What happens if gov’t payments end this summer?

What happens if gov’t payments end this summer?

In December, the Canadian government rolled out the biggest economic relief package since World War II to help restore the country’s economy as it emerges from the worst of the COVID-19 pandemic. 

Even before this second stimulus package, many media outlets were comparing Canada’s aggressive economic response to the lackluster approach taken by leaders in the US in 2020. I fully believe that if Canada had never sent out those $2,000-a-month stimulus payments, it would have been bad for all of us. Many Canadians used government money to pay their mortgage. That’s a significant economic benefit, and it was the right thing to do. 

We are a wealthy nation and we can afford to do what we’ve done to stave off the worst economic damage of the pandemic. In the end, I think Prime Minister Justin Trudeau made the right call. 

As far back as summer 2020, reporting on the stimulus’ impact showed that the Canadian housing market would avoid “extreme stress” as a direct result of that government aid. 

But these measures come at a price. We don’t yet know how big that price tag is going to be, but we’re probably going to find out this year. 

Even with this new $100-billion stimulus plan, Canadian stimulus checks are slated to end in June. Clearly, national leaders are betting that the economy will have reopened enough by this summer that Canadians who lost their jobs will once again be able to take care of themselves. 

But what happens if the economic recovery is slower than they hope? I’m not sure I see the economy rebounding in June as quickly as the government thinks it will. 

Even though many economists have said the US government’s limited economic response did more harm than good for the country’s economy, I see it as a positive sign that many individual US states are already beginning to reopen their economies. 

That’s happening in Texas, Arizona and Florida, among others. I think they’re using a little bit of common sense. They know it’s time to start getting back to normal. Here in Canada, most of us still can’t go to a restaurant for dinner. 

If the economy doesn’t start reopening soon, I worry that many people will still lack consistent income when those government payments end, and that doesn’t bode well for the economy at large. 

By June, if the economy hasn’t picked up and the economic benefits stop, there could be turbulence in the market. The result of that will be interest rates going up. How quickly they go up and by how much — we don’t know. 

In my business of multi-residential Toronto real estate, I think it’s the right time to take advantage of low interest rates. You’re able to enter the market at this point. 

The rate right now is around 2 percent for a five-year term and about 2.5 percent for a 10-year term. 

In the US, the bond yields have already gone up, and I think we could see the same trend in Canada later this year. 

As it relates to my business, any buyers or investors out there will want to try and solidify an acquisition now and lock in a 10-year term. In other words, get in now while the getting’s good.

In the event of the rate going up, which it likely will, you now have a property that’s more attractive because you have a steady interest rate. 

This environment is so volatile, and I don’t have a crystal ball. But I do think those of us in multi-residential real estate should be thinking long-term and preparing for the future.