01 Why did this round of inflation start and how to subside?

In November 2021, after saying that inflation was temporary for half a year, the Federal Reserve finally admitted that inflation was really coming, not temporary, and needed to be controlled by raising interest rates. The real start of interest rate increases was the first 0.25% increase on March 17, 2022, the 0.5% increase on May 5, and the 0.75% increase on June 15. The Fed's sluggish action allowed inflation to spread to more goods and services.

As of the end of June 2022, when this article was published, The causes of this round of inflation are summarized as Five major factors: 1. Supply chain disruption caused by the epidemic; 2. Monetary easing policy; 3. Fiscal relief and stimulus; 4. Geopolitics; 5. Energy price and structure. The central bank's interest rate hikes and balance sheet reduction can actually change only the second factor - monetary easing. But central banks can cause recessions through monetary tightening, which in turn affects factors one and five - supply chains and energy prices. The central bank remains powerless against the third and fourth factors, geopolitics and fiscal rescue policies.

The blockade during the epidemic is gradually being lifted, and supply chain issues are no longer a problem. But countries have not repaired their original supply chains. Before the epidemic, imports from country A were changed to imports from country B. The cost may have increased and the path may have been more tortuous, but there was no way. When Trump launched the trade policy, countries were not very enthusiastic about it. Now it is discovered that Trump’s trade policy is correct due to security considerations, so a large-scale supply chain reconstruction work has begun. This inflationary factor will be eliminated first, but it will still take time.

If we say that this round of inflation started with monetary easing policy, we are actually wronging the central bank. As in the subprime mortgage crisis, both the Federal Reserve and the Bank of Canada adopted quantitative easing policies when the crisis occurred, that is, purchasing bonds from the bond market to release base money. This operation is called QE. However, the quantitative easing policy during the subprime mortgage crisis did not cause inflation. The main culprit causing this round of inflation is fiscal relief and stimulus.If we open any economics textbook, we will find that the functions of the central bank include: the central bank is a bank for commercial banks, and the central bank is a bank for the government. After the subprime mortgage crisis, the government did not borrow money from the central bank to distribute to bankrupt households. During the epidemic, the government borrowed money from the central bank to distribute epidemic subsidies. This operation is called modern monetary theory (MMT). We have seen that countries that did not provide financial assistance during the epidemic have no inflation now. Everyone can guess which countries they are. When the central bank borrows money from commercial banks, the commercial banks will lend money to qualified borrowers, such as mortgage applicants, according to their own standards. They will not lend money to families who have no ability to repay, nor will they lend money to families in need of relief for free. Therefore, commercial banks have never been a driver of inflation, but loans from commercial banks will indeed push up asset prices, for example, housing prices. The central bank has three ways to introduce base currency: 1. Purchase assets from the capital market, bond or stock market and put base currency at the same time; 2. Lend money to the government; 3. Lend money to commercial banks. The money put into the capital market basically flows back into the capital market, pushing up the stock price. The money put into commercial banks pushes up the prices of means of production, so we see the PPI index rise, and it also flows into the real estate market, pushing up housing prices. Money given to the government was transferred to households receiving assistance, pushing up the consumer price index (CPI). For the U.S. dollar, if the Fed only conducts QE, it will only push up asset prices and further widen the gap between the rich and the poor. At the same time, the excess U.S. dollars will flow back to the U.S. Treasury market through international trade, further promoting the prosperity of world trade and the U.S. capital market. But if the Fed participates in MMT and gives money to the government for assistance, it will only benefit the families being rescued. And these families who are being rescued have a particularly large consumption margin. If they receive 100 dollars, they will consume 99 dollars, and inflation will rise. The main mistake of the central bank in this round of inflation was not to raise interest rates in time. It should have raised interest rates when the PPI rose and had not yet been transmitted to the CPI to suppress the PPI and prevent the spread of the CPI rise.

Geopolitical issues are something most people don’t expect. In June last year, veteran investor Jim Rogers published a new book, "The Age of Crisis." In the book, he predicted that countries that may have geopolitical conflicts are enjoying peace and development. He believes that countries whose leaders are calm and decisive and have investment value in the future launched an aggressive war on Valentine's Day in 2022 and are still fighting it. I see no central bank in any country, no matter how they raise interest rates, they can't resolve this senseless geopolitical conflict.

