friday free for all!
Here’s your open topic post for Friday August 17th, 2007.
Some of the stuff thats going on (I’ll add some links later)
-Liquidity crisis
-Interest rate increases
-Affordability limits
-Lots of construction
What are you seeing out there? post your news, links and anecdotes here!
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August 23rd, 2007 at 1:49 pm
casual observer,
if I was running the mortgage dept. of a bank, I would prefer that all of the mortgages issued be high-ratio mortgages, and subsequently be insured for default risk.
During one of my mortgage applications, my broker told me I got a 0.05% reduction in my rate because I was CMHC insured.
I’m surprised these discounts aren’t more common!
August 20th, 2007 at 7:52 pm
yeah one thing I can tell you that would be good to guess.
residential sales volume on mls in bc up 44%
residential unit sales up 25%
no more question please you will find out next month.
thanx alpha.I know source are very importent to present solid arguments ,but I am not arguing this is just a little info for us for here.
August 20th, 2007 at 7:41 pm
alpha bear,
sorry thats one sided true numbers don’t look for source.
August 20th, 2007 at 11:45 am
Satv,
According to the OMREB, the YTD residential sales in the Central Okanagan were 1855, while last years residential sales YTD were 1620, for a YTD increase of 14.51%
For the North Okanagan, the residential sales YTD totalled 753, while last years figures YTD were 767, for a DECREASE of 1.83%
I can’t see how you manage to get a 13.7% increase from these figures.
If you add the North Okanagan and Central Okanagan figures together, you’ll wind up with 2608 residential sales YTD, and 2387 residential sales last YTD, for a percentage increase of 9.26%
August 20th, 2007 at 8:11 am
Alpha_Bear.,
Okanagan Mainline up 13.7%
South Okanagan—-up 11.8%
mls residential price up $446,386 thats 15.2% up yoy.
August 20th, 2007 at 7:14 am
If this is truly the case, then if I was running the mortgage dept. of a bank, I would prefer that all of the mortgages issued be high-ratio mortgages, and subsequently be insured for default risk. As a lender, my butt would be about as completely covered as you can get.
I say:
That’s the way banks operate in a deficit mode and loan structure are designed to do what?
“To always protect the lender first”.
You see, banks only have about 5% of cash on hand for depositors. The rest goes to business loans and mortgages. We all know what happened to some of the shady business loans (Enron, Global Crossing and 360 net). They were failures, but still all banks recovered after since. Who suffered? Shareholders of those companies did.
In this round of mortgage mess, banks will not suffer because as long as there is no on mass bank runs, the banks will do just fine as they had always did for centuries. They are protected against any calamities.
The homeowners, however, are going to be suckers in this game.
If you read the CMHC guideline, it mentioned “NOTHING” against protection of loss of build equity in the home for home owners. Your down payment or your payments towards reducing your principle are not protected. If you have 20% built-up equity in a home and the market lost 10%, you would loose 50% of your own equity. Banks loose nothing. You see the beauty of this. You loose, they don’t.
We all know the market could correct back to 1997 levels. That’s not a 10% correction btw.
In the end, most of these suckers will have no choice but to continue mortgaging at a loss, but some will just sell.
August 20th, 2007 at 6:51 am
“I think you are using the popular, but bogus, definition of “investment” as “an asset with a guaranteed capital gain”. Not only does housing not provide this, no other asset can, either.”
I say:
That means you never had an education? And that you’re destined to become a low wage earner for the rest of your natural lives?
Let’s make one thing clear what is an asset. An asset is an entity for generating cash flow, which is the opposite of liability.
We all possess some asset that make us unique. Our brain, for example, is a given asset. It contains knowledge, to allow you and myself to perform admirably in our vocation. Our vocation is what provides us with income, aka cash flow. How do we get that knowledge?!?
By going to school right?
Yeah, but apparently many of you seemed to have forgotten this.
The last time I’ve checked, going to UBC or SFU to earn a degree wasn’t free, nor going to BCIT wasn’t free either. Who pays for this?
