Raising rates will lower prices to some extent. So it should help somewhat. The issue is that's it's a very very blunt instrument. It just happens to be one of the only tools the BoC has to use. Ideally the feds would have stepped in at some poi t in the last 15 years to stop this madness...
this post was submitted on 09 Jul 2023
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Every level of government effectively ignored housing since the 90s. Unfortunately, we haven't really seen the effect of that policy decision until now, so it's really hard to go back in time and vote them out of office.
But I'd like to.
If only we had a government that could stop the rich and corporations from buying houses posted at under 1M (and index it to minimum wage or something)
The way to do that is to tax them.
Price controls don't work--there's a long and ugly list of examples of why--but increasing marginal taxation certain does work. We just stopped doing it because..mumble..mumble..supply-side..mumble..trickle-down..mumble..job creators..mumble.
You simply tax the things that harm society until those things go away.
Corporations owning residential homes should get taxed an extra 1% on the total value of the home every year, increasing at 2x the rate of inflation every January 1st. Do that for 5 years, then apply the tax to individuals who own more than one home, same deal - 1% + 2x the rate of inflation.
Combined with actual rent controls, this solves the problem, and it won't shock the system and cause a housing crash, because various homes are at different stages of profitability.
I'm just some idiot on the internet. Why can't some idiot in government come up with a similar plan?
The history of price controls suggests this will not give the outcome one would expect
Making your mortgage more expensive to “lower inflation”
I mean yeah. Once other "financial assets" become more attractive (bonds at 5.5%?) maybe less parasitical activity will happen in the housing market. The whole thing started going off the rails when rates dropped to essentially nothing.
If you think current home owners have it bad, imagine anyone trying to get in the market now. Not only are mortgages 3X the price, but the houses are 2X the price they were before. The entire thing is completely unsustainable, and yet the Feds have done fuck all. Well no, actually they have made it worse every single step of the way (see the first time home buyers savings account for the latest idiotic idea).
I am imagining anyone trying to get in the market. They are in a similar position as those who need to renew. Raising rates will not help either of them. I know that the low rates created a problem but raising them isn’t going to solve it because the problem is that we do not tax the rich adequately, which contributes to inflation. We give them tools to avoid taxes. The more they spend on things like housing, the less tax they pay.
We need to fix that or else nothing will improve for regular people if we just leave it to the BoC to fix it, which is how this problem was created in the first place with the low rates. We left the BoC to lower rates during economic slowdowns, instead of taxing the rich
Making mortgages unaffordable for the people buying and sitting on multiple investment properties, because the government refuses to do anything about it.
Yes, just forget about all the regular people who bought homes to live in. They can all fuck off too, because you’re mad at greedy landlords. The issue is more complicated than you think. Most recent homeowners are regular, fiscally response people who decided to buy a home they need to live in, and did so by passing a very stringent stress test, which was how you are supposed to approach buying a home. Now because the government does nothing about inflation, it’s up to the BoC to raise rates because that’s literally the only thing they can do.
And people like you cheering from the sidelines as regular people get thrown under the bus, because you hate greedy property investors
You think higher rates are going to hurt wealthy investors while completely ignoring the fact that they will hurt regular homeowners who live in their homes a LOT more.
I mean, really, all I want is a home to live in, and if that means all the people who overleveraged mortgages to buy up the entire market with no intention of living in them have to put these homes back into the market, I'm game.
It doesn’t work that way. The higher rates are going to negatively affect regular people who did NOT over leverage themselves, and bought homes to live in much more than it will affect wealthy investors.
It will also make it harder for you to buy a home. If prices drop slightly that’s great, but if it’s because interest rates are higher, then it will be just as unaffordable for you since you will still need to borrow most of the money for the home, and the cost of borrowing just doubled, meaning your far less likely to even qualify for a mortgage.
Higher interest rates don’t only affect greedy over leveraged investors.
Regular people are seeing their monthly mortgage payments increase by up to ~40%.
I get it. You’re probably so frustrated at never getting to own a home that you’re fine with seeing this nightmare unfold because all you have to do is cover your eyes to the parts you don’t want to see.
You will never afford a home if rates keep rising either.
Prices need to drop more than slightly to make buying a home feasable, and my partner and I combined make six figures. Rates have been incredibly low over the past decade and it's led to wealthy speculators and companies buying everything up, and it's completely unsustainable. This is correcting things to be closer to where they were historically when housing was affordable.
Yes I understand all of that. My point is that this “correction” isn’t actually going to make it more affordable for you. So far the market is holding quite steadily even as rates have doubled recently.
Unless you’re paying in cash, any price drop due to higher interest rates won’t make it easier for you because you’ll have to pay those higher borrowing rates.
Maybe as millions of regular people come up for renewal over the course of the next few years, and the higher rates force some to sell, you will somehow be able to snap up your dream home in cash, beating out the wealthy who have more than enough cash to compete with you.
Repeat after me: higher rates will not make it more affordable for you. The rich will still have more cash than you and will be far less affected by higher rates, and they will be buying up property in even higher proportions now. Because those of us who aren’t rich still need to borrow, and borrowing rates are much higher now.
I understand how the problem was created and I share your frustration but simply raising rates at this speed is not going to solve the issue of affordability .
Housing is unaffordable along with many other essentials because our governments refuse to adequately tax the rich, leaving them more than enough capital to seize markets and in fact giving them financial tools to avoid taxes which drive up prices.
They should increase property taxes back to where they were 20 years ago.
If you somehow have money saved for property, keep digging in until 2025 or 2026, then there will be a reckoning as a wave of unaffordable mortgages sweeps the landscape and people start dumping houses.
More like a wave of government bailouts to keep the party going.
Yeah or investors ready with investment $$$ to suck up all the foreclosed houses and rent them back.
People said that in 2002, and 2010 and 2017 and yet the house prices keep going up and up.