There are almost 14 million households in Canada. Four million rent. Almost ten million own. Of the owners, 37% have no mortgage. That means about 45% of the entire population owes money on real estate.
This is why the new Bank of Canada boss, Stephen Poloz, is in such a pickle. Raising rates would be like taking crack from, well, you know…
But what if he doesn’t, keeping the cost of a mortgage at the historically-stupid level of 3%?
BeeMo has an answer to that. The bank’s latest poll shows an astonishing 57% of homeowners in the GTA plan to buy a new home within the next five years. This is an even more incredible stat when you consider 76% of people in the godless sprawl of urbanity already have one. And in doing so, they’ll be faced with at least 5% commission on their existing houses, plus double land transfer tax. Since it’s unlikely most of them dream of downsizing, you can probably count on more mortgage debt. Masses more.
Poloz therefore comes into this new job, taking over next week from rock star banker Mark Carney, at about the worst possible moment. Sir Mark cried wolf about higher interest rates so many times that nobody’s listening anymore. The debt piggies just keep on chowing down.
What other impact do cheap rates have, when combined with 5%-down, government-insured mortgages? Ask Vince.
I’ve been reading your blog for the last few weeks and have found it very insightful up to this point. I had a question involving my own personal situation and was hoping you could shed some light on it. I purchased a condo that was yet to be built about 12 months ago. It was a project launch in Edmonton and a friend suggested I check it out. I expect it to be built in about 1 year from now and based on what you’ve said, I feel like I may have set myself up for a sticky situation. I currently have 5% down as a deposit and cannot sell it until the place has been built.
I don’t plan on throwing all my money into the place since I’ve come to realize people overdo paying off their homes with basically no liquidity in other assets and refuse to fall into the same trap. However, I’m not sure how I would proceed once the place is up and ready to go? Would you suggest finding a way to sell it once it’s up? Or maybe minimizing down payments to retain liquidity and look to see before things get really bad? Please help me as I do not understand this well.
See what I mean? A guy wanders into a sales office cuz his buddy suggested it, and walks out with a futures contract on a condo. Hardly anything down. No perceived downside. And delivery of an uncertain product into an unknown market at an undetermined finance rate. Suddenly an unsophisticated, inexperienced investor’s been sold a product worth hundreds of thousands of dollars, reeking of risk.
This is why real estate has a troubled future. How could it be otherwise?
Banker Poloz realizes this. But we also know he’s a political appointment, hand-picked by the same guys who thought Mike Duffy and Pamela Wallin were great ideas. Poloz has central bank experience, but as head of the Export Development Corporation (his most recent job) he’s been a paid pragmatist for the last 14 years. Given the fact the next federal election is slated for October 1st, 2015, is Steve the guy likely to stop the madness around us, making those millions of house-horny Torontonians think twice about slithering into more debt?
Besides, he’s Ukrainian. And we all know what they think of real estate.