Category Archives: rates

Low interest rates have done their job.

Southseacompany pointed out this article where Bank of Canada governor Stephen Poloz is reported to have said that low interest rates have done their job.

So what exactly was the job of low interest rates?

Three years ago the BOC was issuing warnings that real estate in Canada was as much as 30% overvalued in some markets and posed a threat to the financial system.

How’s that concern looking these days ?

Bank of Canada concerned about debt and housing market

The Bank of Canada is still worried about housing debt levels in Canada and joins the OECD in expressing that concern:

The two biggest concerns on the bank’s radar are also intertwined. It said the growth in mortgage lending in Toronto and Vancouver has largely fuelled an increase in Canada’s overall household indebtedness since the bank’s last review six months ago.

“Highly indebted households have less flexibility to deal with sudden changes in their income,” said the bank.

“As the number of these households grows, it is more likely that adverse economic shocks to households would significantly affect the economy and the financial system.”

The document was released as concerns about the Canadian real estate market — domestically and from abroad — continue to pile up.

Read the full article over at the Financial Post.

the $200 margin of error

This is hard to believe, but apparently more than half of all Canadians are just $200 away from not being able to pay their bills.

“With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice, which is one of the largest in Canada.

For 10 per cent of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less.

But those with anything at all left at the end of the month were in better shape than many: A whopping 31 per cent of respondents said they already don’t make enough to meet all their financial obligations.

Then there’s this little detail:

Another hair-raising finding from the survey: Roughly 60 per cent said they don’t have a firm grasp of how interest rates affect debt repayments.

The statistic helps explain why many indebted Canadians end up taking on more debt and high-cost loans, said Bazian. “That’s how so many end up in an endless cycle of debt,” he noted.

Shouldn’t be a problem, interest rates are low forever now aren’t they?

Read the full article over at Global News.

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