Sunday , 11 December 2016


Bank of Canada Has Exacerbated Canada’s Majestic Housing Bubble

The Bank of Canada took a good look at the Canadian economy, saw it was sinking into the mire, glanced at the collapsed prices of commodities, particularly oil, saw how they were wreaking havoc in Canada, and then looked at the global economy, particularly at China and the U.S., and freaked out with the realization (acknowledgement) that things are heading south FAST.

It cut its overnight rate 25 basis points to 0.5%, the second rate cut this year, and attached a gloomy view about the Canadian economy with, as it said, a “significant downgrade” from its last estimate issued only in April.

Canada is in a majestic housing bubble but rather than trying to tamp down on it, the Bank of Canada is going to feed it with even cheaper money, while openly fretting about it. Governor Poloz warned that the rate cut comes at the price of “financial stability risks” which “remain elevated,” and that, “of particular note, are the vulnerabilities associated with household debt and rising housing prices.”

  • Household indebtedness, driven by ballooning mortgages, has soared over the years.
    • household-debt-to-disposable-income ratio now hovers at 163.3%.
  • Home prices, funded by this boom in debt, have also soared.
    • prices now exceed the peak of the prior housing bubble by 27% on average across major metro areas, and in Toronto by 45%.

HERE (as well as those above and below) are more edited excerpts of what Poloz had to say as conveyed by Wolf Richter (wolfstreet.com) in an article* originally entitled Bank of Canada Sees Global Economy, Freaks Out, Cuts Rate, Warns of Financial Stability Risks, Loonie Plunges.

Also read: Bank of Canada Decides More Bubble-Blowing is Needed

*http://wolfstreet.com/2015/07/15/bank-of-canada-looks-at-global-economy-freaks-out-cuts-rate-warns-of-financial-stability-risks-loonie-plunges/

Related Articles from the munKNEE Vault:

1. Smug Canadians Ignoring Looming “POP” In Housing Bubble

Canadians are using their appreciating homes as ATMs (as Americans did in the early 2000′s before their housing crash) and the funds being borrowed are not just for home improvements, but in many cases to fund living and lifestyle expenses.

2. The Canadian Housing Bubble Will NEVER Blow Up – Supposedly! Here’s Why

The Canadian housing bubble will never blow up. There’s simply too much “plankton” in the water. It keeps the “food chain” healthy and offers ample nourishment for the “big wales and sharks” and shorting the Canadian housing bubble is useless. Here’s why.

3. Canada’s Housing Market Most Overvalued In the World – and Could Burst At Any Time!

The real estate sector in Canada is in a bubble that could burst at any time according to the IMF, Deutsch Bank, the Bank of Canada and The Economist.

4. Canada’s Housing Bubble Is A Sight To Behold – A Terrible Sight! Here’s Why

Canada’s housing bubble has been a sight to behold. Home prices only dipped 8% when the US housing market crashed. Then it re-soared. Now, across the country, home prices are 26% higher than they were at the already crazy peak in 2008. In Toronto, they’re 42% higher! There is a major drawback Canada’s housing bubble beyond the fact that it will eventually crash with terrible consequences.

5. Implosion In Canada’s Housing Market Is Inevitable! Here’s Why

The Canadian housing market is deep into bubble territory. We all know that bubbles can go on for longer than most people think but with the crash in oil prices and people fully believing their own hype, the market is set up for a big fall from grace. Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.

6. Housing Bubble Threatens Financial Stability of Canada – Here’s Why

Over the last 14 years, house prices in Canada have increased by 150%, twice as fast as in the U.S…[and] far outpacing household incomes. Any increase in interest rates would prick the bubble, and its implosion would trigger all sorts of mayhem to the point that the Canadian government has expressed concerned that such an event would be a significant risk to the “stability of the financial system”.

7. Oh Canada! Are You Prepared For What’s Likely Coming?

Chilling references to a potential (likely) financial crisis in Canada keep cropping up in official statistical data releases. First it was concerns about the housing bubble there and the high level of personal debt to income, now it’s about how hard manufacturing is getting hit there in spite of the loonie (Canadian dollar) dropping 17% against the US dollar in the past 15 months. It really begs the question “Oh Canada, Are You Prepared For What’s Coming?”

8. Canadians Take Note: Country’s Economy Will Blow Up If This Event Happens There

With interest rates being pushed lower year after year, interest expense as a % of disposable income has been declining in Canada and, for the moment, these low interest rates keep the whole thing glued together but, were interest rates to ever rise, Canada’s economy would blow up. Here’s why.

9. Continued Low Oil Prices Could Seriously Damage Canada’s Economy – Here Why & How

If oil prices remain anywhere near the current levels for a prolonged period – something the Saudis are aiming for – Canada’s economy is in serious trouble. Here’s why.

10. Next Crisis Will Start In Either Canada, Australia, the U.K or ?? – Here’s Why

The plunge in emerging markets that started this year has given us the Fragile Five (Indonesia, South Africa, Brazil, Turkey and India), courtesy of Morgan Stanley, because their big current-account deficits mean they are acutely vulnerable to a sudden exit of foreign capital. The trouble is, it isn’t true. The next crisis will start, as did the last one, in one of the developed economies [and this time round] it is likely to come from one of these 5 countries:…