When you go to school to learn a new thing, you are inevitably “INVESTING” in the future. And that the new knowledge (aka asset) will help you attain guaranteed higher income than your current cash flow can allow. If you study law, politics, engineering or medicine, your income will undoubtedly be higher than a high school graduate could attain. Knowledge is power and a guaranteed capital gain in the end in the form of wage compensation.
While a car is a liability to us, but it is an asset to a taxi driver or a traveling salesman. Because, they need a car to make a living and produce a guaranteed income. No car, no taxi driver. Get it!?!
A home is also an asset to some people. Home daycare for instance is a good example. Use your home as a daycare center. Not only can you deduct business expenses, and with some creative financial arrangements, you can also deduct interest expenses too and apply that to your mortgage. Happens all the time.
What about home businesses or people who telecommute?
I agree that these days, most homes are bought to generate capital gain yield. This is the attraction. Borrow with low interest to buy asset that could bring in higher yield, but different individuals obviously gain differently depending upon how they use their homes for..
August 20th, 2007 at 6:48 am
Here we go again…up and only up
Canadian home sales forecast lifted
ROMA LUCIW
Globe and Mail Update
August 20, 2007 at 10:26 AM EDT
Even as the U.S. housing market continues to unravel, the Canadian Real Estate Association has hiked its 2007 year-over-year sales growth target from 6.5 per cent to 8.1 per cent.
Canadian home sales are now expected to reach 523,100 units this year, up from a previous target of 514,450 units, and the highest level on record in most provinces, CREA said in a new residential forecast released Monday.
“Activity is forecast to edge slightly lower in 2008, but will reach the second highest annual level on record in almost all provinces,†CREA said. “Prices are forecast to set new records in every province this year and in 2008, but price increases will be smaller next year.â€
August 20th, 2007 at 6:31 am
Satv said,
“Residential sales year to date change.
Okanagan+13.7%”
I don’t know where you’re getting your figures for the Okanagan, Satv, but they don’t match the OMREB July release.
August 20th, 2007 at 4:17 am
“I think you are using the popular, but bogus, definition of “investment” as “an asset with a guaranteed capital gain”. Not only does housing not provide this, no other asset can, either.”
Thanks for the correction Patriotz. I could not seem to find the proper phrasing for the concept of “investment” as typically used in popular discussions on real estate.
I seem to run into more and more people that have recently bought into the market.
Invariably, every discussion I have with these people involves their belief that this is a great “investment” because RE always goes up. Valuation of this investment in terms of the income stream it generates or the rent expense it offsets, is simply not considered. Makes me wonder how these people would value shares of stock or bonds. Bear in mind I work in the financial services sector, and the people I usually run into who have just bought in are colleagues and associates. Be afraid, very afraid.
August 20th, 2007 at 12:47 am
“That is what I thought, but Mohican says that it is for the full mortgage. Check his blog, it was in one of the latest posts.”
Mohican may be right about the full mortgage being covered. I checked several info sites as well as CMHC’s own website. They all seem to say pretty much the same thing.
Basically, with a high-ratio mortgage that is insured, the lender is protected against losses arising from borrower default. There was nothing that I could find anywhere that put limits on those loss amounts – ie) being limited to the amount above the conventional mortgage ratio. Here’s a quote from one of the sites.
“CMHC limits the risk to approved lenders by providing mortgage insurance against principal and interest losses arising from mortgage defaults. As a result, CMHC approved lenders feel positive with the availability of mortgage insurance through CMHC. The home purchaser requiring high ratio financing in excess of 80% of the property’s value obtains the mortgage insurance through a selected lender as part of the mortgage arrangement. CMHC’s mortgage loan insurance helps Canadians to realize their dream of owning a home.”
If this is truly the case, then if I was running the mortgage dept. of a bank, I would prefer that all of the mortgages issued be high-ratio mortgages, and subsequently be insured for default risk. As a lender, my butt would be about as completely covered as you can get.
This would have the effect of making high-ratio mortgages less risky for the banks to make than conventional mortgages. I hope that this is not the way mortgage insurance works. Does anyone know for sure?
August 19th, 2007 at 10:00 pm
If I’m not mistaken, CMHC insures the part of the mortgage that is considered high ratio.
That is what I thought, but Mohican says that it is for the full mortgage. Check his blog, it was in one of the latest posts.
Um, you have just explained why housing is an investment. An investment is an asset with a cash or marketable yield.
Well, it turns out that it doesn’t matter if owners (70% of the market) doesn’t consider it an investment. Prices are set at the margin, and only a small amount of rational actors (investors) are required to keep a market accurately priced.
In the long run of course. In the short run it can be pretty mucked up. One reason is inexperienced and greedy speculators streaming in. The other is the traditional RE investors reluctance to take opportunity cost into account (they don’t sell). One medium term balancing factor is construction. If prices go out of line, the builders will keep building and building and building until we run out of fools or people stop lending them money.
August 19th, 2007 at 9:58 pm
casual,
High-ratio mortgage insurance will still be required for mortgages greater than 80 per cent of the home’s value.
Those borrowing 80 to 85 per cent of the purchase price pay a premium of 1.75 per cent of the amount borrowed, rising to 2.0 per cent on 85-90 per cent, 2.75 per cent on 90-95 per cent, 2.9 per cent if they are borrowing with a five-per-cent down payment, and 3.1 per cent if they have no down payment.
While the insurance premium is a one-time charge, it is typically added to the mortgage amount and subject to compounding interest.
August 19th, 2007 at 9:51 pm
yes casual 100%correct.
August 19th, 2007 at 9:20 pm
“But what about Canada? Mohican says that 100% of a mortgage is covered by CMHC if their requirements are followed. That is nuts. What risks do banks/investors have?”
If I’m not mistaken, CMHC insures the part of the mortgage that is considered high ratio. For example, as of right now a purchaser can take out a mortgage for up to 80% of the appraised value of a home without having to purchase high ratio mortgage insurance.
If a person takes out a mortgage for say 90% of the appraised value of a home, they are required to buy the insurance. The insurance would cover only the amount that is above a conventional non-insured mortgage, ie) the extra 10%.
In the event of a default, the bank would still be on the hook for the 80%, but CMHC insurance would pay the bank for the mortgage amount that is above the 80%.
This seems to make the most sense, because no mortgage insurance is required if the mortgage is for 80% or less of the appraised value. Is there anyone out there that can confirm or correct this?
August 19th, 2007 at 9:11 pm
lack of services in other cities driving people towards vancouver and that patren will be countinue for years to come.
Residential sales year to date change.
Okanagan+13.7%
Victoria+11.4%
Vancouver Island+9.9%
kootenay+8.4%
year to date,mls residential sales is up 16.6 per cent.home sales climbed 3.6 per cent to 65,103 units.
average price increase 12.5 per cent $434,381.
August 19th, 2007 at 9:04 pm
Curiously, everybody talks about housing like an investment, and no body actually discusses the fact that it is just shelter, and its actual return is the rent
Um, you have just explained why housing is an investment. An investment is an asset with a cash or marketable yield.
As opposed to things like Beanie Babies or rare stamps.
I think you are using the popular, but bogus, definition of “investment” as “an asset with a guaranteed capital gain”. Not only does housing not provide this, no other asset can, either.
August 19th, 2007 at 8:45 pm
thanx tony,
I am working on next post that will be ready in 10 min.
August 19th, 2007 at 8:39 pm
Don’t mind satv, he’s just a bitter renter trying to make the bears capitulate so he can have a shot of getting into the market after it turns…
August 19th, 2007 at 5:45 pm
satv:
verbosity is the bane of keyboaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
August 19th, 2007 at 10:04 am
freako my life is @360 because of slackers.will be back @10pm.
August 19th, 2007 at 9:42 am
satv, do you work night shift? I ask because it seems that you have watched your fair share of soap operas. Or perhaps dayshift with Tivo actino?
August 19th, 2007 at 9:36 am
Entirely biased! As an objective pofessional, he should have advised “caution”, “not all goes well”.
All the usual suspects are out in force reassuring their respective flocks, using everything from fuzzy logic to invoking Buffet wisdom. Ozzie doesn’t spin much if at all, so I don’t know what this was all about.
August 19th, 2007 at 9:01 am
sorry 2005 remind him of buying something.
August 19th, 2007 at 8:31 am
Ozzie’s article is misleading. The consumer index tracked by the University of Michigan released on Friday (overshadowed by the Fed’s decrease in discount rate) clearly showed a significant drop (from 90.4 to 83.3). The expectation was 88, but it came in at 83.3…
That’s significant. Further, the data is trailing, not forward looking. If the next release shows a further decline, it would strongly point to a new mindset!
Entirely biased! As an objective pofessional, he should have advised “caution”, “not all goes well”.
August 19th, 2007 at 8:27 am
“The real path to long-term prosperity is to encourage investment in productive assets, not half-lived-in houses. As we are soon going to learn in spades.”
Curiously, everybody talks about housing like an investment, and no body actually discusses the fact that it is just shelter, and its actual return is the rent. The only place you hear this is on these blogs. I would suggest we disallow the linkage of the words “house” and
“investment”.
I am not sure it is the mandate of organized labour to protest against the housing bubble, and even if they did so, it is a pretty safe bet the local media or business community would not exactly “encourage” their contribution to the discussion. Ultimately, organized labour wants employment, and high paid employment, so they can have big memberships.
Labour has relatively little influence on where capital chooses to invest itself. I am sure the BC Fed would be just as happy if we were building manufacturing plants or more big infrastructure -possibly moreso, as there would be a lot more residual employment.
August 19th, 2007 at 2:12 am
Fear not people, Ozzie Jurrock has seen the future and it looks bright (from RET):
“NEW THIS MONTH ON Jurock.com/insider
UNBIASED, INDEPENDENT REAL ESTATE ADVICE
FEATURE STORY:
U.S. News Dim? The Blame? Subprime! The Outcome For Canada?
The news out of the U.S. continues to be grim. Yes, the subprime market is crashing. And so it should. The impact will be in our view – primarily financial and not economical … as the economic results of retail sales, GDP and consumer confidence keep showing.”
Gee and I thought Walmart, the auto manufacturers, etc were hurting. Thanks for setting us straight Ozzie.
Oh just one thing – how is “financial” distinct from “economical”? Like it doesn’t matter whether people or firms can borrow money or sell shares?
August 18th, 2007 at 11:27 pm
Not that this is relevant but I am not in or affiliated with any union-cause unions are all evil, right freako?
Chill comrade! It wasn’t a loaded question or a put down or set up for a ubercapitalist neocon rant.
Say what? Organized labour has long advocated policies to support artificially high RE prices and overinvestment in RE.
Roger that.
August 18th, 2007 at 11:21 pm
also hold views which sometimes meshes nicely with labour ideology?
Say what? Organized labour has long advocated policies to support artificially high RE prices and overinvestment in RE. Keeps J6P’s paychecks coming and his net worth high. Or so he thinks.
Have you heard one discouraging word from the BC Fed or the CLC about the current RE bubble, for example? No, they are just advocating the usual cocktail of lower interest rates and buyer subsidies.
The real path to long-term prosperity is to encourage investment in productive assets, not half-lived-in houses. As we are soon going to learn in spades.
I do hold some views in common with organized labour on non-RE issues, after all they did want Canada to stay out of the Iraq war while Jim Pattison was on TV telling us we should join in.
August 18th, 2007 at 10:53 pm
Freako,
I think my view that the central bank’s decisions on when to intervene in the market may have some ideological motive is valid, and does not merit being written off as being the fevered rantings of a labour activist. Losing thousands of manufacturing jobs is just the free market working, but a liquidity crash-my god, cannot have that…..Some idiot investors might get hurt.
Not that this is relevant but I am not in or affiliated with any union-cause unions are all evil, right freako?
August 18th, 2007 at 10:23 pm
The mortgage numbers are so paltry vs the Vancouver average that it just makes me laugh.
that’s the scary part, we accept this valuation