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June 17, 2018 | The Mission

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.

It’s possible I may have mentioned I lost my mind and ran for public office. Twice, 17 years apart. The first time stepping onto the floor of the House of Commons I was awestruck, compliant and relatively useless. The second I was blasé, defiant and on a mission. That, of course, led to disaster. At the heart of my demise were two things: blogging and mortgages.

In 1988, nobody had a blog. In 2005 I was the first MP who decided to use digital communications to bring political decisions to voters, and vice versa. In Ottawa everyone hated that idea. Involve citizens in government? Was this guy Turner completely off his meds? Conflict ensued. The prime minister threatened me. I was turfed from my party, stripped of my nice office and assigned a seat in the House so far back the Speaker had to squint.

But I didn’t shut up. Even about the mortgages.

Before my ouster, shaming and mashing, I sat on the Finance Committee, an all-party body designed to study, support or vet legislation destined to impact Canadians’ lives. The big idea of the day: allow people to buy houses with 0% down and mortgages 40 years long which would be backstopped by CMHC. It was 2006, and the American real estate market was starting to roll over – murdered in part by billions in mortgages loaned to people who should never have received them. Zero-down purchases, interest-only payments and teaser rates had helped inflate a housing gasbag destined to pffft. Why would we want the same crap up here?

No government MPs on the committee shared my concern (because the prime minister wanted this passed pronto) so I got the opposition guys to support the idea of a hearing to study the changes. Witnesses came and the likely consequences of the proposal became clear through their testimony – a booming market would become a bubble, inflated by easy money and speculation. Danger.

No matter, the government MPs all lined up. The measure passed into law. Real estate prices started to soar. The PM exacted his revenge on me. And I wrote a book called “Greater Fool, the Troubled Future of Real Estate,” to warn people, before being eviscerated in the next election. Two years later, facing a crisis in affordability, the government rescinded the 0%-40 law. Too late, as we headed into the financial crisis and a collapse in mortgage rates.

Well, I was reminded of this episode by Calgary MP Tom Kmiec, a Conservative, who days ago tried to get the Finance Committee to conduct a study into the effects (so far) of the B20 mortgage stress test. As you know, anyone taking out a new mortgage or switching lenders upon renewal has to overcome an income stress test, regardless of the size of their downpayment or the amount of equity they own in their home. The test is the higher of 5.34% or the rate offered by their lender plus 2%.

What do we know so far about B20’s impact?

Sales are down in 80% of markets across Canada. The mortgage brokers say the stress test has reduced the amount people can borrow by about 20%. Royal LePage says first-time buyers have lost an average of $40,000 in purchasing power. The level of real estate activity has dropped by the most in seven years ago far in 2018 (the stress test arrived in January), and overall borrowing has fallen. Mortgage loans dropped $2 billion in the first 90 days of the year, and $13.7 billion which was the lowest since 2014

Most consequential, real estate has become less affordable for young people. By chopping the amount the moisters can borrow, B20 increased competition for lower-priced properties (namely condos) and threw the brakes on move-up buyers. So six months after the test arrived, condos cost a lot more and detached houses have dropped bigly – but are still out of the reach of most in urban areas.

So did the stress test have unintended consequences in the marketplace? Is it making renewers spend more since they can no longer shop around when their loans comes due? And with almost 50% of all mortgages expiring in 2018, was this the worst time possible to enact such a thing?

Finally, was this all a sop to the banks? After all, it was the brainchild not of CMHC or the federal government, but OSFI – the regulator of financial institutions – which is mandated with protecting the banks, not ensuring people can afford houses.

Well, we won’t know. Not now, at least. Kmiec was stonewalled by government MPs who voted as a block against the idea of a hearing. Some said they are too busy worrying about next Spring’s budget and others claimed there’s not enough data to reach any conclusions. “It tells me they’re not taking it seriously,” said the jilted politician.

Perhaps B20 is just what we need right now to cold-shower the entire market. But maybe forcing people qualify for mortgages at almost 5.5% is extreme. Perchance this rule is causing long-term disruption by making entry-level housing cost more and shutting first-timers out, exacerbating the divide between the haves and the horny.

But politics is a team sport. The red guys don’t care what the blue or the orange guys think. No government can ever admit to making a mistake. And pesky little MPs who think they must speak up for their constituents are destined to be roadkill.

I still wear the tread marks. Proudly.

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June 17th, 2018

Posted In: The Greater Fool

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