CMHC really wants you to buy something.
The Canadian Mortgage and Housing Corporation is expanding like never before. Ottawa has just raised their mortgage insurance cap from $450 billion to $600 billion. At the end of 2007 the cap was $350 billion. Garth Turner already has a great post on this subject at Greaterfool.ca, so I thought I’d focus on one aspect of this topic: Does the governments actions make it rational to buy more house than you can afford? This comment by “hp” is from Turners blog:
First time buyers putting 5% down may be acting rationally. Perhaps they realize they are taking a chance on bankruptcy. Five years down the road, if interest rates are high and property values have dropped, they may be willing to file for bankruptcy. In the meantime, they had a nice house. Also, there is new legislation that RRSPs will be protected during personal bankruptcy. Why not put all your savings in your RRSP and pay minimum payments on your house? Then see what happens when your huge mortgage comes up for renewal in 2014?
There is some logic to this approach if you’re willing to file for bankruptcy and can protect the bulk of your savings in an RRSP. The government is clearly saying that saving up more than a 5% down payment is a hardship you should not have to endure. They seem to be saying they will do what they can to keep fueling the housing market, no matter how risky or silly their actions may be. What are new home buyers to do? Go along for the ride or sit out and save in the hope of a US style return to sane pricing?
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gasman Says:
October 19th, 2009 at 12:14 pm
The heavyhanded censorship and editing of comments on this site make it hard to have an adult discussion. Mind you the stream of real estate related advetising does give the intent of the site away as fluff anyway.
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RVW_0824 Says:
October 19th, 2009 at 12:21 pm
This is right on the money and will hopefully start coming out more in the media so our politicians can understand the issue – currently they seem to have no clue. The CMHC is an unregulated entity that is setting us up – the Canadian tax payers – for a disaster of epic proportions. Classic case of Moral Hazard. Banks will write mortgages all day long as they are insured / backstopped by the CMHC. I also believe that it being insured by the CMHC allows them to not include the mortgage as part of their regulatory capital requirement calculations. Therefore if you are a bank and you make a spread on each mortgage you write with no recourse back to you – I would write them all day long and that is what they are doing. Unfortunately the CMHC is a bit of a blackhole and does not publish much data. Note – the FHA – which is the US’s equivalent to the CMHC – now has 20% defaults on the mortgages it wrote in 2006 and 2007. A $600B cap? – in 2005/2006 the CMHC had just over $100B in mortgages on its books…it then tripled to well over $300MM this year and it is currently levered 35:1 from what I can calculate. If it goes to $600B – that will be a 6x increase in value of their mortgage book since 2005/2006 and put them close to being one of, if not the largest bank in Canada by assets.
Most new mortgages written in Canada are well under 25% down (closer to 10% down or less) and therefore fully backstopped and insured by the CMHC. From what I can gather the majority of new mortgages are also variable (2% lower rate than a five year fixed which would be close to double the rate) and most at 30 or 35 year amorts – people will be lucky to pay them off before they die. The banks have no risk at all on these mortgages and they also don’t count as part of their capital requirements as they are backstopped by the CMHC. They will continue to write as many as they can – its free money with no risk – until rates start to rise – which we are already starting to see on the 5 years – and the defaults start and the CMHC is forced to stop lending to people who are not ever close to being able to afford what they are trying to buy.
Scary. This is the US all over again. Our tax dollars are going to pay for this when it blows up. And we don’t have any politicians that really seem to see it coming – wouldn’t expect them to as most of them don’t’ have any proper economic or financial training and likely can’t even balance their own cheque books. In the original article this was published in – CIBC’s economist also stated that the above was the reason the Canadian Banks didn’t need bailouts. They likely won’t – it’s all on the government tab.
Until this activity ends and people stop getting mortgages that are 6-8x+ their gross income with 5% down and 35 year amortizations – housing prices will continue to rise, you will get 20 offers on houses for sale as we are seeing now and the bubble will continue to grow.
The funny part is that I saw a comment from a government source saying they may have to increase interest rates to slow the housing bubble. Why penalize an entire economy when all you have to do is stop the CMHC in its tracks and make it so that everyone with a heart beat can’t get a highly levered mortgage.
Unfortunately – and like the US – this won’t happen until its too late as the politicians have no will to act to reign in the CMHC and / or don’t understand what is happening – same thing that Greenspan mentioned happened to him when he spoke in Vancouver the last time he was here.
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YLTNBoomerang Says:
October 19th, 2009 at 12:30 pm
@gasman:
I never noticed the adds, let the Pope make a little money on the side as it is a lot of work to manage the site – not to long ago he was going to shut it down the way of VHB.
Speaking of ends, when the market started to slide at the end of ‘08, the banter back and forth on this and other sites all but died as all the bears felt their views had been proven, the market was falling and there was no point going on about how they were right… So the bright side of this last little rally is we get to complain yet again about the bubble not bursting – enjoy the banter as this site and others will get quite dull once the market finally capitulates.
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frank Says:
October 19th, 2009 at 12:54 pm
A pox on the CHMC.
they are encouraging recklessness. If you cant afford something, then WAIT AND SAVE A Bigger down-payment. Sheeeshh – what’s worng with that??
another bone from Harper to his banker and developer friends.
Some nameless, faceless beaurocrat in now building our very own Fannie Mae and Freddie Mac.
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drugs "R" us Says:
October 19th, 2009 at 1:13 pm
Without the Real Estate boom there is no economy to speak of.
They will prop it for as long as possible. And when no longer possible they will prop it some more with some novel scheme nobody thought was possible. This is already happening in England.
When this empire falls, there will be nothing left. The only thing that can overshadow the devastation of the aftermath is another world war. And as you all know, the biggest fortunes are made in times of war…
You make your own conclusions.
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Crash Says:
October 19th, 2009 at 1:17 pm
The CMHC debacle will, at some point, end up being a scandal of epic proportions. CMHC are running out of control with no accountability. It will eventually bring down the government.
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No Longer Looking Says:
October 19th, 2009 at 1:44 pm
Of course, this news story is really an ad for TD “Green” mortgages. Keep up the social pressure, and throw in a little political correctness.
Yes, the present is like no time previously. Never before has it been so easy to borrow so much to buy so little.
Why can’t the older generations let the youth be young for a little while? You know, go to school, travel, have fun etc. No, we have to indoctrinate them into the debt cult.
There’s no time like the present to be buying your first home… The latest survey on home-ownership from TD finds Canadians between 18 and 34 feel more ready to get into the market than their parents or grandparents did.
In some cases, it’s because they’re buying older homes or getting help from their families. The research also suggests new homebuyers have more options when it comes to financing including green mortgages, for those who want to lessen their environmental footprint.
http://www.news1130.com/news/l.....15203_7948
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Drachen Says:
October 19th, 2009 at 1:52 pm
@Crash:
It will bring down the government when the Real Estate market collapses… Which is why they’re so desperate to keep things going.
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realpaul Says:
October 19th, 2009 at 3:12 pm
The CMHC is a Crown Corporation. It operates by the directives of the Federal Government. What a majority of people don’t seem to understand is that the new ‘600′ billion dollar figure is ‘The Stimulus’ program that was announced and agreed to by a majority of Canadians and their representatives in Ottawa.
The Liberals, NDP and the Unions ( and the citizens it goes without saying) have been hoodwinked by the announcement of stimulus spending and they interpreted the funding announcement to mean that ’shovel ready projects’ across the land would get funding. They are howling in parliament and in the media that those projects have been stalled. None of these projects were ever intended to be funded.
The fact is that the stimulus funding has not gone to the usual Liberal and Unionists public-trough dwellers or parasites and instead has been used to fund this real estate bubblezilla to the tune of $600 Billion plus. Its quite simple, the Conservatives have no intention of funding infrastructure projects in Liberal, NDP or Unionist ridings anywhere in Canada, there isn’t ANY political mileage in that.
But……. new home buyers beholden on the government for a ‘miracle interest policy and free money for all’, now that constiuency has legs. This is just politics as usual in Canada, no one should be surprised, the Liberals funded Ontario and Quebec campaigns on the backs of the taxpayer for generations. The media has eaten this stuff for breakfast and regurgitates the fallacy that ‘its a good thing’ every day ad nauseum and in turn the brain dead public laps it up.
It is currently reported that 100% of all purchases are CMHC funded with less than 5% down ( those magic HELOCS to the rescue). In the US the figure is 75% of the mortgages are funded by agency ( F&F Mac) buying of mortgage securities. Interestingly the mandate for federal funding expires ( in the US) at the end of October. Can the Canadian Conservative Party hoodwink the public ( with help from the media of course) into funding an additional $600 Billion?
There is currently zero buying of Mortgage backed securities in the debt market. 100% of the market is being absorbed by you the taxpayer. How are you going to pay for this? Higher taxes, of course.
Barrons ( the investors Bible) magazine issued a front page directly warning the US Fed to stop the intervention and raise rates ….Now, before the debt bubble explodes. Is it likely Canada will follow? Remember , this is all going to happen before November 1st in the US. The effect will send the $CDN to the moon as the .62% yield in the US moves away from the .40% yield in Canada forcing the BOC to act in such a way that has the optics of being a situation it cannot control. Get your popcorn ready.
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ReadyToPop Says:
October 19th, 2009 at 5:13 pm
Increasing the cap will not prevent the inevitability of a crash. No amount of loose lending in the U.S. was able to prevent the spectacle that we are now witnessing south of the border.
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damnedstraight Says:
October 19th, 2009 at 5:34 pm
It was just a week ago that the government was saying that inflation was negative because of declining energy prices. Someone should point out that gas prices are certainly not going down. Where do they get their information?
http://news.yahoo.com/s/nm/200.....9saW5lcHI-
If saving 5% is a hardship then how about a doubling up of a mortgage payment as interest rates rise. What is tougher?
1) Not having bought a house you couldn’t afford and renting in a place that you can.
