The CMHC and Canadian Style Subprime

Introducing.. VCI Comment Greatest Hits! Some of the comments on this site deserve more attention as far as I’m concerned.  I propose we post some of the great ones as front page story topics. I’ll edit and format the following, but this is not my work, I’ll always credit the original poster and link to the original comment. This one is from Vancouverseniorsecondarymarket in response to relentless real estate cheerleader comments:

Vancouver home prices have increased quite a bit in the last seven years. Income has not risen, and banks have not increased their mortgage portfolio in the last 4 years. so where DID the money come from? locals will say rich foreign investment but this is only partly true. (more on this later)

So if peoples debt is increasing, and the banks aren’t loaning money and keeping it on their books, and there are not enough rich foreigners buying houses, where does the money come from?

If you answered mortgage backed securities, you are correct. What is a mortgage backed security? I am glad you asked. The CMHC takes the mortgages from the banks, securitizes them (pools them together) and sells them on the open market. The people who buy them get a stream of cash flow from buying the securities (cash flow stream comes from monthly mortgage payments).

Does this sound familiar? If you said “Jesus, this sounds like the sub prime meltdown in the US” you are right again. Look at the big brain on Brad!

Now why would anyone buy this crap after the US market went belly up? Canadians say they are different but is that enough for me, Johnny Investor? Hmmm, no.

So… what do. I would need some sort of iron clad guarantee. Now if only the Government of Canada, through the CMHC, would only guarantee all these loans. Then if these mortgages default, I wont lose money, the Canadian taxpayer will.

Done and done.

People will keep buying these securities if the government of Canada keeps backing them and prices keep rising (leading to ever rising cash flow streams)

Now if Vancouver real estate only ever goes up and the government backs it, eventually it will have unlimited liability.

So it said, hold on! lets tighten the requirements for the types of loans we will guarantee (insure). So now people go in, try to get a loan, and the bank looks at their income and down payment, and they don’t qualify for insurance.

So listings go up, sales go down, and prices stay the same or slightly rise. Jackasses like you think, well, that must mean no crash. Just because home prices have always lagged sales in real estate in every instance in recorded human history (lagged means sales rises, and later prices rises, or sales fall and LATER prices fall) you think it must be different here.

You come on here and say, well sales just tanked, but prices didn’t, so we are fine.

But as sales lag, prices will go down. When prices go down, cash flow goes down. As cash flow goes down, yield on mortgage backed securities go down, and investment from the secondary market goes down. As investment goes down, bank and mortgage loan origination goes down. As loan origination goes down, unemployment goes up. As unemployment goes up, defaults go up. As defaults go up, prices go down. As prices go down, prices go further down. Where once we have the positive feedback loop fueled by easy credit, provided by a secondary market trading in these GUARANTEED by the government of Canada sub prime loans, we now have a negative feedback loop that leads to price home deflation. Then a deflationary spiral.

So the sideways prediction in home prices that homeowners are predicting? WISHFUL THINKING. The downward spiral the bears are predicting? The natural outcome of moral hazard.

If you understand that the government of Canada became the biggest subprime lender in the world, you are right. If you don’t understand this, you are the one we are all going to laugh at.

If you don’t understand that the government of Canada is actively trying to deflate this bubble (praying for a soft landing that never actually happens) you are the village idiot!

So by all means, encourage people to buy overpriced homes in a system they don’t understand.

What the fuck do you care? Its not your money. Their financial ruin won’t lead to you losing sleep.

Before you post here again, ask yourself. Am I a man? Can I take responsibility for my words and advice? Or I am just an internet blowhard who doesn’t know their ass from a hole in the ground?

I think we all know, and I think you do too.

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Original comment by Vancouverseniorsecondarymarket

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China Friend
China Friend
9 years ago

@VRENGD:

But Seattle has less Chinese population to support the RE makekt;that what make Van RE special and unique to USA and London.

China Friend
China Friend
9 years ago

@Anonymous:

What does this Us problem has any relevancy to Van RE?

Van RE are mostly owned by Chinese who are responsible and hard working citizens;if there was a minor adjustment,they won't run away from their house.Here is Vancouver Canada not USA.

China Friend
China Friend
9 years ago

@househunter:

You ignore the Chinese factor which is the only major driven force of Van RE.

