Quote:
Originally Posted by Acajack
The recession, slowdown or whatever may also be more painful when it does hit, as a result of it being delayed.
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Indeed.
The various pumping 'line must go up' schemes generally result in more downside overall when the final accounting is done.
I often read news articles that include a sidebar of an interview of a homeowner as an example of the negative effect of the Bank of Canada's interest rate hikes.
While not unsympathetic to the owner's plight, the thought nearly invariably comes to mind: This person should not have been able to purchase that home at that price. But they did, because a fluke low interest rate allowed them to technically qualify. It pumped up the economy, albeit briefly. They're going to lose their home eventually and the savings they plowed into it.
The problem with the current 'pump up scheme' is that is distorts the necessary process for correction. People losing their homes is not the end of the world if they can land in a cheaper rental and rebuild their lives. By closing off this avenue by way of high population growth, one has essentially removed a pressure release valve. Pressurized tanks will go bang if they got hot enough. It just is much uglier and exciting if they don't have a release valve.
Using a time machine and going back to 2015, perhaps crimping the ability of Canadians to take on debt would have been better. It would have been painful at the time, but it would have prevented this whole run-up from happening. Had CHMC required 10% downpayments on any amount up to $400,000 (average price of 2015) and simply not insured mortgages beyond that point (banks would require 20% for each additional dollar of mortgage obtained), a strong disincentive to high leverage would be in place.
We pumped up the scheme instead.