Is The Government Trying To Prop Up The Housing Market ?

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:10] Welcome back to the Canadian Real Estate Investor Podcast. My name is Daniel Foch and I'm

[00:00:18] a real estate broker in the greater Toronto area. Do a lot of research work and real estate

[00:00:24] transactions so if you want research done or want to do real estate transaction give me a

[00:00:29] shout. My name is Nick Hill, I'm Dan's co-host on the podcast here. I am a mortgage agent and

[00:00:36] real estate investor. Real estate nerd. I guess that that would be a fitting self-clean title as

[00:00:44] well but helping investors and developers educate themselves and find financing and do

[00:00:51] transactions across the country so if you are anyone of those people reach out to Daniel myself

[00:00:57] we love working with people that listen to the podcast and on today's podcast we are talking

[00:01:04] about CMBs and MBSs, the GOC CMHC and the NHA. I guess I should have introduced myself for

[00:01:14] today's episode as BAN then so maybe maybe one more time for those people that don't speak

[00:01:22] acronyms or initialisms. Right fair enough Canadian mortgage bonds, mortgage back securities

[00:01:29] what's going on with the government of Canada, the Canadian mortgage and housing

[00:01:34] corporation and all of their recent actions in the mortgage and security space.

[00:01:42] That's better so also be sure to go check out our five day challenge community and it's a free

[00:01:48] online community before Nick gets ahead of himself with all these acronyms. It's a free group you

[00:01:52] can join it, there's some great video assets we break down more acronyms like the GRM,

[00:01:57] cash on cash return which for obvious reasons is not allowed to be an acronym. They caprate

[00:02:02] the debt service coverage ratio or DSCR. These are all some of my favorite, these are a few of my

[00:02:07] favorite things and yeah we're going to be running I think we're going to move to monthly webinars

[00:02:12] I think like the five day format was a little long for us and for everyone so we're probably going

[00:02:17] to do like specific topics for webinars I think one of the first ones will be they're like

[00:02:21] our sales or VTBs which are two very popular topics right now and then eventually we'll go

[00:02:26] to like investing in the US or whatever we're basically building out more content for on the

[00:02:31] on the full course on the realist course we'll do like a monthly webinar on so check it out

[00:02:36] that it's in the show notes and we'd love to see you in there. Yeah appreciate that Dan O'Kino

[00:02:43] let's get into today's episode now if you have ever thought of using a payday loan

[00:02:50] to pay off a credit card if you ever thought that was a good idea you are about to be all kinds

[00:02:57] of impressed by the following news. I actually know somebody who bought a property in the US once

[00:03:04] on a credit card which is a funny story somebody I met from one it from like a US podcast a long time

[00:03:09] ago but so so what Nick is talking about here is using very high interest rate debt to pay off

[00:03:16] slightly lower but still high debt it's kind of a carry trade let's call it. Oh I like that okay so

[00:03:23] just a refresher payday loans I'm sure we're all familiar with the one I'm not going to name any

[00:03:28] them but you go into one of the brightly usually yellow stores and they give you an advance on your

[00:03:35] money essentially so a payday loan is a short-term loan with high fees that make it a very expensive

[00:03:41] way to borrow money. It's also got a high cost loan or a high cost credit and you can borrow basically

[00:03:48] up to $1,500 and you usually have about 60-ish days to pay it back now payday loans are different

[00:03:55] from traditional loans for a few reasons you may only take them out for a short period time usually

[00:04:01] that is a number of weeks guess what you can qualify without a credit check which is very advantageous

[00:04:08] to some people. You can play a flat fee instead of interest when you pay on time and the lender

[00:04:16] organizes your loan payments around your payday schedule. So how much does a payday loan cost?

[00:04:23] A line of credit includes a $5 administration fee plus 8% annual interest on the amount that you

[00:04:29] borrow overdraft protection on a checking account is typically $5 fee plus 21% annual interest

[00:04:34] on the amount that you borrow a cash advance on a credit card includes a $5 fee plus a 23%

[00:04:42] annual interest on the amount you borrow. A payday loan $17 per $100 that you borrow which is

[00:04:49] the same as an annual interest of 442%. I think that they pretty much like maxed out what they can

[00:04:55] legally charge without it being like there's laws against that right like user re-laws or whatever.

