215 Responses to “CMHC to help cash-strapped owners”
Pages: « 5 4 3 [2] 1 » Show All
Pages: « 5 4 3 [2] 1 » Show All
Customize your Avatar by registering your account email at gravatar.comWelcome!
VancouverPeak.com- admin replied to the forum topic Sandbox. in the group Housing Data
- admin posted an update:
- jesse and Makaya are now friends
- jesse replied to the forum topic Sandbox. in the group Housing Data
- jesse posted an update: CMHC starts, completions and under construction in Vancouver […]
- The Ant started the forum topic BC Population Growth in the group Housing Data
- jesse and The Ant are now friends
- jesse and wreckonomics are now friends
- wreckonomics posted an update: New Year, New HPI. ”Selection Broadens and Demand Eases to […]
- Best place on meth and admin are now friends
Wordpress theme by Abhishek Tripathi of Mediawick Digital Solutions
March 24th, 2009 at 9:40 pm
I just want to say that I’m much more impressed with the level of discussion that is happening here than what was going on a month or two back when the comment threads were being seriously trolled. This is a breath of fresh air.
People are even occasionally admitting to not being correct about something. Are the Internetz are broken? I must just be dreaming, I don’t think anyone has admitted to more than a spelling mistake since ’98 or so.
March 24th, 2009 at 9:36 pm
Okay, there are several things going on here.
It would help to deal with each one separately using some other examples.
You buy A for 100K in year 0.
You sell A for 150K in year 5.
Are you saying you make a profit of 50K?
If your definition of profit is increase in nominal dollars, then yes. But is that a good way to measure profit?
As you say, inflation could be extreme and the value of your dollar might be halved in terms of purchasing power.
Concretely in this example.
You buy A for 100K in year 0. That 100K could have allowed you to buy 20,000 lattes in year 0.
You sell A for 150K in year 5. You now have 150K, but it only buys you 15,000 lattes in year 5.
You made 50K in nominal terms, but you lost the ability to buy 5,000 lattes by holding down A for five years.
Of course nobody cares about losing the ability to buy 5,000 less lattes (or maybe not). But replace lattes by your child’s college fund and you start to see that it matters.
Notice I have taken away the extra complication of financing mortgage and interest rates from the example because it doesn’t matter. The point is to illustrate what nominal/real values/gains mean.
The other comment I don’t understand is you seem to imply that the 50K nominal gain in market value of the home can be realized without selling and reduces your mortgage amount at renewal time. If buy 1 borrowed 100K originally, and paid down 20K principal, at the time of renewal he needs to take out another 80K loan. The 50K gain can’t be used towards reducing his mortgage unless he sells.
I do agree with you however that doing calculations with nominal values is better. But interpreting them in real terms is also necessary and vital.
March 24th, 2009 at 9:34 pm
My understanding is that the effect of interest rates are felt some time afterwards (lagging). As a monetary policy, when the government raise/drop the interest rates, the desired impact of RE prices will materialize afterwards, ie. in the case of 81-82 recession, aproximately six months afterwards.
March 24th, 2009 at 9:28 pm
Thanks Dave. This retard bear guy at work keep laughing at me because I bought three Onni condo in Richmond last April and now Onni just sold their remaining units at 40% less than my purchase price. I will show stupid him your theory to prove in five years time I am a head of you stupid bear who wait and buy same unit in five years probably for 60% less than I buy. Thanks you Dave. You are smart cookie and should be president of this wonderful county. It is different here, economic do not apply in Vancouver and what happen in US does not matter here. Thank you wise one.
March 24th, 2009 at 9:22 pm
Patriotz, when you sold your house in 1987 that was a mistake. Dave is a credible poster, we are fortunate for his participation here.
March 24th, 2009 at 9:20 pm
“That is just flat out wrong. Peak rate was 21.5% in September 1981, just 6 months after the market top. Rates fell for the rest of 1981 and through 1982, which saw the largest price declines for any calendar year ever.”
Okay, I stand corrected. Interest peaked in September. Good. Thanks for providing the table–it’s much clearer than the chart that I had.
March 24th, 2009 at 9:18 pm
Dave:
Wow, 5% wrong so far. We have yet to see how wrong you are.
That’s a snarky way of admitting I’m right.
March 24th, 2009 at 9:17 pm
Well said #14 Scullboy!
March 24th, 2009 at 9:04 pm
patriotz:
Wow, 5% wrong so far. We have yet to see how wrong you are.
