Both the

Bank of Canada

and the

United States Federal Reserve
cut interest rates

by 25 basis points last week, citing slowing growth and

easing inflation

, and the Canadian rate now sits at 2.5 per cent, its lowest level since early 2023.

These moves come even though

Canada’s housing market

remains one of the most unaffordable in the world and the U.S. market has reached its most unaffordable level in history. The thinking is that lower interest rates will be the solution, when they will simply continue to inflate home prices — perhaps the intention all along.

As of March, the average Toronto home cost

about $1.1 million

, while the median pre-tax household income was just $92,740, resulting in a price-to-income ratio of 11.8x. During the 1980s and 1990s, this ratio hovered around 3.5x to 4.5x, even when mortgage rates were above 12 per cent.

To qualify for a mortgage on that average Toronto home, a buyer now needs a

pre-tax income of approximately $233,755

, a figure that approaches the highest marginal tax bracket in Canada, which begins at $235,675 federally. This means that many first-time buyers are being pushed into tax territory typically reserved for high-net-worth individuals, just to afford a modest home.

And they’re doing it later in life. The average age of a first-time homebuyer in Canada is now 36, with many in Toronto and Vancouver not entering the market until their late 30s or early 40s. This is a stark contrast to previous generations, who often bought their first homes in their mid-to-late 20s, supported by more affordable housing and faster wage growth.

Even with lower interest rates, the average monthly mortgage payment consumes 73.8 per cent of household income in cities such as Toronto, on a 20 per cent down payment and a 25-year mortgage at current rates. This is a staggering figure when compared to historical norms.

By the end of 1990, the average Canadian family

spent 47.5 per cent

of their after-tax income on mortgage payments, according to Royal Bank of Canada data. By the fall of 1996, that figure had dropped to 36.5 per cent due to falling interest rates and slower home price growth. Even during the high-rate era of the 1980s, affordability was better than it is today.

This is the backdrop for one of the most consequential financial deceptions of our time: the narrative that we live in a deflationary world.

This idea, perpetuated by political elites and those on Bay Street/Wall Street, has served as the intellectual cover for massive money printing and ultra-low interest rate policies that have inflated asset prices while eroding the purchasing power of everyday citizens. The result has been a historic transfer of wealth from the middle class to the asset owners, widening inequality and mortgaging the future of younger generations.

The mechanics of this are subtle, but devastating. Under the guise of fighting deflation or stimulating growth, central banks, particularly the Fed Reserve, engaged in quantitative easing (QE), flooding the financial system with liquidity.

This capital didn’t trickle down into the real economy as promised. Instead, it flowed into financial assets: stocks, bonds, real estate and private equity. Those who already owned these assets saw their wealth multiply. Meanwhile, wages stagnated, housing became unaffordable and the cost of living outpaced income growth for the average household.

This divergence was supercharged in the aftermath of the COVID-19 pandemic. Governments responded to the economic shutdowns with unprecedented fiscal and monetary stimulus. Some of this support reached households in the form of temporary relief payments, but the lion’s share went to financial markets. Asset prices soared even higher, even as millions lost jobs or faced economic uncertainty.

The pandemic became a catalyst for the largest wealth transfer in modern history, with billionaires adding billions more to their net worth while small businesses shuttered and renters fell behind.

Now, as we face the next phase of economic uncertainty, the same playbook is being dusted off.

With their inflation calculations cooling and growth slowing, central banks are cutting interest rates once again, effectively launching another round of QE by stealth. The justification will be familiar: to support the economy and to avoid recession. But this time, it’s being done while markets are rocketing and setting new all-time highs.

However, we worry that this may be running its course. As aging baby boomers begin to downsize and sell their homes, and younger generations struggle with affordability, the demographic tailwinds that once propelled housing prices are shifting.

According to recent projections, between

13.1 million and 14.6 million U.S. boomers

are expected to exit homeownership between 2026 and 2036, raising concerns that a surge in inventory could trigger a meaningful price correction. The average age of the American boomer is 70 years old, and they’re less and less likely to keep their large homes.

The solution seems to be to just keep doing what we have always done: saddle young people with low-cost debt so they can buy these inflated assets. The outcome will likely be the same: asset inflation for the few and currency debasement for the many, until debt levels are just too high or global bond vigilantes step in and say enough is enough.

This cycle of financial repression has profound social and political consequences. As the middle class is hollowed out and younger generations find themselves priced out of homeownership and burdened with debt, political polarization intensifies.

People are increasingly turning to the extremes on either side of the spectrum in search of answers. But these movements often offer simplistic solutions to complex problems and, in many cases, they exacerbate the very issues they claim to solve.

We’ve seen this movie before. History is replete with examples of societies that debased the purchasing power of their currencies to fund unsustainable spending, only to suffer inflation, social unrest and political upheaval. The tragedy is that this outcome is not inevitable.

Sound money, fiscal responsibility and transparent governance are still possible, but they require political courage and a willingness to challenge entrenched interests — qualities that are in short supply in today’s policy circles.

For investors, the implications are clear. We are entering a period where monetary policy will be increasingly politicized, where inflation may be structurally higher but hidden. The great grift may have already happened. But understanding it is the first step toward protecting ourselves and perhaps one day reversing it before permanent damage is done.

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Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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