Raising down payments would sideline FTBs

Don sent in this link to Helmut Pastrick of Central One Credit Union expressing concern about Flaherty’s recent talk of clamping down on the easy mortgage money.  Concern over a Canadian housing bubble has Flaherty, Harper and Carney musing about ways to dampen the market: rising interest rates, cutting terms down from 35 years and requiring a larger down payment.  It’s this last one that has Pastrick concerned.

A senior B.C. economist is warning the Lower Mainland’s recovering real estate market and construction industry will both take a hit if Ottawa makes it harder for first-time home buyers to get mortgages.

Helmut Pastrick of Central 1 Credit Union was responding to federal finance minister Jim Flaherty, who said the government will “likely” boost the minimum down payment from the current five per cent and cut the maximum mortgage term down from 35 years to ward off a potential housing bubble in Canada.

“It would have quite a negative impact,” Pastrick said. “It would certainly soften the real estate market. There would also be less new construction over time.”

A higher down payment threshold would force many first-time buyers with insufficient cash to delay buying.

As Don points out, is that really a bad thing?

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Anonymous
Anonymous
10 years ago

Resolutions for 2010: Honesty First

By Kevin Gaudet Thursday, December 31, 2009
http://canadafreepress.com/index.php/article/1847

The political year of 2009 in Canada was – yet again – marked too often by hypocrisy and self-interest. Looking forward to 2010 there are many ways which politicians could raise the bar higher. Start with more honesty in politics, focusing on making Canada more prosperous, instead of only worrying about grabbing and holding on to power for its own sake.

domus
domus
10 years ago
pricedoutfornow
pricedoutfornow
10 years ago

@Bubble Lad:

Good article, it points out just how intertwined the housing market is with the entire economy. I was talking to someone the other day who believes that the housing market will have a hard time crashing simply because everyone, the banks, government, entire housing industry is determined to keep the market up and prices high. My argument is, well, it didn't exactly work in the US, did it? Eventually you'll run out of fools, like any ponzi scheme. Or so I hope.

logic
logic
10 years ago

27:

"Special buildings such as Museums, Mansions and Castles"

There's Van's next trick! We don't have a CASTLE yet! lolz

rubberduckie
rubberduckie
10 years ago

I was thinking of other things FTB might stand for. Jump in any time.

Full Time Borrowers

Future Taxed Bozos

domus
domus
10 years ago

Happy new year to all! Sit down and enjoy the coming crash 2.0 (delayed, but arguably better than the first release!)

Bcite
Bcite
10 years ago

For a good chuckle and an eye roll or two:

http://store.steampowered.com/app/38080/

Bubble Lad
Bubble Lad
10 years ago

A continuation of arit's posting (from the same site) I think fills in the other half of the equation:

http://patrick.net/housing/crash2.html

Bubble Lad
Bubble Lad
10 years ago

24 – I think "taylor" hit the nail on the head: that is the flip side of the "everyone wants to live here" argument: if people have the ability to pick up stakes and move here to enjoy the good times, then they also have the ability to hit the "eject" button if things go belly up. The one thing that has always struck me about Vancouver is how transitory a large portion of the population is here. No one seems particularly invested in long term solutions that might require any effort. The province is CURSED with a boom-and-bust, get rich quick, mindset that has meshed to perfection with the housing bubble. That, coupled with an almost complete absence of any entrepreneurial spirit has created a perfect storm of speculations. Those who have lived here more than a generations seem… Read more »

taylor192
10 years ago

@#19 Nero

You are very correct that housing costs need to drop in BC to encourage economic growth.

I am one of many young Canadians that migrated west to take advantage of the economic boom. I might be one of many that won't stay cause I'm priced out of the housing market.

I've had discussions recently with other 25-35yos that are considering a move back east once the economy here starts to struggle or its time to start a family. It just doesn't make sense to take on high housing costs to stay here, or when the Olympic/construction job markets dry up.

