Is Canada heading for a similar fate as the US?
Baby Boomers have turned Canada in to a nation of spenders.
Its amazing how much of this latest boom has been fuelled by debt? Similar to the US.
As always there is good debt ( mortgage) and undesirable debt ( credit card debt from over spending).
An increasing number of Canadians are in negative monthly cash flow, too much Spending not enough Income? Their increase in spending has out paced their increase in disposal incomes.
How are Canadians paying for this lifestyle?
Debt, Credit Cards, Lines of Credit, Home owners lines of Credit has become the norm.
Borrowing more, paying interest only on loans, minimum payments on Credit Cards has pushed Canadian debt levels to an all time high, and yet no one seems to be raising the Red flags.
We are led to believe the frenzy ( no longer a boom) in commodities will be enough to prevent Canada from a similar fate as the US.
The party is almost over. Its been a nice 7 year run.
Canada will be heading for the same fate as the US once the housing boom turns to bust.
US, Ontario/Quebec then BC/Alberta, that's the housing story.
Manufacturing then the resource sector, that's the employment (unemployment) story, going up or down.
History repeating itself. Shades of the early 80's and 90's.
http://seniorshelpguide.blogspot.com/
Sunday, April 20, 2008
Thursday, April 17, 2008
US housing woes spread around the Globe
April 14, 2008
UNITED STATES – Sal Guatieri
Other news… "Housing Woes in U.S. Spread Around Globe: The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices swooning from the Irish countryside and the Spanish coast to Baltic seaports and even parts of northern India. This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes but jobs as well. In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries, like this one, will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse." New York Times, page A1
Another Housing Meltdown Looming?
http://nbnet/economics/amcharts/apr1608.pdf
Canadian Housing Market—No Longer Immune?
http://nbnet/economics/amcharts/apr1808.pdf
We are expecting another rate cut on Tuesday April 22, could be as much as .50%
Interest Rates and Housing have always headed in the same direction.
What does this mean?
The economy is slowing down, job losses, interest rates are heading lower.
Falling homes sales - Calgary down almost 40%, decline in construction of new homes, layoffs in the construction industry, migration of these workers to Ontario, but most to sunny warm BC.
Result is lower labour costs.
Can't find anyone to do that house renovation? Watch what happens in 6 - 12 months.
Happens every time. This time is no different. History repeating itself.
Are we there yet? Some are finally becoming believers.
Next Are we there yet - the commodities story. Is it a real shortage or a created shortage?
UNITED STATES – Sal Guatieri
Other news… "Housing Woes in U.S. Spread Around Globe: The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices swooning from the Irish countryside and the Spanish coast to Baltic seaports and even parts of northern India. This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes but jobs as well. In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries, like this one, will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse." New York Times, page A1
Another Housing Meltdown Looming?
http://nbnet/economics/amcharts/apr1608.pdf
Canadian Housing Market—No Longer Immune?
http://nbnet/economics/amcharts/apr1808.pdf
We are expecting another rate cut on Tuesday April 22, could be as much as .50%
Interest Rates and Housing have always headed in the same direction.
What does this mean?
The economy is slowing down, job losses, interest rates are heading lower.
Falling homes sales - Calgary down almost 40%, decline in construction of new homes, layoffs in the construction industry, migration of these workers to Ontario, but most to sunny warm BC.
Result is lower labour costs.
Can't find anyone to do that house renovation? Watch what happens in 6 - 12 months.
Happens every time. This time is no different. History repeating itself.
Are we there yet? Some are finally becoming believers.
Next Are we there yet - the commodities story. Is it a real shortage or a created shortage?
Tuesday, April 8, 2008
Housing Affordability - January 26, 2008
All the Stars are lining up
1978 - affordability 37% - house value $ 50,000
1982 - house value $ 120,000 ( top of cycle)
1985 - house value $ 90,000 (bottom of cycle)
1994 - affordability over 60% - house value $ 320,000 ( top of cycle )
2000 - house value $ 250,000 ( bottom of cycle)
2004 - affordability 30 % - house value $ 300,000
2007 - affordability 70% - house value $ 550,000
See notes written in 2004 on :
2) Interest Rate Cycle. - Rates are heading lower.
