Canada's housing affordability crisis may persist for years despite rate cuts
Canada's housing affordability crisis may persist for years despite rate cuts
Buying a house may remain out of reach for many Canadians for the foreseeable future, with mortgage costs unlikely to fall enough to offset lofty home prices and weak spending power, economists and real estate agents say. 0 Even with expectations that Bank of Canada will keep cutting rates in the coming months, the issue of home affordability - which has strangled Prime Minister Justin Trudeau's poll numbers - is unlikely to fade before the next election.
The mandate for the Liberal minority government ends at the end of October 2025, but an election could come well before then, with the Conservative opposition spoiling to end Trudeau's nine-year run at the top.
"You won't get back to an affordable range for housing on a sustained basis for a decade," Tony Stillo, director at forecasting and analysis group Oxford Economics, said last week at a conference.
It'll persist as long as a significant amount of MPs are landlords and would never vote against their self-interests despite it being the best thing for their constituents.
A majority of their constituents are homeowners and homeowners have been indoctrinated to believe that owning the property you live in is an investment. Which is partially true only under the condition that you downgrade when you sell. So those MPs are effectively voting in the interest of the majority of their constituents. I think this is a much better explanation to the durability of this behavior.
Exactly. This has nothing to do with MPs being landlords. Any government that crashes house values will never be reelected. That's why all measures taken to date have avoided doing that — for example the reintroduction of 30-year mortgages, undoing a change that was introduced to prevent house prices from growing too high. The only long-term solution is of course for prices to come down (which can only be achieved by massively increasing supply) but most homeowners don't want that and will vote against it.
Technically true. I would argue that the fact that considering home ownership and affordability is a top concern for voters and little to no meaningful legislation has been proposed to fix it on any level of government that our government is intentionally ignoring the problem for their own interests.
Indoctrination is a weird word to use here. It’s limited supply meeting increasing demand. When people see which way the wind is blowing, they see an opportunity.
I am a fan of classic video games from my childhood (NES, SNES, etc). A lot of people are fans of the games from this era. So some people saw this as an opportunity and began buying up a lot of the limited supply of these old games. Now many of these games go for thousands of dollars.
Do I like that my favourite childhood games are now unaffordable? No. Was I indoctrinated to see these games as an investment? Also no. I wish they weren’t so expensive but that’s the reality of it. At least ROMs are freely available, however, whereas with housing there is no way to bypass that issue.
How is lowering rates gonna help me afford a house when rent is so high I can't save shit
Earlier this month the government changed one of its rules on mortgage payments, allowing first-time buyers or people purchasing a newly-built home to take loans with 30-year amortizations, instead of 25 years.
Although the move is intended to lower monthly payments and make home ownership affordable to more people, critics say it may have opposite effect by boosting demand and raising prices.
It's hard to see how this won't increase prices and costs for buyers. It clearly benefits lenders, but everyone else will pay more.
I think the thinking is that first time homebuyers aren't the whole market and perhaps are a minority. They might still be enough to bid the median prices up. If we're in a market that has completely inelastic demand and people will pay any price they can afford, while supply is constrained, then it's not really a functioning market for the purposes of regulating supply and demand. If that's the case, we should stop treating it as a functioning market and intervene heavily. Unless it benefits enough people the way it is. 😌
Of course it will. The low rates are only in some ways part of what caused the problem.
The problem on a whole is going to continue until either municipalities start to allow higher density construction or the provinces step in and force municipalities to stop putting up red tape.
Don't forget banning megacorporations buying properties.
Well yeah, prices quickly took up the slack given by the lowered interest rates and costs during the pandemic. People bid as high as they could, as they typically do. Increasing the interest rates was slower and it takes longer to trickle through the market. Prices did decrease from the peak but it seems that people are holding for dear life and were able to absorb the increased costs at renewal. That peak will have to renew in 2027 but it's likely to happen at significantly lower interest rates than today. Perhaps if the rates stayed at their highest levels for longer, unsustainable purchases would have been forced to sell. But now rates are already going down and expected to go further down. So everyone who could afford the higher cost is no longer afraid it's gonna go higher and are less likely to sell. So prices ain't going down. Then on the other side, buyers are paying more for everything else so rate cuts won't leave enough money for them to bid as high as they used to at the same interest rates. Unless their incomes catch up. Which has been happening in some sectors and at union shops. Still that's likely to take longer so without some major affordable housing buildouts I bet the market is gonna keep going sideways for a while. Not going down significantly, not going up by much either.