Canada's real estate dilemma
When you look at the Bloomberg image above, you will notice three things: 1. Economists think Canada will hike rates 2. Homeowners are stressed and using credit card 3. Inflation increasing due to rising housing cost All three headlines are talking about the same problem. With the sudden increase in interest rate, the Canadian housing market has come to a halt. Previously, Bank of Canada was hoping to use high interest rate to deter young people from purchasing properties (reducing demand) However, young people still want to start families and want to move out. Without solving the underlying issue (lack of housing supply), this leads to increase in housing cost (Headline #3), which in turns increase inflation. So what we end up getting is high-interest rate and also high housing cost due to lack of supply. If Bank of Canada hikes rates hike economists said, then stressed homeowners will get more credit card debt which has an interest rate of 29% or higher. This leads to higher default and more miss payments for the mortgage (which eventually will crash the housing market) If Bank of Canada doesn't hike rates , then the lack of housing supply will cause inflation to go up since the underlying issue of housing supply was never resolved. So what should Canada do? - Crash the housing prices with higher interest? - Lower the increase and cause housing prices to go up? To me, the answer is clear, lower the interest rate and provide more supply to housing. When you are looking at any system (whether it is the housing market or your investing strategy), you need to look at where the bottleneck is. Cheers, Eric Seto, CPA, CIM ------ In May, my goal is to help 20 people without a financial background to master investing Investing Accelerator is designed for people without a financial background. Here's the link to the webinar: https://bit.ly/3i9QT1V We focus on developing financial independence, where you have the ability to invest to earn a higher return.