The big fix

He’s an entrepreneur without an income. She works for the feds. Should we buy a house in Toronto, the clutchy newlyweds asked me a few months ago. And I said, as you’d expect, wait a year or two.

On the weekend the email came. “We bought a house because we got a great deal – reduced from $654,000 to just $588,000,” he said, adding that his wife was now pregnant, “and that changes things.” But the real justification was this: “We know house prices may fall a bit, but there’s no way the government is going to let there be a crash. We’ll just ride this out.”

People do things for many reasons. Hormones is a good one. Of course having a kid who won’t actually walk outdoors for two years is not much of an excuse to shop for a backyard now. And buying a house because it’s 10% off when it may be 25% less in the spring of ’12 is flimsy. But, whatever. I can only counsel. I can’t protect.

However when it comes to the belief Ottawa will step in stop a giant sucking of real estate equity, we have a good reminder how dangerous it is that everyone gets to vote.

Yesterday Barack Obama unveiled a $50 billion infrastructure program to throw up more railroad bridges and highway abutments, in the wake of news the country’s jobless rate jumped. As you know, the USA is mired in debt and has a $1.3 trillion deficit this year, largely due to stimulus programs with dubious results. It’s a dangerous situation, now made worse.

I mention this because if there’s one country in the world that has pulled out every possible economic, fiscal and monetary card to rescue housing, it is our neighbour. Since Obama came to power homebuyers were given $8,000 just for completing a purchase. Billions have been spent on loan modification programs to cut mortgage rates. Schemes have been launched to prevent foreclosures, to supplement the unemployed so they won’t lose their houses and pay banks not to seize properties. Interest rates have been dropped to zero for the first time ever, and billions spent propping up financial institutions. Fannie and Freddie were nationalized, and now almost 90% of all mortgages in American are insured by Washington.

In addition, of course, Americans can deduct mortgage interest from their taxable incomes. They can write off property taxes. And they can get mortgages for a little over 4% – a rate guaranteed not to increase for 30 long years. In addition, the average US house costs $180,000, half of that in Canada, and prices are about 20% lower across the nation (50% in some areas) than they used to be.

All this has cost trillions. And the result?

Sales in the latest period crashed 26% from 2009 levels. Pending home sales have cascaded lower. Over 50% of all sellers reduced their asking price in the last month. A quarter of all homeowners are in negative equity. Over 4 million families have stopped making mortgage payments. The average home now takes one full year to sell, and three price cuts. There are several million foreclosed and seized homes not even on the market yet. Sales of new homes are at the lowest level in recorded history.

This is not a failure of the most powerful government on earth. It’s a triumph of human emotion. Once public sentiment turns, once people perceive something as dangerous, the feeling’s unstoppable. When house prices fall without end, buyers wait for them to fall further. And no amount of public cash is gonna stop it.

So, I ask my house-lusting young Toronto couple, what is it that Ottawa will do to stop here what governments in Washington, London, Madrid, Paris, Athens and Reykjavik could not? Mortgage rates are still 2%. House interest will never be deductible. Already the tax system favours homeowners with tax-free capital gains. Downpayments are a scant 5%. You can use RRSP money to buy houses. Banks shell out to anybody since the feds back high-risk loans.

In short, the entire tilt of public policy in both countries has been towards home ownership – resulting in a stunning 70% or so of the population having one, with the overwhelming bulk of their net worth now in a single asset.

And maybe that’s exactly the problem. Maybe seven in ten people didn’t deserve to have houses in the first place. Couldn’t afford them. Should never scored mortgages. Were strung along, lured by house porn, cheap money and a bar that was far too low.

Why does anyone have a right to buy a $400,000 home when all they have is $20,000? Why should the government stand behind an idiot lender willing to finance a deal like that? Don’t pro-housing policies just drive prices higher and responsibility lower? So why should taxpayers move in and save a derelict homeowner’s ass when the inevitable happens?

You can see why the worst lies ahead.

And why I was a dismal politician.

Hear Garth speak on 'Houseageddon'

Vancouver – Thursday September 16th, Four Seasons downtown, 7 pm. To get on the list, go here.

North Vancouver – Friday September 17th, Holiday Inn, 6 pm
Private event, sorry.

Kamloops – Saturday September 18th, Kamloops Convention Centre, 2 pm

To reserve a seat, go here.

Kelowna – Sunday September 19th, Coast Capri Hotel, 2 pm
To reserve a seat, go here.

Saskatoon – Tuesday September 21st, TCU Place, 7 pm.
To reserve a seat, go here.