Consumer Debts, Mortgage Prices and Housing Prices Summary

3 06 2011

Key Concerns/Issues

– Possible burst of the housing bubble, as housing prices continue to rise (as a result of surging multimillion dollar property sales and increasing foreign investors that bids up the price) and number of sales go down (as the interest rate and household debt rises).

– Consumer debt is rising lately

– The economy is growing but the growing slows down due to decreased consumer spending

– Many Canadian aren’t aware of the current economic downturn that can affect their financial situation and debt is continuing

Resulting Challenges to Canadians

– If the housing bubble is burst, there will be a rise in housing foreclosures as middle class Canadians fail to pay their mortgages, debts or simply lost their source of income (More middle class Canadians will lose their homes)

– This rise in foreclosures will increase the supply line in housing, significantly dropping the housing prices and shutting away more jobs in the housing market.

– They also have to deal with their mortgages especially when they’re taking out home equity.

– Another major hurdle Canadians may have to deal with is the housing bubble bursting, dropping housing prices and value, leaving Canadians with more debt than they own in home value

Supporting Statistics and Evidence

– Average price of home sold in April across the country was $372,544, which is 8% rise from last year.

– Slow April sales figures shows that there is an activity dip of 4.4% from March, which is 14.7% down from last year.

– When the housing bubble burst inToronto andVancouver in the past, in the worst case had 35% of average housing value wiped out

– Household debt rose to $1.3 trillion in 2008

– 42% of people said that their personal debts were rising in the last three years

32% of respondents have no saving

– People under $35,000 a year, 49% people reported that their debt levels rose in the last three years. In comparison, 42% of those making $35,000 to $75,000 a year reported their debt levels rose, while 38%of those making over $75,000 annually reported an increase.

– Personal loans from banks was $48.5 billion, up 8.1 per cent from a year earlier, bank credit-card receivables were up 8.9 per cent at $51.5 billion.

– Consumers normally are 60% of the GDP, but high debt levels and the rising cost of living has brought that number down substantially.

– 3-4% of all mortgage holders representing about 200,000 home owners say they have no room for additional monthly increases in their payments

– Graph 

Possible Solutions

– Price ceiling for housing  to prevent skyrocketing housing prices

– Allow the market to burst the housing bubble and fall down quickly before demand rises again

– A series of mortgage rules set out by the government (such as increasing the interest rate on mortgage and decreasing the insurable amortization period) to prevent an unrealistic rise in housing demand and eventually burst of the housing bubble.

– In general mortgage laws and regulations should be changed to promote lowering debt for consumers, which would in turn promote consumer spending.

– Stricter laws on consumer borrowing, to prevent those already deep in debt from sinking further

Sources:

http://finance.yahoo.com/tech-ticker/article/152178/Best-Way-to-Fix-Housing-Market-Let-Prices-Fall-(Fast)?tickers=^gspc,^dji

http://www.theglobeandmail.com/report-on-business/banks-trim-mortgage-rates/article2037912/

http://www.moneyville.ca/article/997903–canadians-to-get-rate-hike-reprieve

http://okotoksmortgages.com/shawn-blog/a-warning-for-canadian-consumers-household-debt-could-spark-‘made-in-canada’-recession/#axzz1OB4zTm4H

http://www.iveybusinessjournal.com/departments/viewpoint/executives-should-monitor-household-debt

http://www.montrealgazette.com/business/Canadians+load+mortgages/4843035/story.html

http://www.theglobeandmail.com/report-on-business/economy/growth/consumer-fatigue-an-ominous-sign-for-economy/article2039584/

http://www.vancouversun.com/business/Report+cautions+that+over+indebted+consumers+drive+economy/4869489/story.html






Marijuana should be legalized(TBM)

15 05 2011

“…marijuana is one of the safest, therapeutically active substances known to man.” – Judge Francis Young (DEA) In my opinion,  growing and selling of marijuana should be legalized in Canada, in other words, marijuana should be treated as same as tobacco and alcohol. Marijuana would be good for the Canadian government. The government would be able to collect the extra revenue from marijuana industry while patients can benefit from this drug.