Oil is the most urgently needed commodity besides water and air. It affects both production and consumption, PPI and CPI. During the post-epidemic economic recovery period, oil prices naturally rebounded, but when geopolitical conflicts continue to hover at high levels, oil prices have seriously affected the prices of all commodities. Throughout the history of oil prices, the era of OPEC monopoly on prices has long ended, and oil prices ultimately depend on supply and demand. On the supply side, the highest oil production cost is Arctic oil production at 80 dollars, followed by offshore oil production at 70 dollars, and shale oil and oil sands oil production at 50 dollars. When the oil price is below 80 dollars, the supply of oil in the Arctic Circle will stop. When the oil price is below 70 dollars, more oil extraction activities will stop. If the oil price remains above 100 dollars for a long time, oil wells all over the world will be producing oil, and the oil price will come down sooner or later. Oil prices will eventually escape the influence of geopolitics, it’s just a matter of time. From the demand side, if interest rates continue to rise, demand will be suppressed, and companies will expect difficulty in selling the goods they produce, so they will reduce purchases and inventories. The current corporate procurement situation in the United States is very sluggish, and the purchasing managers index PMI has dropped to a new low in 23 months. At the same time, retail companies Walmart and Target are also desperately destocking stocks. In this case, production companies will not increase horsepower production, so the consumption of energy and raw materials will also be reduced, and the demand for oil will be reduced. Oil is facing increasing supply and shrinking demand, making it difficult for oil prices to remain high for a long time. When it comes to the issue of energy structure, this is a difficult proposition because there are too many differences. The Green Left is very radical and imposes a carbon tax, even when energy prices are so high. Investors represented by Buffett do not buy it, as evidenced by Berkshire's massive purchases of oil company stocks in the past two years. The biggest differences between the Democratic Party and the Republican Party in the United States and the Liberal Party and the Conservative Party in Canada are the issues of energy and environmental protection. Between the back-and-forth and nonsense, the time for the people to suffer from high-priced energy will be prolonged, and environmental protection may not necessarily achieve any results.

The persistently high CPI is the ultimate manifestation of economic illness caused by wrong policies. It is difficult for the central bank to raise interest rates to curb demand quickly. Canadian residents currently have savings of 330 billion, and demand is very strong. In addition, after the epidemic, the marginal benefit of eating, drinking and having fun is very large, and people will not take into account the marginal cost at all. Just like a person who has been hungry for three days, it is unstoppable to eat the first steamed bun. There's been a spending spree this summer that won't subside until Christmas.

To sum up, I personally believe that the current round of inflation originating in the United States will peak from September to December this year. Inflation will begin to fall next year, but it may not necessarily return to the 2% inflation level. The inflation rate above 3% will become the norm and remain for a long time. Note that this prediction is a conjecture based on the economic soft landing promised by Teacher Bao. During this period, if an economic crisis or financial crisis breaks out in Japan and Europe, the rhythm will be disrupted and inflation will last longer, because every crisis is solved by cutting interest rates, and once interest rates are cut, inflation will revive.

What our generation is facing is not the problem of interest rates, but the problem of inflation. Many people ask when this round of interest rate hikes will end. When inflation peaks, it is the end of interest rate hikes. Inflation has come out of Pandora's box, and it will be difficult for the central bank to put it back on its own. There has only been one successful experience in suppressing inflation by raising interest rates, and that was the time Paul Volcker succeeded in the early 1980s. But this success did not come from raising interest rates, but from the economic recession and high unemployment rate caused by the interest rate hikes. The situation in Canada is more troublesome. In the current situation of inflation, the Ministry of Finance has provided another 9 billion in economic assistance to help low-income families fight inflation. This is to save money to put out the fire, adding fuel to the inflation fire, so inflation in Canada is more difficult to control than in the United States, unless the Canadian government reduces spending and aid.

