No Undue Risk - Part Two

In a follow-up to yesterday’s report from CAAMP showing that consumers in Canada are not taking undue mortgage risk, there’s a very interesting article with quotes all around from bank presidents, economists, et al furthering the suggestion that Canada can avoid a US-style mortgage meltdown.

You can read the Toronto Star mortgage article here

What do you think?

Some of the more interesting quotes from the article include:

Will Dunning: “The degree of risk from rising mortgage rates appears to be small and manageable.”

“The reality is that in the past, interest rates have played only a minor role in driving mortgage default rates,” said CIBC World Markets economist Benjamin Tal. “The level of vulnerability in the mortgage market is not as high as suggested by the Bank of Canada.”

David Wolf: “It is premature to talk about a bubble in Canadian housing markets,” said Wolf. “We see the housing market as requiring vigilance, not alarm.”

Personally I would tend to agree. Will some people over-extend themselves and binge on the buffet table of low rates? Probably. But some people will gamble away everything, drink too much, do drugs, crash their cars, cheat on their spouses, and go to prison too. There will always be a segment of society that won’t make great choices for themselves. Will the vast majority make those same mistakes? I doubt it very much.

I’ve also learned to read the news with a healthy dose of skepticism these days. What is the motivation or the agenda of the bankers that are saying, “Don’t worry, be happy?”. They might be right, or they might be putting a certain spin on things for some reason. Here are a couple of interesting thoughts:

1. Banks have LOTS of cash on hand right now. They want to lend it out.
2. If rates go up they’ll lend less.
Therefore,
3. They don’t want rates to go up so they’re pushing back against the Bank of Canada or using whatever public influence they have to keep things going as-is.

Banks don’t make any money sitting on cash – they need to circulate it in order to generate a profit.

Call me a conspiracy theorist, but my guess is that there’s a nugget of truth and that the risk is overblown, but at the same time, people should still make responsible and affordable borrowing decisions.

If you want to chat about those borrowing decisions, feel free to contact one of our super-intelligent and friendly alberta mortgage brokers and we’d be happy to help you.