Game Day – Carney On The Road In Vancouver – “The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear.”

15 Jun 2011, 8am: Big Day! No, not this evening’s Stanley Cup Game 7 on home ice, but BOC Governor Mark Carney, on the road, speaking here in Vancouver. We don’t know what he’s going to say, yet, but we expect it to be pertinent to our speculative mania in housing and the nosebleed debt levels BC-ites are carrying. He’ll be subtle, but he’ll warn us nonetheless. Nail-biting stuff.

UPDATE; excerpts from the speech:

“Some markets are already severely unaffordable even at current rates.”

“Given such developments, one cannot totally discount the possibility that some pockets of the Canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand. The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear – greed among speculators and investors – and fear among households that getting a foot on the property ladder is a now-or-never proposition.”

Entire speech here: (pdf)

39 responses to “Game Day – Carney On The Road In Vancouver – “The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear.”

  1. Ralph Cramdown

    I’m not sure he’ll be subtle. Subtle hasn’t worked, nor have his private pleas to HM Finance Minister (I assume). One doesn’t go to the center of the problem to whisper.

  2. We’d LOVE to hear him tell-it-like-it-is, but we’re not holding our breath.
    They really are trying to precipitate a gentle deflation, but the nature of bubble won’t, IMHO, allow that.

  3. ‘Flaherty, Carney fear household debt impact, but taking action also risky’
    Canadian Press 14 Jun 2011
    Excerpt –
    “For now, many analysts believe what Flaherty and Carney are doing — issuing warnings — is likely the best approach, since action might be too strong medicine. Tightening mortgage rules further, or raising rates or both, could result in an overshoot and send the housing market crashing.
    On the other side of the issue, however, is that many Canadians could be financially hurt if they proceed on the assumption interest rates and carrying costs, will remain at current levels for years.”

    • “issuing warnings — is likely the best approach”

      Hogwash. The problem is loose credit and low interest rates. Without adjusting the latter the former must be clamped significantly.

      Better quote from the CP article: “Flaherty tabled a budget implementation bill Tuesday he says will formalize his powers to intervene in Canada’s hot housing market to restrain borrowing”

      Oh what oh what will be “formalized” I wonder. No wonder the usual suspects have been cawing.

    • And here is the quote from the DoF website:
      “Among the important measures included in the Act are those to:…
      Reinforce the stability of Canada’s housing finance system
      – Strengthening the Government’s oversight of the mortgage insurance industry.”
      http://www.fin.gc.ca/n11/11-047-eng.asp

      Tacked right on at the end. Sounds like a newly minted measure to me. The drums beat louder. You cannot get out.

      They are coming.

    • http://www.fin.gc.ca/n11/11-047-eng.asp

      “Among the important measures included in the Act are those to: …
      Reinforce the stability of Canada’s housing finance system
      Strengthening the Government’s oversight of the mortgage insurance industry.”

      No details, but IMO the above is the most important part of the CP release. The government is tightening the leash on CMHC, and I hope on the low ratio mortgage sector as well.

  4. Loonie down 1.4% today, thus far.
    101.77

  5. Talk is cheap. I’m frankly not interested in anything he says. It’s time for him to go medieval on the debt-heads.

  6. A quick way to pop Vancover’s housing bubble would be to do a full background check on our good friends (real estate “investors”) from the People’s Republic of China. And then share those details with Beijing. How is it that a Communist country allows so many millionaires? And why are all those millionaires allowed to dump their millions around the world?
    And why does the Canadian government allow it here?
    Anyone?

  7. Most pertinent comments by Carney in my view:
    “housing is not net national wealth. Some Canadians are long housing; others are short.”

    “Though some people in this room may have been enriched, their children and neighbours may have been relatively impoverished”

    “the elevated level of “multiples” inventories, the ample pipeline of developments under way, and heavy investor demand (much of it foreign) reinforces the possibility of an overshoot in the condo market in some major cities”

    “At a 4 per cent real mortgage interest rate—equivalent to the average rate since 1995—affordability falls to its worst level in 16 years”

    “one cannot totally discount the possibility that some pockets of the Canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand. The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear—greed among speculators and investors—and fear among households that getting a foot on the property ladder is a now-or-never proposition.”

    The last one is my favourite. The prospect that speculators and investors might move to the “fear” camp and prospective households to the “greed” camp wasn’t mentioned.

    But what will it mean? This is much bigger news IMO:
    http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Mode=1&DocId=5088345

  8. We’re hearing “Wolf!” a lot … but how many people will change their ways until they actually see it?

  9. “Domestic demand factors are not the only forces at work. Some Asian wealth is being invested in selected international housing markets as those investors seek out diversification and hard assets. This has become a familiar phenomenon in this city. Partly as a consequence, the average selling price of a home in Vancouver is now nearly 11 times the average Vancouver family’s household income, a multiple similar to those seen in Hong Kong and Sydney—cities that have also become part of a more globalized real estate market. Such valuations are extreme in both Canada and globally (Chart 16).”

    Finally the cat is out of the bag (well, it left the bag a long time ago but everyone was denying it!)

  10. I think it’s all about to go pear-shaped…..seems like the noose is tightening. Very interesting article….wish there was a way to get it into the headlines in Vancouver.

    http://www.theepochtimes.com/n2/china/capital-flight-accompanies-corruption-in-china-bank-warns-57712.html

  11. I hate the Bruins!!!!

  12. Maybe house prices will come down now that the Bruins won. This sucks!!

  13. Vancouver, you are world class.

  14. Do you think the provincial government will pick up part of the tab for Vancouver’s hosting the Stanley Cup finals after that display of class? The Bruins wisely leave town immediately with a police escort – liikely on their way to much finer Seattle.

  15. Well, we have to admit we didn’t expect this.
    We naively thought 1994 experience + Olympic security overkill experience would result in riots being contained; obviously not.
    Remarkable social network streams via twitter, etc. #canucksriot for one.
    Will headline photos, FTR.

  16. I am so appalled to be a Vancouverite right now. What a pathetic display. Let’s all hope that the police, fire and ambulance people – who have to deal directly with all those %&$I^%s – stay safe tonight.

  17. The better team won today.

  18. What shame this is, I am in Toronto this week for work but wow the riots suck more than the Cancuks loosing. I guess we have true picture of what herd mentality looks like. Maybe we will have some multiple offer riots soon.

  19. I can’t remember where I heard it, but someone said the typical protestor is someone living in their parents basement, who can’t get afford to own, and getting close to thirty in age. I was ashamed. I thought people have pride in their city. At least people came out and helped clean up.

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