02 The issue of interest rate trends is a fatal question

Regarding the trend of interest rates, in the past two years, only those who predicted that interest rates would be raised all day long were right. The suspension clock met the right time. Anyone who predicted interest rates based on economic data and trends was slapped in the face. Just like the five factors of inflation summarized above, they are all reasonable in hindsight, but no one can see them beforehand. Therefore, the following analysis of interest rate trends is only a logical deduction among tens of thousands of interest rate trends. It does not represent real and reliable interest rate trends and is only for everyone to exercise their brain power.

The interest rate map is very complicated and it is difficult to draw it clearly. I will try my best to draw it so that everyone can understand it. Current interest rates are divided into policy interest rates and market interest rates. Canada central bank overnight interest rate 1.5%, and may rise to 2.25% by July 13th. This is obviously not determined by the relationship between capital supply and demand, but by the central bank's desire to intervene in the economy with a visible hand. This interest rate is policy-oriented, so it is a policy interest rate. The P of commercial banks is now 3.7%. This interest rate is Best unsecured loan ratesIn China, this interest rate is called the LRP loan prime rate. That is, if you have a business and want to apply for a working capital loan without any collateral, and you borrow money from the bank based on your face, the bank can give you the best interest rate, that is, the interest rate that the borrower with the most valuable face will get. If you are applying for a mortgage and using your house as collateral, the interest rate can be favorable, with P reduced by 0.5%. This is the current pricing principle for Canadian mortgage floating interest rates. Commercial banks determine different interest rates based on the borrower's risk profile. This interest rate is the market interest rate. The market interest rate is usually determined by the risk-free rate plus risk compensation. The risk-free interest rate is Treasury bond interest rate . Everyone has their own liquidity preference, and 100 dollars today is more popular than 100 dollars a year from now. Someone asks you to borrow 100 dollars today and will pay it back to you one year later. You will not be able to use the 100 dollars today, so you need to compensate. When you ask for return, you must repay not only the principal of 100 dollars but also the interest. If the person who borrows money from you is a country, you know that it will definitely be returned. The interest rate you ask for is the risk-free interest rate, that is, the national debt interest rate. This interest rate reflects the cost of the 100 dollars in one year. We call it " time cost ". If the borrower is not the country, but your neighbor, then the interest rate you require is the market interest rate. market interest rate = "time cost" + "risk cost" , so the market interest rate must be higher than the government bond interest rate. Currently, the Canadian 5-year Treasury bond yield is 3.25%, so your 5-year mortgage interest rate is as high as 5.3%. This is the pricing principle of the mortgage fixed interest rate.

Judging from the above-mentioned minimalist interest rate map, the pricing basis and principles of floating interest rates and fixed interest rates for mortgage loans are different. Therefore, if you sign a five-year loan contract with the bank, the interest rates obtained are very different.