Patiently Waiting
Patiently Waiting
9 years ago

And you know these brothels were in "luxury condos" where the proceeds helped some speculator make their mortgage payments. Yes, real estate mania has turned this city into a cesspool. You live in one of those buildings and you don't want to know what goes on on the other side of your bedroom wall.

http://www.cbc.ca/canada/british-columbia/story/2

Chris
9 years ago

The frustration here is palpable. Post anything that could be perceived in any minuscule way daring to discuss rather than state what is considered the "obvious," or offer any alternative points of view in a reasonable way, trying to understand and get more data or even play devil's advocate–and you're voted down and attacked. People are calling Vancouverites "idiotic" and the city a "cesspool." It would be easily dismissible if there wasn't something unprecedented going on, something that often seems impossible to understand. When will any kind of real estate turn-around happen? No one knows, and it's shocking it hasn't happened yet. But I hope the tone can improve, as being constructive can advance understanding and help us all make reasonable choices. Nothing is gain by attacks from either side of the debate. Bears have to realize that we've been… Read more »

Patiently Waiting
Patiently Waiting
9 years ago

Well, I've come across enough people in low-income occupations in the last few years who are extremely, heavily committed to their real estate that I do kinda believe Vancouver is different. They will not back-down on their own. It will only stop when they run out of options. Pain, discomfort and ruined lives is not quite enough.

Its anyone guess when they reach they run out of options. I know I've stopped trying to guess… One thing I do know, is my medium-to-long-term plans involve getting the hell out of the cesspool I used to proudly call my hometown.

Super Bully
Super Bully
9 years ago

I believe real estate alway go up. Recently, I am a bit concerned. Prices seems to be falling everywhere. I really hope its temporary. New developments are being sold for less than secondary markets. Could that be right? Why are the developers undercutting the secondary market. Is it possible that we will have a US style meltdown? Isn't Vancouver different? I believe real estate will keep going up up and up. Mortgage payments are now 70% of average income. Soon it will be 90% of average income. After that, it will be 200% of average income. I believe you have to borrow to make mortgage payments. Then borrow to make payments on the amount borrowed to make mortgage payments. Real Estate will keep going up. Developers don't know what they are doing. The don't realize that the decline is only… Read more »

realpaul
realpaul
9 years ago

#166 P…Well..Canada is certainly not a meritocracy with its entrenched unions hiearchy of seniority and favoritism and the nepotistic bureacracies based on political pandering affirmative action for colour and creed rather than intelligence or capability. Singapores government is more multi racial than Canadas except that Singapore promotes by merit and not by numbers. You have to have proven yourself capable to be promoted as opposed to Canada wherein you are judged on 'deep core' items such as … are you a lesbian…coloured…refugee…female…non English speaking…immigrant….visible minority before you are ever given an aptitude test. In Canada's case we have an entire government stuffed with marginal intelligence…hence the exploding debt and general inefficiencies that cause our tax rates to have grown exponentially since this sytem was introduced by the Trudeau Liberals in the 70's. So to answer your question it would have… Read more »

NO - LYMPICS
NO - LYMPICS
9 years ago

scullboy:

Noticing your posts are getting to mellow and melancholy, maybe because you are around too many hooch swigging herring chokers.

I thought your old rants were solid gold.

Maybe get in shape for this weekend say versus "Grampy"

NO - LYMPICS
NO - LYMPICS
9 years ago

# 170

Anonymous

WTF? Get in line for the OV sales.

Nobody wants them, thus the price must drop right?

Maybe Gregor Roberston can take them to Pawn Stars and negotiate with Chum Lee.

Best place on meth
Best place on meth
9 years ago
Best place on meth
Best place on meth
9 years ago

@Anonymous: #164

Bangkok voted best city in Asia?

By whom, blind people who enjoy traffic jams and smog?

Holy shit, I just pass right through their airport every time on my way to somewhere much nicer.

Anonymous
Anonymous
9 years ago

I'm losing faith. I've been bearish on Vancouver RE for a while. I admit I'm defeated. The crazy bulls have won.

I'm taking my downpayment and investing in dividend stocks that will provide enough income to pay the rent…

It's over, I'm done waiting

fixie guy
fixie guy
9 years ago

Anonymous Says: Listen up bears….Vancity just voted best in the Americas by Conde Nast.s

Can you read? That survey obviously broke our the US, so at best a tie, and 'second' is probably 1/3 the price of Van, destroying any intent to correlate prices with the results. Damn, some bulls are stupid.

chip
chip
9 years ago

@patriotz: "Which country is the real meritocracy? The one that gives newcomers equal opportunities with the native born, or the one that permanently consigns them to a disenfranchised underclass?" The foreign workers are brought in on contracts to provide labour. They earn a small fortune (for them) and gain skills which they then take back to their country. It's an agreement that works out well for both employer and temporary employee. When I first went to Singapore I too signed a contract that paid me an agreed-upon salary. It didn't mean I voted in the next election or had access to their subsidized hospital treatments. That's the deal. Now, you may be different and the guy who cuts your grass is on $40,000 a year and fully enfranchised with input in your family's decisions, but most of us can understand… Read more »

MediaSpin
MediaSpin
9 years ago

SALES ARE HIGHER THAN LAST MONTH!

