A price too high

In the spring of 2003 our daughter was on the verge of buying a house in Hamilton, Ont. The property was headed for a bidding war, so I advised her not to participate, and she didn’t. My reasoning was that I’d previously seen such ridiculous practices in overheated markets and believed such pressures wouldn’t last.

How wrong I was. Four years later, the foolishness continues – unless the number of open houses last weekend indicates a cooling off at last. All of which is to say: Where has David Dodge been? The governor of the Bank of Canada has suddenly decided to express concern about the inflated housing market. “What we’re seeing is house prices rising faster, probably at up to twice as fast as the rate of inflation,” he said yesterday after a speech in Vancouver. If Dodge been on the Titanic, he would have shouted “Iceberg” while clinging to flotsam and jetsam.

But for all that, what Dodge said next was more relevant. “We’re worried about that, and we’ll continue to worry about that.” Here’s the rub. The Bank of Canada sets interest rates but what it really does is manage the value of the C$. The fact that we’ve hit parity with the US$ is because Governor Dodge wanted that outcome. His fond hope is that parity will reduce the prices of imports in Canada and thereby tame inflation. So far, retailers are reluctant to comply. Meanwhile, the cost on our exports of this fight no one asked him to undertake has been horrific. More than 300,000 manufacturing jobs have evaporated in Canada and there are thousands more to come.

Governor Dodge will get his way. A year from now inflation will be in check and housing prices will be falling because we’ll be mired in a recession. Dodge, who has announced he will soon leave the post, will no longer be around. Someone else will have to clean up the mess. In this country, as we know all too well, that consists of waiting for the U.S. economy, which will also be recession, to get rolling again. Some legacy.

(P.S. Our daughter has long since bought a house.)