Thursday, April 06, 2006

Ottawa Housing Market is Clearly Slowing

Ottawa housing market is clearly slowing. Existing home sales are down 10 per cent in the past three months. New home sales have stopped rising.

Given the "frenzy" in the housing market through 2005, it's not surprising it took only a modest rise in interest rates to slow things down.

Like Canada, the U.S. had a new housing and property market boom. The driver was essentially the same as here - extraordinarily low interest rates.

Will new Federal Reserve chief Ben Bernanke, who picks up the reins after the Fed meeting next week, keep pushing U.S. rates up?

Ben Bernanke won't set out to actually pop the property bubble. But he will want to slow it, because just as in Canada booming property prices have been the main feed to consumer spending.

Will the Fed have to raise rates much more than most are predicting?

There is considerable uncertainty over how the Fed should play out the end of its rate-hike cycle.

The easy job has been done. Mistakes are more likely when you get closer to the end, not knowing where the end is, and that’s where we are.

While Bernanke does not have the extensive real-world business experience that Greenspan brought with him to the post after a career as a consultant and White House aide, he does have the advantage of nearly three years as a Fed governor plus a brief period as a top economic adviser in the Bush White House.


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