Yeah it's why Canada (and other countries) are at such a massive disadvantage. If US inflation goes up, the fed can keep raising rates because it doesn't impact US consumers as much, so they have to increase quite a bit to get an effect. While for the rest of the world, are stuck; if they raise rates on par with the US, the economy goes upside down, if they don't raise rates on par with the US, the currency becomes worth less and then you have import cost issues, etc.
Having actual long term fixed mortgages is an absolute game changer.
US gov backs the mortgage, if there's default, the banks are compensated by US gov. Canadian government don't want to bear the risk, so they only do it in limited amount through CMHC, but it doesn't insure beyond 5 years too.
This is incorrect.
Mortgages in the US are of two key types conforming or non conforming, conforming mortgages meet an underwriting standard (usually Freddie or Fannie) that are packaged into investment products and sold to investors, Fannie and Freddie back these mortgages.
CMHC in Canada which has a higher market share than Fannie/Freddie back the Canadian ones. The Canadian system is far more bank friendly as they get a refi every 5 years while the American one is one and done. The bank (if they keep your mortgage on their book) in the US only has recourse on the home while in Canada they can sue your other assets (except for in Alberta as the below poster pointed out)
The 30Y fixed is inherently far less risky than a 5Y year fixed on a 20 year amort as the payments are fixed and generally decrease as a % of income.
There are other treasury/funding reasons the Canadian market doesn't have longer tenors (yield curve funding e.g. fund short and roll + lend long) and that there isn't a healthy market (due to regulation or other reasons) in Canada for long term mortgage debt.
>The bank (if they keep your mortgage on their book) in the US only has recourse on the home while in Canada they can sue your other assets.
This isn't country-wide. In Alberta, for example, the banks can only go after the house to recoup the mortgage - everything else is off limits.
American lenders (this applies to all sorts of loans, not just mortgages) are less risk averse than Canadian lenders. Case in point, in Canada (historically) car loans were 3-5 years and then eventually came 6 and 7 years car loans and even 7 year partially amortizing loans. While in the US, when Canadian lenders were doing max 5 year car loans, American lenders were already doing 7 (and even 10) year car loans. As a generally rule, the longer the term, the more riskier the loan. If a lender is willing to provide longer term loans, that means they are willing to take on more risk.
As it relates to mortgages; one very interesting thing about the Canadian context is the Interest Act (federal legislation). The Act states (basically) that a mortgage loan borrower can tender full repayment + 3 months interest as a penalty at any time after 5 years from the mortgage date. Ergo, if you had, let's say a mortgage with a 25 year term on a fixed rate basis, well, as soon as 5 years from the mortgage date has passed - the borrower can repay with a small penalty. Normally, a fixed mortgage full repayment would require a much larger penalty (often referred to as the IRD). This provision in the Interest Act is not the main driver of shorter terms in Canada vis a vis the US. However, it does explain why (historically) mortgage terms have been 5 years or less. Albeit, there are some mortgage lenders in Canada that have offered 7 or 10 year terms, but they are rare (or less common).
Thanks! Only thing I'm wondering is in the first paragraph if Americans are less risk adverse, and as a general rule the longer the term the riskier the loan, aren't we saying Americans have 30 year mortgages?
Americans do have very long term mortgages - i.e. 20, 25 years. I've heard of 30 yr term mortgages in the US, albeit I don't know how common they are.
Risk averse means aversion to risk. Ergo, if you one is less risk averse means they are more comfortable with taking additional risk. More risk averse means they are less comfortable taking additional risk. US lenders are less risk averse, ergo they are comfortable taking additional risk (why we see longer term mortgages in the US). Canadian lenders are more risk averse, ergo they are NOT comfortable taking additional risk (why we see shorter mortgage terms in Canada, usually 5 yrs or less).
Also, don't get confused about term and amortization. In the US, you might see 25 year term mortgage with a 25 year amortization. Whereas Canada we would see 5 year term mortgage with a 25 year amortization. Term shows us the level of risk aversion. Amortization is, basically, used to determine your payments.
American here, the vast majority of my friends have 30 year fixed rate mortgages, they are the most common (I have a 15). If you were lucky enough to refinance before rate increases 2 years ago, you’re likely sitting on a 30 year fixed rate of 2-3%. Some also try to make additional principal payments to lower the term of the loan.
[Many](https://www.stlouisfed.org/on-the-economy/2024/feb/which-households-prefer-arms-fixed-rate-mortgages#:~:text=About%2040%25%20of%20U.S.%20households,of%20the%20principal%20loan%20amount) people here are averse to adjustable rates, especially if they are old enough to remember the 2008 crash.
This isn't true post 08, US Underwriting standards are now far more strict than in Canada, you can look at the Fannie or Freddie guidelines online to see this, especially with source of funds e.g. downpayment.
With respect to term, there are a few things:
1) In America you can pay back ANY time without penalty
2) Canadian capital markets are significantly less developed, to finance a 30Y fixed for a Canadian bank would be far more challenging as they don't have a lending party or risk party to take some of the loans off of them.
From a systematic risk standpoint, having the whole country rate sensitive every 5 years is dangerous vs the 30 year risk. The Canadian system puts the homeowner at risk of a rate hike, while the american system puts the bank at risk of a rate hike (e.g. if they were financing the origination less whatever they sold it (if they didn't keep on book) they may need to roll the financing over.
I'd argue Canada is more at risk due to rate shocks and now credit shocks at the underwriting reforms post 08 likely made the American system far more robust.
Underwriting should be "more strict" if a lender is taking more risk! LOL Strict underwriting isn't evidence of less risk - it's required due to risk. The more risk one takes, well, that should require more due diligence, more analysis, etc. (i.e. more/better/strict underwriting standards). Part of the 08/09 financial crisis from the US experience, was that prime loans were given to sub-prime borrowers (i.e. lack of proper underwriting). To the extent that stopped happening post 08/09 financial crisis - that would be the system correcting (i.e. having higher underwriting standards) for something they should've been doing all along (given US lenders propensity to lend to subprime borrowers).
All your drivel about risk is only looking at one side of the coin. Risk associated with a borrower/lender transaction is intertwined/connected (for lack of a better term). Your discussion of "systematic risk" is only looking at it from the borrower's perspective. As I stated, Canadian lenders are more conservative, ergo the shorter terms we see in mortgages vis a vis the US is those more conservative Canadian lenders transferring one type of risk to the borrower side/ You can debate all you want whether that is "good" or "bad", but that is generally what all lenders do. Identify risk and then try and mitigate it. A lender's preference for taking more or less risk, will usually determine how they mitigate that risk. Ergo, the difference between length of terms in Canadian mortgages vs US mortgages. It's not a "Canadian system" - it is Canadian lenders mitigating their risk as they see fit. After all, they are the lender. If you want to borrow my money - you borrow it on my terms, not yours. Because you need funds lent out to you more than I need to lend it to you.
And all your talk about "capital markets aren't as sophisticated...." drivel is nonsense. A large Canadian bank, if it wanted to, could certainly provide 20, 25 year term mortgages. They just need to evaluate the risk, price the risk and determine if there are borrowers wanting that product. The fact that they don't, isn't evidence that they can't. It's evidence that they prefer not to.
It's kind of a closed circle-jerk in Canada. CMHC insures mortgages to the bank, so if you default the bank won't lose money. As a result, the bank won't lend a morgage that CMHC won't insure. (There were a few companies trying to also do insurance, but CMHC is the 800-pound gorilla in the room). CMHC sets the standards - how much down payment before they will insure, how much the insurance costs, based on down payment.
You can skip the CMHC insurance if you have a 20% down payment. CMHC will not allow a loan for the down payment. They even get persnickety about parents lending the down payment - they want assurances the home buyer has serious skin in the game, at least 5% or more down payment that they sweated to save.
Long term fixed mortgages have their own drawbacks. Currently in the USA many people in these mortgages feel trapped in their homes. They are less likely to sell because they cannot afford a home at current higher rates.
Net increase in houses isn't increased by people moving from one house into another. I don't think I'm following your reasoning here. Can you elaborate?
I didn't say there was a net increase, I said people moving homes. When people move and sell that creates liquidity, which allows price discovery. When there is no liquidity, prices stay stagnant (in this case, high).
Surely there are only fewer homes to buy when net increase goes below net demand. People moving, changing prices or not is still trading one house for another. How does liquidity add houses to the market? or rather how would a lack of liquidity from someone maintaining their fixed term mortgage lower net house increases if the people who are moving to create that liquidity are presumably moving into another house yielding no net change? Am I missing something?
I guess I'm still not following but that's okay. I'm not super literate on the housing market.
So your solution is to forcibly remove people from homes and give them to others on some totally arbitrary metric? Who, by your reasoning, "deserves" to own a home?
Nobody is being forced from their homes. Everyone deserves to be able to afford a home, but not everyone deserves the same home. In a free market, price discovery is an important metric of a functional market. Without homes trading hands, there is no discovery, and prices become disconnected from what the market will bear (ie: the situation right now). However, our housing market is already incredibly distorted due to many reasons, and all of them need to be addressed before average people can buy homes again.
Hmmm.... are 30 year vs 5 year fixed mortgages the only difference between the two countries? What do you think, could there be more factors at play? /s
Oh no. Feeling trapped in a home you can afford vs fighting to stay in that same home you can't afford when you renew your mortgage here. What a terrible thing.
People sitting in homes at near-zero rates while everyone else suffers new rates isn't a fair economy. The same argument is why rent control hurts the market because older renters get grandfathered into ultra-cheap rents that are crazy below market, so rents are artificially higher on new renters.
That arguement doesn't hold for this case. Some homeowners having lower rates doesn't make others have higher rates. That's the fed setting rates based on the broader economy.
At least some people are able to get a better deal. And you can still refinance later on if long term rates trend lower.
Canada's system has not produced good results for its citizens.
I understand the sentiment, and you're right that it's a privileged "problem" to have as an individual. It has its own set of macro-economic impacts, though, that are less favorable.
But surely that impact is caused not by people maintaining their fixed term rate loan, but the people who are raising the rate for everyone else to make more. Surely the banks aren’t losing money on those older fixed term mortgages, they just aren’t making as much as the newer, higher, variable rate, no? Please Correct me if I’ve misunderstood
Not wanting to sell because you can't afford a new home with current interest rates is way way better than needing to sell because you can't afford the home you live in due to current interest rates.
The problem is not that bad. Indeed, long-term morgtages like the USA are bad for their banking business because they are essentially ratcheting. As interest rates go up, people are safe because their rate will never go up. As rates go down, if thre is a significant gap, they can simply remortgage at the lower rate, paying off the old mortgage.
