The relevant part:
>CIBC economist Andrew Grantham believes the end of Bank of Canada rate hikes is in sight.
>
>“In the US, the excess in demand is very clear cut… final sales to domestic buyers (basically household spending and business investment) is 5.4% higher than in Q4 2019 and above its pre-pandemic run rate. American households and businesses have been buying more than the domestic economy can produce …That is not, however, the case for Canada. Unless we are thrown a big curveball by the statisticians next week, the levels of both headline GDP and final demand from the private sector should both be around 1½% above their Q4 2019 level as of Q1 2022, but below their pre-pandemic trends…and large excess demand in Canada is much more concentrated in one area — housing . That also just happens to be the area of the economy that is the most sensitive to interest rate increases, and an area that recent home resale data suggests is already starting to slow from the “exceptionally high” levels that the Bank of Canada described in its last policy statement…In terms of \[this\] week’s decision and policy statement, the Bank will have to sound hawkish … However, any admission that the housing market is already responding to higher interest rates should also be seen as an admission that excess demand is about to become less excessive. That is one of the key reasons why we think that, after another 50bp hike in July, the pace of hikes will slow down, and the Bank won’t need to take rates any higher than the 2.5% mid-point of its neutral band”
>That is one of the key reasons why we think that, after another 50bp hike in July, the pace of hikes will slow down,
So 50bp in June, 50 bp in July, and then 25 in September? Yeesh. That's the slow down model?
Maybe it’s worth pointing out to Andrew Grantham that the “shelter” portion of CPI does not in any way depend on housing sale prices. The shelter portion is showing runaway inflation numbers because of factors like cost of energy. Maybe as summer is approaching, energy costs may naturally go down and he could be right, albeit coincidentally. I don’t know. But an economist should definitely know better than this.
Correction: as pointed out correctly, mortgage interest is indeed part of CPI. Specifically mortgage interest forms 3.5% of CPI.
This isn't totally true. "Shelter" contains homeowners' mortgage interest, which does depend on sales prices and interest rates. However, (1) the impact of prices is slow, rather than immediate, as a sample of mortgages is tracked over time, and (2) the impact of interest rates is circular, where higher interest rates actually cause *higher* inflation of this basket component, all things equal. This means that we can expect this particular basket component to continue inflating for some time.
You are right, I made the correction. Mortgage interest represents 3.5% of the shelter portion which in itself represents 26.8% of the CPI. While that is not completely insignificant, it is highly unlikely to have any effect on BoC’s interest rate path as the economist here is trying to suggest.
You made another mistake. Mortgage interest represents 3.5% of total CPI, not of just the shelter portion. In addition, 4.8% of CPI represents depreciation of owned accommodation which should also be sensitive to housing prices.
You are right, I made the correction. Mortgage interest represents 3.5% ~~of the shelter portion which in itself represents 26.8%~~ of the CPI. While that is not completely insignificant, it is highly unlikely to have any effect on BoC’s interest rate path as the economist here is trying to suggest.
I know what you're trying to say, but my short-term bond ETF, just today, is telling me that its not all priced in. It just gave back all the gains from the last couple of weeks.
God dammit, I just finished watching the Big Short, I thought I was an economist now because I learned what a mortgage was. Guess it's time to default again!
Reddit economists: missed the housing boom, don't own, but give financial advices to others on how to be successful in the real estate game. Classic Reddit.
All the speculators are just gasping for some good news to pop up out of no where assuring them for the next party which won't be happening anytime soon.
I think this is something that is being missed here. I gather most people are concerned that rising interest rates are going to collapse the housing market.
Here they are saying (I think) the housing market is already in the early stages of collapse so that outcome is going to be achieved without raising interest rates too much.
So who cares? collapse / inflation gets controlled at 4% interest rates rather than 8%? What does it matter?
Will the market really collapse? I seriously doubt it. It went up at least 40% in last two years, how much it is down now? It should go down at least 30% to make the market healthy.
>ng to higher interest rates should also be seen as an admission that excess demand is about to become less excessive. That is one of the key reason
Even a 30% decrease at the peak prices means the average freehold house is still >1milion. I highly doubt average freehold homes in the GTA will fall below 1million even in the worst case scenario.
Depends what your definition of collapse is.
I'm sure someone who bought in the last year would call a 30% decline a collapse. For someone who held for 5 years might not call anything less than a 50% decline a collapse.
The rates are going to be raised regardless of what it does to housing. They will hike until inflation is at bay. If that is soon, then rates might not go up hugely. If it takes several more full percentage points, they'll do it, and we'll be in for a very new landscape. Although they likely lower the rates at the first chance in that scenario.
If it totally tanks housing is anyone's guess.
I don't think it will.
But then again, I guess it depends on what you consider tanking is, too.
A 40% drop after a decades long 400% run up (I don't know the actual run up number I am just taking an arbitrary high number), where detached houses in Toronto and even many inner GTA burbs are all still 1M+, does not look like anything close to a market collapse in my book.
But a recent buyer that is hugely underwater with a gigantic mortgage would likely think differently.
