Quote:
Originally Posted by Carl Johnson
Another day, another fear-mongering story. What initially caused the US real estate market to go into a normal correction was rate increases from the Fed which BoC is not considering due to low growth and inflation; however, what really turned a cyclical downturn into a free fall is all the financial derivatives that were purchased by Lehman, Washington Mutual, AIG, Fanny, and Freddie in order to take on a massive bet on the housing market and having those "investments" all go to zero essentially. Canadian Big Five does not remotely engage in any of those activities. Our banks are the most stable and boring in the world. And boring is a good thing.
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Also, because a lot of home owners that were approved for loans in the US should not have been approved for loans. Add to that, all the deregulation under the Bush Admin so that sub prime and predatory loans were handed out like hot cakes.
Basically, the banks killed themselves. They go too greedy. If interest rates didn't spike up for these sub-prime loans, housing in the stated would not have bombed like it did. At the same time, they (banks) were handing out line of credits to these same individuals with terrible financial acumen and terrible discipline.
E.g. getting LOC from their mortgage that they were not supposed to be approve of since they did not have enough $$ to begin with. Then, spending that LOC money on liabilities like boats, cars, vacation trips etc.
Questions we have to ask ourselves:
Do we have that here ? (US 200ish Housing Bubble ?)
Well, if interest rates climb up, how many homeowners will have to sell because of affordability issues ?
Usually, BoC will follow the Fed in the US (historically anyways because we piggyback on the US Economy). However, the Canadian Economy on the aggregate level is terrible right now. Personally, I do not see BoC raising interest rates for a quite a while.