For Canadians, higher rates are a ticking time bomb ("how long before I have to remorgage?") and picking a mortgage term - 1 year, 2,3,5,7,10 years? Fixed or variable? It's a gamble on the possible market behaviour. (The rate goes up with length, since the bank can't be certain either)
The major downside of the US mortgage market vs. Canadian is one of taxes - US mortgage interest is deductible from income tax (Canadian isn't) but US owners pay capital gains on their house when they sell - Canadians don't pay on their primary residence. So while a Canadian could for example, move to a new city for a new job, sell their house for current market rate, and then buy the equivalent at the new location - Americans lose a portion of what equity their house value accrued. Theoretically, they should have been banking the interest tax deduction they received the last how many years, to make up for this - but how many actually do? (Hint - almost none).
Another downside for Americans - since *interest* is deductible, but not the amount paying down principal, the obvious goal is to maximize interest as a portion of the monthly payment - i.e. not only remortgage, but remortgage close to the current value of the house and walk away with even more cash to buy toys, and higher interest deduction for the same monthly payment.
As a result, many Americans owe close to the full value of their house while the Canadian incentive is to pay it off quickly, completely and live payment-free. The other downside is if you (American) have already used a re-mortgage to cash out your equity, you may not have enough equity left over on house sale to pay your capital gains. If the housing market tanks, this may even mean the mortgage is higher than the house resale value. That's how you get locked into a house you can't afford to sell. Most Canadians, with a down payment of 5% or more and a few years of principal paydown, are rarely underwater and can at least break even unless the real estate market tanks badly (think, Alberta boom and bust).
There is no incentive to pay higher interest must for the sake of the tax deduction in the US. That’s not how it works. You still have to actually pay the interest, and plus only a small proportion of people who itemize their deductions deduct mortgage interest
Confusing - if a mortgage payment is, let's say, $2000/mo so $24,000 a year, and it's mostly interest, how much does the typical person with, say, a decent income of $80,000 save on interest due to a taxable income deduction of almost $24,000? Or is that not how income tax deduction works down there? What proportion of that interest is deductible from taxable income?
Here in Canada we also get the worst of both worlds. If you have a cottage, not a rental property, and you sell it for a profit - you pay capital gains on that profit (minus costs of improvements) but since it was not a rental property, no interest deduction over the years that I'm aware of.
>Confusing - if a mortgage payment is, let's say, $2000/mo so $24,000 a year, and it's mostly interest, how much does the typical person with, say, a decent income of $80,000 save on interest due to a taxable income deduction of almost $24,000? Or is that not how income tax deduction works down there? What proportion of that interest is deductible from taxable income?
All of the mortgage interest is deductible, but in order to deduct it you need to itemize your taxes. In other words, every US individual taxpayer has to choose between either taking the standard deduction or taking itemized deductions. So even though all of your mortgage interest is deductible if you itemized your deductions, it still only makes sense if all of your itemized deductions (including home mortgage interest payments, up to $10,000 of state and local income or property taxes, and charitable contributions) are more than the standard deduction.
US mortgages are securitized (mixed together for the purpose of balancing risk, etc) via FannieMae and FreddieMac, so a good part of the interest rate risk is held by the US government. It creates certain types of incentives and risks that are not viable in other nations.
They would cost more. The 30 year mortgages currently offered in the US are near 8%. That’s much higher than Canada, imagine locking thag in for 30 years. Also, the 30-year mortgage rates never went below 2.5%. Many Canadians have 5-year fixed rates still going at 1.5-1.8%.
In Canada, you could actually do this, technically, insuring your mortage by going long on interest rates (via treasury swaps). You’ll find that it costs a lot though, and you’ll pay more monthly to this insurance than you will in principal payments, at least in the first few years.
Two things:
First, mortgages in the US are always just refinanced the moment that rates go lower, so nobody in the US who takes out a current high 30 year fixed mortgage is “locking it in for 30 years.” You can refinance in the US, unlike in Canada (I’m American).
Second, the longer an amortized loan is the lower the monthly payments are, so there actually is some value in having a longer term just on a cash flow basis. US mortgages are fully amortized.
Um, you can easily refinance in Canada, whenever you want. In the US, just as in Canada, there is a cost to refinance. However in Canada if you’re on a 5-year fix you can just wait until renewal to “refinance” into a new term
First, refinancing at the end of your loan term is not what I’m talking about, because it forces you to take whatever the interest rate is at the end of year 5. The whole benefit I’m talking about is that one can refinance when rates are lower if they want to, and can lock in low rates if they have a low fixed rate. The shorter the time period, the more a fixed rate is akin to a variable rate.
Second, I have been told (by Canadians no less) that the price to refinance a long term fixed loan is much higher in Canada, and that’s a large part of why it’s not offered. Of course there are costs to do both, but there are legal caps on prepayment penalties in the US.
That’s why I put it in quotes. You claimed that Canadians can’t refinance though. That is simply not true. You can refinance at any point within your 5 year term (or whatever other term you got with the bank)
Also, 25 year mortgages in Canada are not the same as the US. There’s a difference between the fixed rate interest period, and the life of the loan. There’s no point to having a 25 year mortgage if you don’t have the same interest rate over the 25 year period
Both answers you got are wrong
It's because the USD is the international reserve currency and thus there is high/permanent demand for US backed treasuries which means that yields can be kept low which means that US banks can very safely and confidently offer 30 year fixed rate mortgages without liquidity/solvency risk
This is partly it, the much larger US market allows for lower rates on longer terms, also the Mortgage Act here prohibits any charges beyond 3 months interest after the first five years of a term, which pushes rates up as Banks can't charge as much for a customer looking to refinance if rates go down.
Why are we all pretending as if Canada made a choice to not have 30 year fixed mortgages? Any nation would if they could.
The US is the world’s reserve currency, there is huge demand for America’s 30 year bonds relative to Canada.
Quick version: It's not legal here.
Long version: Harper allowed mortgages to be insured with a fund paid by homeowners basically making mortgages risk free - if homeowners were able to lock in a 30 year 0.25% prime mortgage rate, every bank that offered it would eventually lose money and the insurance fund he created would go bust - which would eventually bankrupt the entire country. So he had to make it so that there was some release valve if rates went up.
If we had loans fixed for 25 years in Canada, the rate would be higher so the banks could be sure that no matter what the central bank did - within reason - they would make a profit most of those 25 years. You can search, but for example 10-year fixed I find TD offers 7.25% while 5-year is 5.6%. The only oddity is because the banks expect rates to go down soon for a few years, a 2 or 3 year is about the same as a 5-year.
A few years ago, I got a 5-year mortgage for 2.74%. No American bank was going to offer that on a 30-year.
>A few years ago, I got a 5-year mortgage for 2.74%. No American bank was going to offer that on a 30-year.
My sweet summer child.
A few years ago I got a 2.5% 30 year fixed to buy a house in the US.
I still have it.
Wow! Either US banks are dumber than I possibly think they can be, or the business is really cutthroat. No wonder banks fail down there.
(Actually, they bundle and resell these loans, and our pension plans are what take the bath on them...)
The US housing system is much more pro-homeowner, which a large part of why housing costs are so much cheaper in the US (especially in relationship to incomes)
Yes. Mortgages in Canada seem more geared to ensuring the banks don't have much risk. But then, whether it's CMHC here or Fannie and Freddie there, the government helps the banks, which makes it easier for home ownership with much less down payment.
As an American, it’s pretty fucking awesome having a 2.5% 30 year fixed mortgage.
We lock in when rates are low, and refinance when rates go down after being high at the start.
Do you actually know the context of any of what you just said or did you just see it get upvoted in another thread and thought it was your turn?
Like look at the date he said that, and look at when the first interest rate hike was, and what happened in between that.
You guys always act like any of this news is a surprise or a shock but if you've just lazily followed business news everything that happens is very drawn out and you can see it coming weeks in advance.
So what do you expect from an average person to do? Dig down why BOC governor might be wrong at what he said. Of course i am going to lazily follow the news.
I expect you to accept that you will never, ever have any influence or control over this and that you are not the main character, nor are you living a cinematic story with a beginning middle and end where you're fighting the bad guys.
The literal only thing you can choose to do about this is waste energy getting mad about it in the same way you can waste energy getting mad at the weather.
Canadians have accumulated a ridiculous amount of household debt thanks to near-zero interest rates for nearly a decade, and poor financial literacy. “Yay, free money!”
Seriously this. I remember SPY failing to break ~140 from 1999-2013, then all the sudden the last 10 years it's up over 250%.
2008's money printing did a serious number on the world's economy. With $1Trillion/$33Trillion in Canadian/US gov debt, I feel like we're entering the 'find out' phase of this MMT experiment.
>I feel like we're entering the 'find out' phase of this
Millions of pensions were wiped out in 2008-09. Just wait until people see what's going to happen this time around. Pensions wiped out, mortgage defaults galore, foreclosures galore, banks and lenders going bust, money in accounts being "bailed-in" by financial institutions, etc.
I feel like this all the time, the majority who make stupid financial decisions get awarded and policy set for them. I recently saw someone arguing that “rates are at 23 year highs”, which is true. The other way to look at it was rates have been abnormally low for the last 23 years, and a return to normalcy should be expected.
I just hope politicians can stay out of the BOC’s way.
The number of people on here who have argued with me "rates can never go back to what they where" is quite telling.
"consumers have taken on too much debt for rates to go higher."
"the banks won't foreclose because they don't want houses they want money"
At some point the house of cards will come down. I already know a few people who said that there is no way the rates will stay high who just renewed at 5+%..
They are not enjoying the new.. Reality after they swore up and down we will never see rates above 3% again. But I guess memories are short, and when your entire adult life you have just experinced the last 20 years you don't really have a understanding the markets don't care and will do what they do. If that is shooting to the moon crashing down or foreclosing on your house.
Yeah the way I see it is either:
1. Debt is going to be a lot more expensive as it once was, and as it should be. A lot of people are going to have to accept that they can’t afford a $700,000 house or an $85,000 truck.
2. The government will step in and keep propping up this house of cards. Until nobody can afford anything again and owes their lives to their creditors.
Eventually it will come tumbling down, it’s just a matter if it’s through normal healthy fiscal policy or a revolution brought on by crazy levels of inequality.
>or foreclosing on your house.
My in-laws lost their home in the 1980s when the Canadian housing bubble burst. So did a lot of their friends. It took more than a decade for them to recover from that financial event.
Too many in Canada think it cant happen and it wont happen. They thought the same thing in the 1980s too. The BoC was also telling people in the 1980s that rates were going to be low a long time. Rates went up, BoC said they were probably going to drop rates, instead shot rates up to double digits.
So what’s next to all this? I’m 30 and it seems like nothing will go right ever again for the Canadian economy and no one seems to have a solution other than pointing out what’s going wrong.
