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?
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.
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?
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 $$$.
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?
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?
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.
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.
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.