3) Real Estate Cycle. -its been a nice 7 year run. Prices have doubled.
The next move is usually a 25 - 30 % decline - over the next 6 - 7 years.
Are we there yet??? Yes we are.
---------------------------
Posted February 4, 2004,
The rough guide I use is double the price. If a house was $ 250,000 in 2001 then it would be at least $500,000 at the top.
Sounds crazy but it happened in every Real Estate boom.
I base my forecast on 3 things, which are intertwined.
1) Real Estate Cycle
2) % of Income required to carry a Mortgage
3) Interest rate Cycle
1) Real Estate Cycle
BC is usually around 1 - 2 years behind Toronto in the Real Estate market.
In Toronto the Real Estate cycle started in late 1999, we bottomed out in 2001.
The same would hold for the top of the cycle. Watch Toronto's Real Estate to find out when we may be at the top.
Our current cycle has nothing to do with the 2010 Winter Games. Our cycle started before we got the games.
2) Cost of carrying a Mortgage.
House prices may be higher but at these low interest rates it is cheaper to own a $300,000 house today than a $50,000 house in 1978.
The % of income needed to support the mortgage payments is lower today around 30% compared to 37% in 1978.
At the top of the last boom in 1994 it was almost 60%.
So we have a long way to go.
3) Interest Rate Cycle.
BC again is behind Ontario in terms of a business cycle. The economy in Ontario will be 1 - 2 Years ahead of BC. Going up or coming down.
As the Canadian economy picks up ( meaning Ontario ) and inflation becomes a problem The Bank of Canada will start to raise interest rates.
Increasing interest rates means jobs are easier to come by, people are getting raises, more disposal income and people are spending more.
Initially higher rates will not hurt the housing market since people have better jobs, better job security etc.and are willing to pay a higher rate to get into their own house.
As inflation and the economy heat up The Bank of Canada will keep on raising rates.
There will come a time that those rates hikes start to slow down the economy ( Ontario).
When the % of ones income required to carry a mortgage hurts,and the difference between the mortgage payments and the cost of renting are too wide, is when we will be at the top.
I just had a customer who bought last week and his mortgage payments and condo fees are lower than his rent.
We have yet to see those interest rate hikes. In fact we should see at least another rate cut over the next 2 months.
When interest rates are at the top, that is when BCs Real Estate market seems to be at the top. Happened the last 2 booms 1982 and 1994.
1978 - affordability 37% - house value $ 50,000
1982 - house value $ 120,000 ( top of cycle)
1985 - house value $ 90,000 (bottom of cycle)
1994 - affordability over 60% - house value $ 320,000 ( top of cycle )
2000 - house value $ 250,000 ( bottom of cycle)
2004 - affordability 30 % - house value $ 300,000
2007 - affordability 70% - house value $ 550,000
See notes written in 2004 on :
2) Interest Rate Cycle. - Rates are heading lower.
3) Real Estate Cycle. -its been a nice 7 year run. Prices have doubled.
The next move is usually a 25 - 30 % decline - over the next 6 - 7 years.
Are we there yet??? Yes we are.
---------------------------
Posted February 4, 2004,
The rough guide I use is double the price. If a house was $ 250,000 in 2001 then it would be at least $500,000 at the top.
Sounds crazy but it happened in every Real Estate boom.
I base my forecast on 3 things, which are intertwined.
1) Real Estate Cycle
2) % of Income required to carry a Mortgage
3) Interest rate Cycle
1) Real Estate Cycle
BC is usually around 1 - 2 years behind Toronto in the Real Estate market.
In Toronto the Real Estate cycle started in late 1999, we bottomed out in 2001.
The same would hold for the top of the cycle. Watch Toronto's Real Estate to find out when we may be at the top.
Our current cycle has nothing to do with the 2010 Winter Games. Our cycle started before we got the games.
2) Cost of carrying a Mortgage.
House prices may be higher but at these low interest rates it is cheaper to own a $300,000 house today than a $50,000 house in 1978.
The % of income needed to support the mortgage payments is lower today around 30% compared to 37% in 1978.
At the top of the last boom in 1994 it was almost 60%.
So we have a long way to go.
3) Interest Rate Cycle.
BC again is behind Ontario in terms of a business cycle. The economy in Ontario will be 1 - 2 Years ahead of BC. Going up or coming down.
