To raise or not to raise interest rates, that is the question.

INTEREST RATES. To raise or not to raise, that is the question.
 
Over the last couple weeks there have been news articles on whether the feds are going to increase interest rates. Now that the housing market has taken off again we may see another rate increase. Tiff Macklem, the Governor of the Bank of Canada, has frequently stated that there could be another rate increase and I would not be surprised if there was. Questioning whether he will raise or not raise the rates makes me think about being back in high school reading Hamlet. “To be, or not to be”, the question Hamlet asks himself as he contemplates death, weighing the pain and unfairness of life against the alternative, which might be worse.  
Inflation or kill housing.

Tiff Macklem is playing the role of Hamlet now, questioning whether to raise or not to raise. In this case he’s contemplating the death of the housing market, weighing the pain of inflation against the alternative of raising rates, which would definitely be worse. 

Unfortunately these rate increases not only affect Canadians that are looking to buy real estate (first time home buyers, move up buyers or simply wanting to renew their mortgage) but also renters. Canada plans to open the door to 1.45 million people over the next three years  and they will all need a place to live. There is an obvious demand for housing and there are builders out there that want to build but are faced with a high borrowing cost and the risk of it being even higher. As it stands right now the prime rate is 6.70% and a typical builders loan is prime + 2, putting them at 8.70% which has already slowied things down. The government really needs to think about this because the factors creating inflation can’t be stalled by raising rates seeing as the main factors driving inflation are external forces outside of Canada.

The cost of housing itself is causing the cost of housing to go up. If you raise interest rates it will only discourage development, further restricting supply further driving the price up. Add in immigration and all they will have done is created the perfect storm for a housing crisis. If the government really wants to create more affordable housing it needs to remain attainable for all. If the rates do go up there will be a major housing shortage, especially in places like Vancouver or Toronto where most of these people will want to live.