Ready to make a property purchase but wondering if the time is right to buy, with a bit of understanding of how the bond market determine mortgage fixed rate and how the variable rate is adjusted to a target inflation rate, by following news, buyers should be able make an informed decision. Follow this post …
Mortgage rates stay low
Fed members have clearly understood this critique and these proposals. But Fed members have not only decided not to set a new target. They also remain steadfast in their determination to undershoot the target they’ve already got. As they have for months, the Fed’s hawks continue to note the strength of the labour market and dismiss low inflation as the transitory product of low energy prices and a strong dollar. Yet too-low inflation looks like a chronic affliction. The Fed’s preferred measure has been below the 2% target since May of 2012! The latest data show a deceleration in inflation, which clocked in a 0.8% year-on-year in July. Unsurprisingly, both market- and survey-based measures of inflation expectations have been trending downward. Not even the FOMC seems to believe low inflation is transitory. The highest rate of inflation any FOMC member anticipates over the next few years is just 2.1%, arriving by the end of 2018.
The government expects the province’s full-year unemployment rate will average eight per cent.
According to Federal Reserve Bank of New York president William Dudley.
The Federal Reserve could possibly raise U.S. interest rates as soon as September …
UK 10-year government bond yield falls to new record low
Capital Economics predicts the housing downturn will prompt the Bank of Canada to cut its key lending rate to 0.25 per cent next year, from 0.5 per cent.
If Clinton wins the election, the U.S. Federal Reserve could then lift interest rates in response to a growing economy and to stave off inflationary pressures.
If the Bank of Canada doesn’t follow suit, the Canadian dollar would likely go into a freefall. This is even more likely if oil prices remain flat.
Unemployment vs house prices
the Crown corporation that guides Ottawa on housing policy, noted that 79 per cent of projects had reached pre-construction sales of 70 per cent
20160719 Brexit is English for “?!”
The U.S. dollar gained strength as money took flight to the safety of U.S. Treasury bills.
National Bank of Canada forecasts that the Bank of Canada won’t begin hiking interest rates until 2018
Bank of Canada Gov. Stephen Poloz worries about a potential bust, he said in an interview earlier this week that rising home prices wouldn’t prevent him from driving rates even lower if he believed that was needed to stimulate the economy
By Kim Mackrael
Updated July 16, 2016 5:33 a.m. ET
OTTAWA—Low interest rates around the world are fueling a familiar threat of housing bubbles, and central bankers in a number of key economies feel powerless to stop them.
The problem is being acutely felt in Canada, where home prices are soaring even as the country’s energy- and mining-dependent economy slows. Sweden and Australia are dealing with similar surges in the value of homes, leading officials in all three countries to worry about the risk of a destabilizing bust.
In Canada’s hottest market, Vancouver, British Columbia, the benchmark home price rose by a stunning 32% over the 12 months ended in June, with a “typical” detached home now costing 1.56 million Canadian dollars (US$1.2 million), according to a Canadian Real Estate Association index. In Toronto, home prices were up 16% during the same period.
Those price gains in two of the country’s biggest cities are likely unsustainable, the Bank of Canada warned in June. Yet even as Bank of Canada Gov. Stephen Poloz worries about a potential bust, he said in an interview earlier this week that rising home prices wouldn’t prevent him from driving rates even lower if he believed that was needed to stimulate the economy.
But Mr. Poloz, whose bank has cut interest rates twice since January 2015, also acknowledged that Canada’s current ultralow rate environment is “absolutely” helping to fuel rising house prices and household debt.
“The risks are clearly rising,” Mr. Poloz said, when asked if Vancouver’s and Toronto’s housing markets are in a bubble. “I just don’t know how big the risks are.”
Mr. Poloz is among the central bankers who are increasingly caught between supporting their economies and addressing financial threats.
Their dilemma gets at a key question in central banking: Should monetary-policy makers stick to their primary goal of controlling inflation, or do they also need to use their powers to stop emerging asset bubbles before they get too big? There is little agreement on the point even after the U.S. housing crisis showed the consequences of leaving markets to deal with such problems themselves.
“This is a kind of a shared issue,” Mr. Poloz said of the risk of housing bubbles. “Low interest rates is something we all have in common, and that’s going to cause these things to happen.”
