Two years ago few people forecasted, or even suspected, what the Comox Valley has experienced over the past year: significantly rising prices and very little to choose from on the used housing market. However, this is exactly what has happened and through a month into 2018 this trend continues. Why is this happening?
In their election platform, the current Trudeau Liberal Government promised that they “will make it easier for Canadians to find an affordable place to call home.” They also stated “that when affordable housing is in short supply, Canadians feel less secure and the economy suffers.” How have they done?
Mortgage Rules Changes
Trudeau assumed office on November 4th, 2015. In December, 2015 the Trudeau government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector. On October 3rd, 2016, the Trudeau government announced several major changes to mortgage rules. The changes seem to be aimed at curbing high demand in two of the country’s fastest growing markets – Toronto and Vancouver – with seeming disregard and shortsightedness for the potential negative consequences in other markets across Canada. Mortgage experts predicted that a “sizable minority” of first-time and high-ratio home buyers will no longer qualify for the mortgage amount they want. Additional changes were announced on October 2017 that became effective on the 1st of January 2018. As a result of all of these changes experts expect that Canadians will be able to afford about 20% less and that it will be much harder for many to qualify for mortgages. This is exactly the opposite of what Trudeau promised in his election platform about “Real Change”.
The Liberal government’s rationale for these changes was to ensure that Canadians were’t taking on bigger mortgages than they could afford in an era of historically low interest rates. According to the Fraser Institute of Canada, “Trudeau is on track to increase federal debt by more than any other prime minister not burdened by a world war or recession.” The problem with racking up such debt is that the government has to spend more of our tax dollars to pay for the interest on the debt which means there is less money for needed government programs.
Trudeau campaigned for tax cuts to the middle class with the following promise: “We will give middle class Canadians a tax break, by making taxes more fair.” Once he became the Prime Minster, the CBC quoted Trudeau as stating “The Liberal Party leader also ruled out any new taxes on the middle class to fund any new government initiatives — including a hike to the GST. Middle-class Canadians have struggled enough — we’re not going to be raising taxes for them.” So what has he done? According to the Fraser Institute, when all the Trudeau government’s changes to the personal income tax system are accounted for “income taxes have been raised, not lowered, on the vast majority (81 percent) of middle income Canadian families.” Once again Trudeau promises us one thing and then does just the opposite.
When Trudeau entered office the Bank of Canada sat at a 50 year low of 1%. The Bank of Canada raised this rate to 1.25% on the 17th of January 2018. This is the highest rate in almost a decade. All six major banks (CIBC, TD, Bank of Nova Scotia, BMO, National Bank and Laurentian) raised their rates ahead of the Bank of Canada increase with most five-year, fixed rate mortgages now above 5%. While it is always difficult to forecast future rate increases, some forecasters, including economists at Royal Bank of Canada, predict three more quarter-point increases this year. Higher interest rates will make it more difficult to qualify for, and to obtain a mortgage, under the new mortgage qualification stress tests put into place by the Trudeau Government.
While the growth of Canada’s economy was strong at 3% in 2017, current projections forecast a reduction to 2.1% in 2018 and 1.9% in 2019 as the stimulus, in the form of historically low interest rates, is withdrawn. According to the Organization of Economic Co-operation and Development, Canada stands out in their report that notes that Canada’s debt has “continued to rise from high levels” Canada’s credit to households for the fourth quarter of 2016 was ahead of all other major economies, including China and the US. At 101% of gross domestic product, this debt level is the highest among developed countries. The report states that this does not bode well for Canada.
Like it or not we, as Canadians, are tied to the US economy as roughly 85% of what we send abroad goes to the US and about 25% of what the US sends abroad comes to Canada. Our infrastructure (roads, power grids, etc.) is highly linked and we share dependencies and vulnerabilities as nations. All the talk by Canadians about changing our financial dependencies away from the US to other countries such as China does not have merit. The geographical reality of our nations bordering one another has a direct bearing on trade. It is much more expensive to ship goods to China than it is to the US. The success or failure of NAFTA talks will have a direct impact on our country as the smaller partner.
Trudeau Government Financial Actions Impact
The Trudeau government promised to make it easier for Canadians to find an affordable place to live but their actions have made it much more difficult. More stringent mortgage rules, massive federal debt, increases in income taxes, and interest rates that are starting to rise do not bode well for the next couple of years of their term.
Local Home Listings and Prices
Locally the number of new home listings was way down in 2017 from historical norms, and home prices were up. The increase in prices are the direct result of a low supply and higher demand for Comox Valley homes by locals as well as by people moving to the valley from higher cost areas such as Vancouver and its suburbs.
Despite political rhetoric to the contrary, governments do not create jobs; small and larger businesses do. Governments can help create the climate and conditions for businesses to flourish but in the small business sector the Trudeau government has done just the opposite. The “tweaks” announced recently to quell political and popular opposition to the Trudeau government’s small business tax reforms will discourage businesses from investing and growing. Moreover, these tweaks will encourage more tax-planning through the use of corporations, and further complicate an already overly complex and costly tax code. This isn’t the way to grow the economy for middle-income Canadians or any Canadians.
There is a perfect storm building in Canada. Can we afford two more years of this government who continues to demonstrate that they often do just the opposite of what they promise?