Migos
Active Member
How come? What has changed that warrants the price to income and price to rent ratios getting so far out of whack with historical averages?
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Baby, we got a bubble!?
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How come? What has changed that warrants the price to income and price to rent ratios getting so far out of whack with historical averages?
interested
Senior Member
It is what a lot of us on the forum fear. That said, it will take a major event Migos to trigger it.
The question is when will it occur and how much time will it occur over...will there be time for an orderly descent or will it be sudden.
The US was different though in my view. Prices in the areas hardest hit went up30%+/year vs. 6%-8% here and in some cases doubling every 2 years vs. here doubling over a decade. Also, unless interest rates rise and go up more than a couple of percent we do not have the teaser loans, the interest that was double+ in the US in 2006-2009 vs. where it is now. Means carrying costs are a lot less. So interest rates have to go up and go up rather significantly. The Finance Ministry with its tightening and ensuring that people must qualify for the fixed 5 year term the past year and longer for some of the other reforms may in fact provide a significant cushion for all but the latest to the race. The question is if/when it drops will it continue through all support.
That is the million dollar question. When is the correction and how does it unfold.
Migos
Active Member
My worry is that once the bubble pops, one of the last remaining planks of Canada's economy will be gone. Real estate has been a huge driver of economic growth. When it falters, I see a negative feedback loop occurring that will results in people running, not walking, away from real estate investments. People won't be able to make their payments even if interest rates don't rise.
I agree that a trigger will need to occur. It willl be an interesting spring if people come out in force again and leverage up to buy more real estate.
interested
Senior Member
They may well leverage up more. I am quite certain whether it is March or April the BOC will drop to 0.5% and the banks will follow suit again probably with another 15 basis points.
The other issue will be all asset classes will drop.
Investors/savers/retirees/workers will all feel poorer and less inclined to spend so I do see a negative feedback loop occuring but not just because of real estate.
In my experience people say they can stand the heat but when they watch their investments go down...whatever the class, and it exceeds 10% on paper....anxiety will set in.
The other issue will be all asset classes will drop.
Investors/savers/retirees/workers will all feel poorer and less inclined to spend so I do see a negative feedback loop occuring but not just because of real estate.
In my experience people say they can stand the heat but when they watch their investments go down...whatever the class, and it exceeds 10% on paper....anxiety will set in.
interested
Senior Member
One more point:
At this time it really depends on whether oil stays at $50-60 or if it goes to $40 or less.
The C$ will either stabilize at the 80-82 cent level or go down to 75 or even 70 cents if oil drops.
In a short time, people will feel it at the grocery store and with purchases. Wages are not keeping up.
People will feel poorer when they go to buy items or if they want to travel etc.
At this time it really depends on whether oil stays at $50-60 or if it goes to $40 or less.
The C$ will either stabilize at the 80-82 cent level or go down to 75 or even 70 cents if oil drops.
In a short time, people will feel it at the grocery store and with purchases. Wages are not keeping up.
People will feel poorer when they go to buy items or if they want to travel etc.
Migos
Active Member
I've also heard that the Fed may raise rates soon which could push the CAD lower and further stoke inflation. Alternatively, it could force the BoC to raise rates but that seems unlikely at this point.
interested
Senior Member
Will not happen in spite of what you read.
I predict the Fed goes up at most 1/4% this year.
The appreciation of the USD vs. the other currencies of the world is effectively equivalent to a 2% increase in Fed Rate.
With every other major currency/country embarked on a race to the bottom with q.e. or devaluing their currencies: Japan, Europe, even England is expected to become more dovish, Australia, China etc. all lowering rates, that has the same effect as the US raising rates and the others not changing theirs. The US is already slowing in the 4th quarter of 2014 and I personally do not believe Yellen will chance raising rates or she will go very slowly and will only do so if there is wage pressure and further good quality jobs in the US.
