The Canadian Real Estate Market has been put into a tailspin. It has been induced by overzealous and misguided government officials. The latest mortgage rules that are being put in place are nothing short of pure stupidity and a lack of fundamental understanding of how the market is structured.
The two major markets that are being targeted are Toronto and Vancouver. Foreign investors’ money has flooded both markets causing the price of real estate to become unaffordable for most Canadians. The new rules that are being put in place aim to slow down the influx of these investors and make it less attractive to buy in Vancouver and Toronto. The misguided Canadian government has been led to implementing changes that are based on historical figures rather than look at what is currently happening in the market. The reality is that the changes that were put in place in the last policy change had done the job of slowing down the markets in all but two cities. House prices have remained stable and we have even seen a drop in some markets.
Facts show us that foreign investors are not securing mortgages on most of the properties that are being purchased, they are buying them cash or they are putting down very large down payments. In both cases, the new rules will have ZERO impact on foreign investors.
The New rules will keep hard-working Canadians from buying a property and they will prevent Canadians from refinancing high-interest toxic debt into the safety of a low rate mortgage.
If we take this down to the core and follow the money trail it will all lead to one place. The big banks stem to make massive profits from this change because of the following reasons.
- Average Canadians will not be able to refinance properties to pay off large toxic debts. This will keep them indebted to the Credit Card companies and the banks at a much higher interest, rate in some cases as high as 28% on store cards. The reason why they will not be able to refinance is that as house prices start to slip because of a lack of buyers the amount they would be able to refi will not be sufficient to cover the debt load and pay off all debt. This will give banks the upper hand making them huge profits.
- Foreign investors will still buy into the Canadian market, only know they will be the only ones able to buy because they are buying with cash or with large down payments. The banks will win again because the foreign investors as they come in will have to park large sums of liquid money into Canadian banks which will increase the amount of money banks will have that they can lend back to poor Canadians with high-interest loans and credit cards
- The next thing that will occur as a result of this will be that the average Canadian will have to save more money for the down payment on the purchase of their home. This will keep funds again in the banks for a longer period of time ultimately helping the big five increase profits.
For most people who know me, they know that I am the eternal optimist. I always look at the glass as half full rather than half empty. These new rules are nothing short of a huge money grab by the banks or sheer stupidity from the government. Either way, they are trouble and I would strongly recommend that Canadians prepare for the effects of this unnecessary change in the rules.
As always I am available for questions or comments, and I do welcome them
Terry Kilakos
President & CEO
North East Mortgages