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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December 31st, 2009 at 11:42 pm
Resolutions for 2010: Honesty First
By Kevin Gaudet Thursday, December 31, 2009
http://canadafreepress.com/index.php/article/18471
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.
December 31st, 2009 at 6:54 pm
Renters win
http://www.calculatedriskblog......s-win.html
Best luck to all!
December 31st, 2009 at 6:53 pm
@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.
December 31st, 2009 at 6:38 pm
27:
“Special buildings such as Museums, Mansions and Castles”
There’s Van’s next trick! We don’t have a CASTLE yet! lolz
December 31st, 2009 at 5:50 pm
I was thinking of other things FTB might stand for. Jump in any time.
Full Time Borrowers
Future Taxed Bozos
December 31st, 2009 at 4:44 pm
Happy new year to all! Sit down and enjoy the coming crash 2.0 (delayed, but arguably better than the first release!)
December 31st, 2009 at 1:54 pm
For a good chuckle and an eye roll or two:
http://store.steampowered.com/app/38080/
December 31st, 2009 at 1:47 pm
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
December 31st, 2009 at 1:19 pm
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 caught in a “company town” mentality – a passive mindset that sits and waits for those at the top to close or re-open the mine, fishery, or timber patch – except now the industry is RE, so everyone just sits around speculating on interest rates, housing values, whether or not the Olympics will jump start the market – instead of actually DOING THINGS like starting a new business, that might benefit the province down the road.
For this reason, Vancouver is royally screwed when the bust comes (just like it has every single time before).
December 31st, 2009 at 11:53 am
@#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.
December 31st, 2009 at 11:47 am
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.
December 31st, 2009 at 11:44 am
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.
December 31st, 2009 at 11:41 am
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.
December 31st, 2009 at 11:40 am
@#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.
December 31st, 2009 at 11:31 am
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? We’re living on borrowed time here….
Any economy that rides on something as cyclical and speculative as RE will be prone to bubbles and crashes. Few assets have been so volatile, particularly in so-called “desirable” spots like Miami, SoCal and of course, here.
He should be out of a job.
December 31st, 2009 at 11:23 am
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/n.....id=2395449
December 31st, 2009 at 11:21 am
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 just one small part of the plot. It is not unique to Canada. Every central government is wresting power away from the citizenry, even in the US of A for those who watch these machinations.
If any of you wonder why our government named our new currecy ‘Loonie’ think a little deeper at what this does psychologically to the average persons appreciation about the value of a dollar. This takeover has been going on for decades. The process was begun by our friend P. Trudeau who also brought us ‘sustainable development’ shifting of Canadian assets to the third world under the thin veneer of ‘climate change taxes’.
Think your smart? These assholes are way ahead of you.
December 31st, 2009 at 11:15 am
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.
December 31st, 2009 at 10:28 am
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
December 31st, 2009 at 10:04 am
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 New Year.
December 31st, 2009 at 9:05 am
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.
December 31st, 2009 at 6:28 am
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.
December 31st, 2009 at 4:27 am
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-sto.....id=3767718
Corriente, Vancouver copper miner, accepts $679M takeover offer by Tongling, China Railway
http://ca.news.finance.yahoo.c.....offer.html
December 31st, 2009 at 1:25 am
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 into small spaces? Hire more police to shoot and threaten the population of course. Does anyone wonder why there are so many police shooting citizens? Is it to cow the citizens who are being bled dry by the tax collection policies of the government? You decide.
Unqualified buyers are new blood to the government, any talk of reducing thier numbers will only draw the ire of the Finance Ministry officials. Politicians beware. if anyone thinks the government gives a shit about jobs and housing numbers they are just stupid. Its just that housing is the only game in town. Did anyone miss the end of the recession? Apparently you weren’t alone. Corporate profits are still sinking. The stimulus has run its course.
The government is trying to design a fee simple structure on native reserve lands. This is so slimy that it doesn’t bear comment. What it really is is a claw back of federal monies. Get the natives paying more taxes, great idea. And who does the CMHC sell the foreclosed house on a native reserve to? Native land is held in perpetuity by the crown and can never be sold. So whats the scam? Simple, just like all of us, the scammers want you to think you have ‘equity’ to borrow against, as soon as you have cash in hand it’s taxable.
December 31st, 2009 at 12:10 am
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!
December 30th, 2009 at 11:57 pm
*************** VREAA **************
CONGRATULATIOS!!!!
Your own composition for the end of 2009 made it to HoweStreet:
http://www.howestreet.com/arti.....e_id=11972
BUT MORE IMPORTANT!
http://patrick.net/housing/crash.html
It made the headline today of Patrick.net at Housing Crash!!!
Well done!!! Didn’t I tell you just last week historians will dissect your work?
Regards
arit
December 30th, 2009 at 11:49 pm
Here’s the crux of the problem…
Homeownership is a privilege, not a RIGHT.
CMHC doesn’t loan me 95% LTV so I can go out and buy mutual funds or precious metals.Why should they exist to subsidize the housing sector.
If the government really cared about making sure people have a home to live in, they should create incentives for developers to build more affordable rental units.
Anyone who cannot save at least a 10% downpayment has no business taking on a mortgage anyway because it already shows that they do not have the propensity to live within their means (savings) and pay regular mortgage payments to the bank.
December 30th, 2009 at 11:29 pm
“There would also be less new construction over time.” How could that be true? Over time? Unless more people are tempted to buy second and third properties the long term demand for new construction shouldn’t change. How many properties do people need, and why should this activity be financed by the government?
December 30th, 2009 at 11:02 pm
The reason Ottawa is making noise is because they have run out of rabbits in their hat. It’s not sustainable and sooner or later buyers are going to feel that they were burned. This way they can say people were warned.
The reality is more debt = less spending and with the boomers retiring, spending will already take a hit in the economy. Just think of all the money that could actually be going into an economic recovery rather than servicing record amounts of mortgage debt.
Let’s see, we bailed out billions in mortgage purchases so Canadians could take on whopping amounts of debt and give the money back to the bank instead of spending money on main street that would create jobs etc. Great plan
December 30th, 2009 at 11:01 pm
Righto Mr. Pastrick. Why should people need MONEY to buy houses anyway? It’s completely unreasonable and must be in violation of some sort of human rights. Power to the debtors!
December 30th, 2009 at 8:25 pm
I would much prefer that the bubble inflate further, and later allowed to pop on its own.
If Mr. Market administers the overdue spanking it will be much more severe, and lesson will remain seared in the minds of the fools for a generation at least.
December 30th, 2009 at 8:00 pm
A ponzi scheme absolutely needs new players or it collapses.
December 30th, 2009 at 7:51 pm
As mentioned early… Why should people WITH money have to compete against people with NO money? Bring it on, arit says. “You can’t scare a whore with a dick!” ™
Best regards and Happy New Year!