Canadians are panic hoarding again… but this time it’s real estate and debt, says a Big Six bank. The country’s finance minister recently said they were “watching” housing, and its impact on first-time buyers. This has BMO senior economist Robert Kavcic wondering if they understand the issue.
Overheated markets are an issue that extend far beyond first-time buyers now. By addressing it as an issue for first-time buyers, they may be doing the opposite of what experts say to do. This has the bank wondering what kind of policies they might use to address the market — if any at all. If they use the wrong one, some experts have warned it could actually send prices higher.
Canada Is Watching Housing Markets “Very Closely”
On Thursday, Canada’s Finance Minister said they were watching housing markets. In a press conference, she said “we are of course watching housing markets across the country very, very closely and carefully.” Adding “We are very aware also of the challenges that many Canadians face – particularly young Canadians – in buying a home, so it’s something that we’re looking at carefully.”
To the average person, that might not sound like much. However, it may reveal the government doesn’t actually understand how big the issue is. Kavcic warns, “this has run well beyond affordability issues for younger households.”
Canadians Are Hoarding Real Estate Like Toilet Paper, It’s Not Just A First-Time Buyer Issue
Home prices are heated in virtually every market, and segment across the country. On average, home prices increased 4x wages in just February. The economist warns prices aren’t just up from pre-pandemic levels, but from last year.
The overheating isn’t due to an economic boom either. The economy has yet to recover from pre-pandemic levels, and isn’t expected to until next year. Instead, he observes prices are rising due to the “widespread belief that there’s nothing to stop the momentum.” Adding, “after all, we’ve been told repeatedly that interest rates aren’t moving.”
The moral hazard has created the belief you can’t lose, and there’s going to be a perpetual shortage of housing. Investors, first-time buyers, and even recreational users, now believe the government will work to push prices higher. “Canadians in some markets are now buying houses, rural properties and cottages like they were buying toilet paper a year ago.”
Canada Is Focusing Where It Was Told Not To Focus
The government is now in a tight spot. Increased media scrutiny has “been turned up to about a ten.” The reinforcement of cheap debt being here for a long time, pins the moral hazard on officials. Kavcic adds, “One wonders now, assuming that interest rates won’t budge, if and when Ottawa is going to swing the policy hammer, and what that might look like.”
Many have warned the risk of focusing on first-time buyers can pump the market even higher. The IMF, RBC, and other organizations recently warned Canada should not help first-time buyers. While that may seem well intended, it would preserve market inefficiencies. Of course, what’s one of the few statements the government has made since “froth” became a national issue? They need to help young Canadians, who are most likely first-time homebuyers.
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