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Old 09-23-2022, 10:15 AM   #361
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Equity markets are starting to panic a bit as a result of this. Oil is down today big time as well. It will be interesting to see if this is the start or just a blip.

How many more hikes until we see the housing market plummet and people start handing in their keys 80's style to the banks? That would be the start of a very systematic shock for the whole financial system.
I mean the overnight rate is 3.25%, and in the early 80's it was 17-19? I don't think we're near that? I also think that if we were to see a lot of mortgage defaults and those types of problems, they'd act pretty quickly to cut rates and push money into the system.
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Old 09-23-2022, 10:20 AM   #362
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I mean the overnight rate is 3.25%, and in the early 80's it was 17-19? I don't think we're near that? I also think that if we were to see a lot of mortgage defaults and those types of problems, they'd act pretty quickly to cut rates and push money into the system.
Can you tell me what the average consumer debt load was back then and the split between variable and fixed rate loans? Those would be large factors in terms of differences between the 80's and today. If we are in a scenario where the debt load is higher, and more variable, making them more sensitive to these increases than we are in a scenario where we don't need it to be 17 to 19% to be as impactful.

Its funny, I had a discussion in mid 2020 with some banking buddies. I brought up my concern with inflation and how the QE and injection of money into the system globally was going to trigger some massive inflation. They shrugged it off and said the centrals would deal with it quite quickly... And I think its fair to say they did in relatively short order increase - 3% in the past 9 months. However the system still takes many months and the nature of lagging data makes this is a large ship to turn. This is a situation where impacts can be felt quickly but the medicine takes a while to make its way through the system.

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Old 09-23-2022, 10:24 AM   #363
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Can you tell me what the average consumer debt load was back then and the split between variable and fixed rate loans? Those would be large factors in terms of differences between the 80's and today. If we are in a scenario where the debt load is higher, and more variable, making them more sensitive to these increases than we are in a scenario where we don't need it to be 17 to 19% to be as impactful.
There are obviously a number of factors there, and it's a lot to unpack. But let's even say the rate needs to get to half what it did then, you think rates are on the verge of tripling? That seems incredibly pessimistic.

Government intervention is an enormous difference and that's really only been a thing for the past 12-13 years. The original TARP in the US was nothing compared to the QE and associated programs we've seen since. Central banks and governments will throw a lot at the markets and economy to prevent a massive cratering. I don't think that's changed over the past 8-9 months.
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Old 09-23-2022, 10:25 AM   #364
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Can you tell me what the average consumer debt load was back then and the split between variable and fixed rate loans? Those would be large factors in terms of differences between the 80's and today. If we are in a scenario where the debt load is higher, and more variable, making them more sensitive to these increases than we are in a scenario where we don't need it to be 17 to 19% to be as impactful.
The US is mostly 30 year fixed term mortgages because of how the fed subsidizes housing there. So itís only lost value when forced to sell and less new buyers.

Canada with our more variable and 5 year fixed is more at risk but everyone at risk should have reupped in 2020 when rates were zero so again this should be at the margins at least for the next two years.
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Old 09-23-2022, 10:27 AM   #365
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Can you tell me what the average consumer debt load was back then and the split between variable and fixed rate loans? Those would be large factors in terms of differences between the 80's and today. If we are in a scenario where the debt load is higher, and more variable, making them more sensitive to these increases than we are in a scenario where we don't need it to be 17 to 19% to be as impactful.

Its funny, I had a discussion in mid 2020 with some banking buddies. I brought up my concern with inflation and how the QE and injection of money into the system globally was going to trigger some massive inflation. They shrugged it off and said the centrals would deal with it quite quickly... And I think its fair to say they did in relatively short order increase - 3% in the past 9 months. However the system still takes many months and the nature of lagging data makes this is a large ship to turn. This is a situation where impacts can be felt quickly but the medicine takes a while to make its way through the system.
No offence, but that's not new. People said that after 2008-09 as well. "They'll never get the money out of the system" and "gold is going to $5000" or whatever.
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Old 09-23-2022, 10:33 AM   #366
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No offence, but that's not new. People said that after 2008-09 as well. "They'll never get the money out of the system" and "gold is going to $5000" or whatever.
No offence taken. Speak is cheap, acting is another story. It was a situation where you could take serious advantage of a low interest environment if you knew rates were increasing. The spread right now on my average debt to a HISA is 3.18%.
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Old 09-23-2022, 10:35 AM   #367
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The US is mostly 30 year fixed term mortgages because of how the fed subsidizes housing there. So itís only lost value when forced to sell and less new buyers.

Canada with our more variable and 5 year fixed is more at risk but everyone at risk should have reupped in 2020 when rates were zero so again this should be at the margins at least for the next two years.
I can't find the link anymore but an article came out in August that suggested 50% of all new mortgages in 2021 or 2022 (can't remember) were variable...
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Old 09-23-2022, 10:35 AM   #368
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No offence taken. Speak is cheap, acting is another story. It was a situation where you could take serious advantage of a low interest environment if you knew rates were increasing. The spread right now on my average debt to a HISA is 3.18%.
You probably hear the same things I do in these volatile drawdowns; people who "knew it was coming" and it "was so obvious", but surprisingly they didn't act despite it being so clear. I can't wait to see the clips of the pundits who all predicted it and only missed 10-12 years of growth along the way...it totally doesn't irritate me!
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Old 09-23-2022, 12:08 PM   #369
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I mean the overnight rate is 3.25%, and in the early 80's it was 17-19?

