Tuesday, April 3, 2012

The Canadian Housing Conundrum

Canadians are now out of wiggle room. The Canadian economy is now literally at war with itself.
Canadian authorities are stepping up oversight of the nation’s housing market even as lenders such as Bank of Nova Scotia warn that tougher rules could threaten the economic recovery.
So we're afraid the housing market will stop growth? Well that would would be bad but...
Policy makers, including Finance Minister Jim Flaherty, have said that parts of Canada’s housing market have become overvalued as consumers add to record debt levels, encouraged by some of the lowest mortgage rates in decades.
So we're also afraid of more growth? ok...
Scotiabank (BNS) chief executive officer Richard Waugh warned about making reforms to CMHC that could have “unintended consequences” and cause the market to slow too much.
Oh I see, we want the overvalued housing market to grow, but not too much.
Bank of Canada Governor Mark Carney said in an April 2 speech that households relying on debt financing represents “the biggest domestic risk” to the economy. Some Canadians would be vulnerable to a sharp decline in housing prices, the central bank said in its latest Financial System Review.

The country’s resale housing market is overvalued by 10 percent to 15 percent and there is an oversupply of new homes, Toronto-Dominion Bank economist Sonya Gulati said in a March 22 report. “These excesses should be gradually unwound over 2013 and 2014, with higher interest rates the impetus for the adjustment,” she said.
Oh, no biggie then. The households relying on debt financing will just have to deal with rising interest rates and a lower property value and decreasing growth, err but wait..
“Elevated household debt levels not only make households vulnerable to adverse shocks but continued low interest rates could encourage even higher household indebtedness,” OSFI said in a planning document released on its website yesterday.
Consumer spending has led economic growth since taking the country out of recession in 2009. The Bank of Canada projects households will be responsible for more than half of the country’s 2 percent economic growth this year.
Things couldn't be clearer, don't worry. Everything is fine.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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