Country-wide, the price of homes soared over the past 12 months. In sa国际传媒 alone, between February 2021 and the same month this year, the selling price of an average house rose from $887,866 to $1,104,098. That’s a 24.4 per cent increase.
Moreover, this is just the latest round in an ever upward spiral. Several causes are blamed.
We’re told that immigration is driving up the demand for housing. But sa国际传媒 is a nation built on immigrants. Nothing that has happened in this field explains the huge hikes in house prices.
We’re also told that foreign buyers are snapping up properties as an investment hedge. To slow this trend, the federal government has announced a two-year freeze on purchases from abroad.
But here again, these purchases are a drop in the ocean. A recent survey found that just 2.3 per cent of condominiums in Vancouver are foreign-owned.
Then also, we are told that new home construction is not keeping up with demand. That is certainly true. But it fails to answer the obvious question: Why is demand surging?
A more plausible explanation is that interest rates are at an all鈥憈ime low.
Before the onset of the COVID pandemic, the Bank of sa国际传媒’s interest rate was set at 1.75%. That in itself was toward the low end of historical spreads.
But as the outbreak gathered pace, the bank lowered its rate to just 0.25%. That tumbled mortgage rates.
While earlier this week the bank began a slow climb back to normalcy by hiking its rate to 1.0%, mortgages remain cheap. A five-year fixed mortgage can be negotiated for as little as 3.6 per cent.
Here, surely, is the main cause of the rising demand for homes, and with it, rising prices.
We’ve been through a cycle like this before. Prior to 2008, the price of homes had risen sharply. In the U.S., the reason was over-lax bank policies in the granting of mortgages.
Buyers who had not the funds to pay off a mortgage got into the market intending to hold their purchase for a year or so, then sell it at a profit.
That bubble burst in 2008, with dramatic impacts on the housing market, and more broadly, on the economy.
Across sa国际传媒 the sale of existing homes fell by 40%, and resale prices dropped by 10%. In the U.S., several investment firms collapsed, and a recession followed.
The past two or three years look very like the run-up to the 2008 housing bust. The causes may be different — on this occasion low mortgage rates rather than unsound lending policies.
But the results are similar. House prices are being forced up to unsustainable levels.
So far the main effort by governments, both federal and provincial, has been to accelerate the building of low-income housing.
But while this is certainly valuable, indeed essential, it is a case of treating a symptom rather than the underlying cause. We will never construct enough new housing if unrealistically low mortgage rates continue to attract a flood of buyers.
Adding to the sense of an impending crisis, inflation rates are skyrocketing. It’s not just the cost of housing that should concern us.
The price tags for basic commodities such as food and gasoline have soared. Inflation rates are now at a 30-year high, and still climbing. The weight of these upward trends will fall most heavily on those least prepared to meet them — low-income families and seniors on fixed incomes.
What is most concerning is that our political leaders give every sign of being asleep at the wheel. Recent budgets, federal and provincial, while expressing concern at the rising cost of living and soaring house prices, have done little to attack the root cause — unsustainably low interest rates.
It may be argued that the Bank of sa国际传媒 is an independent authority, with sole responsibility for setting rates. But this is an issue with far broader implications than the bank can take account of.
It’s said that those who ignore history are doomed to repeat it. If more aggressive steps are not taken to tame house prices, we may be about to relive the 2008 housing bust, and the economic turmoil that followed.
