At home in the tulip patch
Don sent in a link to this interesting editorial on Canadian housing bubbles and the CMHC in the Winnipeg Free Press. The author does a good job of touching on the background of bubble mentality, including the classic Dutch tulip bubble. They then talk about the US housing bubble and compare it to the Canadian market.
Millions in the United States are homeless as a result of the subprime mortgage debacle, which had the effect of vastly inflating both the seeming buying power of consumers and seeming value of houses.
In short, Americans were getting credit at rates so low that they could buy way more house than they could afford if credit charges increased, which they did.
We don’t have a subprime problem here, so we won’t have a real-estate bubble, we are told.
In fact, just this week, Bank of Canada officials were assuring everyone that steep increases in house prices are the “natural” consequence of pent up demand during the recent trough, which also had the effect of suppressing prices so that surging prices now appear to be surging faster than they are.
Now, I’m no expert and I’m inclined to believe what the experts tell me.
But I also hear opinions of people in the property racket who aren’t so sure. And their concern is not so much that Winnipeg house prices have climbed 78 per cent in the past four years, as the new reassessment reveals. Or that there are stories about house hunters sleeping in the streets of Vancouver in hopes of snapping up a $1-million house that we would pay no more than $350,000 for.
No, their concern is that low interest rates and long-term amortization periods are making it easy to get into the market — maybe too easy. But more concerning is that all this demand is being insured by the Canadian Mortgage and Housing Corp.
ahh, yes, the good old CMHC. So what could be the problem of the CMHC insuring demand for Canadian houses?
As the financial crisis started to hit in 2008, the federal government increased the ceiling of mortgage insurance CMHC can have outstanding — from $350 billion to $450 billion, and then $600 billion.
The move is widely regarded as a key measure that helped prevent the kind of credit crunch that so hurt the United States. And just about everyone who has commented on the changes, including Liberal finance critic and former bank president John McCallum, are cool with that.
But my sources wonder if CMHC, which insured 920,000 housing units in 2008, 350,000 more than it intended, according to the Globe and Mail, was in a position to ramp up its due diligence as fast as it ramped up its underwriting.
It’s a good question because, if there is a bubble, Canadian taxpayers will be on the hook for all the paper.
The full article can be found here and is a good read.
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January 21st, 2010 at 6:34 am
Good article but the author is still holding to some fallacies.
One, the RE bust in the US was not caused by “subprime” financing. Like all other RE busts, it was caused by prices being out of proportion to rents and incomes. Whether the financing was “prime”, “subprime”, “Alt-A”, or “option-ARM” is beside the point – the fundamentals determine the soundness of the financing, not labels based on other criteria.
Two, nobody is “homeless” in the US because of the RE bust. Rental accommodation is plentiful in all US markets and rents are falling – precisely because of the overbuilding caused by the bubble.
January 21st, 2010 at 7:56 am
Canadians are holding the equivalent of subprime if they are getting accustomed to emergency interest rates. Rates that have never before been seen in the history of our country. Raising these rates is an exact parallel to the US fiasco. On another note, I’m seeing pervasive examples of the real estate community urging new buyers that they should not trouble themselves with the principle of the loan but rather what they can afford monthly. If they are stretched out at the never-to-be-seen again low rates then WHEN the rates return to NORMAL they will start treading water and eventually have their heads underwater. Do not be a debt slave in the environment we are just about to go into.
January 21st, 2010 at 8:04 am
@buffates:
No, you don’t understand what the US term “subprime” means. It refers only to the credit rating of the borrower.
Borrower A has a bad credit rating, makes 30K, buys a 100K house with a 20% down payment and 25 year amort. Borrow A is “subprime”.
Borrower B has a good credit rating, makes 30K, buys a 500K house with 0% down payment and an “exploding” option ARM. Borrower B is not “subprime”.
As I said the term has nothing to do with the fundamentals of the mortgage.
January 21st, 2010 at 8:14 am
The emergency rates are luring in borrowers that have no business borrowing in the first place. This brings in riskier borrowers who are candidates for being violently penalized when we return to traditional interest rates.
January 21st, 2010 at 9:14 am
Great post, thanks.
As it was discussed many times on this blog, the CHMC is the MAIN reason for the huge run-up in transaction and prices. Interest is a large part of the actual cost of housing.
By heavily subsizing interest costs (by providing extremely low interests to untrustworthy borrowers with low down payment and high risk) the government of Canada is effectively stoking up the market and generating an unnatural and very dangerous price dynamic in the Canadian housing market.
