Former hedge fund researcher Andrew Hepburn has warned that the threat of the real estate bubble growing ever larger is not beyond the realm of possibility.
Some Canadians may be already taking on too much debt, thanks to the temptation given by the record-low interest rates from smaller lenders and mortgage brokers.
“At the moment, low interest rates induce people to borrow. Cheap carrying costs encourage people to load up on debt, whether to take out a mortgage or buy a new car,” he said.
“With regards to the housing market, many analysts cite low rates as a factor that will continue to support prices despite obvious overvaluation. So long as rates are low, the argument goes, demand for housing will remain strong.”
But Hepburn predicts an entirely different scenario past the short term: Canadian households may simply stop responding to low rates.
Hepburn said if the rates remain low beyond the nearby future, only households who will refinance existing loans will be attracted to take advantage, but it will “no longer induce households into taking on further debt.”
“Low rates may continue to affect the foreign exchange value of the Canadian dollar, but the Bank of Canada will not be able to convince households to continue their borrowing binge,” he added.
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