[00:05:01] I've been 442% that is like that is truly crazy yeah there should be laws against paying 442

[00:05:09] percent on anything because man if people can't handle 5% or 7% mortgage rates 442 just

[00:05:17] seems ridiculous so so then the the lesson here is I guess don't do this unless you absolutely have to

[00:05:24] this should be a last resort a desperate times desperate measures type of thing and well if it's

[00:05:32] desperate measures desperate times type of thing we may be in a desperate time because it looks

[00:05:37] like desperate measures are being taken and taken by none other than the Canadian government.

[00:05:44] Yeah so I'm going to read the headline here but um but before I do that I because I looked

[00:05:49] this up on on user e so the user e-law is the criminal code makes it an offense to

[00:05:55] number one enter into an agreement or arrangement to receive interest at a rate exceeding 60%

[00:06:00] effective annual rate and to receive interest at a rate exceeding 60% EAR. The criminal interest rate

[00:06:08] was first introduced in section 347 of the criminal code 1980 so there you go that's the limit on what

[00:06:14] you can actually charge a borrower. The criminal interest rate that rate is criminal yeah um so okay

[00:06:20] so it's a back to this headline here because the government of Canada while paying a little bit more

[00:06:25] than they ought to on certain debt products today they are not paying 60% so the government

[00:06:31] Canada has begun buying billions of CMBs Canada mortgage bonds in a last ditch effort to stimulate

[00:06:38] more borrowing so the planned purchases are equivalent to three quarters of a cash the federal

[00:06:44] government is forecast to borrow this year in addition to recklessly stimulating the market it

[00:06:50] serves as a huge warning sign that Canada is unable to find a global investment to support its credit

[00:06:57] markets so what does that all mean? Well in this article from Better Dwelling entitled Canada plans

[00:07:06] to stimulate housing demand with $30 billion in Canada mortgage bond purchases per year so just

[00:07:12] as a refresher maybe let's discuss Canada mortgage bonds with AR so when Canadians get mortgages

[00:07:21] they'll often purchase with mortgage insurance you must buy loan insurance every down payment is

[00:07:26] less than 20% of your home's purchase price so this is like when you hear about CMHC insured

[00:07:31] a lot of people think it's the first time home briar program but it's actually not but they'll typically

[00:07:36] ensure only owner occupied dwellings so CMHC which is a federal crown corporation they're the largest

[00:07:41] provider of mortgage insurance it has come up obviously a couple times on the show before so mortgage

[00:07:46] lenders originate CMHC insured mortgages and then package them into these complicated prepable

[00:07:51] instruments known as NHA or National Housing Act mortgage back securities NHA MBS it's a nice

[00:07:59] little double acronym for you there we go now we're talking yeah it's if you say it it's actually

[00:08:04] the knobs which is good with the not the knobs I'm good I don't need any of that yes I'm like that

[00:08:12] the so these knobs need to be sold to financial markets in order to obtain the actual cash

[00:08:18] to be lent to homeowners so basically the bank takes make issues alone CMHC to insure it takes

[00:08:25] that those loans packages them all and sells them off to the market CMHC raises some of these funds

[00:08:31] in a very efficient way through the Canada Housing Trust economy that purchases these knobs

[00:08:37] in a hedge form and those funds are purchased by issuing simple market friendly fixed rate bonds

[00:08:44] known as Canada mortgage bonds or CMBs exactly and so when lenders create mortgages as Dan was

[00:08:51] just saying they can group them together and sell these pooled mortgages as an MBS or a mortgage

[00:08:59] backed security and they can actually sell that to the government so to finance this purchase

[00:09:05] the government sells the Canadian mortgage bonds the CMBs to investors the cash flow from the

[00:09:13] mortgage back securities is then used to repay the investors who purchased the Canadian mortgage bonds

[00:09:20] so in essence Canadian mortgage bonds are government back securities used to fund mortgage financing

[00:09:28] in Canada however starting this year Canada doesn't want to just sell and guarantee the mortgage

[00:09:35] backs sorry the Canadian mortgage bonds anymore in 2023 in a in their fall economic statement

[00:09:42] they announced that they will also become the buyer so they'll purchase half of the five and the

[00:09:49] 10-year Canadian mortgage bonds up to 30 billion dollars the government then is essentially borrowing

[00:09:55] money to buy investments that they guarantee with bonds that they also guarantee and yes

[00:10:02] it may be as crazy as it sounds so just remember at the beginning of the show where you're talking

[00:10:07] about paying off debt by using more debt is this kind of the same thing here Dan?

