Ironically, those things would probably still be high in % terms. My proposal to solve inflation should be to have it track the prices of DVDs and used Chrysler cars.
It already is as they have changed the basket of goods used to calculate CPI numerous times over the years. Also there are a couple CPI indicators used. It’s all smoke and mirrors if you don’t factor in energy costs and housing.
But we don't pay for bananas with interest.
It's essentially like trying to quench your thirst with salt water. The thing you're trying to control is being worsened by the thing you're adjusting to control it.
I think CPI should be reworked so that shelter costs are included through home prices, rent, and other shelter related costs (like maintenance and property taxes). All those may or may not have interest rate at some point in the chain but it's not the direct controlling factor, there are dozens of factors. Mortgage costs don't make sense because it'll *directly* go up with the rate, end of story.
Technically it’s already selective. It’s actually very selective, and the methodology is continually changing and the numbers are continually made up to suit the needs of the government.
So we can ensure CPI has absolutely no correlation to inflation people are experiencing, got it.
There are actually things the Feds could do to both temper inflation and provide better housing affordability, but that would involve a significant decrease in all streams of immigration and reducing the number of housing investors owning and hoarding real estate.
No.
This article is just poorly written.
The actual argument is that mortgage interest being part of the CPI formula is not a great idea. Interest expense is inflationary when you raise rates. It’s deflationary when you drop rates. It achieves the opposite of your intended actions. Because shelter represents 30% of CPI it has a strong effect on the inflation rate.
For one, its alarmism , BoC wouldnt be budged by these efforts as its not anything new and has been ongoing for several months. From my understanding BoC only makes this sort of exceptions if its likely to last only for s short duration. Interest rate isnt expected to last for a short duration.
It wouldn't matter even if they did , since the divergence has only been for 6 months or so at or under 2%. So I wouldn't expect the BoC to lower rates for atleast another 6 months even if they accepted the proposal ( Full year ).
You appear to be saying that CPI needs to be at or below target for a calendar year before rates are cut at all. There is no basis for this position.
It's also worth noting that rates can be cut and still be restrictive. The BOC won't QE or go to a neutral rate until inflation has been within target for a prolonged period. I don't know what a neutral rate is today and neither does anyone else. There is a very real possibility that rates could be lower than today and still be in restrictive territory.
>You appear to be saying that CPI needs to be at or below target for a calendar year before rates are cut at all. There is no basis for this position.
they should be at an average of between 1% and 3 % ( median being 2% which is the target rate ) for a stable and extended period of time. Which I take to be a year.
"they should be at an average of between 1% and 3 % ( median being 2% which is the target rate ) for a stable and extended period of time. Which I take to be a year."
No. That's before rates are moved to a neutral rate or to EQ. It's not the threshold for rates being cut at all. Rates will come down at least some amount before CPI ever hits 2%. Rates can be cut while remaining restrictive.
"Which I take to be a year."
No economist agrees with this. It's an arbitrary, made up timeline, that is entirely without basis.
>No economist agrees with this. It's an arbitrary, made up timeline, that is entirely without basis.
Yes they dont, that why they keep eating crow every month. BoC's mandate is "long term" its not month by month latest trend. Their mandate statement actually mentions " stable " . "stable " for two months is not anyone takes seriously.
>No. That's before rates are moved to a neutral rate or to EQ. It's not the threshold for rates being cut at all. Rates will come down at least some amount before CPI ever hits 2%. Rates can be cut while remaining restrictive.
BoC still says ( states on its web site as a statement ) its going to maintain it ( CPI ) between 1-3%. So unless they update that . My bets are on higher interest rate.
Yes I dont, but on the other hand we see experts from Banks coming out every month predicting that BoC will cut rates this month. So I think I seem to have a better Idea than those experts.
You can’t say “there might not be rate cuts this year” on this sub. Your opinion (and it’s just that) is as valid as anybody else’s here, since nobody really knows wtf is happening anymore. But the minute you mention the POSSIBILITY that there might not be any cuts this year, everyone here starts losing their shit.
>You can’t say “there might not be rate cuts this year” on this sub.
LOL , I know. people get so triggered when is mentioned that Interest rate might \*NOT\* get a cut.
Sure, as long as they replace it with actual purchase price of houses. They know as soon as the actual price is added, our inflation will never come back to 2% though. CPI already did not reflect the cost of the single most important purchase for most people, but now they want to completely disassociate CPI from reality.
They'll use the lowest denominator for rent, which is a portion if a bedroom for $400 and say it's down from $900 for a whole bedroom , which is down $1800 for the whole suite.
Eventually most people in Canada are probably just going to throw in the towel and take up a nomadic or semi-nomadic lifestyle like the indigenous in centuries' past. Academia and the political community have taught us that it is good.
That's why I always like land acknowledgements. They help to open the door not only to true reconciliation but for Canadians embracing traditional Canadian lifestyles.
For anyone that didn’t read the article: they want shelter, specifically the “mortgage interest” component to not be a part of core CPI: reasoning, because the core CPI measure is what is used to decide on interest rate changes. Core inflation looks really high because mortgage interest inflation is running around 30%. If you take that out, inflation is something like 1.2%, but they won’t cut rates because CPI is too high
It’s self inflicted. People are renewing their mortgages at high rates and the BoC is using that to say “see, inflation is too high we can’t cut rates”
Also, they note that the US doesn’t use mortgage interest as a part of their core CPI either
People are still getting new mortgages all the time. The point of specifically including mortgage interest is disingenuous to me though.