This is especially visible in Vancouver where the market was already largely overvalued and RE valuations were way above reasonable fundamental valuations in 2008.
I have said this before and I will say it again: if you have a chance, write to your MPs (again and again) to let them know you are AWARE of the scam, you don’t condone it and you hold them responsible for it.
The CHMC operations should be scrapped or drammatically restricted: only then rationality and measure will return in this market.
Th CHMC and the government of Canada is adding fuel to the engine of a train which is speeding up towards precipice.
And we will all pay for their short-term vision and populism!
Write to your MP!
January 21st, 2010 at 9:48 am
What I find ironic is that with what we’ve saved for down payment and in a regular market with our credit rating, we’d be a good risk. But any bank who extends that ‘good risk’ profile – for $300K or so of mortgage – to $500K and more would be asking for us to default.
January 21st, 2010 at 10:17 am
@patriotz:
Three, the writer wonders whether the CMHC could ramp-up their due diligence as fast as they’ve been increasing the pace of their underwriting. It’s a false assumption that they were doing adequate due diligence BEFORE 2008 (clearly there are enough examples around here that they were not).
January 21st, 2010 at 10:25 am
@Arwen:
Keep saving, you should have a good down payment by the time prices are hitting reasonable levels and if you buy at the right time on the way down you can not only save a bundle by selective shopping and driving a hard bargain you will have an unprecedented range of choice among properties as the inventory should be pretty huge by then.
January 21st, 2010 at 10:37 am
Just because prices for downtown condos have doubled in 5 years doesn’t mean it’s a bubble. Right Dave? After all, when you are a pretty, medium sized city on the coast in the southwest corner of the country, with a very desirable climate and strong tourism, this gain is justified. Right?? Yeah, that’s what these guys thought too!
Then they lost $28k/month.
January 21st, 2010 at 10:59 am
Patriotz~ the information you provided about what does and does not constitute a subprime mortgage is incorrect.
January 21st, 2010 at 11:02 am
@patriotz:
Subprime is just that. Lower credit qualification standards, such as credit score and/or debt servcie rations……or the extremely loose and obviously redrawn terms of the financing are also what make any particular deal “subprime”.
Borrower “B” in your scenario has a subprime mortgage…….there are no two doubts about it. IMHO every single deal CMHC does is subprime. Why ? Because the banksters won’t hold the paper and take the risk themselves.
January 21st, 2010 at 11:02 am
That should be “debt service ratios”
January 21st, 2010 at 11:25 am
@bridgeman:
As a service to the rest of the readers could you make a clarification of the errors in the statements made? I know that Patriotz can handle the truth if you have it and most of the readers would like to know the truth.
January 21st, 2010 at 11:52 am
I am not here to do the work for people, I just wanted to let people know it was not correct. This is an anonymous internet forum- the only thing I know for certain about Patriotz is that Patriotz is not a Chartered Financial Analyst.
How about this: everyone interested spend a few minutes and post what they have found to be the *researched* definition of a subprime mortgage (not what you think it is). Hint: it has to do with conforming and non-conforming loans per Freddie Mac and Fannie Mae.
And bonus question: if an individual with a credit score of 790 and a gross household income of 100k takes out a mortgage for 950,000, would Fannie Mae and Freddie Mac consider that a ‘prime’ loan or a ’subprime’ loan?
January 21st, 2010 at 12:01 pm
“I am not here to do the work for people”:–
———–
So, unsupported statements then. Way to make an argument.
January 21st, 2010 at 12:05 pm
@bridgeman:
“Subprime lending (near-prime, non-prime, or second-chance lending) in finance means making loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans. The standards for determining risk categories refer to the size of the loan, “traditional” or “nontraditional” structure of the loan, borrower credit rating, ratio of borrower debt to income or assets, ratio of loan to value or collateral, documentation provided on those loans which do not meet Fannie Mae or Freddie Mac underwriting guidelines for prime mortgages (are “non-conforming”).”
FM&FM ‘conforming’ loans is only one part of the definition.
So… You’re both wrong.
January 21st, 2010 at 12:08 pm
CBC radio just had a little blurb on recent layoffs in the news (teachers, BC govt etc) The Govt of BC is saying that although layoffs are occurring, the economy is improving. The Govt says “people should watch their spending and not get into debt”
Bwhaahahahaha…..anyone point out to them that if we DIDN’T get into debt (ie mortgages, consumer spending) our economy would surely be in the toilet??