2) Having to declare bankruptcy to extricate yourself from a mortgage that you were told was affordable because you didn’t understand the bankster and the real whore were lying about interest rtaes staying at zero forever and ever , OMG, forever.
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logic Says:
October 19th, 2009 at 6:34 pm
“Five years down the road, if interest rates are high and property values have dropped, they may be willing to file for bankruptcy. In the meantime, they had a nice house.”
——–
I live in a nice house now (which I rent for about 40% of what it would costs to service a 95% mortgage), and have no chance of bankruptcy. How are they ahead of the game here?
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rentah Says:
October 19th, 2009 at 7:00 pm
@logic: How are they ahead of the game here?
—-
They are ahead of the game in that they get an (almost) one way bet on RE prices.
If prices soar and interest rates remain low, they profit (perhaps handsomely), if prices plunge and/or rates soar, they walk away.
Classic moral hazard.
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Ulsterman Says:
October 19th, 2009 at 7:06 pm
Crash said, “The CMHC debacle will, at some point, end up being a scandal of epic proportions.” True enough. However i am concerned that, as Keynes said, “The market can remain irrational longer than you can remain solvent.”
All the rational arguments in the world won’t help the fact that the irrational bulls have become quite wealthy while i’ve sat back and read bear blogs. I think the market is insane and makes no sense. When i see family income @ 60k i wonder who is buying all the houses around me. Mine’s double that and i feel like everything is out of my league. Meanwhile, i’m watching the market irrationally move further and further beyond my means.
Funny thing is though, i don’t really feel like i’m geting rich from renting either. The house i rent (Burnaby) costs 2400/month to rent and i figure it would cost 4200/month inc. taxes to buy (at the CCS 5 year rate of 3.85 – which i’m certain will rise soon). However, i don’t automatically save 1800/month because to be honest i couldn’t afford to pay 4200/month in the first place without eating Kraft dinner throughout my “good years”. Could i pay 4200? Right now yes – just. But what happens when another kid comes along? Mortgage rates rise? 4200 on one income is a frighteningly LARGE payment. Very little margin for error.
I’m just worried that this market will keep on chuggin’ or drop a measly 10-15% again and i’ll still be waaaaaay out of the market.
15 X “I’m watching the market irrationally move further and further beyond my means.” « Vancouver Real Estate Anecdote Archive Says:
October 19th, 2009 at 7:37 pm
[...] 19 October 2009 · Leave a Comment Market wisdom is that the bull market is over when the very last of the bears that are destined to capitulate do so (and buy). VREAA personally knows of two long term bears who have recently bought. The Vancouver RE message boards are rife with bears expressing their exhaustion and demoralization. Perhaps we are somewhwhere near a top. This bear lament from Ulsterman at vancouvercondo.info on October 19th, 2009 at 7:06 pm – [...]
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logic Says:
October 19th, 2009 at 7:52 pm
rentah Says:
October 19th, 2009 at 7:00 pm
@logic: How are they ahead of the game here?
—-
They are ahead of the game in that they get an (almost) one way bet on RE prices.
————
Ah. I see. I thought the game was being happy and ejoying one’s life – not spending all one’s time stressing about the value (or not) of one’s house. My bad.
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ReadyToPop Says:
October 19th, 2009 at 8:51 pm
Britain: How’s this for getting tougher…
Homeowners ‘will struggle to remortgage’ under FSA rules
Under proposals published yesterday by the regulator, banks and building societies will have to assess all mortgage applicants on the basis of their “free disposable income”, after tax, debt repayments, utility bills and other outgoings including “alcohol and tobacco”, “clothing and footwear” and the cost of eating out.
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No Longer Looking Says:
October 19th, 2009 at 9:28 pm
@logic: Welcome to Vancouver
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No Longer Looking Says:
October 19th, 2009 at 9:36 pm
@ReadyToPop: The article talks about how remortgagers will need to buckle down and pay debts to qualify. No doubt many are going to quickly learn the bitter reality of being a debt slave. Eating out and other luxuries will soon be a pleasant memory.
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No Longer Looking Says:
October 19th, 2009 at 9:40 pm
Found on Craigslist:
NOTE TO LANDLORDS (Lower Mainland)
If you have to keep posting your ad week after week take a hint. It is too expensive or a dive! And get real on prices seriously! If you reduced your rent and the suite wasn’t vacant for a few months you would make more money…this is not rocket science. Oh and a basement suite shouldn’t cost as much as a condo mortgage!
http://vancouver.en.craigslist.....04384.html
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FORREST Says:
October 19th, 2009 at 10:14 pm
C CONSERVATIVE
M MANAGED
H HOUSING
C COLLAPSE
THAT’S ALL I GOT TO SAY ABOUT THAT
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davers Says:
October 19th, 2009 at 10:50 pm
Ulsterman:
If you make double the average income and cant afford an average house without killing yourself for a mortgage then something is wrong. This cant carry on forever. Housing is a supply and demand market and has rampent speculation just like most other markets.
And just out of curiosity, why do you want to own so badly if you dont think you can afford it? It really isnt a decision, just sit back and try not to say “I told you so” when the whole ponzie scheme falls apart.
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realpaul Says:
October 19th, 2009 at 11:13 pm
@FORREST:
#21, F
Thats a good one LMAO, right on the money DUDE !!!!!!
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patriotzed Says:
October 19th, 2009 at 11:17 pm
@Ulsterman:
Worried about what exactly?
You are paying the market rent for your accommodation, which is exactly what it’s worth. Meanwhile – as you have detailed in your post – “owners” are paying more than twice this. The only way they can make up this loss is by selling to a greater fool, and these fools will eventually run out. No matter what.
One more thing – the longer that prices stay high, the more people will buy at an inflated price, and the more people that buy at an inflated price, the fewer people that will be able to buy later at a reasonable price.
So just grab some popcorn, sit back, and wait. Worked just fine south of the border and will work fine here.
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logic Says:
October 19th, 2009 at 11:19 pm
No Longer Looking Says:
October 19th, 2009 at 9:28 pm
@logic: Welcome to Vancouver
=========
Nah, not my Vancouver. It only is if you buy into the race. I’m here for my career but retirement is definitely somewhere warmer. Afterall, skiing when I get to 60 ish probably loses it’s appeal.
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SD92129 Says:
October 19th, 2009 at 11:57 pm
People, this is a gateway city. There is an influx of cash and people are willing to double up (or triple up in the case of laneway housing). It is just like any high density metropolitan area where housing takes up a larger percentage of household income. get used to it.
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No Longer Looking Says:
October 20th, 2009 at 12:20 am
@SD92129: Bullshit. They said the same things in LA, San Francisco and Seattle. Now look at them.
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SD92129 Says:
October 20th, 2009 at 12:25 am
but they dont have the urban density it SFH that we have. Have you lived in LA? SF I can agree with, but their $/SQFT beats YVR unless you are more than an hour from downtown, which in YVR would put you in Maple Ridge
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SD92129 Says:
October 20th, 2009 at 12:27 am
besides, they dont have the lax immigration policies in the US as they have here. So people with a 6 figure investment sum can immigrate just buy investing.
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No Longer Looking Says:
October 20th, 2009 at 12:36 am
There is only one reason — ONE — for why the bubble didn’t continue its burst. Super low interest rates like we’ve never seen before. Before that, this market was collapsing.
There is only one reasonable, short-term bull argument: that the governments and CMHC will continue to pull more schemes from their bag of tricks. The mind boggles at what’s next.
The fact that the market went bad so quickly in 2008 proves all local bullshit arguments are just that.
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logic Says:
October 20th, 2009 at 12:37 am
but they dont have the urban density it SFH that we have.
=========
bullshit.
and they also have twice the population. that worked out well for them, didnt it.
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No Longer Looking Says:
October 20th, 2009 at 12:42 am
I should add that the easy lending criteria that is apparently going on amplifies the effect of those super low rates. We are going where the Americans went already and have retreated from. We are creating our own subprime disaster.
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rp Says:
October 20th, 2009 at 12:56 am
#14: @Ulsterman: Funny thing is though, i don’t really feel like i’m geting rich from renting either.
Me either, but the prudent can’t compete with leveraged debt. “You’re richer than you think” is part of the psychological pull. Those commercials should really say “you owe as much as you remember borrowing” followed by a giant gulp and some dude’s hair falling out as he realizes he’ll be an indebted senior citizen. “You’re retiring later than you think” would be another good one. Seriously, this country has gone house nuts and everybody is in on the party.
The most valuable thing to own later is often what the masses are shunning now and can’t easily get back. Right now that is being debt-free. All these huge mortgages with insanely long durations. How long will it take to get out of this mess? Another generation has been largely sucked in. Of course you’re free to take advantage of this phenomenon and try and get rich, but you risk losing your shirt.
In the end, I think it boils down to your philosophy of life. If you want to make money then you should play all the games. You have to be happy with your choices either way. Personally I just want to avoid being screwed big-time. Our society has a way of doing that to large groups of people at once. I’ve seen it, and the damage is roughly proportional to peoples’ greed and the size of the games that were played. This one looks like an all-time record on both fronts, so I’m sitting on the sidelines.
I’m not particularly happy about it. I would have liked to own a home, mostly for the yard. But this is the rawest of raw deals. People can’t seriously be signing their lives away for a shoebox with strata fees, can they? If the crash doesn’t come in time then I don’t give a crap. I’ll find something that works for me. I have so far, and I don’t have any money problems or any real risk of them, and I’m doing other stuff I enjoy. That’s enough. I really shouldn’t dare complain. It’s the nature of greed to want what you don’t have only to ignore or neglect what you do.
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betamax Says:
October 20th, 2009 at 1:28 am
No Longer #32 “We are going where the Americans went already and have retreated from. We are creating our own subprime disaster.”
Precisely, with teaser rates and essentially interest-only 35-yr mortgages. A lot of people are going to be in trouble for a long time, and the looming demographic debacle of deadbeat boomer retirees trying to cash out at once is only going to worsen the disaster. The next 10 years won’t look anything like the previous decade.
#33 rp: “You’re retiring later than you think” LMAO. Hilarious. And true.
