By Ivan Morgan
October 13, 2023 Edition
Halloween is coming up and there’s anticipation in the air. Kids and adults get all excited and cook up costumes and scary scenarios. People decorate their homes with ghosts and carved pumpkins. Halloween isn’t about being scared, it’s about dealing with scary stuff in a fun and safe way. It’s all in good fun, not really scary at all.
You want scary? I’ll give you scary. This is one for the young parents who are decorating their home with ghosts, hobgoblins and the like. A cautionary tale for folks hoping to buy a house to call their own, or to keep living in the one they have. Take a break from Halloween merriment for this sobering tale.
In 1990, my then wife and I bought a house. I remember us sitting in our car outside the bank hugging and fighting back tears of joy because we had convinced the bank manager (an old guy like I am now) to let us lock in our mortgage on a fixed five-year interest rate of 12 and a half percent. He told us he was cutting us a break. We couldn’t believe our luck!
You don’t need to be an economist to understand at those rates many of the houses in the subdivisions on the Northeast Avalon will be empty.
I recently read of a young couple who were telling a journalist they faced losing their home because their rates had been raised to 6 percent.
We were far from the only folks in my generation to face this. I know people who had to renew their mortgage during that time and were forced to sign on for 22 percent. That’s like buying a house with a credit card. I have heard tales of folks who went hungry and cold to meet those monthly payments and save their homes.
Right now, there is a lot of media coverage of our housing crisis. For many of us it’s an issue affecting other people. It’s serious and with winter coming it must be addressed.
As interest rates are raised by the Bank of Canada, and the commercial banks raise theirs, mortgages get more expensive. That housing crisis could creep closer to (excuse the ironic reference) home for a lot of people. Can’t happen? This old geezer begs to differ.
I used to work for people who claimed housing was a basic human right. I am not going to debate that point but I think we can all agree it’s pretty darned important.
Like many I am currently paying a mortgage locked in at a low rate. Like many I worry about what happens when we have to go back to the bank cap in hand. How much more will we have to pay? Most can’t go to their employer and ask for more money. Retired folks haven’t the wiggle room to pony up a few more hundred a month. Many could be caught in the squeeze.
I will not bore you with the details of monetary or fiscal policy, how the banks use interest rates to control inflation, or “cool off the economy.” You can google all that if you are curious. I am more interested in the human impact of bank policy.
The policy of banks raising the rates to “help” the economy is an old one; one they have been doing for decades. Tried and true, they say. Does that mean they should keep doing it? Where are the new solutions for the new economic challenges we are facing? Back in my day, in the early days of computerized finances, before social media, raising interest rates was a crude (effective?) policy. The world has changed since then, but not, it would appear, bank policy. Surely in the decades since we were gouged for wanting to have a home for ourselves some better ideas have come along.
Like so many other things these days, I don’t see leadership. Where are the new ideas? Where is the pushback? Should home ownership be protected? Should mortgages be rethought? Should we have a look at bank profits? The problem with Canadian banks is the golden rule: those with the gold make the rules. In the long run, did my paying 12 and a half percent interest help the country?
Good and scared now? On Halloween night that cold wind you feel chilling your bones? That could be future bank policy.
Ivan Morgan can be reached at email@example.com