WEBVTT - Housing Bubbles and Guy Got Fact-Checked 0:00:00.320 --> 0:00:03.360 Hello everyone, and welcome to the latest episode from the 0:00:03.400 --> 0:00:06.920 midweek edition of the coin Bureau podcast. Every week, I 0:00:06.960 --> 0:00:09.879 pick out two of my favorite videos from coin Bureau's 0:00:09.880 --> 0:00:13.080 YouTube channel to present to you in podcast form. The 0:00:13.160 --> 0:00:16.000 audio you're about to hear is from those videos I've 0:00:16.079 --> 0:00:19.080 chosen this week, and I hope you enjoy listening. So 0:00:19.200 --> 0:00:22.200 today you'll hear our videos on the housing bubbles that 0:00:22.239 --> 0:00:25.160 are threatening to burst in a number of countries, and 0:00:25.360 --> 0:00:28.280 the intriguing tale of what happened when a meme I 0:00:28.360 --> 0:00:33.320 posted on Instagram about central bank digital currencies got fact checked. 0:00:33.800 --> 0:00:37.320 As inflation continues to wreak havoc across global asset markets 0:00:37.320 --> 0:00:40.879 and central banks hike interest rates in response, housing markets 0:00:40.920 --> 0:00:43.520 in a number of countries are now coming under strain. 0:00:44.080 --> 0:00:48.040 The pandemic and its attendant lockdowns supercharged home prices in 0:00:48.080 --> 0:00:50.919 many countries, but this conceals the fact that they had 0:00:50.960 --> 0:00:54.520 been climbing for a long time before COVID nineteen appeared. 0:00:54.840 --> 0:00:56.840 The pull of a place of one's own is a 0:00:56.880 --> 0:00:59.920 strong one in many places, but global macro e can 0:01:00.000 --> 0:01:03.240 comics are making it increasingly difficult for people to turn 0:01:03.280 --> 0:01:07.039 their dreams into reality. As interest rates rise, so to 0:01:07.360 --> 0:01:10.399 do the costs of mortgages while increases in the cost 0:01:10.440 --> 0:01:13.319 of living I mean people have less and less to 0:01:13.440 --> 0:01:17.120 save for a deposit. In places like the USA, Canada, 0:01:17.240 --> 0:01:20.920 and the UK, housing prices are now expected to fall 0:01:20.959 --> 0:01:24.080 in the coming months, and this could have dire consequences 0:01:24.160 --> 0:01:27.440 for the economies of these countries. Find out why in 0:01:27.480 --> 0:01:31.240 the first part of today's episode Next up. Not long ago, 0:01:31.640 --> 0:01:34.800 I posted a meme on Instagram which was critical of 0:01:35.000 --> 0:01:39.880 central bank digital currencies or CBDCs. In a nutshell, it 0:01:40.040 --> 0:01:44.319 highlighted all the negative consequences of CBDCs while also pointing 0:01:44.319 --> 0:01:48.200 out that many, perhaps most people would only focus on 0:01:48.240 --> 0:01:52.480 their perceived convenience. Well. To my surprise, the post was 0:01:52.560 --> 0:01:56.600 fact checked by Instagram, so I decided to analyze the 0:01:56.640 --> 0:02:00.000 contents of the meme and show why they are factually correct, 0:02:00.560 --> 0:02:03.680 look into why it was fact checked, and examine what 0:02:03.720 --> 0:02:06.560 the fact checkers said. It was an interesting look into 0:02:06.640 --> 0:02:09.079 both c b d c s and the whole concept 0:02:09.120 --> 0:02:12.600 of fact checking too, So have a listen and enjoy. 0:02:13.160 --> 0:02:15.600 Thanks for listening to today's episode, and there'll be more 0:02:15.720 --> 0:02:18.280 coming your way soon. And if you want even more 0:02:18.320 --> 0:02:20.760 content from Coin Bureau, be sure to subscribe to our 0:02:20.840 --> 0:02:44.160 YouTube channel and visit us on social media too. The 0:02:44.280 --> 0:02:49.240 long anticipated housing market crash may be upon US. Prices 0:02:49.360 --> 0:02:52.400 and sales in some of the world's hottest property markets 0:02:52.720 --> 0:02:56.920 are beginning to fall. Mortgage rates are at multi year highs, 0:02:56.960 --> 0:02:59.959 and market analysts are wondering whether this has any power 0:03:00.040 --> 0:03:04.400 arallels with two thousand and eight. So where are we 0:03:04.440 --> 0:03:07.480 going and what should you be looking out for? Well, 0:03:07.560 --> 0:03:11.840 that's exactly what I'll be covering today, So don't go anywhere. 