikes in 2017 even as it pledged to pay attention to how higher borrowing costs would hit Canada’s indebted households.

To find out what a bunch of economists think, read the full article here.