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SD92129 Says:
October 20th, 2009 at 1:29 am
In SFH in LA, there are very few mortgage helpers. Have you actually been there and taken a close look? People here can afford to pay much more for a house if they have these suites they can rent out. Most places have a 4 storey building limit (and that is for commercial) most residential are limited to 3 stories. so these high rises popping up everywhere are unlike LA, OC, riverside, and SD.
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logic Says:
October 20th, 2009 at 2:17 am
so these high rises popping up everywhere are unlike LA, OC, riverside, and SD
———
All of which should make our RE cheaper than theirs, rather than more expensive – as there are fewer constraints on supply. Want to keep torpedoing you own argument?
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patriotzed Says:
October 20th, 2009 at 4:10 am
@SD92129:
OK, so (drumroll)…
Why aren’t rents any higher than in Calgary, Toronto, or Ottawa?
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crabman Says:
October 20th, 2009 at 6:26 am
Total assets at Fannie and Freddie add up to $1.67 trillion. This would be equivalent to CMHC assets of $167B when you adjust for population or GDP, since the US is roughly 10X bigger than Canada.
So, the US GSE’s are backing $167B and CMHC is on pace to own $345B by year’s end, with a cap of $600B. Nice.
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patriotzed Says:
October 20th, 2009 at 8:17 am
You should also add the loans guaranteed by FHA, which until the USG takeover of Fannie/Freddie was the true counterpart to CMHC.
http://online.wsj.com/article/.....85297.html
But wait… is trouble brewing?
Can’t happen here?…
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patriotzed Says:
October 20th, 2009 at 8:24 am
@crabman:
You also forgot to add Fannie/Freddie’s loan guarantees to their assets (assets are loans purchased by them). Total comes to about $5.5 trillion.
FHA makes guarantees only and does not buy loans.
So total USG exposure is about $6 trillion which on a proportional basis is higher than in Canada.
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rentah Says:
October 20th, 2009 at 9:29 am
@logic:logic Says:
October 19th, 2009 at 7:52 pm
rentah Says:
—-
They are ahead of the game in that they get an (almost) one way bet on RE prices.
————
Ah. I see. I thought the game was being happy and ejoying one’s life – not spending all one’s time stressing about the value (or not) of one’s house. My bad.
_____________________
logic, PLEASE don’t misunderstand me here.
I’m also renting (with very similar % metrics as you).
I’m prudent, I’m a bear, I’m expecting a Vancouver RE price collapse of over 50%.
However, note that this is not a board where we are discussing ‘the game’ of ‘quality of life’… heck, if it were, we’d have guru’s checking in asking why we don’t cast off all possessions and go and help the poor in Burundi. This is an RE board and we are discussing the matter of housing prices in Vancouver and thus ‘the game’ here is indeed the price of housing.
As long as there is a moral hazard situation, with people having the option of one way bets, some people will take that option. Sure, you or I wouldn’t enjoy life much knowing we’d taken that bet, but some people, out of denial or ignorance, will take it as long as the option exists. And that screws things up for the rest of us in that it perverts the market.
When the resolution comes, let’s hope it is swift and decisive.
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crabman Says:
October 20th, 2009 at 9:34 am
@patriotzed: I was just comparing the total amount of mortgages directly owned by CMHC to Fannie and Freddie.
If you include loan guarantees, CMHC’s exposure is much greater as well.
From the CMHC 2008 annual report (page 97):
2009 Plan:
Assets: $345B
Insurance-in-force: $440B
Securitization Guarantees in force: $372B
Total: $1.157 trillion!
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SD92129 Says:
October 20th, 2009 at 9:54 am
I am not saying that there are not arguements for and against lower prices (or higher prices). I believe rents are low here because there is a decent supply of rental units (and soon will be more). Fundamentals based on potential income stream are out of whack. My point is about SFH housing, which because of mortgage helpers, allows people to pay more for a house than one should. Laneway and units within apartments should have a similar effect.
But as we all know, prices are crazy. The western US seaboard has LA, OC, SD, SF, Portland and Seattle to immigrate to and immigration is generally tougher than in Canada. Vancouver (and if you want to count Victoria) is the only gateway for Canada. Furthermore, immigrant consumption choices may put housing near the top of the list so they will sink whatever they can into a home quickly regardless price as they may have come from somewhere arguably “bubblier” than Vancouver so they are used to rampant inflation in housing.
I believe we are in for a correction. Raising property taxes (especially for non-owner occupied) as well as a weaker loonie (which may happen all by itself) should go a long way in flushing foreign investments out of the YVR housing bubble.
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Hovering Says:
October 20th, 2009 at 10:08 am
my neighbours have put their place up for sale in a flurry of panic that the market is going to crash. my landlord (who bought last year at peak) is also desperately trying to sell the place out from under me (so to speak).
Strange days
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SD92129 Says:
October 20th, 2009 at 10:37 am
a TD’s recent increase on my co-workers variable (to prime +1%) has halved his +ve cashflow. He is re-evaluating his investment. he is 1% from being cashflow neutral, renter is leaving at the end of the month, he is considering sell, re-rent, hold out for 5 months or so to cash in on the olympics and para-olympics (dont flame me, not my words, I quietly laughed when I heard that also). Along those lines, did anyone make cool coin on the World Police-Fire games held in the summer?
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No Longer Looking Says:
October 20th, 2009 at 10:57 am
@SD92129: Vancouver has gone to hell with mortgage helpers, but other cities have them too. I owned a house with an upstairs suite in Halifax. When I lived in St. John’s NF, houses often had suites. Toronto has lots of suites, so does Calgary and Edmonton. Down in the US they have suites. But the Americans appear more likely to rent bedroom-by-bedroom, creating rooming houses in effect.
Toronto gets more immigration than Vancouver IIRC, and hasn’t had the same bubble.
Immigrants and mortgage helpers were common in Vancouver seven years ago, before the bubble.
Increasing supply is hurting rents in Vancouver, but that is just another example of weak fundamentals that will sink this market. We build condos everywhere, even in noisy industrial areas:
http://www.cbc.ca/canada/briti.....fight.html
The “correction” (read crash) will happen, but we have all given up in predicting when. At some point, the stats and anecdotes will get very ugly. At first, everyone will be too cautious to say “this is it” (because we’ve been burnt before). Only after the market plummets, will we know it happened and only in hindsight will we know the trigger. The root cause we all know, but the trigger is the mystery for now.
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SD92129 Says:
October 20th, 2009 at 11:09 am
True. Vancouver specials were designed essentially as an up-down duplex and they have been around for 40 years. I guess they felt that it was an immediate solution for finding more affordable housing.
You are right about the states, generally one kitchen in houses. I have lived in CA and CT and interviewed extensively through the midwest as well (and on “second trips” the companies send you on a get to know the area trip with a realtor or relocation specialist).
In SF, you could rent parts of living rooms at one point. If any of their markets are/were like YVR, its SFO. Thats another reason why I believe a crash/correction will happen here.
Hopefully, it will be an orderly correction. A crash will prompt the government to step in and bailout, and we all know what that does for housing prices.
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Purp Says:
October 20th, 2009 at 11:22 am
I can’t wait for the correction, if only so we can stop hearing about “why it’s different here”, like this notion that somehow rich foreign investors are responsible for inflating the bubble for all areas including 1 bedroom apartments in Abbotsford.
It seems to me we are in a classic bubble where lax lending standards and extrodinarily cheap money makes a gamble on future price appreciation too hard to resist for many. It works until it doesn’t. We’ve seen it play out in country after country, and had a front row seat watching the US implode.
As someone mentioned in the last thread, Bulls need to consider that their vision of the future results in an impoverished middle class, a huge transfer of wealth to the banking and real estate industry and virtually no hope that future generations will be able to purchase their own homes. Likewise, Bears wishing for 70% drops to realize some personal gains may also be sorry when the whole economy comes crashing down and the taxpayer and society as a whole will be picking up the pieces.
Here’s hoping for a ‘gentle’ correction back to sanity…..
49 X “My neighbours have put their place up for sale in a flurry of panic that the market is going to crash.” « Vancouver Real Estate Anecdote Archive Says:
October 20th, 2009 at 11:24 am
[...] from Hovering at vancouvercondo.info on Oct 20th, 2009 at 10:08 am [...]
50
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we're not # 1 Says:
October 20th, 2009 at 11:54 am
Apparently the media jumped on erroneous news of the Conde Naste mentioning Vancouver as a ‘travellers pick’. It wasn’t Vancouver at all that was mentioned in the article, No, it was Vancouver Island under the category of ‘Islands of North America’. Just more bullshit propaganda from the local media that got sucked up by a desperate public.
http://news.yahoo.com/s/ap_tra.....ers_choice
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confused Says:
October 20th, 2009 at 2:46 pm
home values to rise 6- 8%. Sales will rise 25% in 2010.
http://news1130.com/more.jsp?c.....64109_6728
so is it true that BOC will not raise rates?
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Hovering Says:
October 20th, 2009 at 2:54 pm
umm can someone explain the grey thingy’s
# 49 for example ?
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NO - LYMPICS Says:
October 20th, 2009 at 3:01 pm
Re CMHC:
In some ways not surprised, as many of us have concluded that RE is about the only thing the Gov’t can attempt to manipulate and keep the sheepie masses happy.
However, didn’t the Feds extend another program that had only used about 50% of what was allotted ie $180 Billion of $360 Billion? Why are they now topping up the CMHC, (unless its the same $$$?)
Regardless, I think the supply of greater fools is going to collapse, they have effectively used up the majority of the future supply of buyers.
I am going to predict that this will backfire…people will get nervous and SELL….dump a lot of product onto the market to either bail or make what capital gains they still can. Watch the market tank !
The Feds have further exposed this RE ponzi scheme, and are simply adding gas to the fire. The banksters shouldn’t brag so much our CDN banking system is better/stronger….they, via the CMHC sugar daddy, are the biggest corporate welfare beneficiaries our there…they would be toast if not for Feds.
