I Didn’t Forget about Mortgage Deferrals and CERB: Nearly 25% of homeowners would have to sell their home if interest rates rise more according to a new debt survey from Manulife Bank of Canada – June 13, 2022,
Whenever I think of Justin Trudeau, Kathleen Wynne comes to mind. Kathleen Wynne is the former Premier of Ontario. Once it became obvious her political life was about to change for the worst her policies began coming across as vindictive and this is one of the reasons why in the last 2 Ontario elections the Ontario Liberals have gained little ground with voters.
I like to remind people that prior to Justin TRUDEAU the Liberals were struggling to win elections. I actually attribute Trudeau’s victory over Stephen Harper to his legalization of Cannabis. The Liberals not the Conservatives in that instance shrunk the size of the Government. Unfortunately for people like me, the Liberals have been doing nothing but growing government ever since.
Although a lot of people attribute consumer and asset price inflation to increasing the money supply, I don’t! In my OPINION, Fiat money revolves around CONFIDENCE on the international level and POLICIES on the domestic level. This is why the Canadian dollar can often buy you more goods internationally than it can buy domestically.
As a commodity, the Canadian dollar is still respected WORLDWIDE, but domestically as we can see with the housing market, the Canadian dollar is worthless. Making matters worse for the domestic purchasing power of the Canadian dollar is Justin Trudeau’s war on Fossil Fuels. Canada with 30 million people and one of the largest oil supplies in the world can easily be energy independent.
Canada and Venezuela in many ways are similar, both don’t need to import oil, in Venezuela it’s merely government mismanagement that’s led to that nation experiencing extreme poverty. In Canada, oil is NOT nationalized as it is in Venezuela, so it’s the Canadian government, namely the Canadian Federal government’s war on fossil fuels that are responsible for higher CONSUMER prices.
I’d argue the survey from Manulife Bank of Canada is better than I expected because I’d say out of that 25% who claim they can’t pay their mortgage if at least 65% can, and what they’re actually saying is that they’d have to LOWER their standard of living to pay their mortgage. Why do I make this claim? because I could have sworn in order to purchase a home in Canada at these ridiculous prices that you had to prove to the banks that you could pass a stress test?
Whether it’s borrowing money from your parents or cutting back on the pleasures in life, which even include luxury foods, selling things you don’t need, or cutting back on monthly subscriptions, a lot of homeowners can afford to make their monthly mortgages and will do so if they’re forced. Most homeowners, merely don’t won’t to LOWER their standard of living.
If I’m to be honest the people or group to watch out for are the people who purchased houses or condos as INVESTMENT PROPROPERTIES these are the folks who I think will liquidate if interest rates rise. If it’s my place of residence, I’m fighting like hell to keep my home, especially if I have to sell at loss. However, if it’s an investment property, maybe I treat the investment property the way some treat stocks.
The other day, it came to my attention, that I made some bad bets in the stock market and I had to sell certain stocks at a loss. Actually, I didn’t have to sell, I sold because the money was more important to me than holding the asset was. If you’re holding a condo as an example and the condo is not appreciating in value, you not only have strata fees you also have a mortgage, furthermore, you might struggle to get a tenant into your condo, and making matters worse Justin Trudeau is at war with the UNVACINATED GLOBALLY so you might even struggle to AirBnB the place.
These types of conditions could easily lead to real estate investors LIQUIDATING their properties, because if you start to do the CASHFLOW math, not only could a person’s cashflow be coming down, but the value of their condo could also be on the decline also, which means they can no longer borrow against the property. Real estate investing is a business, acquisition entrepreneurs will often buy a business in the hopes to flip it for a profit later.
Wit real estate, it’s the same thing, as a real estate investor, you purchase a real estate property as a business, hope to make some POSITIVE cash flow from the said business, and exit said business with a profit. Now, the best-case scenario is you get a great tenant, and your property goes up in value so you can sell with profits in the bank. But the worst-case scenario is that you can’t rent it, you can’t make money using it as a hotel, and you’re forced to sell it at a loss, and potentially your other properties are underwater putting you at a position in which you’re in debt to potentially a bunch of different financial institutions.
Going back to when this virus first struck, Canadian homeowners, required The Canada Emergency Response Benefit (CERB) as well as mortgage and other debt deferrals? a reminder that CONSUMER PRICE inflation was lower during this time. Furthermore this period of time, definitely gave Justin Trudeau the confidence to rampant up his climate change rhetoric.
People in debt or people who were grateful to Trudeau for the same them from bankruptcy have given Trudeau the permission to be a more tyrannical leader. I’m sure Trudeau got tweets and letters from Canadians who praised him for his handling of the pandemic and these same people will justify in their own minds why every action by Justin Trudeau is JUSTI-FIED.
I bring this up because people have short memories and once bankruptcies or hardships start happening, the Canadian government’s ONLY tool will be to spend more money and in these conditions, if the Canadian government spends more money, inflation is going to get worse. One of the easy fixes to this mortgage problem is for Canada to go like Japan and allow 100-year amortizations.
Are 100-year amortizations coming to Canada?
I’ve been talking about this for years, but if the Federal government allows 100-year amortizations which I personally don’t think there is anything wrong with it, the bank of Canada can continue to raise rates, sure it means for many that they’re NEVER paying off their mortgage, but hey, that’s just how things are sometimes, I’m even opened to 1000 year amortizations if the PRIVATE banks are game. This is a chance for the government to get out of the way.
If what I’m writing sounds ridiculous you’d be right, but I’ve been saying for years now, the CMHC’s role in the mortgage markets needs to be DISSOLVED, because the private banks are more than capable of dealing with this mess on their own. If the private banks want to offer 2 million year amortizations, I say why not, nobody is forcing you to keep your money in the private banks, and as long as there is international CONDIFENCE in the Canadian dollar, why shouldn’t we push our luck?
have you not seen the ghost cities in China? you do realize those ghost cities are propping up the Chinese real estate market? Who needs economic activity, when you can build ghost cities, you want an asset? wham-bang-boom you got yourself an asset. Why would I buy a Chinese property with no windows, no plumbing, and electricity? I say why not buy a property without the aforementioned, the price is going up, right? BUY NOW!
The debt deferral situation that happened in Canada long before CONSUMER price inflation began running rampant, was all the evidence I needed to show me the fragility of the Canadian housing market. I remind you within I think it was 3 months of Covid (if that) Canadians needed a government bailout? That should tell you everything you need to know about SAVINGS rates in this country.
When the government came out with savings rate increases, I’m sure people have savings, my question is where are these savings coming from? I know people who leave money in their bank, just so the bank will lend them money, only to withdraw that money and give it back to the person or entity they borrowed it from. I know a lot of people who went into debt to pay for the downpayment for their house.
Think about going into debt to make a 5% down payment on a house worth 1 million dollars. That’s $50,000 you now owe and you haven’t even started paying your mortgage and other house-related bills yet. Sure this isn’t everyone, but I know quite a few people in these types of situations.
Interesting times ahead!