According to ISPOS Poll, 63% of Canadians have given up on owning Their Own Home: CMHC has been a COMPLETE FAILURE. It’s time to dissolve or restructure the CMHC – April 19, 2023
First, we have to put in perspective where the DEMAND for CMHC mortgage-backed securities, mortgage insurance, and minimum down payments came from.
Price controls are a huge problem all around the world. The minimum wage as an example is a price control, and RENT CONTROLS are price controls. Most people feel ENTITLED to live in certain major cities or regions. So these RENTERS will run to the government to create laws that don’t allow landlords to raise rents to the market price, which by the way, is inherently DEFLATIONARY in price, but can become temporarily inflationary if supply doesn’t keep pace with demand.
Price controls don’t allow for DEFLATION in pricing. Even rental control laws are inherently price inflationary; why? Because the COST of doing business rises every time the government adds a new government agency to its payroll. The number of permits necessary to pay the government just to build housing leads to DEMAND for rentals outpacing supply.
To combat rent controls, a DEMAND to make more Canadian homeowners became a reality. Sure, we can talk about Pierre Trudeau’s impact on turning more Canadians into homeowners, but Pierre Trudeau was merely answering the DEMANDS of the people who were tired of having a landlord.
Political Democracy is merely using the government to force the market to yield to the demands of the public. However, Maintaining real estate is extremely costly, and this is why government legislations of force create CONSUMER PRICE INFLATION in the marketplace.
The market, the banks, want borrowers to put down at least 20% towards their house before the bank issues them a mortgage; this 20% MARKET COST keeps the COST of a house within range of the average Canadian family.
However, 5% down mortgages equated to more purchasing power for borrowers, so inevitably, BIDDING WARS for homes started happening, and with the bidding wars, obviously, the people involved with these transactions, so the opportunity to FLIP HOUSING.
So Canadians began flipping housing; Let’s say I buy a house for $300,000 and sell it for $600,000 a few years later without doing ANYTHING; involved in all of this is, ofcourse the Federal Government in Canada because you have to remember, if I bought for $300,000 and I sold for $600,000 I can now put 20% on another house, and I’m being kind when I say that some bought for $300K and sold for $600K, some bought for $300K sold for $2 Million.
So there are a ton of Canadians that are sitting on a pile of cash, not because they added any value to the marketplace but because the CMHC caused all sorts of financial distortions in the marketplace. This is malinvestment, and this also contributes to more malinvestment in the marketplace.
All that aside, if housing prices in Canada continue to slide, bankruptcies are inevitable, which in my opinion, equates to the Canadian dollar being worth a WHOLE LOT LESS in terms of its DOMESTIC purchasing power in the future.
The Government of Canada is disincentivized from wanting the housing market to crash because it will have to slash its size, raise taxes and admit incompetence. The voters can also vote for whoever was in power during the crash out of power in the nextelection.
Most voters don’t understand what caused this housing disaster mess, and they don’t care; they just want another quick fix. So this is why any politician doing the political calculation in their end will likely debase the domestic purchasing power of the Canadian dollar in order to “save” the current structure of the Canadian housing market.
What I’m getting it when I say to dissolve the CMHC is to allow the marketplace to get the rift raft out of the housing market. A lot of housing product on the market refuses to sell because it’s waiting for CMHC or Federal government to launch another program.
When it becomes abundantly clear that the Federal government is out of the low money down mortgages business, BUYERS of Canadian real estate will dry up, an the FLIPPERS which still dominate the housing market, will be forced to sell.
This should be an orderly selloff because some people have more access to capital than others, and participants will try to get creative in order to achieve positive cash flow with their properties.
The odds of what I think should happen, happening is unlikely; what I expect is Canadian dollar debasement.
Interesting times ahead!