0:03:12.560 --> 0:03:15.600 Given that it's the largest property market in the world, 0:03:15.840 --> 0:03:18.440 let's start off with the good old U S of A. 0:03:19.520 --> 0:03:24.000 It's pretty clear that America's pandemic price boom is long over. 0:03:24.760 --> 0:03:29.120 For example, according to the SNP Case Shiller Index for 0:03:29.160 --> 0:03:33.560 the twenty largest U S cities, prices fell one pree 0:03:34.160 --> 0:03:37.800 on a month on month basis in August. This was 0:03:37.960 --> 0:03:42.160 below expectations, and it was the largest fall since March 0:03:42.280 --> 0:03:45.960 of two thousand and nine. Not only that, but home 0:03:46.080 --> 0:03:50.560 sales are also on the decline. New home sales decreased 0:03:50.680 --> 0:03:55.120 ten point nine to a seasonally adjusted annual rate of 0:03:55.280 --> 0:03:59.520 six hundred and three thousand units in September. This is 0:03:59.600 --> 0:04:02.960 down from six hundred and seventy seven thousand in August. 0:04:03.720 --> 0:04:06.680 There are many factors that have been driving this slowdown, 0:04:06.840 --> 0:04:09.640 but perhaps one of the biggest appears to be the 0:04:09.720 --> 0:04:13.160 high cost of buying a home, not in terms of 0:04:13.200 --> 0:04:16.920 actual home prices themselves, but in terms of the cost 0:04:16.960 --> 0:04:20.320 of getting a mortgage on those homes. That's because the 0:04:20.440 --> 0:04:23.520 rate on a thirty year mortgage, at over seven percent, 0:04:23.960 --> 0:04:27.280 is the highest it's been in twenty years. What's even 0:04:27.400 --> 0:04:30.320 crazier than this, however, is the fact that the monthly 0:04:30.400 --> 0:04:33.719 mortgage on a median priced home with a twenty percent 0:04:33.839 --> 0:04:37.360 down payment went from thirteen hundred dollars a year ago 0:04:37.720 --> 0:04:42.280 to over twenty three dollars. Now, that's an eight percent 0:04:42.560 --> 0:04:46.119 increase in payments to give you an idea of how 0:04:46.200 --> 0:04:50.200 unaffordable this is. On an annual basis, this equates to 0:04:50.279 --> 0:04:55.760 about forty of the median pre tax household income according 0:04:55.960 --> 0:04:59.080 to this i n G report. To put that into context, 0:04:59.520 --> 0:05:02.360 this was about twenty six percent in the fourth quarter 0:05:02.400 --> 0:05:05.680 of ten and thirty seven percent at the peak of 0:05:05.680 --> 0:05:09.800 the two thousand and six housing market boom. This has 0:05:09.839 --> 0:05:13.880 forced some buyers to consider adjustable rate mortgages as well 0:05:14.080 --> 0:05:17.120 as loans that have lower rates for the first two 0:05:17.120 --> 0:05:21.720 to three years, called one to buy downs. Needless to say, 0:05:21.839 --> 0:05:25.280 the exorbitant cost of taking out these mortgages means that 0:05:25.320 --> 0:05:29.200 the demand for them appears to be cratering. Demand is 0:05:29.320 --> 0:05:31.840 half what it used to be a year ago, and 0:05:31.960 --> 0:05:37.799 it is at its lowest level since These higher mortgage 0:05:37.880 --> 0:05:41.400 rates are of course due to the monetary policies of Jerome, 0:05:41.480 --> 0:05:45.640 Powel and Co. As the Federal Reserve aggressively increases interest rates. 0:05:46.080 --> 0:05:49.040 It's been one of the fastest periods of rate hiking 0:05:49.279 --> 0:05:52.080 in recent history. As you can see in this chart 0:05:52.240 --> 0:05:56.080 over here. In each of its last three meetings, the 0:05:56.200 --> 0:06:00.880 Fed has increased its funds rate by seventy five basis points. 0:06:01.640 --> 0:06:04.120 It's not as if Jerome and Co. Are really that 0:06:04.279 --> 0:06:07.960 concerned about a correction either. In a press conference back 0:06:07.960 --> 0:06:11.560 in September, Jerome stated, quote, we probably in the housing 0:06:11.600 --> 0:06:15.640 market have to go through a correction, and quote the 0:06:15.880 --> 0:06:19.720 deceleration in housing prices that we're seeing should help bring 0:06:19.839 --> 0:06:23.760 prices more closely in line with rents and other housing 0:06:23.800 --> 0:06:28.240 market fundamentals. And that's a good thing. Now. Whether you 0:06:28.320 --> 0:06:30.400 agree with him or not, the fact of the matter 0:06:30.560 --> 0:06:34.440 is that the Fed is not slowing