[00:10:14] Yeah it's um it is a good question I don't I don't think it is it's it's uh they have this

[00:10:21] unique ability to issue more debt I suppose but what but the part that is strange to me

[00:10:27] is that these are all like clear measures to to simulate housing and and this is where it becomes

[00:10:36] fascinating from my perspective so I've been following this story like really really closely

[00:10:41] I I actually kind of credit myself for this article even being written because I've been texting

[00:10:46] Stephen Pinlossi like about this story for months or like for I guess since it came out I'll find

[00:10:51] the original post from the government of Canada but when when so so this whole thing started

[00:10:57] or was made possible when basically at least the way I see it is September 26 we we did a full

[00:11:03] episode on this the heading government of Canada unlocking 20 billion in new financing to build 30,000

[00:11:10] more apartments per year I'm sure you remember that episode so they increased the annual limit for

[00:11:16] Canada mortgage bond issuances from 40 billion to 60 billion and and so what I'm guessing happened

[00:11:23] once they did that was they realized that there was probably no market for another 20 billion

[00:11:29] dollars worth of CMBs otherwise why would you buy your own insured product like it's just um it's

[00:11:34] it's not it doesn't make sense financially as a government not that our current government does do

[00:11:40] a lot of things that do make a lot of financial sense but this is this one is especially an outlier

[00:11:47] and so to do like I don't think that they're dumb I think that they have a lot of analysts on their

[00:11:52] team that that know what they're doing and so assuming that they that they know that this isn't

[00:11:57] necessarily a good idea they they they're accepting that consequence so then the question is why are

[00:12:03] they are they accepting that that kind of negative externality so the the question becomes why are

[00:12:09] they doing it they have to have an incentive to accept that that's a negative move and to me

[00:12:15] the incentive is they're trying to prop up the housing market like CMBs only impact one thing so

[00:12:22] there's a couple of different pieces that all because there's another article I want to reference

[00:12:25] here but CMBs are more expensive than a regular government of Canada bond like if you were to issue

[00:12:31] if they just needed debt if they just needed more money they can issue a GOC five year bond and

[00:12:37] it would be 50 basis points cheaper than a CMB so their interest rate in fact of interest rate

[00:12:42] would be way lower so they would be paying a much lower interest rate on the money that they're

[00:12:45] borrowing when when I say issue a bond that just means that they're basically borrowing money like

[00:12:50] a bond is basically just them committing to paying somebody interest rate on debt the challenge is

[00:12:57] that they're that they just committed to a bunch more debt that's more expensive than other debt

[00:13:03] that they could have also committed to does that make sense pay day loans I mean it's not that extreme

[00:13:10] but I know yes it does yeah great explanation but yes so we're getting wrapped up in a negative

[00:13:17] feedback loop of debt on top of debt and choosing the wrong types of debt choosing more expensive

[00:13:23] debt versus a government of Canada five year yeah so the question becomes like why

[00:13:31] why would they be doing this and there's a couple of different we can we can chat about it a little

[00:13:36] bit further I don't want to get too into the weeds so I confuse our listeners so my guess is that

[00:13:42] they're doing it because they want to it's basically like it would be called yield curve control

[00:13:48] so this is where they can kind of artificially suppress mortgage rates on this type of product because

[00:13:55] they're buying these they're they're willing to pay a higher price for these mortgage bonds which

[00:14:00] in in effect drops the yield drops the interest rate on those bonds which means that people like

[00:14:06] you and I who want to use CMHC MLA select financing or people like are you know some of the

[00:14:11] people in our listeners who want to use MLA select financing or even buy a home for themselves to