Okay, the interest rate road map is finished, now we enter the fatal stage of interest rate forecasting. How is the Treasury bond yield, also known as the Treasury bond interest rate, determined? Is it a policy interest rate or a market interest rate? The answer is a mixed policy plus market interest rate, which is neither a pure policy rate nor a pure market rate. The central bank can control the interest rate of government bonds. For example, QE is a control method. The interest rate of government bonds under the control of the central bank is the policy interest rate. When the central bank does not control it, it is the market interest rate. During QE, the central bank purchased second-hand treasury bonds at high prices to make those who owned treasury bonds rich. These people were wealthy people or large companies, and their marginal propensity to consume was very low. They spent 2 dollars of the 120 dollars they got from selling bonds, and used 118 dollars to invest. So when there was only QE, although there was more money, there was no inflation, and it just pushed up asset prices. When the central bank buys a second-hand bond with a face value of 100 dollars, it pays 120 dollars, otherwise it cannot be purchased. The coupon rate of this bond is 2%, but in the hands of the central bank, the actual interest rate becomes 1.6%, so QE leads to a decrease in bond yields. According to the interest rate map just now, the fixed interest rate for the mortgage loan we obtained has also been reduced. Now that the central bank has stopped QE, the largest buyer in the market has fled, and the bond market has returned to a state of free market trading. People who have bonds in their hands are seeing inflation reaching 7.7%, and the yield on their government bonds is only 2%, which is a huge loss, so they are selling bonds one after another. The coupon rate of a 100 dollars bond is 2%. No one bought it at the original price, so they sold it at a reduced price. The one bought for 100 dollars was sold for 62 dollars. The bond market plummeted, yields soared, and mortgage fixed rates soared. If the government issues new bonds at this time, the coupon rate must be 3.25% to sell them. But the current bond market is in a depression, and it is difficult to sell the MBS issued by Fannie and Freddie in the United States. Due to the indiscriminate intervention of the central bank, the bond market has fluctuated significantly. The original function of the central bank is to stabilize the economy, but it has made the financial and economic situation even more unstable. In the words of Hayek, the road to hell is paved with good intentions. So does a country's national debt have a value center? It can't be left to the central bank and the market, right? What we see is the price of government bonds, and government bonds are the center of value. The value of a Treasury bond is made up of two components: GDP growth rate + inflation rate.Yes, you read that right, TMD is the inflation rate. This value center can be seen when we compare the treasury bond yields of different countries. When we compare the treasury bond yields of the same country in different periods, we can also derive the value center formula. This verification work is left to the readers. Regarding the prediction of mortgage fixed interest rates, it is actually very clear that when inflation subsides in Canada and the United States, the risk-free interest rate and the government bond interest rate will fall back. Therefore, it is not a good time to choose a fixed interest rate. This advice is for real estate investors, not for families who buy and own homes. Even if real estate investors prefer fixed interest rates, it is best to choose One-year fixed interest rate should not exceed 2 years. Using the elimination method, it is continued to be recommended that real estate investors choose floating interest rates.

03 It’s all Brother Cui’s fault

Some real estate investors accidentally make friends, or have no choice. When applying for floating rate loans, they choose banks whose monthly payments will increase whenever interest rates are raised. Such banks account for 2/6 of Canada's major commercial banks. The monthly payments of floating rate loans of the other four banks will remain unchanged after interest rate increases. These four banks are: TD, RBD, CIBC, BMO, and HSBC. The loan contracts of these four banks will indicate a trigger rate interest rate, that is, if the interest rate increases and exceeds this interest rate, "negative amortization" will occur. What we have seen is that basically no lawyer explains what the trigger rate is and what negative amortization is when explaining the contract to the borrower. In Ontario, when a loan is handed over, the loan contract is explained by the lawyer, not the bank. These uncommon words should be interpreted by the lawyer. Of course, if interest rates hadn't been raised so sharply, no one would have dug out their contracts and couldn't understand them. The financial and business group discussed it for two consecutive days before I noticed this problem, so I started to help the lawyers perform their duties. After I finished speaking by voice in the group, many people held down the voice button and insisted on translating it into text. The translated text was very funny, and the trigger became Brother Cui.

I will tell you a fictitious case here. You can go back to your contract, your lawyer, and your lending bank for interpretation. The examples I gave are only to help everyone understand. Please do not make any assumptions, and they cannot replace a lawyer's explanation. Jack signed a five-year floating-rate contract in May 2021, with a loan of 500,000 and an interest rate of P-0.85%. P at the time was 2.25%. Jack's contract interest rate was 1.4%, the repayment period was 30 years, and the monthly payment was 1,900. It is stated in the contract that Brother Cui’s interest rate is 4.1%. After meeting Brother Cui, he started to pay back the interest. That is to say, when P rises to 4.95%, minus 0.85%, Jack will meet Brother Cui. At this time, Jack's monthly payment of 1,900 dollars is all interest and no principal. When the interest rate continues to rise to 4.2%, since the interest generated by 4.2% is 1920, which exceeds 1900, then 20 dollars will be added to the principal. When the interest continues to be added back to the principal, causing the principal to rise to 525,000, that is, when the principal exceeds 5% of the initial principal, the bank will issue a critical illness notice and invite you to go to the bank to accelerate the repayment of the principal or increase the monthly payment. This is the first situation where the borrower is required to increase the monthly payment, which should be considered a margin call in real estate investment. In the financial and business group, everyone mainly discusses how to find their own Brother Cui, and how to see Brother Cui later, and it is better not to meet him if possible. Brother Cui is easy to find. Divide your current monthly payment by your principal, times 12 is Brother Cui . If you don't want to see Brother Cui, you need to increase Brother Cui's value. From the formula, you can increase Brother Cui's value by accelerating the repayment of the principal. People ask me whether I should take the initiative to accelerate the repayment. I believe that accelerating the principal repayment of an investment property is an additional down payment, which will reduce the leverage ratio. Whether to accelerate the repayment in advance requires family members to reach a consensus.