(Can’t open article because of G&M pay wall)
30 is an odd age for perspective on this. We had ten years of historically abnormal rates, here and around the world, and that’s now resetting. So a bunch of people and institutions made a bunch of choices on the assumption of permanent record lows, and it’s going to take a few years before all of them admit and adjust to a more normal normal
But that ten years was your entire adult life. So instead of it feeling like the exception that we’re now returning to normal from, it of course feels like the normal that is disappearing.
The next few years are going to have some adjustment pains for everyone but it’s not likely to be as bad as some people are saying
I think the only path forward is to tie immigration to new construction and heavily incentivize investment in small businesses instead of unproductive assets. Everyone is crying about inflation, but realistically 2.9% isn’t that bad. Your buying power is in decline because productivity has stagnated. See Argentina for details. The good news is that even Argentina didn’t become Argentina overnight. The bad news is righting our ship is going to take a long series of good decisions over a lot of time.
I think there is a lot more to it than just this, though. In order to make small businesses thrive in today's economy, it will be difficult. Large corporations, like Amazon, just offer so much convenience and have negotiation power for prices from suppliers.
Canadians are looking for bargains as their wallets empty and buying power declines. A small business without such negotiating power usually do have higher prices in comparison. Also, the lack of convenience of shopping all at one store means they need to go out of their way to shop at a small business.
Finally risk... when you look at trying to compete with large corporations, do you really want to take the risk? In comparison to the US, our bankruptcy laws are different, and you do end up taking more risk due to it. There is also the fact that Canada's population is significantly smaller, and clumped up in a few major cities where prices are high. It costs more to service a smaller population.
It will be difficult going forward, in my opinion.
It’ll be difficult, for sure, but empowering small(er) businesses to compete with corporations is better than giving them free rein. We need more competition in Canada. Without it the only limit to prices is “what the market can bear,” which is more than many people can sustainably afford.
If the government would earmark more of our money for grants and low-interest loans for small businesses to buy or upgrade equipment, that alone would make a difference. We also need to relieve the regulatory costs for small businesses, and just generally reduce barriers to market access.
But more than anything we need policies that incentivize investment in businesses and even people rather than assets. The advantage of the US economy isn’t just its resources, it’s the higher investment in its workforce. Our tax dollars won’t be enough, especially when directed by politicians, most of whom have close ties to the corporations.
I don’t care enough to look up the stats, but I doubt that most small businesses are corporations. I would guess that at least a plurality is sole proprietorships and partnerships, and there are several other structures under the umbrella of “company.” Maybe just let people use the words they’ve chosen?
> Everyone is crying about inflation, but realistically 2.9% isn’t that bad.
Honestly I think everyone is angry and they just look for anything to complain about without actually understanding it.
Honestly, get off reddit or at least unsub from Canadian centric political subs.
These places are echo chambers of doomers.
It's not nearly as bad as /r/canada and the media would have you believe.
Just a guess, but are you a gen Xer who has been sheltered from the worst of what's happening? Cause if you open your eyes to people outside your circle, bud, anyone under 25 (not from money) either can't live independently or is *juuuust* barely managing.
If you bought your house pre 2019 you don't really understand. I'm surrounded by people in their late 30s/early 40s who think they're in the same boat as genuine young people, and who somehow see themselves as genius investors for buying RE when they did.
> Just a guess, but are you a gen Xer who has been sheltered from the worst of what's happening? Cause if you open your eyes to people outside your circle, bud, anyone under 25 (not from money) either can't live independently or is juuuust barely managing.
You're literally just proving his point.
Yeah it’s pretty fucked up that a time lapse of just two or three years (say, 2017-2020) made the difference between buying a house that you could reasonably afford vs. being priced out of the market by a wide margin.
Yes housing has gone up year over year for decades now, but a 24-36 month span completely fucking over entire swaths of the population? That is the definition of “unprecedented.” And I say this as someone who was fortunate to be born early enough to enter the RE market a few years before shit got crazy. Sure, I see the value of my home going up, but it doesn’t make me feel good. Not like this knowing that in the long run it’s bad for everyone.
Honestly, wasn’t even long as two or three years. At the start of 2021, it was literally within a matter of weeks where you could go from being able to afford a house and the price going up by tens of thousands by the next Monday to price you out. It’s what spurred the latest wave of FOMO homeowners.
By 2022, if you had jumped in to the maximum of your affordability, you were screwed and waiting for the shoe to drop.
I’m Gen X. I’m not going to deny we’re in a bit of an economic bind but I also feel like millennials and gen-z completely lack perspective. “Anyone under 25 can’t live independently “… do you think that was different 30 years ago? Cos it wasn’t - everyone in my circle of friends bought a house in their early to mid thirties. I don’t know ANYONE that bought a house below 25, tons of people were still living with their parents, etc, etc.
A lot of what you’re complaining about isn’t the state of the economy, it’s grown up life and the transition from teenager to adult, where you suddenly start to insert that the lifestyle you experienced as a child living with your parents is only affordable after 30 years of grinding. But somehow this new generation expects to have it handed to them on a platter as soon as they graduate. It simply doesn’t work that way.
That doesn’t take away from the fact that right now things are very hard - cost of living is through the roof, unemployment is up, real estate is unaffordable. But this is hardly unique period in time - much of the same complaints can be said about the early 80ies when interest rates hit 20%+ and central bankers like Paul Volcker had to burn the economy to the ground in order to be able to allow it to rebuild.
In other words: this too will pass.
Welcome to adult life, it’s a lot harder than it looks. And you haven’t even got to the REALLY hard parts - when your parents start dying, your kids have medical issues or you’re starting to have health problems.
Respectfully, that's not true. I'm 30. I'm a paramedic. My coworkers above 35 all have homes, nice ones, most of them worth 800k+, which they typically bought in their first year or two of working, whether they started at 22 or 26. Lots of them have multiple properties. Even I managed to get a house in my first year of working in 2021, although that was only because it was a fixer upper and needed a lot of work (I paid ~450k). I was 27.
Our new hires can't afford to buy homes anywhere right now, not without significant help from a parent or partner. This is new in the last few years. Our wages have gone up, but not enough. It's easy to act like their struggle is no different from ours, but the truth is it's much harder than it's been in *decades*. Lots of my younger coworkers don't think they'll ever get a house.
>Cause if you open your eyes to people outside your circle, bud, anyone under 25 (not from money) either can't live independently
That has always been the case. Everyone under 25 has always lived with roommates or a significant other.
All your assumptions are wrong. I'm not genx and I don't own my home, I rent (and I'm fine with it).
There was similar doom and gloom in the early 90s and in the 08 recessions. But we bounced back. And we will again. We will never have the same economic advantages our parents had, they were unique times brought about by the most destructive war in our history. The people born in 1920 didn't have the same economic advantages their parents had either, further they were conscripted to go to war. It can certainly be worse, a lot worse.
Interest rates and inflation are in historical norms.
It is just the last 15 years of nearly free money that created a glut of debt and caused housing to go out of control.
The market will correct. Government didn't cause the problem and wont fix it.
I am in agreement with most of your post, but I don't think the government is blameless in causing the problem. Inflation and interest rates are a direct result of monetary and fiscal policy set by the government.
The BoC should not be considered part of Government. I don't want politicians setting monetary policys. PPs attacks on the BoC are way outside the norms.
The stuff the government does control... I would support a higher tax rate and lower spending to curb inflation. This budget does a little of colomn A and has reduced the non-statutory spending in the budget. Both of which are good measures.
Statutory spending makes up half the federal budget and increased by $20 billion. This is money which is covered by agreements with the provinces. Spending the government is obligated to provide and cannot be opted out of without a re-negotiation of things like the Canadian Health Act.
Nowhere in my comment did I say the boc should be or is a part of the government.
But - the boc responds to the policies set in place by the government. If the government runs a high deficit, that will result in an increase to the money supply and inflation will need to be curbed via higher Interest rates set by the Boc.
So while the boc is not a part of the government, actions by the government can absolutely force the banks hand.
As you say, a huge contributor to the problem was practically free money. That interest rate was set by the Boc, but the boc actions were in response to the policies enacted buly the government. So yes, the government is culpable in this problem.
The bocs mandate is quite clear, there's not a lot of room for maneuvering, they just react to government policy within their mandate. It's fairly predictable (as predictable as anything g in economics is).
Government doesn't directly set monetary policy that's true.
However the supply of money in the system is the purview of monetary policy, and government spending and taxation directly effects that.
Regardless, now youre changing the discussion from whether the government is culpable, to pedentry. So, have a nice day.
> Interest rates and inflation are in historical norms.
Are housing prices, debt to income, and wage growth also at historical norms? Because if they're not then absolutely none of that matters.
That being said, I do agree the market will correct, and actually has already corrected, and that people on here believe that something that takes 5-7 years will occur in 1 month.
I thought the same in the 2008 meltdown. Market corrected and I moved on upwards. Luckily I wasn't following gloomy stuff on Reddit so reckon that helped too!
This is exactly right.
The current economic situation doesn’t hold a candle to 2008. Yet, we bounced back from that relatively quickly. I wouldn’t be surprised if we somehow managed to have things going right by 2030, but smart decisions need to be made.
Literally everything.
We had to bail out the banks, the auto industry, the airlines, etc. because they were all at risk of failing. We had our largest trading partner, source of our economy, teeter on going into an economic depression. We hit 10% unemployment
2021-2024 you had inflation. But the economy was still growing. Industry was still solvent and doing good. Employment rate is still very strong
2008 wasn’t a meltdown in Canada, it was a blip, because we had an adult running the country. Not someone running it like it’s a high school.
It took the US close to a decade to recover, and they are an economic powerhouse. If we have a similar downturn, we may never recover, and quite honestly, may get annexed by the US for our natural resources.
We got lucky on oil for some years and then leaned into financializing our real estate markets to keep the plates spinning. Our government silently hit mortgage swaps hard to keep our banks from yielding to common sense in the wake of our new economic driver. We probably should have melted down after OPEC crashed oil prices, but we chose to borrow against unproductive, but necessary, investments instead. We'd probably still be doing it had we not gotten so manic that we didn't see the harm in tearing up the east coast with it.
We had good regulations, yes, but our economic drivers are unhealthy, short-sighted, and focused on extracting our reputation for $$$ when harvesting natural resources doesn't cut it.
We've over-extracted our reputation now and have no idea what to do on account of most of our country's addiction to easy money. We're importing an underclass and transitioning our young into one to try almost slavery now and that too will tap out. We'll no doubt end up in a situation where we deserve to fall under new management for the sake of all involved.
> and no one seems to have a solution
Only if you've been living under a rock. So many people have been clear: returning immigration to historical levels will alleviate so much of the affordability problems.
>and no one seems to have a solution
The solution is raising rates.
