Record Number of Homes Under Construction

CMHC released data for the Vancouver Census Metropolitan Area today and part of the data released indicates that there were a record number of housing units under construction in September at 23,111. Previous highs were August at 22,421, November 2006 at 22,311, and 16,279 in March 1994 during the last building boom.

As units complete I expect it to put pressure on existing home sales and further new home sales and I believe the market to be currently saturated with supply. If my belief is true then it would hold that we would need significant population growth with people who have the ability to purchase homes in order for no price correction to happen.

A significant price correction in new and existing homes is likely to happen during the next 2-4 years as prices of new and existing homes are priced out of reach for all but a few buyers with existing home equity and the wealthy minority.

Nucking Futs

A word of wisdom "Never hold your farts in. They travel up your spine and into your brain . . . that's where the worst ideas come from." I am sure that is where this idea came from. Just when you think things couldn't get any nuttier, CMHC has gone to the dogs. Yes that is right, our national taxpayer funded subsidy to the banking and mortgage business is doing stuff that is . . . well . . . Nucking Futs.

Latest in their 'brilliant' financial innovations is a splendid no-down-payment-required 'investor' mortgage insurance so that lenders need not worry and extend credit in even the craziest of situations. CMHC gets a gigantic cut of the purchase price at 7.25% to shield them from the risk of default by the borrower.

Why would a borrower ever default you ask? After all our real estate market is bullet proof and prices only go up and we are hosting a two week long sporting event in a couple years and rich celebrities and asians and drug dealers will buy all the property in the province in a couple years with their endless wealth. Why not borrow all the money you can get your little speculative, gambling hands on and bet the (taxpayer funded) farm on some shoebox condos made by drug smoking, ill-qualified construction workers and marketed by a delusional multi-millionaire with a marketing budget so big it dwarfs the construction costs?

That's it . . . I give up . . . I am going to nominate the CMHC economics department, Bob Rennie and Cameron Muir for the Nobel Peace Prize in Economics for rigging an industry that is immune to rational thought and behaviour and is immune to the vagaries of the business cycle.

Hat tip to freako and CMHC for inciting this rant.

US Existing Home Sales

WASHINGTON, Oct 24 (Reuters) - U.S. sales of previously owned homes fell 8.0 percent in September to a record low 5.04 million unit pace amid troubles in the subprime mortgage and credit markets, the National Association of Realtors said on Wednesday.

It was the lowest sales pace since the group began tracking both single-family and condo sales jointly in 1999.

Total existing home sales, which include condominiums, fell in September from a downwardly revised pace of 5.48 million in August. Economists polled by Reuters were expecting home sales to fall to a 5.25 million-unit sales pace.

"Home sales fell in September, but it was certainly due to the August credit crunch," said NAR economist Lawrence Yun.

"The housing data ... tells us that we are not out of the woods yet. It increases the uncertainty regarding the U.S. economic outlook and reinforces the view the Fed may have to cut rates at its meeting next week," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

The slower pace of sales helped drive up the inventory of homes available for sale by 0.4 percent at the end of September to 4.40 million, which represents a 10.5-month supply at the current sales pace. That supply was the highest for both single-family and condos combined since 1999.

Single-family home sales fell 8.6 percent in September to a seasonally adjusted 4.38 million-unit pace from 4.79 million, which was the slowest pace in nearly 10 years.

The national median existing home price for both single-family and condos dropped 4.2 percent from a year ago to $211,700.

And in the Vancouver, BC housing market we grow trees in the sky and fundamentals do not apply. I just want the local market to CRASH ALREADY! We all know its coming but the waiting is getting to me!

A Picture of Modern Hyperinflation - Zimbabwe

Zimbabwe (1999 - present)

NY Times Article

The Rhodesian dollar (R$), adopted in 1970, following decimalization and the replacement of the pound as the currency, was set at a rate of 2 Rhodesian dollars = 1 pound (R$ 0.71 = USD $1.00). At the time of independence in 1980, one Zimbabwean dollar (of 100 cents) was worth US$1.50.

Since then, rampant inflation and the collapse of the economy have severely devalued the currency, with many organizations using the US dollar instead.

On 16 February 2006, the governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, announced that the government had printed ZWD 21 trillion in order to buy foreign currency to pay off IMF arrears.

