Defusing housing and the rentership society

A few interesting articles: The first from homes2012 is an editorial in the Vancouver Sun about Jim Flaherty as the bomb disposal expert that has to diffuse the Canadian housing bubble before it explodes.

Flaherty is moving slowly — oh, so slowly — to snip a wire here and there in an attempt to defuse the mess. Problem is, the ticking is getting louder by the minute.

If the bomb explodes, home prices could plunge. In the worst case, plunging prices could bring on an economic downfall such as the United States, Ireland and Spain suffered after their real-estate markets collapsed.

But to make Flaherty’s challenge even more difficult, he still has to convince most people the bomb even exists. At the moment, he’s being cautious in how he describes the problem. He’s being even more cautious in how he deals with it. Perhaps too cautious.

The second article was posted by Domus and relates the way that stimulus measures, bailouts and government support of housing market effectively turns ‘homeowners’ into renters.

“The problem with affordability-only modification is that it essentially makes homeowners renters for the foreseeable future and locks them into their homes so they can’t move elsewhere for better jobs.” [said] Paul Leonard, director of the California office at the Center for Responsible Lending in Oakland.

Of course there’s one group that thinks cracking down on Canadian lending standards is a bad idea.  nonymous points out this article in the Vancouver Sun, where Mortgage Brokers are lobbying Flaherty to NOT go through with any changes that raise standards for home lending.

Steps to raise down payment requirements and shorten mortgage amortization periods could do more damage than the problem Flaherty is trying to stem, according to the Mortgage Brokers Association of British Columbia.

“First-time buyers drive the housing market,” association president Joe Santos said in a news release.

“Raising interest rates and reducing amortization periods will severely impact affordability for this important demographic group.”

There’s one sure way to improve affordability: Introduce 100 year term mortgages and allow zero amortization no-income-no-job-or-asset (NINJA) loans like they did in the US a couple of years ago.  This had delightful short term benefits: lower monthly payments AND rising house prices.  What could possibly be wrong with that?

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taylor192
10 years ago

My broker had a very good point about raising the downpayment required – it'll make housing affordable only for the rich. He speculates that > 50% of new buyers have most (if not all) of the downpayment gifted to them. Raising the downpayment will not cause more Canadians to save, it'll eliminate the Canadians that don't have wealthy family to gift them the downpayment. Think about it: A 2bdrm condo is ~$500K here, so 10% is $50K. How long do you think it'll take an average couple to save that? Then add lawyers, moving fees, … and they need even more saved. This rule will just limit buyers to wealthy families who can gift the money, until either prices drop, or young people change their spending habits. How many 25-35yos do you know how can save $1000/mn for 5 years?… Read more »

taylor192
10 years ago

richasian has a point – in certain cultures/circles housing is so valued that men will have a hard time marrying without owning a house. Owning a house is proof the man can take care of his wife and their eventual family.

Luckily for the rest of us, these cultures/circles are not the dominant mindset in Canada.

Big Crash
Big Crash
10 years ago

Why don't we ignore Richasian? Why would you come down to his level of ignorance? I am Asian and I rent, and I think Richasian will bite the dust soon. I don't even want to read his postings… OK, let's move on with our discussion.

Mutasem
10 years ago

Apparently John Paulson was convinced to go short US housing by looking at a chart of salaries to housing prices, after 2000 housing prices skyrocketed while salaries went up slowly. Canada is similar, especially Vancouver.

Mutasem
10 years ago

Anyone has any ideas on how to short Canadian housing market? let me know and post comment on by blog too http://oitb.blogspot.com

Thanks

rp
rp
10 years ago

#32 @other ted: Yes, you are essentially borrowing from yourself and collecting "interest" tax free. Compare that with a GIC, where you get a much lower return and it is taxed. Are GICs taxed higher than stock dividends?

other ted
other ted
10 years ago

Did anyone read Garth turner's thread on RRSP loans. Not sure I got what he was saying. Sounds like you are borrowing from yourself.