those hikes anytime soon, 0:06:34.520 --> 0:06:37.800 and the overwhelming consensus is that we will see another 0:06:38.000 --> 0:06:42.680 seventy five bibs At the meeting tomorrow. The FEDS fundrate 0:06:42.800 --> 0:06:46.040 is expected to peek at between four point five and 0:06:46.160 --> 0:06:49.640 four point seven five. The last time rates were at 0:06:49.640 --> 0:06:53.240 this level was between October and December of two thousand 0:06:53.320 --> 0:06:57.599 and seven, the start of the Great Financial Crisis. It's 0:06:57.640 --> 0:07:00.240 not only the fact that taking out a loan is 0:07:00.240 --> 0:07:03.719 a lot more expensive. However, first time buyers may also 0:07:03.760 --> 0:07:07.239 struggle to source the funds required for a down payment 0:07:07.360 --> 0:07:12.160 on many properties. Surging inflation is destroying purchasing power and 0:07:12.280 --> 0:07:16.080 making it a lot harder for many to save. Now. 0:07:16.160 --> 0:07:19.480 That is all on the demand side, but we also 0:07:19.560 --> 0:07:23.800 have some troubling statistics over on the supply side. For example, 0:07:24.160 --> 0:07:28.600 the National Association of home Builders's sentiment index has fallen 0:07:28.840 --> 0:07:32.680 for ten straight months. The slowdown in sales at a 0:07:32.720 --> 0:07:36.520 time of widespread construction means that the inventory of new 0:07:36.560 --> 0:07:40.000 homes is near all time highs. In this chart over here, 0:07:40.360 --> 0:07:43.360 you can see the months housing supply i e. The 0:07:43.440 --> 0:07:47.240 months required to clear the housing infantry. This is at 0:07:47.280 --> 0:07:52.120 the highest level it's been since. So how low could 0:07:52.240 --> 0:07:56.480 house prices fall in the US. Well, let's see what 0:07:56.600 --> 0:08:00.640 analysts on Wall Street are saying. At the lower end 0:08:00.720 --> 0:08:03.720 of the estimates, we have Morgan Stanley who are now 0:08:03.760 --> 0:08:07.720 expecting house prices to fall by about seven percent next year. 0:08:08.520 --> 0:08:11.320 While that may indeed be less than the twenty seven 0:08:11.320 --> 0:08:13.440 percent we saw in the peak to trough of the 0:08:13.480 --> 0:08:16.320 two thousand and eight housing crash, it is still a 0:08:16.480 --> 0:08:19.520 sizeable fall and would be one of the largest ones 0:08:19.680 --> 0:08:24.120 since the Great Depression. According to Morgan Stanley's analysts quote, 0:08:24.480 --> 0:08:28.480 if we assume a seven percent mortgage rate, affordability looks 0:08:28.520 --> 0:08:33.319 materially worse than today, and the pace of its deceleration 0:08:33.600 --> 0:08:37.199 has already more than doubled compared to almost any time 0:08:37.320 --> 0:08:41.360 in history. They do note, however, that even with this 0:08:41.400 --> 0:08:44.760 price decline of seven percent, house prices would still be 0:08:44.880 --> 0:08:47.680 about thirty two percent higher than they were back in 0:08:47.760 --> 0:08:51.760 March of Morgan Stanley has a bull and a bear 0:08:51.800 --> 0:08:55.320 case as well. This all depends on how interest rates 0:08:55.360 --> 0:08:58.880 progress over the next few months. For example, in their 0:08:58.920 --> 0:09:02.040 bull case, they assume that interest rates start coming back 0:09:02.080 --> 0:09:05.960 down next year. If this were to happen, they assume 0:09:06.080 --> 0:09:10.680 a price increase of five. However, if the US falls 0:09:10.720 --> 0:09:14.280 into recession next year, then we're looking at potential falls 0:09:14.400 --> 0:09:18.400 of ten percent or more. According to the analysts quote, 0:09:18.800 --> 0:09:22.959 affordability is already challenged, exposing would be homeowners to an 0:09:23.000 --> 0:09:26.720 increasing rent environment that erodes their ability to save for 0:09:26.800 --> 0:09:30.440 a down payment. If that were to be combined with 0:09:30.640 --> 0:09:34.520 increasing unemployment, we could imagine a scenario in which existing 0:09:34.559 --> 0:09:38.880 home sales continue to outpace the Great Financial Crisis to 0:09:39.040 --> 0:09:43.880 the down side. In other words, a worrying state of affairs. 