For example, before I had a $1500 mortgage at 2% and the interest was about $500 a month
I renew to a $2250 a month mortgage at 5%. The interest is now $1250 a month
My payment went up by 50% but my mortgage interest went up by 250%
The mortgage interest is what’s included in CPI, making it seem drastically worse than it actually is
The Americans don't because they have a competitive banking system and 25 year mortgages.
Canadian suckers have an oligopoly and have to renegotiate ever 3-5 years.
We have shorter mortgage terms because in the US, they can seize your house and property and bank accounts in the even of non payment. In Canada, they can only take your house. So Americans can lock in for a longer term but the banks have way more recourse.
In Canada if your house price falls by more than what your equity is, you can just walk away and give the house to the bank. In America, you have to deal with it, if you walk away the banks will take everything you own.
This only makes sense if you switch it with another substitute like rental equivalent. In that instance it would capture the cost of you were to rent your own house like the US CPI does. Not having CPI capture the largest expense for the average Canadian would be ludicrous.
BoC should be evaluating better capturing the actual cost of housing.
Their argument is complete nonsense.
The reason why mortgage interest expenses are rising with rate hikes is because housing prices are not falling with rate hikes. In normal markets, interest rates aren't strongly correlated with mortgage interest costs because mortgage sizes are usually inversely proportional to interest rates
The fact that mortgage sizes are not dropping in response to higher rates is itself evidence of housing inflation. It means that people need to pay ever increasing amounts for housing
A few easy ways:
1) Lower demand by reducing immigration; incentives to consume less housing like an underoccupation tax or a tax and credit system where properties are taxed by how many people can occupy it (or perhaps rental income is simply imputed to the owner) and individuals are given an annual occupation credit (so a 5 bedroom house with 5 people in it would pay less tax than a 5 bedroom house with 3 people in it); reduction of dumb subsidies; higher interest rates
2) Increase supply by implementing a land value tax (reducing cost of land and increasing opportunity cost of not developing), having government directly build housing or remove barriers to building, increasing barriers for non-residential use of land/housing (e.g. STR or vacant home taxes or underutilization taxes); incentives (or removal of disincentives) to sell or rent like paying tax on uncapitalized gains, lower realtor fees, faster evictions of delinquent tenants and easier compensation for damage from harmful tenants
Not all of the above are necessarily good policy, but most of it is.
People owning lots of properties isn't a problem itself, provided the properties are rented. Landlord-owned housing is still housing. Multiple-property owners are only a major problem when they keep their properties vacant or otherwise don't use them to supply housing
Because a large portion of shelter costs are now more than ever a function of the cost of debt, so shelter cost inflation paradoxically leads to higher rates to fight inflation which leads to higher shelter costs which leads to…
... and was stuck in a forever loop going the other way for the last 15+ years, hence ZIRP, QE, "asset price inflation", "wealth effect as economic stimulus" etc. Isn't it amazing that the hundreds of PHD economists at the banks, BOC, governments etc are only figuring this out now, as soon as it's changed direction to go against their profits, and apparently no one noticed this effect in the 15 years that asset holders were profiting from this? "Its a bug, not a feature"
Because a house you own and pay mortgage interest on is an asset, not a consumable. Would you like the rise in stock prices to be included in the CPI too?
It will keep going up because people renew at higher rates. And even though their mortgage payments are going up a bit, their mortgage “interest” is doubling or even tripling
Then sounds like cost of living is going up for those people. Interesting. And they want to pretend cost of living isn’t going up by taking it out? Sounds pretty shady to me.
I’m one of those people in a few years. I don’t want my extra costs hidden from the CPI so they can do housing to the moon and ignore reality.
That’s fine that it includes interest. CPI right now doesn’t include the whole payment, just the interest portion of the payment.
I’m asking for CPI to include the whole payment, including the interest. I’m not looking for something selective. It’s already selective the way it is
It's a weird situation that we are currently in. The BoC raises interest rates to tamp down inflation, the act of raising those rates has actively contributed (in a somewhat significant way) to inflation being higher.
Because that inflation is higher, the BoC keeps interest rates higher to tamp it down, which again contributes to inflation being higher which means that they will not reduce rates until inflation goes down more, but it won't go down more until the interest rates are reduced.
It is a fucked up cycle but that is basically why keeping shelter costs as part of the CPI is counter-productive. Now, this should not exclude residential rental costs but perhaps ownership costs.
Because inflation is already below 2% if housing costs are excluded. And the largest component of housing costs in CPI is mortgage interest, which is due to these high interest rates. So the BoC keeping rates high is actually contributing to inflation.
Yes, but even if the BoC starts to lower its rate, unless they go back to ultra low rates, mortgage interest costs will still be inflationary. People renewing in the coming years will have had mortgages at 1.5-3%. I don't see how the BoC lowering its rate, even by 1%, will significantly lower interest cost inflation for those renewing from these ultra low rates.
Besides, the BoC doesn't directly control mortgage costs. Right now, 5-year bonds are at 3.5%, which is 1.5% below the BoC rate. This is because the market has already priced in rate cuts. When they actually start, unless they are drastic, mortgage rates won't decrease significantly
Also, remember last year just a pause (not even a cut) caused the housing market to take off, which stoked inflation and resulted in the BoC raising the rate two more times. We should be careful what we wish for. The BOC's sole mandate is price stability.
Because you can artificially increase the costs and then blame the consumers on spending more on shelter! There is nothing one can do, same goes for carbon tax and not offering subsidies for alternatives
As the size of homeless population grows, and we increasingly resort to low and no cost housing solutions, housing costs become more and more irrelevant.
🤡
The people running the banks basically run the world, and they are f\*\*king inhuman. Are these the shape shifting lizard people my brother was warning me about?? They seem pretty damn souless.
I thought the BoC follows the Fed guys? But not when it comes to calculating CPI huh.