There is definitely a market failure for marijuana. Patients have access to marijuana through illegal actions. It’s so bizarre that other countries such as China, India, the Middle East, South East Asia, South Africa and South America have used marijuana for medical purpose since 6000 B.C. But Canada  has prohibited trading marijuana due to the government’s thought that growing marijuana is producing drugs. Look at what happened to Mr. Mernagh, the government filed a lawsuit against him just because he was growing marijuana at the back of his yard instead of taking his current health condition into consideration. Given that marijuana can help AIDS patients to relieve pain, half of the patients reach the satisfaction of reducing nerve pain with no side affects which is pretty amazing since opioids and other pills can only reduce pains up to 30% but come with drowsiness and confusion as side effects. AIDS patients aren’t the only case that marijuana can be used as medicine. Doctors recommend marijuana for various diseases, such as anxiety, epilepsy, migraines, glaucoma, Crohn’s disease, chronic pain, multiple sclerosis and inflammation. Besides this, some may say that marijuana is more lethal to human beings than alcohol which is why marijuana is outlawed by government. However, a study by London Imperial College found out that the most dangerous drug in the world is alcohol and heroin. Alcohol is ranked as No.1 the Most dangerous drug on earth. Alcohol can not only cause severe health problems to drinkers but also causes tremendous grief to the people around them. Statically speaking, alcohol not only kills over 2.5 million people annually worldwide but also kills over 75,000 Americans each year and shortens their life expectancy up to 30 years. There is definitely a negative externality, alcohol has created adverse impact on bystanders, mostly relatives and friends. Alcoholism also leads to many car crashes which caused 40,933 deaths last year. It isn’t just about car crashes, 95% of crimes involved alcohol. Economic productivity has been lost, a recent study stated that, an estimated $119 billion loss related to alcohol problems in 1995. Alcohol also causes people to be ten times more likely to be late for jobs, reducing productivity by 33%, and 4 times more likely to get into job related accidents which all contribute to lowering corporations’ profit.Alcohol even affects school performances can be affected by alcohol. Drinking has an influence over children’s brain developments, drinking slows down the brain’s action of responding learning and thinking which contributes to the growing number of skipped, dropped out students with lower grades which affects their futures as well. This is what alcohol has done to us but it’s still public qualified for trading. However no one has ever died from marijuana. Clearly, marijuana isn’t as lethal as alcohol. In this year, most countries have suffered from the recession which started in the United State. Increasing unemployment rate hits its 25-year-high in the U.S who just put trillions into financial market. And Canada even has a 7.8% of unemployment rate. Governments can do something just to help reducing unemployment rate. Legalizing marijuana can be one of the things that government can do to get people who have been unemployed to go back to job market. If government refuse to legalize marijuana, a lot of people not only who are related to marijuana industry but also people who are in other industries that are interconnected with the marijuana industry can be affected which is a classic example of negative externality, especially under today’s economy. On the black market, sellers set their own prices due to no regulation of prices. People take risks of growing, moving and selling it. In the end, buyers have to buy the fluctuated prices simply because they have to. No need to worry about running out of business! Without legislation, marijuana industry is already profitable; 25 million people use marijuana annually. Given that after legalization was approved, the demand will increase. Supply will also increase because it has become legal and to buy and sell marijuana does not come with any risks attached to it anymore. Likewise, the quality of the drug will improve with it being less dangerous to buyers due to more money being put into the research and development of better quality marijuana. Given that on the black market, an estimated sale of $4 to 5 billion on selling marijuana occurs annually.The government could gain tax revenue between $2.4 billion (tax rate is different from normal goods) to $6.7 million (by using the same tax rate as alcohol and tobacco). Which government could resist taxing this figure? I wouldn’t.  If our government could gain revenue out of this giant accumulated income, more welfare, public goods government can provide to more people who desperately need it. The stable society would be on the way to come true due to legalization of marijuana. Moreover, GDP doesn’t take revenue from black market. But if marijuana was legalized, our GDP would increase and look healthier. Not legalizing marijuana can result in negative externality. The number of people arrested for marijuana has increased since 1937. The cost of running prisons over the last five years has risen to $2.1 billion for people who are charged with possession, selling and growing marijuana is attributed to it. Arresting these people or retain more people who just sell, buy and grow marijuana could make the available space of jails become smaller along with rising cost. However, if government would have put this $2.1 billion on other social welfare, we could have a better living as a result. If marijuana was legalized, the costs of prison could be lowered and government could generate more tax revenue and they can use this money to assist unemployed people. Like I mentioned before, the quality of marijuana would be better which is good for the users’ health.

Why not legalize marijuana? It can benefit smokers, patients and government together. People can feel better off by smoking marijuana without danger. Our society can have more funding to support us for a bright future by collecting more money to change and shape our country in a positive way.





Luxury Products in Demand

7 03 2011

The sales of luxury products (i.e. Fendi, Dior, Louis Vuitton, Marc Jacobs, etc) increased dramatically in 2010. It surged 17% to 20.3 billion euros (28 billion US Dollars). The change in the buyers’ income and number of buyers caused LVMH’s (LVMH Moët Hennessy • Louis Vuitton S.A.) net income to soar. Most of the increased sales came from China due to the Chinese economic situation. Chinese shoppers have more money than ever before and more rich people have more interests in buying high-end products. Luxury goods can be only bought in brands’ exclusive boutiques, which also makes the products more attractive to rising Chinese affluents.

Sorry, I didin’t provide the link.

Article

 





LVMH’s Net Income for Year Soars 73%

6 03 2011

This is my article: http://www.nytimes.com/2011/02/05/business/global/05lvmh.html?_r=1&scp=1&sq=LVMH&st=cse