It’s premature to make any conclusions.
March 24th, 2009 at 8:59 pm
Dave:
If you go back to the start of my posting here, you will see that I expected a price drop and even said up to 10%.
Which means you’ve already been proven wrong, and you’re going to be proven a lot more wrong.
So why should anyone take you seriously about anything?
March 24th, 2009 at 8:55 pm
Raven:
Rates look like they peaked at 82, right where the bottom is.
That is just flat out wrong. Peak rate was 21.5% in September 1981, just 6 months after the market top. Rates fell for the rest of 1981 and through 1982, which saw the largest price declines for any calendar year ever.
http://www.bank-banque-canada......page53.pdf
March 24th, 2009 at 8:53 pm
“If you go back to the start of my posting here, you will see that I expected a price drop and even said up to 10%.”
I’m hoping for another 20% drop, which brings it to 2005 levels.
March 24th, 2009 at 8:46 pm
patriotz:
This isn’t complicated. Either you get it or you don’t. No need for dancing.
If you go back to the start of my posting here, you will see that I expected a price drop and even said up to 10%.
March 24th, 2009 at 8:40 pm
“If I had to pick between priced in and priced out, I would choose priced out. But as they on the internets YMMV.”
Yup, fair enough, me too. Most other folks, apparently, not so much.
March 24th, 2009 at 8:35 pm
“5 year mortgage rates passed 10.75% at the beginning of 1979, before the start of the bubble. They continued rising as prices increased in 1979 and 1980.”
Yes, then it FELL to 10.50% in 1980. I have a link to the chart from Bank of Canada which for some reason this blog won’t let me post it.
“Rates rose to 21.3% at the end of 4Q81, then fell to 17.5% at the nominal bottom at the end of 4Q82, and continued falling to 12.4% at the real bottom at the beginning of 1985.””
See pg 7 from Real Estate Board of Vancouver: http://www.scribd.com/doc/1162.....nuary-2009
Rates look like they peaked at 82, right where the bottom is. 1985 does show a 12.4% rate but RE prices is higher than the 82 bottom.
So either you are right, you without sources or I’m right, with my two different charts.
March 24th, 2009 at 8:32 pm
If you buy a house today, and at some point in the future you can buy a substantially identical house for less money, you have lost money. Period.
You can’t tap dance your way around that.
Dave was doing similar tap dances on this board after the first couple months of price drops last year. We’re down over 10% since then. Keep dancing Dave.
March 24th, 2009 at 8:23 pm
observer:
Assume constant payments, interest rates and constant inflation. Inflation has been exaggerated to make my point. The $50k I referred to was only the increase in nominal value of the home.
observer:
He doesn’t sell because he isn’t a speculator. He renews at Year 5 under the same conditions as Buyer 2.
No he doesn’t lose money. He made $50k in nominal dollars and has a small mortgage than Buyer 2. He also finishes his mortgage five years earlier.
And you made my point… it’s silly to imply he lost money. That’s why I prefer to stick with nominal dollars.
March 24th, 2009 at 8:12 pm
Another thing that is confusing me is that if buyer 1 bought at 100K then sold at 150K in nominal terms, it seems like he made a profit of 50K or 25K in real terms (year 0 dollars). But in year 0 dollars, he bought at 100K and sold at 75K, so he lost money. Dave, can you help point out the error?
March 24th, 2009 at 8:02 pm
Yes there is a difference.
Buyer 1 has a much smaller mortgage in nominal terms in Year 5 than Buyer 2 and has built $50k of equity. He also happens to have more disposable income than Buyer 2 at Year 5 because he has a smaller mortgage.
Sorry I’m a little slow today, perhaps you could add a more more details (like mortgage payments, interest rates, inflation rate) to your example so we can follow more easily. It’s easy to get confused in these type of examples if one is not clear about things (not saying you are, could be me).
How did Buyer 1 who bought in year 0 build up 50K of equity? Do you mean the amount owing on the loan was reduced by 50K through the mortgage payments (seems a bit much) or do you mean that the house price has risen 50K in nominal terms so if he sold he would make a 50K profit. If you mean 50K profit, the 50K is really worth 25K in terms of purchasing power, right?
March 24th, 2009 at 8:02 pm
Raven:
Nope. Interest rates were 10.5% when the RE market peaked in 1980. Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%.
Wrong.
5 year mortgage rates passed 10.75% at the beginning of 1979, before the start of the bubble. They continued rising as prices increased in 1979 and 1980.
