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Old 10-12-2022, 02:20 PM   #441
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I dunno guys, trigger rate SOUNDS really scary.
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Old 10-12-2022, 02:21 PM   #442
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I realise those differences, but I'm just saying that the idea that people will cut other things and work to keep their homes isn't a constant.
I think it is, as long as the penalty for not doing so is as significant as it is in most of Canada. If banks have no recourse against your other assets if you walk away from an underwater mortgage, then I'd totally expect people to walk away from their houses. But when you need to essentially declare bankruptcy to do that, it's going to much more of a last resort.

I guess my point is, there are a lot of steps between hitting a trigger rate and being forced to sell your house. Banks don't want to be dealing with a bunch of bankrupt borrowers, so they're working with customers where possible. And I suspect if it does become a more widespread issue, the government will quickly change lending rules to keep people in their houses (e.g. allowing refinancing to a longer amortization without having to go through the normal process).
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Old 10-12-2022, 02:27 PM   #443
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Sometimes a number that technically works on paper during a stress test doesn't really work in the real world. It doesn't need to be fraud, it can just be underestimating what "tight budget" can actually mean.
And what is the bank looking at? That you can 'make' the payments, or that they can take the asset and pay off whatever money they loaned against it?
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Old 10-12-2022, 02:30 PM   #444
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Either way long term I think the repeated interest rate increases without allowing for the supply chain & other inflationary things to clear themselves out will turn out to be a short sighted policy decision. I get the POINT of interest rate increases, but I don't get the point of sprinting towards the highest rates in years in an economy where employment rates are holding and there is still a massive demand for housing.
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Old 10-12-2022, 02:32 PM   #445
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This all sounds like it is reducing housing demand...so success?
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Old 10-12-2022, 02:35 PM   #446
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If someone has a low interest rate on their current place and buying a new home means a much higher interest rates, isnt that person a lot less likely to move?

I think inventory will be very low for a while in the housing market. Sure, some may need to sell due to life events like - divorce, new job, job transfer, but I think many don't need to move houses and a much higher mortgage rate on a new place certainly disincentives a move.
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Old 10-12-2022, 02:38 PM   #447
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Either way long term I think the repeated interest rate increases without allowing for the supply chain & other inflationary things to clear themselves out will turn out to be a short sighted policy decision. I get the POINT of interest rate increases, but I don't get the point of sprinting towards the highest rates in years in an economy where employment rates are holding and there is still a massive demand for housing.
Raising interest rates is the most reliable mechanism for stopping elevated inflation.
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Old 10-12-2022, 02:39 PM   #448
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I'm confused. Hitting your trigger rate doesn't necessarily mean you have to sell your home. You may just have to pay more or have discussions with your banker to restructure the deal (which means you'll have a longer mortgage and the banks still make money off you). What does trigger rate mean to some of these people?

This situation might hurt more people who went all FOMO earlier in the year and have less equity in their home to figure things out, but I think anyone who has had a mortgage for a year or longer wouldn't have too many major issues with a reasonable restructuring of their deals with a lender.
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Old 10-12-2022, 02:40 PM   #449
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This all sounds like it is reducing housing demand...so success?
It's not so much reducing housing demand as it's pricing lower income people and many young families out of the market. There continues to be a massive housing shortage across Canada.

Rent is also continuing to increase. So investors with lots of capital have incentive to remain in the market.

Housing prices in the hottest markets will never drop to true affordability until there is more housing.
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Old 10-12-2022, 04:47 PM   #450
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Either way long term I think the repeated interest rate increases without allowing for the supply chain & other inflationary things to clear themselves out will turn out to be a short sighted policy decision. I get the POINT of interest rate increases, but I don't get the point of sprinting towards the highest rates in years in an economy where employment rates are holding and there is still a massive demand for housing.
A gradual frog in the pot approach would be far less effective and probably cost us all more in the long run. The goal is to change behaviours and decisions (both individuals and businesses) - if you move slowly nobody will notice enough.

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If someone has a low interest rate on their current place and buying a new home means a much higher interest rates, isnt that person a lot less likely to move?

I think inventory will be very low for a while in the housing market. Sure, some may need to sell due to life events like - divorce, new job, job transfer, but I think many don't need to move houses and a much higher mortgage rate on a new place certainly disincentives a move.
Probably a lot more porting of mortgages, though i don't think that's always possible.
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Old 10-12-2022, 04:50 PM   #451
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This all sounds like it is reducing housing demand...so success?
Overall housing demand is still high.

Obviously the demand will fall, as resale homes will slow down, which should ease new construction. Housing starts in Aug were 3% lower than July.

The question is however, with so many issues in the supply chain, what percentage do housing starts have to drop before it makes a REAL difference to the point of where you can safely say long lead times and lack of raw materials are no longer causing unnecessarily high prices. Appliances as an example are still very much a problem.

Understanding of course that even with all these interest rate increases, immigration is high, there are massive amount of unfilled jobs, and the economy hasn't blown up yet, which with the high number level of immigration one does wonder if it might happen. Wage suppression will start happening again as a lot of positions will be filled by foreign workers which will allow companies to spend more on other things outside of wage increases to fill positions.

From where I'm sitting, demand in the non over inflated housing market is still strong. I would not use Vancouver and Toronto as a basis of anything, as the real estate there is over priced, and who knows how much increases were driven by laundering or other shady stupidity.