0:09:45.120 --> 0:09:48.000 Moving on, though, another bank that had a change in 0:09:48.040 --> 0:09:51.160 their view of the US housing market was Goldman Sachs. 0:09:51.679 --> 0:09:54.280 Let's not forget that as recently as last month they 0:09:54.320 --> 0:09:59.000 were predicting a modest one point eight percent rise in prices. Well, 0:09:59.480 --> 0:10:02.640 they're current and estimates are for a fall of five 0:10:02.880 --> 0:10:07.679 to ten quote. We view the risks to these estimates 0:10:07.720 --> 0:10:11.240 as tilted to the downside because of a sharp deterioration 0:10:11.320 --> 0:10:15.200 in our descriptive home price outlook scores and evidence of 0:10:15.280 --> 0:10:20.280 strong mean reversion in regional data. Meanwhile, on the ratings 0:10:20.360 --> 0:10:24.480 agency side, Moody's Analytics is predicting a drop off between 0:10:24.640 --> 0:10:27.600 five and ten percent, although they don't seem to think 0:10:27.840 --> 0:10:30.040 that we will see a two thousand and eight style 0:10:30.160 --> 0:10:35.040 housing crash. Their chief economist Marks Andy stated that plain 0:10:35.160 --> 0:10:39.440 vanilla lending, good mortgage underwriting, and low vacancy will be 0:10:39.559 --> 0:10:43.400 enough to stave off the crash. However, as I noted earlier, 0:10:43.760 --> 0:10:47.200 housing supply is at a high level, and even Zandy 0:10:47.280 --> 0:10:50.880 admits that these factors aren't sufficient to stave off an 0:10:50.920 --> 0:10:56.600 inevitable correction. Moody's analytics actually draws up a quarterly index 0:10:56.679 --> 0:11:00.480 that looks at local fundamentals such as income levels, etcetera, 0:11:00.800 --> 0:11:05.000 that helps determine whether house prices are over or undervalued 0:11:05.080 --> 0:11:08.199 in the regions being examined. You can see what this 0:11:08.320 --> 0:11:12.240 regional index looks like over here in this Fortune article. 0:11:12.760 --> 0:11:16.640 This shows the over and undervalued regions for Q two. 0:11:16.960 --> 0:11:19.319 If we were to compare this to the index for 0:11:19.440 --> 0:11:23.400 Q one, you can see the deterioration. I can't wait 0:11:23.440 --> 0:11:26.560 to see what it looks like for Q three. Any 0:11:26.640 --> 0:11:30.280 who in those housing markets that Moody's views as quote 0:11:30.400 --> 0:11:35.080 significantly overvalued housing prices should see declines of ten to 0:11:35.200 --> 0:11:38.760 fifteen percent. However, if we do indeed hit a recession, 0:11:39.040 --> 0:11:42.199 then these could even fall by twenty to twenty five. 0:11:43.240 --> 0:11:48.480 That will hurt like heck anyway. Getting the perspective of 0:11:48.520 --> 0:11:51.960 another ratings agency, Fitch Ratings, seems to think that we 0:11:52.040 --> 0:11:56.600 could see prices fall by between ten and fifteen percent. Quote. 0:11:56.880 --> 0:12:01.480 The likelihood of a severe downturn in US housing has increased. However, 0:12:01.559 --> 0:12:05.280 our rating case scenario provides for a more moderate pullback 0:12:05.520 --> 0:12:09.280 that includes a mid single digit decline in housing activity 0:12:09.360 --> 0:12:14.360 in twenty three and further pressure in four now. One 0:12:14.559 --> 0:12:17.640 final analyst with a prediction for housing prices next year 0:12:17.840 --> 0:12:22.319 is Paul Shepherdson, the chief economist of Pantheon macro Economics. 0:12:22.640 --> 0:12:25.520 He expects housing prices in the US to fall by 0:12:25.520 --> 0:12:29.560 as much as twenty in twenty three. He said, quote, 0:12:30.040 --> 0:12:33.680 we expect home sales to keep falling until early next year. 0:12:34.120 --> 0:12:37.640 By that point, sales will have fallen to the incompressible 0:12:37.640 --> 0:12:40.920 minimum level, where the only people moving home are those 0:12:41.000 --> 0:12:45.640 with no choice due to job or family circumstances. Shepherdson 0:12:45.760 --> 0:12:48.760 also thinks that the supply of homes available for sale 0:12:48.760 --> 0:12:51.960 will shrink next year and that prices will have to 0:12:52.000 --> 0:12:57.200 fall much more to restore equilibrium. So those are the 0:12:57.400 --> 0:13:01.280 estimates for the US housing market, not exactly two thousand 0:13:01.320 --> 0:13:06.400 and eight level armageddon, but disconcerting nonetheless. But that is 0:13:06.400 --> 0:13:10.000 only the US. Are there any other housing markets that 0:13:10.080 --> 0:13:13.680 are at risk of two thousand and eight type collapses? Well, 0:13:14.000 --> 0:13:18.040 there is one, and it's just north of the US border. 