Catching up and looking at a few things

I’ve been busy moving so I haven’t been blogging as regularly as I would like. But the real estate markets in Canada just keep rolling along.

The latest news comes from those looking at what the Bank of Canada will do next on interest rates. The Bank of Canada decided to maintain a steady course, neither raising or lowering interest rates. This is hardly a surprise as this would likely cause the wheels to fall off the real estate market even faster than might otherwise be the case. But if the United States sees interest rate increases, it’s likely that Canadian mortgage rates will soon see an upward shift.

President’s Choice Financial – mortgage rates

I was walking by a President’s Choice Financial kiosk at a Loblaws store and they were posting a two-year mortgage rate of 2.22%. Amazing. It’s virtually no interest at all. It doesn’t take long to figure out that these kinds of promotional giveaway rates are fueling the real estate bubble. Borrowers who would never qualify at the posted rate of almost five per cent for a five-year fixed rate mortgage can all of a sudden be “in the money”. These borrowers will be particularly sensitive to a rise in rates as they only have two years of protection on their fixed rate mortgages. Depending on their luck, they may be looking to set a new rate on their mortgages just as interest rates are on the upswing.

Canada-where or where did the economy go

As I have discussed elsewhere, the Canadian economy has gone from being a diverse economy with a mix of industry to one being heavily reliant on real estate. The Bank of Canada’s forecasts tend to always be on the optimistic side lately, with the actual results being disappointing. Nevertheless, the Bank of Canada continues to put a positive spin on the economic results. At some point, the weak economy will recover because of the low Canadian dollar. The depreciation of the Canadian dollar seems to be the only antidote that the Bank of Canada puts forward as the cure for the ongoing decline of the Canadian economy.

If you watch the news in Canada, you’ll find little talk about the Canadian economy, government, the dollar or anything to do with the business of Canada. You’ll see never ending coverage of the changes in real estate prices, though. Canadians calculate how rich they are based on unsustainable rising real estate prices.

At the same time, Canadians politicians have the uncanny ability to turn bad news into good news. The economy contracted by 1.6%, well that’s bad news. But the good news is that it was the result of a one-time event in northern Alberta. And next quarter if the performance disappoints there will be some other one-time event to explain it away. I don’t get it. Doesn’t a series of one-time events at some point become a trend?

The third quarter is expected to show growth as production from the oilsands resumed after temporary shutdowns because of the wildfires and work begins on rebuilding damaged portions of Fort McMurray, Alta., and surrounding areas.

The federal government’s new Canada child benefit program is also forecast to help consumer spending, while infrastructure spending by Ottawa is expected to lend a boost in the second half of the year.

In its July monetary policy report, the Bank of Canada forecast economic growth to bounce back in the third quarter to an annual pace of 3.5 per cent before slowing to a 2.8 per cent pace for the last three months of the year.

Let’s see what happens, but don’t bet the ranch on this. Real estate continues to rise in Toronto, with no obvious sign of slowing. The failure of the Bank of Canada to moderate mortgage lending with a slight increase in interest rates will allow buyers to buy what they cannot afford, and foreign investors to purchase real estate seemingly regardless of price. The longer this goes on the harder the fall, in my opinion.


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