In early May 2006, Zimbabwe's government began rolling the printing presses (once again) to produce about 60 trillion Zimbabwean dollars. The additional currency was required to finance the recent 300% increase in salaries for soldiers and policemen and 200% for other civil servants.

In August 2006, the Zimbabwean government issued new currency and asked citizens to turn in old notes; the new currency (issued by the central bank of Zimbabwe) had three zeroes slashed from it.

In February 2007, the central bank of Zimbabwe declared inflation "illegal" and outlawed any raise in prices on certain commodities between March 1 and June 30, 2007. Officials have arrested executives of some Zimbabwean companies for increasing prices on their products.

CMHC September Starts and Completions

CMHC released data on Vancouver CMA Starts and Completions today and not surprisingly, starts are staying at high levels. With building homes being such a remarkably profitable business right now in the Vancouver area even with land costs and labour shortages it is no surprise to see builders wanting to build as much supply as possible at these prices. Construction on 2157 new homes was started last month in the Vancouver CMA. Get those presale contracts signed - suckers.

Completions are a different story with skilled labour shortages, red tape and transportation issues burdening the region. Completions still aren't keeping up with starts and the level of units under construction is ballooning to new record levels.

Fiat Money?

A friend told me about this video so I'm posting it here. I haven't watched it yet but it looks interesting, controversial, and it is strangely (for a video about finances) the most popular video on Google Video.

FYI - I'm not a "gold bug" by any means and I'm not necessarily advocating every point of view postulated in this video but I think it is wise, from time to time, to raise questions about the status quo and think in a historical and critical perspective about our current situation.

Friday - Odds and Ends

A few things for today.

I added a new link under the "Useful Links" section called the "Stingy Investor." It is a great site with some interesting investing ideas and other investing information.

Reader 'wombatos' sent me this link to a CBC article on how many Canadians are not preparing for retirement, are DEEP into debt, and do no saving. Scary stuff but it isn't news to me. Unfortunately I meet people everyday who have failed to prepare and are living the Kraft Dinner retirement.

"The survey commissioned by CGA-Canada found that a quarter of those who answered didn't think an interest rate hike would hurt them financially. The survey also found that about a quarter of Canadians don't save any money at all, even for retirement. So it came as little surprise that about one in five said they wouldn't be able to handle an unforeseen expenditure of $5,000. The accounting group said Canadians are increasingly relying on borrowed money to finance day-to-day living expenses."


On a personal financial planning note, the deadline is November 1st to put in your T1213 form to have less tax witheld at source. This is important if you are a salaried employee and make RRSP contributions, pay spousal/child support, and/or make charitable contributions among other things. My mentality is that we shouldn't give the Federal government an interest free loan by overpaying our taxes on every paycheque so fill out the form and get it in before November 1. The CRA will reply with a letter which you will need to give to your employer. You will get your tax return all year long!

Bank of Canada releases Monetary Policy Report

OTTAWA – The Bank of Canada today released its October Monetary Policy Report, which discusses current economic and financial trends in the context of Canada's inflation-control strategy.

Here are some highlights:

Implementing Monetary Policy: Targeting the Overnight Rate
The Bank of Canada’s monetary policy implementation framework centres on keeping the overnight rate close to its target.1 The Bank’s primary influence on the overnight rate is through the 50-basis-point operating band, reinforced through its standing facilities for loans and deposits. In order to reinforce the target when the overnight rate deviates from it, the Bank uses open market buyback operations and changes in the level of settlement balances provided to the financial system. If the overnight rate is generally trading above the target rate, the Bank will intervene with special purchase and resale agreements (SPRAs). If the overnight rate is generally trading below the target rate, the Bank will intervene with sale and repurchase agreements (SRAs). In addition, to influence the overnight rate, the Bank can adjust the targeted level of settlement balances higher or lower than the typical $25 million setting. SPRAs are routinely conducted around month-, quarter-, and year-end periods, and when large payment flows are going through the system. The Bank used SPRAs, SRAs, and adjustments to settlement balances, as appropriate, during episodes in 1999, during the transition to the Large Value Transfer System (LVTS), and in early 2006, when there was persistent downward pressure on the overnight rate.

Since early August, the Bank has again been using these tools to counter upward pressure on the overnight rate and keep it close to target.


