The Canadian Housing market WILL NOT crash without a cash flow crisis first – More Housing Bubbles in Canadian real estate but they’ll be bailed out! – September 21, 2020,
The problem with the Canadian economy is that the party ends when there’s a cash flow crisis and this cash flow crisis happens with the private sector can’t turn a profit. Currently, people in Hong Kong are fleeing the Chinese Communist Party, even if they haven’t left Hong Kong yet, they’ve already bought or saved up to buy a foreign home. Canada is a top destination for Hong Kongers, so it doesn’t surprise me that HOUSING PRICES are going up.
The problem with housing prices going up are rental prices because the whole cash flow game for real estate investors revolves around either flipping a house or using the house or condo they bought to rent it to tenants or to use it for AirBnB and things like that.
Airbnb was under attack by the various levels of government in Canada pre-COVID-19, COVID-19 is actually deflationary for Airbnb because fewer people can travel. Now, Coronavirus is also deflationary for renters, because there are fewer Canadians who can afford rents that are based on mortgage prices and maintenance fees.
So, this is what I call a cash flow problem, because in order for that rental cashflow game to work, your tenants have to be able to pay your mortgage. Well, $2000 per month via CERB can’t pay your rent in Toronto or Vancouver and it looks like it won’t be able to pay your rent in smaller cities in Canada also.
When fewer Canadians are working or even going to school, this is all deflationary for the government, especially in the area of tax collection. Last time I checked Justin Trudeau isn’t shrinking the size of government, but he has been borrowing money that needs to be paid back by Canadian taxpayers and his tax collection pool has shrunk.
The Hong Kongers that can afford Canadian real estate, aren’t poor people, these are affluent Asians who probably won’t even be renting out their units, the Canadians who are cashing out and potentially downsizing, aren’t magically creating affordable housing, so all of these deflationary forces equate to the debasement of the Canadian dollar, because the government is clearly going to have to pay the bills with devalued borrowed printed banknotes.
But as values of homes appreciate and Canadian dollars are ‘worth-less’ the people who will suffer most will be the poor and the people working for the private sector. Now, I don’t know how much more Canada’s private sector can afford to pay out in wages and how low of a price they can sell their inventories at, but this has a cashflow crisis written all over it if you ask me. Because sure you can raise your prices, but if your customer can’t afford the new prices, your customer will buy less.
A lot of private venders don’t pass costs onto their customers, instead, they either get creative and/or they cut their profit margins until they find a new location.
In the past, Canada was keeping the loonie artificially low, well, debasement works differently, debasement is not the Bank of Canada tinkering with the money supply to keep the dollar low, debasement means the cost of operating your government is unsustainable and therefore this is the best price the market can give your consumer. Japan as an example doesn’t have a debased currency, they ave an artificially low currency, that they use to their advantage, there’s a reason why Japan has Special Drawing Rights, even though they’re known for having a ZOMBIE economy.
Now just being honest, the financial IQ of these 2020 Federal Liberals is very low in my opinion, recently the Liberals pledged $1 billion for cities to buy motels, hotels for the rapid-housing programs. Now, the reason why governments often try to stay out of housing is because of the maintenance-related expenses.
No, developer or intelligent real estate investor is going to work for the government, because housing people is all about maintenance costs. In Ontario as an example, the people in charge of doing maintenance work in community housing are UNIONIZED! this equates to added costs for the city and the province, that doesn’t exist in private buildings.
Housing market ‘moderately’ vulnerable amid potential overvaluation of homes: CMHC | bnnbloomberg.ca
Humans especially humans that don’t own property are very destructive, it’s not even that many of them are intentionally destructive, but they’re tenants, they don’t have to care when something in their apartment breaks, furthermore the law is on their side.
Now in Singapore as an example, their community housing programs work, but I’ll argue that this is because their government is COMPETENT AND IN MANY WAYS DICTATORIAL! In Canada we have a democracy, Trudeau won’t be Prime minister forever, and being that a lot of people do not move, if let’s say Canada or a Canadian province is forced into a position of forced austerity measures, government housing becomes very problematic.
Trudeau’s people are giving away Canadian money like it’s candy and usually when these programs don’t work as intended, the country runs into a debt servicing problem, I prefer calling it a cashflow problem.
I personally think the world markets are waiting to see what happens in the U.S election before it decides how to value the forex markets, but for Canada, at this point, we’re screwed with Biden and with Trump. Biden will signal a sluggish U.S economy which Canadian exports are reliant and Trump’s economy will take investments away from Canada.
The Canadian housing market in my opinion won’t crash until there’s a cashflow crisis and even then, I think the government will make the wrong decision and instead bail out the housing market and make Canadian tax payers pay for it with debased Canadian dollars!
Liberals pledge $1 billion for cities to buy motels, hotels for rapid-housing program | ctvnews.ca
Interesting times ahead!