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but they are 36% lower than the same month last year

patriotz
9 years ago

@realpaul:

…they have guest workers come on short term labour contracts and thus don’t have to be stuck with them like here..

Which country is the real meritocracy? The one that gives newcomers equal opportunities with the native born, or the one that permanently consigns them to a disenfranchised underclass?

scullboy
9 years ago

Dave and Chris: I'll admit my post streotyped Vancouverites, but I do know more then a few SUV driving yoga addicts. That's what makes it funny…. they really do think they're "spiritually aware" but then seem oblivious to the contradiction in their lives. Dave man, I've lived in a lot of places and I've lived in many cities. Vancouver has hands doen and flat out the worst construction I've ever seen. It's funny because it seems only a few of the apartment buildings built between the 50s and the 70s have any sort of construction quality. Dave I gotta tell you, that beautiful girls and sushi comment perfectly encapsulates what I'm talking about. I don't mean to be an asshole (this time) but that's exactly the short of "blowing smoke up Vancouverites' ass" trick that actually would sell condos in… Read more »

Anonymous
Anonymous
9 years ago

Listen up bears….Vancity just voted best in the Americas by Conde Nast.

No market crash now bitches. Get back in your caves!

http://www.straight.com/article-352537/vancouver/

realpaul
realpaul
9 years ago

#151 chip, there is a small area that is crammed with ex pats …called Holland District..its in between the Botanical Gardens ( fantastic collection of orchids btw really world class) and Orchard Rd. The rents in this one area are as you describe due to the gringo's…primarily Brits and Aussies….mainly bank workers and engineering types on short term contracts….on the 'ex-pat package'. The rest of Singers is not like that at all ….the average Singaporean is not paying $20,000 a month for a house or a condo. If you only look at the real estate ads in the EX PAT relocation sites ..yes you can find your pricing. Look for the classifieds in the Straits Times if you want the scoop on 'non ex pat pricing'. For one thing …you don't want to live in a community of British and… Read more »

Inventory
Inventory
9 years ago

We're also on-track for the slowet sales of "NEW" condos.

Slower than 2008 sales.

Oct New Condo sales

1994 = 181

1995 = 322

1996 = 253

1997 =159

1998 = 134

1999 = 217

2000 = 84

2001 = 130

2002 = 165

2003 = 606

2004 = 354

2005 = 478

2006 = 195

2007 = 262

2008 = 94

2009 = 219

2010 = 23 **Oct 12

NO - LYMPICS
NO - LYMPICS
9 years ago

Error #152 was me

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This also made me think about our upcoming property assessments.

I am just wondering if the comparables will be all over the place in this current market, , and the savvy owner may find some good exceptions by which to appeal by.

Anonymous
Anonymous
9 years ago

# 152

real_professional

While a property tax increase of either $31 or $54 a year for the average household won’t break the bank for a homeowner, it might — when added in with the other spiralling costs of basic living — be the straw that breaks the camel’s back and forces voters to push local mayors out of office.”

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Yeah, its only a measly EXTRA $54 for us to pay for something most of us won't use.

Well, I read that too and my instant reaction is that would show up in early JULY 2010,aka property taxes … 4 month before the civic elections. Duly note that the UBCM voted down 4 year terms…which would have bought more time. The civic politicians

must be scared shitless, this is a big canary in the mine indicator.

paulb.
paulb.
9 years ago

New Listings 225

Price Changes 111

Sold Listings 144

Let's see some price declines already. I think we are destined for dullsville until spring.

Inventory
Inventory
9 years ago

We're on track for the lowest "new" unit sales for Oct.

Oct New unit sales

1994 = 379

1995 = 492

1996 = 450

1997 = 321

1998 = 266

1999 = 325

2000 = 212

2001 = 257

2002 = 336

2003 = 813

2004 = 490

2005 = 705

2006 = 391

2007 = 428

2008 = 158

2009 = 445

2010 = 55 ***Oct 12