US Small-Business Rent Delinquencies Rise to a Three-Year High
The delinquency rate for US small businesses climbed to a three-year high this month, reflecting the impact of rent spikes and declining revenue, according to a monthly survey.
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The delinquency rate for US small businesses climbed to a three-year high this month, reflecting the impact of rent spikes and declining revenue, according to a monthly survey.
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May 20, 2021
Bloomberg News
,Canadian officials escalated efforts to cool the nation’s booming housing market, moving ahead with tighter mortgage qualification rules after the central bank issued a fresh warning against buyers taking on too much debt.
Prime Minister Justin Trudeau’s government set a new benchmark interest rate on Thursday afternoon to determine whether people can qualify for mortgages that are insured by Canada’s housing agency. The move matches an April decision by the nation’s banking regulator to do the same for uninsured mortgages.
The regulator -- the Office of the Superintendent of Financial Institutions -- announced earlier Thursday it would implement its new rules June 1.
Those steps coincided with a stern warning from Bank of Canada Governor Tiff Macklem in the morning cautioning that Canadians should neither assume interest rates will remain at historic lows nor expect recent sharp gains in home prices to continue.
“It is vitally important that homeownership remain within reach for Canadians,” Finance Minister Chrystia Freeland said in a statement.
The moves come amid a surge in housing prices that’s raising concern among policy makers and economists. Cheap mortgages and new remote-working conditions have spurred a frenzy of demand for more spacious homes, with house hunters bidding up prices across the country.
Canadians are so alarmed by the red-hot housing that nearly half the respondents in a Nanos Research Group poll for Bloomberg News say they’d like to see the Bank of Canada raise borrowing costs to curb demand for real estate and stabilize prices.
Still, the measures announced Thursday are seen as incremental steps rather than representing a fundamental shift in policy.
With the changes, home buyers will have to show they can afford a minimum rate of 5.25 per cent. The current threshold, based on posted rates of Canada’s six largest lenders, is 4.79 per cent. Economists have been estimating the tighter qualification restrictions would reduce the buying power of households by about 5 per cent.
The changes will have little impact on current housing price dynamics, according to Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.
“This is not a game changer by any stretch of the imagination and it was highly expected,” Tal said by phone from Toronto.
The measures from the government and the regulator came only hours after the Bank of Canada released its annual financial stability report, which highlighted the growing vulnerabilities associated with overleveraged households and speculative housing activity. It flagged three urban markets -- Toronto, Hamilton and Montreal -- as showing excess “exuberance,” with the national capital of Ottawa on the cusp of crossing that threshold.
‘Not Normal”
At a press conference, Macklem said some people have taken on “significantly” more debt, with many carrying very large mortgages relative to income. Borrowers and lenders need to understand that interest rates won’t always be at historic lows, and home buyers won’t be able to rely on rising values, he said.
“It is important to understand that the recent rapid increases in home prices are not normal,” Macklem said. “Counting on ever higher house prices to build home equity that can be used to refinance mortgages in the future is a bad idea.”
Outside of the warnings Thursday, it’s not clear how much the central bank can do to cool the market.
Growing household vulnerabilities could give policy makers more reason to consider raising borrowing costs, for example, but higher rates would also inflate risks -- such as slow growth or a price correction. Macklem’s next interest-rate decision is due June 9 and the Bank of Canada has said it won’t consider raising its 0.25 per cent benchmark rate until he economy is recovers fully from the COVID-19 pandemic.
The Bank of Canada’s financial system review did find that Canada’s lenders could absorb a significant amount of losses in the case of another shock. The central bank said household debt and housing market vulnerabilities probably don’t pose a significant systemic threat to bank solvency, even though they could undermine future growth.
“We have to look at the whole economy,” Macklem said at the press conference. “There are important parts of the economy that remain very weak, and the economy needs our support.”