Mark Carney is not yet finished as the Governor of the Bank of Canada and in today's interest rate announcement, he said something sure to send shivers down the spine of the entire real estate industry:
In a bit of a surprise, (Carney) said Tuesday he is not as yet convinced the recent cooling in housing activity in Canada, along with a slowdown in credit accumulation, represent a fundamental shift, indicating he remains concerned about the downside risk of keeping rates low for a very long time.
A Canadian Institute of Chartered Accountants survey conducted earlier this year found almost half of respondents worrying about affording to make mortgage payments should rates rise significantly.
On Monday, Finance Minister Jim Flaherty said he was pleased housing was moderating and that Canadians were starting to pay off debt, a shift in the credit and mortgage market he attributed in part to his decision to tighten borrowing rules in July.
Carney said, however: "It is too early ... to determine whether the moderation in housing activity and credit will be sustained."
Meanwhile Scotiabank economist Derek Holt expects Carney will have all the evidence he needs by spring or summer of 2013.
Holt believes by that time the housing correction will "start as a steep plunge in new condo sales."
When you consider yesterday's post and the way things are going, 2013 will surely trigger Triskaidekaphobia in real estate agents everywhere.
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Instead of "13" how about $480. What the realtor will get on EI every two weeks....
ReplyDeletehttp://www.youtube.com/watch?v=jYye59dstRY
ReplyDeleteI think Carney's got this right. Despite some economic headwinds, regulatory changes and credit tightening real estate is still quite bouyant. Not that anyone wants a crash but public sentiment is still far from bearish on average depite record indebtedness. That tells us the message still has not gotten through and the potential for a coninuation of bubbly home buying during a period of excess is still with us. What we would like to see is that savings slowly creep up and some debt is paid down.....(but not too fast). To bring balance back consumers should be shifting away from the high levels of credit they have been enjoying and taking stock of assets and equity. A little common sense might just keep the consumer healthy enough to keep consumption in line with predictions and reduce the risk of unemployment rising too quickly.
ReplyDeleteDrop the interest rate hammer. Problem solved.
ReplyDeleteNot so fast. We have a great big Southern neighbor that dictates rates here. Carney has done all he can do for now.
DeleteHave you noticed housing is rebounding there?
I seriously doubt the much predicted recession in the US will be any more than a shallow one.
We can count our lucky stars here in Canada. If the US dips and recovers quickly we may just have a soft landing in this country after all.
Great, so one of the key creators of Canada's looming debt crisis now gets to look clever by pointing out the dangers of keeping interest rates low as he walks out the door to his next high-paying gig in London.
ReplyDeleteNice work if you can get it.
You obviously are late to the conversation, Manfred. Mr Carney has been warning for two years against taking on too much debt.
DeleteCanadian low interest rates are a reflection of what the US Federal Reserve is undertaking to stimulate the economy there.
If your idea is to utilize Monetary tools like rate increases to slam consumers over the head then it is back of the class for you.
We still have a manufacturing economy dependant on US buying if you are unaware.
Before slinging tar you might just want to dig into what the repercussions are if we get too far ahead of our major trade partner on rate changes.
Canadian low interest rates are a reflection of Canada's extremely weak and fragile economy.
DeleteIt will not matter whether rates are raised now, a year from now or later than that, the result will be the same - a crushing effect to the economy. Remember, 70% of our GDP is based on consumer spending. When you lower rates to emergency levels for an extended period of time, that consumer spending economy becomes far more vulnerable than it was before rates were slashed.
Canada must go through an extended period of deleveraging in order to find a solid economy that is not almost entirely based on debt and consumer spending. Basically it is time for Canadians to feel the (now long overdue) pain that other countries have been feeling the last number of years. Canada is not different, no matter how you slice it.
Services are above 75% of GDP, manufacturing may only be 12% now and energy is (surprise!) just 3% of the economy.
DeleteWho knew?
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