When Sharon approached her long-time bank (the purple one) for a mortgage on a secondary property (because she’s a 1%er) the reply surprised. “I had no idea,” she said afterwards, “that where you want to buy makes such a profound difference in what they’ll lend.”

It’s true. One deal for buying in the Big Smoke. Another entirely for Bunnypatch.

In her case it was an offer on a cool house down in Ontario’s banana belt of Niagara. “Our lending policy allows us to finance 80% up to $750,000 and then 50% of the remaining balance,” her mortgage-specialist [email protected] wrote. And in contrast this is the deal when buying an urban house for exactly the same price at the same rate by the same person with the same income: “For a property located in Toronto, our lending policy allows us to finance 80% up to $2,250,000 and then 50% of the balance for a townhome/ house. Our lending policy for a condo would be 80% up to $1,000,000 and then 50% of the balance.”

Why the huge difference? For example, on a $2 million property (no big deal anymore) in T.O. Sharon could get a loan for 80% of the entire price, while out of town the max would be $1.2 million. In the city it would take a down payment of $400,000, and in Bunnypatch she’d need twice as much cash.

Well, the bankers have always coughed up extra credit for property purchases in markets they deem more stable, sustainable and in-demand. In contrast, cottages, farms and recreational properties have been harder to finance and usually more costly to buy. Not always, but normally. And especially now.

Price appreciation in the burbs, hinterland, sticks and hick cities since Covid came to town has been unprecedented. It’s a pure phenom. Bankers aren’t dumb. They can see the risk. The pendulum will swing in the other direction in the months or years ahead, and they don’t want owners walking away from real estate that’s in negative equity.

Those risks include a gradual, inevitable end to WFH for most people. It won’t be immediate. But it is assured. Hybrid first, then – when that no longer works – back to the workplace. Also factored in are higher interest rates. No, not now, but when 2020 and 2021 mortgage renew in 2025 and 2026. There will be no more 1.4% VRMs, HELOCs at prime or fivers at 2%. Bankers are preparing now.

More risk – property taxes. In places (like Ontario) with assessments based on market value and rapidly rising prices there’s a tax bomb coming. Properties have not been reassessed for more than two years, during which time values have jumped 40% and municipalities been whacked with extra costs. For example, the small-city property Sharon wants to buy for just over two million is assessed at $929,000. The tax lady at Town Hall told her to expect to pay 1% of her purchase price in property tax after re-assessment. The current tax bill of ten grand will double. Has everyone who moved in the last year budgeted for this?

Finally, the market. Are prices in the 200-km swath of land outside major cities in Canada sustainable? Is it reasonable a detached house in the car-centric boonies should cost the same as one where people can catch a 15-minute subway ride to work downtown? Or to a (ugh) Drake concert? Or a Jays game? If the work-from-home experiment fades along with the effects of the pandemic – and with prices so high most first-time buyers (who make up 50% of the market) are shunned, what will keep prices aloft?

Yep, risk. It’s what bankers do – try to contain it, especially for loans where they are not covered with tax-payer funded insurance. These days that includes every deal with more than a million. And you know what seven figures buys in the GTA or the LM. A nice garage?

Speaking of debt, we now owe $2.15 trillion. That staggering sum is increasing by an annual rate of 12%, or three times inflation and six times wage gains. In the second quarter of the year, reports Equifax, new mortgage loans increased more than 60%. That was the biggest increase ever. And we’re addicted to HELOCs, too. The number of demand loans secured by real estate has just increased 56% year/year. Of course, these loans are tied to the prime rate, which rises immediately when the Bank of Canada decides the time has come to end emergency lending. That looks like the second half of 2022. Says Equifax…

“With many consumers now heavily leveraged and the potential for increases on variable rate mortgages and HELOCs, consumers may find themselves not in a position to pay back their debt obligations if interest rates rise. This can lead to higher insolvencies”

Of course, nobody believes this. Interest rates cannot rise. People will forever be paid their full wages to stay at home in their jammies and peck away at their keyboards while deshedding the cat. Nobody will commute in the future. Mortgage costs and property tax payments will be stable. And there’ll always be a lineup of people to buy your house for more than you paid. Way more. No matter what soulless place you moved to.

Bankers, meh. What do they know about making money?

About the picture: “Really appreciate your (and your team’s) daily advice as we navigate a turbulent time,” writes Blaine. “This is Kilo. He is eleven years old going on five. He has a great enthusiasm for the outdoors – even when it’s a little chilly. Your blog is a great service to Canadians and I count myself fortunate to have discovered it. Much appreciation for the efforts you put into it day in and day out.” Do you have a canine to share with us? Send me a picture and some words – [email protected]

Trust me, this is not a politics blog. Way too dangerous. Besides, that might just get the anti-vaxers irritated enough to mount a protest in front of my yacht. And how embarrassing would that be?

