Mark Carney Magic – Soft And Strong At The Same Time

“The Bank of Canada softened its stand on raising interest rates , a shift that reflects an economic outlook that has deteriorated markedly since the spring.
Canada’s central bank also left its benchmark interest rate at an ultra-low setting of 1 per cent for the 25th consecutive month, and left its economic outlook for the next few years largely unchanged.”

– from ‘Bank of Canada softens rate stand, flags debt concerns’, Kevin Carmichael, G&M, 23 Oct 2012

“The Bank of Canada strengthened its bias for raising interest rates, retaining its outlier status among the Group of Seven nations while signaling concern about record household debts it says will keep growing.
Policy makers led by Governor Mark Carney kept the benchmark rate at 1 percent, where it’s been more than two years, and said “some modest withdrawal of monetary policy stimulus will likely be required.”

– from ‘Carney Strengthens Bias to Raise Rates as Debt Risk Grows’, Greg Quinn, Bloomberg, 23 Oct 2012

The speculative mania in Vancouver RE will resolve itself regardless of whether rates stay low, or whether they strengthen slightly. Either way, there is too much debt, and the market is collapsing under its own weight.
Fortunately, our predictions are not dependent on trying to read the BOC’s intentions.
– vreaa

57 responses to “Mark Carney Magic – Soft And Strong At The Same Time

  1. Renters Revenge

    Agreed that the bubble will burst irregardless of BoC interest rate policy. However, we need to hold the central banks feet to the fire for creating the easy money policies in the first place. The misallocation of capital (and excessive debt) that we are suffering is a direct consequence of the central bank attempting to steer the economy.

  2. EVERYONE should watch this little vid to understand what is about to come..If you don’t..you will become penniless..

    http://play.goldmail.com/xml4hydrm4yq

  3. Renters Revenge

    “Debt.  There isn’t a day that passes as of late that the issue of debt doesn’t arise.  Federal debt and consumer debt (including mortgages) are of the most concern due to its impact on the domestic economy.   Debt is, by its very nature, a cancer on economic growth.  As debt levels rise it consumes more capital by diverting it from productive investments into debt service.  As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host.”

    http://www.zerohedge.com/news/2012-10-23/guest-post-debt-driving-economy-1980

  4. TD chief economist stated last week that unless we see a ‘sharp I crease in unemployment’ or a ‘sharp increase in interest rates’ Vancouver Real Estate isn’t going to “crash” as many spectators say.

    Those in the market are active. Yesterday I witnessed a home on the north shore which had 70 groups through over the open house on the weekend receive 7 offers. Sounds like a familiar story from a different era?

    [website address deleted here -ed.]

    Some areas are still hot and moving deals. Not like crazy past – but sustainable.

    • Rusty's bastard love child

      Holy realtor spam

      ‘Irregardless’ the party is NOT over – do you see what I did there?

    • Prices look to be year-on-year down close to 4% by mid-March. I don’t know much about it, but a few years of that and all of a sudden we have a good old-fashioned “correction”. Did I use the right word?

    • RE: unemployment. We are piling on debt and pulling forward demand, because dwellings built has exceeded the number of households formed for about a decade running. There are an unprecedented percentage of people working in construction, finance and real estate. Whenever this ends, it crashes, and BoC policy has let it run for as long as possible.

    • UBCghettodweller

      Vancouver Real Estate isn’t going to “crash” as many spectators say.

      I agree there.

      I’d wager my meagre Grad student stipend for the the month that we’ll see prices slowly creep down to levels supported by more than just speculation. In many places real estate bubble markets took 5-10 years to return to sane levels. The good times are over, but we’re not going to see realtors jumping out of windows any time soon, no matter how much some on these blogs want them too.

      • “The good times are over”

        One thing I might point out here is that without price rises there are those who are going to be in a position of near-negative equity. I am looking at prices dropping by about 4% YOY in mid-March. Maybe I’m wrong here but in effect you have two years of borrowers who will be behind after transaction costs.

        If the good times are over, I hope it’s understood that sales volumes are going to be low compared to the last few years. That means lower incomes for commissioned salespeople and others dependent upon transaction volumes. That is the “new normal” and is in effect a nominal pay cut. That has a whole whackload of knock-on consequences, including the desire to liquidate assets to cover cash flow shortfalls.

        I don’t know for sure what 2013-2017 will bring but, one scenario that’s plausible is a 40% drop in prices. All I normally hear and read from “pundits” is their most likely scenario, yet from where I sit most of the scenarios are risks, with little on the upside.

        My two cents. I think your scenario is near the best-case with a small probability of it being better, but a much greater probability of it being worse.

