Housing Hotbed Offers Rest of World a Correction-or-Crash Test
Comment of the Day

November 22 2022

Commentary by Eoin Treacy

Housing Hotbed Offers Rest of World a Correction-or-Crash Test

This article from Bloomberg may be of interest to subscribers. Here is a section:

By March, it will be a year since the Bank of Canada began raising interest rates — meaning ever more of the record number of people who took out short-term or floating-rate mortgages at historically low rates will find themselves fully exposed to the roughly fourfold jump in borrowing costs since then, a potentially catastrophic shock to their personal finances.

The fate of Canada’s housing market will depend on whether or not they can hold on. And just as the country was a leader in the years-long global real estate frenzy, how its downturn plays out — a relatively orderly correction, or a brutal crash — may be a harbinger for what awaits the rest of the world.

Housing markets around the globe are wobbling under the weight of central bank rate-hike campaigns, with a handful of frothy countries joining Canada in already seeing precipitous price declines. More than a dozen developed economies, from Australia to Sweden to the US, are in the midst of downturns — defined as two consecutive quarters of falling prices — or will be by the beginning of next year, according to Oxford Economics. If those slumps prove worse or more widespread than expected, it would deepen a potential global recession. 

 

Eoin Treacy's view

The Canadian 10-year yield appears to have reached a near-term peak in the region of 3.5%. The rate is coming back towards the trend mean so this will be a significant region to test whether demand dominance has returned beyond short-term steadying.

 

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