January 21st, 2010 at 12:13 pm
“FM&FM ‘conforming’ loans is only one part of the definition.
So… You’re both wrong.”
My posts were only referring to Sub Prime MORTGAGES. I was not speaking about sub prime lending (as it relates to credit cards, etc), which is an altogether different animal.
January 21st, 2010 at 12:18 pm
“I am not here to do the work for people”:–
———–
So, unsupported statements then. Way to make an argument.”
Oh, I am not trying to make an argument. Fannie Mae and Freddie Mac have defined qualifications for what does and does not constitute a sub prime mortgage. Nothing anyone says on this web site can change that. I was just pointing out that Patriotz definition of a sub prime mortgage, while entertaining, is not correct.
January 21st, 2010 at 12:18 pm
@bridgeman:
Those definitions apply to all forms of sub prime lending, including Mortgages. You’re both wrong, live with it.
January 21st, 2010 at 12:20 pm
Fannie Mae and Freddie Mac have defined qualifications for what does and does not constitute a sub prime mortgage.
—————-
Then why not link to those definitions?
January 21st, 2010 at 12:25 pm
“Fannie Mae and Freddie Mac have defined qualifications for what does and does not constitute a sub prime mortgage.
—————-
Then why not link to those definitions?”
You got me logic, I made the entire thing up. There is no such thing as a conforming loan.
January 21st, 2010 at 12:27 pm
“@bridgeman:
Those definitions apply to all forms of sub prime lending, including Mortgages. You’re both wrong, live with it.”
Conforming loan standards for mortgages as defined by Freddie Mac applies to consumer credit card loans?
January 21st, 2010 at 12:36 pm
the moon is made of cheese
January 21st, 2010 at 1:08 pm
@bridgeman:
Are you being deliberately thick? FM&FM have their definition, sure, but theirs is not the ONLY definition of sub-prime, it’s not like they have the term copyrighted or anything.
So, as the term CAN be properly used on some loans that ‘conform’ by FM&FM standards you are wrong.
Since it doesn’t refer only to the credit rating of the borrower Patriotz is wrong.
Is there something tricky here? It’s not rocket science. It’s more like throwing rocks science.
January 21st, 2010 at 1:15 pm
~Drachen
Wow! You are an unpleasant fellow! You must be a lot of fun at parties
I think my biggest mistake was thinking there could be civil discourse on a blog forum. With that, I bid you adieu!
January 21st, 2010 at 1:22 pm
yet the moon is still made of cheese
January 21st, 2010 at 2:02 pm
Patriotz got sidetracked from his own main point – the whole discussion of do we / don’t we have a “subprime” mortgage problem in Canada is irrelevant. When prices began to decline in the States (due to the bubble reaching its inflection point), overextended borrowers could no longer refinance and so were forced to default. The wave of defaults just hit the subprime market first because those borrowers were generally overextended the worst.
January 21st, 2010 at 2:44 pm
@Carioca Canuck:
No he doesn’t. He has an Option-ARM mortgage. These are different categories as defined by the US mortgage industry. That’s my point. Look at the different categories in the chart below, for example (and note the minor role played by subprime mortgages):
http://www.calculatedriskblog......chart.html
To have a meaningful discussion about US mortgages, we have to use the definitions used by the US mortgage industry. You wouldn’t want to have a discussion about pets when different people call different animals a “dog”.
January 21st, 2010 at 2:56 pm
yay! look! a link! see how hard that was bridgeman?
January 21st, 2010 at 2:58 pm
@scoop:
Compounding the issue of not being able to refinance is falling real estate values putting the owner under water. Not being able to sell your property to cover the mortgage is the issue. That’s when the fun starts.
January 21st, 2010 at 2:59 pm
@scoop:
Correct, and notwithstanding my simplistic definition of “subprime” my main point remains:
The only criteria that determine whether there is a bubble, and therefore whether there will be a bust, are price/rent and price/income. What you call the mortgage does not matter.
January 21st, 2010 at 3:19 pm
@bridgeman:
I’m actually quite nice to intelligent people. I’m even nice to idiots who don’t get it into their heads that they’re geniuses. I just get pretty short with people who press a flawed argument even after the flaws in the argument have been demonstrated to them in such a way that a moderately intelligent chimpanzee could understand. I also occasionally make mistakes and jump at someone undeserving, when that happens I try to be as contrite as my ego allows. Does that work for you?
You were falling under niceness exemption A) pursuing an argument with flaws a chimpanzee could understand.
