In my last article I made it known that I was of the opinion that lending guidelines should be static – and not change with the wind (you can read that article here Are Lending Changes Bad for the Housing Market?). I finished off my last article with this note:
You may be saying, “Well, the economy was hot for a while and it is better to have the looser guidelines and have higher movement for a while than not at all.”
Then I asked you to read this current article to see why the above question harbours an incorrect theory. Well, here it is:
Do you remember the NEP (National Energy Program)? Our friend, Pierre Elliot Trudeau introduced that for us. The long and short of the NEP is this: Trudeau believed that the oil-rich Alberta had too much money. So, Trudeau decided that it was time to share the wealth and reduced the amount of money that the rest of the provinces would pay for oil from Alberta (this was significantly below market price). It is estimated that the NEP cost Alberta approx. $99 billion. Anyway – the purpose of this article is not to express opinion over who actually owns the oil, but rather, it is to determine the effects of the NEP. The reason why the NEP was so toxic was because it was taking away something that had once been Alberta’s – everyone in Alberta was living based on the rest of Canada paying full price for our barrells of oil. The moral of the story is this: if you must scale back, do so – but don’t increase/broaden the policies, then take it away later (that’s just teasing us).
So, should Trudeau have instituted the NEP? Maybe not, but the NEP was based on principle, if he had increased Alberta’s income, then taken it away – that would have been criminal (similar to what the government is doing to the market today).
Anyway, I still haven’t addressed the issue at hand, which was – is it better to make hay while the sun shines (even if there are sunny patches) or is it better to make hay slower, with an overall consistency in the illumination from above. My opinion: the latter is the way to go (it gives the market more certainty and, I would guess, that it would result in more sales overall than loosening and tightening guideliness). I think it would result in more overall sales because people know what to base the economy on – if the guidelines are being thrown around all the time, eventually the government’s loosening of guidelines are seen as so temporary that it is ineffective.
Trevor Hickey, B.A.
Concord Mortgage Group Ltd.
#107 – 1905 Centre Street NW
Bus: (403) 290-1990
Cell: (403) 860-8738
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