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.
----------------------
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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