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Friday, July 24, 2009

How Will It All Work Out When Rates Rise?

[ HT TwoPintWitty ]

"This line jumped out as one that can't possibly be correct, and if it The fact that family borrowing continued to increase at its historic pace of about 8 per cent a quarter reflects an increase in home buying - purchases that were encouraged by mortgage rates that fell to record lows as the Bank of Canada dropped its benchmark lending rate to an unprecedented 0.25 per cent and set up emergency cash auctions to ensure banks had access to enough money to continue lending.

8 percent a QUARTER? 8 percent a year in increased borrowing isn't sustainable. Wages have been increasing by what? Like 2-3% on avg?"

FN: How exactly is the BOC going to raise rates from 0.25 to a more normal level of NOT ZERO without making all these new mortgages instantly unaffordable? All the poor bastards buying houses with 1.75% variable rates would ingloriously implode at even just 3.50%... as that would double their mortgage payments overnight. When, NOT IF, inflation finally does rear its ugly head these rates could easily TRIPLE to a whopping 5.25%. The effect on house prices will be disastrous. Historically 5.25% is actually ridiculously low. Something between 7% and 9% isn't even astronomical if there are inflation pressures.

The recession is over. Cue the painful recovery: "The recession is over, but not the pain.

Canada's central bank predicted Thursday that the economy would expand this quarter, suggesting the economic contraction lasted for about nine months, considerably shorter than the previous two recessions in the early 1990s and the early 1980s.

The Bank of Canada's reassessment of the state of the economy is perhaps the clearest signal yet that the worst of the recession is over."

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