A group friend said that his loan repayment period has been automatically extended to 38 years, and he was worried that the bank would require double the monthly payment when he met Brother Cui. This automatically extended repayment period is actually just a warning and has no practical effect. It only means that the bank will tolerate you paying off the loan in 38 years. With inflation so high, it is a good thing to use depreciated money to repay the loan in 38 years. There is nothing to worry about.

Another situation where you may be required to increase your monthly payment is when you renew your contract. Jack's loan contract is a 5-year contract, expiring in May 2026, and the repayment period is 30 years, that is, the loan will be paid off in May 2051. When it is renewed, the bank will recalculate the monthly payment based on the interest rate at maturity, the loan balance and the 25-year repayment period to ensure that the repayment time reflected in the renewed contract is still the loan repayment in May 2051.

Floating interest rates have dropped to very low levels since March 2020. At the lowest point, with a repayment period of 30 years, the monthly payment was as low as 360 dollars for every 100,000 dollars borrowed. My advice to real estate investors in the past two years has been to choose a floating interest rate, which can lock the monthly payment at the lowest state. Unless the above two situations occur where the monthly payment is required to be increased, it can basically guarantee a low monthly payment during the five-year contract period of the floating interest rate. This is not only conducive to cash flow management, but also conducive to applying for more investment mortgages. As interest rates rise, the proportion of interest payments in monthly payments increases significantly, and interest payments can be used as investment costs for tax deduction, and the tax bureau will bear part of the losses caused by the central bank to investors. During the epidemic, real estate investors who obtained loans from alternative financial institutions were not so lucky. Some investors bypassed big banks and obtained loans from alternative financial institutions that were more than 6 times their annual income. When the interest rates of major banks were 1.5%, the interest rates obtained from alternative financial institutions were 3.5%. They felt very proud. Someone showed it to me online, so I knew that such a group of people existed. These alternative lending institutions are not vegetarians. The loan contracts they provide are very short-term, mostly between 1 and 2 years. After expiration, the interest rate and monthly payment are reset. If the interest rate rises to 8% when the contract is renewed, the monthly payment will be doubled, and the rental return rate in most areas is usually 4% to 8%. If the loan interest rate exceeds the rental return rate, the leverage in the hands of real estate investors becomes negative leverage, and they will lose money to work for tenants. Among the properties currently on the market that are urgently sold, there are a group of speculative investors. They did not expect that they would have to pay back a year later if they came out to fool around.

Friends who have figured out what is going on with Brother Cui, put your heart back in your stomach and do whatever you need to do.

04 Inflation is high and interest rates are rising. Should you continue to buy?

In April, a group of housing hacks, trolls and trolls suddenly appeared on the Internet overnight, shouting that house prices would drop by 30%, whoever buys a house is a fool, and anyone who deceives others into buying a house is either stupid or bad. In fact, it is these people who are both stupid and bad. When interest rates are low, these are the same people who say they can’t buy a house when house prices rise; when interest rates are high, and house prices fall, it’s still the same people who pierce their own shields with their own spears every day. This situation is exactly the same as when interest rates and stress tests were raised in 2018. There is a family of real estate investors. Only one of the couple works. They are a single-income family. In 2018, their income was 100,000, and they bought a townhouse as an investment property. The price of a townhouse at that time was 700,000, but now it has increased to 1.3 million. During the epidemic, they mortgaged two additional investment properties, and recently bought a CONDO investment property. Their current income is only 110,000. They are not the only families who do not believe in evil and have been buying and selling, but their situation is so successful. The investment house they just bought is the ninth property, far away from the housing gangs and gangsters. After the release of housing price data in April and May, the number of this group of people has dropped exponentially, but the most capable people are still persisting. They have no common sense at all. The lowest point in housing prices after the subprime mortgage crisis in the United States was only 27% lower than before the subprime mortgage crisis. If you want to make Canadian housing prices fall by 30%, relying on such a few black guns and throwing a few stones in the shadows will be completely ineffective. After April 20 in 2017, house prices in most areas fell, setting a world record of an 18% drop in three months. People have learned their lesson. The second half of 2017 and the whole year of 2018 are the best buying points, so it is difficult to see the history after April 20 in 2017 repeat itself this year.