The alternative is to flee metro Vancouver to the burbs of Surrey leaving behind the beach/mountains that brought us here. Might as well continue heading east, back to where we came and much cheaper housing costs.

domus
domus
10 years ago

This is interesting: subsidy breeds price rise, which cancels gain from subsidy.

Dofg biting its own tail?

http://tinyurl.com/yhdf8h3

Abolish the CMHC! Write toy our MP.

taylor192
10 years ago

Did you know that the majority of FTBs have part/all of the downpayment gifted to them?

My broker pointed this out and I was surprised. I was hoping that most FTBs were capable of saving 5%, I guess I was wrong.

Raising the downpayment will temporarily make housing affordable to those from wealthy families who can gift larger downpayments.

A much better fix would be to adjust the TDS/GDS ratios. Income is not something that can be gifted.

The TDS/GDS used to be capped at 40/32% with no exceptions. Currently its 44/35% with a couple notable exceptions:

– unlimited GDS with a credit score of 680

– 46-47% TDS with a credit score of > 720

Essentially a FTB with no debt and good credit could take a mortgage with a TDS/GDS of 47/47%. That's insane and needs to change.

jesse
10 years ago

Poor Helmut "contrary indicator" Pastrick is at it again. Woe the day his employer will require other places to lend out its money than government-insured debt.

Free ride's over, Helmut. Time to start producing some value like everyone else.

Anonymous
Anonymous
10 years ago

@#12, #13 & #14 – when politicians and civil servants use taxpayers funds to the tune of $Ms for hockey tickets to entertain their own and corporate giants, economy101 no longer applies.

No to discredit VHB et al. That explains why they are still waiting for honesty in the system that has left us long before 2004.

@#16 – Don't you see that's the logical solution rather than to go to wars. History has taught them they can prosper, have their cakes and eat them.

As for the stupid public, they will behave with the freedom carrot dangling in front of them.

Nero
Nero
10 years ago

I'm sick and tired of so called "experts" like Helmut Pastrick who are supposed to provide unbiased economic analysis but are either: 1. Obviously biased, or 2. Incredibly stupid. I don't know which I prefer. It may be a combination of both. Pastrick completely missed the boat about a year ago, and he's missed it again. Anything to deflate Vancouver RE prices would be a boon to our economy. It would stimulate consumption, encourage businesses to move here, and help ensure the financial health of FTBs who are the heart of the RE economy. Does it not occur to him that a city where 60-70% of average household income is required to service mortgage debt is a disaster waiting to happen? Does he not realize the common knowledge that BCers are up to their ears in consumer debt as well?… Read more »

realpaul
realpaul
10 years ago

BTW, what happened to the recovery. The number of people falling off the EI system have to be getting thier food from somewhere. Anyone see the welfare or food bank stats lately? Scams abound, and now with parliament closed down for several months, the information channels are bare.

http://www.financialpost.com/news-sectors/economy

realpaul
realpaul
10 years ago

The cost of housing in Canada is directly linked to this governments stand on Keynsian economics. It is the governments view that we should live in a cashless society, where all money is virtual. This is the main reason why the central governments are fixated on getting rid of gold as an alternative currency at all cost. What people are failing to understand is that 'value' in the traditional sense does not exist. The government has deftly undermined the market by printing money at zero intrest rates. This has reset the real estate market (Canadas fundamental economy)into a payment driven vehicle as opposed to a savings vehicle. Savings, like gold, is the enemy of the Keysian minded beuraucracy. The Keynsian philosophy puts all power into the hands of the government. It outlines the utopian socialist model. Controlling the economy is… Read more »

kansai_92
kansai_92
10 years ago

It's really sad that the situation has come to this.

A lot of people are going to get hurt when the correction rears it's ugly head again.

Government influence behaviour of industry and consumers through policy.

VREA is also correct about the misallocation of capital.