WhiteSmart
WhiteSmart
10 years ago

richasian,

You are right. Renters are stupid.

patriotzed
patriotzed
10 years ago

In the worst case, plunging prices could bring on an economic downfall such as the United States, Ireland and Spain suffered after their real-estate markets collapsed. We are not facing such a scenario – yet – for three very good reasons: 1. The housing bubble in Canada is NOT as big as it was in the US circa 2005. It is confined to BC, Alberta, Sask, Toronto and more recently Ottawa. Proportionally this is much smaller than the US which had only one large non-bubble state (Texas). Don't let the madness in Vancouver warp your perspective. 2. The Canadian economy is MUCH more driven by export demand than the US. IMHO the Canadian economy has already taken a bigger hit from the US housing bust (loss of US demand) than it would from a domestic bust at the present time.… Read more »

Anonymous
Anonymous
10 years ago

Interesting details regarding the boost in Canadian GDP for October. It was almost exclusively due to unseasonably cold weather and real estate sales. The main drivers of Canadian growth in October were apparently cold weather and low interest rates. Statistics Canada notes that utilities were responsible for all of the growth in goods-producing industries, as a colder than usual winter in some regions boosted demand for natural gas and electricity. Real-estate brokerages were the largest source of service-sector growth. The low-interest rates underpinning Canada’s surprisingly strong housing market can and should continue. However, there is presumably a limit to the amount of pent-up demand for housing. Furthermore, in seeking to prevent a housing bubble, the federal government may tighten its mortgage-insurance requirements. Neither a cold winter nor a hot real-estate market is a sustainable source of economic growth. Canada has… Read more »

B. Dover
B. Dover
10 years ago

@richasian:

Hmmmm. Well, I thought about it. If I own, I get a house and kids. If I rent; no house no kids. Is that retroactive? i.e. can I sell the leaky dump that I overpaid for and that costs me ten time as much per month to own as it is would to rent, and my kids go with the house? Where do I send the rent cheque?

arit
10 years ago

richasian:

You have not answered my questions, so I repeat:

How did you become rich?

And I'll add one more: Do you rent out your basement suite?

Regards

arit

bdk toll
bdk toll
10 years ago

@domus: In that case homeownership rates in Vancouver should be 1000% by looking at positive equities algorythem Vancouver real estate historically shows constant progress month over month and year over year. According to Professor Robert Shiller Decade 1 and 3 most likely shows some sort of similarities and Decade 2 and 4 most likely shows similarities that stay totally apposites from 1,3,5,7,9,and so on. In other words decade 1 and 2 will never be the same and decade 2 and 3 will never be the same and so on when Vancouver Real estate has a proven record of Never Goes Down then imagine Decade begining January 2010 is going to be pain in the ass for bears trolling on or sitting on the side lines.Avarage price In 1961 $64.000 * 12 =$ 768,000 Hey DUMBASS sorry DOMUS tell the author… Read more »

domus
domus
10 years ago

I wonder how many people in vancouver can (or will be) classified in this category: http://tinyurl.com/ydzntou The authors argue that the official homeownership rate from the Census Bureau is overstated in the sense that owners with significant negative equity act more like renters. The authors further argue that the official homeownership rate will probably follow the homeownership gap to lower levels. The current severe house price cycle, combined with borrowers who had little or no equity at origination of their mortgages, has led to a dramatic rise in homeowners with negative equity and, therefore, a large gap between the measured and effective homeownership rates. In some of the worst hit metropolitan areas, effective homeownership rates are 25 to 45 percentage points below the measured rate. Merry Christmas to all! Next Christmas I am confident things in the Van RE market… Read more »

richasian
richasian
10 years ago

Listen up you scumbag sucking renter losers! YOU CANNOT EVER BE A REAL MAN IF YOU RENT. No woman would ever have your child if you rent. Think about it.

Ultraman
Ultraman
10 years ago

Richasian,

I agree, renters are a bunch of losers. Check out this calculator for Price/Earnings ratio of a home,

http://www.howtosellyourhouse.net/value.html

Hummm… it makes me happy that I sold.

Ultraman
Ultraman
10 years ago

It’s always been my contention that if something cost you too much, doesn’t matter if it’s a spouse, a pair of socks or a house, you will end up hating it.