Didn't the federal government subsidize mortgages down from that level to a net 12% in the 80s?
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Old 09-23-2022, 12:27 PM   #370
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I can't find the link anymore but an article came out in August that suggested 50% of all new mortgages in 2021 or 2022 (can't remember) were variable...
They should have been stress tested fairly high though for those of in Canada. For the 50% are you talking Canada or US?
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Old 09-23-2022, 12:34 PM   #371
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They should have been stress tested fairly high though for those of in Canada. For the 50% are you talking Canada or US?
Canada - I think this was the article

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Canadians flocked to variable-rate mortgages in the months before the Bank of Canada began rapidly hiking interest rates this year, driving their share of the market above 50 per cent, a report by the Canada Mortgage and Housing Corporation showed on Wednesday.
https://financialpost.com/real-estat...c-report-shows
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Old 09-23-2022, 12:53 PM   #372
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Equity markets are starting to panic a bit as a result of this.
Where? S&P is down 2.24%, Nasdaq is down 2.14%, etc. Pretty average days for a steady bear market.

When there's panic in the market you'll see volatility of +/- 10 to 15% some days like we did in 2008.

I haven't seen anything resembling panic in the markets yet, although I'm curious if we will throughout this. The market seems to be playing out more closely to the S&P bear market of 2000-2002. Slow and steady decline that eventually ended at around a 50% decline from the peak. Currently the S&P is only 23.7% off its peak. I think everyone agrees there's more for it to fall, but I haven't seen any panic yet.
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Old 09-23-2022, 01:00 PM   #373
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Canada - I think this was the article



https://financialpost.com/real-estat...c-report-shows
That would be early 2022? There was definitely a seasonal bump in sales then, but it was far less than the year before, so even if there were more variable mortgages than normal, that's still a small proportion of the overall mortgages out there:

https://wowa.ca/reports/canada-housing-market

Calgary, specifically, saw a large housing sales boom in early 2022, but that was still only a max of 4,000ish sales per month.
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Old 09-25-2022, 01:54 PM   #374
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I have a friend who bought a new house at the same time as we did (1.67%) and he went variable because "I've always had variable and it's always worked out".

I imagine lots of people are the same way.
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Old 09-25-2022, 02:23 PM   #375
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I have a friend who bought a new house at the same time as we did (1.67%) and he went variable because "I've always had variable and it's always worked out".

I imagine lots of people are the same way.
Which is generally true provided you can take the 3-4% it and the tripling of the interest portion of your loan. And if people were stress tested appropriately it shouldnít create a contagion to the market.
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Old 09-25-2022, 06:08 PM   #376
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Didn't the federal government subsidize mortgages down from that level to a net 12% in the 80s?
Not to my knowledge. After the NEP in the early 80s in Calgary, many people saw the PV of their home drop below the equity value, and ended up selling their home for a dollar to get out of their mortgage.

I recently met a person, who was working for RBC at the time, who said the number of foreclosures he was working on went from one to twenty.
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Old 09-25-2022, 06:38 PM   #377
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How much of an effect will continually raising rates have on a market like Calgary that typically doesn't have the huge mortgages that are common in Ontario and B.C?

I wonder how things will look this time next year.
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Old 09-25-2022, 06:39 PM   #378
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Not to my knowledge. After the NEP in the early 80s in Calgary, many people saw the PV of their home drop below the equity value, and ended up selling their home for a dollar to get out of their mortgage.

I recently met a person, who was working for RBC at the time, who said the number of foreclosures he was working on went from one to twenty.
Yeah, but letís be clear; houses werenít being sold for a dollar. Mortgages were being assumed for a dollar. Itís just a pet peeve of mine. Itís not like you could literally own 100 houses for a $100 bill.
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Old 09-25-2022, 07:28 PM   #379
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I have a friend who bought a new house at the same time as we did (1.67%) and he went variable because "I've always had variable and it's always worked out".

I imagine lots of people are the same way.
I think it boils down to the actual reasoning:

- life uncertainty and wanting flexibility to break mortgage early? Sure.

- want to pay down principal ASAP and use the monthly 'savings' compared to fixed against the principal? Great.

- want to save like ~$100 per month because otherwise you can barely make your budget work at all? Yikes.
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Old 09-25-2022, 07:32 PM   #380
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I think it boils down to the actual reasoning:

- life uncertainty and wanting flexibility to break mortgage early? Sure.

- want to pay down principal ASAP and use the monthly 'savings' compared to fixed against the principal? Great.

- want to save like ~$100 per month because otherwise you can barely make your budget work at all? Yikes.
I just can't see how everyone wouldn't jump all over a fixed rate mortgage at 1.68%.
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