      • UBCghettodweller

        Fair enough YVRHousing dude. You’re reasoning is pretty sound.

        Given that I have zero investment in Vancouver real estate at the movement and will be going elsewhere for my Post-Doc but might want to return in a decade or two, this is good news for me.

        Either way, my objective is to stay nicely liquid regardless of the situation I find myself in.

    • just yesterday i witnessed a home on the westside which had 80 groups through over the open house on the weekend receive 8 offers. irregardless of the era its never a different story and the sarchasm grows

  5. subtle that 1-2-3 … http://tinyurl.com/47qaf7r
    debt/credit, in itself, isn’t problematic … just a contract for conducting affairs and necessary … the issue is the creation, unchecked growth and never-in-history scale of low quality contracts, both social and financial, spread everywhere … these can’t and won’t be honored, for anyone who examines even casually … there’s no escaping, just maybe a choice of fallout … more burnt skin and pain, but fewer mutants and deformed kids would be nice

  6. Banks are still up to their eyeballs ins schemes and scams to keep the party going and the BOC will do nothing! So this could be a slow leak rather than a bursting of the bubble unless a critical mass is reached where a certain percentage of borrowers are no longer able to service their debts no matter how the debts are rearranged. A friend owns two farm properties (as investments) North of GTA has been struggling to make payments. Well what d’ya know? He was just told by his bank that he can make Interest only payments that would reduce his monthly to $1000 PM. How’s that a tightening of credit I keep hearing so much about? Garth Turner is wrong, there are no signs of credit tightening yet! And until credit is tightened, the crash will not happen, at least not to the extent to restore sanity to this market! Markham, where I live is totally flipping insane, multiple offers everywhere, and its starting to look like Shanghai whereas as few years ago it looked like Copenhagen (at least in its demographics!) HAM is alive and well in Markham.

    • You should hang out at some mortgage broker blogs and see whether there’s any signs of tightening — the pips are squeaking!

      • Husband’s colleague recently listed his house, the wife is a bit of a shopping addict and they are debted-out. Accepted an offer recently, $12k less than he paid a few years ago but he isn’t calculating the RE fees, property transfer tax, and the work and cash he’s put into fixing the place up which is upwards of $50k. He’s hoping the house inspection won’t give the buyer further negotiating room.

    • the fed has throw up multiple rounds of QE *precisely because* they can’t get the bankers to “party”

  7. Debt service is irrelevant. Debt load matters. The banks, CMHC et al can arrange “work-outs” all they want; what they can’t control is sellers reducing prices, dragging down entire neighborhood values.

    • i’d think the trick was maximize debt service, though not to the point of defaults … for that would incline assets (at pretend prices) coming to market for repricing

  8. Renters Revenge

    “In the 1930s, faced with problems of sovereign and other debt similar to those of today, the pretence that debts could be repaid was maintained for far too long. We must not repeat that mistake.” – Mervyn King, Governor Bank of England

    • Bank of America common stock is trading at 48% of book value and Barclays at 52%. Where’s this ‘pretence’ that the guv’ is talking about?

      • USTs, JGBs, bunds, etc. all mispriced relative to known present and expected future liabilities … merv and friends all got their jobs based on ability to talk sense while pouring

  9. Not sure if you are aware of this, but another made in Vancouver first? The iBeg phone game – yes, the whole game is about role playing a begger in Vancouver! I’m seriously not sure how I should feel about this….

    • We went to a Vancouver Symphony few times during this Fall and I felt that the number of beggars in downtown is on the rise (although a single person experience is not a statistically sound approach, I know).

  10. About the initial topic of this discussion. “The Bank of Canada softened its stand on raising interest rates” and “The Bank of Canada strengthened its bias for raising interest rates”. It looks like the BOC is going to find out soon that one can not be a little pregnant and that it is not a good idea to take a sleeping pill and a laxative at the same time.

  11. This headline seems to suggest Tsur takes his marching orders from BCREA. Their stats indicate X so Tsur says Y. Not that WE didn’t know this but it just reads so obviously here. How can the media give this guy even a smidgen of credibility as a disinterested or objective expert on the market?!

    • UBCghettodweller

      As I’ve stated previously, if he was a researcher in the physical sciences, he’d already have been very publicly crucified for conflicts of interest and the field wouldn’t take a single thing he said seriously.

      I can’t believe I share the same damn campus as that scumbag.

  12. Pingback: “He accepted an offer recently, $12k less than he paid a few years ago but he isn’t calculating the RE fees, property transfer tax, and the work and cash he’s put into fixing the place up which is upwards of $50k.” | Vancouver Real Estate

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