Exclusive Insights From a Former Bank of Canada Governor

By: ameer@trustedteam.com

It’s not everyday you get to sit on a video call with someone who used to run our country’s central bank. So when I was invited to be a part of a remote session with former BoC Governor Stephen Poloz, I made sure to take down as much as I could to share with you. Here’s what he thinks about inflation, interest rates, and what’s happening in Canada.

On Interest Rates

Inflation is still an issue globally. It began with the pandemic, but the Russia/Ukraine War certainly didn’t help. Inflation may be cooling a little as we get further away from the pandemic, but we’re certainly not out of the woods yet. Central banks could continue to raise their rate just like the U.S. did to really make sure that inflation gets back down to 2%. 

With that said, Poloz feels that inflation will come down quicker than the government expects. That means lower rates are on the horizon. But that won’t necessarily solve the housing affordability issue that Canada is facing.

On the Housing Market

According to Poloz, the housing supply in Canada is dangerously tight. Even hypothetically adding 50,000 to 100,000 housing units on top of what we’re already building annually wouldn’t  make a difference. Prices wouldn’t fall at all. Price growth might slow – but it would not stop or shrink. So what do we do knowing that prices will only go up?

On How We Should Tackle Housing

We’re hellbent on the notion that we need to pay off our homes in 25 years. But why? Poloz believes that you don’t need to have your home paid off fully to retire. Even if you’re half paid off, or even one-third paid off at retirement time, that’s more than sufficient to retire on based on where home values are at.

To that end, Poloz believes that we should be exploring longer amortizations to make housing more affordable. Mortgages with 40 or even 50 year amortization periods would lower the monthly cost of owning a home and retirement would still be achievable. If it isn’t longer amortizations, then he believes there needs to be more radical mortgage innovations in Canada to disrupt the status quo.

My Take

Looking back to 2006, there were so many mortgage options available. There were 40-year amortizations. Interest-only mortgages. Mortgages that required no money down. Canadians had a ton of flexibility to choose products that worked best for them. All of those products went away right around the 2008 U.S. subprime mortgage crisis and never came back. But why didn’t they? We never even had a housing meltdown. Sure, Canadian home prices dipped for 6 months – but then they shot right back up and have continued to ever since. 

In my mind, having a range of flexible mortgage options would be huge for Canadians. It’s time for the big banks to start offering more creative mortgage products and for the federal government to relax regulation. Make money easier to access, not harder. To me, this seems obvious. Loosen the government stranglehold on housing capital, and we could see the tide turn in Canada. 

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca

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