If you’re hearing talk of a total collapse in the Canadian housing market, you’d be wise to understand the role of CMHC — the Canada Mortgage and Housing Corporation. This federal Crown corporation exists to force Canadian taxpayers to bail out the housing market if prices fall far enough to render CMHC insolvent.
CMHC is involved in both bond issuance and mortgage insurance. Its primary function is to control prices. For instance, in provinces like Saskatchewan, the provincial government participates in price fixing — particularly in the auto insurance market.
What does this mean? It means that even non-drivers in Saskatchewan are subsidizing lower auto insurance premiums for drivers. The benefit is cheaper insurance, but the downside is the absence of true market-based pricing, since the system is subsidized.
We have enough Housing in Canada, we need Austerity
The same logic applies to Canada’s housing market. Due to extensive subsidization, it’s difficult to determine the true value of real estate. The very existence of CMHC suggests that — unless its role is significantly restructured — stagnation will become the new normal. And in my view, that signals a long-term debasement of the Canadian dollar.
It’s important to note: the foreign exchange (forex) markets do not always reflect the domestic purchasing power of the Loonie. Currently, the Canadian economy is structured in a way that contributes to a perpetual brain drain. If you aren’t benefiting from these price-control mechanisms, there’s very little incentive to remain in Canada — especially if you’re smart or talented. You’ll end up being penalized for it.
Yes, the U.S. can be dangerous, but only in certain areas. And this is what the best and brightest will weigh when deciding not to live in Canada or buy property here. Even if forex markets temporarily reward Canada’s stagnation, the on-the-ground reality is very different.
Entitled Canadians fear Austerity
By “collapse,” I mostly mean stagnation. A true collapse could only happen if a politician had the courage to dissolve CMHC in its current form. If the government sold CMHC — and if some entity foolishly bought it without taxpayer backing — it would be like a game of hot potato. That buyer would either expand aggressively to mitigate risk or flip it to another sucker at a loss, then justify the deal by hiking mortgage insurance rates on existing policyholders.
What I do foresee is a sell-off in the condo market — possibly even bankruptcies. This is the mess I expect to unfold. Historically, failed condos have been converted into rental apartment buildings, while mortgage holders were still stuck paying their loans. That’s where bankruptcies would spike.
Wacko Canadians want their cake and eat it too!
Why? Because once a condo corporation is dissolved, the property’s gone — but the mortgage isn’t. Lenders don’t care about the asset as much as they care about your payments. This is why I believe CMHC — backed by the federal government — will continue passing the burden onto consumers.
Until I see structural reform at CMHC, I see currency debasement as Canada’s default “solution” to its broken housing market.
So to all the wacko Conservative and Liberal voters asking why I voted for the People’s Party of Canada: it’s because both mainstream parties keep talking about fixing housing, but neither is willing to implement real austerity.