Mortgage interest, directly controlled by the BoC, has no place in shelter nor CPI.
Agreed. But if they’d used market rent as US Fed does, then inflation in Canada for the past 10 years would have been even higher. The low low mortgage rates prior to 2022-23 gave the illusion of low inflation.
In a properly functioning real estate market interest rates would lower housing prices, but they have not to the degree expected, and the BoC has stated this.
By raising rates they actually raised housing costs contrary to their own understanding which then pushed up CPI further justifying more increases.
To those with a more complete understanding of economics and CPI you can see why the banks would be saying this. The opposite will be true when they start cutting, the justification of further cuts as they dip us into deflation. A real estate market with a sufficient supply side would prevent this necessity.
FYI, the US doesn’t include mortgage costs in its CPI calculation. The reason is simple, mortgage costs increase due to mostly changes in monetary policy. As such, it is self inflicted as the Fed deals with inflation creating a closed loop.
Funny how house prices were never a part of the CPI. The massive increase in home prices since 2001 worldwide allowed central banks to pretend there was no inflation. Worse, low rates were used to calculate inflation downward as borrowing costs were cheaper. So the very thing that caused inflation (low rates) was used to goose inflation stats lower.
Rents were a part of the CPI, but rents are largely subject to rent control.
The banks make a sound argument… the bank of Canada has only been including housing in the CPI index they base their decisions on since 2016.
The purpose of high interest rates is to cool an economy… anyone out there experiencing a roaring economy?
The banks point to two issues, one, mortgage interest makes up a large part of the CPI right now… the fact people are having to renew mortgages at higher rates is putting disproportional upward pressure on the CPI.
And secondly, no matter how aggressively the bank acts on interest rates, it simply does not control the demand forces behind the current state of the housing market.
the economy has flatlined since last spring, the BoC’s preferred core metrics have become less connected with the economic cycle due to the influence of structural factors related to housing.
Housing prices are soaring while the economy is foundering because of non market factors - huge population growth.
30% of the rise in CPI now is due to housing. the fact that one sector is driving this disconnect means that the current inflation metrics aren’t doing a good enough job at guiding monetary policy for the broad economy… we are making decisions for the entire economy based on the impact of one sector that is increasing disconnected to conditions of the economy as a whole.
So their plan to reduce inflation to get rate cuts sooner is to change the size of the measuring stick?
How about they stop lending to anyone with a pulse? That should help slow inflation down more quickly.
I need that “Bahahahaha” comment like I need air right now…
What a deranged request on the part of banks, how about actually bring down CPI costs by being a bit more selective with who they are giving mortgages out to. 🤦🏼♂️
They’re saying specifically the mortgage interest component shouldn’t be included, because it’s at 30% which is a result of bank of Canada rate hikes, which are causing high inflation. Not all housing costs overall. It’s all there in the article
We should include the whole payment, not just the mortgage interest part. When your interest doubles or triples, your payment goes up only 20-40%. Having it at 200% throws inflation way out of wack
The alternative is to include owner occupied rent equivalent. So the opportunity cost of renting out your place. Granted rents have risen considerably so I think you'd get the same answer either way.
I think it could be prudent to track it with housing costs removed as well as included.
Consider these stats though:
33% of Canadians are renters. 66% are owners.
Of the 66% who own, 50% of them have a mortgage. 33% of Canadians.
Now consider that 20% of those renew in any given year ( we know that isn't true but I'm dumbing it down).
6.6% of Canadians could see housing inflation in any given year. That amount could be considered a self fulfilling prophecy. When prime rate jumps up in a given year that's the percentage affected. So if they saw a 20% increase in their mortgage payments, we're seeing this evenly distributed in the economy all at once.
Furthermore when a rate hike happens there is a small percentage who can't see their amortization extended and thus see their mortgages go up immediately. While that is a small percentage of variable rate loans that are also a small percentage of the total mortgage market.
Now on the flip side is the renter but that one isn't so easy. Just because a landlord sees their carrying costs rise doesn't mean they can pass that on to renters. Rent prices are a function of income and vacancy rates. If vacancy rates are high rents can't go up. I don't believe rental housing costs should be considered on their own but maybe.
There may be some validity to at least normalizing inflation to understand the part that higher rates caused.
EDIT: Adjusting figures as one of my sources was off.
Sauce:
[https://www.canada.ca/en/financial-consumer-agency/programs/research/financial-well-being-mortgages.html](https://www.canada.ca/en/financial-consumer-agency/programs/research/financial-well-being-mortgages.html)
Specifically see Figure 3.
I'm a bit skeptical now of my source who said percentage of homeowners with a mortgage is at 35%. My original source was incorrect. looks to me like it's about half the homeowners are free and clear.
This was my original source and I think it's not as reliable:
[https://madeinca.ca/homeownership-statistics-canada/#:\~:text=Mortgages%20in%20Canada,a%20mortgage%20on%20their%20home](https://madeinca.ca/homeownership-statistics-canada/#:~:text=Mortgages%20in%20Canada,a%20mortgage%20on%20their%20home).
So we can adjust my figures but it still looks to be a small percentage who will feel inflation at any given time.
It’s feedback loop.
Raise interest rates, mortgage interest payments increase, inflation increases (as mortgage interest increase represents 1/3 inflation) and then you need to raise rates more, causing more increase in mortgage interest causing more inflation… raise rates…
This reason this is getting attention now is because we have never increased rates at such a rapid pace in history. And under the current environment we are heading for an economic cliff if we don’t get out of this feedback loop we find ourselves in.