Housing bubbles can do economic damage by pulling investment into a relatively unproductive sector of the economy and piling up debt that can quickly go bad when prices deflate.
The Reserve Bank of Australia warned in June that housing prices had begun to rise again after a May rate cut. Housing in Sydney, Australia’s largest city, is already among the least affordable in the world, and the Organization for Economic Cooperation and Development ranks Australia’s household debt among the highest for developed countries.
Yet the central bank held its interest rate steady at its policy meeting on July 5 and signaled in a statement that it may need to cut rates in the future. One reason is that inflation is running below RBA’s desired target, a predicament shared by its counterparts in the U.S., Europe and Japan.
Australia’s bank regulator has tried to address the risks of a bubble by implementing tougher guidelines for lending to property investors in the past year, which helped cool the growth in prices.
Still, the OECD warned last month that Australia may be nearing a “dramatic and destabilizing” end to its housing boom.
In Sweden, rapidly rising house prices, fueled in part by 17 months of negative interest rates, also are generating concerns about the risk of a correction. Stockholm has become one of Europe’s hottest property markets, one where prices rose 14% last year. The country has introduced measures aimed at limiting risky borrowing, but they haven’t fully offset the lift from record-low interest rates.
Sweden’s Riksbank said July 6 that its original plan to start raising interest rates by the middle of next year would likely be postponed, after the U.K. vote to leave the European Union raised uncertainty about the outlook for global growth.
“When policy rates globally are very low,” Riksbank Gov. Stefan Ingves said in an interview, “it’s not in the cards for us to embark on a path which is radically different.’’
Mr. Poloz took over running the Bank of Canada in 2013, when predecessor Mark Carney moved to the Bank of England. Canada’s central bank held its key interest rate at 0.5% Wednesday, as it downgraded its economic-growth forecast in response to a weaker investment outlook and sluggish exports.
“The central bank is only doing their job, which is to try to keep inflation on target,” Mr. Poloz said in the interview. Weak growth since the financial crisis, he said, “has kept central banks in the game much longer than anyone would have expected.”
The central banker said rates are a blunt instrument that would require triggering a recession to slow down the housing market. Instead, he said, policy makers need to be responsible.
Canada has tightened housing-financing rules five times since mid-2008 to curb excesses. Earlier this month, the country’s main bank regulator issued a letter to banks calling on them to ensure adequate internal controls on mortgage underwriting, including properly verifying borrowers’ incomes.
Still, some economists suspect Mr. Poloz might consider cutting rates further were it not for the concern about housing.
“They’re really stuck between a rock and a hard place,” Bank of Nova Scotia economist Derek Holt said before Wednesday’s rate decision.
Mr. Poloz disputes that housing concerns are preventing more cuts. He said his goal is to make sure the economy stays on a good growth track. The problem isn’t rate cuts, he said, but their yearslong duration.
“Normally, it doesn’t last long. You know, you might have a year or something while interest rates are lower than normal,” Mr. Poloz said. “…It’s only when they last a long time that they begin to accumulate into something that is of concern.”
—Charles Duxbury and Min Zeng contributed to this article.
Write to Kim Mackrael at email@example.com
It might seem extraordinary that the developed world could fail to generate enough growth to lift inflation back to target for decades, yet there is mounting evidence this is a real possibility.
“I don’t see it being sustained,” said Mauro. “(I’m just) being cautious. You don’t stick your neck out, you make sure you’re not taking on too much, so that if the market turns down or sales stop, you’re not going to be out of business.”
The Bank of Canada has held on to its overnight interest rate in part because it doesn’t want to inadvertently add fuel to the Vancouver housing market
The spreads between the 10-year, the two-year and the 10-month U.S Treasury bonds are narrowing. Yield-curve compression often precedes a recession, fueling worries about another potential contraction ahead
20160713 UK corporate confidence collapse
It is a backdrop against which the Bank of England may move more aggressively than the market discounts, this being our economists’ call in looking for a 45bp cut plus £75bn further QE.
Credit Suisse equity research
Canada’s benchmark 10-year bond, which largely follows the U.S. credit market, also hit a record low of 0.997 per cent today, according to Bloomberg closing bond data