“The market for home sales is chilling further after months of decline – and it’s putting Finance Minister Jim Flaherty on the hot seat. New data show sales deteriorating in November, and the association that represents Canadian realtors says sales will fall, not rise, this year and next. Mr. Flaherty, who sought to cool the market this summer by tightening mortgage insurance rules, says his actions are only one part of the story and that Canadians are voluntarily curbing their appetites for mortgage debt.” …
“Interest rates have remained low and the economic backdrop has remained supportive for housing activity, so that should leave little doubt that recent changes to mortgage regulations are responsible for having cooled activity,” CREA chief economist Gregory Klump stated in a press release.
– from ‘Realtors blame Flaherty as slump deepens’, Globe and Mail, 17 Dec 2012 [hat-tip allen]
A speculative mania eventually implodes under its own weight. It doesn’t need rising interest rates or a failing economy to bring about its demise. In fact, its deflation is more likely to bring on an economic slump than to be caused by it. In Vancouver, the market started slowing before the mortgage changes came into effect.
The erroneous argument put forward by the economist above has already been ‘collected’ in our ‘Erroneous Theories For Falling Prices’ category.