Baby, we got a bubble!?

[interested]

I believe what Eug is referring to is that you can lock in your rate with a guarantee for 90 days or something like that. You approach your institution and state I will be buying in the next 90 days and wish to lock in this rate and I believe institutions will guarantee you that rate going forward.
However, I may be wrong having never gone this route.

 

[Bruce Lee]

Oh, yeah. If it is to pre-approval and can lock in the rate for 90 days. Then there's no harm at all I've personally done this many times.

 

[cat]

FYI, heard that TD raised their 5-yr fixed by 25bp yesterday. This news apparently spread quickly through the other banks.

Was on the phone doing my regular banking with a couple of banks and noticed that it was taking forever to get service.

Why? Seems like too many folks were flooding the mortgage lines to lock in their rates. Bravo Eug. (we all knew it was coming)

 

[interested]

Before everyone gets too carried away, I forsee interest rates only going up 0.5 to 1% maximum. I appreciate that is alot but I think continued weakness with the USD will prevent Mark Carney from being able to raise C$ interest rates. I realize the bond mid market is reacting to expected inflation but I can't see significant amounts over the next 1-2 years (at least until the US market starts firing on all cylinders).
Agree Eug: you were definately ahead of the curve and predicted this interest rate hike bank on.

 

[cat]

The usual drivel...


Home prices increased 6.8% per year: ReMax

08/02/2011 10:16:38 AM

A new report says fewer real-estate listings led to higher home values in the last decade, with prices increasing at an average of 6.82 per cent nationally.

The report released Tuesday by real estate agency ReMax said it was either a seller's market or conditions were balanced between sellers and buyers for most of the decade. The main exception was late 2008 and early 2009 when it was a buyer's market.

"Housing markets have been remarkably hearty over the past decade and the stage is set for a better than expected 2011," the report said.

The report examined the ratio between sales and new listings - a rough metric of gauging supply. Increased supply tends to lead to lower prices, and vice versa.

Regina saw the highest price increases in the country between January 2000 and December 2010. Average price increases there had an annually compounded rate of return of 9.56 per cent.

London-St. Thomas, Ont. saw the lowest increases at 4.82 per cent.

ReMax says the numbers show resiliency in the Canadian market in the wake of major events in the decade, such as the Sept. 11 attacks, the SARS health crisis in 2003, forest fires, ice storms and the 2008-9 recession.

"There's no question that price growth has been solid over the past decade, but history tells us that exceptional growth supported by sound fundamentals is healthy," the report said.

"Concern is only raised when the underpinnings are insufficient to justify the trajectory. By all accounts, Canada's real estate market measures up to conventional wisdom and the faith in homeownership has not been misplaced."

 

[interested]

as you say: look at the source. CREA, Remax and others have been all over the map with their projections the past year. It would have to be the world coming to an end before any of these sources would state that the market is poor and invest with caution.

 

[cdr108]

as you say: look at the source. CREA, Remax and others have been all over the map with their projections the past year. It would have to be the world coming to an end before any of these sources would state that the market is poor and invest with caution.

and if they're anything like NAR (National Associaion of Realtors) in the US, they kept saying it was a good time to buy even years into their housing crisis.

 

[Eug]

Yeah, I was talking about locking-in your pre-approvals.

Anyway, with regards to predicting fixed rates... If you follow the bond yields you can generally get a good idea of where rates are going, since the banks just follow the bond yields. Bond yields had been steadily increasing for quite some time, so as cat said, we all knew the rate increase was coming.

In this environment, if you're looking to lock in it's good to follow the real estate blogs, etc., because the mortgage brokers (and bank reps) often find out about rate increases a day in advance. ie. If you pay attention, you can lock-in the day before, to avoid the mad rush the next day.

However, even with the mad rush, all is not lost. Some of the smaller lenders will keep the lower rates around for several days after the big banks move. I guess this way they can pick up all the stragglers.

 

[Willy Wong]

Yeah, I was talking about locking-in your pre-approvals.

