Category Archives: rates

The correlation between interest rates and speculation

Bank of Canada Governor Stephen Poloz has said he doesn’t think there’s a strong correlation between interest rates and speculation, claiming even a 5% increase in rates wouldn’t have an impact on real estate speculation in Canada.

Over at BetterDwelling.com they disagree with this thought:

It was almost stupid to not buy property at these rates, since it was almost free money. This didn’t just give speculators more capital, it created speculators out of people that would normally not be able to play the game. These aren’t Bay Street suits with wads of cash. Everyone from your barber to grocery store clerks are turning into real estate speculators. Cheap rates, a larger qualified buyer pool, and the expectation that you can always make money, turned shelter into lottery tickets.

Read the full article here.

Debt addicts face painful withdrawal

Canadians love debt that gets sunk into ever rising property prices and banks and other lenders have been happy to provide.  As long as rates only go down this is a pretty good situation, but what if rates were to go the other way one day?

Financial companies have been more-than-willing lenders. But there are several reasons why Canadians have been such enthusiastic borrowers.

Last week, new figures showed that consumer lending now totals more than $2 trillion, a new record. As we reported last week, for every dollar of Canadians’ disposable income, they owe almost $1.67.

From the point of view of Canadians, money has never been so cheap. But the rising cost of housing, especially in the country’s biggest cities, has also drawn people into taking on more debt.

Continue reading Debt addicts face painful withdrawal

Can we fix affordability with more debt?

Most people agree that there’s a problem with the BC real estate market, and that problem is usually called ‘affordability’.

Affordability usually means what you’re buying is too expensive, but it can also mean that you just can’t afford the monthly payment.

Interest rates look at risk of rising, but have been at rock bottom levels for years.  That means there’s not much room to move on ‘affordability’ when it comes to interest rates.

So we’re stuck with two options: price comes down or government starts giving away money.

Important announcement” for first time home buyers from the BC government.

Daily Hive says they know what this announcement will be.

Update: They were correct, here are some details:

The B.C. Home Owner Mortgage and Equity Partnership program will provide a maximum of  $37,500 — or up to 5 per cent of the purchase price — with a 25-year loan that is interest-free and payment-free for the first five years.

“The dream of home ownership must remain in the grasp of the middle class here in British Columbia,” said Premier Christy Clark.

The intention of the program is to assist people who can afford the mortgage payments on a new home but are challenged to make the down payment.

The province will start accepting applications for the program on Jan. 16, 2017.

Homebuyers will pay no monthly interest or principal payments over the first five years as long as the home remains their principal residence.

After the first five years, homebuyers begin making monthly payments at current interest rates.

If too much debt got us into this problem, surely it can get us out of it right?

Meanwhile the Bank of Canada is warning again about huge mortgages and growing household debt.

Poloz: wait and see on interest rates

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.

Interest Rates, Price Plunge & CMHC Losses

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.