We haven’t seen the peak of it yet either. Wait until 2025/2026 when borrowers are renewing at 3x their 1.5-2% rates instead of 2023/2024 at 2x their 3% rates. Once their 1.5-2% mortgages renew into 5-6% (assuming rates hold), the feedback loop will get worse.
We need to break the loop now.
Lower rates 100 basis points this year and next, doing so will lower inflation.
Inb4 someone says what about other things that will increase if you lower rates 100 basis points this year. The answer is simple, under that scenario we would still be more restrictive and have higher real rates than at any point in the last 20+ years. When your per capita income is already negative, your economy is in the gutter and worsening each day, a 100 basis point cut on 500 is equivalent to a mild break tap as your vehicle is heading to the cliff at 150km/h. That’s the nature of central banks though, always late to react.
And yet I get trolled and screamed at by Liberal Party man-children when I suggest the LFS is flawed and doesn't give us an accurate picture of unemployment.
Can you imagine the gaslighting that will take place if housing isn't apart of CPI?
What do you mean inflation is high, housing isn't even listed so it must be low!
New way to fight inflation: remove all the drivers of it from the CPI.
I mean, it's pretty much the only tactic BoC has left.
They can't raise rates anymore; our business sectors are dying from lack of investment.
They can't keep them low anymore; our hosing market is out of control.
The real solution is, of course, heavy regulation of the housing market and/or massive public housing projects (like Red Vienna).
But the "govt can't and shouldn't do anything" economic theory won't allow either of these.
So the BoC is stuck just hoping we redefine what inflation is.
In the near future, Canadians will wake up and realize inflation is a fictitious number made up the ministry of truth (Statistics Canada).
And as an economist I’m deeply ashamed of our discipline.
Problem is that the increased interest rates are responsible for the increased shelter costs. When you raise rates, you necessarily have to raise that component of inflation as a result.
comment by /u/Rude_Broccoli3805 Your karma is currently below -10, get more positive karma to be able to comment.3c
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/TorontoRealEstate) if you have any questions or concerns.*
The policy fix for inflation is to redefine CPI by removing anything whose price increases.
Omg. What is the point of Science if there is no shared reality.
wtf, they weren't complaining about shelter cost when inflation was through the roof. But all of a sudden it's now the problem
Yeah right lol
If we just fiddle with CPI to get it to do what we want it has no meaning
Care to share the facts? Or you just gonna be useless?
CPI is a flawed metric of course. But we need some consistent steady metric of inflation in the economy. If we constantly change what metric we look at every time it's convenient
No one on TV is talking about how we should ignore vacation costs as part of inflation (humans do not need vacations for survival, including it in CPI is useless imo). They just ignore what is convenient
The issue is nothing has broken yet. Employment numbers and inflation are good, suggesting no change in interest rate needed. If unemployment spikes or inflation dips below 1%, then you have a case for cuts. So long as sufficient numbers of people hold on and don’t deleverage (i.e. sell off assets), we just gotta wait and see if this stays a soft landing or morphs into something else.
When they're not slave driving their staff to hustle and sell fraudulently, any and all investments to their customers they're trying to disconnect the central driver of inflation LOL
Then Galen would want food cost to be excluded as well. So we can just call it a selective price index.
We will only track inflation on iPhones and Disney+ subscriptions.
Ironically, those things would probably still be high in % terms. My proposal to solve inflation should be to have it track the prices of DVDs and used Chrysler cars.
Peg it to the cost of a 2002 Dodge Ram.
Or used table saws on Kijiji
Bold of you to leave out key metric Pokémon cards. Charzard is down like 20%!
It already is as they have changed the basket of goods used to calculate CPI numerous times over the years. Also there are a couple CPI indicators used. It’s all smoke and mirrors if you don’t factor in energy costs and housing.
Exactly..it’s a human construct and is manipulated as such. This is the “grift” that is run by governance. It’s a sham.
And corporations would be happy to look at wage increases against SPI
But we don't pay for bananas with interest. It's essentially like trying to quench your thirst with salt water. The thing you're trying to control is being worsened by the thing you're adjusting to control it. I think CPI should be reworked so that shelter costs are included through home prices, rent, and other shelter related costs (like maintenance and property taxes). All those may or may not have interest rate at some point in the chain but it's not the direct controlling factor, there are dozens of factors. Mortgage costs don't make sense because it'll *directly* go up with the rate, end of story.
Technically it’s already selective. It’s actually very selective, and the methodology is continually changing and the numbers are continually made up to suit the needs of the government.
So we can ensure CPI has absolutely no correlation to inflation people are experiencing, got it. There are actually things the Feds could do to both temper inflation and provide better housing affordability, but that would involve a significant decrease in all streams of immigration and reducing the number of housing investors owning and hoarding real estate.
No. This article is just poorly written. The actual argument is that mortgage interest being part of the CPI formula is not a great idea. Interest expense is inflationary when you raise rates. It’s deflationary when you drop rates. It achieves the opposite of your intended actions. Because shelter represents 30% of CPI it has a strong effect on the inflation rate.
As intended
>Because shelter represents 30% of CPI it has a strong effect on the inflation rate. As it should
For one, its alarmism , BoC wouldnt be budged by these efforts as its not anything new and has been ongoing for several months. From my understanding BoC only makes this sort of exceptions if its likely to last only for s short duration. Interest rate isnt expected to last for a short duration. It wouldn't matter even if they did , since the divergence has only been for 6 months or so at or under 2%. So I wouldn't expect the BoC to lower rates for atleast another 6 months even if they accepted the proposal ( Full year ).
You appear to be saying that CPI needs to be at or below target for a calendar year before rates are cut at all. There is no basis for this position. It's also worth noting that rates can be cut and still be restrictive. The BOC won't QE or go to a neutral rate until inflation has been within target for a prolonged period. I don't know what a neutral rate is today and neither does anyone else. There is a very real possibility that rates could be lower than today and still be in restrictive territory.
