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Christie Park

Housing bubble a danger to economy, TD says - Ottawa - CBC News - 0 views

www.cbc.ca/...td-overvaluation-debt.html

housing bubble danger economy debt ratio home equity lines of credit

shared by Christie Park on 18 May 12 - No Cached
  • Overvalued housing markets in several Canadian cities and high household debt poses a "clear and present danger" to Canada’s economy
  • The report flags Vancouver as the market with the greatest risk of a housing price correction, because of an influx of foreign buyers, likely in the order of 10 to 15 per cent.
  • overbuilding in the condo market
  • ...5 more annotations...
  • Household debt growth over the past decade has been fuelled not as much by credit card borrowing, he said, but largely by loans secured by real estate, in particular home equity lines of credit.
  • The ratio of debt-to-personal disposable income, which is now above 150 per cent, Alexander predicted, is likely to reach by late next year the 160 per cent peak experienced in the U.S. and the U.K. before their real estate corrections occurred.
  • The report proposes several options for heading off further growth in household debt. One is to shorten the maximum amortization on mortgages from 30 years to 25.
  • A second possibility is to impose a sort of stress test on borrowers in order to qualify for a mortgage.
  • And another option would be to require applicants for home equity lines of credit to demonstrate their ability to pay it off in 20 years. Finally, the minimum down payment for a mortgage could be raised from five per cent to seven.
  • Christie Park on 18 May 12
     
    This article explains how the overvalued housing markets are dangerous to the Canadian economy, as well, a few options to stall the growth in household debt.
sheba birhanu

Definitions - 6 views

Home Equity Line of Credit (HELOC): A line of credit extended to a homeowner that uses the borrower's home as collateral. Once a maximum loan balance is established, the homeowner may draw on the l...

mortgage loan property

started by Christie Park on 18 May 12 21 follow-ups, last by sheba birhanu on 18 May 12
Madelyn Au

Key Facts - 11 views

These were all the most prominent information gathered from the sites in our bookmarks

started by Madelyn Au on 18 May 12 2 follow-ups, last by Madelyn Au on 18 May 12
sheba birhanu

Canadian housing bubble fears overblown, experts say | FP Street | News | Financial Post - 0 views

business.financialpost.com/...ghs-in-on-housing-bubble-furor

Bank Of Canada preventative measures rising levels of household debt change in prices of homes

shared by sheba birhanu on 18 May 12 - No Cached
  • said the housing market is not in a bubble,
  • The annual pace of home starts rose 14% to 244,900
  • Canadian housing starts rose to the highest since September 2007 last month
  • ...4 more annotations...
  • A residential real-estate boom in the world’s 10th-largest economy has prompted senior policy makers such as Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty to warn that Canadians may be taking on too much debt.
  • Mr. Carney told lawmakers April 24 that high levels of household debt remain the greatest domestic risk to Canada’s economy.
  • warned Canadian families to exercise “caution” with their debt levels.
  • Mr. Carney has kept his key lending rate unchanged at 1% since September 2010 in the longest pause since the 1950s.
  • sheba birhanu on 18 May 12
     
    The head of Canada's biggest bank and one of the country's leading developers said the housing market is not in a bubble, even as one economist said Toronto is caught in a "condo craze." Canadian housing starts rose to the highest since September 2007 last month, led by multiple-unit projects, Canada Mortgage & Housing Corp.
  • sheba birhanu on 18 May 12
     
    This article includes Michael Carney further warning Canadians to be cautious of their debt levels.
Madelyn Au

Krugman warns Canada not immune - The Globe and Mail - 0 views

www.theglobeandmail.com/...article1674000

Canadian Economy Paul Krugman Interest Rates

shared by Madelyn Au on 17 May 12 - No Cached
  • Canada's shining bank regulatory system cannot be counted on to shield the country from an impending economic buffeting
  • anadians spend too much relative to their household incomes and the country's housing bubble has yet to burst.
  • “Canada is by no means insulated,” he said. “Canadians borrow an awful lot. Savings rates have been very low. Household debt relative to income is very high here.”
  • ...3 more annotations...
  • Mr. Krugman heaped praise on Canada's tight system of regulating banks and consumer debt, as well as its generous social safety net for insulating Canadians from the current recession.
  • He said that interest rates are getting so low that it will soon be impossible for central governments to use them as a lever to stimulate borrowing and spending.
  • The Canadian economy also benefited from the fact that the country has its own currency
  • Madelyn Au on 17 May 12
     