What exactly is real estate investment? Suppose there are 100 families in Canada, and a developer builds an apartment building with 100 units. The residents are divided into three groups: Group A, the strong group; Group B, the loyal group; and Group C, the weak group. Group C has just immigrated or just started a family, and has no down payment and no job, so they can only rent a house; Group B is an old immigrant who has a down payment and a job, but can only afford one home; Group A has the strongest ability and can buy one home to live in, as well as one more to rent out. The homeownership rate in Canada is 68%, that is, the number of people in Group A plus Group B is 68 families, and the number of people in Group C is 32 families. Please listen to the question: How many families are there in Group A? Can you figure it out? I can't calculate it, I can only give a rough range, below 32%, about 20 families or less, and they bought a total of 32 investment units. The fewer families in Group A, the more investment properties some families hold. Can anyone tell what the house price is? I know the answer to this question. House prices are determined by the income of the family ranked 68th in financial ability, so house prices have nothing to do with the remaining 32 families who rent. If these 32 families go online to blacklist real estate, Group A families can rest assured that they will have a stable group of tenants. Group B, the loyal group, can enter Group A, the strong group, through unremitting buying and buying; Group C, the weak group, can also enter Group B, the loyal group through its own ability. This process is determined by your own efforts and abilities. What I see is that more and more families in Group B are working toward Group A, and some families in Group A are holding more and more properties. Those born in the 1970s and those who have been in Canada for more than 10 years and are still in Group C can give up their efforts and settle down.

In terms of numbers, Group A families are the smallest, but they are the most honest in paying taxes and well versed in financial matters. They are also the most jealous group, and are the targets of trolls and house hacks. After years of practice, Group A families have developed an immunity to the salesperson’s babble. They hold real estate for a long time, only buy but not sell. Even if they sell the house, they buy it back immediately. They do not touch the unfinished property because the opportunity cost is too high. The down payment is locked up for 7 or 8 years with no return on investment. In addition, adding a mortgage makes the investment opportunity cost of the pre-construction property become an opportunity cost with a compound interest effect, so the price is too high. What I see is that the number of new families joining Group A is not large, and the total number of families is growing very slowly, but the net assets of families that have already joined Group A are growing very fast, and each family is holding more and more properties. The trolls in Group C actually don’t affect the people in Group A. They may affect the people in Group B who don’t have financial intelligence. But I think it’s more about the people in Group C agreeing with each other. This actually has no impact on housing prices.

Someone recently wrote an article on CBC, Canada is hooked on real estate. It needs a detox. "Canada is heavily dependent on real estate and needs to be detoxed," which pointedly pointed out that Canada's economy is overly dependent on real estate and has neglected the development of other industries. Indeed. Commercial banks have money and look for borrowers all day long. My job is to help our bank find loan applicants. It is difficult for an entrepreneur to obtain a low-interest loan from a commercial bank in Canada, but it is much easier to apply for a low-interest mortgage loan. This incentive mechanism set up by banks makes people very keen to deposit their income in real estate. Canadians have little savings, but have a huge amount of net housing equity assets. Canadian real estate has lived up to expectations, playing the role of the U.S. stock market, balancing the lifetime income of Canadians, and serving as the most important stabilizer and reservoir. This article makes a good point. Just like accusing Americans of betting too much on the stock market, accusing Canada of betting too much on real estate has no practical meaning. Canada is a country that relies on new immigrants. The only economic policy proposition mentioned in Trudeau's autobiography is to embrace new immigrants. His view is that economic policy is immigration policy. If the immigration policy remains unwavering, Canada's economy will remain prosperous. We know from the flow of the central bank's base currency that the money printed by the central bank flows to the capital market, real estate, and the real economy at the same time. Canada's capital market is too small to absorb much currency. The real economy relies on the United States. It would be good if 40% of the money printed by the Bank of Canada flows into the real economy, because only 50% of the money printed by the Federal Reserve flows into the real economy. The largest reservoir of currency flooding in Canada is real estate, because the value of real estate accounts for 76% of Canada's total assets. When we, the first generation of new immigrants, come to Canada, do we want to change the status quo, or do we want to adapt to the status quo? Every family has their own choice. Choosing a family that adapts to the environment does not require voting. You only need to keep buying and buying. Buying properties around the clock can improve your financial security.

