5. 2019-20 Financial crisis?

2019-01-22

I have posted a fewer articles written by many analysts, but I could not understand or predict what will happen in the next few years.

Look like: housing markets around the world are inflated. Why didn't those crash? Only Australia got hit so far.

Interest rates by central banks are at low level. ECB and Bank of Japan currently set rates below 0%. What could central banks do if economy slowed down or housing market burst?

Hopefully someone with financial background could put those puzzles together.

Many analysts have said that our economies are well integrated, i.e. chain reaction will occur. How about debt level in each country?

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2019-01-23

By looking at the overall picture, housing market will be corrected or collapsed in Europe and Canada. China is used to speculation and high prices, so it'll be a minor correction and shot up again. I don't know Japan market.

The key to trigger correction would be ECB raising interest rate above 0%. Money managers will be shifting money worldwide to adjust to the situation. This would create chaos in financial markets.

It depends on how much money EU managers had been invested in Canada housing market, the larger amount the larger correction would be. If BoC has raised interest rate higher than 1.75%, they would have little tool to fight against economic chaos.

If BoC raised interest rate earlier than ECB, they would trigger housing market correction in Canada, and investors would run away. They would shift money to another country.

Central banks have lowered interest rates to trigger economic recovery, but money managers didn't invest in technology firms or economic engines. They have pumped money in housing markets to inflate it. This is a disaster.

Perhaps 2 years ago, BoC posted news saying economy was in full potential except oil industry. At that time, oil prices dived to around $30/barrel. BoC lowered interest rate to save oil industry. However the low rate fed in housing market to create headache. Governments are rushing to campaign with affordable housing. It's kind of a childish game show, i.e. they didn't tackle root of problems.

Currently oil price is at $52/barrel, which is likely the settle price for years to come. Oil company must adjust themselves to survive or to do business with this oil price. However, BoC has created a bigger problem in Canadian economy, i.e. inflated house prices. Any interest raise at this moment would generate lot of noise about "unmanageable debt" in each household.

To save oil sector, but kill consumer's budgets for other sectors was a good idea? BoC setting rate is affecting economy too, not only a tool to fight against inflation.

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Notes for home buyers based on information from a banker.

We have fixed budget, i.e. we can afford a certain amount of mortgage payment.

If mortgage rate is low, house prices will be high. So, in the end we accumulate higher debt, but we pay the same mortgage payment.

If mortgage rate is high, we couldn't afford higher house prices. Investors would lower prices or keep those houses to pay mortgage interests and property taxes or not? If they lowered price to the point we could afford the same amount of mortgage payment, then sales started. We have lower debt as a result.

If we already owned a house, we should be able to negotiate with city for lower property taxes as our property depreciated to lower property value. If house prices kept going up, we'd pay higher property taxes as they reevaluate our property.

Do you want to buy another house at lower price or not?

For bankers, the will make the same amount of money for us regardless of higher or lower house prices, because we will pay the same monthly mortgage payment.


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I am wondering why residential house price of Australia has shot up 65.88% since 2009 caused housing market corrected in late (October) 2017. However residential house price of Canada has increased 80% for the same period, but its housing market hasn't been collapsed.
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Statistic for residential house price index since 2009

Germany's index increased by 40%

Sweden's index creased by 82.35%

UK's index increased by 43.48%

US index increased by 9%
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2019-01-24

Currently $1 CAD = $0.75 USD

Some said that lower Canadian dollars would help export sectors, but it will make import more expensive, which would increase inflation or higher living cost.

If you have observed Canadian economy and its exchange rate, you would notice that Canadian economy was in trouble when $1 CAD >= $1 USD during (approx.) 2008-2010 years.

However Canadian economy rebounded with Canadian dollar around $0.80 USD. Thus BoC should raise interest rate to defend CAD.

Around $0.80 USD, export sectors have 20% discount as compared to US products. Why should they complain?

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* January 23, 2019: Average Chinese salary is $11K USD (2017), but they found "high house prices" normal.

Canadian house prices have been up by Chinese and negative rate by ECB.

That's why Chinese especially Hongkongese said that Canadian houses are so cheap, but Canadians couldn't afford this. Vancouver is home of many Hongkongese after 1997.

Canada housing market has also been flooded with money from Europe.

* I have done a quick research on housing market and interest rate to figure out "why stock markets were in bear territory -20% in 2018, but rebounded quickly to its peak in a few days or a week."

I am not sure if Brexit or USA-China trade war were the main causes.

* Japan house price index has increased around 15.38% since 2009 according to this chart https://fred.stlouisfed.org/series/QJPN628BIS. Will house prices be corrected in Japan or not? I don't know how Japanese reacted to over the roof house prices.

* ECB interest rate at https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html

Oct 15, 2008 ECB rate was at 3.25%. It started to go down since. The interest rate is currently at -0.4%. The marginal lending rate is at 0.25%.

Perhaps, housing market in EU is off the roof, too.

In 2008, US housing market burst, which caused credit crunch worldwide.

How about this time? Worldwide housing market burst, which would cause credit crunch in USA? j/k.

* Bank of Russia interest rate https://tradingeconomics.com/russia/interest-rate. It's currently at 7.75%. Look at the chart "MAX" option; we could see that its curve/trend was different than other banks since 2008.

* Reserve Bank of Australia interest rate is currently at 1.5% with housing market burst. https://tradingeconomics.com/australia/interest-rate

Look at the rate with "MAX" option, the rate could be at 4.75% in 2011, i.e. it was not impacted by US housing market burst.

Perhaps housing market issue built up since end of 2011, when the rates was going down?

* https://ec.europa.eu/eurostat/statistics-explained/index.php/Housing_price_statistics_-_house_price_index

Probably 10% higher than 2008 level as chart started at 90. However the chart/slope looks crazy since 2013.

* PBC interest rate https://www.global-rates.com/interest-rates/central-banks/central-bank-china/pbc-interest-rate.aspx. The current interest rate is at 4.35% started going down from 6.31% from April 6, 2011.

"The national debt (or government debt) of the People's Republic of China is the total amount of money owed by the government and all state organizations and government branches of China. As of October 2018, it stands at approximately CN¥ 36 trillion (US$ 5.2 trillion), equivalent to about 47.6% of GDP." source: Internet

China's debt bomb https://www.bloomberg.com/quicktake/chinas-debt-bomb

"It’s been called a mountain, a horror movie, a bomb and a treadmill to hell. To doomsayers, China's $34 trillion pile of public and private debt is an explosive threat to the global economy."

"Even with the government focus on deleveraging, Chinese borrowing rose 14 percent in 2017, ballooning to 266 percent of gross domestic product, from 162 percent in 2008. That growth outpaced the U.K. and U.S. in the decade before the financial crisis."

* Canada new housing price index is similar to EU housing price index, i.e. shooting up sharply since 2013.


* China house price index

https://www.ceicdata.com/en/indicator/china/nominal-residential-property-price-index showed the house price was around 44.44% higher since 2009.

The house price index of European house index went up around 10% in comparison. However, China market especially Hong Kong doesn't follow any market rules.

* Based on https://www.ceicdata.com/en/indicator/canada/nominal-residential-property-price-index, the residential housing price index of Canada house price shoot up 80% since 2009.

*Based on https://www.ceicdata.com/en/indicator/australia/nominal-residential-property-price-index, Australia residential housing price index has increased 65.88% since 2009. It collapsed in late 2018. 

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