January 21st, 2010 at 3:24 pm
I was always under the impression that anyone who qualified for a mortgage on standard terms like a fixed rate 25 yr amrt kind of things was prime.
Anyone who needed special tricks like 0 down and ARMs in order to get a mortgage was subprime.
I dont think that Borrower B
(“Borrower B has a good credit rating, makes 30K, buys a 500K house with 0% down payment and an “exploding” option ARM. Borrower B is not “subprime”.”)
would be prime. He needed the 0 down ARM to get the loan. If he neede 5% down and 25 year amrt on a fixed term he wouldnt have gotten the loan.
Even if interest was 0% using the 33% rule (assuming he takes all 30K home) he could only pay off 10K/year. It would take a 50yr amrt for that to work. I dont see how this could be considered a prime loan.
I have no links supporting this, they are just my thoughts. The term subprime is thrown around to much these day there are probably 100 different deffinitions of it anyway.
January 21st, 2010 at 3:24 pm
I know this is off topic, but I simply could not help it.
Only in Vancouver… – a “Million Dollar Home” is actually priced at $2.6M…. Too funny!
http://vancouver.en.craigslist.....76470.html
January 21st, 2010 at 3:30 pm
Do not take Drachen’s criticisms to heart Bridgeman.
Just point to the professor’s awkward sentence structure and improper use of commas in his last post if you want to feel good about your level of intelligence.
January 21st, 2010 at 3:46 pm
Hmm, last IQ test I took didn’t have grammar on it. I guess that’s why I scored so well!
January 21st, 2010 at 4:06 pm
Classic. When the errors of one’s ways are pointed out, one falls back on “I have a high IQ.” It is amazing the sheer number of geniuses on this anonymous blog. Throw in all the Warren Buffet money managers, and this site is a veritable collection of the best and brightest and richest.
January 21st, 2010 at 4:24 pm
My point was not that I’m smart. My point was that IQ tests don’t measure grammar ability and yet they are seen as the benchmark for measuring intelligence. Logically then it follows that grammar skills and intelligence are not necessarily linked.
But then that should be obvious to anyone of intelligence.
January 21st, 2010 at 4:42 pm
@Drachen:
You brought up the IQ thing a year ago for no purpose other than self aggrandizement. And now it is raised a second time for similar reasons. CFA called you out on it and he hit the nail on the head.
IQ tests WERE seen as the benchmark for intelligence… decades ago. If you got your head out of your academic environment (err ass) and looked at the real world, you might actually know that.
January 21st, 2010 at 4:47 pm
Hold on a second- is Drachen a professor?!?!
January 21st, 2010 at 4:58 pm
Drachen:
“I’m actually quite nice to intelligent people. I’m even nice to idiots who don’t get it into their heads that they’re geniuses.”
As opposed to the geniuses who can’t get it into their heads that they’re idiots?
January 21st, 2010 at 5:02 pm
“I’m even nice to idiots who don’t get it into their heads that they’re geniuses.”
I was going to let that one slide, but I will join the dog pile. Shouldn’t it be:
“I’m even nice to idiots who don’t get it into their heads that they’re NOT geniuses”
January 21st, 2010 at 5:03 pm
@Dave:
This debate is silly, yes there are lots of standardized tests for measuring intelligence, no, none of them test for grammar skills. This debate is about as far off topic as we can get (which I suppose is why Dave jumped in).
I was merely pointing out that judging people’s intelligence based on the grammar they use in an informal setting is a pointless exercise of stabbing in the dark, that’s all, there’s really no need for a dozen posts on the subject.
January 21st, 2010 at 5:04 pm
@Anonymous:
Meh, are you saying you don’t occasionally make mistakes?
January 21st, 2010 at 5:04 pm
drachen:
“I just get pretty short with people who press a flawed argument even after the flaws in the argument have been demonstrated to them in such a way that a moderately intelligent chimpanzee could understand.”
I can’t wait to see how mad you get when that chimpanzee throws his feces at you as your are explaining your economic theories to him!
A word of caution, when angered, chimpanzees go for the hands and genitals first. It would be best to have 911 pre-dialed so you can press send with your nose.
I suppose your next trick will be teaching the dividend discount model to moderately intelligent dolphins?
January 21st, 2010 at 5:13 pm
drachen:
“I also occasionally make mistakes and jump at someone undeserving, when that happens I try to be as contrite as my ego allows. Does that work for you?”
No.
