1. Let’s lead with a story from America (no, it’s not about Donald Trump!)
Former Federal Reserve Chairman Alan Greenspan forecast that interest rates will begin rising soon, perhaps rapidly. “I cannot perceive that we can maintain these levels of interest rates for very much longer,” he told former Securities and Exchange Commission Chairman Arthur Levitt in a Bloomberg Radio interview to be aired this weekend and next. “They have to start to move up and when they do they could move up and surprise us with the degree of rapidity which may occur,” Greenspan added. The yield on the 10-year Treasury note stood at around 1.55 percent on Thursday, down from 2.27 percent at the start of the year. Greenspan repeated his previously-voiced concern that the U.S. economy was headed toward a period of stagflation — stagnant growth coupled with elevated inflation.
2. And follow with some slightly troubling news on the home-front.
Sales of existing homes in Canada fell for a third consecutive month in July due largely to a slowdown in activity in the westernmost province of British Columbia. The Canadian Real Estate Association, the industry group representing agents across the country, said Monday that existing-home sales fell 1.3% from June. Sales in Vancouver, one of Canada’s most closely watched markets, were down 18.3% from a year earlier, while sales rose 1.1% in Toronto and 2.8% in Montreal, it said. Monthly declines overall in the past two months have left sales activity 3.9% below a record set in April, the group said. Housing activity and prices throughout Canada continue to be closely watched by policy makers as the country’s energy and mining-dependent economy slows. Last month, Bank of Canada Gov. Stephen Poloz said he is concerned that house prices in Vancouver and Toronto, two particularly overheated markets, appear out of step with economic fundamentals.
3. The Globe and Mail joins the pessimism parade.
A year ago, when Bank of Canada Governor, Stephen Poloz, cut interest rates for the second time in six months, we knew we’d have to take the bad with the good. Slashing the bank’s overnight rate in half to 0.5 per cent would surely further inflate regional real estate bubbles. But that, we figured, was just the price to pay in order to fuel non-energy exports and a sustainable recovery. A year later, we’re still waiting for the second half of the equation to kick in. The real estate sector keeps setting new records. Indeed, it’s now Canada’s biggest industry, leaving Alberta’s oil patch and Ontario’s manufacturing heartland in the dust. Ongoing weakness in those latter sectors is generating talk of yet another rate cut, no doubt to the delight of the friendly neighbourhood broker who keeps urging you to sell. Hewers of wood and drawers of water, not. Canada is now a real estate nation, with little else to keep the economy from sinking into an even deeper funk. Gross domestic product shrank 0.1 per cent in May, and that’s after excluding the negative impact of Alberta’s wildfires on oil sands output. Yet, we’re still buying houses like there’s no tomorrow.
4. Everyone has a reason to be pessimistic about the foreign buyer tax.
MLS data shows that the real estate market of Vancouver is about to witness a major setback, as prices continue to drop drastically. However, experts say we shouldn’t jump to conclusions just yet. Although August is definitely the slowest month for sales this year, records from MLS show that sales data within the first two weeks of the month shows what many have been hoping for during the last few years of escalating prices.
5. Not surprisingly, Chinese buyers are particularly upset
Altogether, Mr. Li is on the hook for $1.7-million in property. But the ink had barely dried on his most recent purchase when the B.C. government introduced a 15-per-cent tax on foreign buyers in Metro Vancouver, at a stroke upending Mr. Li’s Canadian real estate dreams. The change came only weeks before he expected to take possession of his Burnaby condo, which he expects to keep since it’s a relatively small investment. But when it comes to the other two more expensive properties, which won’t be ready for another three or four years, he’s already decided what to do. If the 15-per-cent penalty stays, he won’t.
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Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.