Canadian economy is quite solid and conservative. With Liberals rising to power, things may change a little, but not by much. US economy remains a pillar of Canadian economy, so the expected interest rate hike in US may be a problem (http://www.cbc.ca/news/business/fed-interest-rate-household-debt-neil-macdonald-1.3366890). We need a solution. Here is a good start.
Frankly, the housing market is too weak, thanks to the tight control of legitimate mortgage amount per person. The conservative nature of the Canadian banking system helps to eliminate financial crises but also constrains healthy growth. Canada is a socialist country, so it’s supposed to have a very high GDP per capita like North European countries. Well, Canada is not that crazy yet, but still. The freely flowing credit in the Canadian market is dangerous, because it’s not backed with hard assets. You can’t take everyone to jail, can you? So, we have to make sure every Canadian has something to lose. Home ownership is still too low, so there you go.
By loosening the control on mortgages, Canadians will be free to upgrade to larger homes, hence leaving enough small homes for the less fortunate. The price of a large home will go up while that of a small home will go down. Today, it’s a little bit of the opposite. Small homes are too expensive while large homes are too cheap, thanks to our weird banking system. This makes it easy to refinance Canadians’ debts through home equity loans and credit lines. The home price to income ratio will increase, covered by new mortgage amounts, which in turn will allow for a higher home equity to income ratio. What does that mean? Canadians can now afford much higher debts to spend freely in Canada, just because the Canadian dollar is too weak. This is exactly what China needs, too. This is in fact what we all want to do if US dollar keeps on rising. People will want to increase domestic spending given the new credits, especially on furniture and home utilities given much larger homes. Do you buy a German bed? Probably not, just because the bed doesn’t scream German. I totally understand human psychology. For Canadian banks, this is also great, because they now have homes to seize instead of nothing. Before Canadian home prices rise to the level of American homes, proportionally to income levels, there’s really not much to worry about. US has found the sweet ratio through hard lessons. Canada just has to catch up.
Of course, there’s always a risk. Given that many, if not most, Canadians have multiple nationalities, Canadians tend to take higher risks. If Canada goes down, just say goodbye. Is there any problem? Plus, US is just next door. All Canadians know how easy it is to find a job in US. There’s really no difference anyway. Well, this is not really a Canadian problem. In Europe, we know Italians and Spaniards go to Germany for work just because Germany is the US in Europe today. Without strong national pride, it’s always difficult to keep the best capitals at home, human or financial.
Okay, I’ll let you in a little secret here. The housing bubble was really caused by a huge surplus of new homes, which collapsed the real estate market. This is similar in China, though not nearly as bad. Why lend to those construction companies in the first place? If consumers are given low rates, suppliers must be charged high rates to balance, right? It’s always supply and demand. The very basics in economics, please! We should always vary interest rates by industry and market. I know, economists are idiots. They are the liars seeking self-interest only, just like politicians. There’s really no difference.
Economy is complex. It’s always better to move a little and watch around carefully, a small step at a time. After all, cheaters are everywhere. You never know how a new policy will be abused. That’s it for now.