As the Canadian economy picks up ( meaning Ontario ) and inflation becomes a problem The Bank of Canada will start to raise interest rates.
Increasing interest rates means jobs are easier to come by, people are getting raises, more disposal income and people are spending more.
Initially higher rates will not hurt the housing market since people have better jobs, better job security etc.and are willing to pay a higher rate to get into their own house.
As inflation and the economy heat up The Bank of Canada will keep on raising rates.
There will come a time that those rates hikes start to slow down the economy ( Ontario).
When the % of ones income required to carry a mortgage hurts,and the difference between the mortgage payments and the cost of renting are too wide, is when we will be at the top.
I just had a customer who bought last week and his mortgage payments and condo fees are lower than his rent.
We have yet to see those interest rate hikes. In fact we should see at least another rate cut over the next 2 months.
When interest rates are at the top, that is when BCs Real Estate market seems to be at the top. Happened the last 2 booms 1982 and 1994.
Canada Prime Rate changes - Since Jan 15, 2002
By Bonaventure D'sa
Current Prime Rate 4.75 %
January 15, 2002 to Present
Date Rate % Change Action
April 22, 2008 4.75 0.50 Cut
March 4, 2008 5.25 0.50 Cut
January 22, 2008 5.75 0.25 Cut
December 4, 2007 6.00 0.25 Cut
September 5, 2007 6.25 No Change
July 10, 2007 6.25 No Change
December 5, 2006 6.25 No Change
October 18, 2006 6.25 No Change
September 6, 2007 6.25 No Change
July 10, 2007 6.25 0.25 Hike
March 24, 2005 6.00 0.25 Hike
April 25, 2005 5.75 0.25 Hike
March 7, 2005 5.50 0.25 Hike
January 24, 2005 5.25 0.25 Hike
December 6, 2004 5.00 0.25 Hike
October 18, 2005 4.75 0.25 Hike
Sept 7, 2005 4.50 0.25 Hike
October 8, 2004 4.25 0.25 Hike
Sept 8, 2004 4.00 0.25 Hike
April 13, 2004 3.75 0.25 Cut
March 2, 2004 4.00 0.25 Cut
January 20, 2004 4.25 0.25 Cut
Sept 3, 2003 4.50 0.25 Cut
August 12, 2003 4.75 0.25 Cut
April 15, 2003 5.00 0.25 Hike
March 4, 2003 4.75 0.25 Hike
July 16, 2002 4.50 0.25 Hike
June 4, 2002 4.25 0.25 Hike
April 16, 2002 4.00 0.25 Hike
January 15, 2002 3.75 0.25 Hike
Current Prime Rate 4.75 %
January 15, 2002 to Present
Date Rate % Change Action
April 22, 2008 4.75 0.50 Cut
March 4, 2008 5.25 0.50 Cut
January 22, 2008 5.75 0.25 Cut
December 4, 2007 6.00 0.25 Cut
September 5, 2007 6.25 No Change
July 10, 2007 6.25 No Change
December 5, 2006 6.25 No Change
October 18, 2006 6.25 No Change
September 6, 2007 6.25 No Change
July 10, 2007 6.25 0.25 Hike
March 24, 2005 6.00 0.25 Hike
April 25, 2005 5.75 0.25 Hike
March 7, 2005 5.50 0.25 Hike
January 24, 2005 5.25 0.25 Hike
December 6, 2004 5.00 0.25 Hike
October 18, 2005 4.75 0.25 Hike
Sept 7, 2005 4.50 0.25 Hike
October 8, 2004 4.25 0.25 Hike
Sept 8, 2004 4.00 0.25 Hike
April 13, 2004 3.75 0.25 Cut
March 2, 2004 4.00 0.25 Cut
January 20, 2004 4.25 0.25 Cut
Sept 3, 2003 4.50 0.25 Cut
August 12, 2003 4.75 0.25 Cut
April 15, 2003 5.00 0.25 Hike
March 4, 2003 4.75 0.25 Hike
July 16, 2002 4.50 0.25 Hike
June 4, 2002 4.25 0.25 Hike
April 16, 2002 4.00 0.25 Hike
January 15, 2002 3.75 0.25 Hike
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