[00:14:16] live in now I've access to cheaper money because the government of Canada did that so let's give them

[00:14:21] around applause and say thank you thank you for for taking one for the team hopefully there's no

[00:14:26] long-term consequences so the headline says Canada is spending 75% of its planned budget deficit to buy

[00:14:32] mortgage bonds the move will inject additional liquidity into the mortgage market similar to the

[00:14:38] wake quantitative easing did now it's important here to note that this is different than QE because

[00:14:46] this is fiscal policy and so I'll go through this in a second because I'm going to reference

[00:14:51] another article that explains it pretty well but quick refresher on QE one city of easing is a type

[00:14:56] of monetary policy in which the nation central bank tries to increase the liquidity of its financial

[00:14:59] system typically by purchasing long-term government bonds from the nation's largest bank and

[00:15:04] simulating economic growth by encouraging banks to lender and best more freely in doing that it

[00:15:08] was popularized during the 2007 2008 downturn yeah exactly and then it's the opposite of what's

[00:15:16] known as QT quantitative tightening and this is where the central bank reduces assets on its balance

[00:15:22] sheet in a form of monetary tighten that works to keep on top of interest rate hikes and is used

[00:15:30] as a tool to curb inflation yeah exactly and so while the bank of Canada will be in charge of

[00:15:35] executing this policy almost as like a broker they use a different word on their site I'll have to

[00:15:39] pull up the site but they want it to be crystal clear that this isn't QE its fiscal spending so QE

[00:15:45] involves balance sheet expansion is designed to stimulate demand and raise inflation they're not

[00:15:50] expanding their balance sheet they're not taking possession of these bonds the bank of Canada is

[00:15:55] the government of canister policy will only stimulate mortgage demand and therefore apply

[00:15:59] positive pressure to hypothetically inflate home prices is what the article says so if Canada had

[00:16:06] money it would be great news but you know who we're running at a pretty record high deficit and

[00:16:12] we don't have a ton of cash and so you know cheaper mortgages could help to stimulate the economy

[00:16:17] and it seems to be their policy objective here but they're basically potentially stimulating

[00:16:22] more housing demand in the middle of a housing crisis doing what they can to not let the market crash

[00:16:29] the budget deficit was forecasted at 40 billion this year which means that if you do the math

[00:16:35] which Stephen did in this article 75% of the cash that their borrowing will be literally used

[00:16:40] to provide cheaper mortgages so they are functionally going all in on making mortgages cheaper

[00:16:47] in Canada even if it's just ever so slightly so yeah in short though basically borrow money to

[00:16:55] stimulate demand to borrow more money it's like a nice little happy debt policy scheme

[00:17:02] the party the party continues and I guess this is what they mean when they say you know we're

[00:17:07] kicking the can down the road ever so slightly for you know a few bips off of mortgage rates to

[00:17:15] Canadians and Canadian housing from from imploding like yeah pretty much I think I guess the question

[00:17:24] is like is there is this a good idea my guess would be no I think that they caught me probably

[00:17:31] would have self-regulated like I don't know why necessarily we have to do I think maybe they're

[00:17:37] counting on the bond yield curve coming down and then they can capitalize on the spread but who knows

[00:17:43] I don't know I really like it's just this whole thing is very difficult for me to understand and

[00:17:48] feels kind of reckless but so the next piece that the article goes on to say is that they blew

[00:17:53] through 25% of their mortgage bond budget in two months there you go blowing through a budget

[00:17:58] which usually budgets are done on annually so blowing through a budget in two months never a good

[00:18:04] thing so to date the Bank of Canada has participated in two auctions to administer this program there was

[00:18:10] a 3.5 billion dollar purchase of 10-year Canadian mortgage bonds in February and a 4 billion

[00:18:18] dollar purchase of five years that will settle in March a quarter of the budgeted spend has already

[00:18:24] been deployed in the first two months of the program the program it isn't just a silly plan

[00:18:30] where the government is guaranteeing its own liabilities it's also one where the government

[00:18:35] is attempting to hide the true cost of borrowing by distributing interest across taxpayers so since