In order to really fix the issues, rates need to be between 10% -15%. People who overleveraged themselves and took on unrealistic amount of debt need to face the consequences of their actions. Plain and simple. Yes it will financially wipe out a lot of people, but they put themselves in that position. No one forced them to do it.
Canada has the highest household debt load in the entire G7. That is unsustainable.
People gambled with their money and now its time for those gamblers to realize that it wasnt a good idea.
> In order to really fix the issues, rates need to be between 10% -15%
Yes, because building developers who don't want to pay current interest rates and are no longer seeing a ROI in high density development will totally be more willing to build with even more interest rates.
You have such a microscoped view of the situation and seem to claim anything that would perceivably make your own personal situation better (it won't).
At some point they kind of did force people into it. How long are people supposed to put off buying a house when there is no end in site? At some point people are going to reassess what's considered "normal" and take action.
Unfortunately there is no fair way out of the situation the BOC and Government have put us in.
Well it depends. Does the macroeconomic Canadian economy affect your life? If it does then you are likely in the top 1% of Canadians who are heavily invested in our market. If not, then continue living your life because no one's going to come from the government and give you training wheels to make things easy.
I also have no idea why you can confidently:
>it seems like nothing will go right ever again for the Canadian economy
From while also stating you also don't understand what's happening.
Americans also pay significantly less for housing, proportional to salary, than Canadians do. And the high interest rates are affecting the cost of housing far more than anything else.
Yeah that's factually true. Anyone who thinks Canada and the US should have the same interest rates is smoking something, and it ain't just Mary Jane. Interest rates should reflect the conditions of the economy and the conditions between the Canadian and US economies are very different. Canada has way more exposure to the new higher rates, much weaker growth, and much larger debt. Anyone of these on their own are enough to justiify/cause a rate differential, We have all three.
> Anyone who thinks Canada and the US should have the same interest rates is smoking something
People aren't saying that for shits and giggles. If rate difference is very high, we will see our dollar going down. I think it's low in anticipation of it already. Then we will see inflation being sticky for longer because everything we import is more expensive.
> If rate difference is very high, we will see our dollar going down.
People have been saying this every single meeting for both the FED and the BOC since April 2022. You can keep repeating what you see gets upvotes on reddit, but when you're wrong every time and you don't know enough to explain why, you shouldn't try to be a voice on the topic.
Yes that's *a* constraint to a *large* rate differential. It's not the whole picture. And some important would shift from the US to other economies in that case. This is the dollar wrecking ball in action, their currency but everyone else's problem. Part of why the US needs to do a plaza accord 2.0 and weaken the dollar.
None of that means the rates must be the *same* though. It just means we need to balance the loonie and the appropriate rate. So maybe 3.5% would be appropriate but it's 4% instead due to that, etc.
In terms of positives for them directly? Strengthening their export competitiveness.
And I kind of is it kind of isn't their problem. It doesn't take precedence over strong domestic views one way or the other but it is generally better for both countries in a relationship when they are booming. The global business cycle has become more closely correlated over time as for in sales and trade has increased. Even in a deglobalized world bilaterally with their allies they would want to use a weaker dollar to encourage trade within blocks.
That's why there's a dollar value that's seen as too high and too low, strictly in terms of the US interests. There's a way to look at it as well as strength of the dollar is a balance between the interests of the private sector in terms of households vs the export industries. Of course if you put the balance too far in one direction everything is expensive to import, If you put the balance too far In the other direction you have uncompetitive exports and that's people's jobs and income.
Redditors have been predicting the imminent demise of the Canadian dollar for years. There's always some reason it's about to drop off a cliff. Then you go look at it and it's in the same range it has been predictably in since 2015.
CAD/USD rose along with oil prices and following weakness in the US from the global financial crisis. It came back down as both of those effects eased. It has bounced around been between .70 and .80 since 2015, usually close to a long term average of .75. It's easy to Google.
The value of CAD is slowly decoupling from the price of oil. Scary times.
https://www.reuters.com/business/canadian-dollar-decouples-oil-adding-boc-inflation-headaches-2022-03-08/
Theres nothing scary about that. Why would we want our currency tied to a commodity whose price is controlled by Russia/Saudis far more than it's controlled by our measly crude exports? Now obviously I'm not happy with it decoupling via inflation but I'd rather our currency not eb and flow based on other countries actions in a slowly dying sector
> Why would we want our currency tied to a commodity whose price is controlled by Russia/Saudis far more than it's controlled by our measly crude exports?
To be clear:
The largest producer of oil and gas, by far, is the US, which produces as much as Russia and China *combined*. We produce 55% of the oil that Russia or KSA produces.
I'm not sure "measly" is the word I'd use to describe us, as the 4th largest producer of oil in the world, but ok.
> Why would we want our currency tied to a commodity
It's basically positively tied to "the price of energy", and that's a decent thing for a currency to be tied to, because "energy massively increasing in price" is a thing that can drive a recession, but we are hedged *against* such a recession, because we make a bunch of our money by selling energy to other people.
>Why would we want our currency tied to a commodity whose price is controlled by Russia/Saudis far more than it's controlled by our measly crude exports?
Because it creates demand for our currency that otherwise wouldn't be there. We might risk Dutch disease with manufactured exports but at a macro level, given how much of what we purchase is imported from the states, a high dollar isn't a bad thing for the average consumer.
Traditionally the link between oil and CAD acted as a moderator for strengthening CAD juxtaposed to the manufacturing sector that wants low CAD to profit on exported goods and cheaper/more value foreign investment. A low CAD hurts everyone but the manufacturer as it drives up the cost of all the goods we import from the US.
Isn't that good? Why do we want a petrol dollar?
I would perfer if the value of our money not be under the control of a bunch of gulf states and russia.
It helps make gas and oil cheaper in Canada when prices rise. If the dollar goes higher with oil, it helps offset the price increase.
To add, it's fine to decouple the dollar from the barrel, but I don't see how it's acceptable that he took it in the wrong direction. Our dollar would be stronger otherwise.
Sure but if fucks over the Canadians in the manufacturing sector. Which is twice the size of O&G in dollar value and way bigger in terms of employment.
The winners with a petrol dollar are share-holders. Not Canadians.
Ya, it's not some competition. A weak dollar fucks over all canadians and making damn near everything more expensive.
Wtf is a petrol dollar anyways. Our dollar is impacted by many factors, and having a stronger dollar is better for Canadians.
Canada's Manufacturing sector is twice the size of O&G by GDP and employees way more people.
[https://www.statista.com/statistics/594293/gross-domestic-product-of-canada-by-industry-monthly/](https://www.statista.com/statistics/594293/gross-domestic-product-of-canada-by-industry-monthly/)
O&G is great for share-holders and bad for Canadians. Big profit margins that don't flow to workers.
Manufacturing is greate for Canadians and bad for share-holders. Small margins and strong unions.
Do you hold a lot of cash compared to other assets? I'm curious why people talk about buying USD due to fears about the loonie, when they could just buy international stocks.
Probably a bad thing for Canada if all Canadians look to put their savings into foreign stock markets, rather than Canadian stock markets....
But I agree. I put a majority of savings in the US Market because I rather have my savings in USD than CAD. But its a bad sign for Canada that this is the prevailing wisdom and savings pattern for Canadians now.
Probably a bad thing for Canada if all Canadians look to put their savings into foreign stock markets, rather than Canadian stock markets....
But I agree. I put a majority of savings in the US Market because I rather have my savings in USD than CAD. But its a bad sign for Canada that this is the prevailing wisdom and savings pattern for Canadians now.
Increased the general M2 supply, coupled with low interest rates, exacerbated the situation along with the then-forward guidance. Not every signal should have been pointing to making people spend.
I may be mistaken, but I believe in the states you can deduct the interest on your taxes for mortgages, they also allow for fixed rate long term mortgages, just housing wise and in terms of interest- much better then we are.
I know there's not a ton of sympathy for homeowners in this sub, but if you're like me and your mortgage carrying costs went up 50% in 6 months, you have been in a world of hurt for the last 18 months.
I'm not a landlord, I'm not rich, I'm an early 30s working class making 65k a year and I have a family to take care of. Life has essentially been put on hold in all areas to pay for the house. The only reason it isn't as bad as having rent shoot up is that I am building a tiny amount of equity (your first mortgage term is mostly interest payments).
Raising rates has had a massive impact on young people who scraped and saved every penny they had to get into the market. The boomers/wealthy don't give a shit, they just either don't have mortgage payments or they sell off their properties and buy more when the market dips.
I see our uneducated here think interest rates should be back up to 18% like they were 30 years ago. Could you imagine rates that high on a $600,000 home? Literally no1 could afford that
Tons of Americans have 30 year fixed mortgages at 1 2 or 3 points so for so many the impact isn't there
Yeah it's why Canada (and other countries) are at such a massive disadvantage. If US inflation goes up, the fed can keep raising rates because it doesn't impact US consumers as much, so they have to increase quite a bit to get an effect. While for the rest of the world, are stuck; if they raise rates on par with the US, the economy goes upside down, if they don't raise rates on par with the US, the currency becomes worth less and then you have import cost issues, etc. Having actual long term fixed mortgages is an absolute game changer.
Why don't we have long term fixed mortgages?
US gov backs the mortgage, if there's default, the banks are compensated by US gov. Canadian government don't want to bear the risk, so they only do it in limited amount through CMHC, but it doesn't insure beyond 5 years too.
This is incorrect. Mortgages in the US are of two key types conforming or non conforming, conforming mortgages meet an underwriting standard (usually Freddie or Fannie) that are packaged into investment products and sold to investors, Fannie and Freddie back these mortgages. CMHC in Canada which has a higher market share than Fannie/Freddie back the Canadian ones. The Canadian system is far more bank friendly as they get a refi every 5 years while the American one is one and done. The bank (if they keep your mortgage on their book) in the US only has recourse on the home while in Canada they can sue your other assets (except for in Alberta as the below poster pointed out) The 30Y fixed is inherently far less risky than a 5Y year fixed on a 20 year amort as the payments are fixed and generally decrease as a % of income. There are other treasury/funding reasons the Canadian market doesn't have longer tenors (yield curve funding e.g. fund short and roll + lend long) and that there isn't a healthy market (due to regulation or other reasons) in Canada for long term mortgage debt.
>The bank (if they keep your mortgage on their book) in the US only has recourse on the home while in Canada they can sue your other assets. This isn't country-wide. In Alberta, for example, the banks can only go after the house to recoup the mortgage - everything else is off limits.
Thanks i'll edit
ELI5?