January 21st, 2010 at 5:17 pm
drachen:
“You were falling under niceness exemption A) pursuing an argument with flaws a chimpanzee could understand.”
I am getting the sense that we would all pay money to put you in a chimp cage and watch you pontificate, if you could a chimp how to originate a mortgage, you would have my respect.
We’re waiting.
January 21st, 2010 at 5:19 pm
@davers:
You are assuming that the only two categories of US mortgages are prime and subprime and that distinction is based on fundamental lending risk. That’s a logical assumption but that’s not how they are defined. Take a look at the categories at the link I posted.
In particular Option ARM is a distinct category from subprime. Note also Alt-A which is borrowers with good credit ratings but with debt service ratios too high for prime (very common in costly states such as California). Agency is loans bought by Fannie/Freddie (maybe FHA insured too) which I think were all prime when originally issued. I do know that F/F did not buy the riskiest mortgages, I’m not entirely sure about the in-between stuff.
January 21st, 2010 at 5:22 pm
@bridgeman:
“…if you could a chimp how to originate a mortgage…”
You lost me. Wanna try that one again?
January 21st, 2010 at 5:22 pm
“@bridgeman:
“…if you could a chimp how to originate a mortgage…”
You lost me. Wanna try that one again?”
Not really.
January 21st, 2010 at 5:25 pm
45
Sure, but I don’t jump down other’s throats when they make them, as you have frequently done. And yes I can find posts if you say otherwise.
As Dave said, you got called out. View it as a humbling mistake and think twice about commenting on other’s grammar or slinging insults about other’s intelligence.
January 21st, 2010 at 5:26 pm
@Anonymous:
“I’m even nice to idiots who don’t get it into their heads that they’re NOT geniuses”
Removing the double negative you get:
“I’m even nice to idiots who get it into their heads that they’re geniuses”
Doesn’t that seem contrary to the context of Drachen’s post? That being that he tolerates idiots that don’t put on airs but not idiots that get all uppity. I think he had it right the first time.
January 21st, 2010 at 5:26 pm
i need not explain as the moon is made of cheese
January 21st, 2010 at 5:30 pm
@bridgeman:
I made the ‘accusation’ a couple months ago. A number of posters have tried to figure out my identify, so I thought I would reciprocate. I believe that I have a good sense of intuition and that was my best guess. I think he’s in research or academia and lives somewhere near SFU. He probably isn’t actually a tenured prof., but he fits somewhere in the picture (e.g. Master’s student). I could be wrong though.
My guess is that Patriotz is a high school teacher (commerce?).
January 21st, 2010 at 5:40 pm
“You are assuming that the only two categories of US mortgages are prime and subprime and that distinction is based on fundamental lending risk.”
It is. One bank’s Alt-A is another banks subprime. A mortgage loan that would have been considered Alt-A at Citi would have most decidedly been subprime at ING Direct America (and probably would not have been made- they had 100 total, not a typo, 100 total mortgage foreclosures in all of 2008)
There is no standard definition of subprime, which is a euphemism for junk on the Street. (like a high yield bond is a euphemism for a junk bond) Each lending institution has different standards on who makes the cutoff for subprime and prime, and who gets the better interest rate. Traditionally, people have looked to Fannie Mae and Freddie Mac for what is considered a prime mortgage, until the government (Clinton Administration- I’m a registered democrat but lord did they screw that pooch) had them ease lending standards.
Based on current, more prudent lending standards in the US, adjusted back to the historic lending guidelines put in place after the great depression, most mortgages issued in vancouver in the last few years would be considered sub prime.
It is commonly understood in the
January 21st, 2010 at 5:43 pm
55
Dave,
I certainly hope neither a master’s or PhD student refers to themselves as “professor.”
At best, I suspect he is a disgruntled sessional who has too much time on his hands and too much insecurity to move on from insulting anonymous bloggers.
January 21st, 2010 at 5:45 pm
@dave
I don’t know, he doesn’t strike me as particularly bright.
January 21st, 2010 at 5:55 pm
I seriously hope he is not a sessional.
Sessionals make zero money and never secure tenure track positions. If he is a sessional, he can talk till he is blue in the face but he will never be able to afford ANYTHING in Vancouver.
January 21st, 2010 at 6:09 pm
@bridgeman:
“There is no standard definition of subprime”
He sees the light! Took you long enough Bridgey. At least you can acknowledge it when you’re wrong, however glancingly.
January 21st, 2010 at 6:10 pm
@Dave:
Well I guess I could consider that flattering in some respects, but it’s way off base.