[00:18:43] credit markets aren't as easily tracked or realistically as easily understood by most of us let's

[00:18:51] say the general population the average person out there it appears that this is just window dressing

[00:18:56] so people don't really have to face and realize the true costs of borrowing or really kind of what

[00:19:05] is actually happening behind the curtain yeah so before I go back to reading some of the other

[00:19:11] stuff in the article like what you're describing is really fascinating from my perspective if you

[00:19:16] look at the timeline which we've been covering on this show so there's an there's an article headline

[00:19:21] in November 2023 which we which we mentioned or sorry this was no there was earlier than that they

[00:19:29] were but anyway so this this article says Canada shelves proposal to eliminate mortgage bond

[00:19:34] program so originally they were going to actually consolidate mortgage bonds into CMB or sorry

[00:19:41] into the GOC five-year bond deal bonds and that was announced in budget 2023 and basically the market

[00:19:48] was like no that's a really bad idea so there's actually a bank of Canada paper on this you can find it

[00:19:55] on on if you're a nerd like me and are interested in this stuff it's called summary of market consultation

[00:20:02] with the proposal to consolidate Canada mortgage bonds and so they were going to basically try and

[00:20:06] roll it in so there weren't two different types of bonds the GOC and the CMB and the idea would be

[00:20:13] like it says here so market participants particularly multi-family mortgage originators also

[00:20:17] emphasize the crucial role of CMB issuance in managing their operational risk especially for

[00:20:22] hedging their exposure to the underlying GOC yield and the CMB spread which is that kind of 50

[00:20:29] edge bips spread that we're talking about where CMBs are a little bit higher than GOC yields

[00:20:34] market market participants stated that in order to provide funding certainty to multi-family

[00:20:40] developers lenders commit funding well in advance typically ranging six to 24 months right and we

[00:20:45] know from working on these MLI select deals that that that's MLI rate is kind of it's not fixed until

[00:20:51] like the very last second right anyway so actually I'll just go on to continue reading it because this

[00:20:56] is good stuff from the bank Canada the process by which lenders utilize CMB issuance as a hedge

[00:21:01] against fluctuation and interest rates during this process was also discussed through the consultation

[00:21:06] the feedback noted that the impact on hedging as mortgage costs would disproportionately impact small

[00:21:10] and medium-sized lenders especially multi-family lenders so I'm glad to see that they walked this decision

[00:21:18] back it's just crazy how far they've walked it back because now that now that like before it was

[00:21:23] like yeah we're gonna get rid of CMBs now it's like actually we're gonna issue 50% more CMBs

[00:21:29] and become the largest buyer of them in the market and it's like wait what what okay all right what

[00:21:35] what you said before yeah so anyway um so the article goes on to say there's much bigger takeaway from

[00:21:43] Canada's relationship with capital markets if there was sufficient demand and this is what

[00:21:47] this is why I feel like when I was talking to Steven I was like this is what I said I'm like doesn't

[00:21:52] isn't this that there's nobody lining up to and I mentioned this earlier in the show I was like

[00:21:56] isn't this mean that we can't find buyers for these for these bonds no it's just me or so good we

[00:22:02] don't want anyone else buying them other than us yeah or or or basically like if you can't find

[00:22:07] buyers then the price would have to go down which means that the yield the rate would have to go up

[00:22:12] and so basically it says yield curve control like if there was in the article says it if there

[00:22:16] was sufficient demand for loony based insurance instruments there would be no need for state

[00:22:20] back liquidity injections this serves as yet another reminder that global instruments in

[00:22:24] Canada are drying up just a few weeks ago the country saw a record outflow of investment capital

[00:22:29] of foreign investment capital foreign direct investment capital yeah and this is from uh BMO

[00:22:34] economic so the T.S.X that's the Toronto stock exchange saw a record sell-off from foreign

[00:22:41] investors the institution warns that this is part of a larger issue of domestic and global

[00:22:47] capital seen few opportunities in Canada and sending their money to work elsewhere

[00:22:55] and Canada's again largest stock market the T.S.X noticeably laid especially when compared to

[00:23:02] the US BMO's research shows that the T.S.X.X climbed just 8.1% in 2023 compared to the

