Quote:
Originally Posted by Slava
Radley, some of your stuff is interesting and all, but clearly has more to do with the US than it does with Calgary. What does the subprime mortgage issue have to do with Calgary? (Other than the markets/banks losing some liquidity as a result...which is not terribly applicable to this thread...).
Fact is that lending practices in the United States are vastly different from here. The subprime issue will cause trouble in the stock market (along with some other disappointing data), but this does not in itself mean that Calgary home prices will drop by 20%, or even drop at all.
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Well, all the graphs are Calgary specific regarding what I believe is an overvaluation in real estate in terms of price to earnings ratios. Also, affordability indicators, and carrying costs point to a situation that is unsustainable.
The subprime mortgage issue applies (albeit to a lesser extent) to Calgary due to the fact that money is financed globally and there are now higher risk spreads between government of canada bonds and mortgage interest rates. In fact, risk spreads are at the highest since the 80's recession. And the relationship between higher interest rates, generally has the effect of reducing property values.
The Canadian mortgage-backed securities market has "vapourized." No one's trading in it anymore and there's only five key institutions left to support it.
I am very skeptical how the current house prices will be supported considering all these factors, I would imagine that there are significant risks to the downside, and little to no upside potential.