    More indepth article on Krugman's views on the Canadian Housing Market
sheba birhanu

What happens when Canada's housing bubble pops? - Econowatch - Macleans.ca - 1 views

www2.macleans.ca/...en-canadas-housing-bubble-pops

Artificially high prices covered bonds Government-insured Mortgages What a Bubble Burst can Effect

shared by sheba birhanu on 22 Apr 12 - No Cached
  • The real price of Canadian homes has increased by 85 per cent on average since 1998. Prices stagnated in 2008, at the height of the financial crisis, but they were back on the rise again as soon as 2009, when they grew by nearly 20 per cent
  • the debt burden of Canadian families stands at 153 per cent of their disposable income
  • Canadian market is overvalued by over 70 per cent
  • ...13 more annotations...
  • our housing market is afflicted by “overvaluation, speculation and over supply.
  • 2012 is going to be the year when housing prices start heading south
  • subprime mortgages are virtually non-existent in Canada, and government guarantees on mortgage insurance act as a buffer protecting the banking sector from housing market downturns. A whopping 75 per cent of mortgages in Canada are fully insured by Ottawa
  • prices nationwide will slip by five per cent this year in the best-case scenario. A spike in unemployment could trigger a 10 per cent price drop
  • Secondly, even in areas where there is a bubble, not all sectors of the market are equally inflated
  • condo prices have already declined 15 per cent
  • Canada’s pop won’t bring down the entire financial system
  • “We watch the housing market carefully and we are prepared to intervene if necessary,” he said.
  • Last week Finance Minister Jim Flaherty hinted he is also worried about housing:
  • hough job creation is softening in Canada, there’s little reason to believe joblessness will rise to America’s level.
  • Even economist Nouriel Roubini–famously dubbed Dr. Doom for accurately predicting the great recession–doesn’t think Canada is headed for disaster. He predicts a 10-per cent correction, but not a U.S. style meltdown.
  • The government already cut the maximum length on federally insured mortgages from 35 to 30 years in early 2011,
    • sheba birhanu
      sheba birhanu on 18 May 12
       
      Flaherty responded to further changes in the housing market - developed concern.
  • Christie Park on 22 Apr 12
     
    This article includes charts and graphs.
Christie Park

Canada's housing bubble: This time is not different - The Globe and Mail - 0 views

www.theglobeandmail.com/...page2

housing bubble canada burst

shared by Christie Park on 22 Apr 12 - No Cached
  • job levels in these industries have fallen by 4.6 per cent since last year. And these are jobs lost in Toronto, which now has an unemployment rate of 8.6 per cent well above the national 7.6 per cent
  • First is globalization which has benefited Canada as the country has been an oasis of stability in an uncertain world. Over 60 per cent of all new condos in Toronto are bought by investors – the number rises to 80 per cent in the centre of the city
  • low interest rates and the belief that real estate holds its value better than other forms of investing are also driving the housing market in Canada
  • ...3 more annotations...
  • faster than expected economic growth
  • an unexpectedly improving economy and a better performing stock market may hit investing in real estate as less economic uncertainty may shift funds away from perceived safe havens
  • increasing opportunities in other parts of the world may also hurt real estate prices in Canada
Madelyn Au

Time to panic about the housing market - Business - Macleans.ca - 3 views

www2.macleans.ca/...youre-about-to-get-burned

Characteristics Stastistics Housing Bubble Indicators Financial Policies CMHC Bank of Canada

shared by Madelyn Au on 22 Apr 12 - No Cached
  • One of the really terrible narratives we’ve allowed to develop in the minds of Canadians is that somehow we are better than the U.S. and so that means we have nothing to be concerned about
    • Madelyn Au
      Madelyn Au on 17 May 12
       