Migos
Active Member
0.25% is still an increase. Central banks rarely move up or down very quickly as it would destabilize the market and they like to see the impact of a move prior to making more moves.
http://www.marketwatch.com/story/investors-price-in-another-rate-hike-after-jobs-data-2015-02-06
interested
Senior Member
0.25% over 1 year is going to do squat to anything. It would be more symbolic than anything. Just my view.
Maybe it goes up the 1.5% by end of Dec 2016. That would actually be a good thing because it would suggest the US economy is doing better that they can actually raise rates. It would actually help Canada too because even if our C$ would lose vis a vis an appreciating USD, it would help our export driven economy and would actually support Canada and the indirectly the housing.
Maybe it goes up the 1.5% by end of Dec 2016. That would actually be a good thing because it would suggest the US economy is doing better that they can actually raise rates. It would actually help Canada too because even if our C$ would lose vis a vis an appreciating USD, it would help our export driven economy and would actually support Canada and the indirectly the housing.
Migos
Active Member
I'm not sold our exports will improve much even with a low C$. Ontario is uncompetitive on so many fronts that even a low dollar won't mask our lack of productivity, electricity prices, unions, etc.
Interesting times!
interested
Senior Member
I agree that Ontario is uncompetitive on many fronts but a 10% decline in the currency vis a vis your major trading partner is very significant. This is not a forum to discuss economics but the simple answer is Ontario in the good times "partied" and instead of saving for a rainy day and spending money on innovation, the can got kicked down the road. Now that the economy is in trouble around the world ( save the US which is improving ), we have failed to take advantage during the good times to make ourselves more competitive. The answer is devalue your currency...read BOC drops rates. The fact that US may increase at the same time is a double bonus for Ontario. This is exactly by the way the same argument that Greece is facing in Europe...except that it can't devalue its currency....and so Greece is in trouble and the Euro drops vis a vis other currencies, and industry gets more competitive...in Germany where the majority of competititveness exists and makes Germany more powerful due to the united currency.
Migos: Are you quoting the famous Chinese saying: "May you live in interesting times". I don't like "interesting times". Nice words to say the Poop is likely to hit the fan.
Eug
Senior Member
Ontario is actually usually rated pretty well in terms of manufacturing productivity, and the universal health care in Canada in general is usually considered an advantage, because it lowers health insurance costs for companies located here. In this context, a low dollar makes a huge difference for exporters.
Admiral Beez
Superstar
A of this was true until recently. In the USA, the UAW has assumed the cost of health care for its employees, thus eliminating one benefit of outsourcing American work to Canada. Also, with Right to Work being in place in many States, the hourly cost of labour is much less competitive in Ontario. Look at Wrigley's, shutting down and moving their jobs to Georgia, even though 80% of their Toronto made gum was shipped to the USA, thus offering huge currency exchange advantages.
The days of depending on USA-own branch plants for Ontario jobs will come to an end. We need to find something else to do with regards to productivity and if possible manufacturing. Quebec seems to know what they're doing as far as manufacturing jobs, with Bombardier, BRP and Quebecor making product there from locally owned firms, as opposed to dependence on USA-branch plants. Quebec is a mess in other regards such as deficit and corruption, but they do a good job making stuff in Quebec owned firms.
Not that the Ontario govt isn't trying to keep jobs here http://www.investinontario.com/business-advantages
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sentiant
New Member
And yet real estate values continue their climb......
the condo market a little (or a lot) slower than sfh in TO
the condo market a little (or a lot) slower than sfh in TO
KA1
Senior Member
This thread is about 'Bubble' and it used to very interesting/exciting to visit this thread. There were always predictions about the coming armageddon -- 6 months from now or may be around X-mas or next Spring and the slaughter of lambs, that is, unsophisticated investors. Then there used to be posts strongly against these predictions of gloom and doom sayers. I used to sit up in my rocking chair to read these 'expert' predictions,
Now the posts are boring -- about condos becoming unaffordable even more, inflated condo prices, facilities for the children of parents living in downtown, various unreadable charts. I hardly move in my rocking chair.
Can someone, please, go back to the 'Bubble' posts and bring some excitement to this thread?
