More Signs of DEFLATION-Negative Interest Rates Coming To Canada: Canadian home sales fell 8.4% in June from May – July 15, 2021,
Canada’s public sector would be in some serious trouble if deflation in Canadian home prices continues. Canadian finances are available for public consumption, it’s like they’re hiding anything from you, the issue s that most Canadians have a low financial IQ and in most situations are only able to interpret information linearly.
The CMHC like any other government program works until it doesn’t, the Bank of Canada(BoC) and the Canada Mortgage and Housing Corporation(CMHC) work together for the benefit of ever-rising asset prices in Canada, These ever-rising asset prices keep the Canadian governments SOLVENT. Because austerity measures, shrinking the size of government, or selling off sections of the government is unlikely, propping up asset prices is the only game in town.
It’s strange to me that anyone would think the Bank of Canada has inflation under control? Interest rates have been abnormally low for decades now and the end result has been not a decrease but an INCREASE in both taxes and regulations. The fixed costs on the private sector have forced prices up and allowed for a lot of outsourcing of manufacturing jobs, to imagine regulations going away or costs of doing business coming down, so preposterous, so why in the world would anyone in their right mind think that the Bank of Canada could raise interest rates?
What’s happening in Canada is that the Bank of Canada is fighting DEFLATION, now luckily, the Canadian dollar as of today’s date has stopped rising to the U.S dollar, but the housing market in Canada, can’t deflate or it will COLLAPSE.
I was talking to someone close to me and they were telling me that a lot of Canadians own their homes free and clear, and I replied to this individual that yes and many of those same people went into debt to purchase a rental property
Even Dave Ramsey recommends going into debt for a cash-flow producing rental property, why this matters is that a lot of properties in Canada can’t cash flow positively, meaning that Canada in my opinion is headed towards 100-year amortization. I’ve written about this years ago, maybe 100-year amortization won’t come right away, what might happen first ar 50 years, then 70 years, etc. With auto loans, they already have I think it’s 8 or 7-year auto loans so that the payments are cheaper.
This will most likely buy some more time for central planners, while at the same time allowing the banks to increase their profit margins. Unfortunately, this won’t help the poor or the middle-class much because it’s will signal further debasement of the Canadian dollar. It’s not even a certainty this will happen, but I suspect it will, which in my opinion will also bring about negative interest rates.
In closing, asset prices in Canada, can’t come down for a prolonged period of time, without an economic crash, because a lot of borrowers are already overleveraged, most Canadian real estate “businesses” are not cash flow positive, most investors are investing for capital gains(Buy low, sell high) even with a 100-year amortization, because of how the Canadian economy is currently structured it will be a temporary stimulus, because I’d as maybe with a 100-year amortization or an interest-only loan, loan servicing payments might drop 4% and you’d have to imagine that 100-year amortization would also increase the purchase price of every Canadian property.
We’re nearing the end, but the end could also be decades away, but make no mistake about it, the central planners are fighting deflation by debasing the currency.
interesting times ahead