The peak of the RE market was end of 1Q81. Rates at that time were 15.75%. Rates rose to 21.3% at the end of 4Q81, then fell to 17.5% at the nominal bottom at the end of 4Q82, and continued falling to 12.4% at the real bottom at the beginning of 1985.
Source: Bank of Canada, AVERAGE RESIDENTIAL MORTGAGE LENDING RATE – 5 YEAR.
March 24th, 2009 at 7:32 pm
Arwen:
Yes there is a difference.
Buyer 1 has a much smaller mortgage in nominal terms in Year 5 than Buyer 2 and has built $50k of equity. He also happens to have more disposable income than Buyer 2 at Year 5 because he has a smaller mortgage.
Yet, your analysis using REAL dollars wouldn’t conclude this now would it? You would conclude that buying at the ‘REAL’ bottom is better.
March 24th, 2009 at 7:24 pm
“you aren’t a “contrarian” if you are doing the koolaid enema trick….”
Special definition from blueskies’s dicktionary.
March 24th, 2009 at 7:21 pm
In terms of your REAL vs. NOMINAL, the buyer in both scenarios will not see a difference.
But compare him to the investor in GICs or bonds or a simple savings account, whose investment is stable and non-depreciating.
Plus, this scenario is sort of the opposite of what’s happened – it’s been more like year 0, 100K, year 5, 600K. Ownership hyperinflated vs. the yield/rental income of the investment and the real wage increases.
Rental incomes on a property are tied to wages; people have to spend on stuff other than their housing. And the economy needs all those people in rentals to spend money on things other than houses, so the discussion affects the economy two ways.
Which means your buyer who buys at the peak is more vulnerable given his/her total net worth, at least until he’s returned in real terms to what he paid — and then he still might be behind the ball depending how long it goes and how desperate rents vs. mortgages are.
To make it absurd but obvious, if I’m paying $3- to rent, or $100 to mortgage per month, then as a renter I can put $97-/month into investments that maintain value in real terms. That difference is the risk margin.
Plus there’s the vulnerability of needing to leave/buy elsewhere. If your hypothetical owner doesn’t need to move, or get divorced, or decide he hates the place, or need to retire before he’s gotten back to zero, he’s might not notice. But if he has to sell, he’s taken a hit, for the great joy of being responsible for the roof.
I think it makes sense for people to buy in any scenario that makes sense. If they’ve found a place they like and the numbers work – mohican bought and his numbers are solid, right? Plus there are the intangibles; if it’s something you love and in a location you like and you’re able to pay it and it doesn’t make you house poor (you can invest in other places), then it’s all good. But knowing that real estate has taken some time to rebound in real terms in our market is a good bit of information to have … if you’re not infinitely rich and retirement savings or education funds or what gets given to the kids is something you want to consider.
March 24th, 2009 at 6:40 pm
“What’s wrong with being ‘contrarian’?”
you aren’t a “contrarian” if you are doing the koolaid enema trick….
but at least you aren’t talking with your mouth full…..
March 24th, 2009 at 6:39 pm
“#18 If you want a safe inflation protected investment, get some Canadian government Real Return Bonds.”
Thanks, asp.
I found some information about them here:
http://www.bylo.org/rrbs.html
I have always found bonds the most confusing investing area. I don’t know why. I had to read the chapter on bonds twice in my Benjamin Graham.
March 24th, 2009 at 6:24 pm
#18 If you want a safe inflation protected investment, get some Canadian government Real Return Bonds.
March 24th, 2009 at 6:20 pm
There is an update on CMHC in CNBC:
http://www.cnbc.com/id/29862849
“UPDATE 2-Canada mortgage purchase plan may wind down – CMHC”
The program — which began with plans to buy C$25 billion in insured mortgage pools and was later expanded — aims to provide stable funding to banks so that they can lend more freely. Kinsley said talks with financial institutions indicated that credit flows have improved due to CMHC’s purchases of insured mortgage pools, which now total about C$55 billion. “We believe at this point in time there is a fair amount of liquidity in the system,” she said. “I don’t think we would say that the program isn’t going to be taken up as we go forward but I think that given the pace that we’ve been operating at, we’re probably going to want to slow it down a a bit given the needs that lenders have at the moment.” In the auction on Tuesday, CMHC offered to purchase up to C$4 billion in the mortgage assets, but weak demand resulted in it buying only C$1.6 billion.
