By Kiyoko Fujimura
A few weeks ago we published an infographic
about the many, many
predictions of a housing bubble in Canada. Most of the predictions relied on one assumption: that interest rates would go up.
But the thing is, they haven’t. And apparently they’re not going to anytime soon.
“…the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished.”
What does that mean? Basically, Mark Carney isn’t worried about inflation. Canada’s not doing that badly, though our growth did stall in the second quarter of 2011, but it’s the rest of the world that’s really posing the problem.
The US is obviously not doing that well. That whole debt crisis thing… what the heck was that anyway? Just ridiculous. Anyway, Europe is a mess too. Why does it matter?
Canada is an export-driven economy, and Ontario even moreso, so our biggest purchaser? The US. When they’re not buying, we’re not selling. And we’re going to sell even less because our dollar is doing so well. On top of it all, there’s no end in sight. The US is cutting spending, which is only going to make matters worse.
All this boils down to one thing: interest rates aren’t going up anytime soon. And that’s good news for those of you who have a secure job and a mortgage and/or other debt to pay. Your payments are likely to stay low for quite some time.
But it does give pause for thought. And as interest rates stay low, if there is in fact a bubble, the potential for a crash will only increase.
There’s nothing the Bank of Canada can do at this point to stave off the housing bubble. They have to maintain low interest rates, because if they raise them when the rest of the world isn’t, then a bunch of foreign capital will rush into Canada and push the dollar higher and make our exports even less competitive.
So, it’s up to the Fed’s to monitor it. And, to peg it all on one guy, it’s up to Stephen Harper’s right-hand-man, Finance Minister Jim Flaherty. Let’s hope he’s paying attention!