Econo-Talk

Doctor Treating Sick EconomyFour prominent economists met on a CAAMP panel Monday:

Avery Shenfeld (CIBC), Warren Jestin (Scotiabank), Stefane Marion (National Bank Financial) and Carlos Leitao (Laurentian Bank).

The eurozone crisis, employment, rates and CMHC were the topics of the day. Here’s what they expressed about each:

On Interest Rates

  • “It is not normal to have 2% inflation and a 1% overnight rate,” said Marion. Rates will normalize. “Do not sell (mortgages, especially shorter or variable-rate terms) to clients who may not be able to afford higher rates.”
  • “Prime should be the norm for variable rates.”—Leitao

  • Regarding rate cuts, we “can’t rule it out,” said Shenfeld.
  • The BoC suggests rates will stay low “for a long period of time.”—Jestin
  • Central banks will give inflation a longer leash (before raising rates), noted Leitao.
  • Despite a conditional commitment to keep rates low until mid-2013, “Don’t trust the Fed too much,” Marion advised. The Fed cannot “keep a promise on the long end of the curve” so we “can’t be too complacent.”

On Housing

  • The housing market is strong because rates are “at extraordinary levels,” said Jestin. “What worries me is that we’re at record levels of home ownership.”
  • There will come a point when rates will go up and house prices will come down, said Shenfeld. He warned: Watch out for more 5%+ annual price run-ups because “the bigger they are the harder they’ll fall.”
  • “Every other week OSFI is stress testing banks for falling house prices.”—Marion
  • If people continue to be qualified by reasonable standards then there is no housing bubble, declared Leitao.
  • Employment is Jestin’s #1 indicator for measuring the health of the housing market.
  • “I don’t pay attention to one month’s numbers on employment,” said Shenfeld. He added: Slow employment will lead to slow mortgage growth.
  • The “higher house prices go, the bigger mortgage [that] people need,” said Shenfeld. If prices level off it will impact originations.

On the European Crisis

  • “This is the first time we’ve face a sovereign global debt crisis.”—Marion.
  • Do you want to know if Europe is going to “blow up?” Watch the Italian 10-year yield says Shenfeld. The higher it goes, the worse the crisis gets.
  • Unlike European banks, there are “no liquidity issues” among Canadian banks, stated Jestin.
  • Shenfeld said that the mess in the rest of the world and a strong loonie have “to some extent been a friend of the mortgage consumer” (because of their depressing effect on rates). Yet, there is a point at which low rates are old news. Canadians have now started to say, “Maybe I’ve borrowed enough.”

On CMHC

  • CMHC might be worried about cities with big price run-ups (like the GTA and GVA). “Ottawa may adjust CMHC’s risk regionally,” speculated Shenfeld.
  • “Competition in the mortgage insurance market is not a bad thing,” said Laitao, adding that private default insurers add value in various ways.

Rob McLister, CMT

  1. Interest rates are simply incredible on mortgages right now. It’s not uncommon to see 30 year rates down in low fours and 15 year rates in the threes. Week after week, the rates keep dropping If you are looking for rates in three then search online for “Official Refinance” and learn how to do refi.

  2. Interest rates should stay low.
    And government regulated.
    That way people will know who to blame if something goes wrong.
    Power in the hands of banks (greedy people that work for them) is a dangerous weapon.

  3. Rates are ultimately set by the market. The government can sway them short term but macro factors guide them long term.
    Banks have no lasting and meaningful effect on interest rates. Your anti-bank rhetoric only demonstrates your misunderstanding of how the rate market actually works.

  4. Observer, missed your daily rants against the “greedy banks” but what’s with all the Pseudo name changes? Your new name, Observer just doesn’t fit. Maybe we can call you “The Opinion-ator”?
    Fortunately, for all Canadians, the retail banking sector is alive and functioning well in Canada and like it or not, is a significant reason why we have not experienced the severe economic pain that so many other nations are currently experiencing.
    When I regularly travel to other countries and continents (Bahamas on Monday), I see first-hand how other nations are struggling these days. All which makes me mighty proud and thankful to be all things Canadian!
    The, you call “Greedy people who work for banks” are all working hard and driving our stable economy. What’s your recent contribution?

  5. I just wanted to say that I was at the mortgage conference on Monday, these guys were by far, the most interesting part of the day. Very insightful !!

  6. Banks can set rates pretty much for end user with setting their “discounts”. Also government can set what is the rate a bank can charge on the top of the one the bank receives money at. It is doable and more government control over greedy bank is on it’s way. Doesn’t matter if you like it or not (obviously not :) )

  7. That’s the best you can do? No jokes about pudgy, bald, middle aged bankers in European Speedo’s walking the Caribbean beaches with leather briefcases full of cash to their next banker meeting?
    FYI, Canadian banks opened substantial operations and investment in the Caribbean long before they ever expanded into many provinces and continue to have significant operations and investment there today. Unfortunately, with the downturn in the global economy, even paradise is struggling economically these days.
    Ignor-ator, Your clueless bias is entertaining if nothing else. Keep up the good work!

  8. Feature request: Would the site owners kindly consider an “Ignore” button that can be pressed to mute out people like Observer? I don’t think he’s left a rational informed comment since he started posting.

  9. “”Greedy people who work for banks” are all working hard and driving our stable economy “.
    This is what you say. I can’t comment. It all speaks about you. :)
    Go to Bahamas.

  10. Rob,
    My personal opinion is rates will remain low for years. Other factors which will slow the economy and really is like interest rates going up is property taxes.
    From Mississauga news (pop 700,000)
    “Initial City staff projections, tabled over the summer, are calling for an overall 10.8 per cent tax hike (which includes a one per cent infrastructure levy) on the 2012 property tax bill.”
    Yes over 10% increase. This is on top of a 5.8% increase last year. Note up till now Mississauga has no debt.
    Or how about Toronto 2.5% increase and less services.
    Toronto Star
    The City of Toronto’s net debt increased almost 20 per cent in 2010, to $4.4 billion at the end of the year.
    Every year it is the same, property taxes going up much higher than inflation. This is really a major untold story by many economists at the banks and I am not sure why.

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