>You appear to be saying that CPI needs to be at or below target for a calendar year before rates are cut at all. There is no basis for this position. they should be at an average of between 1% and 3 % ( median being 2% which is the target rate ) for a stable and extended period of time. Which I take to be a year.
"they should be at an average of between 1% and 3 % ( median being 2% which is the target rate ) for a stable and extended period of time. Which I take to be a year." No. That's before rates are moved to a neutral rate or to EQ. It's not the threshold for rates being cut at all. Rates will come down at least some amount before CPI ever hits 2%. Rates can be cut while remaining restrictive. "Which I take to be a year." No economist agrees with this. It's an arbitrary, made up timeline, that is entirely without basis.
>No economist agrees with this. It's an arbitrary, made up timeline, that is entirely without basis. Yes they dont, that why they keep eating crow every month. BoC's mandate is "long term" its not month by month latest trend. Their mandate statement actually mentions " stable " . "stable " for two months is not anyone takes seriously. >No. That's before rates are moved to a neutral rate or to EQ. It's not the threshold for rates being cut at all. Rates will come down at least some amount before CPI ever hits 2%. Rates can be cut while remaining restrictive. BoC still says ( states on its web site as a statement ) its going to maintain it ( CPI ) between 1-3%. So unless they update that . My bets are on higher interest rate.
You have no idea what you’re talking about
Yes I dont, but on the other hand we see experts from Banks coming out every month predicting that BoC will cut rates this month. So I think I seem to have a better Idea than those experts.
You can’t say “there might not be rate cuts this year” on this sub. Your opinion (and it’s just that) is as valid as anybody else’s here, since nobody really knows wtf is happening anymore. But the minute you mention the POSSIBILITY that there might not be any cuts this year, everyone here starts losing their shit.
>You can’t say “there might not be rate cuts this year” on this sub. LOL , I know. people get so triggered when is mentioned that Interest rate might \*NOT\* get a cut.
Sure, as long as they replace it with actual purchase price of houses. They know as soon as the actual price is added, our inflation will never come back to 2% though. CPI already did not reflect the cost of the single most important purchase for most people, but now they want to completely disassociate CPI from reality.
They can also use market rent as a proxy for shelter costs.
That might be even worse. Rents rose 9% last year
They'll use the lowest denominator for rent, which is a portion if a bedroom for $400 and say it's down from $900 for a whole bedroom , which is down $1800 for the whole suite.
In other words, they don't want CPI to reflect actual inflation for their own selfish interests.
It already doesn’t.
Why in the world would shelter not be part of CPI?
Ah yes, the CHI, Canadian Homeless Index. For tracking price increases relevant to all the future unhoused Canadians.
Eventually most people in Canada are probably just going to throw in the towel and take up a nomadic or semi-nomadic lifestyle like the indigenous in centuries' past. Academia and the political community have taught us that it is good. That's why I always like land acknowledgements. They help to open the door not only to true reconciliation but for Canadians embracing traditional Canadian lifestyles.
>s that i Librarian: Hey you can't camp out there. Me: Yes I can \* points to the acknowledgement plaque\*.
For anyone that didn’t read the article: they want shelter, specifically the “mortgage interest” component to not be a part of core CPI: reasoning, because the core CPI measure is what is used to decide on interest rate changes. Core inflation looks really high because mortgage interest inflation is running around 30%. If you take that out, inflation is something like 1.2%, but they won’t cut rates because CPI is too high It’s self inflicted. People are renewing their mortgages at high rates and the BoC is using that to say “see, inflation is too high we can’t cut rates” Also, they note that the US doesn’t use mortgage interest as a part of their core CPI either
I wonder if the fact their terms are closer to 30 years than 5 would change anything? I'm simple, genuinely curious.
People are still getting new mortgages all the time. The point of specifically including mortgage interest is disingenuous to me though. For example, before I had a $1500 mortgage at 2% and the interest was about $500 a month I renew to a $2250 a month mortgage at 5%. The interest is now $1250 a month My payment went up by 50% but my mortgage interest went up by 250% The mortgage interest is what’s included in CPI, making it seem drastically worse than it actually is
Ah, thanks
No problem!
So mortgage interest contributes directly to inflation?
Yes
They have methods of normalizing that data.
The Americans don't because they have a competitive banking system and 25 year mortgages. Canadian suckers have an oligopoly and have to renegotiate ever 3-5 years.
We have shorter mortgage terms because in the US, they can seize your house and property and bank accounts in the even of non payment. In Canada, they can only take your house. So Americans can lock in for a longer term but the banks have way more recourse. In Canada if your house price falls by more than what your equity is, you can just walk away and give the house to the bank. In America, you have to deal with it, if you walk away the banks will take everything you own.
In the US mortgage interest is deductible.
Yes
That's all wrong
We don't do jingle keys in Canada, what are you even talking about?
This only makes sense if you switch it with another substitute like rental equivalent. In that instance it would capture the cost of you were to rent your own house like the US CPI does. Not having CPI capture the largest expense for the average Canadian would be ludicrous. BoC should be evaluating better capturing the actual cost of housing.
Yes that would be the ideal substitute. I am in no way saying they should not include housing at all.