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NO - LYMPICS Says:
October 20th, 2009 at 3:09 pm
Hey Pope:
This just out from the Fraser Institute:
BC Agricultural Land Reserve: A Critical Assessment
http://www.fraserinstitute.org.....eserve.pdf
Lots of good info and discussion re BC and high RE prices.
Good background of where we are and how we got here.
Brian Lewis of the Vancouver Province ragged on about this being right wing bias, which encouraged me to read it. Lewis is objective on some things, but he is becoming a subjective ideologue on others.
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NO - LYMPICS Says:
October 20th, 2009 at 3:30 pm
Hey patriotz:
Here is fundamentals in the extreme:
Is this a $6,900 home bargain?
Detroit’s four-figure home prices are unusual, but investors around the country think foreclosed houses are too cheap to pass up. How to tell a great deal from a money pit
http://money.cnn.com/2009/10/1.....2009101615
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Anonymous Says:
October 20th, 2009 at 3:54 pm
@NO – LYMPICS: The crap that the Fraser Institute puts out isn’t worth the paper it’s written on. Every single FI analysis that I’ve read has significant flaws in it. They’re the equivalent–not only in ideology, but in analytical rigour and intellectual honesty–of the American Enterprise Institute in the US.
I’ll take a look at the piece to which you’ve linked and give my assessment later.
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oneangryslav2 Says:
October 20th, 2009 at 3:57 pm
@Anonymous: That was my comment in 56 above.
So, the first paragraph of the executive summary has the phrase “social engineering.” Nice. According to their implicit definition of social engineering, putting a traffic light at an intersection could also be deemed social engineering.
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NO - LYMPICS Says:
October 20th, 2009 at 4:02 pm
57 Anonymous:
Huh?
You’ve made an assessment on the article based on the source, THEN you say you will read the specific article I refer to ?
Are you in a pre-sale line-up ?
BTW: I saw on Global a mortgage broker say the banks want developers to have 75% in pre-sales before they get financing, up from the previous 50%.
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oneangryslav2 Says:
October 20th, 2009 at 4:24 pm
@NO – LYMPICS: Yup, I sure did. And I stand by my assessment–the Fraser Institute publishes crap that can’t withstand basic analytical scrutiny. I’ve set aside any judgment on the specific report linked above, but will not be surprised if it is just as flawed logically and methodologically as EVERY OTHER SINGLE REPORT that I’ve read that’s been put out by the Fraser Institute.
Now, maybe the only other reports of theirs that I’ve read have been those popular, or controversial, enough to have been brought to my attention. So it may be that only a particular subset of FI reports is flawed, though I’m not sure.
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Anonymous Says:
October 20th, 2009 at 4:37 pm
My friends the pricing still keep going up daily,monthly,quarterly and annually and you guys are still in a state of perpetual denial.
You guys need a psychiatric assessment.
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hp Says:
October 20th, 2009 at 4:40 pm
Thanks for the hat tip to my comment on Garth Turners blog.
The CMHC situation seems very similar to the U.S. three years ago – people took no-questions-asked mortgage money knowing that they could barely pay the interest, and hoping to make a profit if house prices continued to increase.
Canadian taxpayers are the ones that will have to pay to clean up the CMHC’s mess.
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logic Says:
October 20th, 2009 at 4:54 pm
60 X Anonymous Says:
October 20th, 2009 at 4:37 pm
My friends the pricing still keep going up daily,monthly,quarterly and annually
————
Thank you so much for your well-reasoned and evidence-supported “argument”. We shall be in touch.
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NO - LYMPICS Says:
October 20th, 2009 at 5:21 pm
59 oneangryslav2
social engineering ?
That’s like saying life isn’t political.
NDP Premier of the day, Dave Barrett, was quoted as stating that the NDP electoral win in 1972 surprised even them, they were of the view they would only be in power for one term, thus they had a ” to do ” list to pass their agenda before it was too late.
The BC NDP is the Dr Frankenstein of social engineering.
Anyway, read the whole report. It pokes a lot of holes in the current cult beliefs (like 100 mile diet etc.) and why BC is turning into a bubbled shithole.
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Bently Says:
October 20th, 2009 at 5:22 pm
“My friends the pricing still keep going up daily, monthly, quarterly and annually and you guys are still in a state of perpetual denial…..”
Of course prices are going to keep going up, except when they go down. LOL
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we're not # 1 Says:
October 20th, 2009 at 5:29 pm
and the vacancies and rental drops continue!
http://vancouver.en.craigslist.....20112.html
This is crazy, building that never had vacancies have more than ten.
It’s a problem because I want to move but with the prices dropping and selection increasing every day it’s tempting to wait a while longer.
After the Olympics rental prices will probably drop another 40%!
This is after the 30% drop!
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we're not # 1 Says:
October 20th, 2009 at 5:30 pm
Fraser Institute=geriatric right wing lobbyist err “think tank”
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we're not # 1 Says:
October 20th, 2009 at 5:34 pm
”
People, this is a gateway city. There is an influx of cash and people are willing to double up (or triple up in the case of laneway housing). It is just like any high density metropolitan area where housing takes up a larger percentage of household income. get used to it. ”
Ummm, are you talking about big cities like New York or comparable cities such as Cleveland and Seattle?
What is Vancouver’s comparable household income to these other cities? How about relative to the rest of Canada?
What’s that you say? Vancouver has the lowest median income and the highest cost of living?
Well sign me up I want to pay 99& of my new income now before interests rates go up!
Luckily people in my office ,who make half what I make, have already bought in so I’ll be able to rent from them for about 20% of the carrying costs and then buy them out for a song when they go tits up
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Boombust Says:
October 20th, 2009 at 5:36 pm
“They’re the equivalent–not only in ideology, but in analytical rigour and intellectual honesty–of the American Enterprise Institute in the US.”
Isn’t the Fraser Institute a CIA front?
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Boombust Says:
October 20th, 2009 at 5:41 pm
“65 X we’re not # 1 Says:
October 20th, 2009 at 5:29 pm
and the vacancies and rental drops continue!”
Yikes! You should see all the brand new ghost towers in the Newport area of Port Moody!
Panic is setting in and renting is the only option for many of the “investors” as they cannot sell.
They are now slitting each others’ throats with their rent “slashing”.
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realpaul Says:
October 20th, 2009 at 5:44 pm
@NO – LYMPICS:
#63 NO, Correct, any reportage which disagrees with the current politically correct agenda of the competing special intrest groups is broadly attacked as anti social, incorrect, neanderthal etc. These groups fight the message and hate the messanger regardless of the facts presented. The arguments are always of the ‘what if’ variety, as if actual fact with out the taint of politics is evil and entitlement must always take precedence over fiscal responsibility.
A classic case in point is the education system. The FI takes the test results of the provincial exams and publishes them without edit or audit. Well, you’d think that it was Beelzeebub himself opening the gates of hell for all the screaming misdirection instantly emanates from the BCTF and their drones. Truth just doesn’t sit well with some people.
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cashisking Says:
October 20th, 2009 at 5:49 pm
Everyone should send an email to their local MP and the Finance Minister about CMHC. If you care about your kids/this country don’t be lazy – just do it.
I remember back in the early 90’s (think it was W5) their was an program highlighting Canada’s debt/deficit problems … we were compared to New Zealand who had recently gone bust … it was a real wake up call for the country …
If ANYONE has a contact with W5 please get them to look at this … I honestly fear for the future of this country if we keep going down this path.
I feel like that we’re in the movie “Perfect Storm” (sorry it was on the other night) … remember the part when the crew sees the clear sky of the eye and woops b/c he thinks they’ve survived.
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we're not # 1 Says:
October 20th, 2009 at 5:51 pm
It seems my tag has been hi-jacked. The last post for me was #50. All the rest #’s 65, 66, 67, are somebody else.
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chilled Says:
October 20th, 2009 at 5:59 pm
@No Longer Looking:
#46 We build condos everywhere, even in noisy industrial areas:
http://www.cbc.ca/canada/briti…..fight.html
+++++++++
No where is it mentioned how much these fools paid for their “condoms.” They should look on the bright side; the compressor noise will drown out the knock from repo man.
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vreaa Says:
October 20th, 2009 at 6:00 pm
@Hovering: “umm can someone explain the grey thingy’s. # 49 for example ? ”
Hovering -
Not meaning to freak you out. Those grey ‘thingy’s’ are automatic ‘pingback’ posts when another site posts a link to a post on this site.
In that particular case it occurred because I ‘harvested’ your anecdote and posted it at VREAA (Vancouver Real Estate Archive).
I collect good anecdotes that reflect personal experiences of the Vancouver RE market to that site. The blog ends up reading like a string of stories about the market/the bubble (depending on your viewpoint). Take a look HERE, if you like.
The Pope has VREAA in the blogroll sidebar as ‘Anecdote Archive’.
Please post your anecdotes. Post them here, at vancouvercondo.info, and I’ll post them at VREAA, or post as comments on latest thread at VREAA.
The whole point of VREAA is to complement blogs like vancouvercondo.info, by serving as an associated archive.
I anticipate some good stories over the next year or two.
BTW, if the grey ‘thingy’s’ are irritating, I can stop the pingbacks. As they stand, they don’t seem too intrusive, and they let posters know they’ve been archived.
-vreaa
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oneangryslav2 Says:
October 20th, 2009 at 6:05 pm
@realpaul: Once again, rp, you’re stretching the truth. The FI does not only “take the test results of the provincial exams and publish them without edit or audit.
If they were only to do this, there would be no criticism of their reports. They use this to push a scientifically-unproven view of educational achievement. The argue that the scores are “indicators of effective teaching” when any one with any familiarity with education knows this to be a crock of bull. The strongest indicator (by far) of test grade achievement, and therefore–if you subscribe to the views of the FI–of “teaching effectiveness”–is parental income.
The teacher’s at the best performing schools must be so effective that they’re able to increase parental income in addition to all of the other things that they do in the classroom.