0:13:18.760 --> 0:13:22.240 That's right. Canada's housing market appears to be one of 0:13:22.280 --> 0:13:26.319 the biggest property bubbles in the world. In fact, according 0:13:26.360 --> 0:13:30.600 to ubs is recent Global Real Estate Bubble Index, Toronto 0:13:30.920 --> 0:13:33.559 is the city that scores the highest on the list. 0:13:34.440 --> 0:13:38.480 Vancouver isn't too far behind at number six. You can 0:13:38.520 --> 0:13:41.840 also see how this has progressed for the cities over 0:13:41.880 --> 0:13:46.320 the years. Ever since, it's been an upward march from 0:13:46.400 --> 0:13:50.520 overvalued to bubble risk territory. It's not as if this 0:13:50.640 --> 0:13:53.880 is a new phenomenon either. There have long been many 0:13:53.960 --> 0:13:57.240 analysts ringing the alarm bells about the risks facing the 0:13:57.280 --> 0:14:01.680 Canadian housing market, and there are several factors which have 0:14:01.760 --> 0:14:06.440 been driving demand in these cities. They include high immigration levels, 0:14:06.720 --> 0:14:11.320 falling mortgage rates, and high investment demand. Now, the most 0:14:11.360 --> 0:14:16.640 recent housing frenzy actually began back in and only accelerated 0:14:16.920 --> 0:14:20.640 during the pandemic. Much like central banks in other countries 0:14:20.680 --> 0:14:23.880 around the world. The Bank of Canada dropped its benchmark 0:14:23.920 --> 0:14:27.400 interest rate to near zero. This made it a lot 0:14:27.520 --> 0:14:31.280 cheaper for people to take out mortgages and gave those 0:14:31.320 --> 0:14:34.520 first time buyers who had been waiting an opportunity to 0:14:34.560 --> 0:14:38.720 get on the housing ladder. During the pandemic, property prices 0:14:38.760 --> 0:14:42.720 in Vancouver and Toronto accelerated to their highest levels in 0:14:42.920 --> 0:14:47.920 five years, at fourteen percent and seventeen percent, respectively. This 0:14:48.160 --> 0:14:51.840 drove housing affordability in these key metros to levels that 0:14:51.920 --> 0:14:55.360 were last seen during the nine eighties real estate bubble. 0:14:56.200 --> 0:14:59.400 In this RBC research note, for example, you can see 0:14:59.480 --> 0:15:04.120 ownership costs as a percentage of household income. Houses are 0:15:04.320 --> 0:15:07.880 much less affordable in Canada than they are in the US, 0:15:08.000 --> 0:15:11.080 and if you speak to any Canadian you'll know how 0:15:11.160 --> 0:15:16.800 much of an issue housing affordability is. But beyond affordability concerns, 0:15:16.880 --> 0:15:21.040 there's also the risk posed by bad debts. Something that 0:15:21.240 --> 0:15:24.160 is a lot more prevalent in Canada than in the 0:15:24.280 --> 0:15:28.800 US is the use of variable or adjustable rate mortgages 0:15:29.000 --> 0:15:32.800 or arms. These are essentially mortgages that lock in a 0:15:32.880 --> 0:15:36.280 lower rate of interest for an initial fixed period, but 0:15:36.360 --> 0:15:39.120 will then adjust up to a market rate after a 0:15:39.160 --> 0:15:42.800 certain number of years. In Canada, about a third of 0:15:42.920 --> 0:15:47.520 all mortgages are variable rate. That's about three times the 0:15:47.560 --> 0:15:50.560 amount in the US, where the share of ARM activity 0:15:50.600 --> 0:15:54.840 is about eleven. Those borrowers that took out arms to 0:15:54.920 --> 0:15:59.080 buy a home in Canada between May and July two 0:15:59.400 --> 0:16:03.600 could sue and see their monthly mortgage payments start to skyrocket. 0:16:04.680 --> 0:16:07.520 That's because the Bank of Canada has been following the 0:16:07.560 --> 0:16:11.360 FED in its aggressive rate hiking policy. What may have 0:16:11.400 --> 0:16:14.000 seemed like a good mortgage deal when rates were near 0:16:14.120 --> 0:16:18.720 zero percent could become exorbitantly expensive when they adjust up. 0:16:19.400 --> 0:16:23.440 This has already started happening, and according to Royce Mendez, 0:16:23.640 --> 0:16:27.840 managing director and head of macro strategy at djadon Quote, 0:16:28.360 --> 0:16:32.080 banks are already sending out lessers to clients whose variable 0:16:32.160 --> 0:16:37.120 rate mortgages owe more interest than their fixed monthly payment obligation. 