Canadian homebuyers Priced out of The Housing Market and The Unfortunate Reality of Solving The Problem – May 22, 2021,
Canada’s inflated housing market has an easy fix, it’s called normalizing interest rates. The problem with raising interest rates is that not only will there be a massive housing and asset crash in the private sector, but Canada’s public sector will also require austerity measures.
Austerity measures equate to the promises politicians made to voters being canceled because the truth of the housing market is that the Bank of Canada has created an atmosphere that allows individuals and governments to spend WAY beyond their means.
The Canadian economy is fueled by the Canadian consumer and Canadian consumers are quite frugal, however, it appears Canadians like paying the inflation tax. An inflation tax is a-slick-tactic politicians and central bankers use to get voters to SERVICE their public sector debt obligations.
So as an example most Canadians get zero benefits from a minimum wage hike because when the minimum wage goes up so does the cost of living, however, a higher minimum wage does equate to more income and sales taxes for the government, which means the unsuspecting wage earner actually loses money when the government raises the minimum wage, but the wage earner will have a larger paycheck.
People forget taxation is theft and our taxes are based on a percentage of your earnings and you pay those taxes whether your government is responsible with the money you sent them or not!
When the central bank leaves the interest rates near zero, it’s actually trying to incentivize PRIVATE banks to lend money. Being that a private bank unlike a central bank can go bankrupt, so the private bank will lend money in areas it considers has the least amount of risk.
To assist private banks, the Canadian government has gone as far as to change the role of the Canada Mortgage and Housing Corporation in that now it provides mortgage insurance, which signals to even the smaller banks that if there’s a housing crash, the Canadian government has their backs and will most likely bail them out.
What this ultimately does is it fuels price inflation, because as long as the borrower meets the minimum qualifications, why shouldn’t the private bank give them a loan? Well, this obviously leads to massive price inflation because this housing market is also open to INTERNATIONAL buyers and because Canada pays for its government spending via the inflation tax, it’s actually a benefit to the various levels of the Canadian government to allow housing prices to rise.
As many homebuyers know, when housing prices rise, so do their property taxes, unfortunately for Canadians, most of Canada’s public sector have labor unions that have paychecks the keep up with inflation, meaning that as asset prices rise a lot of Canada’s public sector also see a rise in their paychecks, so Canada’s public sector is incentivized to keep this housing boom going.
On the flipside to this is the private sector, makes its profits based on what the Canadian consumer is willing to pay, and if a private business raises prices and the Canadian consumer thinks the price is too high that private business will go out of business or cut staff.
Now, highly skilled workers usually can find jobs, but it’s lower-skilled workers that get screwed in all of this. I often write that Canada has created an economy in which it makes more economic sense to be on government welfare than it does to work a low-wage job and this ass-backward to what things should be in a free society.
In a free society, we’re the low skilled worker is the middle class and any person in Canad working a 9-5 job 5 days a week should not only be able to live comfortably in an apartment in a few years if they’re diligent they should be able to put a down payment on a house. That’s how things used to be until Pierre Trudeau reshaped Canada into this socialist nightmare.
The Solution to Canada’s inflated Housing Market is to Normalize Interest Rates and cut government spending
It’s a quick fix that’s not going to happen because most Canadians are brainwashed and love a big government. This is why I think the Bank of Canada is headed towards negative interest rates. The Bank of Canada already bought up all of Trudeau’s debt. Justin Trudeau bailed out a Porshe dealership and the Bank of Canada bought that debt, so excuse me if I find it difficult to believe that the Bank of Canada is going to normalize interest rates.
Committee supports $2.9M tax break for Porsche dealership | CBC
| Ottawa’s finance committee has unanimously approved a tax break worth up to $2.9 million for a future Porsche dealership on the main business strip of a lower-income area — despite residents who argued it would be “social assistance for millionaires.”
The bank of Canada might raise interest rates a few basis points but the first sign of resistance or an economic downturn, I suspect the Bank of Canada is headed towards negative interest rates, which means higher asset prices and most likely more government action to supposedly cool the housing market which only means prices might not go up for a few months.
Unless future government debt obligations are taken off the books, there’s no escaping Canadian dollar debasement. My view is that things are going to get a whole lot worse before they get better. I want to point out that people need to stop confusing the value of the Canadian dollar in the forex markets to what the Canadian dollar can buy in Canada.
The forex markets are decentralized and just because the Canadian dollar is going up doesn’t mean prices for Canadian consumers living in Canada will go down. We as Canadians have to live in Canada, the forex markets allow Canadian dollars to spent in countries that don’t have to follow Canadian tax laws. It really annoys me when people conflate the forex markets with Canadians purchasing power in Canada, they’re not the same thing.
If Canadians want to conserve this big ole government get used to prices rising forever!
Interesting times ahead!