March 24th, 2009 at 6:07 pm
What, did someone copyrighted “contrarian” specifically for RE bears?
March 24th, 2009 at 6:07 pm
Ella, seriously? About as often as i hear others complain about folks referring to themselves as contrarian.
Screw it…let ‘em call themselves whatever they choose…as you will call yourself whatever you choose.
Hell, agree to disagree.
March 24th, 2009 at 6:05 pm
What’s your point, Ella?
March 24th, 2009 at 6:04 pm
“What’s wrong with being ‘contrarian’?”
Nothing. I think most of the people on here are contrarian.
How often do you hear people call themselves contrarian?
It’s just a thought.
March 24th, 2009 at 6:01 pm
Dave Says:
March 24th, 2009 at 3:51 pm
Raven:
I find it interesting that some people find it OK to attack contrarians (e.g. scullboy above) but then demonstrate indignation when a contrarian responds in kind.
hmm
Raven Says:
March 23rd, 2009 at 12:07 pm
“…I take offense to people quick to define me because I offer up a contrarian but highly relevant view. And when the likes of you criticize my investment decisions and question my intelligence, I am put in the position to stand up for myself.
March 24th, 2009 at 5:59 pm
“Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.”
Nope. Interest rates were 10.5% when the RE market peaked in 1980. Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%.
“The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more.”
Prices were high because inflation ran up. Then the gov’t reigned it in by increasing interest rates, triggering a global recession.
March 24th, 2009 at 5:57 pm
What’s wrong with being ‘contrarian’?
March 24th, 2009 at 5:56 pm
“Raven
Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.”
Please provide your sources. Here’s mine:
INTEREST RATES: http://www.mississauga4sale.co.....ically.jpg
Pg 7 chart from Real Estate Board of Vancouver: http://www.scribd.com/doc/1162.....nuary-2009
Have a look–Does it not look like the interest rates were 10.5% when the RE market peaked in 1980? Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%?
“The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more.”
Prices were high because inflation ran up. Then the gov’t reigned it in by increasing interest rates, triggering a global recession.
March 24th, 2009 at 5:55 pm
“Raven Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.”
Please provide your sources. Here’s mine:
INTEREST RATES: http://www.mississauga4sale.co.....ically.jpg
Pg 7 chart from Real Estate Board of Vancouver: http://www.scribd.com/doc/1162.....nuary-2009
Have a look–Does it not look like the interest rates were 10.5% when the RE market peaked in 1980? Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%?
“The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more.”
Prices were high because inflation ran up. Then the gov’t reigned it in by increasing interest rates, triggering a global recession.
March 24th, 2009 at 5:54 pm
“Let’s play with numbers… ”
What a lovely idea.
Tell you what, you take those numbers over to your place, and we’ll be over in a couple of minutes. Honest, we’re right behind you…
March 24th, 2009 at 5:52 pm
“then demonstrate indignation when a contrarian responds in kind.”
Maybe it’s nothing, but I think it’s interesting that Dave and Raven both refer to themselves as “contrarian”.
Just a note.
March 24th, 2009 at 5:52 pm
Let’s play with numbers… Here are some NOMINAL made up numbers:
Year 0 – Income $25k, House $100k
Year 5 – Income $50k, House $150k
Using 100% inflation, in ‘REAL’ terms:
Year 0 – Income $25k, House $100k
Year 5 – Income $25k, House $75k
Now let’s compare two buyers: the first in Year 0; and, the second in Year 5. Who is better off?
March 24th, 2009 at 5:49 pm
“Uh-huh. And is someone waiting out a market correction similarly OK with the risk that the correction won’t be as rapid or as severe as they think?”
In my opinion, yes. But it’s subjective.
To me, there is a difference in experience being priced in or priced out. Priced out only means you can’t own. You can have a place to live that’s nice (and despite what people say I’ve painted, had pets and gardened while renting), and you can still invest your money in something else. It may be frustrating, but there are options open.
Priced in (if your house falls below market value) means you have to stay put until the market corrects. Your money is tied up indefinitely. In Canada, where many mortgages are 5-year, I would add living in fear of interest rates to that priced in feeling. UNLESS you can rent for about even. That’s a different story. But if you bought later in the run-up you can’t do that either.
If I had to pick between priced in and priced out, I would choose priced out. But as they on the internets YMMV.
March 24th, 2009 at 5:46 pm
Life is like that sometimes…there are economic ebbs and flows.
So what? Ride out this ‘bad time’ and enjoy during ‘good times’.
There, problem solved.
March 24th, 2009 at 5:01 pm
“Someone buying during a run-up thinks that they are OK with the risk”
Uh-huh. And is someone waiting out a market correction similarly OK with the risk that the correction won’t be as rapid or as severe as they think?
March 24th, 2009 at 4:47 pm
“Real Estate can only crash when interest rates are 18%”
-guy who never heard of Japan.
wow. I’m jealous of your ability to get to the point in 6 words.
March 24th, 2009 at 4:43 pm
Arwen,
“Amyway, I don’t want to argue the point too hard”
Yeah.
I guess, I find it a disingenuous argument on the part of realtors because it takes advantage of the fact that people are pretty comfortable with the idea of risk, when the risk isn’t present.
For example, many people enter the stock market imagining they will be tough and buy-and-hold. But when things go sour, they panic and want out. Someone buying during a run-up thinks that they are OK with the risk. But you don’t know if you are really comfortable until you are actually having trouble selling, or see people get comps for less than you.
10 years ago, when real estate wasn’t fashionable, everyone seemed capable of being happy and proud of their homes without owning. Now the trend is reversed. When the trend swings back, how many will really feel like it was worth it not to wait a few years? And I’ve only just begun to hear homeowners refer to eachother as having bought “before the crash”. Oops, there goes that pride of ownership.
March 24th, 2009 at 4:33 pm
Raven
Your not entirely correct on the 1980′s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.
The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more. Fundamentals ALWAYS win in the end. This crash started before all the layoffs were widely reported, in fact the average Joe is still oblivious to what is about to happen. Once the bad economy is in full effect in BC, Realestate will be a dirty word.
This market has AT LEAST another 30% to go down…
March 24th, 2009 at 4:24 pm
Doses of pessimism is fine, but prolonged pessimism leads to self-fulfilling prophecy.
I got a chuckle from Dan’s post:
“A lot of people reading this blog watched real estate go up over the past few years, will watch it go down over the next few, and then will watch it go back up again. Some people will always be waiting for the perfect time to buy.”
Indeed.
I’m reminded of my uneducated, subprime borrowing parents who bought a house for $265K in 1997 when all the economic indicators (including price/rent ratio)in BC were bad. Then of course, RE fell slightly and didn’t budge for 6 years. They probably would have avoided people like Ella (“SEE! I TOLD you so!”). Then in 2005, turned around and sold it for $122,000 over it’s inflation value.
The economy makes us all fools at one time.
March 24th, 2009 at 4:17 pm
Bigger question is why, with credit so cheap, are RE prices not skyrocketing? Worst news for the economy is not out yet and interest rates have been artificially pushed down (U.S. gov’t purchase of treasuries – if you don’t understand why please read about price/yield relationship of long bonds and effects on mortgage rates). Please tell me what happens when crisis is averted and economy normalizes or worse yet when inflation bogey reappears. Remember unless you plan on paying off your mortgage within the fixed term your playing with a variable rate mortgage. How many people with a mortgage could afford to increase their payment 25%-50%-100%+ it’s happened before please don’t tell me it’s different this time.
ps I need some of that weed MAC mkting dept smokes “passing savings along to the consumer” – Wow, Cannonball coming!
March 24th, 2009 at 4:05 pm
Arwen:
And your response confirms my suspicion that you don’t get it. Do you understand that his mortgage remained in constant dollars? Do you understand that his salary went up over time in nominal dollars? Why in the world do you think this person is somehow worse-off? Why would his dollar go, as you say, ‘less far’?
March 24th, 2009 at 3:59 pm
Arwen:
I thought I clarified my question fairly well. I can’t simplify it anymore.
Your response seems to suggest that you believe these ‘magical real dollars’ cause the theoretical homeowner (again, we are talking about the guy who bought before the 81 peak) to suffer some type of economic consequence up to the point their home appreciates back to real dollars. Please explain this.
March 24th, 2009 at 3:56 pm
If the question is:
Don asked me when our imaginary homeowner broke even on a ‘real dollar’ basis. I said, who cares? I have yet to hear an answer
Answers, in order of explicit dependence on real dollar answers;
1) Me.
2) My homeowning friends.
3) My bearish friends.
4) My economist friends.
5) The economy as a whole.
6) Every person who wonders why their dollar goes less far and wishes they had an answer as to why that was the case.