*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[timun]

Originally Posted by DoubleF

Has anyone else felt more average people are more open to taking on larger debt loads right now when interest rates are higher than when interest rates were lower?

And I'm not talking about for necessity reasons. I'm talking for frivolous spending reasons.

I've noticed people are still eager to take on huge mortgages, because they feel if they don't get into the housing market the property values will continue to inflate faster than they can save. Even though they'll be house-poor in the short term they feel a measure of relief if they qualify for the financing with interest rates such as they are, because they think they'll be in better shape five years from now predicated on the assumption interest rates drop.

[you&me]

... And housing price don't.

[blankall]

Originally Posted by you&me

... And housing price don't.

Not only are housing prices not dropping right now, but rental prices are going through the roof. It's a housing shortage. Canada is on track to set a new record for migrants in 2023. The shortage probably isn't getting better.

[timun]

Originally Posted by you&me

... And housing price don't.

Absolutely, the whole thing falls apart if house prices drop. But, other than localized factors like company towns drying up after the plant closes, generally house prices everywhere else have gone up. And far quicker than salaries have gone up. Lots of people feel like if they don't get on the treadmill now, they'll never be able to get on it at all.

It's almost certainly foolish to think it'll keep going up in perpetuity, but anecdotally for myself my house's value has gone up about 45% in eight years. My income hasn't.

[opendoor]

Originally Posted by blankall

Not only are housing prices not dropping right now, but rental prices are going through the roof. It's a housing shortage. Canada is on track to set a new record for migrants in 2023. The shortage probably isn't getting better.

I don't know, we saw pretty similar conditions in the late '80s. Canada's population and immigration numbers were increasing quickly (about 1.5% population growth/year which is similar to now), housing prices were skyrocketing despite a rising-rate environment, and housing affordability was actually worse than it is now.

Eventually it all came crashing down and inflation-adjusted housing prices stagnated for about 15 years, resulting in housing becoming pretty cheap through the '90s and early '00s.

I'm not sure I'd bet on that happening again in the same way, but it's certainly possible.

[Azure]

How was the labour shortage in the late 80s?

I bet it was easier to find people to actually build homes then than it is now.

[CliffFletcher]

Originally Posted by DoubleF

Has anyone else felt more average people are more open to taking on larger debt loads right now when interest rates are higher than when interest rates were lower?

And I'm not talking about for necessity reasons. I'm talking for frivolous spending reasons.

For a lot of people, higher interest rates are still an abstraction. As others have remarked, after 20 years of low interest rates many Canadian adults today have never felt the sting of debt servicing costs. It will take some time of feeling that sting before it will change behaviour for a lot of people (ie saving to pay for most of a new car in cash rather than taking out a 72 month loan).

[Underdog]

I've heard lots of negative things about immigration lately, especially in relation to the housing shortage. Just started an excellent book called "Maximum Canada" that basically says we've always been an underpopulated country and we'll never realize our potential if we don't drastically increase immigration. Sir Wilfred Laurier actually thought we'd need 40 million people by 1920! So it only took us an extra hundred years give or take.

[flamesfever]

Originally Posted by timun

I've noticed people are still eager to take on huge mortgages, because they feel if they don't get into the housing market the property values will continue to inflate faster than they can save. Even though they'll be house-poor in the short term they feel a measure of relief if they qualify for the financing with interest rates such as they are, because they think they'll be in better shape five years from now predicated on the assumption interest rates drop.

In 1980 my house was worth $ 220,000. and in 1983 its value was $ 140,000. after the NEP. I believe in the long run it's the patient investor that does best. Timing is everything.

[MoneyGuy]

^It’s time in the market, not timing the market.

[Sylvanfan]

Id think housing would cool down eventually, but Canada is still a very sparsely populated country with a substantial number of resources. So even if from Edmonton to the U.S. border is where 90% of the population has to live that land can be filled with 80 million people and still not be that dense.

So I don't think immigration is slowing down anytime soon. It's going to continue to stress the housing system...because unlike 125 years ago this is not a lot of farmers who will build their own homestead an. Today these folks are coming over needing a place to live and can only stay with friends and family if they have that in place for so long.

[Cecil Terwilliger]

Originally Posted by CliffFletcher

For a lot of people, higher interest rates are still an abstraction. As others have remarked, after 20 years of low interest rates many Canadian adults today have never felt the sting of debt servicing costs. It will take some time of feeling that sting before it will change behaviour for a lot of people (ie saving to pay for most of a new car in cash rather than taking out a 72 month loan).

People will never change. We need regulation. 60 month terms for car loans and 32/40 debt servicing maximums. Should change it for mortgages too.

[flamesfever]

Originally Posted by MoneyGuy

^It’s time in the market, not timing the market.

While I agree that applies generally over the long run. However, I have recently witnessed houses in my hometown that were selling for $800,000. are now selling for $ 500,000.

