(Ottawa) Canada is engaged in a real race against time to tame inflation, bring interest rates down to lower levels and avoid a serious real estate crisis, warns the leader of the Conservative Party of Canada, Pierre Poilievre.
After spotting rising inflation two years ago, and making the housing crisis his main focus for the past 18 months, Pierre Poilievre sees another crisis looming on the horizon. This crisis will affect new homeowners who bought a house during the COVID-19 pandemic, in 2020 and 2021, at an exorbitant price when interest rates were very low.
Two years. This is the time that separates us, according to him, from this real estate crisis, he said in an exclusive interview with La Presse.
To facilitate the fight against inflation, the federal government has an important role to play: it must control its spending, eliminate the deficit and refrain from increasing the tax burden on taxpayers, argued the Conservative leader.
“What worries me is the significant number of mortgages that have been taken out in 2020 and 2021 to buy houses at exorbitant prices at very low interest rates fixed for five years. So in 2025 and 2026, if interest rates are still very high, I foresee a disaster worse than what Americans experienced in 2008,” he said.
To flesh out his claims, Mr. Poilievre relies on statistics that he cites one after the other without losing steam. The debt ratio of Canadian households, expressed as a proportion of disposable income, is now around 185%. In the United States, it was around 170% in 2008.
Interest rates were lower during the 2008 crisis than they are today, he also pointed out. In Canada, these interest rates have increased rapidly in an unprecedented manner over the past 18 months.
“People who took a mortgage at 1.7% in 2020, it’s now down to 5.7%. This does not represent a 3% or 4% increase. That’s a 300% increase. If interest rates don’t come down and people can’t afford a 5.7% mortgage on a $1.3 million house in Toronto in two years, they’re going to have to sell. But there may be no one to buy, ”analyzed the conservative leader.
Mr. Poilievre also recalled that the majority of mortgage loans are insured by the Canada Mortgage and Housing Corporation (CMHC), a Crown corporation that is responsible for housing in the country. And taxpayers may have to foot the bill if there is a series of bankruptcies.
“That’s the risk I see. The only way to avoid this crisis is to really beat inflation in the next two years so that the Bank of Canada can cut interest rates again,” he added.
The real estate crisis in the United States was caused by the granting of many subprime mortgages to insolvent buyers, too. Banks transformed these risky loans into financial securities which were sold on unregulated markets. This practice was known as the subprime market. But many buyers filed for bankruptcy following a series of Federal Reserve rate hikes that began in 2005.
Result: the multiplication of bankruptcies caused the fall of the prices of the real estate, which weighed down the value of these financial securities. The banks were then unable to get rid of securities that had lost almost all their value. The financial crisis has swept away Lehman Brothers, the fourth largest bank in the United States.
“The other aspect that should not be forgotten is corporate debt, which is still extremely high. The debts of all businesses in Canada have reached a level almost equivalent to 100% of the size of our economy. So the private sector and households are at risk. We are extremely in debt here in Canada,” he argued.
Poilievre, who has seen the Conservative Party take a 7-10 point lead over Justin Trudeau’s Liberals in national polls, says it’s essential that Ottawa regain control of public finances.
“Eliminating the deficit is a matter of urgency. This will help reduce inflationary pressures. Every time the government runs a deficit, it increases demand and it helps to increase inflation. And that forces the Bank of Canada to raise interest rates. As former Liberal finance minister John Manley said, deficits are like stepping on the accelerator of inflation at the same time that the Bank of Canada has to step on the brake. »