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domus Says:
October 20th, 2009 at 6:07 pm
Cashisking 71:
agreed with your invitation. Let me repost it for everyone:
“Everyone should send an email to their local MP and the Finance Minister about CMHC. If you care about your kids/this country don’t be lazy – just do it.”
It only takes a phone call or an email……do it if you can.
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BBY Says:
October 20th, 2009 at 6:10 pm
There’s something so incredibly special about renting that I now appreciate:
While in a tight rental market, rent increases cannot exceed the annual rent control cap (~4% in BC) or the ability of renters to pay, there is no limit on how much a landlord can decrease rents to attract tenants.
Really. This is a thing of beauty.
In other words, rents can decrease more than they are able to increase.
The long term ramifications of this are hilarious because in the high vacancy rental market we seem to be heading into, a lot of owners could slash their rates in a furious race to the bottom. Yet, once the landlords take on a longterm tenant, they cannot raise the rents more than 4% per year. And that is only if a tight rental market allows it. So if we have a place that rented downtonw in 2008 for $2200 per month, being slashed to $1900 per month, it will take several years for the owner to increase the rent back to $2200. And in a renters market, he can’t afford to have a place sit empty while he waits for the rent he wants.
The consequences of a renters market lowering rents are therefore felt by the owner long after the renters market has subsided.
More and more, I appreciate the benefits of renting in vancouver’s current market. So much less stress. If it all returns to some sensible fundamentals, I’ll buy. But not now. I’ll reap the rewards of renting.
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RVW_0824 Says:
October 20th, 2009 at 7:53 pm
I also find it amazing that our prices are what they are here in Vancouver (especially) and Canada you can’t deduct mortgage interest. This suggests that not only prices need to come down to similar levels to comparable areas in the U.S – but that our prices should be materially lower. In the U.S your get a ~40% interest tax shield on your primary residence mortgage interest – in Canada – you get nothing. So you are buying an asset that is massively overvalued based on the return it provides and when you leverage up to buy it – you get no tax shield. To summarize – buying a primary residence in this market will prove to be one of the worst investments anyone could ever make. Just wait until people start defaulting in Canada – trust me it will happen.
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!(EconomicsDegree) Says:
October 20th, 2009 at 8:44 pm
@SD92129: “My point is about SFH housing, which because of mortgage helpers, allows people to pay more for a house than one should. Laneway and units within apartments should have a similar effect.”
Suite income is a valid reason for higher prices but renting out accommodation like this is not free money. There is turnover, wear-tear, and risk. The additional structure required eats into returns — buying a property with a suite requires paying more for the structure in the first place. And finally the utility of the primary resident is decreased due to issues like more noise, less privacy, and less hot water. A town home arguably gives MORE privacy and utility than an SFH with 1, 2, or 3 suites.
Add all these up and sure an SFH carries a premium but after netting the costs, tangible and intangible, the amount it should add to the price is less than looking at gross rent.
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!(EconomicsDegree) Says:
October 20th, 2009 at 8:55 pm
@RVW_0824: “In the U.S your get a ~40% interest tax shield on your primary residence mortgage interest – in Canada – you get nothing.”
The tax break actually doesn’t mean prices will be permanently higher. Investors have a different tax regime and will eventually set the market price. Mortgage interest deductions will exacerbate booms and busts but cannot permanently add a price offset: if this were true the investor’s returns will be permanently lowered, which is near impossible to happen forever.
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rp Says:
October 20th, 2009 at 9:22 pm
#77 @BBY: Good observation about the rental increase cap. I wonder how many potential amateur landlords are aware of this?
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skiff Says:
October 20th, 2009 at 9:38 pm
@we’re not # 1: #50
Actually, it was voted (by readers of the magazine) #1 city in the Americas for 2009, although I would still call it bullshit propeganda. Interestingly, five of the top nine are Canadian cities. Makes me wonder who reads this magazine, Canadian tourist industry members?
http://www.concierge.com/tools.....ice/cities
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realpaul Says:
October 20th, 2009 at 9:46 pm
@oneangryslav2:
#75 OAS, Now isn’t that the knee jerk reaction I was alluding to? The FI publishes a spreadsheet that happens to include the scores of the individual schools province wide. It is the BCTF and the union drones who do not like to see this information published ‘because’ it doesn’t include all the explanations and justifications that they add into the noisome press releases following the publication.
The FI does not include a table hammering political analysis or quasi philisophical addendum to the publication. The numbers speak for themselves and people ( like myself) come to a conclusion of district/school efficacy based on the facts. If the ratios of success are not an indication of effective education then what is?
It is the hard facts that the BCTF etc seem to be so much in diagreement with ( well, I would say denial) and then lambast the documentation with clouds of PC obfuscation and misdirection as to why the numbers are misrepresenting the universe as they see it. Simple honesty would indicate otherwise.
The income debate is a red herring. I have personal experiance in two school districts and can say from that experiance the it was the individual schools adherance or rejection of an attitude towards excellence that makes all the differance. Some schools are teaching, others are definatley not. There are entire districts ( Surrey for example) where the majority of children are being taught to fail, in the context of academic performance. How else do you explain the fewer than 2% of graduates who have university entrance marks upon graduation?
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logic Says:
October 20th, 2009 at 9:51 pm
oh god – now the retard is going to return to his school district rants
off-topic much?
85
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!(EconomicsDegree) Says:
October 20th, 2009 at 9:54 pm
“Some schools are teaching, others are definatley not. “
realpaul, you’re terrific. Never change, honey.
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Chris Says:
October 20th, 2009 at 10:49 pm
@Ulsterman:
Ulsterman, that is precisely my fear. Given what’s happened (and not happened) over the past five years or so, I see less and less chance of a significant correction. I used to fully buy into the bear arguments, but it seems to me they have just become more esoteric or obscure as time goes by and they’ve not come to pass. Some still talk about the ratio of median income to median home price, but obviously we’ve been living with that for years now and it’s made absolutely and utterly no difference. Now the CMHC is the devil. Yawn.
Obviously, for whatever reasons, people have more money than the statistics show. Maybe their parents give them big down-payments. Maybe they’ve been smart and ridden the upswing. Maybe they’re all studying while earning minimum wage and by the time their mortgage renews, they’ll be lawyers. Who knows? All I know is that, like you, I waited and it’s looking like a boneheaded decision at best, a fatal mistake at worst.
“The bull market is over when the very last of the bears that are destined to capitulate do so.” I’ve been hear this for years. I suspect we’ve probably had our correction (the 10% last year) and prices will now stabilize and drift for a long time.
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rentah Says:
October 20th, 2009 at 11:09 pm
@Chris: Hey Chris…. That’s a classic ‘top of the bubble’ post.
(just kiddin’, because I know you’ve heard that before, too).
Actually, the point is, nobody, but nobody, can time the top.
I know you’ve heard that before, too, but it’s true.
Nobody can time the top.
These things go on until they fail.
This one’s heading for a doozie of a fall.
The one additional thing we’re seeing recently is the ‘i don’t give a damn’ bears saying “bring on the biggest buying frenzy and price spike to get it all over and done with…!”.
My commiseration regarding the exhaustion and the demoralization.
But it really is going to crash.
Have you been following Jonathan Tonge’s blog?… some great stuff for the bears there:
http://americacanada.blogspot.com/
Remember: price/rent ratios, price/income ratios, free money, bullish sentiment euphoria, sucker rally into double top, and now, moral hazard CMHC with an unsustainable rate of market goosing: It’s ALL still true, and it’s not going away.
2010? 2011 (my guess)? 2012??
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No Longer Looking Says:
October 20th, 2009 at 11:30 pm
@Chris: “a fatal mistake at worst.”
What? Renting is like death? I’ve been an owner and a renter, and one thing I’ve learned is owning isn’t everything its cracked up to be. If you own a house with a suite (like I did), you have to be landlord. If you buy a condo, you don’t get to really own land and have to with Strata BS.
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patriotzed Says:
October 20th, 2009 at 11:34 pm
@NO – LYMPICS:
Glad you brought up the Fraser Institute.
What do you think our champions of “free enterprise” have had to say about CMHC’s propping up of house prices at the risk of the taxpayer? Nothing. That’s right, nothing. The Fraser Institute has never, ever, made any criticism of this massive exercise in central planning. The only criticism the FI has made of government price supports for real estate has been to complain that they do not support high enough prices:
http://www.fraserinstitute.org.....ldhuis.pdf
See page 3 in above link.
Oh BTW, I don’t recall the FI offering any criticism of government funding of the Olympics, either.
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other ted Says:
October 20th, 2009 at 11:44 pm
#48 purp you bring up a good point that what the bulls wish for is really harmfull and scary yet you turn around and attack bears for wanting a correction using a typical bull argument that they are vindictive people. Whatever the correction 20% or 70% it doesn’t matter. What matters is real estate returns to fundamentals. I feel you threw in that comment about bears to come across as a fair and balanced person, but instead you come across as someone is is imbalanced. pick an argument and stick with it. Either the bubble is harmfull or it isn’t. Prices will correct to where they should if the economy is destroyed it wasn’t our doing. In fact the faster it corrects the less likely it will be bad. I fear we arepast that point. But delaying the inevitable and wishing it away won’t work.
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patriotzed Says:
October 21st, 2009 at 12:05 am
@other ted:
Right on and as I have said before, it is the purchase of assets at inflated prices that is bad for the economy, not the return to normal prices.
Blame the disease for the suffering, not the cure.
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rp Says:
October 21st, 2009 at 2:44 am
Interesting post at america-canada:
http://americacanada.blogspot......-rise.html
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Purp Says:
October 21st, 2009 at 8:01 am
#90, #91 No argument that the bubble (purchase of assets at inflated prices) is the disease. That’s done, we’re there. The question is how this thing corrects back to a normal market. My point was that I’d prefer to see an orderly, slow decline or several years of price stagnation as opposed to a violent, quick drop of 50+%. I think the latter would result in a lot of pain for people losing homes and livelihoods as well as cost the rest of us as the government would most certainly try bailing this mess out. That sort of sudden change just isn’t good for anyone, regardless of what we think about the stupidity that got us into it.
