Remember when we noted how Bermuda’s housing market could be in a precarious position due to bank lending practices? Well here’s an interesting chart created from data discovered in the Bermuda Monetary Authority’s Regulatory Updates going back to 2001. Apparently Bermuda’s borrowing rate has significantly outpaced our savings rate over the last few years which this writer believes may have caused a significant bubble in Bermuda’s housing market.
The above chart is compiled from the “BD$ Deposit and Loan Profile – Combined Banks and Deposit Companies (unconsolidated)” section. Note how from Q1 2000 to Q1 2004 there was not a great deviation between the total amount saved vs. the total amount borrowed. Subsequently, note how from Q1 2004 to Q1 2008 there is a huge deviation between the total amount saved vs. the total amount borrowed as well as a massive spike in the amount borrowed. Indeed, from Q1 2004 to Q1 2008 the savings amount fluctuated approximately around 3.5 billion BD$ while the borrowed amount rose nearly $1.8 billion BD$.
Now, if you follow the pretty steady trend of Q1 2000 to Q1 2004 it is not hard to note that if that trend had continued, the total amount borrowed should have been closer to 3.3 billion BD$ rather than 4.3 billion BD$.
So here’s the billion dollar question: What happens when you flood a very small and supply constrained housing market with an extra billion dollars in borrowed capital?