I have in fact indicated the sector in which I work in this blog, go find it. It’s private sector BTW.
January 21st, 2010 at 6:16 pm
Dave,
I am a self-made millionaire from the spiderweb industry. Also am a orthodontist and a cable-layer.
We are all “special” on the interwebz.
January 21st, 2010 at 6:17 pm
Bridgeman,
Somehow you had successfully drag down Fannie Mae and Freddie Mac into the thread co incidentally it proves difference between sub prime or non sub prime countries.
What is difference?
Fannie Mae market value US$1.07
Freddie Mac market value US$1.30
Toronto Dominion BK Ontario C$62.27
Proves that Canadian financial institutions are not just a simple finacial institution they are strong leading institution for this world to learn a lesson because hey “VANCOUVER REAL ESTATE NEVER GOES DOWN”.-Bank of Canada is optimstic.
January 21st, 2010 at 6:20 pm
“Sessionals make zero money and never secure tenure track positions”
—————–
Untrue. I think the word you is looking for is “very rarely”, which is 1 degree better than never.
January 21st, 2010 at 6:31 pm
@Drachen
“He sees the light! Took you long enough Bridgey. At least you can acknowledge it when you’re wrong, however glancingly.”
Call me Mr. Bridgeman, if you’re nasty.
Not wrong, I was soliciting peoples definition’s of subprime. (read my original posts) Since living through the melt down in the states, it is interesting to see how people here define lending terms in a foreign country.
Namely, I was hoping that people would realize what patriotz would not- that if my income is 55,000 with excellent credit, and I take on a mortgage for 950,000 (which is roughly the avg. gross household income and the average SFH price in Vancouver) then I am a sub prime borrower, by the currently accepted definition in the United States. The quality of a loan is determined by the borrowers ability to pay- so credit score, interest rate, debt, and SIZE of loan relative to income are all taken into consideration.
The reason those standards were thrown out the window is because a secondary market developed to buy sub prime mortgages and because the lending institutions originating the loan no longer held it, they decided to loan to anyone with a pulse, because they assumed, incorrectly, that housing prices would always go up, massive defaults would not happen, and they would be spared any of the fall out if it did. We saw how that story ended.
We will soon see if the same loosening of credit and lending standards in mortgages in Vancouver will have the same outcome as in the US. A lot of people say it will be a happy ending (i.e. current homeowners). We shall see, nutslaps.
January 21st, 2010 at 7:07 pm
If you’re interested in learning about the relationship between the different mortgage categories in the US (or anything else about mortgages) there is no better authority than (the sadly departed) Tanta of Calculated Risk. For example:
http://www.calculatedriskblog......prime.html
Note that although the distinctions are not “sharply clear” as Tanta said, Alt-A and subprime are two different loan categories. But Option-ARM might well be a subclass of Alt-A which is broken out for statistical purposes:
There are plenty more postings to read if you have the time.
January 21st, 2010 at 7:18 pm
Good work, Patriotz.
January 21st, 2010 at 7:36 pm
For Dave and like-minded RE bulls:
“Rents Fall to 3 1/2 Year Low in Orange County”
http://www.calculatedriskblog......range.html
They must be all moving to beautiful BC for the Olympics?
The Vancouver RE market is going to crash so hard that it will be memorable. People will talk about this crash for decades to follow.
January 21st, 2010 at 7:48 pm
@domus:
Well our population grew by 40,000 to 50,000 people. Yet, only 700 rental suites were added to our net inventory in 2009. I don’t see rents falling.
January 21st, 2010 at 7:50 pm
What I don’t really understand, and I’d like to, is why RE bulls come here? I mean, bears – well, we’re all sitting around shaking our heads and pointing at the Emperor’s New Clothes, trying to figure out how long he can stay naked before his butt freezes. (A long time, it turns out.) But this happened on the Housing Bubble Blog in the states, too. There’d be these bulls coming in talking big: why? And where’d they go when the bubble popped?
I mean, if you see an Emperor who has his clothes on, why find a group who thinks he’s naked and hang out there?
I find it strange. I don’t hang out with people or on websites just because I disagree with them.
January 21st, 2010 at 7:51 pm
@bridgeman:
“How about this: everyone interested spend a few minutes and post what they have found to be the *researched* definition of a subprime mortgage (not what you think it is). Hint: it has to do with conforming and non-conforming loans per Freddie Mac and Fannie Mae.”