I think the result of the cure is the same, it’s just a difference in how the treatment is administered.
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domus Says:
October 21st, 2009 at 9:28 am
People can complain about CHMC. This is still a democracy: at least it should be known that for some parts of the population the CHMC funding and operation is a scam.
All I can say, for what is worth, is: write to your MPs.
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patriotzed Says:
October 21st, 2009 at 10:06 am
@Purp:
No that’s backwards.
As I have said, the longer the bubble lasts, the more people will buy at inflated prices. Every purchase of a house at an inflated price (as opposed to just renting) reduces the future purchasing power of the buyer, and thus overall demand in the economy, for decades. This will remain the case whether or not house prices come down.
Fat lot of good an “orderly decline” did Japan. The sooner this idiocy ends, the better.
Vancouver saw a very rapid bust in 1982-83 and it was the best thing that could have happened to the city. Housing that was affordable to the middle class was an important factor in the diversification of the local economy into high tech, film making, etc. – a diversification which has largely been reversed over the last decade.
Regarding bailouts, the banks have already been bailed out in advance by CMHC, and the only bailout John Q. Homedebtor is going to see is in bankruptcy court. Once again, the faster the price drop, the lower the overall cost.
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FORREST Says:
October 21st, 2009 at 10:10 am
Harper will eventually suffer the same fate as GW Bush after the CMHC ponzi scheme fails. Maybe we will get the first ever First Nations Prime Minister? Any takers?
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No Longer Looking Says:
October 21st, 2009 at 10:10 am
@Purp: Sounds you’re hoping for a Japan scenario. That’s not pretty either. They talk about lost decades and a lost generation.
I don’t think it will be fun regardless of whether its fast or slow. From everything I’ve read, I believe its going to be fast (and the quick turn in 2008 further convinces me).
Unlike most people, I’m not obsessed with owning. I don’t WANT to see it fast, I just honestly believe it will be the case. Not to mention, that a quick crash might be like ripping off the band-aid. Let’s get the pain over with.
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patriotzed Says:
October 21st, 2009 at 10:29 am
@FORREST:
You mean 8 years in office?
How about, say, the same as Kim Campbell?
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No Longer Looking Says:
October 21st, 2009 at 10:35 am
@patriotzed: Oh yeah, very valid points about the damage of high real estate prices on the economy. It is particularly bad when you combine it with low earning potential. It just drives good businesses and talented workers away.
Also, when people have high mortgages, that sucks money out of the local economy. Instead of shopping in local stores and dining out, all their money goes to the bank (which probably isn’t a BC-based business unless its a local credit union).
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parent Says:
October 21st, 2009 at 10:35 am
@logic:
#84
RealPaul is quite right. I chose my school district by the academic reports. Had I chosen my school district by real estate value I would risked putting my children into one of the many notorious schools that produce nothing but failure.
If you don’t have children or are consumed by real estate values only and not the future of your children then by all means listen to the naysayers.
Thanks to people like RealPaul to have some guts to speak up against the crap thats put out by the papers.
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other ted Says:
October 21st, 2009 at 11:00 am
Purp one more point. Even if Vancouver corrects super fast I still might not buy because for me real estate is not just an investment but more importantly its about where I live. If vancouver doesn’t have any career prospects well then I will only buy if it corrects below fundamentals which isn’t likely or if I can retire outright. The most likely scenario is I will move back if I can get the same money in vancouver. So there you have it there are many bears who won’t benefit even if there is a crash. Well indirectly I will as it might allow other industries to flourish as Patriotz pointed out.
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disgruntled Says:
October 21st, 2009 at 11:16 am
@FORREST:
96, The most effective and PC PM should be an indigenous immigrant refugee of colour disabled lesbian single parent speaking french vegan left leaning union supporting tree hugger anti business anti nuclear bicyclist anti white luddite with cats.
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realpaul Says:
October 21st, 2009 at 11:27 am
Higher interest rates are now a matter of ‘when’ not ‘if’. The BOC is being exposed as liars. What a surprise.
http://www.globeinvestor.com/s.....8/GIStory/
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logic Says:
October 21st, 2009 at 11:46 am
parent Says:
October 21st, 2009 at 10:35 am
@logic:
#84
RealPaul is quite right.
—————–
He may well be – I care not.
The point was (and is) that it is OFF-TOPIC. go rant elsewhere.
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realpaul Says:
October 21st, 2009 at 11:56 am
Economists and pundits ‘out’ BOC as being false rhetoric and in ‘planning a sneak attack on interest rates. Nice to see that not everyones stupid.
http://www.financialpost.com/n.....id=2128184
#104 L, I think you’re seeing RP crawling under your skin, the FI string was in reply to an OAS comment re FI & schools. So, either bark up the right tree or admit that I fascinate you and that you love me.
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Bubble Lad Says:
October 21st, 2009 at 11:59 am
101 Other Ted – makes a good point.
It seems like the only question people buying RE are asking is “will it go up”, not “do I really want to live in a city with serious drug, gang, and homelessness issues, no industry besides the 100 employees of EA Sports they troop out every election as our “success story”, no discernible culture or nightlife, and is run by a bunch of soulless RE pumpers, PR twats, and general low lifes.
You know your city is in trouble when school teachers, firemen, and tradespeople can’t afford to live in it. You know, all the “little people” who actually DO things, instead of flipping their crappy Yaletown condo to somebody even dumber than themselves.
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Purp Says:
October 21st, 2009 at 12:20 pm
Some great comments about the damage of a high real estate market. I wish this was more widely discussed rather than the sometimes gleeful boasts of “my house has doubled in value” during the far too frequent conversations about real estate in this city and the shameless RE pumping in the local papers.
@ patriotized & no longer looking: Do you think the Japan ‘lost decade’ is a good comparison? I was thinking more along the lines of the stagnant local prices during most of the 90’s, which didn’t have the crippling economic malaise. I agree that even a slow crash would cause damage, but I still think this is the better of two bad options since it allows prudent people some time to make orderly changes in their lives. A fast crash like the early 80’s, in which interest rates spiked, has the potential to wipe out almost anyone who can’t absorb doubling or tripling mortgage payments or has to sell during this period to find work or other reasons. A crash like this today I think would be even more devastating. Since we are talking about people’s homes and not investments, a more stable, predictable RE market both when it’s rising and falling I think is preferable.
For the record, I count myself as a bear.
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logic Says:
October 21st, 2009 at 12:40 pm
You know your city is in trouble when school teachers, firemen, and tradespeople can’t afford to live in it.
———-
Dude, it’s not just the “little people”. UBC loses valuable research staff on a yearly basis as even university profs can’t afford to live here.
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SD92129 Says:
October 21st, 2009 at 1:22 pm
logic 108,
in addition, most researchers or professors (at all levels of tenure) move because they are getting a better deal somewhere else (title, pay, lab space, university direct funding, more graduate students, better standard of living, etc.)
BTW, professors in BC are considered public employees and their salaries are available on the web. A lot of established ones make 6 figures and as high as 500K (and I presume that is before consulting fees).
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gorky Says:
October 21st, 2009 at 1:24 pm
#86, Chris. Too bad you have to live in fear. You call the decision not to buy into the Vancouver RE casino a fatal mistake at worst? How;’s that a mistake?
They also have the pleasure to shovel snow, clean the stairs outside, fix each and every thing that’s broke around the house and in the apartment. Paying 1280 a month with *everything* included (cable/www/hydro/ect…), the place is on the hill, between North and West Van. Home prices have to drop significantly for me to give up this little piece of paradise to buy something.
You must be one of these people that think life is about owning some RE and if you don’t you failed.
Can only re-iterate but this ownership thing that’s going on is a hype driven by fear of ending up without RE or making less money from RE than the neighbor. Gosh get over it. It’s about quality of life and what it means to you, not home ownership – get that?
I’m a renter and loving it. *Only* reason it’d ever buy would be to have my own Garden but even that I get by renting right now. Renting a beautiful 2bdr suite, garden level, nice lush Garden and it’s all ours since the owners never ever have time to use the Garden (to busy working their asses of for the mortgage) nor are they into gardening except for mowing the lawn for me
So Chris, i think key is to not make your happiness dependent on owning something overpriced. For me a large loan/mortgage on an overpriced asset like a house/car would impact my quality of life negatively for obvious reasons. btw, bought all my cars that i owned so far with 100% cash down and have a substantial down payment if ever needed…
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BBY Says:
October 21st, 2009 at 1:36 pm
#107@Purp
IMO a devastating crash is really what we need. Yes, it will wipe out the people who (foolishly) stretched themselves so thin, that they cannot afford to pay their mortgage in a more reasonable economy. It will wipe out their equity so they cannot play the RE game like it is some kind of easy lottery for many years.
And that is a good thing. Even for them.
A devestating crash has a far better chance of burning itself into the collective memories of the culture, than the slow decline. Following the excesses of the Wiemar republic and devestation of two world wars, Germans were tremendously credit shy. That is gradually easing as the collective memory fades, but it still has had a balancing effect on the economy and the general attitude of fiscal responsibility of the people.
It seems that 90% of people are too stupid and greedy to remember gentle corrections. We need something that will smack them upside the head like a hurled brick and make it spin for years. Only then will they be able to have any kind of skepticism towards the tits of the RE pumping marketing machine to which they so eagerly suckle.
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NO - LYMPICS Says:
October 21st, 2009 at 1:49 pm
Yeesh !
All I asked was for comments on the FI’s recent report on the ALR, not your opinion on the FI.
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NO - LYMPICS Says:
October 21st, 2009 at 2:03 pm
#95 patriotized
QUOTE:
As I have said, the longer the bubble lasts, the more people will buy at inflated prices. Every purchase of a house at an inflated price (as opposed to just renting) reduces the future purchasing power of the buyer, and thus overall demand in the economy, for decades. This will remain the case whether or not house prices come down.
Fat lot of good an “orderly decline” did Japan. The sooner this idiocy ends, the better.
Vancouver saw a very rapid bust in 1982-83 and it was the best thing that could have happened to the city. Housing that was affordable to the middle class was an important factor in the diversification of the local economy into high tech, film making, etc. – a diversification which has largely been reversed over the last decade.
Regarding bailouts, the banks have already been bailed out in advance by CMHC, and the only bailout John Q. Homedebtor is going to see is in bankruptcy court. Once again, the faster the price drop, the lower the overall cost.
===================
Excellent point/summary !
I look back at the early 1980’s RE collapse as a correction that was overdue and occurred when natural forces were allowed to play out. Unfortunately , some suffered, but things did stabilize and life went on.
However, this recent bubble has been allowed to continue, doing the exact opposite of what happened in early 1980’s ie interst rates did not rise to 20%, instead they have been kept low and the CMHC (ie us) has been brought in as the ultimate insurer.
This will not end up well, no matter what voodoo economics they throw at it. There is no appetite for a federal election by either the voters or the opposition parties…the Tories are supposed to be fiscal conservatives but are instead into massive deficit financing. Seems like we are all on the same Titanic and no one is willing nor able to stop it.
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realpaul Says:
October 21st, 2009 at 2:06 pm
@NO – LYMPICS:
The very sound of the name ” The Fraser Institute’ brings about a knee jerk howl and war cry from every special intrest group out there.
You could ask for clarification on the Institutes address and the howls of indignation would be heard from every union funded cry baby in the province.
Its politically correct to hate anything that hasn’t been spoon fed, filtered and vetted by a special intrest group, whether you understand the issues or not. Individual and objective thought is a rare bird around here.
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NO - LYMPICS Says:
October 21st, 2009 at 2:54 pm
http://americacanada.blogspot......-rise.html
Quote:
In 1985 we borrowed 45% of our gross salaries and wages to pay for housing. By April of 2009 we borrowed 110%. This of course is an average of our entire country including those without mortgages.
Two assumptions are made in the model.
The first is that incomes will continue to see compounded growth of 2.4% each year. This is the average post recession growth rate between 1991 and 1996.
The second is that an acceleration of credit growth of just 0.8% each year will cause home prices to continue to rise. This is the average acceleration in credit growth between 2001 and 2008.
Using this model we can clearly see that by 2016 Canadians will owe an average of 263% of their gross incomes to residential mortgage debt.
It’s impossible figure I know. But that is the point. In fact it is unlikely that we will go above 125%, something that will occur by mid 2010.
To the bulls and bears, please put aside your emotions. A real estate correction is written into the cards. It’s a mathematical must.
In the next few years the economy will surely hit a debt ceiling. Where that is depends on interest rates, demand and supply of credit, and income growth. But it will and according to this model, within the next year or two.
At that point home sales will begin to rapidly slow. This will result in falling prices. The two will reinforce each other.
This next correction will be unstoppable by traditional government stimulus. Interest rates have only one way to head this time.
With debt levels this high, why would you want to stop a correction? Knowing that the only solution, that is to accelerate the growth of credit, is far from sustainable and will result in more severe punishment on families and taxpayers?
What if interest rates rise? It took only a 2% rise in interest rates to bring down Japan and the United States.
Families will get hurt by all this debt and seeing that, frugality will make its return. The demand for debt will fall, further hammering the cycle.
Regards,
Jonathan Tonge
http://www.americacanada.blogspot.com
=============
So anyone got any comments on this article..ie the SHTF in 2010 ?
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domus Says:
October 21st, 2009 at 3:09 pm
CHMC: an interesting article on the National Post
http://tinyurl.com/yfket9w
It starts by saying: “Ottawa has been creating a housing bubble in Canada with taxpayer money which is why residential real estate prices rise in defiance of high unemployment and recession.”
Write to your MPs…..
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SD92129 Says:
October 21st, 2009 at 3:20 pm
What happens if we get a crash that everyone is calling for and the government can’t stop, even after trying everything in the US government intervention playbook and some homegrown creative policies? Chances are that some banks are going to go under, and if one’s warchest is in one of those insolvent banks, they’ll be waiting at the line at the CDIC to get back their downpayment/cash purchase lumpsum. Or, maybe one will have already spread their money around to other investment vehicles like precious metals/stocks or whatever, but are those assets somewhat inflated? and when a market/economy crashes, those holding drop in value also, because everyone is scrambling for cash to pay off short-term debt so they are liquidating their quality assets at firesale prices because the market is flooded with everyone doing the same.
so i am hoping for an orderly decline in prices. Besides, as the masses will agree, a rapid run up, will result in a rapid run down. So what does a rapid run down give you: that’s right, the basis for another bubble. Prices will over correct downward so houses are super cheap, people will be out in droves buying, and suddenly, prices are headed up again…back to the 110% of gross income kind.
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Chilled Says:
October 21st, 2009 at 3:25 pm
@FORREST:
#96 ……… Maybe we will get the first ever First Nations Prime Minister? Any takers?
++++++++++
Robbie Robertson? Maybe he can sing “Somewhere down the Crazy River” at the opening of parliament?? LOL
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No Longer Looking Says:
October 21st, 2009 at 3:38 pm
@domus:
My riding is in a by-election. I think I’m going to call the candidates with some questions.
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NO - LYMPICS Says:
October 21st, 2009 at 3:53 pm
Interesting history of past Olympics leading up to ours:
http://sophrosyne.radical.r30......ss/?p=1666
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Right Said Fred Says:
October 21st, 2009 at 3:56 pm
What I find hilarious is that this is as hysterical as what the bears claim housing bulls to be. Is it not rational for the bears on this blog (or Mr. Garth Turner who got it wrong and is losing credibility – and book sales – by the day with his dire previous ‘predictions’) to try to generate the animal spirits that will make people sell. Why? Because they didn’t buy real estate, got caught, simply because they were not critical enough to consider the possibility they were wrong. It never pays to time the market.
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domus Says:
October 21st, 2009 at 4:18 pm
I have never been a big fan of Garth, but to his defense I have to say that the only reason there was no big correction in house prices was for the unprecedented, and distortive, intervention of CMHC which backstopped the RE market.
This is not only unusual, but highly harmful to the regular working of the RE market.
It is hard to make predictions when the rules of the game are changed during its course.
Write to your MPs and let them know that you want them to raise the issues about the role and oversee of CMHC in parliament (I know, I am boring, but I will repeat this in every post I write).
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Anonymous Says:
October 21st, 2009 at 5:08 pm
Is realpaul just satv?
What are you doing here realpaul go hang out with your right wing buddies in the low income seniors home in Richmond.
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realpaul Says:
October 21st, 2009 at 5:59 pm
@Anonymous:
#123 Thanks but did you catch the news footage of the ‘brave members’ in Algergrove who stomped and kicked the face down surrendered victims on the news tonight. It would be so cool to have a gun out and continue to kick and stomp a guy who’s surrendered when you know he can’t fight back. How cool and brave is that?
Are there right wing seniors homes in Richmond? I gotta see that. We’ll watch the police violence videos on the news and cry for the Canada we thought we had worked and died for.
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Dave Says:
October 21st, 2009 at 6:25 pm
@domus:
What do you mean by intervention?
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Dave Says:
October 21st, 2009 at 6:28 pm
@Right Said Fred:
I agree. It’s easy to be wrong with timing. I think it is better to stick with personal metrics that you can control (e.g. what you can afford).
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Drachen Says:
October 21st, 2009 at 7:30 pm
@Dave:
They’ve nearly doubled their cap in only two years. They’ve lowered the very reasonable requirements to practically nothing.
Pick one, that’s what he meant. And probably the other one too (and maybe more). That’s the topic, how on earth did you miss that?
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ReadyToPop Says:
October 21st, 2009 at 8:07 pm
Diane Francis: Says it all doesn’t it?
CMHC: Canada’s Freddie and Fannie?
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Anonymous Says:
October 21st, 2009 at 8:19 pm
ReadytoPop 128:
great link. It was posted already (see post 116 above). Great article, she is making sense. Let’s hope someone hears her.
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stagnate Says:
October 21st, 2009 at 8:30 pm
the cmhc is a mammoth cash cow for the federal government. tons of revenue and any obligations can be monetized. never forget, the cmhc is directly linked to the central bank of canada. conveniently the cmhc is a beast of reflationary power to boot. the cmhc didn’t even have to dip very deep into the tool box to add lots of fuel. the bears vs. cmhc battle will rage for years.
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NO- LYMPICS Says:
October 21st, 2009 at 8:37 pm
How can one quibble with Garth’s timing when the Feds keep shifting the rules ?
Also: Good article by Diane Francis
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Dave Says:
October 21st, 2009 at 10:07 pm
@Drachen:
That doesn’t address his statement. Domus said the CMHC ‘intervened’ and ‘backstopped’ the market. Presumably, that means the CMHC did something since last Fall while the market was correcting. I’m just curious as to what that was because it is news to me.
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mk-kids Says:
October 21st, 2009 at 10:11 pm
Another doozy… this house of cards is coming down and taking Harper with it.
http://thetyee.ca/Opinion/2009.....WillBurst/
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Dave Says:
October 21st, 2009 at 10:15 pm
@mk-kids:
I think the economy is picking up. I know it is just one data point, but it’s 10 pm and I am still sitting in my office.
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domus Says:
October 21st, 2009 at 10:38 pm
Dave,
you mighty mind and great entrepreneur…..the CHMC increased lending guarantees by an unprecedented amount over the past 12 months. The majority of new mortgages extended in Canada now enjoy full tax payer backing. Is that enough for you?
Given your brilliance and work ethics, can I ask you a simple question: what do you think the interest rate on a 5% down, 35 years mortgage should be? Should it be 4.1%?
The low mortgage rates (and interest) paid by new buyers with little downpayment are nothing but a net transfers by tax payers, who are providing the guarantee….if these guys default, we all end up paying their bills. However, if the market goes up another 15%, they get to keep the gains. Are you getting it now?
