As we sit and watch the Bank of Canada do its thing, the loudest conversations I seem to be hearing surround the impact this is having on the housing market.
If you’re a buyer who threw every penny the bank would give you at the prospect of homeownership over the past two-and-a-half years, you’re probably consumed by such chatter yourself; after all, as rates go up, prices come down. We know this.
Lost in these conversations about the home buyers who threw good judgment to the wind and overspent at the offer table, or those who have “irresponsibly” treated their homes like piggy banks, is the quiet reality that it was borrowing against home equity that carried many people, small business owners in particular, through the pandemic.
When consistent and reliable income stopped as a result of multiple rounds of government-mandated lockdowns or furloughs or supply chain disruptions, how many small businesses stayed afloat entirely thanks to borrowing?
Endless have been the discussions on the impact the fast and furious rate hikes will have on the over-leveraged speculators. But what of the entrepreneurs who had no choice but to borrow, borrow, borrow in order to keep the lights on?
The local hair salon that is, by some miracle, still in operation? Its owner is almost certainly up to their eyeballs in debt, invariably having had to take advantage of every government program, every bank offering, every deferred payment option, loan restructuring offer, and beyond. If they had a house, they would have almost certainly borrowed against it. The idea being that if one could only white-knuckle their way through to the other side of the pandemic, business would be back and recovery would begin.
And now here we are.
The thing is, much has been made of Canada’s addiction to cheap debt. We tend to speak disparagingly about how homes are now treated like ATMs, funding trips, cars and renovations that we can’t actually afford.
And yes, it’s true — Canadians have been conditioned to believe in the endless opportunities afforded by investment in homeownership such that comfort with (an alarming level of) debt now goes hand-in-hand for whole generations of young Canadians.
But now that the Bank of Canada has changed tack in the face of out-of-control inflation with interest rates headed up hard and fast with no indication of a pivot in sight, the ramifications will come home to roost and the pain that is to come will be felt more broadly than many seem willing to acknowledge.
And our government? Well, they seem to have identified the reality that their decision to flood the economy with stimulus money in order to sustain our country through a once-in-a-lifetime pandemic was what carried us through. And thank goodness. But now that inflation is roaring as a result, and the voters are growing unruly as their cost of living skyrockets, the Feds’ solution seems to be to throw more money at the problem. Which should be as infuriating as it is baffling.
We either care about conquering inflation or we don’t.
We are either committed to driving it down or we are not.
But unveiling a whole host of relief spending, including one-time $500 rent relief and tax rebates that economists agree can only be inflationary, while simultaneously grinding down other sectors of our economy through the intentional pain of rate hikes is bizarre.
So when we hear the Bank of Canada refer to the pain that our economy will have to withstand to get things under control, it might be valuable to remember that it was this government’s policies that got us here in the first place, and their commitment to using the same playbook is what will keep us here.
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