The Cost and Availability of Credit in Canada
Credit conditions in Canada have tightened since late July, reflecting a repricing of risk as investors have become less willing to hold a wide variety of private sector securities, most notably asset-backed commercial paper (ABCP). The degree of tightening in terms of changes in the availability and cost of financing for financial institutions, firms, and households is difficult to estimate. Since the situation is still evolving, estimates are subject to a high degree of uncertainty. But what is clear is that the costs of borrowing from the market or from banks has increased, and credit conditions have tightened.

The cost of funding for Canadian banks through various market instruments has risen 10 to 35 basis points relative to the rates observed at the end of July. Increases in the costs of deposits have been more modest. Some borrowing rates posted by financial institutions have increased over the past few months. Effective borrowing rates for both business and consumers have also increased as the extent to which discounts on posted rates offered to households and businesses, such as the prime rate, have diminished. In addition, some financial institutions have increased covenants on new loans, and others have indicated some reduction in new loan originations. All told, the effective costs of household and business loans from financial institutions are estimated to have increased by about 20 to 35 basis points.

Businesses’ cost of borrowing through financial markets has also increased somewhat since July. The overall cost of issuing short-term market debt is estimated to have increased by roughly 20 to 30 basis points. Based on observed prices, the cost of long-term debt is estimated to have remained largely unchanged, but the actual amount of issuance has been relatively small and remains limited to investment-grade borrowers.1 As a result, observed prices likely do not fully reflect actual borrowing conditions. When the different components of bank and market borrowing are aggregated, the weighted average cost of borrowing for non-financial firms has increased by at least 15 to 25 basis points.

Overall, the cost of borrowing for households and businesses is estimated to be about 25 basis points higher, relative to the overnight rate, than it was prior to the summer developments, and availability and terms of credit have tightened modestly.

City of Vancouver MLS Listings Data - UPDATED

Here is some updated data from our 'anona-poster.'

Vancouver West Apartments.


Vancouver East Apartments

West Vancouver Townhouses

East Vancouver Townhouses.

West Vancouver Houses

East Vancouver Houses

I received this wonderful email yesterday from a regular reader. Clearly there are some technically gifted individuals out there.

I'm a regular reader of your blog; haven't posted, but I really enjoy your writing. I'm writing to you on e-mail because I don't know how to post attachments to your blog.

Recently I wrote a program to grab all the current listings in the Vancouver area (City of Vancouver only so far) from the MLS site, including price, lot size, number of bedrooms, bathrooms, and house age. As of October 13, there were 3196 listings in the CoV.

I've attached a summary figure, which you're welcome to post on your blog, which shows the distribution of list prices (as of Oct 13, 07) by sub area. Its in the format of a box plot, which divides list prices in each MLS sub-area into quartiles, and shows the median list price. Outliers are also shown as open circles. The "whiskers"outside of each box show the distance to the closest outlier (defined as a point that is at least one and a half times the size of the full box away from the median).


With data on other attributes of each listing, I was also able to conduct a cross-sectional regression to determine "normalized" house prices in each area. Based on these regressions, I produced some estimates for several types of houses in both East and West Vancouver (i.e., a quality-corrected index):

For a 25 year old 3 bedroom house,
in Vancouver West - $1,373,455
in Vancouver East - $747,221

For a new 4 bedroom house,
in Vancouver West - $1,475,377
in Vancouver East - $849,142

For a 10 year old 2 bedroom apartment
in Vancouver West - $866,183
in Vancouver East - $239,049

...
Anyway, I've automated this, so should be able to produce a quality adjusted estimate of the change in list prices month on month. Thought I'd share it :)

The Story Hasn't Changed - - - Yet

Why the housing slump isn't over yet - By Charles Zentay at thinkinvest.blogspot.com
Bold is mine.

For years, I bored my friends with talk that housing was in for a downturn. No one believed me, and people urged me to buy in before I was shut out of the market. Despite the obvious slowdown in housing, I continue to sing the same tune. I've been doing a lot of reading this weekend about the housing market, and I've concluded that we still have a long way to go before housing reaches bottom. I have been on this soapbox since early-2005 and although the market has not changed in Vancouver yet I still maintain that the market is headed for a drastic downturn. The longer we go without a correction the bigger the correction will be.

Why? The main reason is that in spite of all the whining and moaning about the housing slowdown, prices haven't come down that much (maybe 10%) and affordability is still very low by historical standards.

