More On Canadian Housing Bubble
As a follow-up on this post, I see at Barry Ritholtz' blog a link with information that clearly supports the view that Canada is in a housing bubble:
"Average home prices in Canada have risen 23% from their trough in January 2009. Home-sales volumes are up 70% over the same period....
....The 2009 price increase of more than 20% came as personal income in Canada fell nearly 1% and total employment was 1.4% lower than the year earlier. In a December report, the Bank of Canada warned that household debt—largely mortgages—was 1.42 times disposable income during the second quarter of 2009, a record high....
....Another possible danger: Because Canadian banks typically reset adjustable-rate mortgages every few years, those who are buying now at low rates will likely see increases soon. Toronto-Dominion Bank forecasts suggest that the rate to which many Canadian mortgages are pegged, the prime rate, could nearly double by the end of 2011. The Bank of Canada warned in its December report that if interest rates increase as expected, by mid-2012 about 9% of Canadian households could have so much debt that they'd be "financially vulnerable....
...In October 2008, the Bank of Canada made the first of a series of rate cuts that eventually lowered the target for its key overnight lending rate to 0.25%, which in turn reduced banks' prime rate—the basis for calculating variable-mortgage rates in Canada—to 2.25% by April 2009. In Canada, nearly all mortgages have rates that adjust at least every few years. Currently, rates on some loans have fallen to 2% or lower.....
...But Canada's central bankers appear reluctant to take any steps that would hurt the economy. In a Jan. 11 speech, a representative of the Bank of Canada said: "If the Bank were to raise interest rates to cool the housing market now…we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession.""
Add to that the facts that I mentioned in the previous post about very rapid money supply growth (nearly 20%) and a very rapid increase in Canada's current account deficit, and there can be little doubt that Canada has entered a housing bubble driven by the inflationary policies of the Bank of Canada.
As a sidenote, I do find the comments by Barry Ritholtz in his post to be somewhat confused. First he links to evidence that Canada is in fact experiencing a housing bubble, but then he proceeds to assume that Canada is insulated from housing bubbles, based on a speech by some Fed official (A speech which not surprisingly was nonsensical as I demonstrated here), as if remarks by Fed officials was more important than the actual facts
"Average home prices in Canada have risen 23% from their trough in January 2009. Home-sales volumes are up 70% over the same period....
....The 2009 price increase of more than 20% came as personal income in Canada fell nearly 1% and total employment was 1.4% lower than the year earlier. In a December report, the Bank of Canada warned that household debt—largely mortgages—was 1.42 times disposable income during the second quarter of 2009, a record high....
....Another possible danger: Because Canadian banks typically reset adjustable-rate mortgages every few years, those who are buying now at low rates will likely see increases soon. Toronto-Dominion Bank forecasts suggest that the rate to which many Canadian mortgages are pegged, the prime rate, could nearly double by the end of 2011. The Bank of Canada warned in its December report that if interest rates increase as expected, by mid-2012 about 9% of Canadian households could have so much debt that they'd be "financially vulnerable....
...In October 2008, the Bank of Canada made the first of a series of rate cuts that eventually lowered the target for its key overnight lending rate to 0.25%, which in turn reduced banks' prime rate—the basis for calculating variable-mortgage rates in Canada—to 2.25% by April 2009. In Canada, nearly all mortgages have rates that adjust at least every few years. Currently, rates on some loans have fallen to 2% or lower.....
...But Canada's central bankers appear reluctant to take any steps that would hurt the economy. In a Jan. 11 speech, a representative of the Bank of Canada said: "If the Bank were to raise interest rates to cool the housing market now…we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession.""
Add to that the facts that I mentioned in the previous post about very rapid money supply growth (nearly 20%) and a very rapid increase in Canada's current account deficit, and there can be little doubt that Canada has entered a housing bubble driven by the inflationary policies of the Bank of Canada.
As a sidenote, I do find the comments by Barry Ritholtz in his post to be somewhat confused. First he links to evidence that Canada is in fact experiencing a housing bubble, but then he proceeds to assume that Canada is insulated from housing bubbles, based on a speech by some Fed official (A speech which not surprisingly was nonsensical as I demonstrated here), as if remarks by Fed officials was more important than the actual facts
posted by stefankarlsson at 8:47 PM
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