CANADIAN MORTGAGE VIEWS

The Bank of Canada is warning of an impending housing price correction, putting Canadian mortgage holders at risk. In a four-part series of papers, economists at the bank said a drop in home prices could also impact overall consumption and the Canadian economy. In one of the reports, authored by Brian Peterson and Yi Zheng, the bank cautioned that the risk for fluctuations in house prices has “increased markedly.” The authors noted that house prices have risen sharply in most parts of the country over the past decade, with house prices reaching a historically high level in relation to income. The percentage of household debt to income has risen from 110% in 1999 to 153% currently. “These facts (rising debt and house prices) are interrelated, since rising house prices can facilitate the accumulation of debt,” said guest editor Graydon Paulin, introducing the four papers. “Households could therefore experience a significant shock if house prices were to reverse.” The bank also sugges...

Good article from the Globe and Mail: Canada’s housing market has two good years ahead of it yet, Canada Mortgage and Housing Corp. said Monday, with low interest rates and a “moderately” expanding economy keeping price corrections at bay. The Crown corporation – which insures Canadian mortgages – has had a consistently rosier view of the market than many private sector forecasters. Canadian banks have recently issued reports probing the consequences of cheap money, and trying to predict whether there is a bubble in prices that will eventually pop and cause prices to crash. They are particularly concerned about Vancouver and Toronto, where some have predicted price corrections of up to 10 per cent because of overbuilding in the condo market. But CMHC said Monday Canadian markets would “remain steady in 2012 and 2013. “With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales...

The Bank of Canada did as expected yesterday and announced it is increasing the target for the overnight rate by 0.25% to 0.75%. There was some debate earlier in the month whether the central bank would actually continue increasing interest rates, but after the strong job report that was released mid-month announcing that a record number of jobs were created in June, it became apparent that Bank Governor Mark Carney, now had strong justification to increase rates again. Some key items in the release included: Globally Global economic recovery is proceeding but is not yet self-sustaining Greater emphasis on balance sheet repair by households, banks, and governments around the world is expected to reduce global growth then the Bank originally believed back in April The response to the European debt crisis, or Greece’s debt crisis, has reduced the risk of it blowing out of proportion, but it will slow down global growth US consumer demand is increasing but is still not driving growth In C...