The Woolwich Observer

Some easing perhaps, but no end in sight for unaffordab­le homes

- STEVE KANNON Editor's Point of View


crazy increases in housing prices that we saw in 2021, but prices will continue to rise this year, and over the next few years. That doesn’t bode well for buyers, particular­ly those looking to enter the market.

Moreover, as we’ve seen of late, demand has also led to big increases in rental rates, meaning even those not looking to be homeowners face growing financial hurdles.

Demand fueled by a growing population and stronger economic indicators in some markets mean affordabil­ity will become an even bigger issue, according to the latest Housing Market Outlook released by Canada Mortgage and Housing Corporatio­n (CMHC).

The organizati­on sees some moderation from the highs seen in the last year, but that’s little consolatio­n to many already priced out of the market. The Ontario Real Estate Associatio­n, for instance, notes that as of this spring, 10 of the 36 real estate markets in Ontario had an average home price over a million dollars, and six others are on the verge of breaking the million-dollar mark. Ontario home prices have tripled in the last decade, but average household incomes have increased by just 30 per cent.

“You have to keep a three per cent decrease in the context of a 20 per cent increase since the beginning of [2021], so context is everything,” said David Carruthers, Kitchener-Cambridge-Waterloo analyst for CMHC, of the slight moderation in the last couple of months.

For this year, rising interest rates may curtail buying power and put some pressure on the housing market, but strong demand will keep prices moving upward, he noted. While there’s been talk for years about a housing bubble, the CMHC isn’t making that prediction.

“I don’t know that we at CMHC see it as a bubble. We see there’s a lot of pressure from demand, for a lot of sensible reasons, in many cases,” said Carruthers, noting that some of the pressures, including the likes of speculator­s and offshore buyers, may not be beneficial. “But our expectatio­n is or assessment is that the bigger issue is that we aren’t being able to supply housing at the pace that we need to keep up with demand. That’s leading to price increases.”

If there’s no bubble, that counters the idea that the increases in housing prices can’t be sustainabl­e, especially not at the levels we’re seeing of late.

We’ve seen some pandemic-related shifts in the market, with people working from home seeking more space. That’s translated into a measurable migration from the condo-ized downtowns of Toronto and Vancouver to the suburbs and beyond, in turn driving up prices even in rural areas.

It’s a trend that’s had an impact on real estate in Waterloo Region, with demand driving up prices, pushing people further afield into still-smaller communitie­s.

Demand is outstrippi­ng supply, the latest surge fueled by FOMO – fear of missing out. As prices rise, some people panic, worried that they’ll be forced out of the market entirely by rapidly growing prices. That demand in turn drives up the price of housing. It’s a vicious circle that seemingly has no end.

Government policy could change things, of course. Large increase in interest rates would cool the market almost immediatel­y. But given the current state of the economy, higher rates would come with numerous costs government­s don’t want. But even in good times, our economy is built on borrowing, with Canadians borrowing to maintain their lifestyles – there’s no will to raise rates when it’s borrowed money sustaining our consumer-driven economy.

Moreover, government­s are not keen to pay more for the debt they’ve incurred, particular­ly during the pandemic.

Government­s could mandate other changes, such as larger down payments – making the minimum 40 per cent, for instance, would substantia­lly reduce the number of eligible buyers, dropping demand and, thus, prices – or tougher challenges on mortgage borrowing.

The latter was implemente­d in the wake of the 2008 recession, but Ottawa is moving away from prudence once again, just this week introducin­g measures to make larger mortgages available to first-time homebuyers in the particular­ly difficult markets of Toronto, Vancouver and Victoria.

Increasing­ly, there’s no appetite to save Canadians from themselves when it comes to debt, whether for mortgages, lines of credit or consumer spending.

Establishe­d homeowners with little or nothing in the way of mortgage debt are seeing massive increases in the value of their biggest asset. That’s fine as long as they’re not looking to sell in order to move up, as the cost of their next homes would be commensura­tely higher, too. On the other hand, selling high in hot GTA market allows some people to move out to the suburbs or smaller centers, seeing their money go much further.

Canadians have long been treating their homes as ATMs, drawing on both the equity they’ve built – some more than others, obviously – and the future equity they think will come as housing prices continue to rise ... at least in theory, though we don’t think too much about the possibilit­y of a collapse.

In that regard, the housing market takes on the appearance of a Ponzi scheme. There are many people with the aforementi­oned FOMO jumping into the market, which benefits existing homeowners who, in essence, reap the rewards of the major risks of those just getting into the housing market.

Canadians have some 75 to 80 per cent of their wealth tied up in their homes – the eggs are essentiall­y in one basket. That’s a risk, but one that grows with how recently they bought their homes and the size of the outstandin­g mortgage.

It’s numbers such as these that help feed the real estate frenzy. Again like Ponzi schemes, there’s a feeling of safe and steady returns, with housing seen as a risk-free investment. There are countless examples to the contrary, but human nature and bubbles often don’t mix.

Government­s have shown little willingnes­s to counter the downside of a potential bubble, just as they pay lip service to limiting sprawl while encouragin­g unsustaina­ble growth with policies

 ?? ?? Candidates are happy to use others' cash and credit to bribe voters with their own money ... and their kids' kids
Candidates are happy to use others' cash and credit to bribe voters with their own money ... and their kids' kids
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