• Hamilton’s Mortgage Architects office can concur with the sluggish economy. Although the government’s intent to grow the economy with cheap interest rates has generally been a favour, the lowering of the mortgage rates has had a significant impact on housing. There is no better example than in the city of Hamilton.

    The Canadian economy tanked in the first quarter, and April’s data – like basically non-existent growth in consumer spending – don’t exactly make you feel things are going to get better anytime soon. Our manufacturers should be picking up the slack created by low oil prices, but there’s little evidence in export or business investment data that Canada’s non-energy companies are benefiting much from the devalued loonie or are even about to do so. In the stock markets, we’re back where we started, with the S&P/TSX Composite coming off a terrible turn last Friday to close basically flat year-to-date.

    In short, we seem to be treading water, maybe even sinking slowly, and the “insurance” the Bank of Canada took out in January, with a surprise 0.25-basis point rate cut, may not be enough to keep us afloat.

    Of course, this could all change as the year stumbles on – something upon which Bank of Canada governor Stephen Poloz and a chorus of optimistic economists seem to be depending. But for now, there are few bright spots in the Canadian economy.

    One of those few is real estate. Yes, real estate – although if you read the headlines, you’d think soaring home prices, at least in some Canadian cities, are an unmitigated bad, a dangerous situation that’s setting up millions to lose their shirts. Maybe it is, maybe it isn’t. But that doesn’t change the fact that rising asset prices are making a lot of Canadians richer this year.

    Hey, at least something is.

    Of course, when the price of an asset goes up, that asset can become harder for people to buy. There’s firm evidence of an affordability crunch in Toronto and Vancouver, two cities the Organisation for Economic Co-operation and Development has ranked among the Top 10 most expensive housing markets in the world, based on a measure of median house prices to median household incomes. Other affordability indices tell the same story – prices are rising beyond what many see as Canadians’ reasonable ability to carry. And they just keep on rising.

    Surely, something has to be done, say the handwringers. The OECD has suggested that rising house prices are contributing to social inequality. The IMF has warned that we’re way overvalued. And some are more specific. In Vancouver, the mayor has recently called for a special levy on speculators, aimed at discouraging fluffers-and-flippers in a city where the average single family home sells for more than $1.1 million.

    Again according to the headlines, the focus of much of the angst over rising housing prices is folks who “ain’t from ‘round here” – that is, foreigners, and particularly Chinese, who are sending capital out of their own country to the relative safety of Canada. The cheap loonie doesn’t hurt, either. So maybe we should do something about all this foreign interest in Canadian housing. Some have suggested we start by counting them up and keeping track of them, so we can figure out how to stop them from wanting to buy what we have to sell.

     If this sounds questionable, that’s because it is. Media commentary on Canadian housing almost always places the most value on new home buyers and how expensive that first home is for them. But there are all kinds of new home buyers. Those Chinese citizens who want to send their kids to school in Canada and buy a house in Vancouver – well, their money is just as good as the young Canadian couple who got their down payment from the Bank of Mom and Dad. And both will spend on renos, on groceries, on utilities – all those little ways homeowners contribute to the economy.

    But what about the speculators? Shouldn’t we be discouraging them? Well, there are two sides to any transaction: the buyer and the seller. And sellers in the hot housing markets of Canada may be doing very well indeed from any heightened foreign interest.

    Millions of Canadians have their personal wealth tied up in their homes, which is neither good nor bad – it all depends on when you sell. And when you want to sell, a big, liquid market is a good thing, because a) you will be more likely to find a buyer and b) you will be more likely to attract a maximum number of bidders.

    Foreign investors are often derogatorily tagged with the label “speculators,” but an international bidding pool and some level of speculation are good for markets. Canada’s policymakers should not be dreaming up ways to scare off money.

    This isn’t to say that soaring regional home prices are not a social challenge. They probably are. But again, there are two sides to affordability: price and income. If our policymakers want to do something to make Canadians’ dream homes more affordable, perhaps they should look at the second part of that equation.

    Robert Floris is an independent mortgage broker at Mortgage Architects in Hamilton Ontario.

    Foreign demand for Canadian housing a bright spot for struggling economy


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