As a follow up to our blog post on February 27, 2012 (Click here to read), this morning Canadian Minister of Finance Jim Flaherty announced new rules for the Canadian mortgage industry designed to tighten up property speculation and prevent further overleveraging by borrowers (Click here for the release and FAQ). Home prices in Vancouver are coming off the boil and undoubtedly Toronto cannot be far behind. While these changes are examples of good lending governance, I fear this is like "closing the barn door after the horse has left" - home ownership rates are close to all-time highs as are Canadian consumer debt levels. In fact, we could argue that this policy could negatively affect home prices in a more rapid fashion. Mr. Flaherty is in a Catch-22 position.
I do agree with Scotia's conclusion that the BOC will be on hold for even longer now and that there will be a knock on or negative effect on consumer spending, employment and credit growth. Good time to short the C$?
On another note, there is some comfort or schadenfreude when one compares our property markets to others around the world, especially Australia's. Dylan Grice and Albert Edwards at Societe Generale produced this chart below showing the 15 most expensive cities it the world (median price/median income).
Good time to short the Aussie $?
And in a further note, they borrowed from a recent IMF report (Click here to read) that included Chinese cities as further proof of the "bubbly" real estate markets.
I won't bother you with their conclusions - you've got the pictures.
1. Societe Generale, Cross Asset Research, May 3, 2012
2. Societe Generale, Cross Asset Research, June 13, 2012