|
After all the recent talk of central banks inflating new asset bubbles and of soaring property prices (home values in our neck of the woods are said to be up 25 percent in the last year), the message in the video below (spotted at the Azizonomics blog) is worth remembering.
We in the “Anglo-American property owning democracy” don’t seem to tire of asset bubbles. It’s as if former Fed Chief Alan Greenspan has trained an entire generation to expect them.
More on debt in Canada comes via this Daily Chart offering from The Economist.
Sorry about the auto-play…
I really hate that feature, but was not able to defeat it in the embed code. This annoyance and the short advertisement are, however, worth the bother as the narrator does a pretty good job of detailing just how different the Canadian debt trajectory is than elsewhere.
UPDATE: Just replaced the embed code with an image and a link (click on the image to play). As I said, I can’t stand auto-play and don’t know why websites feel they have to do it.
In this story at the Globe & Mail, we get an update on one of the world’s more resilient housing bubbles just north of the border, one that includes some pretty impressive figures for not only home prices, but for the size of the down payments being made.
The average first-time home buyer in Canada is 29 years old and expects to be able to put down a down payment of $48,000 on a $300,000 home, according to a recent poll by the Bank of Montreal.
But the study, released Tuesday, also found that price expectations vary widely, depending on where the home buyer lives in.
Those in Atlantic Canada say they expect to spend an average of $224,000 on a first home, while those in British Columbia anticipate to pay an average of $454,000.
Vancouver topped the survey as the most expensive city, with buyers there saying they’re going to shell out an average of $539,000 for a home, followed by Calgary at $474,000 and Toronto at $446,000.
Getting down payment help from Baby Boomer parents with huge amounts of home equity (as would be expected from the average home prices cited above) is said to be a major source of funds for home buying. Otherwise, I don’t know how your average 29-year old comes up with an average $48,000 to put down.
While the 10+ percent “skin in the game” is nothing like the U.S. lending that was going on early in the last decade, Canadians seem to have a unique inter-generational housing bubble driver via this down payment assistance. Of course, it’s still not going to end well…
I’ve about had it with how giddy a large portion of the U.S. population has become about rising home prices.
Don’t get me wrong, when first thinking about this, I was about as happy as anyone else to learn that property values are now rising sharply again since, after renting for six years, my wife and I finally bought a house about two years ago. So, we stand to benefit as much as anyone else.
But, when you look at what’s driving home prices higher and how unnatural and unsustainable those factors are, suddenly the headlines sound more ominous than optimistic.
The glee of Diane Sawyer and David Muir was nearly uncontrollable on ABC News last night as they detailed the latest findings from Corelogic showing that home prices rose by over 6 percent from a year ago.
This video is the closest that I could find at ABC News, but you get the idea.
This LA Times report detailed the findings of a UCLA Anderson Forecast study that indicated the “housing market is becoming the leading source of strength for the long-sluggish American economic recovery“.
On the surface, this sounds like a good thing, but not when you examine what’s driving home prices.
In today’s Wall Street Journal report about the side deal that Bank of America made with Obama Aministration officials (related to the robo-signing settlement announced a few weeks ago) comes word of a surprisingly generous approach toward principal reductions for nearly a quarter of a million underwater homeowners.
Under the arrangement, part of the recent $25 billion settlement of alleged foreclosure abuses between government officials and five large lenders, Bank of America will make deeper and broader cuts in balances than other banks
The plan will offer qualifying borrowers a chance to cut their mortgage balances to their home’s current market value. Other banks are required under the national settlement to cut principal to no more than 120% of the home’s value.
Borrowers who qualify are expected to receive principal reductions averaging more than $100,000, a Bank of America spokesman said. The pact’s total value will depend on how many borrowers take up the offer.
Based on the 200,000+ homeowners the article cites as being eligible for this action, a little simple math puts the total principal writedowns by BofA at over $20 billion! Now that seems like an even more unbelievable number than the $100,000 per household.
Of course, per the report, this will allow BofA to avoid $850 million in fines and they’ll save a bundle in taxes by adjusting these mortgage balances down, many of which they’d end up taking back as foreclosures anyway.
I guess homeowners are finally getting their bailout too!
It’s funny to look at the chart below from this report($) by Standard & Poors on the housing market’s “shadow inventory” and then think back to the recently released 2006 transcripts from Federal Reserve policy meetings where they were more interested in praising former Fed Chief Alan Greenspan and having a good laugh as the curves began to steepen.
Of course, the more important story is what’s been happening lately and, though there has been some overall improvement, conditions are not much better than they were at the height of the housing and credit market crisis a few years ago, the growth of the “Recently cured expected to redefault” category not being a particularly encouraging sign.
By Tim Iacono, Since 2005
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
![[Most Recent USD from www.kitco.com]](http://www.weblinks247.com/indexes/idx24_usd_en_2.gif)
Recent Comments