BMW-Loving Canadians Rebuff Carney to Pile Up Auto Debt

The BMW M6 Gran Coupe is introduced at the 2013 North American International Auto Show in Detroit.

Canadians are finally starting to heed central bank chief Mark Carney’s warnings about the perils of taking on too much housing debt. Yet when it comes to borrowing for a new Porsche or BMW, they aren’t holding back.

Sales of Daimler AG’s Mercedes-Benz have jumped 168 percent since 2004 to 33,116 last year, while those of Volkswagen AG’s Porsche SE have gained 65 percent, according to DesRosiers Automotive Consultants Inc. data compiled by Bloomberg. Bayerische Motoren Werke AG’s BMW 3 Series sales exceeded Honda Motor Co.’s Accord last year as luxury automakers win over Canadians by expanding offerings and pricing some models closer to traditional family cars.

Canada’s major banks have more than tripled their lending to car buyers since 2007, the year before the global credit crisis struck, and automakers are increasing dealer financing. The appetite for cars may undermine the Bank of Canada’s forecast that consumer debt will stabilize around a record 165 percent of disposable income, one reason policy makers cited last month for delaying plans to raise interest rates.

“Canadians are feeling more and more confident and seem willing to increase the debt level at a faster pace again,” said Tom Higgins, Burlington, Ontario-based vice president of analytics and decision services at credit-reporting company TransUnion Corp. “It’s a little bit disconcerting from that perspective given all of the information and warnings that we hear from the Bank of Canada and from the finance minister.”

Global Crisis

Canada’s economy emerged from the global financial crisis faster than its Group of Seven peers, and none of its banks failed or required injections of public capital. Canadian house prices have risen 39 percent since June 2006, according to the Teranet-National Bank price index, while U.S. house prices fell 30 percent over the same period, according to the S&P/Case- Shiller Composite-20 home price index.

Canada’s benchmark Standard & Poor’s/TSX Composite Index has gained 2.9 percent over the past 12 months, trailing the 13 percent gain in the Standard & Poor’s 500 Index of U.S. stocks. Canadian government bonds have returned 2 percent over that period, compared with 1.7 percent for U.S. Treasuries, according to Bank of America Merrill Lynch data. With its top credit rating, Canada has been a haven for foreign investment, government figures show.

European and U.S. stocks fell with Spanish and Italian bonds as the region’s finance ministers prepared to meet to discuss aid to Cyprus and Greece. The Stoxx Europe 600 Index dropped 0.6 percent today, the S&P 500 Index was down 0.1 percent in New York and the S&P/TSX fell 0.4 percent in Toronto.

Moody’s Downgrade

http://www.bloomberg.com/news/2013-02-11/bmw-loving-canadians-rebuff-carney-to-pile-up-auto-debt-economy.html

Americans Are Tapping Into Home Equity Again

Nearly 11 million borrowers are underwater on their mortgages, owing more than their homes are worth, according to CoreLogic, and yet home equity lines of credit are suddenly on the rise again.

During the housing boom of the last decade Americans withdrew over $1 trillion in home equity. They did it through cash-out refinances, home equity loans, and home equity lines of credit. The latter allowed them to use their homes like an ATM. They spent the money on cars, televisions, vacations and fancy home upgrades. It was seemingly endless equity, until suddenly that equity was gone.

"Home prices are definitely a factor" in the recent rise home equity lines of credit, said Brad Blackwell, an executive with Wells Fargo Home Mortgage. "As they increase, people have more available equity."

(Read More: New Housing Fears: Home Prices Are Rising Too.)

Blackwell also pointed to increased consumer confidence, meaning borrowers now feel better about their ability to repay these loans. Both factors fueled a 19 percent jump in originations of home equity lines of credit at the end of last year, according to Equifax. In 2008, as housing was crashing, home equity line originations dropped 55 percent.

"Nationally we've seen a 31 percent increase in HELOC's year-over-year," said a spokesperson from JPMorgan Chase.

http://www.cnbc.com/id/100446233