Hmm, since the actual definition does not need to reference FM&FM to be complete you are wrong.
But now that I think about it, “bridgeman” that’s an odd name, someone who lives near or… under a bridge, are you hinting to everyone that you’re a troll?
January 21st, 2010 at 7:51 pm
Dave – only 700 purpose built rentals, yeah? The inventory of total housing was certainly greater than that. I’m living in a house, and paying rent.
January 21st, 2010 at 7:56 pm
@Dave:
You’re not serious, are you?
Friggin’ W alone must be at least 100 rental suites if not more… WTF are you talking about?
January 21st, 2010 at 7:59 pm
@Bdk toll: Dave this Bdk is trying to corbon himself i think he is real for the words that was mention for him “Bdk Toll”.So never mind.
January 21st, 2010 at 8:05 pm
@Arwen:
No, only 700 net rental units in total including all classes of rentals (i.e. condos, houses, basement suites).
Housing starts for 2009 were estimated at around 14,400 units. I’m not sure how much housing was removed from inventory, but let’s exclude that for now. We had 58,000 new migrants to the Province. The average household is 2.5 people. Housing demand would therefore be around 23,000 units, which means we were short almost 10,000 units for the year.
So how is rent going to drop again?
January 21st, 2010 at 8:24 pm
@Arwen:
Two words: PAID SHILLS
January 21st, 2010 at 8:32 pm
@Drachen
“Hmm, since the actual definition does not need to reference FM&FM to be complete you are wrong.
But now that I think about it, “bridgeman” that’s an odd name, someone who lives near or… under a bridge, are you hinting to everyone that you’re a troll?”
It was a hint, a jumping off point, a clue.
Yes, Drachen, I am a troll who lives under a bridge.
Actually, its a reference to the immigrants who arrived in new york. people sold them the rights to the “brooklyn bridge” giving rise to the popular saying “if you believe that, i have a bridge to sell you”
January 21st, 2010 at 8:35 pm
@dave
“Housing starts for 2009 were estimated at around 14,400 units. I’m not sure how much housing was removed from inventory, but let’s exclude that for now. We had 58,000 new migrants to the Province. The average household is 2.5 people. Housing demand would therefore be around 23,000 units, which means we were short almost 10,000 units for the year.”
Respectfully, I don’t believe the average household for immigrants is 2.5 people. Not only is it impossible (to have half a person living with you) most immigrant households are above the average. Someone has to be above average- and it’s immigrants.
January 21st, 2010 at 9:07 pm
“ll be a happy ending (i.e. current homeowners). ”
——————-
Well done browntown, you have a new name.
Two words: fuck off.
January 21st, 2010 at 9:08 pm
“We shall see, nutslaps. ”
——-
Browntown at work, err bridgeman, or whatever. Differnt name, same level of retardedness.
January 21st, 2010 at 9:16 pm
It was joke logic, I was cruelly mocking browntown.
Are you a homeowner logic? Have you ever seen a grown man naked? Do you like to watch movies about gladiators?
Did you honestly tell an anonymous person on the internet to “fuck off”?
Thats pretty big talk son. Do you kiss your mom with that mouth? (my moms dead in case you were going that route)
January 21st, 2010 at 9:18 pm
“Have you ever seen a grown man naked? Do you like to watch movies about gladiators? ”
————-
Are you coming on to me?
January 21st, 2010 at 9:20 pm
@logic:
“Are you coming on to me?”
Only if you own vancouver real estate.
January 21st, 2010 at 9:22 pm
@Dave:
“We had 58,000 new migrants to the Province. The average household is 2.5 people. Housing demand would therefore be around 23,000 units, which means we were short almost 10,000 units for the year.”
Where did you get your stats from? According to the CMHC there were 34,321 starts in 2008 and that number was projected in September to be much higher for 2009. 23,000 units isn’t even close!
Are you sure you’re not comparing the BC migration numbers with the VANCOUVER housing starts? On purpose… Again!
January 21st, 2010 at 9:31 pm
@Drachen:
http://www.bcrea.bc.ca/economi.....recast.pdf
January 21st, 2010 at 9:35 pm
Yep, I just noticed that, the first report I looked at was a fluff news article that got it wrong.
However, since by your own calculations the province over did the starts by about 15-20,000 houses between 2004 and 2009 I think we’ll be OK if this year is 10,000 short. It still means we’re overbuilding way into the future.
January 21st, 2010 at 9:44 pm
I just stumbled across a nice video explanation of critical thinking. I’m sure most of you are here because you already have pretty good critical thinking skills but it’s an interesting explanation anyhow.