[00:23:12] S&P 500s 24.2% so a third of the growth of the S&P's running like payday lender size returns

[00:23:24] air while the T.S.X. is just a regular bank I guess let's go payday yeah so the article goes on

[00:23:30] to say that this is part of a larger trend of investors abroad pulling back on capital invested

[00:23:35] in the country foreign direct investment or FDI being another glaring red flag and this is one

[00:23:40] that I've been watching carefully because as a lot of people know I'm very fascinated by the China

[00:23:44] Evergrande story and um I don't know did you see the news today just posted a video but I had to

[00:23:49] get on a call but Evergrande now is being accused of 78 billion dollars of valuation fraud

[00:23:55] which makes them the biggest Ponzi scheme in all of history yeah well not a Ponzi but sorry

[00:24:02] not not a Ponzi but the biggest one is the biggest in China make sure yeah

[00:24:07] make a dwarfine aneron world com FTX and even surpassing Bernie made off 68 billion dollar Ponzi

[00:24:14] story that's what that's what I'm referencing here yeah so yeah so it's not a big good financial

[00:24:19] fraud in history no yeah it's not good at all definitely not definitely not things that you hear when

[00:24:24] the global economy is about to collapse anyway foreign direct investment being a glaring red flag

[00:24:32] this is a quote from Douglas Porter chief economist at Bimo combined with the study outflow net

[00:24:37] outflow of FDI this helps explain why the Canadian dollar has struggled over the past year

[00:24:42] indeed the surprise is that it didn't it didn't suffer an even bigger setback so annual data

[00:24:47] isn't available for Canadian FDI yet but the past year wasn't pretty Canadian sent nearly 9 billion

[00:24:52] more abroad than foreign investors sent to Canada and Q3 alone generally not a great sign

[00:24:57] the article says when domestic investors see more opportunities abroad than foreign investors

[00:25:02] seen a country obviously not a good way to get your economy to grow yeah and ironically it's been

[00:25:09] drying up due to lack of growth due to economic stagnation resulting from guess what our economy that

[00:25:17] is almost exclusively well not but let's say largely based on real estate has high debt levels

[00:25:25] and not a lot of opportunities or incentives to start and grow businesses as well as the

[00:25:34] struggles that we've been talking about for a long time and they're a glaringly obvious now

[00:25:38] in the economy especially for young people buying a house paying off debt even starting a family

[00:25:43] has been effective which is why we see a lot of young people starting to at least

[00:25:49] interpreventually migrate to other parts of Canada where the cost of living and just affordability

[00:25:56] in general is a lot more achievable for most people and also many Canadians who are just deciding

[00:26:02] to or of their very least talking about leaving Canada altogether yeah so definitely not not good

[00:26:10] things i mean i think that the reality is like i'm not i'm not like a super bear on Canada i

[00:26:13] mean i actually love this country and i then i want to i would love to see it you know grow and flourish

[00:26:18] and and achieve its you know truest potential highest of best use one might say but this i think

[00:26:25] that there's some some issues definitely happening and a lot of them are like things that we kind

[00:26:30] of just need to see or let like economic Darwinism take place does that make sense like you know

[00:26:36] some survival of the fittest or maybe that's the wrong way that that's too too militant

[00:26:41] the evolution by natural selection you know what i mean i mean we're seeing bankruptcy is hit a

[00:26:46] record not a record high but they're they're on a record trajectory they're not seen since the 90s

[00:26:52] seeper than the 90s but pretty close which like if any of you remember i don't because i was born in

[00:26:58] 1991 but 90 is not a good time for Canada i think it would suck i mean economically on gdp per

[00:27:05] capital basis we're obviously like approaching a lost decade anyway there's a lot of money to be made

[00:27:10] in economies like this by the way but um but yeah a lot of opportunity but the 90s would be a good

[00:27:15] example okay so let's just i'm gonna use this other article here in the hub this one um i just

[00:27:22] have been adding paragraphs to our notes here next so um forgive me but it's written by Nicholas

[00:27:28] Nierry and it says um the government's costly plan to purchase Canada mortgage bonds is deeply misguided