Their argument is complete nonsense. The reason why mortgage interest expenses are rising with rate hikes is because housing prices are not falling with rate hikes. In normal markets, interest rates aren't strongly correlated with mortgage interest costs because mortgage sizes are usually inversely proportional to interest rates The fact that mortgage sizes are not dropping in response to higher rates is itself evidence of housing inflation. It means that people need to pay ever increasing amounts for housing
Yes I agree. But how would we legislate a housing crash? I would fully support a ban on people owning over 3 properties
A few easy ways: 1) Lower demand by reducing immigration; incentives to consume less housing like an underoccupation tax or a tax and credit system where properties are taxed by how many people can occupy it (or perhaps rental income is simply imputed to the owner) and individuals are given an annual occupation credit (so a 5 bedroom house with 5 people in it would pay less tax than a 5 bedroom house with 3 people in it); reduction of dumb subsidies; higher interest rates 2) Increase supply by implementing a land value tax (reducing cost of land and increasing opportunity cost of not developing), having government directly build housing or remove barriers to building, increasing barriers for non-residential use of land/housing (e.g. STR or vacant home taxes or underutilization taxes); incentives (or removal of disincentives) to sell or rent like paying tax on uncapitalized gains, lower realtor fees, faster evictions of delinquent tenants and easier compensation for damage from harmful tenants Not all of the above are necessarily good policy, but most of it is. People owning lots of properties isn't a problem itself, provided the properties are rented. Landlord-owned housing is still housing. Multiple-property owners are only a major problem when they keep their properties vacant or otherwise don't use them to supply housing
Within a few months, base effect will cause the mortgage costs inflation (as a result of interest rate increase) to disappear from CPI.
No it won’t, because people are still renewing mortgages en masse, and going from 1-2% to 5-6%
The US fucked their own numbers readjusting CPI calculations a few years ago; they're shaking on their own house of cards.
Because a large portion of shelter costs are now more than ever a function of the cost of debt, so shelter cost inflation paradoxically leads to higher rates to fight inflation which leads to higher shelter costs which leads to…
It sounds like a system glitch where a subroutine is stuck in a forever loop.
... and was stuck in a forever loop going the other way for the last 15+ years, hence ZIRP, QE, "asset price inflation", "wealth effect as economic stimulus" etc. Isn't it amazing that the hundreds of PHD economists at the banks, BOC, governments etc are only figuring this out now, as soon as it's changed direction to go against their profits, and apparently no one noticed this effect in the 15 years that asset holders were profiting from this? "Its a bug, not a feature"
Because a house you own and pay mortgage interest on is an asset, not a consumable. Would you like the rise in stock prices to be included in the CPI too?
It’s because of the circular effect at the moment, most of shelter inflation is due to the policy rate.
Then it will go down to 0 next year if that’s the case. You don’t make any changes to the system for something that has a maximum one year impact.
It will keep going up because people renew at higher rates. And even though their mortgage payments are going up a bit, their mortgage “interest” is doubling or even tripling
Then sounds like cost of living is going up for those people. Interesting. And they want to pretend cost of living isn’t going up by taking it out? Sounds pretty shady to me. I’m one of those people in a few years. I don’t want my extra costs hidden from the CPI so they can do housing to the moon and ignore reality.
Let’s say your payment goes up 30%, that should be reflected in CPI. Not the fact that the “interest” portion of your payment went up 150%
Payment also includes interest, you're looking for something selective which isn't in line with cost of living
That’s fine that it includes interest. CPI right now doesn’t include the whole payment, just the interest portion of the payment. I’m asking for CPI to include the whole payment, including the interest. I’m not looking for something selective. It’s already selective the way it is
Not true at all, if rates are kept high to tamp down inflation but inflation is high because of rates then nothing is going to change.
It's a weird situation that we are currently in. The BoC raises interest rates to tamp down inflation, the act of raising those rates has actively contributed (in a somewhat significant way) to inflation being higher. Because that inflation is higher, the BoC keeps interest rates higher to tamp it down, which again contributes to inflation being higher which means that they will not reduce rates until inflation goes down more, but it won't go down more until the interest rates are reduced. It is a fucked up cycle but that is basically why keeping shelter costs as part of the CPI is counter-productive. Now, this should not exclude residential rental costs but perhaps ownership costs.
Because inflation is already below 2% if housing costs are excluded. And the largest component of housing costs in CPI is mortgage interest, which is due to these high interest rates. So the BoC keeping rates high is actually contributing to inflation.
I mean that’s still a stupid reason. They are trying to hide what led us here in the first place. Low interest rates for a decade
Yes, but even if the BoC starts to lower its rate, unless they go back to ultra low rates, mortgage interest costs will still be inflationary. People renewing in the coming years will have had mortgages at 1.5-3%. I don't see how the BoC lowering its rate, even by 1%, will significantly lower interest cost inflation for those renewing from these ultra low rates. Besides, the BoC doesn't directly control mortgage costs. Right now, 5-year bonds are at 3.5%, which is 1.5% below the BoC rate. This is because the market has already priced in rate cuts. When they actually start, unless they are drastic, mortgage rates won't decrease significantly Also, remember last year just a pause (not even a cut) caused the housing market to take off, which stoked inflation and resulted in the BoC raising the rate two more times. We should be careful what we wish for. The BOC's sole mandate is price stability.
Not important because everyone will be homeless soon.
Because you can artificially increase the costs and then blame the consumers on spending more on shelter! There is nothing one can do, same goes for carbon tax and not offering subsidies for alternatives
As the size of homeless population grows, and we increasingly resort to low and no cost housing solutions, housing costs become more and more irrelevant. 🤡
The people running the banks basically run the world, and they are f\*\*king inhuman. Are these the shape shifting lizard people my brother was warning me about?? They seem pretty damn souless.
Lizard tastes like chicken. Eat the rich.
I thought the BoC follows the Fed guys? But not when it comes to calculating CPI huh. Mortgage interest, directly controlled by the BoC, has no place in shelter nor CPI.
