• Money has never been cheaper and we are seeing it everywhere; housing, stock markets, collectibles, oil and food. We are in a unique situation where we are in our first pandemic in over 100 years. It has hit the economy hard where our Canadian government has flooded the economy with dollars. Government programs for businesses and CERB have created the illusion that everything is fine. Now, everyone is giving their opinion on how to tame the Canadian housing market. We will explore some of the suggestions. More on that in a moment.

    In 1981, I was 18 years old and looking for a summer job. Inflation was at its worst and interest rates were peaking with a five year fixed rate mortgage and a variable rate priced over 19%. Many Canadians were hurt but something interesting happened. The incompetent were flushed out by the competent. Good businesses took over bad businesses and good homeowners took over bad homeowners. This again happened during the early 1990s recession. The natural flow of the housing market was working.

    Now the housing market is screaming higher and everybody wants to fix it. How?

    1. Manipulate interest rates: the lower you keep the rates, the more business get the economy going but more importantly the more you can afford homeownership.

    2. Build more affordable housing. Good luck letting the government to do that!

    3. Propose a capital gains tax on principal homes. The majority of Canadians bought homes many years ago knowing this was their only major tax break. I suspect there would be an outrage.

    4. Make the stress test more difficult. This is actually proposed for July as they are supposed to increase the stress test from 4.79% to 5.25%.

    5. Propose a foreign tax

    6. Propose a speculative tax

    7. Encourage the parents incentive to help their kids

    Are any of these solutions going to work? Probably not. The best and most positive news in my opinion for high prices is higher prices. With higher prices, builders will eventually fill the demand in areas of need. Builders and developers are much smarter than our politicians. We have no greater example then what happened in the United States during the housing crisis of 2008. Mortgage financing was easy, builders built, consumers bought, prices went up. When things collapsed, prices went down. With Xcess homes being left empty by homeowners, 13 years later the US housing market is strong again. The competent took over from the consumer who could not manage. That is the way market should work.

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