No crash on the horizon, according to major source

No crash on the horizon, according to major source

No crash on the horizon, according to major source Another day, another opinion about a potential housing crash is voiced; this time, however, it’s optimistic and the source is influential.

Governor of the Bank of Canada, Stephen Poloz, told reporters in New York Thursday that the BoC does not believe the type of drastic rise in mortgage rates or unemployment that would contribute to a housing crash will materialize, according to the Globe and Mail.

“The risk comes when some catalyst sets off the vulnerability,” Poloz said. “In this case it would be, let’s say, a rise in unemployment, a significant one, where it makes people have difficulty paying for their mortgage, or a rapid rise in mortgage rates, neither of which we’re expecting.”

His comments come on the heels of a central bank report that estimates housing in Canada is overvalued by 10-30 per cent. However, the report also pointed to the shortcomings of the methodology used to arrive at the estimation.

“There are 43 major house price cycles in this sample, which allows the estimation method to obtain more precise estimates of the model’s parameters. However, like other models, it suffers from a number of shortcomings ,” the bank’s Financial System Review states. “For instance, house price fluctuations in each country are determined solely by changes in demand conditions (i.e ., real, per capita disposable income and a long-term government bond yield) . The supply side is not explicitly modelled . Constant cross-country differences are captured by country-specific intercept terms, but differences that vary over time are not included.”
  • Layth Matthews 2014-12-12 3:02:30 PM
    It's ironic that the Bank of Canada is talking about overvalued home prices and consumer debt levels, when in fact, it is their own stable interest rate policy that has enabled them! This is not a criticism, just an observation. What else could they do?

    When you have an advancement of technology it is like an increase in power or wealth. This demands a commensurate increase in discipline, humility, otherwise only ill will come of it.

    In this case the advancement in technology is deeper understanding of the economy e.g. watching the core inflation rate vs. the nominal one. Another example is the advancement of the development sector to the point where the housing inventory moves much more in synch with housing demand.

    So it's amusing that the efforts (and luck) that have kept Canadian mortgage rates low and steady have naturally contributed to greater reliance on credit and are now also eliciting a constant stream of cautionary remarks from policy makers.

    The message is essentially this, "you can have more material wealth, if you will only just tame your materialism!"
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  • moe 2014-12-12 3:37:20 PM
    yah....... I think that a fair number of those that work in the oil and gas industries are going to lose their jobs no? then they sell houses quickly due to job losses.... This can't possibly be an "event". that could be a "trigger" for Alberta real estate eh?
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  • John 2014-12-12 7:31:08 PM
    Holy smoke, Moe.
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