“The very source of Canada’s relative success during the worst of the credit crunch — a banking sector that kept on lending and households that kept on buying — could yet spell its undoing if newly enlarged household debt loads prove too onerous to bear.”
“There is a popular misconception that the Bank of Canada cannot afford to raise interest rates because this would prove too damaging for mortgage holders. The opposite is in fact true. The reality is that the Bank of Canada cannot afford to delay raising interest rates, for precisely the same reason. The longer the bank delays, the more marginal borrowers will enter the market and be walloped when rates rise, and the further home prices will go above their equilibrium levels, only to tumble later.”
Once the Bank of Canada raises its key lending rate from the current “astonishingly cheap” one per cent, rising costs of servicing mortgage and other debts will sap consumer spending. Housing prices will fall as lower-tier buyers are forced out of the market by diminished affordability.
- from the Financial Post 26 Jul 2011, quoting Eric Lascelles, chief economist for RBC Global Asset Management.
Completely correct, but also very old news. Many who are bearish Vancouver RE have for years been alarmed by exactly these concerns. – vreaa
Yes, but we don’t have any chance to profit form this abuse as much as the banks could.
Now that they are reaching the point where their bottom line, consumer lending, could die a horrible death they fake concern.
Uh, that horse has already bolted. Now we’re just concerned with how bad stagflation will get, and how high the BoC rate will ultimately have to go to stop it. My gut feeling is 5%. The RBA is at 4.75% right now, they started hiking much earlier, and inflation is 3.6%. It is out of their target range and taking off (just like ours). Of course the Australian housing market is dead and about to collapse, which might contain it.
I doubt we can do better than them, considering the RBA was very much on the ball in 2009 and 2010 when their housing bubble rapidly reinflated. The BoC has fucked this one up big time. Mark Carnage.
On the ball? The RBA has blood on their hands – they cut the cash rate from 7.25% in Sept 2008 to 3% (the all-time low) in April 2009. This, in conjunction with expanded home owner’s grants at the federal level, caused the last 15-20% spike of the bubble. We can’t really give them credit when it was their fault in the first place.
The major banks have been predicting (read: praying) that the RBA would start cutting rates again but I can’t see how with these inflation numbers. And with the government desperately trying to contain the deficit there’s no help coming from the fiscal side either.
And the BoC cut from 4.5% in November 2007 to 0.25% in April 2009, also a 4.25% decrease. The difference is, when housing rebounded they never raised the rate at all. The RBA hiked a full 1.5% within a year. Canada in 2010 went from 0.25% to 1%, where it now sits, as inflation rages at over 3%. Our household debt, already high, has exploded.
People here are literally acting like money is free and debt is never to be repaid. This madness will go on for how long? Who fucking knows??? At least cash in Australian banks is keeping up with inflation somewhat. Ours is melting to subsidize more speculators and prop up an endless sea of home equity loans.
Carney’s response: “be responsible!” oh yeah, and “interest rates will rise” but they never do, and “inflation will be way above target for who knows how long”. Fuck this country. It’s a bunch of thieves.
Well there are other big differences. One being that Australia that never went into recession.
Vancouver Sun: “Bubble? What bubble?” http://tinyurl.com/42gkwfc
“Savvy shoppers ”
CDN $ at 1.06 US and no signs of heading the other way. It’ll be a very long time before interest rates rise to where it’ll effect mortgage rates to any degree. I don’t see this happening in 2012 at all
Except the BoC targets the inflation rate and not the exchange rate.