All this time, government could have provided incentives to all sorts of industries (research, high tech, green tech, agriculture, manufacturing, medicine, etc). But no, they choose to prop up housing, construction, realtors, banking, etc.

paulb
10 years ago

Who's buying Vancouver real estate at these prices? I was browsing some Westside listings on Realtylink and was floored by the cost of houses. Amazing!

North Vancouver suddenly seems a reasonable value. lol

vreaa
10 years ago

Anonymous said "You guys better believe it that Chinese investors, both Chinese nationals, Canadian PRs and Chinese-Canadian citizens, will be gambling in Vancouver real estate market for many more years irrespective of what Flaherty and Carney have to say." Yeah, but these guys tend to like rising markets. Let's see how attached they are to their Vancouver SFHs when the Chinese Stock Index is dropping, Shanghai RE is plunging, AND Vancouver RE prices are starting their downturn. They could be an important component of the 'speculator supply' that many of us are anticipating. — For VREAA's next-decade predictions, that some of you may have already seen – http://tinyurl.com/y97ex74 — BTW, thanks for the support arit (#8 above), and to our host here, the pope, who routinely lets VREAA post links to and from vancouvercondo.info. All the Very Best for the… Read more »

Pied Piper
Pied Piper
10 years ago

Flaherty would do well to follow the American example, and pay lip service to the problem, but let the market forces take its course.

Most Americans can once again afford to buy a home.

The greedy and reckless investors have lost their money, the spendthrift are foreclosed, and the housing stock has improved, as an added bonus.

Well done again, the Americans are the best capitalists, by far.

Market corrections and recessions are supposed to clear the excesses, and make way for a new growth cycle.

Flaherty and the gang missed the opportunity to let our economy grow healthy once more, because they are in perpetual election mode.

scullboy
10 years ago

Anonymous 11:

RIGHT YOU ARE! And "gambling" is the perfect term for what's going on. It certainly isn't purchasing homes for shelter and you can't even claim it's "investing" any more.

I can't wait to see who is swimming naked when the tide goes out.

Anonymous
Anonymous
10 years ago

You guys better believe it that Chinese investors, both Chinese nationals, Canadian PRs and Chinese-Canadian citizens, will be gambling in Vancouver real estate market for many more years irrespective of what Flaherty and Carney have to say.

Canada's Industry Minister Tony Clement said he had approved a 1.7 billion dollar acquisition by PetroChina of two Athabasca Oil Sands Corporation projects in northeastern Alberta province.
http://news.sg.msn.com/top-stories/article.aspx?c

Corriente, Vancouver copper miner, accepts $679M takeover offer by Tongling, China Railway
http://ca.news.finance.yahoo.com/s/29122009/2/biz

realpaul
realpaul
10 years ago

Like many things the government does to expand the tax base, the creation of 'buyers with insufficient cash' is simply another way of creating more taxpayers. Think of all the property tax bills that get paid when they stuff another'unqualified buyer' onto the backs of the general population. I say 'general population' because living in Canada has become akin to living in a tax prison. Does anyone wonder why the COV lowered the FSR in highrise construction 47%. Was this a one way shot in the arm to the developer or does the city increase the number of tax reciepts by stuffing more guinea pigs into tiny shoe boxes instead of livable unit sizes. Why did the COV reverse its stand on living area and let 300 sq.ft permits be granted? What if the people get angry by being cramped… Read more »

m
m
10 years ago

Raising downpayments should hopefully stop the bubble in its tracks and eventually bring about lower housing prices for everyone. Softening the real estate market is a good thing! It will reduce our current ridiculous mis-allocation of capital — an oversize industry for shelter, which is squeezing every single other productive industry.

Just think: In Vancouver, how much of people's disposable income goes into shelter? I bet for many recent FTBs it is a large percentage. Imagine having more disposable income for other things in life like: more savings for a rainy day, investments, education, improved lifestyle, better health, supporting children, etc. In the end, no housing bubble means a stronger, more balanced and sustainable economy!