Anil, a retired UBS rates options trader, quotes investment strategist Jeremy Grantham:
Bubbles have a blowoff phase lasting 21 months. Using a 5% threshold, the run from Feb 16 to Dec 17 was 22 months.
Hence the question "Have we seen the melt-up?" It certainly appears that way for Toronto Real Estate (as of February 2018 data) and the March data may add even more weight to the thesis.
Weak hands will offer up their assets first and in Canada we have a lot of household debt that eventually will face term renewals and the official stress test which is the greater of either the Bank of Canada’s five-year benchmark rate, now 5.14%, or the rate offered by a lender plus another 2%.
If you are thinking of 'buying the dip' make sure your income is amortized over the length of your mortgage. In a melt down, the erosion of net worth will shift a lender's risk management exercise to more closely examine the strength and security of your net income.
As we know employment income growth is facing profound challenges.
Global Risks 2018
Libor’s spread over the overnight index swap rate, known as Libor-OIS, has widened... another sign that banks face steeper funding costs. Bloomberg March 12, 2018
As noted on the charts: "About $350 trillion of financial products and loans are linked to Libor, with a large chunk hinged to the dollar-based version of the benchmark." Bloomberg March 12, 2018, and...
Scarcity of Dollar funding means we should prepare for a rise in the $USD:$CAD pair. In terms of Canadian real estate I chart it in USD here. A strengthening USD means higher import costs for Canadian consumers at a time when interest rates are trending up.
Our Canadian national proclivity to fund our lifestyles via debt rather than income continues to produce a negative Net Trade and FDI, a flattening GDP and growing record household debt levels, charted here.
Why Consumer Debt is Canada's Greatest Economic Risk
"Consumption to Top Off" Bloomberg March 15, 2018
History, Charts & Curated Readings
Balance Of Trade
Rent Or Buy