Here are some other reasons to be wary of housing:
- There is a ton supply out there (supply is at a record, and 2x its normal rate over the last several years). It has just skyrocketed and it is not going down. This is becoming true in our local markets just as it was in the United States.
- Affordability for new home buyers is still at lows.- More people own houses than ever before (meaning fewer buyers out there). Vancouver has THE WORST affordability in North America.
- The Fed will have trouble lowering interest rates in the face of $85 oil and a Euro of 1.42. Can you say INFLATION?
- Credit standards are tightening, meaning fewer mortgages and therefore fewer buyers. This is also true in the Vancouver market although to a lesser extent.
- A large amount of ARMs are still resetting, with a tremendous amount due to reset in the second half of 2008. ARM resets are leading to more foreclosures, and therefore even more supply. British Columbia has the highest product adoption of variable rate mortgages in Canada, with many mortgagees having a negative amortization now.
- Homebuilders are under enormous pressure with debt coming due and therefore will be willing to dramatically lower their prices. Vancouver has a tremendous amount of new home supply coming available in the next 12 - 24 months and demand that is drying up. Developers will cut prices when they realize that nobody is buying.
- The economy seems to be softening, with economists raising the chances of a recession. If you think that the Vancouver economy can sustain itself and is immune to external shocks you are deeply deluded. The high CDN$ is hurting exports (lumber, manufactured goods, technology, etc), film-making (Hollywood north anyone), and tourism (the supposed golden egg of 2010).
- Cap Rates (the income from rents) are still very low, making housing an unattractive investment. Duh! Real estate is about the worst investment possible right now - if you don't believe me get a calculator, paper and pencil and DO THE MATH.
- All of the above is leading to a change in the mentality towards housing. It is going from something people want to own to something to be wary of. This change in attitude towards housing can take a long time to set in and have a tremendously negative effect on pricing. Apparently Vancouverites are still in lala-land when it comes to this psychology shift but it will come swift and sure.

Frankly, the only bright spot I see in housing is that the weak dollar is leading to more foreign buying of U.S. real estate (in places like New York), but the effect of this buying is minimal compared to the other negatives. I just don't see other positives.I think owners are stubborn and resistant to lower prices. Therefore, the market is not correcting itself quickly. The slowdown is likely to last several years.

Until Cap Rates are higher than Mortgages Rates (meaning it actually pays to be a landlord), I think the market will continue to head down. Unfortunately, we're not even close to having attractive Cap Rates. I wouldn't be surprised if a major homebuilder declares bankruptcy in the next 6-12 months. I also wouldn't be surprised if homebuilders and banks start to move to more aggressively clear inventory, which will lead to big price declines. Look for this to happen in our area in 18-24 months.

Bear Cave - Growl Away

Here is an open thread for the next couple days.

Some questions:
Are the bears in hibernation?
Is the Fraser Valley Real Estate market starting to show signs of turning into a bear market with over 6 months of inventory and one month of price declines?
Is the Greater Vancouver market nearing the same with nearly 5 months of inventory and buyer reaching their exhaustion point?

Be back soon.

Happy Thanksgiving

I'm tired and I am taking a break for a week. I hope you enjoy some time with your family this holiday.

Prices are Down 0.8% in the Fraser Valley

Here are some statistics from the Fraser Valley Real Estate Board. My comments added in bold.

The average price of a single family home in the Fraser Valley reached $535,572 in September, the highest average price ever, according to statistics from Fraser Valley Real Estate Board’s Multiple Listing Service®. September’s MLS® numbers also revealed steady sales for sellers and increased inventory for Fraser Valley buyers. The benchmark house price index declined -0.8% from August and the trend is down, down, down with well over 6 months of inventory going into the fall. Lots of new supply is coming onto the market with even more on the way. Prices are out of reach for most people now and demand is decreasing while supply is increasing. Econ 101 tells me that we should expect a new price equilibrium to be established.

“September numbers show that Fraser Valley buyers and sellers took a bit of a breather after an unusually busy summer market, but we can see that the return to a lower sales level and an increase in inventory hasn’t affected the strength in average prices,” observes Kelvin Neufeld, president-elect of the Fraser Valley Board.

September’s average price for a single detached home at $535,572 reflects an increase of 8.5 per cent compared to the average price of $493,727 from the same month last year. Average townhouse prices increased by 2.8 per cent in one year going from $312,829 in September 2006 to $321,480 last month. Apartment prices averaged $230,280 last month, an increase of 12 per cent compared to $205,520 during September of last year.

