Ottawa addicted to housing economy?

Several people have pointed out this article in the Globe and Mail, but I believe Strataman was the first.  This article is one of a growing number that are looking at the negatives of government pumping a house-price based economy rather than a more diversified productivity based financial ecosystem.

The stories are all too common. There’s the couple down the street who haven’t dined out in years and the kids wearing hand-me-downs, all to make the mortgage payment and cover the interest on the line of credit that paid for their home’s renovation.

The tales are not apocryphal. The shifting spending patterns are clearly evident in retail sales data.

Canadians are funnelling more disposable income to homes at the expense of most anything that isn’t housing related. The government is aiding and abetting this with policies designed to support housing, such as tax credits for renovations and mortgages backed by the Canada Mortgage and Housing Corp.

The article goes on to cover some of the reasons why governments pump housing at the expense of the rest of the economy and what the inevitable fall-out of these policies are.  Read the full article here.

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TenantWith300KinTheB

People: wake me up for the 20,000 party *yawn*

Vic

Has anybody thought about privatizing CMHC? I think it would be a great idea since it limits the liability of CMHC (i.e. Taxpayers won't foot 100% of the bill for stupid mortgages that could go default on interest rates rise). Once CMHC's insurance fund dries up, it would just go bankrupt and the banks would have to pony up.

Chilled

Is it just my imagination, or is Kite Towards Moon's spelling and grammar getting significantly better?

doug r

@Neptune: I kept hearing that story all morning. Did someone call them and finally straighten them out?

doug r

@domus: I believe the original thinking behind CMHC was there was a large group of people who didn't quite qualify for the strict lending standards of 20% down and high credit scores. It would also help avoid predatory lenders and inject some cash into the economy. Apparently when these programs are run right, there is a very low rate of default. Eventually standards were lowered and somehow the government became pretty much the only lender-plus leaving house prices out of the inflation basket meant they could keep interest rates artificially low. So instead of housing taking a natural breather, the prices just kept going up and up. This tweaking of the market has ensured prices are going to plummet, destroying many households. It's already happened in California where about twice as many homes are in some form of foreclosure as… Read more »

arit

rp, I am with you. And if you look south of the border you will see the same (I am sure you read patrick.net, but if you don't, he has daily examples of what you are talking about). Somehow I feel like a passenger of that doomed Russian airliner a few years ago, the one where the pilot let the kid "drive". The person piloting the plane is driving it into the ground, and we can only watch in horror as the mountain goats get bigger through the windows. There is no escape. The debt tsunami will take us all down even if we were 'prudent savers'. I can already feel their hand in my pocket. "Canada homeowner bailout program". "CMHC emergency tax". "Keep families in their homes" initiative. You know what is the winning way? If you can't beat… Read more »

Kite towards moon

RP,

Expansion of economy is to keep your job up.Aren't you happy working? It's upto you whether you want to save your money or invest it.Were you born with bubble in your mouth?As long you have job you can rent a place,stop playing politics here.Unlike you and other on this board, Boyd Erman also don't know the reason behind his employment but what about Global and Mail? Ok they are running their press bussiness due to Erman's and likewise employees and their employments.

Interdependent economy never goes down

domus

Man, it feels like election night, with counts and recounts…who won this round?

VHB

what was the final inventory count today? I don't think I have seen that posted yet.

(Of course, it might not be final yet–it's only 11pm!)

rp

I posted this on canadabubble. I've been thinking about this a lot in the last few weeks. It first occurred to me last spring as a remote possibility. But having watched carefully how everything has played out, I think it's much more likely. Not probable, but no longer easily dismissed. I don't have any faith in our policy makers anymore. No matter how cynical I get, I find that I'm not keeping up. We'll see if that changes in the next year: It's unlikely that you'll get anything from working and saving. Take a look at what's happening. Interest rates were too low before and now they're even lower, well below the rate of inflation. Housing is going up 10-20% per year, stocks and other assets far more, and it's all due to government backed lending. When this blows up… Read more »

ufail

@superboomtime: 15k isn't even super high for listings. 2009 started out the year almost that high. What's different this year is the RATE that listings are increasing. The only recent year to come close to this rate of listings increase was 2008. Remember what happened that year to prices? Difference was then they could lower rates, this year rates are going up – prices down, no safety net.

hmmhmm

1. it's getting me excited seeing VHB getting so excited.

2. does bestplaceonmeth = freako? …I hope so because I miss his posts

chip

"I see a huge increase of prices over the next few months as listings rise. Supply feeds demand bears."

No job at OPEC for you.

Jennies

Agree with you completely on the listings part – spring time, flowers blooming, post Olympic held iventory being released. Only difference – while sales are strong at the moment, it's only fueled by the last batch of buyers in panic over higher rates. Once those buyers in panic are gone, gueeeess what's going to happeeen

superboomtime

Bears it's spring. Just like every spring you get flowers in b loom and for sale signs. This year is no different. The only difference is the olympics and people are listing later. I see a huge increase of prices over the next few months as listings rise. Supply feeds demand bears.

reknab

Are the listings current while the sales are delayed?

Wreckonomics

@specuskeptic:

List 537 Good lord

Chng 217

Sold 364

..Bring bread, because with this much churning there's bound to be lots of butter.

Spec

sipping pina-colada on the beach Says:

“Inventory”, single malts, vodka, beer or vine?

What do you want me to bring for tomorrow’s party?

It looks like we're almost out of koolaid so that's off the menu!

Kite towards moon

Paulb,

SLEEPY HEAD SPINNER

I think at this point of time it should be 133 new listings and 95 sales.

me

PaulB thanks

I say stats look hot on the sales side for another 20 days or so.

Then its game over.

I met a number of bankers today, they all think the same (although some think it won't be game over until July).

Its gonna get ugly fast.

VHB

@paulb: Realtors make money when there are lots of transactions. Beers are on Chipman this week!

Wow.

BUT, what we are seeing here is a very clear example of stealing demand from the future. We didn't just 'create' hundreds of extra people buying houses. These are people who would've bought in June, but are buying now to beat April 19th.

I predict that April 20th will bring forth the loudest cacaphony of crickets that will be heard across the ocean.

paulb

REBGV may be done for day. That or stress induced smoke breaks…

List 537 Good lord

Chng 217

Sold 364

girlbear

This is getting exciting! Thx PaulB and Inventory! Pls keep it coming!

Chilled

chico Says:

April 7th, 2010 at 6:07 pm

Running out of land, huh.

……..when the government is totally broke- the ALR will no longer control development either.

++++++++++

C'mon Chico, don't you think it is important to preserve million dollar lots for the express purpose of growing a hundred bucks worth of pumpkins per year? I wouldn't even suggest agriculture be moved to the interior or even the Peace region, which gets one more growing cycle per year. Besides, the berry farms make for a pleasent distraction when stuck in a traffic jam and if you cleans your pallet enough, you can actually tast the diesel in mother hubbards jams and jellies!!! Who would want to give up this uniqueness????

Chilled

patriotz Says:

Lest we forget, Zalm ran for mayor of Vancouver (unsuccessfully), and Gordo for council (successfully) on the same ticket in 1984. In fact I think Gordo made the nomination for Zalm at the NPA convention.

++++++++

Thank you. My history sucks but my gut instinct never fails me. Weasels in a basket turning on each other.