Carney to Canada: Stop that!

“Households need to assess their ability to service these debt obligations over their entire maturity, taking into account likely changes in both income and interest rates.”

Frenzied buyers snap up Ottawa condos Monday

The obvious thesis of my new book is the global financial crisis did not end in 2009. The MSM is wrong. Politicians are deceiving. Biz leaders are self-serving. You could tell that yesterday when the BoC kept rates pat. The Big Guy is hoping consumers borrow and spend their brains out, because that’s the only plan.

But this would not be wise.

I’ve tried to spell out the dangers for some time. And I’ll continue. Every day that passes now there’s another brave soul joining me in warning interest rates will rise and people who feel clever today may feel eviscerated tomorrow (like BMO’s Michael Gregory). But this is not the only mistake being made.

Take 111 Richmond Road in Ottawa, for example.

People lined up to buy an unbuilt condo there this week. About a hundred were sold in a hour, which means folks spent on average less than 10 minutes buying a property worth hundreds of thousands. Said a local real estate broker, “We’ve never experienced — and I’ve been in the business for 27 years — such a frenzy of people wanting to buy real estate.”

This is noteworthy because it’s Ottawa. Historically stable market. Fewer crazy price increases. Levelling influence of the massive civil service. Lots of available land. Endless cheap properties across the river. And not a place where people have speculated much on real estate – unlike downtown Toronto or Vancouver.

But no more. The fact R1E1 has spread to the nation’s capital well demonstrates a dangerous thing taking place. Not just people buying stuff on spec. Not just maniacal purchasers who can only buy because of emergency rates. Not just lineups to snap up properties when the local home price is at its all-time high. But rather the fact that future demand is being brought forward now thanks to the deception, the hype, the self-dealing and the herd instinct.

This means people who might have considered buying at some point later are totally convinced they must do it now. They may know rates will rise and the economy slide, but they’ve bought the story house prices will only go up, so this is a no-lose deal.

Fine. They’ll see.

But for the rest of us, there is an economic consequence. The more government stimulus there is, the more screwed up market forces become, the longer it will take to rebalance. A bank rate at one quarter of one per cent and mortgages at 2% are having a profound effect, and not a good one. When it comes to housing, the legacy will be:

• Houses average families won’t be able to afford for years.

• Tens of thousands of new owners over their heads.

• The potential for widespread financial disruption as a result.

• Falling real estate values as supply overwhelms demand, once demand withers.

• Less consumer spending due to increased household debt.

• Diminished disposable income leading to lower growth and fewer jobs.

All thanks to the consequences of this government-induced bubble.

Shame.

And while we’re at it, why is the National Film Board spending our tax dollars promoting a 27-year-old narcissistic realtor in Vancouver?

As part of a series on the economy, the government agency has shot, edited and posted three episodes about Keith Roy, a former restaurant manager who now dishes up listings. In one episode he helps his lawyer flip a condo for a $100,000 profit, and openly admits he uses gifts to bribe clients.

“If you’re looking to make a cool 100 grand by flipping your condo – then Keith is your go-to guy,” says the NFB’s promo for this online series.

If you’re looking to just flip, watch this. And this: