Canada’s risky new mortgages

Thanks to Condohype for sending in the link to this story in todays Vancouver Sun: mortgages move into uncharted waters.  This is a similar article to the one linked to last week about over-stretched buyers fueling the real estate boom, but refers to a Scotiabank report released yesterday focusing on the risks created by relatively new 40 year mortgage terms.  According to the report, longer term mortgages now account for a full two-thirds of all mortgage applications.

In the near term, their introduction — which began in 2006 when Ottawa “unshackled” the Canada Mortgage and Housing Corporation from the traditional 25-year mortgage — will help stabilize a softening Canadian housing market as it draws in a new group of buyers.

Longer term, however, nobody knows what the effect will be, Holt said.

If, for instance, buyers as a group tend to pay back the debt at an accelerated pace, it will increase the risk for the originators of the mortgages and buyers of mortgage-backed securities into which they are folded.

On the other hand, the report says, “future shock risk is being intensified,” in the event that a large portion of new buyers move into such leveraged products and suddenly face a shock to interest rates or wage growth.

Now, if faced with sudden difficulties, the holder of a 25-year mortgage can move into a 40-year, but it’s unclear what would happen if the 40 becomes the norm and economic difficulties arise.

I’m not sure why it’s so ‘unclear’ what would happen if the majority of buyers have no adjustment room in their mortgages, pay a majority of their income to cover loan interest and ‘economic difficulties’ arise. I don’t need a crystal ball to foresee that such a situation would be ‘problematic’. Unfortunately as we’ve seen in the USA, ‘economic difficulties’ can simply be a drop-off of buyers at over-inflated prices.  Prices in the US started dropping long before problems with sub-prime mortgages and recession fears started looming.

I also find it strange that all these new products were introduced in the midst of a boom rather than when the housing market needed ‘saving’ from a collapse.  Seems a bit like using up your nitrous on the drive to the racetrack.  This article also touches on the way these new mortgage products encourage speculation:

Equally significant is the impact changes to the mortgage industry may have on the condo market, Holt said.

Starting last year, Ottawa changed the rules on insured-investor mortgages, allowing buyers to acquire an insured mortgage on a property other than a principal residence.

Holt said he estimates one in four condo buyers is a speculator looking to profit from property price gains and, he forecasts, “This is going to intensify influences of investor sentiment, particularly the condo market over the next few years.

“You’ll see more speculative activity in the market at a time when there’s already a fair amount.”

This can sharpen market downturns, as appears to be the case in Calgary, when prices drop and speculators rush to unload properties.

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Nobody who makes responsible decisions is going to experience 'financial ruin', and those that do, well sorry, but that's their problem. I don't wish it upon anyone, but if thats the natural result of your decisions than thats just the way it goes.

I guess the financial ruin of others could be good if you were looking for used stuff, but I don't need any more 'stuff' right now.


"bears were “shouting there is a cliff ahead!”" So true! LOL. Lemmings don't actually behave like like that, only people are that dumb.


"Just because you weren’t smart enough to buy a few years ago…." That makes sense because if you bought a few years ago you will still "face financial ruin" so why is not buying stupid, and buying to face financial ruin smart?? It's the persons that stampeded like a herd of buffalo heading to a cliff to buy that caused the bubble and everybody (bears too) are going to suffer due to the stupidity of that bunch of mindless creatures.The only differance is bears were "shouting there is a cliff ahead!" and the oh so smart buyers ignored them with their ego's and heads stuck firmly up their asses! 🙂


a disheveled, incoherent,brain dead manner.

satv lives …..just barely 🙂



There's no way there could be two people on this blog who're that stupid and write in such a disheveled, incoherent,brain dead manner.


Anonymous@ 17:40:56

If financial ruin ensues due to purchasing at the height of a boom you have done that to yourself. But what do I know? I'm not smart enough to buy at the peak of a boom. In fact I'm stoopid enough to have sold a fully paid off townhouse last August. I didn't cause the boom, and won't cause a crash. I just maneuver the tumultuous waters as best I can. I rent for now, and will buy again, when it makes sense.


The fact that some of you want to see people buying condos in Vancouver experience financial ruin just so you can say "Told you so!" is pretty unbelievable and incredibly selfish. Just because you weren't smart enough to buy a few years ago doesn't mean you need to be so nasty and bitter.


OT but need an answer!! Dosh? You Out There? Explain this please.

"As odd as it might seem, Canada could end up feeling a worse downdraft from the housing-led U.S. slump than the United States itself."


TIME, is that you krrrish?

