Stagnation doesn’t bode well for the Canadian Housing Market, Home Equity Loans Bubble – July 16, 2019,
Canada has some smart people, working in the private and public sectors who can’t afford to purchase their desired home in the regions they’d like to live in. Via CMHC housing PRICES have been able to rise at a level that if corrected would cause deflation that in most major cities would really create housing price chaos as mortgages would be worth more than a house would sell for. Now, this isn’t so much a problem if let’s say all the Condos built in Toronto and Vancouver were occupied by actual Canadian owners, however a large enough portion of the homes and condos that have inflated mortgages in Canada belong to Real estate speculators who are in the housing market primarily to make a profit.
Why is this is problematic? If housing prices begin a long cycle of stagnation, more and more of these real estate investors will have less and less access to home equity loans, wages haven’t increased much in Canada, which equates to a smaller pool of renters to pay the mortgages and strata fees associated with these mortgages and selling for a loss as a real estate investor becomes increasingly harder if there’s a Home equity loan and possibly other debts that the real estate investor hoped to pay for if or when they were able to flip their property.
The problem with flipping properties, the problem with cash flow is if your assets aren’t great enough to pay for your debts, in the event of a tighter lending cycle, you’re going to get squeezed out of the game. The main problem with the Canadian housing market in major cities is that renters can’t afford the prices, this problem similarly exists in New York City, however, because there’s no CMHC equivalent in New York City and people are more mobile it’ typically the rich caught up in the inflated real estate market.
In Canada, middle class Canadian are being incentivized to get into the inflated housing market, CMHC has proposed to help with Downpayment loans, I say this only to illustrate the structural economic problem that’s approaching the Canadian housing market. Deflation doesn’t appear to be on the menu for the housing market, in fact it would be a disaster in the Canadian housing market if it deflated, because CMHC which is a Crown Corporation can go to the government for a bailout in the event of an economic housing collapse and what this actually could equate to potentially is a further hyper-inflation of the Canadian dollar.
Again, the problem with Government created economic problems are the COSTS associated with them. Based on what I hear from Canadians, we’re not ready for austerity measures, in most undeveloped countries, their main problem is the governance, who will lie to the public about the costs associated with growing the government. Government people don’t work for free, Government employee wages are often tied to inflation and Government insurance schemes typically force prices up in particular industries because there is no competition. To prove my point, I live in Ontario and Ontario’s private car insurance industry is a disaster, but the Insurance Corporation of British Columbia(ICBC) which is Provincial Government Crown Corporation in BC now charges drivers more money for auto insurance than people in Ontario pay. Now, the assumption is if the Government is taking care of auto insurance in BC that BC’ers should have the lowest auto insurance prices in Canada, right?
Well, imagine if a Federal Crown Corporation is known as the Canada Mortgage and Housing Corporation (CMHC) decided to insurer mortgages, would this make purchasing a house in Canada cheaper or more expensive? I’d argue it would make housing more expensive in Canada, why? Because CMHC via their low money down mortgages (5%-20% down) now have given rise to more people qualifying for a mortgage, a larger pool of buyers means more money to spend on a mortgage, which means the homes seller can justifiably raise their selling price.
So let’s say without CMHC I’d have to put at least 20% down on a mortgage, is it likely that mortgage prices would increase or decrease? Now, let’s say CMHC also offers to help me with my down payment by giving me a downpayment loan, are mortgage prices likely to increase or decrease? Typically when there’s a larger pool of buyers chasing the same item, prices will increase or that item and these increases typically affect the poor first, because now, in the case of real estate development, real estate developers prefer building Condos over rental units. Why deal with rental controls when I can build a condo and pass the rental or AirBnB responsibilities over to someone else?
Lastly, why this is problematic is that well, Stagnation in this type of environment will result in Government stimulus, the Private Sector in Canada won’t benefit from government stimulus, interest rates are already near zero, if a private business is in debt and the price for them to service that debt drops from 3% – 1%? there’s no real difference there, now obviously I’m being extremely kind with the numbers, but I wanted to illustrate the disaster that’s coming to the Canadian economy because deflation or austerity measures isn’t an option unless there’s an economic COLLAPSE!
I’ve been predicting that Canada’s economy will come to a grinding halt in the near future and if this real estate slow down continues, I advise the reader to be watchful of a silent collapse, meaning that the housing market would have crashed in theory, but will be propped up by the Canadian government. Doug Ford made a minuscule attempt to shrink the size of government in the province of Ontario and the Public Sectors basically labeled Doug as Hitler.
Leftists don’t believe in economics, Leftists believe that when the government makes an economic law that there are no casualties and that there won’t be any trade-offs. Leftists whole-heartedly believe that Capitalism is the problem and that socialism or big government is the solution. In Canada, most of the political parties embrace some form of Socialism and democratic socialism typically ends with hyperinflation, it always does, throughout history dating back to the Roman empire.
What good is real estate without high payer jobs to support it? In Calgary, as an example businesses have fled commercial spaces, the solution Calgary’s mayor came up with was raising property taxes, do you know why he did this? Government workers aren’t going to accept less money and laying them off is called Austerity measures. People dependent on the government will raise holy hell if the size of government is cut. Even to this very day, in Venezuela a large chunk of the Government workforce refuse to let go of power, this is how things work and if Canada isn’t careful and if these issues aren’t addressed soon, well… I know what’s going to happen!
Canadian housing enters a new ‘boring’ era amid modest gains in sales – financialpost.com
Interesting times ahead