- the source for market opinions


January 31, 2019 | Us & them

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.

Politicians. Used to be one, of course. Learned a lot. (a) You’re most popular on the day of your election. After that it’s a steady fade. (b) People rarely vote for you. They vote against the other guy. (c) Talk about ‘us’ and ‘them’ a lot. It always works. (d) Tell people what they want to hear in order to get elected. Then perish in the consequences.

Which brings us to Jason Kenney, who will doubtlessly be the next premier of Alberta. I know Jason. He’s talented, aggressive, opportunistic and cunning. He came to Ottawa as a young, lean, tax-fighting vigilante. He left as a corpulent, Harper ex-minister and Commons bully. Then he reinvented himself, ascending to the leadership of the equally reinvented AB con party. Next an election. Then the mantle from Premier Notley who, as Dippers go, stays in her lane

Well, let’s flip to the annual meeting of the Calgary Real Estate Board this week, and Kenney’s epic speech. He followed (c) and (d) perfectly, trashing the mortgage stress test and telling the desperate, sales-starved agents it was all Ottawa’s fault.

Ensuring homeowners in Calgary or Edmonton can handle higher interest rates, he cried, is “an unfair attack on Alberta home ownership. One of the reasons why homes are less affordable in Alberta today is because of unfair rules imposed by Ottawa to deal with the overheated real estate markets in Toronto and Vancouver. We did not have a risk of overheating . . . Ottawa  has taken out a bazooka rather than a fly swatter to deal with this problem.”

The realtors lapped it up, of course. The housing market in Cowtown has been in a steady decline, with prices dropping annually along with sales levels. The local real estate board has identified the real cause: job loss. “The main factor is really that job market,” says its chief economist. “We continue to struggle with high unemployment rates, we are not expecting to see a lot of job growth, and that is weighing on our housing market…”

But Kenney would rather blame the East, and make Albertans feel victimized. It’s good politics. But is the stress test really unfair in markets outside of the GTA or the LM?

The purpose of the B20 test is simple. To reduce banks’ risk by preventing people from buying real estate they can’t afford. Since mortgage rates have steadily swelled from historic lows, and people will be renewing at higher levels, the test seeks to ensure they can handle the load. Especially in Alberta.

Kenney’s voters, as it turns out, carry more debt on average than any other Canadians, and most of that’s in the form of mortgages. Next in line are BCers, followed by Ontarians. Albertans also spend the greatest amount of their incomes, according to RBC, on servicing their debts – making them the most vulnerable to higher rates.

Who’s most in debt? Alberta tops the list


Making the squeeze more acute: homeowners in Alberta have taken out the greatest number of short-term mortgages. “While the proportions of variable versus fixed-rate loans don’t vary dramatically across Canada,” says the bank, “18% of mortgage borrowers have terms of two years or less in Alberta, which is by far the highest proportion in Canada.” That means more renewals to today’s higher rates by people who actually have the most debt and the biggest debt-servicing costs because (logically) they spent too much on real estate.

More from RBC: “The fact that Albertans—along with British Columbians and Ontarians—carry the heaviest debt loads on a per household basis in Canada inherently makes them more sensitive to interest rate increases. Their debt-service bills will get bigger, and possibly sooner than elsewhere in the country, when interest rates rise.”

So why should they be exempted from a measure to reduce borrowing, when they have already borrowed too much? Will more borrowing make anything better? Other than realtor commissions?

But wait. It’s about votes.

If fact premier-wannabe Kenney says, if elected, his party will work with credit unions “to help Alberta buyers sidestep the rules”. While the stress test only applies to federally-regulated lenders, many provincially-controlled CUs have adopted it as a prudent measure.

So, that’s the lesson for today, kids. People wanting your support will insist you’re being screwed, that someone else is responsible, and only they can fix it. It might be the Russians, the Chinese, migrants, tree-huggers or Ottawa. But it’s never ourselves. We’re just victims. It’s them. Not us.

Vote for me. Hold your nose.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

January 31st, 2019

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.