Big Six Canadian Bank rate hikes could trigger rise in qualifying rate

If you’re interested you may want to consider reading the article in full by clicking the link below:
http://business.financialpost.com/real-estate/mortgages/mortgage-rate-increases-at-big-six-banks-could-trigger-rise-in-qualifying-rate
Well it’s already begun, the big six Canadian banks want as little exposure to the real estate disaster heading our way as possible. What the banks are actually asking for is more protection from the government, because the reality is the BoC has backed itself into a corner. I wrote about this very topic way back when Polo first became the Bank of Canada’s new governor and began unnecessarily lowering interest rates. when Poloz lowered interest rates there was absolutely no reason for him to do it.

When Poloz lowered interest rates it became a stimulus to creditors, which was fine under Harper because the threat to business of excessive regulations wasn’t there from a federal perspective, plus under Harper his goal was to erase the deficit and put the owness on the Canadian citizen to control their own budget. Well, unfortunately as I predicted the Canadian consumer now exposed to lines of credits and loans they didn’t qualify for before, was now granted access to money they didn’t know what to do with.

What’s worse was the real estate investment community, they saw these lower interest rates as an opportunity of a lifetime and they sold a lot of Canadians on this concept called cash flow. Now the flaw in how this cash flow concept was being sold was people weren’t taking into account that when Robert Kiyosaki wrote about Cash flow an actual profit that exceeded the loan and sale price of the real estate investment were already backed into his profit margins. How most Canadians bought into the market was if I qualify I’ll buy a property and charge the renters as much as want and if I can’t rent into I simply flip the profit and make money that way.

Well you see, that thought process may work in an up market, but when the market stabilizes or when it comes down, the flaws in your thinking start to show on a massive scale and the worst part of all this is that most of these speculators don’t own entire buildings like Robert Kiyosaki does, they own condo units, which is something the Rich dad poor dad author advises against, they also over pay for detached homes which means their only hope is to flip the property, the problem with this is if the market doesn’t go up, you’re screwed and then it becomes a game of how long can you hold onto the home/condo before you’re forced to default.

Because renters aren’t stupid, renters read the news too, renters know when an owner is in a bind he/she can’t get out of and renters are just as ruthless as these real estate investors are. That’s what people don’t understand about the market. With that said to stay on my point, the Banks see what’s happening and what they’re doing is positioning themselves not to be blamed. A few years back the late Jim Flaherty warned the banks not to lower rates, why because he could see the writings on the wall, he knew what would happen and now Canada is about to get a whole lot more interesting.

Sure a politician can change the financials but to do that the big 6 banks are going to need more guarantees, more protections this is exactly what I wrote about years ago and now we’re here. I keep telling people the collapse in Canada isn’t going to be what people think it is, it’s going to be a slow death, where the bleed just won’t stop, because Canadians don’t care to know what the root cause of the problem is. So they’re going to wait on their economic leaders to make the decision for them.

Interesting times ahead.