Thoughts on the BOC from a Mortgage Agent

Thoughts on the BOC from a Mortgage Agent

Ok, so there has been a lot of talk as of late about the Bank of Canada's fight against inflation and the main tool that they are using - interest rates. One exchange here on linkedin this week really got my attention. It was written by a variable rate mortgage holder who explained that his inflated costs with respect to gas and groceries was truly insignificant in relation to how much his mortgage payment had gone up or what was indeed going to his principle since these historic rate hikes. In fact I've heard countless stories about people's mortgage payments going up more than $2,000 a month for a very standard sized mortgage here in Toronto. For sure the rate hikes have been very punishing for many; and I and others are feeling the pain.

For first time homebuyers in particular the barriers to entry within the housing market have never been more challenging and I can see why in some cases they just don't think it's fair. Think for a moment about a young couple who were first time homebuyers even just a few years ago and how they secured a mortgage for 1.5% and were actually stress tested at 1.5% Now a similar couple in this market are facing rates in the 5.5% range and being stress tested at 7.5% This is a whopping difference, not to mention inflated house prices.

Now I know many, including my dad, are quick to point out that back in the 70's and 80's it wasn't uncommon to have a mortgage rate over 15%. But during those times you could still legitimately buy a house for about 3 to 4 times your yearly income. At present day across the GTA it's 15 times your average yearly income. The statistics support this, as the average household income across the city is 90k with the average home price 1.5 million. At its core this is a very important ratio to consider.

I must confess that I have strong opinions on economic policy. I just don't understand why when rates were already at historical lows and the natural slowdown of the pandemic hit us the Bank of Canada made the decision to go even lower to essentially artificially stimulate the economy. What happened to the West's founding principle of "let the free market reign supreme." Printing all this free money actually brought on inflation, especially in the housing market where home values in some cases doubled in just a couple of years.?And surely they knew that they would shortly have to swing rates violently in the other direction causing a lot of instability. Correct me if I am wrong but the BOC's actual job description is to create stability in the economy not instability.

It's almost as if they overreacted to the pandemic, and now they are again overreacting to inflation?

I guess if I had a bunch of economists in a room, my question would be, where does all this lead, what's the end game?

I suspect Pierre Poilievre's advice a few years ago had some wisdom in it. "We need to stop printing money and start building homes."

Would love for some real estate agents and others to chime in on this discussion with their thoughts and opinions.

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