[00:27:34] it says this will lead to a 30 billion dollar annual increase in federal borrowing

[00:27:38] so i'm just gonna read the opening and then um his perspective is pretty well summarized at the

[00:27:44] beginning and also the risk which touches on the idea of a debt ceiling in the us which i know is

[00:27:50] is is a hot button topic down there but not nearly as much so here so later this week this is in

[00:27:56] February the good Canadian federal government will this is the article that i originally sent to

[00:27:59] Stephen Penelope by the way and i was like Stephen what is going on here and then he wrote the article

[00:28:04] that we just did it episode on so later this week the Canadian federal government will through the

[00:28:08] bank of Canada as as an agent purchased 3.75 billion in of 10 year duration Canadian mortgage bonds

[00:28:15] CMBs as in a syndicated transaction at the upcoming CMB purchases the first of all be intended to be

[00:28:21] an ongoing program so they're gonna continue doing this in which the government will purchase half

[00:28:25] of the CMB issuance going forward 30 billion dollars in 2024 alone this is not quantitative easing

[00:28:32] a monetary policy tool in which the central bank purchases term assets by creating reserves

[00:28:36] i mentioned i would reference this earlier for his his description of the difference between monetary

[00:28:41] and fiscal policy rather it is fiscal policy the government plans to expand its general borrowing

[00:28:47] program in order to purchase financial assets so the easiest way to understand this monetary policy

[00:28:52] is typically the central bank bank of Canada fiscal policy is the government of Canada spending

[00:28:57] so the government fiscal policy is typically it's supposed to be like spending on infrastructure

[00:29:01] tax code stuff like that it's not supposed to be these are activities that the bank central banks

[00:29:06] should be doing not the government yeah so the roles are kind of blending now and the the article

[00:29:12] goes on to say that a future government's persist with the purchases at this pace they will eventually

[00:29:19] own half of the Canadian mortgage bond market or about 200 billion dollars in term assets

[00:29:26] the government believe either believes that CMB's Canadian mortgage bonds on their are their own

[00:29:32] obligation and that these purchases sterilized debt or that it is good public policy to expand

[00:29:39] borrowing 30 billion dollars annually about 75% of the federal deficit in order to purchase financial

[00:29:47] assets so CMBs are included in both the reporting of net federal debt and the borrowing authority

[00:29:55] at the Canadian equivalent to the US debt ceiling that Dan was just mentioning the author of this

[00:30:01] article goes on to say that in his view CMBs are not actually federal government liabilities

[00:30:08] this distinction has important consequences if CMBs aren't federal debt then the currently

[00:30:15] planned 30 billion in CMB purchases this year is a significant policy shift and one that is

[00:30:23] possibly deeply misguided Dan what's your what's your thought on that I mean I agree

[00:30:30] I don't think I think that this is this artificial suppression of mortgage rates which

[00:30:35] wall is good for us and what we're you know what we want to do and real estate investing and stuff

[00:30:40] like that I think that there's long-term consequences that I think it's just very myopic or my

[00:30:45] opic I don't know how to say the word but it's a great word where which means short-sighted by

[00:30:49] the way I think it's a short-sighted thing right you're trading you're doing whatever the

[00:30:53] opposite of deferred gradification is you know you're trading economics stability today for long-term

[00:30:59] consequences most notably the easiest way for me to make this clear to everybody listening

[00:31:04] is the long-term consequences that this could very much inflate the housing market and that

[00:31:11] is something that I think I don't think anybody thinks that this is a good idea right like or

[00:31:16] sorry not that that's a good idea I don't think anybody would say yes inflating the housing

[00:31:20] market is a good thing right now for Canada like that's what we need you know no we just we just watch

[00:31:26] it watch it inflate like crazy and now we're experiencing you know some of the air being let out

[00:31:32] of that balloon and look at the pain that it's causing already right the markets that jumped

[00:31:37] a few hundred percent that are now coming down dozens of percent and you know we've seen

[00:31:44] all the horrible losses or maybe we haven't seen but there are horrible losses taking place

[00:31:50] with just everyday Canadians that are losing hundreds of thousands of dollars because of an inflated