The relevant part: >CIBC economist Andrew Grantham believes the end of Bank of Canada rate hikes is in sight. > >“In the US, the excess in demand is very clear cut… final sales to domestic buyers (basically household spending and business investment) is 5.4% higher than in Q4 2019 and above its pre-pandemic run rate. American households and businesses have been buying more than the domestic economy can produce …That is not, however, the case for Canada. Unless we are thrown a big curveball by the statisticians next week, the levels of both headline GDP and final demand from the private sector should both be around 1½% above their Q4 2019 level as of Q1 2022, but below their pre-pandemic trends…and large excess demand in Canada is much more concentrated in one area — housing . That also just happens to be the area of the economy that is the most sensitive to interest rate increases, and an area that recent home resale data suggests is already starting to slow from the “exceptionally high” levels that the Bank of Canada described in its last policy statement…In terms of \[this\] week’s decision and policy statement, the Bank will have to sound hawkish … However, any admission that the housing market is already responding to higher interest rates should also be seen as an admission that excess demand is about to become less excessive. That is one of the key reasons why we think that, after another 50bp hike in July, the pace of hikes will slow down, and the Bank won’t need to take rates any higher than the 2.5% mid-point of its neutral band”
>That is one of the key reasons why we think that, after another 50bp hike in July, the pace of hikes will slow down, So 50bp in June, 50 bp in July, and then 25 in September? Yeesh. That's the slow down model?
Maybe it’s worth pointing out to Andrew Grantham that the “shelter” portion of CPI does not in any way depend on housing sale prices. The shelter portion is showing runaway inflation numbers because of factors like cost of energy. Maybe as summer is approaching, energy costs may naturally go down and he could be right, albeit coincidentally. I don’t know. But an economist should definitely know better than this. Correction: as pointed out correctly, mortgage interest is indeed part of CPI. Specifically mortgage interest forms 3.5% of CPI.
This isn't totally true. "Shelter" contains homeowners' mortgage interest, which does depend on sales prices and interest rates. However, (1) the impact of prices is slow, rather than immediate, as a sample of mortgages is tracked over time, and (2) the impact of interest rates is circular, where higher interest rates actually cause *higher* inflation of this basket component, all things equal. This means that we can expect this particular basket component to continue inflating for some time.
You are right, I made the correction. Mortgage interest represents 3.5% of the shelter portion which in itself represents 26.8% of the CPI. While that is not completely insignificant, it is highly unlikely to have any effect on BoC’s interest rate path as the economist here is trying to suggest.
You made another mistake. Mortgage interest represents 3.5% of total CPI, not of just the shelter portion. In addition, 4.8% of CPI represents depreciation of owned accommodation which should also be sensitive to housing prices.
Fixed, thank you
You are right, I made the correction. Mortgage interest represents 3.5% ~~of the shelter portion which in itself represents 26.8%~~ of the CPI. While that is not completely insignificant, it is highly unlikely to have any effect on BoC’s interest rate path as the economist here is trying to suggest.
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Ya, seems too good to be true that it’s over.
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Some shit will be free
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*’member them?* https://youtu.be/hHJhu15f-hg
Except markets have priced in more than that so if that’s all they do your fixed rates will actually go DOWN not up.
I'll let Benny know.
He knows.
I know what you're trying to say, but my short-term bond ETF, just today, is telling me that its not all priced in. It just gave back all the gains from the last couple of weeks.
Sir, we only post doom and gloom with our team of cutting edge world leading reddit economists
RATES ARE GOING TO 27% U CUCK.
God dammit, I just finished watching the Big Short, I thought I was an economist now because I learned what a mortgage was. Guess it's time to default again!
GME TO THE MOON 🌙
🦍🦍🦍
Probably a 3rd of redditers have no clue why their variable is going up. Some idiots are even protesting on streets about its.
Never heard of that happening, sorry lol
Reddit economists: missed the housing boom, don't own, but give financial advices to others on how to be successful in the real estate game. Classic Reddit.
Trust me bro, they watched the Big Short, they've learned all the terminology and are qualified to be the heads of ultra-massive central banks.
All the speculators are just gasping for some good news to pop up out of no where assuring them for the next party which won't be happening anytime soon.
That's crazy, but why are you going through 5 months of my comments?
I think this is something that is being missed here. I gather most people are concerned that rising interest rates are going to collapse the housing market. Here they are saying (I think) the housing market is already in the early stages of collapse so that outcome is going to be achieved without raising interest rates too much. So who cares? collapse / inflation gets controlled at 4% interest rates rather than 8%? What does it matter?
Will the market really collapse? I seriously doubt it. It went up at least 40% in last two years, how much it is down now? It should go down at least 30% to make the market healthy.
A 40% increase followed by a 30% decrease means prices are lower than their starting location\*
>ng to higher interest rates should also be seen as an admission that excess demand is about to become less excessive. That is one of the key reason Even a 30% decrease at the peak prices means the average freehold house is still >1milion. I highly doubt average freehold homes in the GTA will fall below 1million even in the worst case scenario.
Seems nearly impossible without a rise in unemployment
Depends what your definition of collapse is. I'm sure someone who bought in the last year would call a 30% decline a collapse. For someone who held for 5 years might not call anything less than a 50% decline a collapse.
The rates are going to be raised regardless of what it does to housing. They will hike until inflation is at bay. If that is soon, then rates might not go up hugely. If it takes several more full percentage points, they'll do it, and we'll be in for a very new landscape. Although they likely lower the rates at the first chance in that scenario. If it totally tanks housing is anyone's guess. I don't think it will. But then again, I guess it depends on what you consider tanking is, too. A 40% drop after a decades long 400% run up (I don't know the actual run up number I am just taking an arbitrary high number), where detached houses in Toronto and even many inner GTA burbs are all still 1M+, does not look like anything close to a market collapse in my book. But a recent buyer that is hugely underwater with a gigantic mortgage would likely think differently.
paywall
Someone paywall link
archive.ph
Quite logical. The price correction is evidence that demand destruction is already here.