Canada's (Sub-Prime) Mortgage Market
For most of this year the markets have been discounting an economic recovery. That is, they have been in rally mode in anticipation that the worst of the economic crisis is over. While that is likely, all that is left for debate is how meaningful the recovery will be and if it is sustainable. The G20 countries have committed to not let their collective foot off the stimulus gas pedal until they are confident that the economy is on a sustainable trajectory... Recently, the president and CEO of ING Direct Canada stated that he is seeing Canadian habits resemble those of US and European nations during their housing booms. The level of equity in Canadian homes is surprisingly low as more than 50% of all mortgages issued this year are longer than the 25 year range that has been the usual option for borrowers.
Bankruptcies Soar 43%
The number of bankruptcies across the country was 43 per cent higher in September than at the same point a year ago, government data shows. The latest figures provided by the Office of the Superintendent of Bankruptcy Canada show the increase is disproportionately slanted towards consumer bankruptcies over business insolvencies. The September figure for the former was up by 45.5 per cent in the last year; the latter by only 1.6 per cent.
Easy credit, Soaring Prices Raise New Housing Fears
Canadians are buying homes at a blistering pace, binging on new debt. But all that cheap money can come at a high cost.
Sunday, November 22, 2009
Canada's (Sub-Prime) Mortgage Market
How To Prepare For Potential 'Global Collapse'
In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems. Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.
China Warns Federal Reserve Over 'Printing Money
Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature." "I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.
Germany Warns US On Market Bubbles
Germany’s new finance minister has echoed Chinese warnings about the growing threat of fresh global asset price bubbles, fuelled by low US interest rates and a weak dollar. Wolfgang Schäuble’s comments highlight official concern in Europe that the risk of further financial market turbulence has been exacerbated by the exceptional steps taken by central banks and governments to combat the crisis.
'Debt Levels Risk Another Crisis'
Harvard economics professor Ken Rogoff said that the level of debt major governments have taken on to tackle the financial crisis is of considerable concern must not go unnoticed. In a series of recent comments, Prof Rogoff cautions that countries like the US have been running up such significant national debts as a proportion of their total economies that there is the potential for default at some point in the future.
Thursday, November 19, 2009
Thursday, November 12, 2009
Wednesday, November 11, 2009
Sunday, November 1, 2009
From Boom---to Bust?
1 - The Boom - Real Estate
Vancouver Real Estate Market Heating Up
Vancouver has the hottest real estate market in the country, according to figures released Thursday by the Canadian Real Estate Association. Quarterly sales increases of 11 per cent in Toronto and 19 per cent in Calgary were topped by a 34-per-cent jump in Vancouver. It's the biggest year-over-year increase since early 2002, the association said.
Toronto Helps Lead Surge
Existing home sales across Canada climbed to the highest level of any third quarter on record, according to figures released today by the Canadian Real Estate Association.Year over year increases in Toronto at 28 per cent and Vancouver at 124 per cent were the main reasons for the upswing.
2 - Concern, What is Fueling The Boom?
Bank of Canada Monitors Real Estate Surge
Bank of Canada Governor Mark Carney says he has “some concern” that the surge in the housing market is unsustainable, although for now the boom in home buying remains a significant factor in Canada's economic rebound.“We do have some concerns about it,” Mr. Carney said at a press conference Thursday. “Obviously, consumer borrowing cannot not grow faster than the economy forever.” Most Canadian housing indicators are much stronger than most economists imagined they would be so early into the rebound from Canada's first recession since the early 1990s. For example, the average price of an existing home was $331,602 in September, a 13.6 per cent increase from the same month a year ago, according to the Canadian Real Estate Association.
3 - Real Estate Fuel = Historic Levels of Debt
Canadian Household Credit 'Is Defying Gravity'
Household credit is growing at a year-over-year rate of more than 7%, the fastest seen in any economic recession in the post-war era on an inflation adjusted basis, a new CIBC Capital Markets report shows. "It's all about affordability. During the first six months of the year, total debt rose by $44-billion but interest payments on debt fell by $3-billion," Benjamin Tal, economist with CIBC, said in the report. "Household credit in Canada is defying gravity." The mortgage market alone has grown 7.8% in the past year, reflecting a strong rebound in real estate activity.
Household credit is "defying gravity," growing at the fastest pace of any recession since the Second World War when adjusted for inflation, a new report from CIBC World Markets shows. A booming real-estate market that has sent outstanding mortgages surging 7.8% year-over-year in August is the primary driver, accounting for almost 70% of the 7% increase in overall household credit, said Benjamin Tal, senior economist at CIBC World Markets. That is in stark contrast to the 1991 and 2001 slumps, when mortgage growth ground to a halt on an inflation-adjusted basis, the report notes. "During a recession, usually mortgage markets go down, but this time it hasn't and the reason is affordability, driven by low interest rates," Mr. Tal said. "The Bank of Canada cut interest rates to stimulate the economy, and it's working."
Household Credit Defying Gravity
Household credit is defying gravity in Canada, expanding by more than 7 per cent year over year, a new analysis says. “On an inflation adjusted basis, credit is rising at the fastest rate seen in any economic recession in the post-war era,” Benjamin Tal, senior economist with CIBC World Markets, wrote in report published Tuesday. The main driver is low interest rates. Even as Canadians added $44-billion to their total debt in the first half of the year, interest payments fell by $3-billion. In fact, interest payments as a share of disposable income now stand at 7.7 per cent, the lowest rate since 2006 and significantly below the more than 10 per cent during the 1991 recession, Mr. Tal said. “This in a nut shell is the reason for the strong rebound in real estate activities in the Canadian mortgage market.” National home sales were up 18.5 per cent year-over-year in August, with the average home price rising 11 per cent, according to the Canadian Real Estate Association.
4 - The Bust?
Be Careful, Low Rates Won't Last
Bank of Canada Governor Mark Carney is warning homebuyers against taking on too much debt because today's low interest rates will not last forever. "People should manage their affairs prudently in anticipation that, at some point, rates will return to a more normal level," Carney said after releasing his quarterly economic review. "Obviously, rates are exceptionally low," he said, noting that the central bank has used its interest-rate-setting influence to drive down consumer borrowing costs to record lows to help stimulate economic activity.