After yesterdays Bank of Canada rate cut we’re seeing lots of articles about what this means for the housing market.

Reasonably enough economists are predicting a dip in mortgage rates after this cut, but so far the big banks don’t seem to be in a hurry.

However, TD Bank was quick to announce Wednesday it will maintain its prime interest rate at three per cent, noting that factors beyond the central bank influence its rates.

“Not only do we operate in a competitive environment, but our prime rate is influenced by the broader economic environment, and its impact on credit,” the bank said in a statement.

And the Royal Bank appeared in no hurry to drop rates either, saying in an email response to a query that “while we don’t have any product announcements to make at this time, we are considering the impact of today’s Bank of Canada decision.”

It was anticipated that the Bank of Canada would move to increase its overnight rate later this year due to an improving economy, until crude prices started to slide and dropped below US$50 a barrel.

Phil Soper, president of realtor Royal LePage, predicted Canadians could be shopping for cheaper mortgages within days.

“It doesn’t take long to react to a policy change like this,” Soper said. “That’s why it’s such a powerful tool.”

Read the full article over at Yahoo.

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.

 

Many Franks pointed out what has to be the most bizarre ‘financial facelift’ feature yet over at the Globe and Mail.

You think you have money troubles? Look at these poor people!

[Eric] earns $200,000 a year working one day a week in a medical clinic. But his real love is teaching, which he does one day a week at a university; this earns him $100,000 a year.

WHAT?!

“It is financially possible for them to do the things that are important to them, although by doing so, they will run a cash flow deficit of $50,000 a year until the children leave home,” Mr. MacKenzie says. Over time, their annual deficits will add up to more than $1-million in additional debt.

WHAT?!

They are living rent free in a relative’s house (they pay taxes, utilities and upkeep) and “regret not having bought a house years ago,” Eric writes in an e-mail.

WHAT?!

Eric and Ilsa are fortunate because their parents are willing to put a home equity line of credit on their own home to extend them the $1-million they need to build, and to finance their annual deficit, the planner notes.

WHAT?!

 

It’s the end of another work week and that means it’s time for another Friday Free-for-all!

This is our regular end of the week news round up and open topic discussion thread, here are a few recent links to kick off the chat:

-Target says goodbye Canada
-Suncor plans cuts
-Sony closing all stores
-Bank of Canada warns on economy
-Oil affects housing?
-RE Commissions to fall?
-Vancouver lags on rentals
-House of cards
-Endless HAM chat can end anytime
-Did we say budget surplus? nevermind.
-Alberta considers sales tax

So what are you seeing out there? Post you news links, thoughts and anecdotes here and have an excellent weekend!

Investors bet against Canada

January 15th, 2015

Why is everybody picking on us?

Investors are betting against our dollar, equities, even our bank stocks.

Markets also see further declines for the loonie, which was quoted buying 84 U.S. cents at 11:35 a.m. and has dropped 8.4% against its U.S. counterpart over the past year. Wagers against the currency outnumbered those for it — so-called net shorts — by 17,087 positions as of Jan. 6, the most since Dec. 5,  according to data from the Washington-based Commodity Futures Trading Commission.

For Merrill Lynch, the risk is the slowdown in the oilsands will seep into a housing market “already saddled with near-record levels of household leverage.”

Canada’s ratio of household debt to disposable income rose to a record 162.6% between July and September, according to data released last month. Benchmark interest rates of 1% have fanned a house-buying frenzy that sent 2014 sales up 6.7% in Toronto and 16% in Vancouver.

Read the full article in the Financial Post.

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.

 

Shell is cutting hundreds of jobs in Alberta as oil price drops change everything.

Already, some companies have put longer-term oil sands projects on hold until markets stabilize, which analysts say may not start to happen until at least midway through 2015. And service industries that support the sector have cut jobs as business has slowed.

Northern Alberta’s oil sands have among the highest development costs in global energy, so operations are particularly vulnerable to skidding crude prices. North American benchmark West Texas Intermediate crude fell 43 cents to $48.36 a barrel on Friday, down from more than $100 in June.

Shell said it is laying off less than 10 per cent of the 3,000 workers at the Albian Sands project, one of five major oil sands mining ventures.

A spokesman for the company declined to give exact job-loss numbers, but a labour official in Fort McMurray, who does not represent Shell workers, pegged them at around 200.

Read the full article here.

Friday Free-for-all!

January 9th, 2015

It’s the end of another week and that means it’s Friday Free-for-all time!

This is our regular end of the week news round up and open topic discussion thread for the weekend.

Here are a few recent links to kick off the chat:

-Assessments and sales
-Canada in ‘serious trouble’?
-Optimism Fading?
-Rent vs. buy math
-High debt a way of life
-Oil brings doubt
-Chinese investors not afraid of ghosts
-Realtor Hunger Index at 68%
-Prices down in Yuan

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

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.

It’s the beginning of a new year and the end of another week.

That means it’s Friday Free-for-all time!

This is our regular end of the week news round up and open topic discussion thread for the weekend, here are a few recent links to kick off the chat:

-1988 flashback
-Chinese bottom fishers in Russia
-That’ll bump up the average
-Chinese buyers eye Seattle
-The pretending to pay buyers gambit

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

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