The Looming Threat to Canadian Housing: Rising Costs and Potential Recession

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Understanding the Risks of Adjustable Rate Mortgages

Housing prices in Canada are near record highs, surpassing previous peaks. The media suggests prices will continue to climb, but this outlook is unrealistic. There is a potential for a significant downturn in the market, driven by factors similar to those that caused the 2008 financial crisis.

The Return of Adjustable Rate Mortgages

Adjustable rate mortgages (ARMs) were major contributors to the 2008 crisis. These mortgages start with a fixed rate but then adjust periodically, often leading to unaffordable increases in monthly payments. Today, ARMs are making a comeback, albeit under different terms. Historically, interest rates on these mortgages increased by about 1.5%, leading to substantial payment hikes for borrowers.

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Rising Home Maintenance Costs

Beyond mortgage payments, other homeownership costs like property taxes, insurance, and maintenance have soared. In 2020, the annual cost to maintain a home was around $144,000. By 2023, it had risen to $188,000. This $44,000 increase equates to an additional $400 per month, similar to the payment hikes seen in the lead-up to the 2008 crisis.

Wages vs. Inflation: The Real Income Squeeze

While wages have risen, they have not kept pace with inflation. From 2020 to 2023, consumer price inflation outstripped wage increases, eroding purchasing power. This squeeze is particularly severe for older homeowners whose wage gains have lagged behind those of younger workers. Consequently, many Canadians find their income insufficient to cover rising living costs, putting further strain on their ability to afford homeownership.

The Impending Recession

The threat of a recession looms large. Historically, an increase in the unemployment rate by 0.5% or more over three months has signalled the start of a recession. In 2023, Canada's unemployment rate rose from 3.4% to 4%, exceeding this threshold and suggesting that a recession could be imminent. Rising unemployment would further reduce purchasing power, exacerbating the financial pressures on homeowners.

The Inflation Black Swan

Inflation is an unforeseen risk that could destabilize the housing market. As living costs rise faster than incomes, more homeowners may be forced to sell, increasing the housing supply and potentially driving down prices. This scenario is a stark reminder of the risks in today's market.

Watch The George Gammon's Take on ther U.S. Housing Market:

ALERT: Huge Risk To The Housing Market Was Just Discovered

Complimentary Portfolio Evaluation

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A Partnership for Holistic Wealth Management

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The Custodial Model: An Additional Layer of Protection

In light of the revelations in David Roger Webb's book The Great Taking, to further safeguard wealth, the firms I work with employ a custodial model, where client assets are held securely by an independent third-party custodian rather than commingled with the firm's assets. This crucial segregation of assets provides an additional layer of protection, reducing the risk of seizure or misappropriation in a financial crisis or institutional insolvency. The custodial model offers investors a safeguarded solution to help secure their wealth separately from the management firm.

Watch The Great Taking Documentary

Additional Resources:

• The Great Taking PDF
• The Great Taking - Documentary
• The Great Taking Download
• The Great Taking (Audio Book) by David Webb

Exploring the U.S. for Wealth Security

Amid economic uncertainty and high taxes in Canada, many affluent Canadians are considering relocating their wealth to the United States. The U.S. offers a more favourable tax environment and stronger asset protection laws. Peter J. Merrick, a renowned cross-border specialist, assists Canadians in navigating international wealth management complexities, facilitating seamless asset transfers to diversify holdings and safeguard their hard-earned assets from potential risks.

For Full Details, CLICK HERE

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