Patiently Waiting

"Anybody see the news report of the house that blew up in Surrey?"

Now that every crackhead in Surrey has been reminded of the bounty that lies within empty houses, "exploding real estate" will take on a whole different meaning.

If they had insurance, I bet they didn't admit it was vacant. Therefore, bye-bye to the claim.


JR,(look how short and sharp is crabman on vansun)they don't even know he is a sold out owner who like to push the market to crack that way he can re-entered in the market at low, ladies and gentlemens here is Mr.Crabman.

"One plain, unglamorous fact is that affordability in Vancouver is at an all time low. The odds of continuing price increases in light of this fact are pretty slim. The odds of a major correction, however, are significant."

"bats are sitting on every single branch of the tree what will happen to this city?"

Who can say where the road goes,

Where the day flows?

Only time…

And who can say if your love grows,

As your heart chose?

Only time…
Vancouver,BC BPE

Carioca Canuck

I was a banker back in 1979-86. Worked for the now defunct First City Trust Company, National Trust and the RBC here in Calgary.

CMHC required 15% down. Also, they required proof of the down payment, as in copies of bank books, GIC's, etc. They did not allow down payments from parents or other family memebers to count.

25 year amortizations were the maximum you could get.

GDSR was 30% and TDSR was 40%. We used your maximum potential credit card payments, loan payments, leases, utilities, taxes, insurance, etc, etc in calculating both of these ratios.

How times have changed.


That's a sure sign of a market top when the Sun publishes it as a feature article. If Mish says Vancouver and Canadian real estate is going to follow the downward trend of the U.S., it is time to sell, sell!

Once the old 40 year ammortization trick runs it course, nothing really left in the gun barrel to save the market. Listings to hit 16,000 by June 08?? I think so.

Keep your eye on that US 10 year treasury note, long term interest rates are moving higher.


Pope, I'd start a new post dedicated to the Sun's recent censorship. At least it will show up on Google searches and be a part of public record instead of buried OT in the comments.


"There are so many out there, I’m sure some are quality, some are crap."

I'm fully anticipating severe quality problems down the road – mostly as a result of the great demand for construction labor compounded with high profit margin standards.

read on

Comment by anonymous coward

2008-04-30 09:05:17

Also, if we’ve contracted, how bad is the U.S. economy? It must REALLY be tanking for us to contract, but I hear little of that…


Try reading a little more widely. Mish's Economic Analysis Blog (google it) is a good place to start, or even


Great letter JR! I read the Sun comments before they were deleted, there were some great ones in there.

Censorship, alive & well at the Vancouver Sun.


"mine isn’t the only contrary opinion to not show up in the comment section."

Mine didn't either. I posted one in this new expunged second round, early this morning, but mine didn't make the cut. Though crabman's did. They appear to be picking and choosing now.

They also have articles stating that a) sales are off 22% in BC (with the usual 'return to balance' blather from the usual suspects) and b) BC less optimistic on economy. Yet the editorial line won't acknowledge any sort of downside risk to real estate. How hard are these dots to put together?

Isn't there some sort of journalism ombudsman out there?



The Sun's article was written for society's lowest common denominator (bottom of the food chain). I see that it resonated (made sense) to you. How's the view from down there?



The sun issue ask for the response regarding "myth or reality"not to post your garbage like response because that does not relate your response to their question they have in the list,stop wasting your time.


JR: you should email that letter directly to Derrick Penner (

Tell him that all of us here look forward to his reply.

anonymous coward

This may not be a little off topic, but I'm confused about something. According to this CBC article, our economy actually contracted in February :

Doesn't this go against the Sun article and others who say Canada has "solid fundamentals" and isn't largely affected by the U.S. downturn?

Also, if we've contracted, how bad is the U.S. economy? It must REALLY be tanking for us to contract, but I hear little of that…


I also submitted a comment on that sun story many hours ago (after they removed most of the comments). It was calm and polite and simply referred to one remaining comment that the article simply covered the 'facts' and was 'uncontroversial'. Funny how it still seems like they only have two comments on that story, Either it really is uncontroversial, or mine isn't the only contrary opinion to not show up in the comment section.




Nice letter JR.

I would'nt worry about approval or display of letters by the Sun, as long as they get the message.

My letter (following the cancellation of my subscription) was not only not published,it was laced with enough profanities to warrant a possible visit from the RCMP….They'l never take me alive!

Anyway, I noticed on the condohype link that (since yesterday afternoon) only a slect few letters have survived the scrutiny of the editors for public display.

Don't let that discourage you!