Some of you are under the impression that Bank of Canada Governor Stephen Poloz does nothing but sit around all day eating Doritos and watching The West Wing on Netflix, but you are sadly mistaken.
He also issues reports that freak out Realtors.
Consumer debt loads and house prices that could be as much as 30 per cent overvalued are the two biggest risks to Canada’s economy, the Bank of Canada warned in its semi-annual Financial System Review on Wednesday.
Yeah, but “up to 30 percent” includes zero percent over-valued too you know? Surely not everyone is overpaying for Canadian real estate.
The bank says it’s about 95 per cent sure that house prices have been overvalued by an average of about 10 per cent since 2007. That’s based on a new forecasting model the bank says it created, which incorporates existing data from private banks and other government institutions.
Huh. 95% Sure? really? I bet it’s all a’cause of those wealthy foreigners right?
And a lot of those inflated house prices are coming at a cost of rising debt loads. About 12 per cent of Canadian households are considered to be extremely indebted — which means they have a debt-to-income ratio of at least 250 per cent. That ratio has doubled since 2000, the report notes.
But that’s ok because younger buyers are building equity right?
Young homeowners, the bank added, have become even more vulnerable to negative shocks to income and to higher interest rates.
Wow. What a buzzkill.
*For those who followed the foreigner link we would like to offer our sincerest apologies. If you are a glutton for punishment, here’s a video of our prime minister singing Guns n’ Roses “Sweet Child o’ Mine“. If you watch the whole thing you earn a cookie! If you cut it off at 3:33 you have to go to work at a Tim Hortons in Fort Mac. You have been warned.
Here we are, Friday again!
And you know what that means?
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:
–Housing debate continues
–IMF can’t stop worrying about Canadas bubble
–Hike interest rates in May? not so fast.
–spiking prices, but more affordable
–Cable bills fine, help with the mortgage?
–Canada largest industry is real estate
So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
Bank of Canada Governor Stephen Poloz says it’s a ‘bad idea‘ to raise interest rates to combat imbalances in housing and consumer debt as that would only hurt manufacturers and the general economy.
“Housing activity is showing renewed momentum and consumer debt levels are high, so household imbalances appear to be edging higher,” he said. “But it is our judgment that our policy of aiming to close the output gap and ensuring inflation remains on target will be consistent with an eventual easing in those household imbalances.”
Changes in Canada’s population justify growth in the housing market, and Toronto, Vancouver and Calgary are the only three cities showing signs of overbuilding, Poloz said at a press conference.
Canada’s dollar extended declines after the speech and as crude oil, one of the nation’s main exports, fell below $80 a barrel. The currency fell 0.9 percent to C$1.1357 against the U.S. dollar at 3:15 p.m. in Toronto.
It may be just a crazy idea, but if the government actually wanted to do something about house prices and consumer debt, wouldn’t eliminating mortgage insurance do that without any change in rates?
Getting tired of the word ‘bubble’ yet?
With all the news stories and predictions of an Canadian real estate market crash, it’s time for the leader of this great nation to chime in with his opinion:
…Harper told a New York business audience that he did not anticipate a housing crisis in Canada, and that that there was no comparison between the Canadian housing market now and the U.S. market before the crash of 2008.
He said only small percentage of Canadian households would be vulnerable to interest rate hikes or a downturn in prices.
On the flipside of the argument is a securities analyst with a book to sell and a negative message:
In an interview published in the Globe and Mail today, MacBeth predicts a serious crash in house prices as soon as this coming spring, and advises people with large mortgages to sell, and rent.. His book, When the Bubble Bursts, forecasts a drop of up to 50 per cent in housing prices.
Read the full article here.
Here’s an interesting article showing the huge effect that interest rates have on house prices.
Record low interest rates help to support high housing prices and higher rates reduce the amount of money that can be borrowed, all other things being equal.
When rates return to normal levels home prices will be depressed.
And when you see the impact record low rates have on purchase prices, you might be as concerned as I am.
I never thought I’d see the day when you could get a 30-year fixed rate loan at just 3.31 percent, but that was the case last week according to Freddie Mac’s weekly survey of mortgage lenders. While most people probably just shake their head at these astonishingly low numbers, it is homebuyers who are seeing the kind of impact they have on monthly mortgage payments and, as shown below, this effect is profound.
Based on a constant mortgage payment of $1,100 per month (what seemed to be a good national average based on this story and others like it), today’s 3.31 percent 30-year mortgage rate will finance a house at almost double the price that the 40-year average mortgage rate would!
Read the full article here.