0:16:37.560 --> 0:16:41.280 And that's just the tip of the iceberg. As these 0:16:41.280 --> 0:16:44.720 homeowners face higher mortgage payments, some of them may be 0:16:44.800 --> 0:16:47.920 forced to make the ultimate decision and sell their homes. 0:16:48.480 --> 0:16:51.760 This could only precipitate a broader price crash as people 0:16:51.840 --> 0:16:54.520 see the value of the equity in their homes plummet. 0:16:55.120 --> 0:16:58.800 It's a de leveraging cycle of lower prices, more sales 0:16:59.120 --> 0:17:04.399 and lower prices. Again, so those are homeowners, But you 0:17:04.480 --> 0:17:07.840 also have to consider the investors who are snapping up 0:17:07.920 --> 0:17:11.000 this housing in the hope of making generous yields on 0:17:11.080 --> 0:17:14.080 their properties. Well, as interest rates are going up, the 0:17:14.119 --> 0:17:18.119 cost of servicing their debts mortgages is going up to 0:17:18.800 --> 0:17:21.959 This means that they have to rely on rising rental 0:17:22.080 --> 0:17:25.439 rates to make up for the lost yield. While rental 0:17:25.560 --> 0:17:29.000 rates are still red hot, they could easily turn down 0:17:29.080 --> 0:17:31.480 in much the same way as they're now doing in 0:17:31.520 --> 0:17:34.959 the US. Now, if you were to combine all of 0:17:34.960 --> 0:17:38.199 these factors, you can see why housing prices are on 0:17:38.280 --> 0:17:41.439 the decline. Here you can see the steep drop in 0:17:41.480 --> 0:17:44.000 the price of an average home in the g T 0:17:44.160 --> 0:17:48.960 A Greater Toronto area. Overall prices in Toronto are down 0:17:49.240 --> 0:17:54.159 seventeen percent as sales plunge. Now, this is something that 0:17:54.240 --> 0:17:57.840 one of the Coin Bureau team members actually witnessed firsthand 0:17:57.880 --> 0:18:01.120 when he visited his family in Canada a few weeks ago. 0:18:01.359 --> 0:18:06.000 The number of for sales signs in his neighborhood was alarming. Now, 0:18:06.119 --> 0:18:08.959 this is of course anecdotal, evidence, but I would be 0:18:09.000 --> 0:18:11.760 interested to hear the experience of some of my other 0:18:11.840 --> 0:18:15.320 Canadian viewers, so let me know in the comments down below. 0:18:16.240 --> 0:18:19.960 The point is that Canada, and especially Toronto and Vancouver 0:18:20.440 --> 0:18:25.400 are due for a pretty nasty and long overdue correction. Okay, 0:18:25.720 --> 0:18:28.360 on to our next hot housing market, and this one 0:18:28.560 --> 0:18:31.080 is a little closer to home for me, the good 0:18:31.119 --> 0:18:36.120 old United Kingdom. The UK housing market is also starting 0:18:36.160 --> 0:18:40.040 to face downward pressure. House prices fell by zero point 0:18:40.040 --> 0:18:43.480 one in August and by the same amount in September. 0:18:44.200 --> 0:18:47.840 This left the annual growth at nine which is the 0:18:47.840 --> 0:18:52.280 weakest it's been since January. What these figures suggest is 0:18:52.320 --> 0:18:55.760 that the housing market was already cooling long before the 0:18:55.840 --> 0:18:59.560 disastrous budget from Liz Trust and Code. For those not 0:18:59.680 --> 0:19:03.119 fully clued up, the shortest serving prime minister in our 0:19:03.200 --> 0:19:06.560 history and her chancellor released a budget that would have 0:19:06.600 --> 0:19:10.679 made Iron rand All misty eyed. The only problem was 0:19:11.040 --> 0:19:13.320 that they didn't think about how they could pay for 0:19:13.400 --> 0:19:17.400 it all, and it's sent the market into turmoil. I've 0:19:17.440 --> 0:19:20.439 done a separate video on this disastrous episode, which I 0:19:20.440 --> 0:19:23.840 will leave linked to below not for the faint hearted. 