My view:
As we alluded to in a previous post here:
Leverage is a two edged sword. It cuts down the amount of equity needed to purchase assets when times are good and credit is available. But the down side is quite fierce. When the credit cycle contracts, more equity is required to buy a given asset, like a house, or interest rates are higher requiring higher payments and a higher portion of ones income. This combination starts a deflation cycle as the most levered individuals and companies default on bad debt. In turn, this results in more conservative lending practises at the banks which feeds into the reduction in leverage.
Now we have a situation that Central Banks are being forced to raise interest rates to support pensions through higher bond yields, and the system is beginning to crack.
If One Third of Canadians are already feeling the pinch at these relatively low rates, what will happen when rates rise a full percentage point?
From this viewpoint, housing and commercial property look like poor investments as asset deflation starts in earnest.
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