Anyway, with regards to predicting fixed rates... If you follow the bond yields you can generally get a good idea of where rates are going, since the banks just follow the bond yields. Bond yields had been steadily increasing for quite some time, so as cat said, we all knew the rate increase was coming.

In this environment, if you're looking to lock in it's good to follow the real estate blogs, etc., because the mortgage brokers (and bank reps) often find out about rate increases a day in advance. ie. If you pay attention, you can lock-in the day before, to avoid the mad rush the next day.

However, even with the mad rush, all is not lost. Some of the smaller lenders will keep the lower rates around for several days after the big banks move. I guess this way they can pick up all the stragglers.

Eug,

Great analysis! Take the rest of the day off! ;-)

You hit it on the head! "Bond market yields"

This thread promotes thinking, analysis and friendly debate.....I think...LOL

 

[Kenny]

Before everyone gets too carried away, I forsee interest rates only going up 0.5 to 1% maximum. I appreciate that is alot but I think continued weakness with the USD will prevent Mark Carney from being able to raise C$ interest rates. I realize the bond mid market is reacting to expected inflation but I can't see significant amounts over the next 1-2 years (at least until the US market starts firing on all cylinders).
Agree Eug: you were definately ahead of the curve and predicted this interest rate hike bank on.

Bond yields can swing quite a bit.

I'm not necessarily disagreeing with you. I just think that there's a great deal of uncertainty when it comes to this stuff...

 

[interested]

yes, they can swing quite a bit. I was just postulating from my own beliefs that they will not escalate too much barring a major world event or the US firing on all cylinders.

 

[interested]

From the National Post today.Interesting article from Rober Shiller ( of the Case Schiller index in the US)

http://www.financialpost.com/news/Canada+random+success+story+Shiller/4246526/story.html

I could not get the article to copy.

However he says some interesting things assuming he is correctly quoted. For those who may not know. Robert Shiller correctly predicted the 1987 stock market meltdown and the housing bust in the US and does work with housing summarized in the widely read Case-Shiller index.

1) Canada is not that different than the US and that we were essentially saved according to him by a marked increase in oil prices thereby helping the "wealth effect" of the country.

2) Vancouver and Calgary are the most overvalued property markets.

3)We should expect a downward revision of property in Canada since values over the past decade have exceeded inflation by 45% from 1990 to the peak in 2005. Now of course, these data years do not represent Canada but we had continued growth since 2005 as opposed to the downward adjustment that occurred in the US but that would just suggest that the 45% is in fact 50% or higher now above inflation; not the 79% average perhaps of the US to 2005 but certainly excessive according to him.

He does acknowledge that the response will be a bit more muted here because of more responsible lending. I know others on the site will argue that we have not been that resonsible here either but certainly I think we would mostly agree that it was far more aggrecious in the US than here.

Finally his conclusion in the article: "People should view purchasing a home as risky". Further he believes most people should "rent" and put the savings in a diversified portfolio.

 

[Eug]

^^^ I don't necessarily disagree with some of the points, but there was also a suggestion that Calgarian homeowners should hedge by shorting oil. That seems almost inane to me, quite frankly.

As for purchasing a home being risky. Yes it can most definitely be, but then again renting is damn annoying at times. I didn't look at buying because I thought it was necessarily the best financial decision. In my case it may be, but there are definite drawbacks such as flexibility, etc. However, despite that, I'd still much rather own than rent. Others, esp. financial statisticians or whatever, won't necessarily agree.

 

[interested]

You are right Eug about the home decision to rent or buy. In the article, he actually acknowledges that he owns a country home and his home but this is not an "investment decision" but rather a personal one.

I am with you on this that I rather own and have always maintained that there are non monetary factors that go into the decision to own vs. renting and that not every decision is made on a purely financial basis.