Nah, let’s just do politics from the standpoint of money. Who is better for your personal finances? (It won’t be Jagmeet.)

Without a doubt, Bay Street wants the Cons. Look what the capitalism-loving Bloomberg site has to say about Justin Trudeau. “His proposals will backfire, stifling growth and diverting attention from solutions that would actually help solve the problems that people care about.” In fact the comparison is being made between T2 and Trump, with both reaching into the emotional and tainted well of populism to yank out ideas that trigger followers without solving anything.

Like banning foreign house buyers amid evidence no prices will drop (and non-residents are already taxed to the max in the GTA and YVR). Or whacking the banks more because they’re making money and are easy, captive targets.

So we’re told to be wary of any politician that pits “the people” against “the elites.” Bloomberg cites an academic paper that analyzed the effect of populism on economies. Not good. Ever.

The economists found that countries lost around one percentage point of economic growth every year after a populist came to power. This underperformance existed relative both to each country’s long-run growth rate and to the current global growth rate, and held for at least 15 years. They concluded that after a decade and a half, national income per person was 10 per cent lower than it would have been if a populist hadn’t come to power.

“Rising economic nationalism and protectionism, unsustainable macroeconomic policies, and institutional decay under populist rule do lasting damage to the economy,” they said.

In case you hadn’t noticed, after six years in power the Libs are now running against Jeff Bezos, the Big Six, the wealthy and the “special interest and Old Boys network” that Conservatives apparently genuflect to. Jagmeet is doing the same. NDP supporters eat this stuff up, but for the Liberal party leader, it’s not working. On Monday the O’Toole gang pushed two points ahead of the governing party in the poll tracker. This may be because the prime minister is not running on his record. He can’t. Fiscally, it’s a disaster.

Houses cost 70% more under his watch. The deficit is off the charts. Taxes are rising. The accumulated debt is terrifying. Inflation has surged to almost 4%. And – suddenly in the last week – consumer confidence took a big tumble. The latest Nik Nanos poll shows that after hitting a high in July, the confidence people have in the future has been steadily ebbing. Maybe that’s pandemic ennui. Perhaps it’s delta. Could be the catapulting cost of just about everything. And the election itself is an unwanted irritation, feeling tawdry and manipulated.

Whatever. Things have changed. Voters seem more resistant to politicians telling them there’s a bottomless pot of money to throw at everything. Says Nanos:

The share of Canadians who see the economy strengthening over the next six months fell to 37 per cent last week, down from 54 per cent at the beginning of July. Just over 20 per cent of Canadians say their personal finances have improved over the past year, down from 26 per cent last month.

Canadians are also less optimistic about the housing market. About 51 per cent say they expect home prices to increase over the next six months, which is the lowest score for that question since February.

Why? Because it’s clear many have arrived at the inescapable conclusion there’s no political solution to the real estate mess. The FHTSA Frankenaccount won’t do it. Kicking Chinese dudes to the curb won’t, nor will giving buyers grants to cover closing costs or spanking realtors for blind auctions. This just all adds to demand without augmenting incomes or creating more supply.

Says Toronto realtor John Pasalis (who hates my guts): “No party wants to trigger a decline in home prices, which means the only way we can restore affordability is for home prices to stall and allow incomes to catch up. But no party wants to do that because rising home prices and household debt drives our economy.”

Truth there. Conundrum.

Sorry, kiddos, but the odds of an under-40-only tax shelter with full-deductibility for contributions, taxless growth and tax-free withdrawals for a house purchase are melting faster than my tolerance for the no-vax whackadoodles. There is no silver bullet. The budget will not balance itself. And political ‘solutions’ of the past few years have only exacerbated things. The Chinese buyers didn’t make this happen. Nor did the banks. Or Bezos. Or any elite of corporate overlords.

Trump lied, pandered and paid the price. Boris Johnson hobbled the UK with his populist Brexit dreamweaving. And Bolsonaro just jumped Brazil’s inflation rate by 50%. Populism is political failure. Economic decay follows. Remember these days.

About the picture: “My son in Red Deer adopted a part German Shepherd part Belgian Malinois as a companion for his year old white Shepherd/Lab/Husky Sunny,” writes prequest poster DB. “This is River. She is the cutest, smartest, and most mischievous pup, ever. My second granddog! So proud!”