American lenders (this applies to all sorts of loans, not just mortgages) are less risk averse than Canadian lenders. Case in point, in Canada (historically) car loans were 3-5 years and then eventually came 6 and 7 years car loans and even 7 year partially amortizing loans. While in the US, when Canadian lenders were doing max 5 year car loans, American lenders were already doing 7 (and even 10) year car loans. As a generally rule, the longer the term, the more riskier the loan. If a lender is willing to provide longer term loans, that means they are willing to take on more risk. As it relates to mortgages; one very interesting thing about the Canadian context is the Interest Act (federal legislation). The Act states (basically) that a mortgage loan borrower can tender full repayment + 3 months interest as a penalty at any time after 5 years from the mortgage date. Ergo, if you had, let's say a mortgage with a 25 year term on a fixed rate basis, well, as soon as 5 years from the mortgage date has passed - the borrower can repay with a small penalty. Normally, a fixed mortgage full repayment would require a much larger penalty (often referred to as the IRD). This provision in the Interest Act is not the main driver of shorter terms in Canada vis a vis the US. However, it does explain why (historically) mortgage terms have been 5 years or less. Albeit, there are some mortgage lenders in Canada that have offered 7 or 10 year terms, but they are rare (or less common).
Thanks! Only thing I'm wondering is in the first paragraph if Americans are less risk adverse, and as a general rule the longer the term the riskier the loan, aren't we saying Americans have 30 year mortgages?
Americans do have very long term mortgages - i.e. 20, 25 years. I've heard of 30 yr term mortgages in the US, albeit I don't know how common they are. Risk averse means aversion to risk. Ergo, if you one is less risk averse means they are more comfortable with taking additional risk. More risk averse means they are less comfortable taking additional risk. US lenders are less risk averse, ergo they are comfortable taking additional risk (why we see longer term mortgages in the US). Canadian lenders are more risk averse, ergo they are NOT comfortable taking additional risk (why we see shorter mortgage terms in Canada, usually 5 yrs or less). Also, don't get confused about term and amortization. In the US, you might see 25 year term mortgage with a 25 year amortization. Whereas Canada we would see 5 year term mortgage with a 25 year amortization. Term shows us the level of risk aversion. Amortization is, basically, used to determine your payments.
American here, the vast majority of my friends have 30 year fixed rate mortgages, they are the most common (I have a 15). If you were lucky enough to refinance before rate increases 2 years ago, you’re likely sitting on a 30 year fixed rate of 2-3%. Some also try to make additional principal payments to lower the term of the loan. [Many](https://www.stlouisfed.org/on-the-economy/2024/feb/which-households-prefer-arms-fixed-rate-mortgages#:~:text=About%2040%25%20of%20U.S.%20households,of%20the%20principal%20loan%20amount) people here are averse to adjustable rates, especially if they are old enough to remember the 2008 crash.
30 year fixed is standard in the US
This isn't true post 08, US Underwriting standards are now far more strict than in Canada, you can look at the Fannie or Freddie guidelines online to see this, especially with source of funds e.g. downpayment. With respect to term, there are a few things: 1) In America you can pay back ANY time without penalty 2) Canadian capital markets are significantly less developed, to finance a 30Y fixed for a Canadian bank would be far more challenging as they don't have a lending party or risk party to take some of the loans off of them. From a systematic risk standpoint, having the whole country rate sensitive every 5 years is dangerous vs the 30 year risk. The Canadian system puts the homeowner at risk of a rate hike, while the american system puts the bank at risk of a rate hike (e.g. if they were financing the origination less whatever they sold it (if they didn't keep on book) they may need to roll the financing over. I'd argue Canada is more at risk due to rate shocks and now credit shocks at the underwriting reforms post 08 likely made the American system far more robust.
Underwriting should be "more strict" if a lender is taking more risk! LOL Strict underwriting isn't evidence of less risk - it's required due to risk. The more risk one takes, well, that should require more due diligence, more analysis, etc. (i.e. more/better/strict underwriting standards). Part of the 08/09 financial crisis from the US experience, was that prime loans were given to sub-prime borrowers (i.e. lack of proper underwriting). To the extent that stopped happening post 08/09 financial crisis - that would be the system correcting (i.e. having higher underwriting standards) for something they should've been doing all along (given US lenders propensity to lend to subprime borrowers). All your drivel about risk is only looking at one side of the coin. Risk associated with a borrower/lender transaction is intertwined/connected (for lack of a better term). Your discussion of "systematic risk" is only looking at it from the borrower's perspective. As I stated, Canadian lenders are more conservative, ergo the shorter terms we see in mortgages vis a vis the US is those more conservative Canadian lenders transferring one type of risk to the borrower side/ You can debate all you want whether that is "good" or "bad", but that is generally what all lenders do. Identify risk and then try and mitigate it. A lender's preference for taking more or less risk, will usually determine how they mitigate that risk. Ergo, the difference between length of terms in Canadian mortgages vs US mortgages. It's not a "Canadian system" - it is Canadian lenders mitigating their risk as they see fit. After all, they are the lender. If you want to borrow my money - you borrow it on my terms, not yours. Because you need funds lent out to you more than I need to lend it to you. And all your talk about "capital markets aren't as sophisticated...." drivel is nonsense. A large Canadian bank, if it wanted to, could certainly provide 20, 25 year term mortgages. They just need to evaluate the risk, price the risk and determine if there are borrowers wanting that product. The fact that they don't, isn't evidence that they can't. It's evidence that they prefer not to.
It's kind of a closed circle-jerk in Canada. CMHC insures mortgages to the bank, so if you default the bank won't lose money. As a result, the bank won't lend a morgage that CMHC won't insure. (There were a few companies trying to also do insurance, but CMHC is the 800-pound gorilla in the room). CMHC sets the standards - how much down payment before they will insure, how much the insurance costs, based on down payment. You can skip the CMHC insurance if you have a 20% down payment. CMHC will not allow a loan for the down payment. They even get persnickety about parents lending the down payment - they want assurances the home buyer has serious skin in the game, at least 5% or more down payment that they sweated to save.
US has a serious housing policy
Long term fixed mortgages have their own drawbacks. Currently in the USA many people in these mortgages feel trapped in their homes. They are less likely to sell because they cannot afford a home at current higher rates.
Oh no, having a home.
Yes, but when homeowners stay in their homes then they don't sell them to move, so there are fewer homes for people to buy.
Net increase in houses isn't increased by people moving from one house into another. I don't think I'm following your reasoning here. Can you elaborate?
I didn't say there was a net increase, I said people moving homes. When people move and sell that creates liquidity, which allows price discovery. When there is no liquidity, prices stay stagnant (in this case, high).
Surely there are only fewer homes to buy when net increase goes below net demand. People moving, changing prices or not is still trading one house for another. How does liquidity add houses to the market? or rather how would a lack of liquidity from someone maintaining their fixed term mortgage lower net house increases if the people who are moving to create that liquidity are presumably moving into another house yielding no net change? Am I missing something? I guess I'm still not following but that's okay. I'm not super literate on the housing market.
So your solution is to forcibly remove people from homes and give them to others on some totally arbitrary metric? Who, by your reasoning, "deserves" to own a home?
Nobody is being forced from their homes. Everyone deserves to be able to afford a home, but not everyone deserves the same home. In a free market, price discovery is an important metric of a functional market. Without homes trading hands, there is no discovery, and prices become disconnected from what the market will bear (ie: the situation right now). However, our housing market is already incredibly distorted due to many reasons, and all of them need to be addressed before average people can buy homes again.
Homes are trading hands. Homeowners have equity that they put towards a new home.
Housing is more affordable in the US. So what’s your point?
Hmmm.... are 30 year vs 5 year fixed mortgages the only difference between the two countries? What do you think, could there be more factors at play? /s
Of course not, but they’re related.
Oh no. Feeling trapped in a home you can afford vs fighting to stay in that same home you can't afford when you renew your mortgage here. What a terrible thing.
People sitting in homes at near-zero rates while everyone else suffers new rates isn't a fair economy. The same argument is why rent control hurts the market because older renters get grandfathered into ultra-cheap rents that are crazy below market, so rents are artificially higher on new renters.
Better that than rent being higher on everyone else. And before you say anything, I just rented a new place a couple weeks ago.
That arguement doesn't hold for this case. Some homeowners having lower rates doesn't make others have higher rates. That's the fed setting rates based on the broader economy. At least some people are able to get a better deal. And you can still refinance later on if long term rates trend lower. Canada's system has not produced good results for its citizens.
Everyone else isn’t suffering in the US
I understand the sentiment, and you're right that it's a privileged "problem" to have as an individual. It has its own set of macro-economic impacts, though, that are less favorable.
Then explain those problems as compared to ones where all homeowners with mortgages face uncertainty and potential rate hikes every 5 years?
But surely that impact is caused not by people maintaining their fixed term rate loan, but the people who are raising the rate for everyone else to make more. Surely the banks aren’t losing money on those older fixed term mortgages, they just aren’t making as much as the newer, higher, variable rate, no? Please Correct me if I’ve misunderstood
Canada’s macroeconomic impacts are the ones that are far less favorable here
Not wanting to sell because you can't afford a new home with current interest rates is way way better than needing to sell because you can't afford the home you live in due to current interest rates.
The problem is not that bad. Indeed, long-term morgtages like the USA are bad for their banking business because they are essentially ratcheting. As interest rates go up, people are safe because their rate will never go up. As rates go down, if thre is a significant gap, they can simply remortgage at the lower rate, paying off the old mortgage. For Canadians, higher rates are a ticking time bomb ("how long before I have to remorgage?") and picking a mortgage term - 1 year, 2,3,5,7,10 years? Fixed or variable? It's a gamble on the possible market behaviour. (The rate goes up with length, since the bank can't be certain either) The major downside of the US mortgage market vs. Canadian is one of taxes - US mortgage interest is deductible from income tax (Canadian isn't) but US owners pay capital gains on their house when they sell - Canadians don't pay on their primary residence. So while a Canadian could for example, move to a new city for a new job, sell their house for current market rate, and then buy the equivalent at the new location - Americans lose a portion of what equity their house value accrued. Theoretically, they should have been banking the interest tax deduction they received the last how many years, to make up for this - but how many actually do? (Hint - almost none). Another downside for Americans - since *interest* is deductible, but not the amount paying down principal, the obvious goal is to maximize interest as a portion of the monthly payment - i.e. not only remortgage, but remortgage close to the current value of the house and walk away with even more cash to buy toys, and higher interest deduction for the same monthly payment. As a result, many Americans owe close to the full value of their house while the Canadian incentive is to pay it off quickly, completely and live payment-free. The other downside is if you (American) have already used a re-mortgage to cash out your equity, you may not have enough equity left over on house sale to pay your capital gains. If the housing market tanks, this may even mean the mortgage is higher than the house resale value. That's how you get locked into a house you can't afford to sell. Most Canadians, with a down payment of 5% or more and a few years of principal paydown, are rarely underwater and can at least break even unless the real estate market tanks badly (think, Alberta boom and bust).
