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Bank of Canada increases overnight rate target to 1 per cent

bankofcanada.ca

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Re: Bank of Canada increases overnight rate target to 1 per cent

#61

Post by myth_drannon »

asdf33323 wrote: post #56
refurb wrote: post #46

This will be very interesting to watch. The Toronto real estate market has already started to correct. Prices are down 20-30% seconds nice earlier this summer. A ton of people eager to buy "before prices go even higher" are getting creamed. Interest rates going up will only make this worse. Hold on tight!!

Prices aren't down 20-30% - you're referring to average sales price. Big difference. It's been attributed to the sales mix (people opting for condos/townhomes)

They are. You can check the prices by categories. Detached houses -20%, condos are still holding up. Houses went from 960K to 720K since April

Re: Bank of Canada increases overnight rate target to 1 per cent

#62

Post by peeters »

blobbers wrote: post #53

Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats with prime. If prime rates rise, borrowers can be on the hook for large amounts of defaults as incomes fail to keep up with higher payments. (canadian housing market exhibits higher sensitivity to interest rates)

What you're describing is a fixed rate mortgage with a 5 year term. We may not allow 40 year terms, but that doesn't mean we don't allow fixed rate mortgages. After the term is up you can renegotiate a new fixed rate term if you want, or move your mortgage.

That said, fixed rate mortgages almost always cost you more in the long run, though a 5 year term is probably going to screw you less than a 25+ year term.

Re: Bank of Canada increases overnight rate target to 1 per cent

#63

Post by SilasX »

rjtavares wrote: post #38
KekDemaga wrote: post #33

Earlier quoted context omitted.

How would you lose value in cash in a way that you wouldn't with a bond?

When you're talking about billions: If you hold it physically, you have to store it and secure it, which costs money. If you deposit it in a commercial bank, it'll be less safe than German bonds.

Wait, what? Isn't most money electronic anyway? How does it cost (O(n)) money to keep an entry in a digital record?

Re: Bank of Canada increases overnight rate target to 1 per cent

#64

Post by [deleted] »

dmix wrote: post #43

The commonwealth countries are all facing a property bubble (Canada, New Zealand, Australia, etc). The household debt levels and property prices didn't taper off nearly as much following the 2008 US housing crisis and has pretty much continued unabated: http://www.huffingtonpost.ca/stephen-punwasi/real-estate-bub... Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and…

[deleted]

Re: Bank of Canada increases overnight rate target to 1 per cent

#65

Post by rconti »

asdf33323 wrote: post #58
blobbers wrote: post #53

Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats with prime. If prime rates rise, borrowers can be on the hook for large amounts of defaults as incomes fail to keep up with higher payments. (canadian housing market exhibits higher sensitivity to interest rates)

"The notion of fixed rate mortgages does not exist in Canada." ... "You can lock in for about 5 years" what?

Mortgages are typically longer than 5 years.

Re: Bank of Canada increases overnight rate target to 1 per cent

#66

Post by dzdt »

asdf33323 wrote: post #58
blobbers wrote: post #53

Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats with prime. If prime rates rise, borrowers can be on the hook for large amounts of defaults as incomes fail to keep up with higher payments. (canadian housing market exhibits higher sensitivity to interest rates)

"The notion of fixed rate mortgages does not exist in Canada." ... "You can lock in for about 5 years" what?

In the US, the most standard "fixed rate" mortgage has the rate fixed for 30 years. A mortgage where the rate changes before loan maturity would be called an "adjustable rate mortgage" ("arm" for short).

Re: Bank of Canada increases overnight rate target to 1 per cent

#67

Post by tostitos1979 »

akgerber wrote: post #10

Relatedly, the Toronto housing market that kept shooting up even as the US hit its 2008 housing crisis now have hit their top: https://www.bloomberg.com/news/articles/2017-09-06/toronto-h...

Toronto's property market is insane. I am still seeing condos (e.g. Gibson near North York center) being priced at 600K+ for 1+1 and larger units well over 1 million dollars. Not sure who can afford this.

Places as far as Vaughan and Milton are expensive. We're talking decent detached houses (slightly above starter home) for over 1 million.

Re: Bank of Canada increases overnight rate target to 1 per cent

#68

Post by nickik »

kitcar wrote: post #51
dmix wrote: post #43

The commonwealth countries are all facing a property bubble (Canada, New Zealand, Australia, etc). The household debt levels and property prices didn't taper off nearly as much following the 2008 US housing crisis and has pretty much continued unabated: http://www.huffingtonpost.ca/stephen-punwasi/real-estate-bub... Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and…

I believe the official stance of the bank of Canada is inflation is below target hence the low rates being acceptable for so long. What I don't understand (and I hope someone can shine some light on!) is the basket of goods they use to measure inflation doesn't seem to be very impacted by low interest rates - therefore how will the low rates increase inflation? i.e. banks will only lend to me at below 5% if I'm buyin…

What you have a problem understanding is called 'montary transmission mechanism'. You are thinking about it to directly. The theory basically says that the central bank offers lones above or below the natural interest rate in order to increase or decrease demand for base money increasing or decressing total spending (agregate demand) and thus the general price level.

The problem of conecting the economists theoretic definition of general price level is quite tricky to nail down. The commenly used CPI or even Core CPI does not perform very well.

Many economist would now argue that instread of focusing on CPI price level measure we should use either total spending directly, or use a different price level measure like the 'GDP deflator'.

What I did not talk about is that many prices are foreward looking, so prices start adjusting before demand if things are expected.

Re: Bank of Canada increases overnight rate target to 1 per cent

#69

Post by tostitos1979 »

rconti wrote: post #65
asdf33323 wrote: post #58

Earlier quoted context omitted.

"The notion of fixed rate mortgages does not exist in Canada." ... "You can lock in for about 5 years" what?

Mortgages are typically longer than 5 years.

Exactly. In a US 30 year mortgage, it is reasonable to expect a borrower to pay it off. In a 5 year mortgage, you will typically refinance after 5 years (unless you hit the jackpot in the interim).

Re: Bank of Canada increases overnight rate target to 1 per cent

#70

Post by pishpash »

loeg wrote: post #54
kitcar wrote: post #51

Earlier quoted context omitted.

I believe the official stance of the bank of Canada is inflation is below target hence the low rates being acceptable for so long. What I don't understand (and I hope someone can shine some light on!) is the basket of goods they use to measure inflation doesn't seem to be very impacted by low interest rates - therefore how will the low rates increase inflation? i.e. banks will only lend to me at below 5% if I'm buyin…

Well, you hit on it directly. Cost of housing ought to be included in inflation measures.

Does CPI not include a shelter component, even a problematic one?

http://www.slate.com/blogs/moneybox/2014/02/24/housing_infla...

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