The Problem With Canada’s Housing Market isn’t Mortgages, the Problem is Home Equity – March 11, 2019,

In China, the most inefficiently run portions exist outside of their free market zones, it’s very important to understand that in Communist China, all the wealth is derived from their Free market zones. For those of you who don’t understand what a free market zone is, well it’s an portion of the Chinese economy where the government doesn’t little intervention, it’s not to say those free market zones aren’t monitored by the Chinese Communist Party, however, those areas of mainland China are afforded economic freedoms that allow wealth to made and inherited in mainland China.

In Hong Kong which is regarding as the freest market economy on earth the only area of the market where the Hong Kong government intervenes is Real Estate and because of this, the real estate market in Hong Kong is extremely inflated. I bring this up as a warning to Canada that mortgages aren’t the problem in Canada, the problem is the Canadian government who unfortunately allowed made the decision to allow a Crown Corporation known as the CMHC (Canada Mortgage and Housing Corporation) to engage in Mortgage Loan Insurance. This, of course, equates to artificially created home equity that otherwise wouldn’t be there.

Why this is a cause for concern in Canada is that there are a lot of Canadians who are not only living paycheck to paycheck but who are property owners who are drowning in debt. If these people can’t get home equity in a few years we’re talking about record stagflation, not only record stagflation but a huge potential downturn in consumer spending. what separates Canada’s housing market from the United States are the people who were allowed to purchase properties. In America, prior to 2007-2008 NINJA loans (No income, no job, no assets) and interest-only loans with teaser rates were big businesses, no such phenomena enter the Canadian heavily regulated mortgage industry, instead what we got were working middle-class Canadians purchasing mortgages at inflated prices.

Now, I want to make something very clear, that’s hard for people to understand about Canada’s housing mortgage crisis, prices are inflated based on anticipation of a devalued Loonie. When a central bank artificially lowers interest rates, although the assumption is that more money is created, the reality is less real money is being used, instead what most people are using is money in the future and the moment the present money meets the future money simultaneously you get stagnation.

The housing market in many parts of Canada has hyper-inflated, I understand that some cities and towns haven’t noticed much difference in the price of their homes during this hyper-inflation period, however, the housing market inflation has also spurred increases for other types of loan products that Canadians have been taking advantage of. Lines of credit, Auto Loans, personal loans, unsecured loans, credit cards, if Canadians haven’t been paying attention since 2007-2008 the Canadian market place has seen an increase in financial products. We’ve been bombarded with so much of these products that many of us don’t understand that right now, we’re living in possibly one of the most prosperous times in Canadian history, the problem is we haven’t paid for it yet.

I actually think Justin Trudeau is a perfect reflection of what’s happened to Canada, we’re arrogant a large number of us are social justice warriors and many of us genuinely believe that sound economics is a myth. I actually don’t blame a lot of Canadians for assuming that if the Government simply ends the mortgage stress test that all of sudden they’ll be a rise in the housing market? The rise is here, we’re living in the rise, sure if the government removes the stress test, there might be a little stimulus to the economy, but understand Canadians are maxed out, we have a shortage of skilled labor, which means there are high paying jobs that can’t even be filled.

Because of the CMHC Canada has a lot of unsophisticated real estate investors who have gone as far as speculating Canadian businesses out of existence. Because of low-interest rates, properties have become inflated which means leases and rent prices are out of whack with the real economy, flippers like day traders, don’t really think about the ramifications of their actions if let’s say I purchase commercial property in hopes of flipping it, the rent and lease charges I pass onto to tenants may, in fact, be the nail in the coffin to what could already be there dying business.

If I purchase a condo, detached or semi-detached house at an inflated price with the expectation that I can either flip it or rent it out for cash flow, but I pass my mortgage costs onto the renters who may not be making a lot of money at their jobs, this will have a ripple effect on the real economy. In time both parties involved in these inflated transactions will have to make drastic changes to their living standards.

This, of course, is what’s going to eventually eat away at home equity and once the wealth or the equity of a person’s home refuses to appreciate, this is when lenders exist the market. It’s always important to remember that lender giveth and lender taketh away, the abundance of lenders in Canada’s economy is maintaining our standard of living, but there appear to be cracks forming that have little to do with the domestic population and more to do with speculative homeowner ownership.

The real estate lobby is getting increasingly desperate as new money is not being allowed to flow into Canada’s real estate market. It’s a pyramid scheme, the stress test was made to keep prices down, what the lobby groups want has nothing to do with allowing more people to qualify, no what the real estate lobbyist groups want is price inflation. I must again remind the reader that the CMHC was created to make housing more affordable to Canadians, I’ve been saying end the CMHC, however, most of the lobby groups often say nothing about the CMHC, well interestingly enough the stress test was designed for housing affordability, it will be interesting to see what happens to Canada’s home equity market in the coming years.

The Huffington Post article below is illuminating if you understand what’s going on in Canada’s real estate market. The Real estate lobby is getting desperate

Canada’s Housing Market Is Breaking Some Alarming Records Right Now – Huffington Post

Interesting times ahead.