0:19:24.480 --> 0:19:27.240 If you watch that video, you'll know that one of 0:19:27.359 --> 0:19:31.240 the side effects of that budget was that UK government 0:19:31.280 --> 0:19:35.560 bond yields went soaring. These are the interest rates that 0:19:35.640 --> 0:19:39.840 mortgage providers used to price their fixed rate offerings. Therefore, 0:19:40.240 --> 0:19:43.560 in the wake of that chaotic budget, these mortgage products 0:19:43.560 --> 0:19:47.840 were left in turmoil. Buyers were scrambling to see whether 0:19:47.880 --> 0:19:51.600 they could secure mortgages before their prices reset. In the 0:19:51.640 --> 0:19:55.680 midst of the chaos, banks and building societies withdrew around 0:19:55.800 --> 0:20:00.159 sevre mortgage products in the space of a week. Now, 0:20:00.200 --> 0:20:03.159 while the mayhem appears to have calmed down since the 0:20:03.200 --> 0:20:06.480 budget was pulled and a new PM installed, the mortgage 0:20:06.560 --> 0:20:11.520 rates themselves have been slow to adjust back down. For example, 0:20:11.680 --> 0:20:14.880 although interest rate swaps have fallen between one point three 0:20:14.960 --> 0:20:18.800 and one point four, average rates on two and five 0:20:18.920 --> 0:20:23.200 year fixed rate mortgages have only fallen zero point one six. 0:20:24.119 --> 0:20:28.200 You can see what that looks like over here. Quite simply, 0:20:28.640 --> 0:20:32.320 lenders are not passing on the lower interest rates to 0:20:32.400 --> 0:20:36.440 those taking out the mortgages. These higher mortgage rates are 0:20:36.440 --> 0:20:40.520 causing a great deal of uncertainty for homeowners and prospective 0:20:40.560 --> 0:20:45.040 buyers in the UK. This is especially the case for 0:20:45.080 --> 0:20:49.280 those who took out fixed rate mortgages Now this may 0:20:49.359 --> 0:20:53.880 sound counterintuitive, but in the UK fixed rate is more 0:20:53.920 --> 0:20:57.720 akin to adjustable rate in the United States, i e. 0:20:58.119 --> 0:21:01.160 There is a fixed term that is for a limited 0:21:01.200 --> 0:21:04.560 period of time, usually two to five years, after which 0:21:04.720 --> 0:21:08.000 they will adjust up. Think of it as in the 0:21:08.080 --> 0:21:11.280 same way our public schools are in fact fee paying 0:21:11.359 --> 0:21:14.200 and therefore nothing of the sort. Makes you wonder how 0:21:14.200 --> 0:21:18.080 we ever ruled over a third of the globe, doesn't it? Anyway? 0:21:18.280 --> 0:21:20.879 For those who took out these loans in the period 0:21:20.920 --> 0:21:24.160 when mortgage rates were low, the costs of servicing them 0:21:24.200 --> 0:21:28.119 are suddenly looking much higher. Over here you can see 0:21:28.160 --> 0:21:31.880 what that looks like. In London, for example, mortgage payments 0:21:31.960 --> 0:21:35.440 make up over fifty percent of first time buyers take 0:21:35.520 --> 0:21:39.040 home pay. Now, this is something that I myself and 0:21:39.119 --> 0:21:42.160 worrying about with my mortgage in the UK, as it's 0:21:42.200 --> 0:21:44.919 coming up for refinancing in the next couple of years. 0:21:45.280 --> 0:21:48.760 That's because I know that interest rates are only going 0:21:48.920 --> 0:21:53.840 in one direction up. The Bank of England is also 0:21:54.080 --> 0:21:57.720 widely expected to raise interest rates by seventy five basis 0:21:57.720 --> 0:22:02.040 points this Thursday. That's the largest hike by the BOE 0:22:02.320 --> 0:22:07.960 since nine Beyond that, interest rate futures currently predict that 0:22:08.080 --> 0:22:10.240 the b o E rate is likely to tap out 0:22:10.320 --> 0:22:14.320 at almost five percent next year. That's all the more 0:22:14.400 --> 0:22:18.119 pain for borrowers already on the edge. If we were 0:22:18.200 --> 0:22:21.159 to add this to the pressures of inflation and writing 0:22:21.320 --> 0:22:24.159 energy costs. This is all a bit too much to 0:22:24.240 --> 0:22:28.480 bear for the average UK homeowner. Some may decide to 0:22:28.560 --> 0:22:31.320 sell and this will of course have a negative impact 0:22:31.440 --> 0:22:36.240 on prices. As a result, analysts are predicting steep falls 0:22:36.320 --> 0:22:40.280 in UK house prices next year. For example, Credit Suee 0:22:40.320 --> 0:22:45.240 analysts are predicting a fall of between ten and fifteen percent. Meanwhile, 0:22:45.359 --> 0:22:49.920 Andrew Wishart, senior property economist at Capital Economics, also predicts 0:22:49.960 --> 0:22:54.119 similar falls in prices. Quote the rise in market interest 0:22:54.240 --> 0:22:57.320 rates that has already happened will push up mortgage rates 0:22:57.359 --> 0:23:00.480 to at least six percent and reduce the size of 0:23:00.640 --> 0:23:04.960 loans that lenders can offer and Quote, the resulting drop 0:23:05.040 --> 0:23:12.520 in buying power makes a significant drop in house prices inevitable. Ouch. Okay, 0:23:12.960 --> 0:23:16.520 time for a few of my closing thoughts. It's clear 0:23:16.680 --> 0:23:19.959 that the global housing market is heading for some turbulence. 