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patriotzed Says:
October 21st, 2009 at 10:57 pm
@Purp:
The real price peak of 1995 was nowhere near the peak of 2008 or today’s real price. It was about the same as 2005’s real price, at which time most of us were just starting to call a bubble in Vancouver.
Also note that the 90’s saw declining interest rates which improved affordability and softened the price decline. And during the 90’s the economy was much less dependent on RE (high tech did very well for example) which meant less of a snowballing effect from a declining RE sector.
Today we have almost record high real prices combined with record low interest rates and a record high % of the local economy based on RE. There is only one credible outcome – a massive bust.
http://cuer.sauder.ubc.ca/cma/.....couver.pdf
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Ulsterman Says:
October 21st, 2009 at 11:00 pm
A few posters have wondered why i would be “obsessed” with buying because they simply love renting. What i want is for house prices to return to fundamental levels of even say, 150 times annual rent. This way i could buy my rented house and when i retire in 25 years (and have the mortgage paid off) i will only have repairs and taxes to pay, not 2400/month from my pension.
Also, owning my rented house would mean i could make changes beyond paint colour. This isn’t so important to me, but ask my other half.
Renting would take away the concern that i get an eviction notice when the landlord’s mother passes away in her nursing home and he decides he may sell the place. Sure i could find another home, but it’s a huge pain in the ass to move a family.
I just don’t see the appeal in renting. As i said in my previous post, i’m skeptical that Burnaby prices will ever revert to values even close to fundamentals. I recon my rented house would have to fall 44% to make it 150 x rent.
Here’s wishing
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Dave Says:
October 21st, 2009 at 11:06 pm
@domus:
You are dodging the question. How does an insurance provider cause the market to go up and how did THEIR actions ‘backstop’ or ‘intervene’ in the market? Your words, not mine.
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observer Says:
October 21st, 2009 at 11:08 pm
@Dave: Let’s hope you are right so rates can move back to historical levels! On the other hand, the yield curve has gotten ever so slightly flatter so you know what that means.
The government bought mortgages from banks and insured them through CMHC if I recalled correctly. Also, as the article of this thread states, the size of CMHC limits has increased.
It isn’t hard to witness this first hand. If you go to any bank and have a fair amount of money in your accounts, you will almost invariably be asked if you are interested in their mortgage products (together with possibly some encouragement that this is a good time to buy due to the low rates and softening prices).
Until I see the stats which consistently show a more narrow spread between % price below and % price above list prices, I am suspicious that what is really happening is that some smart owners are cashing in on their profits to unsuspecting FTB’s before the final slide downwards.
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patriotzed Says:
October 21st, 2009 at 11:14 pm
@Dave:
Are you really that thick Dave? CMHC is allowing the banks to make loans on RE without regard to default risk. You don’t call that backstopping or intervention? Do you really think the flood of capital going into RE could continue if the taxpayers weren’t holding the bag? Would you loan your own money out to someone at 3% to buy an overpriced Vancouver crapbox?
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realpaul Says:
October 21st, 2009 at 11:15 pm
@ReadyToPop:
#128, Finally, a voice in the wilderness. Dianne franci is actually read. Unfortunatley, Garth, although he was spot on is not popular with the liberal media in Toronto. But…they cannot avoid Diane Francis. This story will have political ramifications no doubt. The Feds have re directed the ’stimulus funds’ to this housing scam, all for political gamesmanship, keeping the facade of stability while Rome was burning.
The opposition finally has the publics attention and will fire all guns at this one. There is one thing Canadians hate more than a housing crash and thats a waste of money supporting someone elses gain.
Why this story has been kept quiet by the media is the real question. The Cons agreed to a 55 billion dollar deficit , what happens now when its made public that they’ve added a 600 billion dollar bloody mess on top of it? Christ, who the hell is going to pay for this mess? ARRRRGGGGHHHHHH, it’s us.
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observer Says:
October 21st, 2009 at 11:57 pm
It has been said the RE is a good hedge against inflation. Even if you brush aside the issue of mortgage rates rising with inflation, here is an article which suggests otherwise.
Metro Vancouver predicts 50-per-cent tax increase over five years
http://www.vancouversun.com/ne.....story.html
Seems like poetic justice to me. Now all we need is a specuvestor tax and requiring 40% down payment for RE which is not for personal use (like they do in China).
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observer Says:
October 22nd, 2009 at 12:09 am
@Dave: To answer your question: the CMHC was the vehicle by which the government and banks were able to keep credit flowing to buyer’s who would otherwise would not have been able to get a normal bank mortgage. So although they did not initiate any new action last fall except to expand their operations, they were an essential part of the mechanism. To make an analogy: the banks and government pulled the trigger, the weapon was the CMHC, and victim will be the taxpayers and our future economy. The beneficiaries will be homeowners who contributed little to the economy.
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patriotzed Says:
October 22nd, 2009 at 12:35 am
@observer:
It is if you pay a reasonable price for it.
This is the basic truth that so many people somehow don’t seem to get – whether RE, or anything else, is a good investment depends on how much you pay for it. Buying an overpriced, leveraged asset at a time of record low interest rates is not a hedge against inflation. Or deflation for that matter. It’s just stupid.
We don’t “love” renting for its own sake, the point is that we just want to get our money’s worth, and you can only get your money’s worth today by renting.
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patriotzed Says:
October 22nd, 2009 at 12:58 am
@observer:
If you’re implying a sequence of events from that wording it’s incorrect.
The order of events is that the mortgages are insured by CMHC at time at issue, and later some of them are purchased by CMHC (Canada Housing Trust). Since the Crown has been the guarantor from the beginning, the subsequent purchase does not create any additional exposure for the Crown. CMHC (or any other Crown agency) does not purchase uninsured mortgages.
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John Says:
October 22nd, 2009 at 1:01 am
Dave, you little pudle! I just came to the office thinking you are working hard so I should give you a massage to realize that you actually left right after lunch break. Shame on you.
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Dave Says:
October 22nd, 2009 at 7:17 am
@observer:
And that was my point. Nothing changed with the CMHC last Fall. So we can’t claim they are responsible for having ‘intervened’ or ‘backstopped’ the falling market.
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crabman Says:
October 22nd, 2009 at 8:10 am
@Dave: If you really want to understand the CMHC issue, it is spelled out in detail here.
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observer Says:
October 22nd, 2009 at 8:13 am
@patriotzed: Yes, you are correct. So what has changed is that the banks off loaded their riskier mortgages to the crown but as you say the crown was backstopping everything in either case regardless of who owned the mortgages. The other thing that has changed is that the banks have more leg room to underwrite more mortgages as a result. In hindsight, this may turn out to be an action which in the long run produces more risk of a collapse and hence more risk for the crown/taxpayer. Ultimately, it is a policy decision by our government.
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domus Says:
October 22nd, 2009 at 8:27 am
Dave,
see the posts by Patriotzed and others, which explain more eloquently than me.
My simle answer to you: most recent loans, and therefore most recent transactions, would not exist without the CMHC. In a working market there would be price (interest rate) discrimination: people with low downpayment would have to pay a higher interest, which would mean a lower loan size. This would immediately reflect in lower number of transactions and lower prices.
This is a market on drugs, where the drug is subsidized credit. It cannot, and will not, last much longer.
The crash had started eagerly in 2007 and by now it would have erased 1/3 of nominal valuations. Concerted government intervention, in Canada and abroad, has backstopped the market and temporarily halted the slide. Governments were scared of the huge negative ‘wealth’ effect that a drop in house prices would have on consumption and the economy in general.
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observer Says:
October 22nd, 2009 at 8:55 am
@Dave: If that’s the only point you are trying to make, it isn’t very interesting. It’s like saying drug dealers don’t have anything to do with drug addiction because ultimately it is the drug user who makes the action to take the drug. The dealers only provide the drugs.
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Disbelief Says:
October 22nd, 2009 at 9:10 am
In Dave’s mind he will always be right. It is impossible to convince a rock is not a rock. After all this is Dave’s world we just rent it.
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observer Says:
October 22nd, 2009 at 9:15 am
@Disbelief: Water beats rock in the long run. We rent this world from landlords who borrow from us.
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Drachen Says:
October 22nd, 2009 at 9:16 am
Dave, you spend half the time trying to show everyone how smart you are and the other part ‘playing’ dumb (playing is in quotes because I sometimes wonder…). There have been reams of info on here about how the CMHC has helped prop up the market, it’s pretty obvious what they’re doing when they extend the periods they’ll insure from 25 to 35 years or drop the minimum down payment, they’re trying to lower the bar and by doing that they’re helping more people enter the market which keeps the whole thing going.
So tell me now, are you too dumb to figure that out or were you being (my favourite word to describe you coming up here) disingenuous again?
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Dave Says:
October 22nd, 2009 at 9:25 am
@Drachen:
So you think the CMHC saw and reacted to the Fall 2008 market correction two years before it happened?
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crabman Says:
October 22nd, 2009 at 9:49 am
@Dave: I gave you a link that spells out in great detail exactly what CMHC is doing. As I expected, you seem to have completely ignored it in favor of continuing to argue with everyone who doesn’t agree with you.
It’s too bad. You could learn a lot from the people on this blog, many of whom have decades of experience in RE investing. Your stubbornness could wind up costing you a lot of $$$.
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Drachen Says:
October 22nd, 2009 at 11:39 am
No, I think the Conservatives knew perfectly well the market was becoming unstable and if it collapsed they’d be in trouble so they encouraged the CMHC to loosen things up a bit to try to keep the market going several years before the correction. Is it so hard to believe that people knew years in advance what was going to happen? People were talking about that on VHB before then and we are all just a bunch of self-educated amateurs, you think the government doesn’t have access to better analysis than we can put up?
I can never tell, are you being disingenuous again or do you really not understand?
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Anonymous Says:
October 22nd, 2009 at 1:32 pm
Denial-Dave is back. Ts ts ts, you are something else man…
You just refuse to get it.