      Current Characteristics - Human Pyschology
  • the end of 2010, the average homeowner had just 34.3 per cent equity in their home
  • ...34 more annotations...
  • sharp rise in home ownership rates
  • overbuilding and Canada’s still healthy construction industry. New building permits reached $6.8 billion in December, a 4.5-year high.
  • boom has been fuelled by cheap and abundant credit thanks to a low interest rate policy pursued by the Bank of Canada, along with government-insured mortgages.
  • evidence the tide may already be turning in Canada’s housing market. The Canadian Real Estate Association reported home sales had fallen 4.5 per cent in January compared to December, the steepest decline since July 2010
  • verage price topping $348,000 in January, Canadian homes are now worth a total of $3 trillion, nearly twice the country’s GDP
  • Home prices have doubled since 2002 and risen 13 per cent since the global recession hit in 2008.
  • ome prices rise, so does consumer confidence. Canadians, believing that their bricks and mortar are a gold mine, have become ever more willing to open their wallets
  • housing boom has helped prop up Canada’s construction industry
  • , which now represents 7.4 per cent of the labour force, higher than it was in the U.S. at the height of its boom
  • eal estate agents, mortgage brokers and insurance companies, and the sector represents a staggering 27 per cent of the Canadian workforc
  • As of last year, Canadians had pulled roughly $220 billion from their houses in revolving home equity lines of credit, a per capita amount three times larger than the U.S. at its peak.
  • HELOCs, have increased 170 per cent in the past decade, twice as fast as new mortgages
  • federal government recognized just how risky HELOCs had become last April, when it announced it would no longer allow the Canada Mortgage and Housing Corporation to insure them.
  • home equity withdrawals were a large factor in fuelling the economic recovery
  • Overconfidence is what’s driving the market
  • The low interest rates are encouraging people to buy houses and take on debt
  • Bank of Canada has held its key interest rate at one per cent since September 2010, and most economists expect the bank to keep it there until well into next year.
  • Low interest rates
  • can have a perverse effect on an economy when they stay low for years
  • Inflation spent much of 2011 at three per cent, above the bank’s target rate of two per cent
  • Carney’s hands have been somewhat tied by the U.S. Federal Reserve, which is expected to keep its interest rate at near zero until 2014
  • Raising Canada’s rates too high by comparison would inflate the loonie, punishing exports and manufacturing.
  • Getting back to normal interest rates of three to four per cent becomes increasingly difficult the longer rates stay low
  • TD’s Alexander believes an interest rate hike of two percentage points would push 10 per cent of Canadians into danger territory where they would be spending upwards of 40 per cent of their income on debt payments.
  • Mortgage rates are especially vulnerable. Shorter-term variable rates, which are linked to the Bank of Canada’s overnight rate, have become increasingly popular, now making up about 40 per cent of the market.
  • warned that it was close to maxing out its $600-billion budget for insurance
  • half a million homeowners swapped their fixed-rate mortgage for variable rates last year.
  • he CM
  • Conservative government has taken some steps to tighten mortgage rules, including lowering amortization periods to 30 years from 40, and raising the minimum down payment for CMHC insurance to five per cent from nothing
  • household debt is it’s not a problem until it’s a problem. But when it becomes a problem, it’s usually a really big problem
  • average Canadian home now costs five times the average income
  • consumer spending has gone from 58 per cent of Canada’s GDP to 65 per cent.
  • the CMHC
  • Since 2008, Canada’s ratio of debt to after-tax income has exploded
  • Madelyn Au on 22 Apr 12
     
    This one has a lot of facts & statistics. -Comparison of the Canadian housing market to US housing market before their bubble burst -Characteristics of the Canadian Housing Bubble -Current monetary policies & financial activities in the housing market -Economic Indicators that prove Canada's in a housing bubble
sheba birhanu

Is the Canadian housing market a big bubble ready to burst? Or is it steady as she goes... - 0 views

www.globaltvbc.com/...story.html

shared by sheba birhanu on 18 May 12 - No Cached
  • Finance Minister Jim Flaherty has warned that Canadians are taking on too much debt against the value of their homes, and that could spell trouble.
  • latest report from the Canada Mortgage and Housing Corporation is dismissing those fears, saying there's no 'clear evidence' of a real estate bubble.
  • home sales have dropped
  • ...5 more annotations...
  • "There's clearly a slowing down in the market," said Tsur Somerville from the UBC Sauder School of Business. "You see an increase in the number of listings, drop in sales, all things that create less pressure in the marketplace."
  • According to the latest numbers from the real estate board of Greater Vancouver, home sales are down 19 per cent compared to this time last year.
  • "The comparison to last year was heavily influenced by the change in the federal government's mortgage insurance criteria, which pulled forward a large number of sales into early 2011" said Helmut Pastrick, Central 1 Credit Union Cheif Economist.
  • despite a 19 per cent slowdown in sales, home price indexes show almost a four per cent increase in the average price of a home.
  • The message to buyers - the economy is in reasonable shape, there's a lot supply out there, and interest rates are still low.
  • sheba birhanu on 18 May 12
     
