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February 2, 2016 | The Big News

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Only 48 more sleeps until the big event in Ottawa. The first T2 budget will arrive in the midst of a mess. Oil at half the value most analysts expected. Tens of thousands of lost jobs. Alberta receding faster than an Oprah love handle. Bay Street in a funk. Most real estate markets stalled while housing goes ballistic in two others. Record borrowing. And soon, rivers of federal red.

That we get a deficit is a known. How big, is the question? But will the economy heal sooner by funding bridges and roads that take years to engineer? And if infrastructure were the answer, wouldn’t Japan be a paradise – where every hick hamlet has a shiny new seawall and a commuter train? But, as you know, the Japanese are so whacked they’re dropping interest rates to less than zero.

Which brings us to Meridian Credit Union and an issue Bill Morneau’s predecessor, Joe Owe, just couldn’t face. Rapacious bankers. Carnivorous lenders. The merchants of debt. And the buck sixty-nine mortgage.

Meridian’s the fourth-biggest CU in the country (after Vancity, Servus and Coast Capital) and is trying to build its rep on cheapo, short-term loans. So last Spring it shocked and awed with a one-year 1.49% fixed-rate mortgage, and this year has come out with the latest version – at 1.69%. That’s more than a full percentage point less than the current offering at the big banks, and even thirty or more basis points less than what Alvin the Mortgage Broker who works out of his Pontiac Aztek has to offer.


The Meridian deal also comes with prepayment privileges, letting you retire a fifth of your loan early, or increase your monthly by 20%. That’s for people who don’t actually understand what it means to borrow money for less than the inflation rate and think they’re smart. (They’re not.)

This move comes just weeks after the major chartered banks raised most of their home loan charges, and a short time after the Bank of Canada decided – despite the oil debacle – not to lower its trendsetting rate. Of course, as you know, it’s been less than two months since the US Fed pulled the trigger and possibly six weeks before it happens again. In other words, the credit union move has ‘Promotion’ written all over it, being designed to increase market share and prompt crazed, old, bearded bloggers to mention it. (Will never work.)

But this is a problem for the feds. Cheap money breeds more borrowing, which has led to asset bubbles in Toronto, and especially Vancouver. For example, YVR realtors announced Tuesday a 27.9% increase in the benchmark price for a detached house in that troubled town, to $1,293,700. Listings have dropped a little, demand’s increased and the cost of money remains absurdly low. So as prices hockey-stick higher, so does debt. Just a few days ago, for example, a new report emerged showing payday loan usage by BCers has increased 58%. Yikes. So 91% of all the houses in Vancouver may now be ‘worth’ more than $1 million, but some of the people living inside them routinely run out of money before they run out of month. For that you can thank the biggest mortgage payments in Canadian history.

Well, remember F?

The little pecker may have done a bunch of things wrong (like introducing 0/40 mortgages and agreeing to those insane GST cuts), but the former finance minister was smart enough to reverse course, then try to halt a mortgage race to the bottom. And that was when a bank had the nerve to unveil a 2.99% offering! Lately this cheeky credit union has halved that, and the government twiddles.

Strange days. Morneau looked like he understood the nature of housing risk when he upped minimum down payment requirements (in effect in two weeks), but the real culprit here is a shameless lending industry – guys to whom debt is an asset and all the risk goes to the taxpayers.

Given our dank economy, rates will stay in the ditch for some time to come. But not forever. Not even for a few years. Someone who can afford a house at 1.69% may not be able to cut it at 4%. Rates can move in months, yet mortgages are in place for decades. When the cost of eventually does rise, houses will wilt in the other direction – if a recession hasn’t done it first. The fact so many moisters today believe interest is some weird anachronism should keep Bill up at night. They remind of baby skunks. Cute. Armed. Lousy aim.

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February 2nd, 2016

Posted In: The Greater Fool

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