Consumer Confidence Keeping Interest Rates Up?

We have yet another report today that consumer confidence was up in January. According to a report on CNN, we have actually had 3 % inflation in the US for three months in a row.

Can higher interest rates be far behind?

Well, it would seem to me that the market is willing to use almost any excuse to squeeze more interest out of the consumer. The subprime market will definitely take any news of inflation as an indicator to raise rates. As I noticed yesterday, Countrywide (one of the big players in the subprime market) has already raised rates.

Given the inflation numbers and ongoing consumer confidence numbers, can we really be at the end of a housing cycle? There are lots of folks out there who insist that this is the "end" and the housing bubble is bursting. We certainly are seeing a lot of price correction in many places; however, the prices are certainly not dropping in the Toronto area. In fact, prices here are showing an astounding bouyancy.

The talk of bubble bursting could be a bit premature. I haven't seen too many locations with price drops in anything more than the single digits -- yet the market has seen double digit increases for years. For sure we have a correction on our hands in many areas. I'm still not sure about a bubble.

I'm also not sure there isn't a bubble. I honestly think prices are much too high. They have to do more than just correct a little bit.

So, keep your eyes on the Implode-O-Meter. I do think that it could be the one way we can see if a problem is really gaining steam in the lending market. When the lenders topple over because of too many bad loans, it will ripple through the economy. Whatever happens in the subprime market will eventually touch the rest of the market, because many lenders who provide conventional mortgages also play in the subprime arena.

And any problem with the lenders will affect the housing market. Can you say "consumer confidence"? When people lose confidence in banks, all kinds of interesting things can happen.

Michael Chantrel
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