    Some more evidence and statistics on why we are not in a housing bubble.
Madelyn Au

https://s3.amazonaws.com/policyalternatives.ca/sites/default/files/uploads/publications... - 0 views

s3.amazonaws.com/...Canadas_Housing_Bubble.pdf

Effects

shared by Madelyn Au on 17 May 12 - No Cached
  • Madelyn Au on 17 May 12
     
    I can't highlight this PDF so I took notes instead: It has really good proofs using the economic housing bubble indicators that Canada is in a housing bubble and different scenarios of what could happen if: a) the housing bubble is dealt with through a market correction b) it bursts quickly c) it deflates over a slow period of time This also shows the impacts and effects it would have on the economy
Christie Park

Be Very Afraid Of The Canadian Housing Bubble - 0 views

www.huffingtonpost.ca/...-housing-bubble_n_1428438.html

housing bubble warning mortgage canada home owners non-home owners Predictions

shared by Christie Park on 18 May 12 - No Cached
  • I want people who are considering buying a house in Canada to be the most frightened. People who just bought a house also have every right to be nervous. But even if you don't have a stake in the property market, I would like you, too, to be fearful of a bubble in Canadian property.
  • Unlike in the United States, it is very hard for Canadians to walk away from their mortgage responsibilities. Mortgage insurance protects your bank, not you. Here, a default is not a get out of jail free card
  • In Canada, mortgage interest cannot be deducted from your taxes. Instead, we only benefit by getting tax-free capital gains after you sell.
  • ...5 more annotations...
  • And that is why I want to spread fear. Because though we may not be in a bubble now, if we keep this up, we are going to be. And if a bubble pops, that is something really worth being frightened of.
  • When a housing bubble pops, first-time buyers with large mortgages are really screwed. Leverage is great when assets are rising, but a decline of even five percent can quickly wipe out a young family's nest egg. A drop of 10 or 20 per cent leaves many homeowners tens of thousands in the hole. Even homeowners without mortgages feel poorer – the so-called inverse wealth effect.
  • According to the IMF, when that happens, spending dries up for five years, and stays flat for years after.
  • Despite deep fears of their own, banks are still crazy to lend. Just as Hertz makes its money by renting cars, banks make money by renting money. They just can't help themselves.
  • Low interest rates held down artificially by central banks in an attempt to jump-start the economy make the math for borrowing to buy look good, for now at least.
  • Christie Park on 18 May 12
     
    This article warns Canadian citizens of a housing bubble and that we should not listen to the real estate industry and finance minister as their claims are very biased. The author of this article says that although we may not be in a housing bubble at the moment, we will be if house prices continue to rise, and this is why we should be fearful.
Madelyn Au

Canada's 'housing bubble' deemed close to bursting - Business - CBC News - 0 views

www.cbc.ca/...-bubble-capital-economics.html

shared by Madelyn Au on 17 May 12 - No Cached
  • Over-building is already visible; the number of unoccupied houses and condos is at a record high
    • Madelyn Au
      Madelyn Au on 17 May 12
       
      This can be sorted into Characteristic
  • decline in consumption would mean a slowly rising unemployment rate as well
    • Madelyn Au
      Madelyn Au on 17 May 12
       
      Effects - Employment Rates
    • Madelyn Au
      Madelyn Au on 17 May 12
       
      Effects on our Employment Rates
  • inancial worries at home and abroad will keep interest rates at their current level for a while.
    • Madelyn Au
      Madelyn Au on 17 May 12
       
      This explains why it's difficult to control the housing market through just manipulation interest rates
  • ...6 more annotations...
  • Canada's housing market is in a bubble that's set to burst and prices could plunge by as much as 25 per cent
  • Housing valuations have lost all touch with fundamentals and household debt is at a record high
  • A domestic housing boom coupled with high commodity prices worldwide have spared the economy the severe recession felt by other developed countries.
  • firm says a burst housing bubble would shrink real estate investment and hurt consumption — two things that would considerably slow economic growth.
  • company says Canadian house prices are overvalued by approximately 25 per cen
  • Lower prices would mean a hit to household net worth as property now accounts for one-third of a family’s total assets, the report found
    • Madelyn Au
      Madelyn Au on 17 May 12
       
      Effect on Household Net Worth
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