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Housing Bubble or Debt Bubble:

September 5, 2017

The government is working to cool the housing market but perhaps they are focused on the wrong side of the problem.

There are some positive effects to the current housing bubble:

The injection of fresh money into the Canadian economy by the nouveau riche from such burgeoning economies as China. We have seen in recent years freshly minted millionaires and billionaires from Asian countries buying real estate in booming markets such as Vancouver and Toronto.

As real estate values surge seniors, who own their own homes, mortgage free, can be huge beneficiaries. They may be able to sell a high value home and move to a similar property in a lower value, slower paced, community while still banking much of the profit.

Higher prices mean that some consumers will simply not be able to acquire more debt than they can likely handle.

The losers may be banks and other mortgage lenders. As prices increase it becomes more difficult to qualify new purchasers as larger down payments and higher incomes are required. Many prospective entry level purchasers are already burdened with excessive debt throwing their debt service ratios so far out of whack that they can’t qualify to take on more (mortgage) debt.

Meanwhile the government is willfully blind to the problem of the great Canadian debt bubble. Excessive debt levels mean that Canadian consumers are paying far more than fair market value for every single item that is purchased. But while Credit card companies are issuing loans with payment terms extended over 275 years, government is looking at ways of blocking consumers from profiting from an overheated housing market.
Perhaps tighter debt regulations would go a lot further in stimulating the economy than the creation of rules to inhibit consumers from getting ahead.