Well according to a Ipsos Descarie survey done for the Chambre des Notaires du Quebec (notaries) 12% or recent homebuyers are disappointed by their recent home purchase, for various reasons but 14% say they wouldn’t buy the house they own. Increase in interest rates can only increase level of disappointment. More houses for sale I guess.

Here’s the link. The article is in French.
http://montoit.cyberpresse.ca/habitation/immobili

arit
10 years ago

Anonymous,

Yes, I also sleep well at night, thank you.

I am not buying the motorcycle though because I do not have where to park it in my rental unit. That's the biggest downside of being a loser, IMHO.

When I by my house for cash, no mortgage, circa 2016, I'm planning to get a nice BMW R1100 and we can go for a spin together…

Regards

arit

Anonymous
Anonymous
10 years ago

Arit,

I'm a loser to, so that makes at least two of us.

My dreams of home ownership were shattered by hordes of richasians who made their fortunes by smuggling opium or people or running whorehouses full of underage girls. So now I have to settle for my low-end lifestyle. To make myself feel better I bought myself a Ducati motorcycle, a convertible roadster, a small motorboat and I go for vacations every winter. I also have some cash stashed away, just in case. I hope all the winners out there have it figured out too, because the music will stop one day and there are only so many chairs.

buffates
buffates
10 years ago

What I find very frustrating is all of this responsibility being put on first time buyers. First time buyers are being heralded as the saviours of the market place. Why is this suddenly the case for this demographic. The marketplace for houses has always been the same it is simply a battle between supply and demand. Because of the manipulation of the demand side we have put ourselves in this precarious position. No amount of idiot 20-30 somethings who get talked into excessive debt can help us out of this. When AFFORDABILITY comes into line then our marketplace will go back to normal. Not everyone should be able to buy a house. To quote judge smails from caddyshack "the world needs ditchdiggers too"

Carioca Canuck
Carioca Canuck
10 years ago

The federal government is now most certainly panicking IMHO and in a serious ass covering mode as it pertains to their gross negligence via their interference in the RE market………

It is urgent for them to have to now appear to have been responsible for attempting to reign this monster in beforehand, yet without actually doing so I should add, because they know it will blow up soon, and when it does, the sitting government will take the blame and they´ll need their hollow words and the perfunctory warning they just issued to us, thru Falherty, to prove that they were trying to do something about it, and, errrrr, well, uuhhmmmm, it was like they didn´t tell us now, was it ? LOL !!!

Anonymous
Anonymous
10 years ago

Quality debates on related subjects were done to death since VHB blog circa 2004. Those of you who read "election" and in-fighting amongst the political parties are not alone.

Our own Canadian counterparts won't be different from Fed, NAR and Wall Street financiers. They will not risk burning bridges that will land them in better jobs when their short public career is over.

arit
10 years ago

Hey Richasian, I am a loser! Maybe you can enlighten me as to how I can stop being such a loser. Please share with me how to become a rich Asian like yourself. I got half of it already: I am Asian (Israel). Now about the rich part. How did you become rich? Were you rich in Asia already? How did you make your money? Was it by being connected to the communist party back home and accepting bribes from other rich Asians? Or maybe you had your own factory employing 5 year-olds to make toys with toxic paint? Was it by working in the financial sector and coming in between productive people and taking your cut, pretending that pushing paper is hard work? Or was it (more likely) by becoming a two-week-course-Realtor (TM) here in Canada and selling houses… Read more »

rp
rp
10 years ago

#6 @Pied Piper: I think politicians distort the truth so often that they eventually become incapacitated. After all, how can Flaherty acknowledge the problem without simultaneously admitting his own culpability? The answer is he can't. So we get cognitive dissonance instead of logical analysis from him. You would think it would be the job of opposition parties to tell it like it is, but they all seem retarded too.

richasian
richasian
10 years ago

Renters have always been and always will be LOSERS. If you rent an apartment or even worse, a basement suite then you are worse than a piece of trash. I respect bums begging for change much more than renters since most bums are hopeless but most renters can control their plight.