Excerpts from ‘Canada’s house of cards?’, BNN.ca, 28 Oct 2011 -
“Homeowner’s continue to hear a chorus of admonishments from the Department of Finance, the Bank of Canada and OSFI that these low interest rates will not be around forever,” Bank of America Merrill Lynch economist Sheryl King said in a recent note to clients. “However, we think the stronger signal households are receiving is from policy rates, which have held steady at 1.0 percent for 13-months now.”
King says roughly two out of three mortgages underwritten this year have been for a variable rate term, compared to a typical 25 to 30 percent share. …
“Over the past decade or more, rolling a variable rate mortgage from month-to-month has consistently been less expensive than a fixed mortgage rate. In essence, a generation of homeowners has experienced nothing but declining rates and lower monthly interest payments,” she says.
“This expectation will be hard to change. … The U.S. homeowner was lured down a very similar path by the Federal Reserve at the turn of the century.” …
“Canada’s recent economic performance has benefited greatly from a booming housing market, which has driven house prices, residential investment and construction employment to elevated levels, from which we see little hope of it rising much further. There is the strong likelihood of a housing market correction at some point in the not-too-distant future, which we believe would involve an outright decline in housing investment.”
Agree on all counts. -ed.