Long & wrong

Three mornings ago the finance minister stood in front of a new condo apartment development in Etobicoke and announced something she announced in April. Thirty-year mortgages. But only for first-time buyers. Only those who purchase CMHC insurance. And only on newly-built residences.

“This will help more young Canadians pay for a mortgage,” she said. And then she took credit for the Bank of Canada having cut interest rates twice in the past two months. Seriously. The ‘fiscal prudence’ of the Trudeau government had allowed this to happen, she said. And no smirk, even.

Well, you can watch the whole thing here.

What does this mean?

In essence, nothing. The weird tax-busting FHSA, the immense amount people can now raid from the RRSPs to buy a house, the new amortizations, the forced trashing of local zoning protections plus seven billion dollars of fed money for housing developers, housing infrastructure and housing loans – none of it is working. But the Liberals keep trying.

Just to be clear, the 30-year loans are a complete nothingburger. Most developers require a 20% (or more) downpayment when someone orders a new house of condo. So no CMHC insurance, and no long loan. Plus in Etobicoke, like the rest of the GTA or metro Vancouver, you can’t get a new house for less than $1 million, which is the CMHC ceiling. So, no thirty-year loan. In the GTA, for example, the average new-build condo is $1,023,389. The average SFH (detached or town) comes in at $1,613,613.

And, hey, nobody’s buying new houses anyway. Sales last month in the country’s biggest market were pathetic. There are more than six million people there, yet only 1,339 units were sold, of which 732 were condos. This is 60% below the ten-year average.

You can tell how bad things are by the unsold inventory – now sitting at 21,258. “This includes 17,391 condominium apartment units and 3,767 single-family dwellings,” say the developers. “This represents a combined inventory level of 14.5 months, based on average sales for the last 12 months. This remains an exceedingly high inventory level, maintaining the trend seen since autumn 2023 of remaining inventory levels hovering consistently near the 20,000 mark.”

Moreover, why would the government be pushing kids to buy new condos at $1,400-$1,600 per foot, when there are now scads of them – 11,088 as of today – sitting on the resale market for an average of less than $1,000 a foot? Finally, mortgage insurance ain’t cheap. So a buyer putting down, say, 10% on a $900,000 property to get a 30-year loan would have to swallow a premium of about $32,000, tacked on to the debt. In other words, it obliterates the financial advance of having a long mortgage.

And don’t forget, kids, the longer the amortization the lower the monthly but the more money you fork out in the long-run. Less of each payment goes to debt repayment and more is Hoovered in interest. You lose. The bank wins. Chrystia thinks you’ll be grateful.

Regular addicted blog dogs may recall the times I’ve mentioned being thrown out of the Harper caucus in Ottawa for opposing 40-year amortizations and 0% downpayments. That was the brilliant idea of then-finance minister Jim Flaherty and the PM to make housing ‘more affordable and accessible’. Of course, it helped lead to the biggest-ever explosion in house values. The government was forced to backtrack. It was too late. And here we are – in a situation made even more dire by the pandemic, emergency rates and rampant financial illiteracy among Canadians.

Where are we headed?

Back into the soup. Do not think for a moment that long mortgages will stop here. The man now propping up the federal government – J. Singh – made 30-year mortgages for everyone, and on all properties, a plank in his last election platform. The next Liberal budget – due in the Spring and just a few months before the federal election – may well bring that to pass. And guess what happens then?

Everything government touches seems to gets worse. More dishonest, too.

About the picture: “Obligatory sucking up to say I enjoy your blog,” writes Ian. “My brother turned me onto it a few years ago and while I can’t imagine writing a blog everyday never mind reading all the commenter’s posts. I appreciate the free advice.  Looking back I can certainly see I could have made much better investing decisions. Thanks for your time on the blog.  If you run out of dog pictures I included a picture from my sister’s farm on a day visiting the heifers with my nieces.”

To be in touch or send a picture of your herd, email to ‘garth@garth.ca’.