The outcome of incompetent fiscal and monetary policy.
Many of you who have spoken to me over the summer — at festivals, when I knocked on your doors, or at random meetings – are deeply troubled by the intensifying inflation and cost of living crisis. This is being felt particularly in the increased cost of housing; cost of a single-family home in Canada has risen over 80% in the past eight years. Nowhere is the failure of bad fiscal and monetary policy of our federal government being felt more profoundly. As I’ve said since before being elected, government overspending will lead to inflation – and it has. Even bank economists are now agreeing that the surge in government spending – which continues unabated – is the main cause of the increase in housing prices. They’re late to the realization, but let’s recognize that banks make money, with low-risk mortgage financing, even when the cost of homes increases. That is, until the mortgage market gets too expensive.
We’ve got rising house prices coupled with rising mortgage interest rates. Usually, the increase in one of these inputs abates the other input. Higher mortgage interest rates should lead to lower house prices; as payments become higher, people choose to buy less expensive homes. That is not an option now. We have both higher sticker prices and higher financing costs. It’s a double-whammy on income-earners whose take-home pay has not kept up with inflation.
Let me caution that the worst is not yet upon us. If mortgage interest rates stay high in Canada for two more years, the impact on mortgagors in Canada will be severe. That’s because many Canadians re-mortgaged their homes in 2020, when interest rates were at historic lows. And the most popular mortgage term in Canada is the five-year mortgage. If these homeowners face the increase mortgage cost that is coming, it will increase their payments substantially. For instance, the annual interest alone on a $500,000 mortgage obtained in 2020, refinanced at prevailing interest rates in 2025, would lead to an increase in mortgage payments of approximately $800 per month. Worse than that, it would triple the amount of interest paid over the five-year term – which means that less funds would be increasing the homeowners’ equity in the house.
These types of markets lead to hazards.
It is essential to recognize this as a policy choice. This is not an accident – it is the outcome of incompetent fiscal and monetary policy.
There is a price to pay for this profligacy. We’ve seen this movie before.
It’s not just homes. Even school materials and lunches are now burdensome for many. Recently, the average back-to-school expenditure in Canada reached $700 per student, with school supply costs jumping a staggering 24% in just two years. StatsCan warns parents of skyrocketing lunch box items: bread and rolls by 8.1%, apples 7.8%, and cookies and crackers a staggering 12.4%. Many families are at their breaking point.
We need to change this ASAP. I do believe it is beyond the abilities of the government in power to make the sound economic choices required. It requires a change.
Please contact me at Greg.McLean@parl.gc.ca or by phone at 403-244-1880 and keep up to date on my work in Parliament on my website, GregMcLeanMP.ca.