Presentation Transcript

1. Economic Geographic Issues In Canada

   Saad Ali, Tiger Kong, Bruce Hong, Carl Zhou
2. Housing Market What does it have to do with the economy?
3. (StatisticsCanada, 2010)
4. The Issue The explosive growth in house prices has left many in financial troubles, and with the increase in Canada’s population, this will only become a major problem for the government and the citizens of Canada.
5. (TheGlobeAndMail, 2013).
6. Stakeholders Involved House buyers Home owners Banks Government Real estate brokers Lawyers
7. When Did This Start? (Miller, 2012)
8. Where In Canada? Housing prices in many parts of Canada are different, urban areas having a relatively higher price compared to rural. This is due to supply and demand, more people wanting to live in urban areas. A big reason is the commute from rural to urban areas.
9. Possible Solutions Raise interest rates Setting limits Expansion Urban sprawls
10. Best Solution Increase interest Will have an effect on capital and demand for investment If demand is low then the prices will also lower Will even out the prices of different areas
11. Steps Required To Implement This Solution There are several things that can be done to raise interest rates. - Increasing inflation Increasing credit demand Convincing government (create artificial interest rate)
12. Why We Should Increase Interest Rates Homeowners who want to sell will adjust to changed interest and make value more desirable by lowering prices Will encourage buyers to spend their money more wisely Will slow down inflation and hyperinflation
13. Homeowners who want to sell will adjust to changed interest and make value more desirable by lowering prices (Picture to the right) Shows that prices decrease when mortgage increases with exception of 2008 events (Caroll, 2013) 3.69% fixed rate of mortgage for 10 years in Canada will support rising interest rates (Pucinni, 2013)
14. Will Make People Handle Their Money Wisely “The rise in interest rates question assumes that the cost of borrowing also increases. As the Fed’s bond buying slows, it becomes more expensive to borrow money, creating an increase in interest rates. This affects a business owner in a myriad of ways. To the extent your business is dependent on credit, your costs are likely to go up. There doesn’t appear to be an expectation that credit will become anymore available in the near term so you may want to factor in a net increase in costs” (Parrish, 2013) “Higher interest rates will reduce prices (generally) because nobody will spend with high rates, causing the lowering of prices because of no demand, which will allow those who cannot spend too much money to be able to spend and buy what they need”
15. Will Assist In Slowing Down Inflation/Hyper Inflation “As interest rates drop, consumer spending increases, and this in turn stimulates economic growth” to reduce hyperinflation hoarding of commodities income diffusion “Mortgage rates typically go hand-in-hand with economic cycles, falling when loan demand is low - because of high inflation and high unemployment (Erdman, 2014).
16. Why Government shouldn’t increase Interest Rates Interest rate increases will put many buyers out of the market Low interest rates promote economic growth Low interest rates decrease mortgage payments, helping current homeowners
17. Will Put Buyers Out Of The Market For each percentage point mortgages rates fall, 300,000 new homeowners will be created(Tuccillo, 2013). 56% of people would not consider buying a house if mortgage rates reached above 6% (BusinessInsider, 2013)
18. Will Promote Economic Growth "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," Greenspan explains (CBSNews, 2007) In 2009, the US cut interest rates to below 1% and Real GDP growth went up after the fall of 2008 (EconomicHelp, 2014)
19. Low interest rates decrease mortgage payments, helping current homeowners Rates on 30-year fixed mortgages, for instance, reached a record-low 4.1% in mid September-about the same time that mortgage bankers reported a 5% dip in applications (Smith, 2014). Athird of the 11 million households would either have to slash spending or have a second job in order to afford an interest rate increase.
20. The Best Solution We believe raising interest rates and mortgages would be the best solution to stopping the inflation rate of Canada’s housing prices.
21. Ramifications Three things may happen if our solution is implemented First, the amount of buyers will drop, greatly reducing demand in the housing sector. Secondly, current homeowners with variable mortgages will have to pay more money, leading to higher poverty rates as well as more families having less spending money. Finally, government interest payments on debt may increase, as a higher interest rate means the government will also have to pay a higher interest rate on its debt.
22. In Conclusion Overall, raising interest rates has its advantages, but it isn’t without its drawbacks as well. This is inevitable with any solution. Taking everything into account, however, this solution the most logical, for it does influence housing prices positively
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