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?
December 28th, 2009 at 3:14 pm
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? Plus keep a rainy day account, and not sacrifice their retirement savings? I only know one – me.
December 28th, 2009 at 3:05 pm
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.
December 26th, 2009 at 6:17 pm
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.
December 25th, 2009 at 3:44 pm
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.
December 25th, 2009 at 3:39 pm
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
December 25th, 2009 at 11:48 am
#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?
December 25th, 2009 at 2:19 am
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.
December 25th, 2009 at 2:09 am
richasian,
You are right. Renters are stupid.
December 25th, 2009 at 1:46 am
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.
The exception to this is – you guessed it – BC. BC faces the double jeopardy of being the most dependant on domestic RE and US RE of any province.
3. Canadian banks are insulated from a bust by CMHC and thus there will be no banking crisis to deal with. Of course there will be fiscal fallout to the federal government but that's not the same thing. IMHO things will not be as bad as in the 80's when the Bank of BC and two Alberta banks failed (remember that, folks?).
I think the Cons let the bubble run as long as it did to try to give people a false sense of prosperity which they thought would give them a majority in last election. Well it didn't work, and and I don't think the electorate are in a mood to give them another try.
The choices before Flaherty are clear and I'm sure he recognizes them: put a stop to this bubble NOW and deal with the fallout in the short term, or let things carry on until we are in the same shape at the US, face a massive bust, and the "Conservatives" get eaten alive by the Opposition.
Got the cojones, Jim?
December 24th, 2009 at 11:11 pm
Interesting details regarding the boost in Canadian GDP for October. It was almost exclusively due to unseasonably cold weather and real estate sales.
Some more info regarding the GDP figures for October.
http://www.progressive-economics.ca/relentless/
December 24th, 2009 at 10:30 pm
@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?
December 24th, 2009 at 8:59 pm
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
December 24th, 2009 at 7:07 pm
@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 as following because hey "Vancouver real estate never goes down".Santa.
MLS listings and sky is falling down on bearish head http://www.youtube.com/watch?v=oUbpGmR1-QM
baby don't worry
you re not the only
even mls listing falling down
down,down,down.
Merry Christmas Everyone!
December 24th, 2009 at 5:59 pm
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 will look decidedly different. After the big crash of 2010 things will look different. Good luck to all and my sincere best wishes.
December 24th, 2009 at 5:21 pm
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.
December 24th, 2009 at 11:09 am
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.
December 24th, 2009 at 11:02 am
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…
December 24th, 2009 at 9:55 am
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
December 24th, 2009 at 8:07 am
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.
December 24th, 2009 at 7:53 am
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"
December 24th, 2009 at 7:20 am
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 !!!
December 24th, 2009 at 1:33 am
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.
December 24th, 2009 at 12:09 am
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 to the poor-Asians while telling them "House Prices Always Go Up?", taking your 6%?
One thing I know: Being a "Senior Engineer", creating something that helps people lead better lives does NOT make you a rich Asian. Only a loser.
Eagerly waiting your response so I can be a rich Asian too!
Best Regards,
( Beck:
"Soy un perdedor
I’m a loser baby,
so why don’t you kill me?" )
arit
December 23rd, 2009 at 11:40 pm
#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.
December 23rd, 2009 at 10:56 pm
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.
December 23rd, 2009 at 10:13 pm
@observer: Your idea is just a another dumb idea that switch over wealth from 72% people to 5% bussinesmens.What hygiene? for the economy to pick up things must improve in value in progressive manners or else why don't you work at the rate of $4.00 per hours that way employers can hire 2 workers at the rate of 1 but but Isn't it going to split wealth of their customers in half? Why don't you rent my condo?
Say thanks to Canadian real estate bulls who were houling the economy up during recession!!!!!In results more and more peoples are getting jobs and increasing their incomes month over month.
Who is talking bubble or writting articles regarding?
Must be comedian or an idiot!!!!!Tell them to hire more staff for Olympics live coverage.
December 23rd, 2009 at 7:54 pm
@observer: Very wise words! Flaherty & co don't really discuss the HUGE misallocation of credit which is skewed towards housing. All they see is the short-term, unavoidable slow-down in economic activity association to the adjustment for 6 or so months. Crazy stuff.@Pied
Piper: He is not retarded, he simply wants re-election. Imagine if he did implement the changes and the liberals called an election ambush.
