Why are house prices so high in Waterloo Region? It's not what you think!

There are tons of reasons for our sky high real estate prices. Things like insufficient housing stock and zoning issues get a lot of mention. Foreign buyers and investors get blamed too. So do Realtors and blind bidding.

Yes, there is super low inventory. But locally we are building tons of housing and are also selling record numbers of homes. It seems that nothing is enough to meet demand.

But one thing that never ever gets mentioned is interest rates. And I don't mean mortgage rates. Our high prices are caused by low interest rates set by the Bank of Canada. Housing markets have shot through the roof in many places worldwide and one thing they all have in common is super low rates.

The blame for all of this is the 2008-09 meltdown in the US. They dropped rates massively to stave off the great recession and pretty much every other G7 and G20 country followed suit. But rates left too low too long creates artificially high demand that can turn into a demand feedback loop.

This is exactly what is going on with Canadian real estate. Things started to get crazy right around 2016 but the interest rate cut that started this happened in the lead up to the 2015 election. Oil had dropped massively and the stock market followed so rates were dropped from 1% to 0.5% by the relatively new Bank of Canada Governor brought in by Stephen Harper

Trudeau won the election and rates were left unchanged. By 2017 it was clear there was runaway demand. Ontario and Vancouver both brought in foreign buyers taxes. This dampened down demand and prices for perhaps 6 months.

The feds seemed unconcerned and were quite slow to raise rates. The stress test was a failure too, only hurting new buyers and doing nothing to slow down investors or foreign purchasers. The Liberals and Conservatives alike have a neoliberal free market mindset that is quite problematic for housing. Mortgage financing is a free for all and the banks are pretty much giving money away.

Fast forward to the pandemic and the feds massively slashed rates again to save the stock market. Of course real estate also shot up in response and we are 44% higher now than at the end of 2019. Housing affordability has been sacrificed on the altar of the TSX.

Yes, building more housing will help but nothing will be solved until rates rise sufficiently to dampen demand. Right now mortgage rates are pretty tightly linked to the Central Bank rate and that needs to change.

Ironically enough rates are going up due to the massive inflation caused by low rates and the money printer going non stop for the last 2 years. But there hasn't been a peep from the government about their role in this fiasco. No surprise there, it's so much easier to blame everyone else.

We are creating a have/have not society based on owning real estate. This cannot be good. We need real reform on mortgage financing now.

The data:
Intro 0:00
Worldwide high prices 1:42
World currencies rates 2:45
Canada response to great recession 3:09
House prices vs. rates 5:29
Harper and oil 5:55
Foreign buyers tax 6:54
TSX 8:24
Three predictions on rates 10:58

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Andrew Shackleton, Broker

Royal LePage Wolle Realty

519 578 7300
226 600 1548
[email protected]
https://drewathome.com

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