“In September, the communities of Surrey, Langley and Mission reached their highest average prices on record for a single family home and in August that happened in North Delta and Abbotsford.”

There were 1,332 sales processed through the Multiple Listing Service® (MLS®) in September, on par with last year when 1,323 sales were processed in September 2006. This marks a decrease of 25 per cent compared to the previous month’s sales of 1,763 in August.

The number of total active listings increased by 22 per cent in one year, going from 6,918 active listings in September 2006 to 8,429 last month. The number of new listings in September at 2,614 was also six per cent higher than the 2,456 new listings received during the same month last year. At 6.3 months of inventory, we can expect further price decreases to continue through the winter.

Generous financing and plenty of choice keeps housing market moving

BY JOANNE LEE-YOUNG- Vancouver Sun -Tuesday, October 02, 2007

A wide range of housing and financing options are fueling home sales in the Vancouver area even as prices continue to rise. People are overpaying more than ever before with even more risky financing options that will enslave themselves and their family to the bank for the rest of their lives. Apparently lenders are being 'generous' now so they are just giving away money. No need to repay, just ask for the money and - poof - there you go - pick it off the money tree.

The sale price of a typical single-family home in Vancouver hit $726,268 in September, a 12-per-cent increase from the same month a year earlier (family not included - and who could afford to have a family at these prices).

At the same time, 2,776 sales were recorded on the Multiple Listing Service, a 10.2-per-cent increase from sales in September 2006. Un-freakin-believable - who is buying at these prices?

"There is still very strong consumer demand due to the economy. Rising wages mean that buyers are confident and this is underpinning the market," said Cameron Muir, chief economist at the B.C. Real Estate Association. "There is also a strong mix of housing stock. This variety is helping buyers at the lower end get into the market." If by "lower end" you mean households that make in excess of $100,000 per year then yes Cameron you are right. Cameron, could you please send me some data that clearly shows how BC residents have gotten 50% raises over the last 4 years? I'd really appreciate it, thanks.

"Six out of 10 sales are multiple-family dwellings [such as attached houses and apartments]. There are also more financing options. Down payments are down to five percent, which can be put on a credit card," said Muir. I can't believe I just read that. YES, CAMERON MUIR (cheif economist of the BC Real Estate Association) IS ADVOCATING PUTTING YOUR DOWNPAYMENT ON YOUR CREDIT CARD - Pay 22% Interest. Cameron, please stop by my office for a little lesson in financial math as you obviously missed some basic math instruction while you were getting your economics degree.



Attached house and apartment sales accounted for some of the brightest spots in the September figures.

Blah, blah, blah, . . . insert cherry-picked sunny data points here . . .

Across the region, benchmark prices for typical attached and detached properties increased at about the same rate this September compared to last, clocking 10 per cent and 12 per cent respectively. However, while the number of attached property sales jumped 27 per cent in September, the number of detached property sales rose a more modest six per cent. I'm calling the adverb police for the use of the word "clocking" when referencing price gains in anything. It isn't a NASCAR race folks.

"There is a great deal of choice in the market for a range of consumers today," president of the Real Estate Board of Greater Vancouver, Brian Naphtali, said in a statement.
Eighteen per cent of residential listings are above $1 million; and 37 per cent are between $500,000 and $1 million; and 45 per cent of residential units for sale remain priced below $500,000, he added. Is $500,000 to be viewed as 'inexpensive' Brian? My view of inexpensive and yours greatly differ. Since I'd have to make well in excess of $100,000 / year to stretch myself into the bottom quartile of homes in the area I don't really think that 1/2 A MILLION DOLLARS is a tiny bit of money - for a bloody townhouse mind you.

Prices of detached homes in Port Moody led all regions in the Real Estate Board of Greater Vancouver. The percentage increase in the benchmark price of a typical home there jumped 33 per cent to $778,423 in September compared to the same month last year. "This is no surprise. There is a larger proportion of houses in Port Moody that are newer. There are more recent additions to the housing stock there and many are fairly luxurious and well appointed. When these get sold back into the market, it can skew the numbers and be a bit of an anomaly," said Muir. Just like those anamolous credit card payments Cameron?

Meanwhile, in the Fraser Valley, the average price of a typical family home reached the highest level ever in September, even as buying and selling activity tapered off after a busy summer (typical family not included). September's record-setting average price for a detached home, at $535,572, was 8.5 per cent higher than the same month last year. Take your basic family income, add two suites, a foreign homestay student, and lots of overtime for the wife and VOILA, we can afford a house. Unsustainable anyone?

