I'll try it again.
Interest rates
If rates do rise this year, it will be by a small amount. But if crap hits the fan a la 2008, I would not rule out rates going lower. The discount on variable mortgages is basically gone which has increased the cost of variable rate mortgages and I do not see it coming back this year. Higher rates = economy improving, low or lower rates= economy possibly entering a recession. I'm betting on the latter.
Mortgage rules
If mortgage debt growth keeps growing at 7% or more, then more mortgage rules will be needed especially if wage growth has stalled. Shorter amortizations, bigger down payments are the two main things that are being look at by the Feds. I am guessing the Feds will go back to 25 year amortizations. I would be shocked if a higher down payment would be required. There are minor things the Feds could get rid, like the 0 down and cash back mortgages the banks are flogging and possibly putting condo fees into the equation of monthly payments.
National Housing Market
I believe sales will trend down this year, and the average house price could fall slightly. This will all depend on mortgage credit as our housing market has thrown the fundamentals such as inflation, incomes, GDP growth, and rents out the window a few years ago. If mortgage credit growth stays around 7% with low interest rates, prices should stay within a 5% up or down scenario. If credit tightens, market perception changes or an economic shock hits the economy, mortgage credit will slow and so will housing sales and prices will fall. Possibly in the neighborhood of 5 to 8%.
Saskatoon Housing Market
I missed the boat on this one last year as I believed that with the amount of supply coming down the pipeline listings would test record levels. And if we reached record listings, I thought that prices would definitely decline. They didn't. Even though employment growth is pretty much negative over the last two years, population growth has led the country. While the talk of the "booming economy" has helped, here are two other reasons, the Saskatchewan Immigrant Nominee Program and the Saskatchewan government program that allows tuition rebates to graduates of approved programs, including international students who stay in Saskatchewan for a set period of time. These two stimulus programs have helped increase the population and demand for housing. But I should not make excuses, I got this one wrong. In a nutshell, for 2012, it will come down to market perception and mortgage credit. If there are no shocks to the economy and mortgage credit in Saskatchewan keeps growing close to double digits, then the Saskatoon housing market won't derail in 2012. There are many variables that can lead to different paths for Saskatoon's housing market in 2012 and this deserves a post in itself, so I will do that on a later date. And I won't change my stance from last year when I said that Saskatoon will be one of the last housing bubbles to pop in the country. If you are wondering what an external shock would do to Saskatoon's housing market, here is what happened to the average price when world markets went wonky and consumer confidence dropped in 2008.
Saskatoon Economy
With no external shocks, Saskatoon will most likely lead in GDP and population growth. With no external shocks, commodities should do well, the province will continue to spend and so will the city of Saskatoon. Credit will free flow and Saskatoonians will pile on more debt. Throw in some external shocks and we will see how strong the foundation of our economy really is.
National Economy
This is one of those if A+B+C then D happens but if G+H+I then J happens. If the US falls into recession and/or a country in Europe goes belly up and/or China has a hard landing, Canada goes into recession. If that happens, then I would not rule out Government stimulus and interest rate cuts. Even if there is no external shock, Canada will probably have low growth ( 1%) and could possibly enter a slight recession if the over leveraged Canadian consumer taps out. With the immigration doors opened wider and job growth crawling, I am expecting the unemployment rate to edge up. The West will do better than Central Canada even if there is a commodity crash.
China
I believe China is coming in for a hard landing, the question is will it be 2012? Maybe 2012 will be a soft landing turning into harder landing in 2013 and 2014. According to the Chinese government, China's economy boomed again in 2011. But why has the stock market fallen 28% since April? And if China is growing at 9% a year, why is the stock market down 62% from the 2007 high?
Europe
Europe as a whole will enter a recession. It just depends on how bad. Will the Eurozone will stay intact in 2012? If one country defaults, it could start a domino effect a la 2008. Europe is China's biggest trading partner.
Commodities
See China. If China has a hard landing, then it is estimated that commodities would lose 30 to 40% of their value. And if that happens expect many index speculators to jump ship.
Overall
There is quite a bit of uncertainty all around the world. Again, like 2011, I will say that 2012 is not the year to be going into loads of debt. The number one domestic problem is household debt. The number one external problem is a tie between a collapse in Europe, a hard landing in China and a recession in the US. The problems that has gotten the world in trouble has not been addressed and I believe 2012 will be very volatile, interesting, but scary in world markets. I'm buckling up. You?
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