0:23:20.000 --> 0:23:23.440 E's the era of pandemic fuel cheap credit is coming 0:23:23.480 --> 0:23:26.080 to an end, and that means a reckoning for those 0:23:26.280 --> 0:23:29.680 trying to secure a mortgage. All eyes are on the 0:23:29.840 --> 0:23:33.000 US housing market as a number of the hottest metros 0:23:33.119 --> 0:23:36.720 start to cool. Housing supply is on the rise and 0:23:36.920 --> 0:23:40.720 prices are on the decline. While a two thousand and 0:23:40.760 --> 0:23:44.760 eight style housing crash is unlikely, analysts are predicting pretty 0:23:44.880 --> 0:23:47.720 nasty falls which are likely to put a massive dent 0:23:47.960 --> 0:23:52.280 in consumer confidence. Perhaps this is what Jerome Powell always 0:23:52.320 --> 0:23:55.800 intended when he wanted to quote bring housing prices back 0:23:55.840 --> 0:23:59.560 in line with fundamentals. But it's a bitter pill to 0:23:59.640 --> 0:24:01.879 swallow for all those who have a great deal of 0:24:01.960 --> 0:24:06.360 their wealth tied up in their homes. However, such worries 0:24:06.440 --> 0:24:11.000 are perhaps even more acute for Canadian homeowners, as concerns 0:24:11.080 --> 0:24:15.280 about a massive correction ripple through the air waves. While 0:24:15.359 --> 0:24:18.600 this has been a long time coming, it appears as 0:24:18.680 --> 0:24:22.560 if the dominoes are beginning to fall. This could be 0:24:23.119 --> 0:24:26.159 Canada's version of the two thousand and eight housing collapse 0:24:26.280 --> 0:24:30.040 in the US, at least according to the pundits. If 0:24:30.119 --> 0:24:33.359 that is the case, it could do significant damage to 0:24:33.520 --> 0:24:37.480 the country's GDP, given that so much of household wealth 0:24:37.920 --> 0:24:41.800 is again tied up in housing. That said, it could 0:24:41.880 --> 0:24:44.880 prove a silver lining for those Canadians who have given 0:24:44.960 --> 0:24:48.000 up on the dream of owning a home. Indeed, many 0:24:48.240 --> 0:24:52.040 younger people in the country are secretly hoping for a correction, 0:24:52.359 --> 0:24:55.399 anything for them to be able to eventually afford a 0:24:55.480 --> 0:24:58.159 place to call their own. When it comes to my 0:24:58.359 --> 0:25:02.160 native UK, things aren't looking two pretty there either. While 0:25:02.240 --> 0:25:05.040 the housing market in Britain is slightly more resilient than 0:25:05.080 --> 0:25:08.520 those in North America, it's the overall economic picture that 0:25:08.640 --> 0:25:12.440 has me most worried. Inflation is over ten per and 0:25:12.600 --> 0:25:15.560 the recent snaffoo with the budget has thrown the country's 0:25:15.640 --> 0:25:19.879 finances into disarray. The cost of living is only likely 0:25:19.960 --> 0:25:22.760 to get higher for those homeowners who may have to 0:25:22.880 --> 0:25:27.960 refinance their mortgages at higher rates. So let's hope that 0:25:28.080 --> 0:25:31.720 our new PM can help steer the ship. Two Calma sees. 0:25:38.600 --> 0:25:41.879 Last week, a meme I posted to Instagram about Central 0:25:41.920 --> 0:25:46.960 Bank digital currencies or CBDCs was fact checked. This came 0:25:47.000 --> 0:25:50.280 as a shock because everything the meme says about CBDCs 0:25:50.520 --> 0:25:54.160 is factually correct. It also came as a shock because 0:25:54.200 --> 0:25:57.760 it suggests that governments are slowly starting to clamp down 0:25:57.840 --> 0:26:02.240 on narratives that go against their upcoming CBDCs. If this 0:26:02.440 --> 0:26:06.760 is true, then it is flat out terrifying. That's why 0:26:06.840 --> 0:26:10.080