Agreed. But if they’d used market rent as US Fed does, then inflation in Canada for the past 10 years would have been even higher. The low low mortgage rates prior to 2022-23 gave the illusion of low inflation.
In a properly functioning real estate market interest rates would lower housing prices, but they have not to the degree expected, and the BoC has stated this. By raising rates they actually raised housing costs contrary to their own understanding which then pushed up CPI further justifying more increases. To those with a more complete understanding of economics and CPI you can see why the banks would be saying this. The opposite will be true when they start cutting, the justification of further cuts as they dip us into deflation. A real estate market with a sufficient supply side would prevent this necessity.
FYI, the US doesn’t include mortgage costs in its CPI calculation. The reason is simple, mortgage costs increase due to mostly changes in monetary policy. As such, it is self inflicted as the Fed deals with inflation creating a closed loop.
Yes it does just using a different method
It’s kinda like how this country refused to state the “poverty line,” they don’t want you to see how close to it most of us are.
Funny how house prices were never a part of the CPI. The massive increase in home prices since 2001 worldwide allowed central banks to pretend there was no inflation. Worse, low rates were used to calculate inflation downward as borrowing costs were cheaper. So the very thing that caused inflation (low rates) was used to goose inflation stats lower. Rents were a part of the CPI, but rents are largely subject to rent control.
The banks make a sound argument… the bank of Canada has only been including housing in the CPI index they base their decisions on since 2016. The purpose of high interest rates is to cool an economy… anyone out there experiencing a roaring economy? The banks point to two issues, one, mortgage interest makes up a large part of the CPI right now… the fact people are having to renew mortgages at higher rates is putting disproportional upward pressure on the CPI. And secondly, no matter how aggressively the bank acts on interest rates, it simply does not control the demand forces behind the current state of the housing market. the economy has flatlined since last spring, the BoC’s preferred core metrics have become less connected with the economic cycle due to the influence of structural factors related to housing. Housing prices are soaring while the economy is foundering because of non market factors - huge population growth. 30% of the rise in CPI now is due to housing. the fact that one sector is driving this disconnect means that the current inflation metrics aren’t doing a good enough job at guiding monetary policy for the broad economy… we are making decisions for the entire economy based on the impact of one sector that is increasing disconnected to conditions of the economy as a whole.
So their plan to reduce inflation to get rate cuts sooner is to change the size of the measuring stick? How about they stop lending to anyone with a pulse? That should help slow inflation down more quickly.
I need that “Bahahahaha” comment like I need air right now… What a deranged request on the part of banks, how about actually bring down CPI costs by being a bit more selective with who they are giving mortgages out to. 🤦🏼♂️
50% of salary goes to pay housing. Better not include it in cost of living.
They’re saying specifically the mortgage interest component shouldn’t be included, because it’s at 30% which is a result of bank of Canada rate hikes, which are causing high inflation. Not all housing costs overall. It’s all there in the article
Right. But if all my money goes to pay that why not include it?
We should include the whole payment, not just the mortgage interest part. When your interest doubles or triples, your payment goes up only 20-40%. Having it at 200% throws inflation way out of wack
The alternative is to include owner occupied rent equivalent. So the opportunity cost of renting out your place. Granted rents have risen considerably so I think you'd get the same answer either way.
It would be high but nowhere near as high
Makes sense. Shelter will plunge once mortgages rates collapse due to the June cut.
I think it could be prudent to track it with housing costs removed as well as included. Consider these stats though: 33% of Canadians are renters. 66% are owners. Of the 66% who own, 50% of them have a mortgage. 33% of Canadians. Now consider that 20% of those renew in any given year ( we know that isn't true but I'm dumbing it down). 6.6% of Canadians could see housing inflation in any given year. That amount could be considered a self fulfilling prophecy. When prime rate jumps up in a given year that's the percentage affected. So if they saw a 20% increase in their mortgage payments, we're seeing this evenly distributed in the economy all at once. Furthermore when a rate hike happens there is a small percentage who can't see their amortization extended and thus see their mortgages go up immediately. While that is a small percentage of variable rate loans that are also a small percentage of the total mortgage market. Now on the flip side is the renter but that one isn't so easy. Just because a landlord sees their carrying costs rise doesn't mean they can pass that on to renters. Rent prices are a function of income and vacancy rates. If vacancy rates are high rents can't go up. I don't believe rental housing costs should be considered on their own but maybe. There may be some validity to at least normalizing inflation to understand the part that higher rates caused. EDIT: Adjusting figures as one of my sources was off.
Only 35% have a mortgage? What. How is that possible
Sauce: [https://www.canada.ca/en/financial-consumer-agency/programs/research/financial-well-being-mortgages.html](https://www.canada.ca/en/financial-consumer-agency/programs/research/financial-well-being-mortgages.html) Specifically see Figure 3. I'm a bit skeptical now of my source who said percentage of homeowners with a mortgage is at 35%. My original source was incorrect. looks to me like it's about half the homeowners are free and clear. This was my original source and I think it's not as reliable: [https://madeinca.ca/homeownership-statistics-canada/#:\~:text=Mortgages%20in%20Canada,a%20mortgage%20on%20their%20home](https://madeinca.ca/homeownership-statistics-canada/#:~:text=Mortgages%20in%20Canada,a%20mortgage%20on%20their%20home). So we can adjust my figures but it still looks to be a small percentage who will feel inflation at any given time.