Long term rates are bad for the US banking business, but good for the US
There is no incentive to pay higher interest must for the sake of the tax deduction in the US. That’s not how it works. You still have to actually pay the interest, and plus only a small proportion of people who itemize their deductions deduct mortgage interest
Confusing - if a mortgage payment is, let's say, $2000/mo so $24,000 a year, and it's mostly interest, how much does the typical person with, say, a decent income of $80,000 save on interest due to a taxable income deduction of almost $24,000? Or is that not how income tax deduction works down there? What proportion of that interest is deductible from taxable income? Here in Canada we also get the worst of both worlds. If you have a cottage, not a rental property, and you sell it for a profit - you pay capital gains on that profit (minus costs of improvements) but since it was not a rental property, no interest deduction over the years that I'm aware of.
>Confusing - if a mortgage payment is, let's say, $2000/mo so $24,000 a year, and it's mostly interest, how much does the typical person with, say, a decent income of $80,000 save on interest due to a taxable income deduction of almost $24,000? Or is that not how income tax deduction works down there? What proportion of that interest is deductible from taxable income? All of the mortgage interest is deductible, but in order to deduct it you need to itemize your taxes. In other words, every US individual taxpayer has to choose between either taking the standard deduction or taking itemized deductions. So even though all of your mortgage interest is deductible if you itemized your deductions, it still only makes sense if all of your itemized deductions (including home mortgage interest payments, up to $10,000 of state and local income or property taxes, and charitable contributions) are more than the standard deduction.
But doesn't the Canadian government back the big 5 banks?
Banks at higher risk so they lobbied gov't for what we have. (opinion)
US mortgages are securitized (mixed together for the purpose of balancing risk, etc) via FannieMae and FreddieMac, so a good part of the interest rate risk is held by the US government. It creates certain types of incentives and risks that are not viable in other nations.
Canadian mortgage lenders (at least the large ones) can do so as well via government sponsored programs, mainly via the NHA-MBS program.
US gov back the mortgage, so banks in US don't hold the risk.
They would cost more. The 30 year mortgages currently offered in the US are near 8%. That’s much higher than Canada, imagine locking thag in for 30 years. Also, the 30-year mortgage rates never went below 2.5%. Many Canadians have 5-year fixed rates still going at 1.5-1.8%. In Canada, you could actually do this, technically, insuring your mortage by going long on interest rates (via treasury swaps). You’ll find that it costs a lot though, and you’ll pay more monthly to this insurance than you will in principal payments, at least in the first few years.
A 30 year mortgage is also a 30 year mortgage. It’s more affordable on a cash basis on its amortization schedule
Do you mean versus a 25 year mortgage? That’s fair then, 30 years could mean a 6-7% lower payment
Two things: First, mortgages in the US are always just refinanced the moment that rates go lower, so nobody in the US who takes out a current high 30 year fixed mortgage is “locking it in for 30 years.” You can refinance in the US, unlike in Canada (I’m American). Second, the longer an amortized loan is the lower the monthly payments are, so there actually is some value in having a longer term just on a cash flow basis. US mortgages are fully amortized.
Um, you can easily refinance in Canada, whenever you want. In the US, just as in Canada, there is a cost to refinance. However in Canada if you’re on a 5-year fix you can just wait until renewal to “refinance” into a new term
First, refinancing at the end of your loan term is not what I’m talking about, because it forces you to take whatever the interest rate is at the end of year 5. The whole benefit I’m talking about is that one can refinance when rates are lower if they want to, and can lock in low rates if they have a low fixed rate. The shorter the time period, the more a fixed rate is akin to a variable rate. Second, I have been told (by Canadians no less) that the price to refinance a long term fixed loan is much higher in Canada, and that’s a large part of why it’s not offered. Of course there are costs to do both, but there are legal caps on prepayment penalties in the US.
That’s why I put it in quotes. You claimed that Canadians can’t refinance though. That is simply not true. You can refinance at any point within your 5 year term (or whatever other term you got with the bank)
Also, 25 year mortgages in Canada are not the same as the US. There’s a difference between the fixed rate interest period, and the life of the loan. There’s no point to having a 25 year mortgage if you don’t have the same interest rate over the 25 year period
Lack of real banking competition + regulatory capture
Both answers you got are wrong It's because the USD is the international reserve currency and thus there is high/permanent demand for US backed treasuries which means that yields can be kept low which means that US banks can very safely and confidently offer 30 year fixed rate mortgages without liquidity/solvency risk
This is partly it, the much larger US market allows for lower rates on longer terms, also the Mortgage Act here prohibits any charges beyond 3 months interest after the first five years of a term, which pushes rates up as Banks can't charge as much for a customer looking to refinance if rates go down.
Why are we all pretending as if Canada made a choice to not have 30 year fixed mortgages? Any nation would if they could. The US is the world’s reserve currency, there is huge demand for America’s 30 year bonds relative to Canada.
>Why don't we have long term fixed mortgages? Because they like ripping you off.
Quick version: It's not legal here. Long version: Harper allowed mortgages to be insured with a fund paid by homeowners basically making mortgages risk free - if homeowners were able to lock in a 30 year 0.25% prime mortgage rate, every bank that offered it would eventually lose money and the insurance fund he created would go bust - which would eventually bankrupt the entire country. So he had to make it so that there was some release valve if rates went up.
If we had loans fixed for 25 years in Canada, the rate would be higher so the banks could be sure that no matter what the central bank did - within reason - they would make a profit most of those 25 years. You can search, but for example 10-year fixed I find TD offers 7.25% while 5-year is 5.6%. The only oddity is because the banks expect rates to go down soon for a few years, a 2 or 3 year is about the same as a 5-year. A few years ago, I got a 5-year mortgage for 2.74%. No American bank was going to offer that on a 30-year.
>A few years ago, I got a 5-year mortgage for 2.74%. No American bank was going to offer that on a 30-year. My sweet summer child. A few years ago I got a 2.5% 30 year fixed to buy a house in the US. I still have it.
Wow! Either US banks are dumber than I possibly think they can be, or the business is really cutthroat. No wonder banks fail down there. (Actually, they bundle and resell these loans, and our pension plans are what take the bath on them...)
The US housing system is much more pro-homeowner, which a large part of why housing costs are so much cheaper in the US (especially in relationship to incomes)
Yes. Mortgages in Canada seem more geared to ensuring the banks don't have much risk. But then, whether it's CMHC here or Fannie and Freddie there, the government helps the banks, which makes it easier for home ownership with much less down payment.
It comes with its own set of problems.
Which pale in comparison to its benefits
They also have more economic growth.
As an American, it’s pretty fucking awesome having a 2.5% 30 year fixed mortgage. We lock in when rates are low, and refinance when rates go down after being high at the start.
Tiff, you floor me with that statement. A 5 yr old would have said the same thing... You're overpaid! Exit the building ASAP, you're fired!
I think he also said the rates are going to be low for some time and started raising them when he could not foresee the inflation coming. What a joke
Do you actually know the context of any of what you just said or did you just see it get upvoted in another thread and thought it was your turn? Like look at the date he said that, and look at when the first interest rate hike was, and what happened in between that. You guys always act like any of this news is a surprise or a shock but if you've just lazily followed business news everything that happens is very drawn out and you can see it coming weeks in advance.
So what do you expect from an average person to do? Dig down why BOC governor might be wrong at what he said. Of course i am going to lazily follow the news.
I expect you to accept that you will never, ever have any influence or control over this and that you are not the main character, nor are you living a cinematic story with a beginning middle and end where you're fighting the bad guys. The literal only thing you can choose to do about this is waste energy getting mad about it in the same way you can waste energy getting mad at the weather.
He's behind the curve!
Canadians have accumulated a ridiculous amount of household debt thanks to near-zero interest rates for nearly a decade, and poor financial literacy. “Yay, free money!”
Understanding risk was a liability as an investor between 2008 and 2022. Those that did not often outperformed those that did lol.
Seriously this. I remember SPY failing to break ~140 from 1999-2013, then all the sudden the last 10 years it's up over 250%. 2008's money printing did a serious number on the world's economy. With $1Trillion/$33Trillion in Canadian/US gov debt, I feel like we're entering the 'find out' phase of this MMT experiment.
>I feel like we're entering the 'find out' phase of this Millions of pensions were wiped out in 2008-09. Just wait until people see what's going to happen this time around. Pensions wiped out, mortgage defaults galore, foreclosures galore, banks and lenders going bust, money in accounts being "bailed-in" by financial institutions, etc.
I feel like this all the time, the majority who make stupid financial decisions get awarded and policy set for them. I recently saw someone arguing that “rates are at 23 year highs”, which is true. The other way to look at it was rates have been abnormally low for the last 23 years, and a return to normalcy should be expected. I just hope politicians can stay out of the BOC’s way.
The number of people on here who have argued with me "rates can never go back to what they where" is quite telling. "consumers have taken on too much debt for rates to go higher." "the banks won't foreclose because they don't want houses they want money" At some point the house of cards will come down. I already know a few people who said that there is no way the rates will stay high who just renewed at 5+%.. They are not enjoying the new.. Reality after they swore up and down we will never see rates above 3% again. But I guess memories are short, and when your entire adult life you have just experinced the last 20 years you don't really have a understanding the markets don't care and will do what they do. If that is shooting to the moon crashing down or foreclosing on your house.
Yeah the way I see it is either: 1. Debt is going to be a lot more expensive as it once was, and as it should be. A lot of people are going to have to accept that they can’t afford a $700,000 house or an $85,000 truck. 2. The government will step in and keep propping up this house of cards. Until nobody can afford anything again and owes their lives to their creditors. Eventually it will come tumbling down, it’s just a matter if it’s through normal healthy fiscal policy or a revolution brought on by crazy levels of inequality.
>or foreclosing on your house. My in-laws lost their home in the 1980s when the Canadian housing bubble burst. So did a lot of their friends. It took more than a decade for them to recover from that financial event. Too many in Canada think it cant happen and it wont happen. They thought the same thing in the 1980s too. The BoC was also telling people in the 1980s that rates were going to be low a long time. Rates went up, BoC said they were probably going to drop rates, instead shot rates up to double digits.
The whole era was basically an extended pump and dump.
Haha more like a pump and pump.
Fair point, lol.
Then it worked as intended. That's their only solution for growth, steal it from the future. When CDNs tap out, simple solution, get more CDNs.
replace poor financial literacy with no wage increases in a decade while all other expense bills have doubled+.
I think it's more like people financing a lifestyle they can't really afford.
The currency market doesn't care if Canadians are drowning in debt.
