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July 10th, 2008 at 8:19 am
I asked my bank manager about the 40/0 and how popular it was way back in 2006 and 2007 and she told me that, while some people went with that option, the rest went with a conventional mortgage, meaning paying up the 20% downpayment to avoid CMHC. So really and like the US Subprime, it’s really a very low percentage when it comes to the overall mortgage scene. Having said that, it doesn’t take a lot of default to scare people away from buying a home either as witnessed in the states.
The problem is this. Home prices had gone out of whack. Conventional wisdom states that when interest rate goes down, the PE ratio of stock should go up, which means prices should go up. But it didn’t. PE ratios of US major corporations in fact are at their 1994 lows. The economy is teetering on a brink of a recession and yet people still expect prices to keep going up. How logical is that?
There is price based on fundamentals and there is price based on expectation. Vancouver prices had been priced based on expectation rather than fundamentals and neither a 40/0 nor the new 35/5 will make any difference. When people want it, they will pay any price.
I think people here should stop calling us bears, because I’m sure many of us here have the ability to afford the 20% downpayment already.
In fact, having a 20% downpayment means that the buyer had planned to buy only at the right time. Why else would he or she save up the 20% in the first place. You can’t even see the cash these days. It’s in a bank somewhere. All you see are numbers on your computer screen — big deal and nothing to write home about.
I rather have a life, see my wife and kids or for others have fun with their friends and significant others.
The key is a plan. 35/5 or 40/0 means the person has absolutely NO PLAN whatsoever buying a house.
July 10th, 2008 at 8:10 am
There used to be a list of ongonig GV condo projects – has that thing disappeared or have I just lost the link? Wondering if it isn’t time to start offering 40% off offers to projects that haven’t sold out…
July 10th, 2008 at 8:01 am
The people in control of the market are not stupid; they were totally aware of the consequences of relaxing the mortgage market. They deliberately loosened the lending standards, in order to bring the property prices up.
Recently these insiders saw that the prices are flatlining, so they rushed to sell their properties at max price. Now after thay have cashed in, they deliberately reverse the mortgage market to hasten the decline in prices so that they can buy their properties back with discount.
July 10th, 2008 at 7:45 am
those who do manage to keep their negative equity homes will have to bring cash to the bank when the mortgage is due in 5 years or so.
I think we’ve gone over this before, the banks don’t really care about the equity situation on insured mortgages because CMHC is holding the bag, not them. The insurance is good for the entire amortization period.
They just want their cash flow and they lose, not gain, if they don’t renew and force the property into foreclosure. I have never heard of it happening in previous busts.
What is likely to be the real problem is if interest rates are up at renewal time, the house has negative equity, and the owner can’t, or doesn’t want to, carry the increased payments. Also walkaways before renewal time as we are seeing in the US.
July 10th, 2008 at 7:27 am
What’s that old saying…the (Vancouver) market can stay irrational longer than most can stay solvent…for those that don’t ive here, there is soooo many condos just getting finished that are going to hit the market…for some folks, I believe what is coming will put them bc 10-15 years.
July 10th, 2008 at 7:07 am
This is an overall good step towards ensuring better fiscal sanity from buyers in the BC market. It is too little to late, but at the same time it will at the very least save a few of the GF’s who still have no clue. I’m still coming across people who are buying now?!?
That said, without these GF’s the market here will accelerate it’s declines in price and sales.
There really is no way that the MoF could change the lending standards any faster as this would cause an outright crash this minute, and I’m certain that they wish to avoid as much blame as possible. Further, we probably won’t see any further changes other than minor tweaks as those who do manage to keep their negative equity homes will have to bring cash to the bank when the mortgage is due in 5 years or so.
July 10th, 2008 at 1:48 am
Actually they will be, it’s just that the riskiest loans will be 5%/35y rather than 0%/40y.
It’s my understanding from other posts that due to CMHC backstopping of private insurers, they are also precluded from insuring 0%/40y. And NFW are non-bank lenders going to loan 0%/40y without insurance or added security, whatever the rate. Not in BC anyway.
July 10th, 2008 at 12:39 am
Note that the directive and announcement came from the Ministry of Finance. Sounds like CMHC just got its hand slapped.
This might not have that much affect on the market if private insurers take up the slack. But at least taxpayers will no longer be on the hook for the riskiest loans.
July 10th, 2008 at 12:35 am
1 bed suite in basement currently rented $1200 per month
Would that be based on the hourly rate?
Craigslist has $1000/month and less for 2 bedrooms in that area.
July 9th, 2008 at 11:34 pm
Now we have the giveaways…these realtors must be reading from old scripts borrowed from their US colleagues:
http://tinyurl.com/Van-East-Giveaway
July 9th, 2008 at 10:35 pm
So will there be buyers rushing to get in 0down before the new rules go into effect?
July 9th, 2008 at 9:51 pm
Is this the first wave of panic? If you can fog a mirror, you can be a greater fool too!
July 9th, 2008 at 9:45 pm
Here comes the first panic wave… Uh, oh…
more like scarfing down that bad burrito….
two exits! no waiting!
July 9th, 2008 at 9:33 pm
Last call!
The bar will be closing on Oct 15.
July 9th, 2008 at 9:25 pm
Here comes the first panic wave… Uh, oh…
July 9th, 2008 at 9:21 pm
What are you waiting for, go buy yourself a house/condo before the deadline and witness “How to lose 5% of your downpayment in 3 months ”
July 9th, 2008 at 9:08 pm
Okay, let me get this straight.
This will prevent a housing bubble from forming in Canada?
If only the Americans had mastered monetary policy as we have, they could have avoided the whole mess.
July 9th, 2008 at 8:46 pm
Last year when rates were climbing there was a surge of sales through the summer and fall while pre approvals for lower rates were being taken advantage of.
That was last year and we were in a sellers market.
The buyer was the one feeling the pressure to get in before it became more expensive.
Now this summer things are different.
We are clearly in a buyers market and sellers are being pressured to drop prices to make the sale. I think we could conceivably see sellers panic more than buyers this time and start to see some serious downward pressure on prices. We aren’t the only ones seeing prices drop and the market weaken. EVERYONE I talk to is seeing the same thing.
July 9th, 2008 at 7:38 pm
This is not the best news in, say, Vancouver, where people have routinely been forking over 70% of their income for the privilege of living in a deflating bubble.
Well no they haven’t. The median income household has not been buying the median house with little or no DP.
July 9th, 2008 at 7:29 pm
July 2007 SFH average for Calgary was $505k+.
July 1-8, 2008 SFH average for Calgary is $452k+.
Difference roughly $52K.
June 2008 SFH average for Calgary is $473k+.
Difference roughly $32K from July 2007 peak.
These are big haircuts.
Coming to a city near you.
It will be interesting to see how the month of July ends in Calgary.
July 9th, 2008 at 7:26 pm
According to a friend’s boss who has done an exhaustive study of how the market reacts to the Olympics: it is a proven fact that the market will peak next year. So never mind all the facts that you guys are making up, it doesn’t make any difference to what will really happen. Think “next year”, “next year”. You may as well shut the blog down for a year. Right, John?
July 9th, 2008 at 7:22 pm
Vancouver’s condo market continues to be one of the most robust in the nation. This red hot market will not be affected one bit by the reduced amortizations because in this financially conservative country hardly any purchasers were using them in the first place. Downpayments continue to be high. The olympics are near and the real estate market abounds.
Thanks for the laugh, John. We need a little humour to lighten things up. Sometimes we take ourselves too seriously. Looks like you caught a few people up! Well done!!
July 9th, 2008 at 6:26 pm
#16 – LOL!
Anecdote: A friend of my gf’s boss bought a condo d/t investment property. He’s a foreign investor currently resides in the Caribbean. Here’s the timeline:
Bought for $630K – 2007 – Presale
Put it up for sale in March/08 for $800K – No bites
Reduced to $790K – no bites
Reduced again to $730K – still no bites
He’s probably spending $3K(+) per month on it while it sits on the market.
Another owner in same building delisted because he can’t compete with that price.
Oh, also the guy bought another presale in Yaletown. The H&H building… ring a bell? Yep, they are in receivership right now, trying to sell the remaining presales to get enough $ to complete it. He doesn’t know about that yet. Durr!
That’s the way speculation bounces!
July 9th, 2008 at 6:18 pm
Surely the most significant news in all this is the new restrictions on debt-service ratio. As reported on Garth’s site:
…here’s the blockbuster – a max of 45% for a borrower’s debt-service ratio. This is not the best news in, say, Vancouver, where people have routinely been forking over 70% of their income for the privilege of living in a deflating bubble.
Doesn’t this practically eliminate the market in Vancouver overnight?
July 9th, 2008 at 6:10 pm
It was getting ridiculous. Let’s see, I’ll will the mortgage to my great great grandson honey…. hope he has a job.
July 9th, 2008 at 6:06 pm
#22 paulb Says: “I know people that thought the trend would be even longer terms like 50 years etc.. This will kill all those hopes.”
What kind of people would hope for a 50 year mortgage?!?! If I “thought the trend would be even longer”, it would be a fear, not a hope.
July 9th, 2008 at 6:03 pm
Yah, my name should have said “sarcastic”. Ah, those parents…
July 9th, 2008 at 6:03 pm
Yeah, see my name?
July 9th, 2008 at 5:49 pm
I know people that thought the trend would be even longer terms like 50 years etc.. This will kill all those hopes.
July 9th, 2008 at 4:47 pm
Thanks Gordo for ruining affordability for all the poor working families in BC. As usual Gordo and his cabal of rich executives have ruined any chance of a working family to own their own home.
July 9th, 2008 at 4:45 pm
HANG ON BEARS 35/5 DOWN MAKES A GOOD CASE HERE.
Bencmark appreciation value over three year:
Detached 43.6% Attached 43.1% Appartments 48.5%
40/0 down start around 2005 it’s not clear whether buyers who used this product were paying some down payments because the amount to get rid of cmhc is equal to 20%.
If you look at the appreciation value over three year then those buyers had submit almost 20% equal to the size of their down payments every year without having to pay a penny from their pockets-if they did not pay otherwise that would increase their size of down payments,if those buyers still holding their units the size of their down payments are equal to 45% in last three year.
Now when the boom is cooling off so it’s not bad to ask the buyers to pay some of 5% down this same 5% could be equal to the remaining 5 year term so the term get back to 35 year.“this new provision is just (cool),(light),just cool light’n'easy ahahaha sprite or seven up”-smart move.
http://www.realtylink.org/hpi/.....YPE=buyers
July 9th, 2008 at 4:43 pm
Sir John Templeton RIP July 8/08
One of a few godfathers of investment management – google him
“the most dangerous words in investing, this time it’s different. Over long periods of time, asset classes demonstrate a consistent set of return characteristics. Over shorter periods they may deviate from expectations, sometimes even by a wide margin, but over the long term historical returns, risk, and correlations are a reasonable guide to future values.”
July 9th, 2008 at 4:41 pm
Now, could somebody please raise the mortgage rates to really give this snowball a good push down the hill (over the cliff?)… Let’s get it started, oh yeah…
PS. These are some of the funniest comments posted. It’s bring’in tears to my eyes… removing the landing gear for a soft landing… If it weren’t for you meddling feds… LOL priceless.
July 9th, 2008 at 4:22 pm
Don’t worry everyone, its perfectly normal to remove the landing gear before a soft landing.
July 9th, 2008 at 4:21 pm
*rips off mask*
“It’s the speculator!!”
“Yes, and I would have gotten away with it if it weren’t for you meddling feds!”
July 9th, 2008 at 4:21 pm
TIMBBERRRR….and they all fall down.
July 9th, 2008 at 4:20 pm
Too little, too late.
The markets are cooling without this legislation. Closing the doors after the horses, cows and piggies have all left the barn.
I really think they should have clawed back the amortization to 30 years. 35 years is still fiscal suicide, especially with a deflationary future. But I guess they’re trying to balance out the effect of the carnage when the overextended renew post Oct 15, with overdue fiscal prudence. I think the minimum down payment should be 10% as well. Typical watered down Canadian governance, when stronger, or at least adequate, measures are needed.
