Record household debt could spell Canada's undoing

[azenis]

I think the trigger to Vancouver RE would be a raise on interest rate. One of my younger colleagues can barely keeps up with his mortgage at 3.85%, and when I asked him what is he going to do when they raise the rate? He said "I am just gonna sell the place, and I will get the money back anyway"

This make me think, how many Canadian homeowners have this idea in mind? And when this actually happens, what would be the magnitude of listing waves?

[Austin]

Yes, if interest rates go up significantly we'll see a deflationary spiral .. unless inflation rates increase even faster.

What you really want to be concerned about are real rates. That is, interest rates minus inflation rates. As long as the real rate stays low or negative, it's unlikely we'll see a significant correct in asset prices.

http://www.marketoracle.co.uk/images/20 ... age002.gif

[registered]

As long as the real rate stays low or negative, it's unlikely we'll see a significant correct in asset prices.

Real rates are low across the globe, your theory doesn't appear to be working.

[semven]

I think the trigger to Vancouver RE would be a raise on interest rate. One of my younger colleagues can barely keeps up with his mortgage at 3.85%, and when I asked him what is he going to do when they raise the rate? He said "I am just gonna sell the place, and I will get the money back anyway"

This make me think, how many Canadian homeowners have this idea in mind? And when this actually happens, what would be the magnitude of listing waves?

See 1981

[Taipan]

So how do you deal with property bubbles when you cant raise interest rates. Ill play.

Remember FIT. Finance Interest Terms. Thats what caused these bubbles world wide!

Lets leave interest rates alone for the moment, and vary two other items.

Terms. They wont vary terms. - Surely - Well what have we seen. 25 year terms, to 30 to 35 and then to 40. Back the other way, 40 to 35 to 30. Why not back to 25?

Nah wont happen. Its been happening already and CEO Ed Clark at TD bank thinks so.

From 3 days ago. Mortgage rules should be stricter: TD chief

Hmm that could be a problem. But there will plenty of finance - we can always get that. Well probably not. Any problems in europe? Europe wont effect us i hear some say.

Well why should we worry about europe? Ill let the CEO Cameron Clyne of NAB (1 of 4 big banks in Australia) explain it to you.

NAB chief Cameron Clyne's credit alert

THE head of National Australia Bank warned yesterday that the threat of a new credit squeeze was "increasingly real'' and would impact on future interest rate cuts.
NAB chief executive Cameron Clyne told a business lunch in Brisbane that funding markets were "very constrained'' as Europe grappled with a ballooning debt crisis.

"Money is very tight out there at the moment,'' Mr Clyne said at the QUT Business Leaders' Forum.

"It is increasingly concerning what is going to happen.''

Mr Clyne said banks faced the twin challenges of not only sourcing money but deciding how much they were willing to pay for it.

As a result, the interest rates charged by all banks would be influenced by more than just the fluctuations of the Reserve Bank cash rate, he said.

So if you think its clear sailing - watch for europe because it is very likely to bring you a financial storm that very few on this forum have ever experienced.

Those who have, have never forgotten.

Played golf with my bank manager and his senior risk manager on Thursday. Their message. Official interest rates will probably drop, but banks will increase rates as higher risk premiums are demanded by the market.

In Australia we are at 4.25%, down 0.5%. We still have room to move

In Canada you have barely increased rates from the emergency rates 0.5% to just 1%. Bank of Canada maybe out of the game.

The banks and the market may be forced to deal with your interest rates in the long run anyway, and they really dont care how you feel!

Oh and Merry Christmas everybody!

[semven]

Switzerland knows why Canada isnt in a hurry to raise interest rates....

[Taipan]

Switzerland knows why Canada isnt in a hurry to raise interest rates....

Your having a real hard time to get your head around some of this arent you, Semven.

Parties over.

[semven]

Switzerland knows why Canada isnt in a hurry to raise interest rates....

Your having a real hard time to get your head around some of this arent you, Semven.

Parties over.

For you maybe.....But I still have a houseful of people....and not all of them are Chinese

[Taipan]

Switzerland knows why Canada isnt in a hurry to raise interest rates....

Your having a real hard time to get your head around some of this arent you, Semven.

Parties over.

For you maybe.....But I still have a houseful of people....and not all of them are Chinese

Still taking in boarders by the sound of it. You renting out cupboard space yet?

[thirdlittlepig]

So what, so the banks raise their rates. Who cares, Capital direct will still lend when the banks won't, and Consolidated will consolidate people's debts. Then no worries!

[eyesthebye]

So what, so the banks raise their rates. Who cares, Capital direct will still lend when the banks won't, and Consolidated will consolidate people's debts. Then no worries!

the banks will always lend. How do you think they make money TLP?

[registered]

the banks will always lend. How do you think they make money TLP?

Classic.

[thirdlittlepig]

So what, so the banks raise their rates. Who cares, Capital direct will still lend when the banks won't, and Consolidated will consolidate people's debts. Then no worries!

the banks will always lend. How do you think they make money TLP?

If banks "always" lent, there would be zero foreclosures, and zero "proposals" . Yes, the foreclosure rate is only the tip of the iceberg, then there's the "proposals", and then there's the people who are in serious trouble if rates change even 1%.

The banks make money by not always lending. If they weren't selective everyone would have a home they couldn't afford instead of only 10%.

[eyesthebye]

So what, so the banks raise their rates. Who cares, Capital direct will still lend when the banks won't, and Consolidated will consolidate people's debts. Then no worries!

the banks will always lend. How do you think they make money TLP?

If banks "always" lent, there would be zero foreclosures, and zero "proposals" . Yes, the foreclosure rate is only the tip of the iceberg, then there's the "proposals", and then there's the people who are in serious trouble if rates change even 1%.

The banks make money by not always lending. If they weren't selective everyone would have a home they couldn't afford instead of only 10%.

when a bank stops lending it's time to get all your money out of it - FAST

[registered]

when a bank stops lending it's time to get all your money out of it - FAST

Fortunately such ridiculous straw man scenarios aren't required for a market correction. A simple tightening, or as some would call it a return to historical levels of fiscal responsibility, is plenty.
To answer your early obvious question, they make money by balancing risk.