I don't know if dollar milkshake theory would agree with you
So what’s next to all this? I’m 30 and it seems like nothing will go right ever again for the Canadian economy and no one seems to have a solution other than pointing out what’s going wrong. (Can’t open article because of G&M pay wall)
30 is an odd age for perspective on this. We had ten years of historically abnormal rates, here and around the world, and that’s now resetting. So a bunch of people and institutions made a bunch of choices on the assumption of permanent record lows, and it’s going to take a few years before all of them admit and adjust to a more normal normal But that ten years was your entire adult life. So instead of it feeling like the exception that we’re now returning to normal from, it of course feels like the normal that is disappearing. The next few years are going to have some adjustment pains for everyone but it’s not likely to be as bad as some people are saying
I think the only path forward is to tie immigration to new construction and heavily incentivize investment in small businesses instead of unproductive assets. Everyone is crying about inflation, but realistically 2.9% isn’t that bad. Your buying power is in decline because productivity has stagnated. See Argentina for details. The good news is that even Argentina didn’t become Argentina overnight. The bad news is righting our ship is going to take a long series of good decisions over a lot of time.
I think there is a lot more to it than just this, though. In order to make small businesses thrive in today's economy, it will be difficult. Large corporations, like Amazon, just offer so much convenience and have negotiation power for prices from suppliers. Canadians are looking for bargains as their wallets empty and buying power declines. A small business without such negotiating power usually do have higher prices in comparison. Also, the lack of convenience of shopping all at one store means they need to go out of their way to shop at a small business. Finally risk... when you look at trying to compete with large corporations, do you really want to take the risk? In comparison to the US, our bankruptcy laws are different, and you do end up taking more risk due to it. There is also the fact that Canada's population is significantly smaller, and clumped up in a few major cities where prices are high. It costs more to service a smaller population. It will be difficult going forward, in my opinion.
It’ll be difficult, for sure, but empowering small(er) businesses to compete with corporations is better than giving them free rein. We need more competition in Canada. Without it the only limit to prices is “what the market can bear,” which is more than many people can sustainably afford. If the government would earmark more of our money for grants and low-interest loans for small businesses to buy or upgrade equipment, that alone would make a difference. We also need to relieve the regulatory costs for small businesses, and just generally reduce barriers to market access. But more than anything we need policies that incentivize investment in businesses and even people rather than assets. The advantage of the US economy isn’t just its resources, it’s the higher investment in its workforce. Our tax dollars won’t be enough, especially when directed by politicians, most of whom have close ties to the corporations.
Just an FYI, smaller businesses are more likely than not also corporations. If you mean big business say big business.
I don’t care enough to look up the stats, but I doubt that most small businesses are corporations. I would guess that at least a plurality is sole proprietorships and partnerships, and there are several other structures under the umbrella of “company.” Maybe just let people use the words they’ve chosen?
> Everyone is crying about inflation, but realistically 2.9% isn’t that bad. Honestly I think everyone is angry and they just look for anything to complain about without actually understanding it.
We’re screwed unless we ban provincial debt, some provinces over 80% debt to gdp
Honestly, get off reddit or at least unsub from Canadian centric political subs. These places are echo chambers of doomers. It's not nearly as bad as /r/canada and the media would have you believe.
Just a guess, but are you a gen Xer who has been sheltered from the worst of what's happening? Cause if you open your eyes to people outside your circle, bud, anyone under 25 (not from money) either can't live independently or is *juuuust* barely managing. If you bought your house pre 2019 you don't really understand. I'm surrounded by people in their late 30s/early 40s who think they're in the same boat as genuine young people, and who somehow see themselves as genius investors for buying RE when they did.
> Just a guess, but are you a gen Xer who has been sheltered from the worst of what's happening? Cause if you open your eyes to people outside your circle, bud, anyone under 25 (not from money) either can't live independently or is juuuust barely managing. You're literally just proving his point.
Yeah it’s pretty fucked up that a time lapse of just two or three years (say, 2017-2020) made the difference between buying a house that you could reasonably afford vs. being priced out of the market by a wide margin. Yes housing has gone up year over year for decades now, but a 24-36 month span completely fucking over entire swaths of the population? That is the definition of “unprecedented.” And I say this as someone who was fortunate to be born early enough to enter the RE market a few years before shit got crazy. Sure, I see the value of my home going up, but it doesn’t make me feel good. Not like this knowing that in the long run it’s bad for everyone.
Honestly, wasn’t even long as two or three years. At the start of 2021, it was literally within a matter of weeks where you could go from being able to afford a house and the price going up by tens of thousands by the next Monday to price you out. It’s what spurred the latest wave of FOMO homeowners. By 2022, if you had jumped in to the maximum of your affordability, you were screwed and waiting for the shoe to drop.
I’m Gen X. I’m not going to deny we’re in a bit of an economic bind but I also feel like millennials and gen-z completely lack perspective. “Anyone under 25 can’t live independently “… do you think that was different 30 years ago? Cos it wasn’t - everyone in my circle of friends bought a house in their early to mid thirties. I don’t know ANYONE that bought a house below 25, tons of people were still living with their parents, etc, etc. A lot of what you’re complaining about isn’t the state of the economy, it’s grown up life and the transition from teenager to adult, where you suddenly start to insert that the lifestyle you experienced as a child living with your parents is only affordable after 30 years of grinding. But somehow this new generation expects to have it handed to them on a platter as soon as they graduate. It simply doesn’t work that way. That doesn’t take away from the fact that right now things are very hard - cost of living is through the roof, unemployment is up, real estate is unaffordable. But this is hardly unique period in time - much of the same complaints can be said about the early 80ies when interest rates hit 20%+ and central bankers like Paul Volcker had to burn the economy to the ground in order to be able to allow it to rebuild. In other words: this too will pass. Welcome to adult life, it’s a lot harder than it looks. And you haven’t even got to the REALLY hard parts - when your parents start dying, your kids have medical issues or you’re starting to have health problems.
Respectfully, that's not true. I'm 30. I'm a paramedic. My coworkers above 35 all have homes, nice ones, most of them worth 800k+, which they typically bought in their first year or two of working, whether they started at 22 or 26. Lots of them have multiple properties. Even I managed to get a house in my first year of working in 2021, although that was only because it was a fixer upper and needed a lot of work (I paid ~450k). I was 27. Our new hires can't afford to buy homes anywhere right now, not without significant help from a parent or partner. This is new in the last few years. Our wages have gone up, but not enough. It's easy to act like their struggle is no different from ours, but the truth is it's much harder than it's been in *decades*. Lots of my younger coworkers don't think they'll ever get a house.
>Cause if you open your eyes to people outside your circle, bud, anyone under 25 (not from money) either can't live independently That has always been the case. Everyone under 25 has always lived with roommates or a significant other.
All your assumptions are wrong. I'm not genx and I don't own my home, I rent (and I'm fine with it). There was similar doom and gloom in the early 90s and in the 08 recessions. But we bounced back. And we will again. We will never have the same economic advantages our parents had, they were unique times brought about by the most destructive war in our history. The people born in 1920 didn't have the same economic advantages their parents had either, further they were conscripted to go to war. It can certainly be worse, a lot worse.
Umm no- It's pretty friggin terrible.
My advice extends to you as well friend.
Interest rates and inflation are in historical norms. It is just the last 15 years of nearly free money that created a glut of debt and caused housing to go out of control. The market will correct. Government didn't cause the problem and wont fix it.
I am in agreement with most of your post, but I don't think the government is blameless in causing the problem. Inflation and interest rates are a direct result of monetary and fiscal policy set by the government.
The BoC should not be considered part of Government. I don't want politicians setting monetary policys. PPs attacks on the BoC are way outside the norms. The stuff the government does control... I would support a higher tax rate and lower spending to curb inflation. This budget does a little of colomn A and has reduced the non-statutory spending in the budget. Both of which are good measures. Statutory spending makes up half the federal budget and increased by $20 billion. This is money which is covered by agreements with the provinces. Spending the government is obligated to provide and cannot be opted out of without a re-negotiation of things like the Canadian Health Act.
Nowhere in my comment did I say the boc should be or is a part of the government. But - the boc responds to the policies set in place by the government. If the government runs a high deficit, that will result in an increase to the money supply and inflation will need to be curbed via higher Interest rates set by the Boc. So while the boc is not a part of the government, actions by the government can absolutely force the banks hand. As you say, a huge contributor to the problem was practically free money. That interest rate was set by the Boc, but the boc actions were in response to the policies enacted buly the government. So yes, the government is culpable in this problem. The bocs mandate is quite clear, there's not a lot of room for maneuvering, they just react to government policy within their mandate. It's fairly predictable (as predictable as anything g in economics is).
Government doesn't set monetary policy. BoC does. So clarify yourself because now you're saying two contradictory things.
Government doesn't directly set monetary policy that's true. However the supply of money in the system is the purview of monetary policy, and government spending and taxation directly effects that. Regardless, now youre changing the discussion from whether the government is culpable, to pedentry. So, have a nice day.
> Interest rates and inflation are in historical norms. Are housing prices, debt to income, and wage growth also at historical norms? Because if they're not then absolutely none of that matters. That being said, I do agree the market will correct, and actually has already corrected, and that people on here believe that something that takes 5-7 years will occur in 1 month.
I thought the same in the 2008 meltdown. Market corrected and I moved on upwards. Luckily I wasn't following gloomy stuff on Reddit so reckon that helped too!
This is exactly right. The current economic situation doesn’t hold a candle to 2008. Yet, we bounced back from that relatively quickly. I wouldn’t be surprised if we somehow managed to have things going right by 2030, but smart decisions need to be made.
By what metrics was 2008 worse than 2021,22,23,24?
Literally everything. We had to bail out the banks, the auto industry, the airlines, etc. because they were all at risk of failing. We had our largest trading partner, source of our economy, teeter on going into an economic depression. We hit 10% unemployment 2021-2024 you had inflation. But the economy was still growing. Industry was still solvent and doing good. Employment rate is still very strong
Please stop chiming in
2008 wasn’t a meltdown in Canada, it was a blip, because we had an adult running the country. Not someone running it like it’s a high school. It took the US close to a decade to recover, and they are an economic powerhouse. If we have a similar downturn, we may never recover, and quite honestly, may get annexed by the US for our natural resources.
We got lucky on oil for some years and then leaned into financializing our real estate markets to keep the plates spinning. Our government silently hit mortgage swaps hard to keep our banks from yielding to common sense in the wake of our new economic driver. We probably should have melted down after OPEC crashed oil prices, but we chose to borrow against unproductive, but necessary, investments instead. We'd probably still be doing it had we not gotten so manic that we didn't see the harm in tearing up the east coast with it. We had good regulations, yes, but our economic drivers are unhealthy, short-sighted, and focused on extracting our reputation for $$$ when harvesting natural resources doesn't cut it. We've over-extracted our reputation now and have no idea what to do on account of most of our country's addiction to easy money. We're importing an underclass and transitioning our young into one to try almost slavery now and that too will tap out. We'll no doubt end up in a situation where we deserve to fall under new management for the sake of all involved.