However, this can only hasten the crashection to sustainable fundamentals our hot RE market needs. Bring it on. Let’s rip that band-aid off instead of teasing it off one painful leg hair at a time.
July 9th, 2008 at 4:12 pm
Meant to say ‘start ignoring’…
Noname
July 9th, 2008 at 4:03 pm
Can you guys stop ignoring John?
Here is clearly a bear reiterating all the realtor BS out there for the sake of some fun.
Noname
July 9th, 2008 at 3:55 pm
John, you must be a realtor. I forgive you. But this straw, is more like a bamboo pole to the back of the RE market in Vancouver, where the masses can’t afford RE without resorting to 40 years, and most importantly, few will have enough to meet the 5% down and 45% max Debt-service ratio. There goes the speculators.
We’re done.
July 9th, 2008 at 3:54 pm
Stupidest sentence in the article: “reduce the risk of a U.S.-style housing bubble developing in Canada” Whoops! That’s like closing the door after the horse has left the barn. Yep, it’s all downhill from here. I went to an open house last weekend and as part of the info sheet on the property was a calculation of the mortgage payments. The fine print read “based on 40 year mortgage” and 0% down was an option. Still, the monthly payments were astronomical. Guess now they’ll be even more astronomical. Need I tell you that we were the only ones there?
July 9th, 2008 at 3:50 pm
#8 do you have any idea what is bean?
hint,that can be found between pink lips!
July 9th, 2008 at 3:45 pm
John,
Now that we’ve seen your ‘stupid’ act show us your ‘got a brain in my head’ act.
Cute routine but not very original.
Every Tom, Dick and Harry is named John.
July 9th, 2008 at 3:26 pm
I wonder whether the private mortgage insurers will continue to offer zero-down 40-am mortgages, or if they’re required to stop selling those as well… Or whether, now that CMHC has pulled back, they’ll feel freely able to eliminate those risky products from their portfolios…
Incidentally, from the G&M’s article on this issue, it also sounds like the government will tighten up rules on income documentation, so no more liar’s loans.
http://www.reportonbusiness.co.....iness/home
July 9th, 2008 at 3:26 pm
John,
I agree with you wholeheartedly!
The exclusive membership to the Best Place On Earth is expiring soon!
Everyone, get in while you still can!
Last chance to own the Piece of Paradise.
Only until October 15!
And to make it even more special it is my birthday!
OMG, gimme some more kool-aid!
July 9th, 2008 at 3:20 pm
It’s simply impossible to explain to you how wrong you are. This is the best place on earth. Vancouver is teeming with rich Albertans and Asians flocking here for the spectacular weather and the Olympic games.
July 9th, 2008 at 3:16 pm
John
Wow… Every word is false. How can you be so consistently wrong?
I don’t think changing from 0% to 5% and 40 to 35 will have a huge impact but the market was stretched to the breaking point anyhow, it was already collapsing, this will just speed things up a little.
However, we are not “fiscally conservative”, especially in BC where the savings rate has been negative for years.
The market is not “Red hot” in fact it’s been in a slump since January.
Last time I checked “Robust” did not mean overpriced and unstable with ballooning listings and limp sales.
I don’t have a figure handy and I don’t know how you define “high” in terms of down payments but I suspect if you were to define it and we looked at the numbers you’d be way out there too.
July 9th, 2008 at 3:15 pm
.nhoJ ,tcerroc yletulosba er’uoY
July 9th, 2008 at 3:09 pm
I can’t believe my eyes. It’s rather amazing. The government is exercising common sense! A little late, but still.
This will be the death-knell of the market. As interest rates rise for existing owners, they won’t be able to rely on a refinance into a 40-year amortization as a backup plan.
Wow.
And 5% down– that’s amazing. Actually requiring people to have some skin in the game.
I think this will be like the equivalent in the US when, practically overnight, mortgage lenders stopped issuing subprime mortgages.
July 9th, 2008 at 3:08 pm
Vancouver’s condo market continues to be one of the most robust in the nation. This red hot market will not be affected one bit by the reduced amortizations because in this financially conservative country hardly any purchasers were using them in the first place. Downpayments continue to be high. The olympics are near and the real estate market abounds.