The number of Multiple Listing Service-recorded sales for the Fraser Valley in September decreased by 25 per cent from August. Meanwhile, the average townhouse price saw a more moderate increase of 2.8 per cent compared to last year. Hmmm. . . . that wasn't too rosy now was it?! The average apartment price increased by 12 per cent.

"In September, the communities of Surrey, Langley and Mission reached their highest average prices on record for a single family home and in August that happened in North Delta and Abbotsford," said president-elect of the Fraser Valley Real Estate Board Kelvin Neufeld in a statement.

Rant off. More to come later.

Another One Bites the Dust

Blogging on Vancouver Real Estate just gets lonelier and lonelier. RESteven, who provided us with accurate daily inventory numbers for the past couple months has packed it in and moved away from Vancouver to Los Angeles. But the weather is so good here in so called 'Lotus Land', why would you go to California!

Seriously, good for him, maybe I'll do the same.

How Do You Play the Inflation Game?

Check this article out for a case of why inflation will be a severe problem in the next few years. If inflation is going to be a problem in the next few years, what should one invest in?

1) Broadly speaking, stocks and real estate beat inflation over the long run. That said, adding undue risk by paying too much for stocks or real estate is not smart either and current market valuations are on the high end of the scale historically speaking. However, value stock picks can be found even in today's market (real estate is a different story altogether - I challenge anyone to find me a 'value' real estate pick - P/E <10). Passive investors could consider investing in a Value Exchange Traded Fund like the iShares XCV, IWW, or EFV depending on the market you want to invest in. Value mutual funds like ones managed by Cundill, Brandes, Brandywine, Sionna, or Chou can be a good fit as well.

2) More specifically, one could hedge exposure to increasing prices on the necessities of life - food, water, shelter and health care for example - by investing in companies that profit during times of rising prices or in the commodities themselves. This can be done quite easily by using Exchange Traded Funds that focus on these areas. Some examples of these ETFs are:
Food - MOO - Agribusiness
Food - DBA - Agricultural Commodities
Water - PIO and PHO - Water technology and resources
Food and other- PSL - Consumer Staples
Food - PBJ - Food and Beverage
Medicine - PJP - Pharmaceuticals
Shelter - XRE - Canadian Real Estate Investment Trusts

3) Real Return Bonds offer a guaranteed principal repayment and a yield that adjusts with the Consumer Price Index which should match inflation. If you believe the bond market does not reflect the risk of inflation going forward than RRBs can be a good way to put your money where your mind is. There are also a few RRB mutual funds available from TD, Altamira, Dynamic and Mackenzie. There is also a RRB index fund available from iShares - XRB.

4) Historically speaking, gold and silver have been traditional hedges against inflation as well. One can purchase physical gold and silver via several coin and bullion dealers. One can also invest in gold and silver via ETFs GLD and SLV or in mining companies that profit when gold and silver prices rise. Many precious metals mutual funds and ETFs are also available.

Bank of Canada Intervention

OTTAWA, Oct 1 (Reuters) - The Bank of Canada has now injected a total of C$890 million ($899 million) in overnight money into the markets on Monday to lower the overnight interest rate toward the central bank's target and improve liquidity.

Earlier on Monday, the bank injected C$530 million and has now increased that total. The bank intervened regularly in August during a credit crunch, but stayed out of the market from mid-August until late September.

It operates through Special Purchase and Resale Agreements, buying securities with the agreement to sell them back the next business day.

What are "Special purchase and resale agreements (SPRAs)"
Repo-type operations in which the Bank of Canada offers to purchase short-term Government of Canada securities from jobbers (investment dealers) with an agreement to sell them back the next business day. They are initiated by the Bank to prevent the overnight rate from moving above the upper limit of the operating band or to signal a change in the band.

For more information on how the Bank of Canada implements this policy check out these links:

http://www.bankofcanada.ca/en/review/1998/r981b.pdf
http://www.bankofcanada.ca/en/lvts/lvtsmp3.pdf
http://www.bankofcanada.ca/en/financial/lvts_neville.pdf

UPDATE: Reader /Dev/Null sent me a link to this article, which, upon reading made me want to go out and buy canned goods, gold, and ammo.