Yes, prices have fallen overall in all markets, but when you start at 5, it increases to 10 and drops back down to 7, who is really complaining? Just the people that bought at the peak of the market without properly making sure they can pay their over inflated house price. And how many people is that really?
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Old 10-12-2022, 05:00 PM   #452
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Raising interest rates is the most reliable mechanism for stopping elevated inflation.
But it isn't 100% of the mechanism available to ease inflation.

Rail shortages as an example drive inflation. I know many, many companies in my industry who have multiple rail cars sitting for weeks & months longer than normal at Symington in Winnipeg. With grain shipments starting up, this will now get even worse.

At the same time CP & CN are telling everyone 'we have no issue meeting demand' which of course anyone who ships via rails knows is a load of crap.

All of that drives inflation.
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Old 10-12-2022, 07:39 PM   #453
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Toronto #1 and Vancouver #6 for worldwide housing bubble list doesn’t bode well.

https://twitter.com/user/status/1580309024376967168
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Old 10-12-2022, 08:30 PM   #454
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Toronto #1 and Vancouver #6 for worldwide housing bubble list doesn’t bode well.

https://twitter.com/user/status/1580309024376967168
This is exactly why the BoC has such an incredibly difficult job. The past 6-7 years have seen prices sky rocket in two markets. So, naturally, pundits (largely Americans in the finance realm) see this as a Canadian home price bubble. The central bank should raise rates to quell this. Makes sense.

The problem is everywhere on the prairies would’ve been absolutely crushed. We had no growth from about 2015 until 2021, or growth that was far from concerning.

What’s a central banker to do? You can’t raise rates to deal with two white-hot markets. But you let those run wild and run the risk of a bubble popping instead of slowly deflating. A very unenviable decision.
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Old 10-12-2022, 10:10 PM   #455
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Toronto #1 and Vancouver #6 for worldwide housing bubble list doesn’t bode well.

https://twitter.com/user/status/1580309024376967168
Do they post the same report every year for decades?
When exactly is the bubble bursting?
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Old 10-12-2022, 11:11 PM   #456
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When exactly is the bubble bursting?
Probably on a weekday.
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Old 10-13-2022, 12:20 AM   #457
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Toronto #1 and Vancouver #6 for worldwide housing bubble list doesn’t bode well.

https://twitter.com/user/status/1580309024376967168
I wonder when this report was conducted. Toronto's market is already down 17%.
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Old 10-13-2022, 08:10 AM   #458
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This is exactly why the BoC has such an incredibly difficult job. The past 6-7 years have seen prices sky rocket in two markets. So, naturally, pundits (largely Americans in the finance realm) see this as a Canadian home price bubble. The central bank should raise rates to quell this. Makes sense.

The problem is everywhere on the prairies would’ve been absolutely crushed. We had no growth from about 2015 until 2021, or growth that was far from concerning.

What’s a central banker to do? You can’t raise rates to deal with two white-hot markets. But you let those run wild and run the risk of a bubble popping instead of slowly deflating. A very unenviable decision.
Perhaps there is a reason we have two outliers in one country?

Does anyone really think that Toronto & Vancouver are actually driving more 'real' demand in real estate than Paris & London? Or is everything inflated above and beyond for other reasons besides normal demand?
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Old 10-13-2022, 08:44 AM   #459
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Originally Posted by Slava View Post
This is exactly why the BoC has such an incredibly difficult job. The past 6-7 years have seen prices sky rocket in two markets. So, naturally, pundits (largely Americans in the finance realm) see this as a Canadian home price bubble. The central bank should raise rates to quell this. Makes sense.

The problem is everywhere on the prairies would’ve been absolutely crushed. We had no growth from about 2015 until 2021, or growth that was far from concerning.

What’s a central banker to do? You can’t raise rates to deal with two white-hot markets. But you let those run wild and run the risk of a bubble popping instead of slowly deflating. A very unenviable decision.
I don't think the bank of canada is responsible for worrying about housing prices. They worry about inflation so housing does factor in - but housing prices were going up like mad and they didn't alter interest rates until after overall inflation rose.

And yes - housing prices are going down but they aren't any more affordable for any first time home buyer now.

If you bought a $500,000k house with a 5% down payment when mortgage rates were 1.5% - you were paying about $2000/month.

If the same house went down 20% to $400,000 now and you are making the same $25k down payment - you are now paying $2200/month at 4.59% interest.

And I don't think the lower end homes that first time home buyers typically buy have gone down anywhere near 20% yet.

Last edited by PeteMoss; 10-13-2022 at 09:50 AM. Reason: fix typo - housing is part of inflation
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Old 10-13-2022, 08:51 AM   #460
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I don't think the bank of canada is responsible for worrying about housing prices. They worry about inflation so housing doesn't factor in - but housing prices were going up like mad and they didn't alter interest rates until after overall inflation rose.

And yes - housing prices are going down but they aren't any more affordable for any first time home buyer now.

If you bought a $500,000k house with a 5% down payment when mortgage rates were 1.5% - you were paying about $2000/month.

If the same house went down 20% to $400,000 now and you are making the same $25k down payment - you are now paying $2200/month at 4.59% interest.

And I don't think the lower end homes that first time home buyers typically buy have gone down anywhere near 20% yet.
Housing and shelter are absolutely factored in to inflation…

Inflation was lower month over month in the US, but higher year over year than expectations through September. This probably locks in a 0.75% increase in the US on November 2, and Canada likely follows suit.
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