Will the Bank of Canada Rate hike shut out more Domestic Homebuyers? – October 25, 2018,

Below is a link to the Toronto Star article in which this blogpost is in response too.

Rate hike adds to homebuyers’ challenges, could shut out more first-time buyers

Based on my analysis of the Canadian housing market, I’m not exactly sure if people in the Canada real estate sector realize what’s inevitably going to happen. Canada since around 2014 backed itself into a corner, whereby there are only two scenarios deflation or hyper-inflation. The Canadian housing market is fueled by speculators, in Ontario as an example, namely Toronto, despite what some people might think, there really is an IN-DEMAND shortage, because a lot of the condos being built in Toronto aren’t in demand.

I don’t know too many individuals or families that want bachelor, 1 and 2 bedroom condos to buy. However, if you’re a domestic or foreign real estate investor bachelor, 1 and 2 bedroom condos are the perfect choices to buy because… well… They’re cheaper to buy and maintenance costs will obviously be lower. So what ends up happening is that 3 and 4 bedroom condos or houses become more expensive and in more demand which of course makes the prices for those properties go through the roof.

What I like to do when I’m in the GTA is go outside during night time look up and view the amount of apartment buildings at night with their lights off at let’s say 7 pm – 9 pm, it will shock you to see how many lights are off in these condos, it may also shock you to see how empty many of these condos are. Adding to the problem in Toronto are condo maintenance fees. Most condo real estate investors based the rent they charge on their mortgage and maintenance fee. It’s also important to understand that a lot of condos don’t allow their owners to rent out their apartments so what often ends up happening is that these condos are hoarded until they’re either sold for a profit or if they can find a tenant who will keep quiet about being a renter. Also yes, I’m fully aware of the AirBnB as well the prostitution that often goes on in many of these newly developed condos.

The fear of the regulated real estate boards in Ontario and all parts of Canada is that all of this stuff is going to get exposed as interest rates rise because the truth is a lot of real estate investors are underwater right now and what they’re waiting on is another stimulus package. The problem is that in case people haven’t realized the Canadian consumer is tapped out. In the past Torontonians could save up money to buy a house, but now that rental prices are so high, unless you’re higher upper-class you can’t save any money, making matters worse is Trudeau’s deficit spending which is making the cost of living even higher and insurance claims which are making insurance prices go up.

All of these higher costs are coming to the forefront especially as interest rates rise. Donald Trump has also completely changed politics and economics and he’s created an atmosphere where Canada is going to have to find a way to be economically competitive on a global scale. Now, because so many Canadians are in debt and reliant on debt to survive, there is little money for the private sector to invest. In commercial real estate depreciation plays a major part in the purchasing of a property, because in commercial real estate property is a liability. In the residential real estate market, the property is a liability also, however, it’s not sold to consumers that way.

Residential real estate is sold to Canadians as an investment or investment property, so it’s usually not until people get stuck in their residential homes that they realize the seen and unforeseen liabilities and expenses associated with owning and maintaining residential real estate that they’ll realize the disaster they’re in. This interest rate hike doesn’t really matter much, like I’ve been saying for years the Canadian economy is coming to a screeching halt, because unlike America where the poor took on mortgages they couldn’t afford, in Canada most of the individuals with mortgages can afford them, the problem will be are they willing to spend their entire lives paying for them?

I don’t predict a massive sell-off, or a massive decline in prices, what I predict is the Canadian housing market has or will reach a peak and prices will simply stay there for about 10 – 15 years.

Unless the Canadian currency experiences hyperinflation or hyper-deflation the people who overpaid for their houses or condos will either have to sell at a loss or suffer in silence! If my prediction is wrong and there’s a fire sale in Canada the newly developed condo markets in Canada will be the hardest hit. Because like I said there really isn’t much of a demand for bachelor, 1 and 2 bedroom condos, those would make decent rental units. But being a landlord whose controlled by condo board can be a rollercoaster ride when maintenance fees, mortgage costs, and rental controls start adding up.

So will domestic homebuyers be shut out of the housing market because of the rate hikes? Of course, they will be, the Canadian housing market is structurally inefficient and bloated and like I’ve said the best thing that could happen in Canada right now is an economic collapse because if there’s no economic collapse, the assumption will be that all the regulations in place were done correctly. I also advise any reader reading this blog post to consider voting for either the Libertarian Party of Canada or the People’s Party of Canada, because quite frankly if you don’t these economic nightmares will continue.

Interesting times ahead