It has been a truly amazing week for economic related news in
Canada. We have the head of Bank of Canada heading off to more
challenging pastures of old the world, England. One of his parting
gifts was a hold of the bank rate which means that variable rate loans
will hold tight for the time being and overall mortgage rates remain as
low as ever.
The Bank has indicated that our economic activity
is weak with expansion driven by consumption and business investment.
It seems we, households, continue to increase our debt burden. They are
predicting a return to 2% inflation, their target, over the next 12
months. If that happens then they will start to increase rates, but
there is always the caveat of what might be going on int he rest of the
world and our personal debt levels, now sitting at 163% of disposable
income. When rates do go up I think there will be a lot of people in
trouble. If people can just afford their debts at current rates, tack
on 2% and see how affordable the choices become. I am strongly advising
people to get their debts to manageable levels over the next 5 years on
the assumption that their mortgage rates will be 2% or more higher. If
I am wrong about an increase, then good they are ahead. If I am right
then they may not loose sleep when the day comes to reset their
mortgage. If people do not get debt under control it will affect
spending down the road and could drag out the downturn.
The
tighter mortgage rules and the higher cost of housing in general is
having the expected effect of slowing the markets and the recent reports
indicate a slide in sales and a softening in prices. I like that TREB
blames the mortgage rules, but really if people are not getting big pay
increases and unemployment, while improved, is still quite high in
Ontario, even without the mortgage rules there is going to be a point at
which people have bought what they can afford and can afford to go no
higher. The shift from 416 to 905 is not just about land transfer tax
it is about things like a difference in detached housing prices of
$184,735 and I bet that amount buys more yard and space. I would love
to see comparable figures that included those elements. So for almost
$200K people move a little further out. Surprise? No.
So in
some cases the bidding wars are past. The condo market however seems to
have taken the biggest hit on the resale side with the number of
transactions down by 25.5% with the biggest declines in prices being in
Toronto. Otherwise the overall seems to be fairly stable.
I
think relative stability is probably good for a while then prices can
better match overall economic conditions and maybe the debt burden to
get into the market can be more proportional to what is affordable over
the long term.
The good news is that Stats Can has come out with
some nice news for the holidays with improved job numbers with 59,300
new jobs in November. YEAHHHH!!! Economists varied widely in their
predictions, i.e., there were a lot of bad guesses, but it does help in
the short term. The "BUT" in this one is that there have already been a
lot of announcements of pending layoffs and big wigs are not willing to
call the good news a trend. They are popping the balloon early this
time so we do not get to happy about it. Frankly, whatever happens the
new jobs has bought families time and peace of mind and that has got to
be good for consumer confidence.
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