People need to be informed, MPs need to receive our emails, Flaherty has to know that there is 'another' public opinion (voters) who don't want 5/30 mortgages and don't condone CMHC underwriting practices. If you have a chance this Christmas, make yourself heard.
December 23rd, 2009 at 6:58 pm
Flaherty’s staff has probably done an in-depth audit of Canadian home mortgage debtors,and concluded that the wreck is going of the cliff even though a year ago it looked as if it was going to slide back to safe territory.
But asset bubbles don’t gently deflate, when supported by free financing,
They simply expand, and eventually pop.
Well overextended home debtors, Flaherty can now say he warned you.
December 23rd, 2009 at 6:32 pm
"Canadians have way more responsibility than that."
This one can be filed under the same category as:
We are running out of land
Best place on earth
The recession won't hit us, because China and India need our natural resources
Ours isn't a bubble, fuelled by low interest rates, ours is a boom underpinned by fundamentals…
December 23rd, 2009 at 6:02 pm
Of course, now that Flaherty has spoken, the RE/Finance industry spin-machine is in high gear..
Don't clamp down on home mortgage rules, federal government urged
December 23rd, 2009 at 5:31 pm
Ninja loans were not the problem in the USA! The problem in the USA was people taking out ninja loans even though they couldn't make the payments! Canadians have way more responsibility than that.
December 23rd, 2009 at 4:05 pm
Flaherty
Talk about closing the gate after the horse has bolted! Morons…
December 23rd, 2009 at 3:59 pm
Flaherty can see the possibility of a bubble forming, and is contemplating making changes to mortgage rules?
I checked the calendar just to be sure it's not April 1st.
Get your head out of your butt Flaherty, our bubble is bigger than that of the Americans, and you actually think you can engineer a soft landing of a bubble? And then a gradual deflation?
You can’t possibly be that retarded.
December 23rd, 2009 at 3:56 pm
@realpaul: Couldn't you hold this stuff in check until the Friday Free-for-all? Unless you see it as being somehow relevant to the post?
December 23rd, 2009 at 3:45 pm
#2 If I have a condo in another country does that make me one of them?
I couldn't help note them left over hatred of the defunct Social Credit party. Doesn't that indicate that you are an old codger from a desperatly unsuccessful three decades of union loserdom?
I would be hard pressed to find any young person who wasn't spoon fed on 'The Tollpuddle Massacre" who had heard of the 'Socreds'.
I can't help myself from posting this for all you other pragmatic dinosaurs.
"The ideological bankruptcy is neatly captured by British author and advocate for individual rights, Cecil Palmer: “Socialism is workable only in heaven where it isn’t needed, and in hell where they’ve got it”. And government insolvency is explained by famed economist Frederic Bastiat, who made this levelheaded observation nearly 150 years ago about the nascent modern socialism then emerging. “The State is that great fiction by which everyone tries to live at the expense of everyone else.” More recently, Margaret Thatcher, being a sensible politician, put it pragmatically: “The problem with socialism is that you eventually run out of other people's money".
But while at the subject of politics. Does anyone realise that the original term 'Torie" came from Irish slang meaning "Horse thief"?
The public service should be up for private industry bidding. Unionists should be flogged for thier self centered and greedy disregard of the public good.
December 23rd, 2009 at 3:06 pm
I see no problem if there are tighter requirements. Prices will fall so in the end probably not many people will be impacted (lower price requires smaller down payment and shorter amortization). Plus the debt load will be reduced.
The false wealth which was given to homeowners will be available to be put back to good use in the economy to the right economic players. Sure, there will be some pain for those who were imprudent, but at the end of the day, lower housing prices will be a boost to the economy because prudent people will have more money to spend on other things and imprudent people will get a slap on the wrist.
Sounds like a good way to encourage good economic hygiene and prevent the economy from effectively becoming a ponzi scheme.
December 23rd, 2009 at 2:51 pm
realpaul you are a silly socred hick.
This is a vancouver condo forum, it is not for geezers from Richmond.
December 23rd, 2009 at 2:43 pm
Merry Christmas and an expletive deleted New Year for all of you who were raised under your Mommy’s dress and work in a union not knowing how the real world operates.
Bwahahahahahhahahahahahahahahaha, see you clowns in the next decade.