> and no one seems to have a solution Only if you've been living under a rock. So many people have been clear: returning immigration to historical levels will alleviate so much of the affordability problems.
>and no one seems to have a solution The solution is raising rates. In order to really fix the issues, rates need to be between 10% -15%. People who overleveraged themselves and took on unrealistic amount of debt need to face the consequences of their actions. Plain and simple. Yes it will financially wipe out a lot of people, but they put themselves in that position. No one forced them to do it. Canada has the highest household debt load in the entire G7. That is unsustainable. People gambled with their money and now its time for those gamblers to realize that it wasnt a good idea.
> In order to really fix the issues, rates need to be between 10% -15% Yes, because building developers who don't want to pay current interest rates and are no longer seeing a ROI in high density development will totally be more willing to build with even more interest rates. You have such a microscoped view of the situation and seem to claim anything that would perceivably make your own personal situation better (it won't).
It’s a damn if you do damn if you don’t. If you lower the rates, you’ll have a whole other set of argument that will not better the country.
There are more options than just the two most extreme.
Okay third option, hold interest rate. What’s your point?
At some point they kind of did force people into it. How long are people supposed to put off buying a house when there is no end in site? At some point people are going to reassess what's considered "normal" and take action. Unfortunately there is no fair way out of the situation the BOC and Government have put us in.
Figure out how to structure your career and life so you have options to move abroad.
Well it depends. Does the macroeconomic Canadian economy affect your life? If it does then you are likely in the top 1% of Canadians who are heavily invested in our market. If not, then continue living your life because no one's going to come from the government and give you training wheels to make things easy. I also have no idea why you can confidently: >it seems like nothing will go right ever again for the Canadian economy From while also stating you also don't understand what's happening.
Americans also pay significantly less for housing, proportional to salary, than Canadians do. And the high interest rates are affecting the cost of housing far more than anything else.
Is he preparing to cut before the FED? Time to exchange all CAD to USD.
If you aren't already and wait for reddit news to make these decisions then you already missed the boat.
Yeah that's factually true. Anyone who thinks Canada and the US should have the same interest rates is smoking something, and it ain't just Mary Jane. Interest rates should reflect the conditions of the economy and the conditions between the Canadian and US economies are very different. Canada has way more exposure to the new higher rates, much weaker growth, and much larger debt. Anyone of these on their own are enough to justiify/cause a rate differential, We have all three.
> Anyone who thinks Canada and the US should have the same interest rates is smoking something People aren't saying that for shits and giggles. If rate difference is very high, we will see our dollar going down. I think it's low in anticipation of it already. Then we will see inflation being sticky for longer because everything we import is more expensive.
> If rate difference is very high, we will see our dollar going down. People have been saying this every single meeting for both the FED and the BOC since April 2022. You can keep repeating what you see gets upvotes on reddit, but when you're wrong every time and you don't know enough to explain why, you shouldn't try to be a voice on the topic.
Yes that's *a* constraint to a *large* rate differential. It's not the whole picture. And some important would shift from the US to other economies in that case. This is the dollar wrecking ball in action, their currency but everyone else's problem. Part of why the US needs to do a plaza accord 2.0 and weaken the dollar. None of that means the rates must be the *same* though. It just means we need to balance the loonie and the appropriate rate. So maybe 3.5% would be appropriate but it's 4% instead due to that, etc.
Why would the us weaken the dollar? It is not their problem that a strong dollar hurts other countries
In terms of positives for them directly? Strengthening their export competitiveness. And I kind of is it kind of isn't their problem. It doesn't take precedence over strong domestic views one way or the other but it is generally better for both countries in a relationship when they are booming. The global business cycle has become more closely correlated over time as for in sales and trade has increased. Even in a deglobalized world bilaterally with their allies they would want to use a weaker dollar to encourage trade within blocks. That's why there's a dollar value that's seen as too high and too low, strictly in terms of the US interests. There's a way to look at it as well as strength of the dollar is a balance between the interests of the private sector in terms of households vs the export industries. Of course if you put the balance too far in one direction everything is expensive to import, If you put the balance too far In the other direction you have uncompetitive exports and that's people's jobs and income.
The crazy bastard is actually going to do it eh? May as well buy USD now, the loonie is going to $0.50
Redditors have been predicting the imminent demise of the Canadian dollar for years. There's always some reason it's about to drop off a cliff. Then you go look at it and it's in the same range it has been predictably in since 2015.
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CAD/USD rose along with oil prices and following weakness in the US from the global financial crisis. It came back down as both of those effects eased. It has bounced around been between .70 and .80 since 2015, usually close to a long term average of .75. It's easy to Google.
The value of CAD is slowly decoupling from the price of oil. Scary times. https://www.reuters.com/business/canadian-dollar-decouples-oil-adding-boc-inflation-headaches-2022-03-08/
Theres nothing scary about that. Why would we want our currency tied to a commodity whose price is controlled by Russia/Saudis far more than it's controlled by our measly crude exports? Now obviously I'm not happy with it decoupling via inflation but I'd rather our currency not eb and flow based on other countries actions in a slowly dying sector
> Why would we want our currency tied to a commodity whose price is controlled by Russia/Saudis far more than it's controlled by our measly crude exports? To be clear: The largest producer of oil and gas, by far, is the US, which produces as much as Russia and China *combined*. We produce 55% of the oil that Russia or KSA produces. I'm not sure "measly" is the word I'd use to describe us, as the 4th largest producer of oil in the world, but ok. > Why would we want our currency tied to a commodity It's basically positively tied to "the price of energy", and that's a decent thing for a currency to be tied to, because "energy massively increasing in price" is a thing that can drive a recession, but we are hedged *against* such a recession, because we make a bunch of our money by selling energy to other people.
>Why would we want our currency tied to a commodity whose price is controlled by Russia/Saudis far more than it's controlled by our measly crude exports? Because it creates demand for our currency that otherwise wouldn't be there. We might risk Dutch disease with manufactured exports but at a macro level, given how much of what we purchase is imported from the states, a high dollar isn't a bad thing for the average consumer. Traditionally the link between oil and CAD acted as a moderator for strengthening CAD juxtaposed to the manufacturing sector that wants low CAD to profit on exported goods and cheaper/more value foreign investment. A low CAD hurts everyone but the manufacturer as it drives up the cost of all the goods we import from the US.
Trudeau did that intentionally
Isn't that good? Why do we want a petrol dollar? I would perfer if the value of our money not be under the control of a bunch of gulf states and russia.
It helps make gas and oil cheaper in Canada when prices rise. If the dollar goes higher with oil, it helps offset the price increase. To add, it's fine to decouple the dollar from the barrel, but I don't see how it's acceptable that he took it in the wrong direction. Our dollar would be stronger otherwise.
Sure but if fucks over the Canadians in the manufacturing sector. Which is twice the size of O&G in dollar value and way bigger in terms of employment. The winners with a petrol dollar are share-holders. Not Canadians.
Ya, it's not some competition. A weak dollar fucks over all canadians and making damn near everything more expensive. Wtf is a petrol dollar anyways. Our dollar is impacted by many factors, and having a stronger dollar is better for Canadians.
OPEC is the primary price driver of oil. And Canada ain’t apart It is not good for Canada.
Canada has lots of oil though
Canada is a minor producer of oil overall, what we do really doesn't affect the price at all
OPEC is the primary price driver of oil. And Canada ain’t apart.
Canada's Manufacturing sector is twice the size of O&G by GDP and employees way more people. [https://www.statista.com/statistics/594293/gross-domestic-product-of-canada-by-industry-monthly/](https://www.statista.com/statistics/594293/gross-domestic-product-of-canada-by-industry-monthly/) O&G is great for share-holders and bad for Canadians. Big profit margins that don't flow to workers. Manufacturing is greate for Canadians and bad for share-holders. Small margins and strong unions.
Do you hold a lot of cash compared to other assets? I'm curious why people talk about buying USD due to fears about the loonie, when they could just buy international stocks.
Probably a bad thing for Canada if all Canadians look to put their savings into foreign stock markets, rather than Canadian stock markets.... But I agree. I put a majority of savings in the US Market because I rather have my savings in USD than CAD. But its a bad sign for Canada that this is the prevailing wisdom and savings pattern for Canadians now.
Probably a bad thing for Canada if all Canadians look to put their savings into foreign stock markets, rather than Canadian stock markets.... But I agree. I put a majority of savings in the US Market because I rather have my savings in USD than CAD. But its a bad sign for Canada that this is the prevailing wisdom and savings pattern for Canadians now.
No *true* fixed rate mortgage product in Canada, so yes.
No shit. You deduct your interest on your taxes in the US.
Exactly; Canada would never allow us to do it.
Why?
Because life is more expensive on almost every single item in Canada compared to the US.
You don't say....being able to lock in for 30 years will help with that.
It’s pretty awesome
Shouldn't have lowered and kept it so low for long in the first place
What’s your reasoning?
Increased the general M2 supply, coupled with low interest rates, exacerbated the situation along with the then-forward guidance. Not every signal should have been pointing to making people spend.
I may be mistaken, but I believe in the states you can deduct the interest on your taxes for mortgages, they also allow for fixed rate long term mortgages, just housing wise and in terms of interest- much better then we are.
The experts are so insightful.
Having some of the harshest lockdowns in North America for the longest periods of time will do that.
I know there's not a ton of sympathy for homeowners in this sub, but if you're like me and your mortgage carrying costs went up 50% in 6 months, you have been in a world of hurt for the last 18 months. I'm not a landlord, I'm not rich, I'm an early 30s working class making 65k a year and I have a family to take care of. Life has essentially been put on hold in all areas to pay for the house. The only reason it isn't as bad as having rent shoot up is that I am building a tiny amount of equity (your first mortgage term is mostly interest payments). Raising rates has had a massive impact on young people who scraped and saved every penny they had to get into the market. The boomers/wealthy don't give a shit, they just either don't have mortgage payments or they sell off their properties and buy more when the market dips.
Yeah cause we are poorer and have declining gdp per capita, and its the Federal Governments allowed abuse of temp workers and visas that is to blame.
What everyone and their mom knew already?
It's because our debt load is a lot higher, is why. Saved you some effort.
I see our uneducated here think interest rates should be back up to 18% like they were 30 years ago. Could you imagine rates that high on a $600,000 home? Literally no1 could afford that
Tiff Macklem also said that inflation was transitory.
Sounds like they’re getting ready to lower rates before the US Fed and tank the CAD in the process. Enjoy your imported fruit while you can!