Inflation is so high and interest rates are rising so fast. Do you know how the major banks predict the trend of housing prices? Two banks predict that house prices will fall, one bank predicts that house prices will remain the same as last year, and two banks predict that house prices will still rise. Canada's immigration policy has not changed, with 500,000 new immigrants every year; Canada's new housing supply situation has not improved, but has worsened. Many planned investment and construction of apartment projects specifically for rental have been canceled because the loan interest rate is too high. The constant influx of new immigrants will join the competition for second-hand housing, and if they cannot buy it, they will have to rent it. Buying a house is never a necessity. People who say it is a necessity are trying to trick you into buying a house. Renting is the only necessity. If you can't rent a house, you have to live in a hotel or a shelter because there are not enough basements in Toronto. Rents for apartments in downtown Toronto have skyrocketed, with rent increases of 20% in half a year becoming increasingly common, whereas normal rent increases previously only increased by an average of 4% per year. House prices are composed of two parts: residential value and investment premium expectations. Use rent as cash flow and divide it by a certain discount rate to get the residential value of the house. As rent increases, house prices will increase. At the same time, the investment value and certainty of investment returns in Canadian real estate have become more widely recognized by Canadians after the test of the epidemic. Canada’s housing prices can not only resist inflation, but also resist the epidemic and excessive currency issuance. People even think that investing in Canadian real estate is more reliable than investing in U.S. stocks, so the investment premium is expected to be higher. When inflation peaks, house prices will generally rise regardless of interest rates. At the same time, it will be accompanied by a V-shaped reversal from a balanced market to a seller's market. This moment is not far away from us. The chart below shows the changes in Canadian housing prices during previous periods of inflation. It is clear at a glance that inflation and interest rate increases cannot stop the rise in housing prices.

Conclusion

In the development history of economics for more than 200 years, economists have discovered many economic laws based on the situation at that time. However, we need to identify the laws that apply to the current economic environment ourselves, because many economic theories are self-contradictory. Even if you have read more than 10 economics textbooks, you may not be able to collect all economic theories and theories. Everyone has a different interpretation of the current economic situation, and these views are actually the views of a deceased economist. Different eras, different countries, and different economic laws play different roles. What we can do is to learn by doing, keep exploring, solve problems when we encounter them, and gradually improve our financial intelligence and predictability. If you do nothing but read articles, you will actually learn nothing, let alone accumulate wealth. Is inflation today the same as inflation in the 1980s? Can the problem be solved using the same means? There are several types of interest rates, which ones play a key role in Canada at this moment, and what are their recent trends? Can I still buy an investment property now? It is a pleasure for me to find the most relevant answers from economics to these most tacky questions. When a person achieves financial security, the need for self-actualization will automatically arise. So my greatest joy is seeing the families I've helped achieve financial security and having them wield the sword that I wielded to help those around them achieve financial security. In Canada, there are no loan or purchase restrictions. How many houses you can buy depends entirely on your ability. First-generation immigrants can achieve financial security in middle age by working hard, paying taxes honestly, without taking shortcuts, and by working steadily and steadily. On the contrary, if you obtain it by breaking the rules, you will easily be in danger, and if you fail to steal the chicken, you will lose the rice; if you become a troll in the house, you will only expose your ignorance and jealousy, and seek trouble. I started writing this public account in January 2018, and I have already recorded the transformation from croaking to reversal. If you haven't had the chance to read my article from that year, then watch my live broadcast of the market's transformation from noise to reversal.