Critical Thinking
January 21st, 2010 at 9:57 pm
a SFH with a “mortgage helper” suite
would have to be considered “subprime”
if this route is the only way the buyer
can qualify….. made in Canada eh?
January 21st, 2010 at 10:59 pm
That looked like a Haiku for a second there ’skies. Makes you wonder what kind of housing haikus the people on here could come up with.
Buying real estate
in the best city on earth
makes Rennie happy.
Distilling wisdom
in the form of Haiku
is a waste of time.
January 21st, 2010 at 11:14 pm
@Dave: Even though they are strata titled, most of the recently constructed buildings in Yaletown— and many suburban buildings such as the Silhouette in Burnaby— are predominantly occupied by renters— with a 70% renter occupied to 30% owner occupied ratio not uncommon.
I believe that most individuals in the property management industry would describe the market as soft at best.
But you don’t have to take my word for it; just do a little empirical research, and walk around and look at all the “for rent” signs… go talk to the building managers: ask them if they think there will be upward pressure on rents this year?
Actually , the whole year (2009) was, for the most part, soft for the rental market: Two reasons mainly, first time home buyers and the unemployed.
I’m not sure where most of the bulls thought the first time buyers were coming from, but it was renters leaving their $1000 a month suites to purchase equivalent properties for $350,000…we’ll have to wait and see if works out for them.
January 21st, 2010 at 11:53 pm
@Dave: 50,000 empty condos would do the trick. You haven’t accounted for current slack in the market.
January 21st, 2010 at 11:58 pm
I was browsing craigslist and found something interesting.
http://abbotsford.en.craigslis.....49649.html
Looks pretty nice for $1400/mo. Rented by developer. What’s the asking price? Why it’s $539,500.
http://www.idke.vancouver.com/.....e_id=59300
And property taxes? About $3500 per year probably.
http://investbc.gov.bc.ca/Comm.....nityID=493
Now I am no financial genius, but does this even cover the cost of funding? What did this lot cost? How much did it cost to build? Maybe someone can fill in an educated guess. Here it is on a map.
http://maps.google.com/maps?f=.....h&z=15
And who in their right mind would ever “invest” in this? The yield is at best 2%. What about taxes on the sale? HST? Even slightly higher interest rates?
Even if some idiot buys this, the bubble is popping this spring. There is just no way these numbers work or can work without riches falling from the sky. Somebody out there has a balance sheet. It’s game over.
January 22nd, 2010 at 12:00 am
@domus: The CMHC and current government policies could be viewed as a kind of predatory lending whereby borrowers are lured with initial low interest rates and end up paying big bucks because they overpaid on the asset and also when rates rise to historical levels. Mind you, Flaerty and Carney have echoed these concerns so I give them that. But it is like a drug dealer telling you that drugs are bad for you after they get you addicted. Too little too late.
January 22nd, 2010 at 12:04 am
Dave,
take an average of starts in Vancouver metro for the past 5 years. Then take the total number of net immigrants over the same period. Put the two together. What do you get?
Incidentally, in the same period RE prices exploded. Cannot (repeat: cannot!) be sustained.
January 22nd, 2010 at 12:27 am
Off topic, thought you might enjoy.
22-year-old, independent gangster arrested on drug, gun charges
http://www.vancouversun.com/ne.....story.html
It’s good to see young people going into business for themselves. Kids, you don’t all need to be a corporate gangster and go to Wall St. Think of the flexible work hours and lifestyle available to a mercenary for hire. You’ll have more time to spend with the family so they’ll visit you in prison. And won’t you feel less guilty not knowing who your victims are?
January 22nd, 2010 at 5:11 am
@blueskies:
I wish people would stop using the term “subprime” in reference to Canada, period. My aversion to this is based on two reasons:
1. It gives people the impression that the root cause of the US bust was not excessive prices (and by extension that excessive prices alone will not result in a bust in Canada), and that the prices would have been sustainable if lending practices had been different. The US bust would have happened even if every single homeowner had paid cash. The prices were simply not sustainable.
2. There is an organized campaign in the US to blame the bust on supposed government mandated lending to minorities, and “subprime” is used as a code phrase for this.
Using the term “subprime” for Canadian mortgages (other than those actually called “subprime” by lenders such as Xceed), or for US mortgages in any other sense than that used by the US mortgage industry lends credibility to these fallacies IMHO.
It’s all about the prices.