As for Calgary, I don't know that I agree with you. I think what Professor Shiller is referring to is the fact that if Calgary is dependent on oil, which it has been historically, and prices drop and we have a bust; not only will jobs and oil portfolios likely be devasted, but so too will its housing market and the Calgary economy. I believe he is simply applying the hedging theory of spreading ones eggs and that Calgarians may have too much invested in Calgary with their homes, jobs and oil dependency/shares.

 

[cdr108]

From the National Post today.Interesting article from Rober Shiller ( of the Case Schiller index in the US)

http://www.financialpost.com/news/Canada+random+success+story+Shiller/4246526/story.html

I could not get the article to copy.

courtesy of interested ...

Canada is 'a purely random success story': Shiller

Janet Whitman, Financial Post · Tuesday, Feb. 8, 2011

NEW YORK — Canada is being feted in international circles after coming through the financial crisis relatively unscathed, but the accolades may be unwarranted.

That’s the conclusion of a leading U.S. economist who’s crunched the numbers and determined two factors that may take Canada down a notch or two: the housing market looks due for a U.S.-style drop; and, without oil, the country would be in trouble.

Robert Shiller, the Yale professor who correctly predicted the 1987 stock market collapse and the recent U.S. housing market meltdown, said Canada’s robust financial health compared to other nations is largely due to a random run-up in oil prices in the midst of the global financial crisis.

“It’s a major export for Canada and it went to US$140 a barrel in 2008, right when Canada needed it,” Prof. Shiller said in an interview Tuesday.

Canada’s economic output fell roughly 4.2% from its peak in 2007 to its trough in 2009 — even with the oil price surge, while the U.S. saw a near-identical decline.

“It seems that if the country didn’t have that boost from oil, it would have done worse than the United States,” Prof. Shiller said.

While many economists, market observers and Canadian politicians trumpeting Canada’s success like to highlight the country’s differences from the United States, Prof. Shiller said that historical economic data show they are very much alike, with both economies heavily influenced by a similar human psychology, a theme he explored in a 2009 book he co-authored called “Animal Spirits.”

“Our countries are like two peas in a pod,” he said. “A lot of the differences are random, like the oil shock.”

If the historical statistics serve as a guide, Canada looks to be headed for a big drop in home prices, although any decline probably won’t be as pronounced as the U.S. housing bust, he said.

U.S. home prices adjusted for inflation surged 79% between 1990 and their peak in 2005. Canada’s gained about 45% over the same period and have continued marching higher, up to about a 50% gain currently, said Prof Shiller.

“I’m a little worried about the Canadian housing market. Fifty per cent seems like a lot in 20 years,” he said. “I suspect the same forces are in operation in Canada, although maybe somewhat attenuated because mortgage institutions are more responsible there.”

Prof. Shiller, who helped develop the widely followed Standard & Poor’s Case-Shiller for the U.S. housing market, picked apart the Canadian economic data in preparation for his keynote presentation last week at a Manhattan conference promoting investment opportunities in Canada.

After Canada’s International Trade Minister Peter Van Loan opened the conference with remarks touting the country’s financial might, Prof. Shiller called Canada “a purely random success story.”

“I’m not a salesperson, so I gave Canada a bland view,” he said. “It’s the same thing on both sides of the border.”

Calgary and Vancouver appear to be the biggest possible housing bubbles in Canada, he said.

“Vancouver feels bubbly like San Francisco,” he said. “There’s a West Coast culture that extends from Seattle down to San Diego.”

He advises Calgary homeowners worried about their home values to hedge their bets by shorting oil. “If oil prices go down, your home prices is going to go down with it,” he said.

Prof. Shiller said he owns a house near Yale in New Haven, Conn., and a summer home, both for nostalgic reasons, not as investments, and he believes it makes more sense for most people to rent and put the savings in a diversified portfolio. “People should think of buying a home as risky. They should maybe put some money in housing, but invest all over...and maybe take part in the Chinese Miracle.”

Read more: http://www.financialpost.com/news/C...tory+Shiller/4246526/story.html#ixzz1DU7W9Qyg