Bank of Canada backs off housing bubble talk

http://www.cbc.ca/money/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html

------- "Raising interest rates could hurt entire economy."

Summary:
As we head for the year 2010, many plebeian of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increase to decline the mortgage loan. He thinks that house prices are getting crazier and increasing the interest rates would be keen to do so, this is how the economy will continue to aplomb. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cut back on the on the duration of the house payments, and planning out the ability of the house owners to pay off the amount they owe.

Connections:
In chapter 3, we had a review on the Amortization Expense. In addition, we learned about a new contra account, Accumulated Amortization, an account that records a portion of the assets has been eliminated. According to this article, David Wolf says that increasing the interest rates now would help the Canadian economy. But that means when we do the accounting analysis, we have to keep in mind that the interest rates increase and the amortization period would take longer to finish than planned. For example, if a company planned to have the building paid off in 40 years; but now the bank decides to increase the interest rates. This could be cumbersome for the company because they now have to extend the amortization period of the building (also an increase for interest expense). There would also be hard to do the contra assets for the building because the building will lose its value as time goes by (depreciation). This effects the accumulated amortization for the company. Offering low mortgage rates for the houses will also effect the starting of the business.

Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now with the interest rates rising, this makes it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the interest rates associative to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.