[00:31:55] price that is now I don't want to say being disinflated but that is exactly what's happening

[00:32:00] with a lot of this stuff so very very risky moves by by the government playing with the the mortgage

[00:32:08] market like that in the bond market like that yeah so I guess in we'll close off with the replacement

[00:32:17] for you mentioned quantitative easing and we often joke in the Twitter sphere that this is

[00:32:23] human human quantitative easing which is Canada's record population growth and the third highest

[00:32:28] population growth in in the world months after hitting the 40 million mark Canada's population

[00:32:34] is already nearing 41 million people so as a March 18 their country's population is that 40

[00:32:40] million 961 people with a population change of a thousand since midnight based on the rate of these

[00:32:46] changes Canada should reach the 41 million count sometime in April didn't you do some math on this

[00:32:51] like for for was it right that you were talking to about like how much supply would need to be

[00:32:59] is like 500 people a day or something like that it was okay so one sec let me let me try to go pull

[00:33:04] that up so I just made an Instagram video on it because there was that 330 square foot micro apartment

[00:33:11] that uh that they were touting as an affordable place and anyways it was it was a layer of the

[00:33:19] basically if five people if families of five so five person five people in a 227 unit apartment

[00:33:27] which which the government was just launching a bragging about that would account for five hours

[00:33:33] of immigration so you know when when we see this it's it's like okay that's great you know growth is

[00:33:40] great but growing pains what happens with what happens with all these people like the studio apartment

[00:33:47] the 300th every square foot studio apartment is suitable for one person and you know maybe a goldfish

[00:33:53] not even you couldn't even have a dog in there but you've got you know if if 227 unit building

[00:34:01] five people per unit and it's already filled in five hours then someone in the comments is like

[00:34:07] I did a bit of similar math on this it was 291 people an hour for 24 hours for 91 days straight

[00:34:17] so I mean this is crazy because you're in quantitative easing because the predictions yeah well

[00:34:24] I mean and like the predictions for for population growth here aren't slowing down right they're

[00:34:30] saying possibly another million people in the next in the next year and a bit and then we're saying

[00:34:35] getting to 50 million by 2031 uh I see like the I see these um these like line ups for jobs and

[00:34:43] stuff like that and I'm like it's crazy these guys can't all be like want like want and they

[00:34:49] where it has to be getting out where it's like hey don't come here you know you see those videos

[00:34:53] but I guess that there's just still so much demand you know like I mean you think about the

[00:34:57] are the primary populations or say the primary areas that are migrating to Canada the populations

[00:35:04] are so big that like you know it only takes like a fraction of a percent of that country's population

[00:35:10] to want to move to Canada any of these any of these groups you know I mean like historically

[00:35:15] the the largest groups from the Indian subcontinent China and now we're seeing a lot coming in from

[00:35:20] Africa I mean I guess it would just be as like you know a million people coming in from like

[00:35:26] from a population of that size is like one one thousandth of their population right or thinking

[00:35:31] well you know a million people thinking about going there so it's like it's a high magnitude for us

[00:35:35] but it's such a low magnitude for them yeah yeah exactly and I mean look I mean again growth is

[00:35:42] is good we just need to be able to manage that growth and right now we are going through some

[00:35:48] serious growing pains from the jobs and infrastructure housing standpoint pretty much all the things

[00:35:53] that we need to properly support that growth so interesting times for Canada nonetheless and we

[00:36:01] will keep you posted as we always do in these episodes with the latest and greatest news investing

[00:36:09] fundamentals and just what everything else you could hope to hear about real estate in here in Canada

[00:36:16] thanks so much for listening everybody we'll talk to you soon

[00:36:20] The Canadian Real Estate Investor podcast is for entertainment purposes only and it is not

[00:36:26] financial advice Nick Hill is a mortgage agent with premier mortgage center and a partner in the

[00:36:32] GNH mortgage group license number 10317 agent license m21004037 DinoFoSh is a real estate broker licensed

[00:36:44] with rare real estate a member of the Canadian Real Estate Association the Toronto Real Estate Board

[00:36:52] and the Ontario Real Estate Association