In the almost limitless collection of our prime minister’s notable gaffes, one clings to top spot.
“You’ll forgive me if I don’t think about monetary policy,” he replied when asked during the 2021 election campaign about the Bank of Canada’s inflation-fighting mandate.
In typical Trudeau fashion, he went on to mouth yet another emotionally charged platitude, meaning little but sounding heartfelt: “You’ll understand that I’m thinking about families.”
Fast-forward a few years and those same Canadian families think of little else than the cost of living. In particular, many wonder if they’ll be able to keep a roof over their heads, as that same monetary policy our prime minister didn’t bother to think about hits home with a vengeance.
To combat the recent surge in inflation, one that bankers didn’t see coming and then airily dismissed as transitory, the cost of borrowing has dramatically increased, from credit cards to auto loans. But mortgage rates cause the most sleepless nights, as Canadians face much higher monthly payments when renewing those home loans at higher levels of interest.
Being human and therefore prey to a “what we see is what we’ll always get” mindset, countless families took out loans at staggeringly low levels of interest — three per cent was a common marker — allowing them to buy a lot more home than their parents could have afforded back when 10 per cent seemed a blessing. (My first mortgage, on an Edmonton bungalow in 1985, was at a 12 per cent rate. It seemed a steal — a few years earlier many had faced 15 per cent.)
Today, homeowners face renewal rates touching seven per cent, but they’re unlikely to consider this a gift.
Adding to their pain is such rapid rate jumps result in fewer folk being able to even enter the housing market. Therefore, with much less demand, prices start falling — Calgary’s an exception as homes here were comparatively cheap, thanks to a nasty economic slump that’s only recently abated.
Across Canada, however, many have homes they can’t afford when time to renew the mortgage. And, if subsequently forced to sell, Canada would face a torrent of foreclosures, with few new buyers entering the market.
Not surprisingly, this isn’t making banks — the same ones that merrily loaned those big bucks a few years ago — too happy. Getting back the keys to houses plummeting in value with few buyers in the market doesn’t suggest a future big bonus year for the managers of Canadian finance.
Maybe those previous low rates, sucking so many into this morass, weren’t such a great idea in retrospect? Ah, but greed’s a wonderful inducement toward taking risks with other people’s futures.
Homeowners on the brink face tough choice of selling home as mortgage payments climb
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So, what to do? If Canadians can’t afford their mortgage renewals at these higher rates over a 25-year payback term, then maybe they could manage to hang on if the loan was extended to 35 years or longer.
Voila. That’s what the banks did. So now almost half — 46 per cent — of Canadian mortgages have amortization terms longer than a quarter of a century. The banks don’t get stuck with dud loans and you get to actually own the place outright; if lucky enough to still be breathing come the year 2060.
This is horrendous. Why would a government allow such financial shenanigans?
Because it allowed this house of cards to develop in the first place, taking its eye off the ball and allowing banks to engage in an orgy of loaning cash to people who’d be overwhelmed if renewal rates ever rebounded to what remains the historical norm.
“You’ll forgive me if I don’t think about monetary policy,” Trudeau said.
Actually, we don’t forgive you: not in the slightest.
Chris Nelson is a regular Herald columnist.