Putting 贰 and 贰 together

A flurry of interesting things happened earlier this week, though none should be a surprise for anyone familiar with local real estate bear blogs, forums, and their commenters.

First up, the Bank of Canada announced rates will remain unchanged. From March:

the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

From May:

the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

And they went out of their way to now state this:

The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation.

OK so we know that high levels of borrowing based on inflated asset values is a problem, and was one of the major reasons why the Department of Finance announced changes to CMHC mortgage insurance policies implemented earlier this year. While this would in and of itself reduce the rate of borrowing it does not tell us whether or not the rate of borrowing is declining as expected. The Bank of Canada, after analysing the evidence, thinks more needs to be done.

Then we get this report from Colliers president and managing partner Greg Ashley:

There also seems to be more myths than facts about Mainland Chinese investing. This trend is certainly impacting single family housing values in Vancouver - West and Richmond. However, it is not the driving force behind all sales. For example, a number of the recent launches reported large numbers of Asian buyers. Yet a signiicant portion of these buyers are actually local residents not foreigners. That being said, foreign demand is having a positive impact on multi-family sales and the debate will continue.

While restricting foreign ownership may curtail this demand it may also have the unintended negative consequence of hindering the development of much needed new housing elsewhere in Vancouver. While debate is healthy, restricting foreign investment will not only afect our real estate market, development industry, housing supply and our economy it may also damage how we are viewed in the world. Personally, I’d rather live in a place that is envied and sought after by people all over the world: a place that is welcoming, accepting, tolerant, inclusive, multi cultural and beautiful.

Again with the foreign ownership restrictions! Who asked him anyways? So let's for argument's sake say that the Colliers data, and Bob Rennie's statements, on foreign ownership are correct and foreigners indeed are not buying much. Who is buying, exactly, if not foreigners? The answer, obviously, is locals, or at least those who have some semblance of local ties through their immigration.

So now we come to it. The Bank of Canada, for whatever reason, is worried about debt growth and we have some reasonable indication that foreign ownership is not significant. I will be so bold as to put two and two together and state that, as I have mentioned previously, Vancouver may have not read the memo from the Department of Finance that Canada's debt levels are too high.

I agree that restricting foreign ownership in and of itself is a bad idea, insofar as the data simply don't support foreigners wagging the tail of the dog. But there is an argument that tamping the perception of boundless future foreign and immigrant investment may go a long way to ground future price expectations, though this is by no means a sure thing. Nonetheless, in my view a more plausible explanation for "ludicrous" prices is that marginal local buyers have bought into the "myth" of boundless immigration and foreign investment supporting higher future valuations, and they are going into debt to do so.

Am I off base in thinking locals taking on debt is really what's going on?