Canada’s head banker, Mark Carney, says bond traders have “lost their focus” by running up bond yields.
He told Reuters: “We don’t see, for example, corporate investment really picking up until 2011…2010 is still going to be a year where policy really matters.”
Translation: Don’t bet on prime rate rising before the end of June 2010 (assuming inflation remains under 3%). Carney believes our economy still needs low rates.
That, of course, is reassuring news for variable-rate mortgage holders. It’s not so reassuring, however, for people who feel housing prices are getting a bit frothy. (There seems to be a lot of press about Canada’s growing housing “bubble” lately. We’ll touch on that in a separate article.)
As for the 5-year bond yield, which drives fixed mortgage rates, it’s up four basis points today to 2.78%. (That’s not too far from the one-year high of 2.91%.)
For now, we’ll be awaiting next Thursday’s industrial price index reports, next Friday’s GDP report, as well as the big October employment report on Nov. 6. Central One Credit Union economist, David Hobden, feels October’s employment figures will be something to keep an eye on. He says, “Employment is best measure of real economic output.”
Putting the word bubble in quotes (“bubble”) – nice touch!
A more appropriate style might be “*BUBBLE*”.
The only way someone could dispute the fact that there is a CMHC-driven (and 2% VRM-driven) housing bubble in Canada would be if he/she was in the business of selling these mortgages…
[Edited: T.O. Resident you can make your point without being insulting. Thank you. CMT]
T.O. Resident,
The quotes were meant to reference recent headlines in the media. As stated above we’ll explore the topic more in a dedicated story.
Rob
I look forward to your discussion. I do see the bubble so it would be interesting to see your viewpoint. I’ve talked to mortgage brokers about this months ago and everyone was in denial. Now that it’s going more mainstream it’s going to get interesting. How do houses increase in value when everything else is plummeting. Do any reasonable people still think real estate increasing is sustainable and warranted?
A bit frothy?
I think that would be like calling the Antarctic a bit chilly.
Our home price/income ratio now makes the U.S. look like prudent savers.
CM – People thought Google stock was a bit frothy at $100. Then it went up another 400%.
Hi Chris,
Thanks for the note. By statistical measures, it’s clear that prices are out of whack in many (but not all) Canadian markets. That said, I’d rather let economists and other experts battle this one out. Like with interest rates, it’s impossible to predict housing prices. Yes, it’s easy to say prices will fall at some point (this is my gut feeling as well), but it’s not so easy to time it. It could take a year, or it could take five.
Cheers,
Rob
Sorry – didn’t mean to be insulting/rude… I was just trying to imply that it’s not in a Mortgage Broker’s best interest to tell people that there is a housing bubble, and that they should possibly stay away from a home purchase.
I am looking forward to the “bubble” discussion. The only counterpoint that seems to be out there is the misleading affordability argument: that a lower percentage of income is needed to carry a mortgage. This only makes sense if record low interest rates stay where they are for the entire duration of the mortgage… since 35-year mortgages are the rage these days, the affordability calculation assumes a 2%-4% mortage rate for 35 years!
Rob, when is also the further discussion coming out about brokers and what CAAMP is doing to cut brokers out of the industry for fraud, you said you would do an article on, I still wonder how many brokers actually lost their license last year, year before, etc. The industry seems to rather be policed via the lenders.
T.O. Resident: You’re right that it’s probably not in our best interests to call a bubble, but not because we’ll do less business. Predicting the unpredictable is just not a great way to make a living…Better to focus on things we understand intimately and can comment on intelligently — the future of real estate prices is definitely not one of those.
Cartia: We looked into this a few months back and were unable to uncover any fraud that was not dealt with appropriately on a legal or regulatory level. Reported fraud is far from common but when it occurs, it’s the jurisdiction of the relevant authorities more so than CAAMP. Licensing is the domain of the provinces.
Rob