[you&me]

Originally Posted by flamesfever

While I agree that applies generally. However, I have recently witnessed houses in my hometown that were selling for $800,000. are now selling for $ 500,000.

I have a friend shopping in Calgary now and there are plenty of homes he's seeing that are still well below their 2013 high watermark...

[Azure]

Originally Posted by Sylvanfan

Id think housing would cool down eventually, but Canada is still a very sparsely populated country with a substantial number of resources. So even if from Edmonton to the U.S. border is where 90% of the population has to live that land can be filled with 80 million people and still not be that dense.

So I don't think immigration is slowing down anytime soon. It's going to continue to stress the housing system...because unlike 125 years ago this is not a lot of farmers who will build their own homestead an. Today these folks are coming over needing a place to live and can only stay with friends and family if they have that in place for so long.

I don't see how housing cools down with high immigration levels. There is simply too much demand out there plus a big labour shortage.

We're heading towards a disaster economically if the BoC doesn't realize this.

[chemgear]

https://financialpost.com/fp-finance...of-canada-hike

Royal Bank of Canada, TD Canada Trust, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada and Bank of Nova Scotia announced that they are increasing their prime rate by 25 basis points to 7.2 per cent from 6.95 per cent, effective on July 13.

[opendoor]

Originally Posted by Azure

How was the labour shortage in the late 80s?

I bet it was easier to find people to actually build homes then than it is now.

It didn't matter because housing starts absolutely tanked in the '90s once property prices peaked. Tradespeople were desperate for work and many had to change careers.

That era had basically the same pressures as now. Fast population growth and historically unafforadble housing, yet prices dropped and affordability improved significantly despite the rate of new builds in the ensuring years falling off a cliff.

Why did that happen? Because it wasn't a matter of supply being inadequate. If it was, then prices wouldn't have dropped and then stagnated for the next decade and a half during a period of slow construction and relatively fast population growth. Prices were driven up by speculation, a hot economy, and low (for the era) interest rates. Once those factors changed and there was a recession (which there always is eventually), housing became much more affordable. There's no real structural reason why that can't or won't happen again.

[blankall]

Originally Posted by opendoor

I don't know, we saw pretty similar conditions in the late '80s. Canada's population and immigration numbers were increasing quickly (about 1.5% population growth/year which is similar to now), housing prices were skyrocketing despite a rising-rate environment, and housing affordability was actually worse than it is now.

Eventually it all came crashing down and inflation-adjusted housing prices stagnated for about 15 years, resulting in housing becoming pretty cheap through the '90s and early '00s.

I'm not sure I'd bet on that happening again in the same way, but it's certainly possible.

Compared to the early 80s, Canada has about twice the amount of people living on more or less the same amount of land.

You also had all sorts of crazy stuff going on in the 80s that doesn't happen anymore, such as condo buildings being built entirely on speculation, as opposed to pre-sales. And although the price increases seem crazy now, they were actually much bigger in the early 80s. For example, in Vancouver, you had prices rising almost 100% in one year.

A huge crash is definitely possible. I think we've seen a significant adjustment already. So there may be room for another, but the shortages will keep things relatively high.

[CliffFletcher]

Originally Posted by Sylvanfan

Id think housing would cool down eventually, but Canada is still a very sparsely populated country with a substantial number of resources. So even if from Edmonton to the U.S. border is where 90% of the population has to live that land can be filled with 80 million people and still not be that dense.

So I don't think immigration is slowing down anytime soon. It's going to continue to stress the housing system...because unlike 125 years ago this is not a lot of farmers who will build their own homestead an. Today these folks are coming over needing a place to live and can only stay with friends and family if they have that in place for so long.

Not only do the great majority of immigrants move to a handful of major cities, native-born Canadians themselves are vacating the rural hinterlands. Canada is becoming more, not less, urbanized. The plan seems to be for Canadians to cluster in 5 or 6 major cities of 5-15 million people each, while Northern Ontario, the prairies, rural Quebec, etc. are depopulated resource farms.

The problem is especially acute in Toronto and Vancouver, neither of which has much room to grow. Southern Ontario is a narrow peninsula, already as densely populated as much of Europe. I can’t see housing prices coming down substantially with that kind of population pressure.

[Rutuu]

Originally Posted by timun

Absolutely, the whole thing falls apart if house prices drop. But, other than localized factors like company towns drying up after the plant closes, generally house prices everywhere else have gone up. And far quicker than salaries have gone up. Lots of people feel like if they don't get on the treadmill now, they'll never be able to get on it at all.

It's almost certainly foolish to think it'll keep going up in perpetuity, but anecdotally for myself my house's value has gone up about 45% in eight years. My income hasn't.

...25% of GDP in Alberta comes from the oil and gas industry. Calgary is more exposed to that than Edmonton as they have all the services from the capital.

Those are the kind of figures a "company town" has. There should be a product in Alberta where you own southern ontario or vancouver property and rent in Calgary.