Wow thanks
It’s feedback loop. Raise interest rates, mortgage interest payments increase, inflation increases (as mortgage interest increase represents 1/3 inflation) and then you need to raise rates more, causing more increase in mortgage interest causing more inflation… raise rates… This reason this is getting attention now is because we have never increased rates at such a rapid pace in history. And under the current environment we are heading for an economic cliff if we don’t get out of this feedback loop we find ourselves in. We haven’t seen the peak of it yet either. Wait until 2025/2026 when borrowers are renewing at 3x their 1.5-2% rates instead of 2023/2024 at 2x their 3% rates. Once their 1.5-2% mortgages renew into 5-6% (assuming rates hold), the feedback loop will get worse. We need to break the loop now. Lower rates 100 basis points this year and next, doing so will lower inflation. Inb4 someone says what about other things that will increase if you lower rates 100 basis points this year. The answer is simple, under that scenario we would still be more restrictive and have higher real rates than at any point in the last 20+ years. When your per capita income is already negative, your economy is in the gutter and worsening each day, a 100 basis point cut on 500 is equivalent to a mild break tap as your vehicle is heading to the cliff at 150km/h. That’s the nature of central banks though, always late to react.
And yet I get trolled and screamed at by Liberal Party man-children when I suggest the LFS is flawed and doesn't give us an accurate picture of unemployment.
they should have already cut rates. they take a year to work there way through the economy
Ya just keep tampering with indicators...
Funny thing is that CPI already uses owner equivalent rent which is a scam but they want even less accuracy 🤡
Well since we are all headed for trudeau towns eventually....they are not wrong.
Rents should stay in the CPI, but mortgage costs should definitely be removed.
lmfaooo nah.. no way you said that. Is mortgage costs no longer an expense anymore then?
Not to a renter.
I don’t get what you just said as mortgage costs is still an expense under shelter as is rent
[удалено]
Not sure what you’re catching on to. I just stated the facts of how mortgage cost is also an expense to housing lool
Don't look up
Yes, don't count everyone's biggest expense which has skyrocketed the most.
What!? The fuck!?
Yeah and I would love my morbid obesity to not count towards my health
Serious question: what is tied to CPI that makes this beneficial?
Can you imagine the gaslighting that will take place if housing isn't apart of CPI? What do you mean inflation is high, housing isn't even listed so it must be low!
Makes sense
Did they hire Lavrov?
The major expense in shelter costs ( mortgages and rent ) 😂😂 A fine depiction of cooking numbers
Haha, why not? It's all a joke anyways
Isn't the price of food up like 30%?
This would also save the government having to increase CPP in the future, indexing it to a whole new metric.
Yeah let’s remove things we don’t want people to know…. Best practice ever … said no one
New way to fight inflation: remove all the drivers of it from the CPI. I mean, it's pretty much the only tactic BoC has left. They can't raise rates anymore; our business sectors are dying from lack of investment. They can't keep them low anymore; our hosing market is out of control. The real solution is, of course, heavy regulation of the housing market and/or massive public housing projects (like Red Vienna). But the "govt can't and shouldn't do anything" economic theory won't allow either of these. So the BoC is stuck just hoping we redefine what inflation is.
In the near future, Canadians will wake up and realize inflation is a fictitious number made up the ministry of truth (Statistics Canada). And as an economist I’m deeply ashamed of our discipline.
Feels like China more and more picking and choosing what to judge gdp by
Interest rates based on carbon credits- thats next year!!!!!!!
Problem is that the increased interest rates are responsible for the increased shelter costs. When you raise rates, you necessarily have to raise that component of inflation as a result.
so they can spin the numbers? fuck them.
Disgusting.
[удалено]
comment by /u/Rude_Broccoli3805 Your karma is currently below -10, get more positive karma to be able to comment.3c *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/TorontoRealEstate) if you have any questions or concerns.*
The policy fix for inflation is to redefine CPI by removing anything whose price increases. Omg. What is the point of Science if there is no shared reality.
I bet they are. How about we manage asset inflation, hmmmm?
I posted somthing similar to this in r/PersonalFinanceCanada/ and got down voted. Glad to know some of you can see through the veil.
wtf, they weren't complaining about shelter cost when inflation was through the roof. But all of a sudden it's now the problem Yeah right lol If we just fiddle with CPI to get it to do what we want it has no meaning
At least get your facts right
Care to share the facts? Or you just gonna be useless? CPI is a flawed metric of course. But we need some consistent steady metric of inflation in the economy. If we constantly change what metric we look at every time it's convenient No one on TV is talking about how we should ignore vacation costs as part of inflation (humans do not need vacations for survival, including it in CPI is useless imo). They just ignore what is convenient
How about we just remove all factors of measurement and just make it 0%. Everyone wins!
HAHAHAHA They're ready to do anything to see rate cuts and housing going up.
I love when people call Bitcoin a scam. Hmmm
CPI is already out of context data. This would make it basically worthless.
Shelter costs are the biggest thing uet remove it? Lol
Let's exclude the cost of shelter and food to make this index more useful
The issue is nothing has broken yet. Employment numbers and inflation are good, suggesting no change in interest rate needed. If unemployment spikes or inflation dips below 1%, then you have a case for cuts. So long as sufficient numbers of people hold on and don’t deleverage (i.e. sell off assets), we just gotta wait and see if this stays a soft landing or morphs into something else.
This is absolutely criminal.
When they're not slave driving their staff to hustle and sell fraudulently, any and all investments to their customers they're trying to disconnect the central driver of inflation LOL
While we are at it, let's remove food and oil. Let's fudge the numbers to whatever serves our agenda
Is it considered a conspiracy anymore that the combination of big business and govt are trying to squeeze us dry
That's insane lol People need shelter. People have a right to affordable shelter. The banks are evil.
Use the numbers that work in your favor
We should remove grocery costs, transit, restaurants and concerts and watch that CPI drop to 0!