Banks ask Ottawa to limit mortgage terms (again)
The big banks are asking Ottawa to cut back on the terms of mortgages they insure for a second time.
Gordon Nixon, chief executive officer of the Royal Bank of Canada, the country’s largest bank, said he’s not hitting the panic button yet over concerns that some consumers may not be able to repay their loans.
But “we are clearly at the limit,” he said in an interview. “You do not want significant growth in consumer debt.”
Low interest rates have enticed Canadians to borrow more than they could afford to otherwise, and many are now stretched. The average debt per household, including mortgage and credit card debt, hit a high this year of $96,100, as the debt-to-income ratio climbed to a record 146 per cent. Job losses or higher interest rates down the line could push consumers past their limit, resulting in bankruptcies and damage to the economy.
“We’re not in dangerous territory right now,” Mr. Nixon said. “But taking steps to ensure that we don’t have a problem is a prudent thing to do.”
Bankers shared similar fears with Ottawa in the fall of 2009. In February, 2010, Finance Minister Jim Flaherty announced measures designed to make it harder for mortgage borrowers to get in over their head.
Banks asking government to cut back on the cash cow that is no-risk taxpayer insured mortgages? Why would they do that?
Fairfax Financial CEO Prem Watsa is among the influential voices pointing to the impact of soaring debt on the broader economy. Not only are Canadians overleveraged, primarily with mortgage debt, low interest rates have prompted speculative buying that is artificially inflating housing prices, he said.
According to the latest statistics from the Bank of Canada, the banks were holding $497-billion in residential mortgage loans to consumers in September, up from $468-billion in January.
The good news is that those “Artificially inflated housing prices” are happening in Canada instead of in Vancouver.
December 14th, 2010 at 9:44 am
December Projections for month totals
Days elapsed so far 10
Days remaining 11
Average Sales this month 99
Average Listings this month 107
Projected sell/list 92.7%
SALES
Projected month end total 2081 +/- 155
95% Conf Interval lower bound 1926
95% Conf Interval upper bound 2236
NEW LISTINGS
Projected month end total 2245 +/- 193
95% Conf Interval lower bound 2052
95% Conf Interval upper bound 2437
MONTHS OF INVENTORY
Inventory as of November 30th 12384
MoI at this sales pace 5.95
Note: This is a simple linear projection of month end totals.
This provides the answer to the question
"What will month end totals be, if things continue
on the same pace we've seen so far this month?"
December 14th, 2010 at 9:36 am
New Listings 105
Price Changes 38
Sold Listings 111
December 14th, 2010 at 8:44 am
@Devore:
But open market rates for consumer and corporate debt aren't unduly low – because they price in default risk, which the lenders know is high.
It's just mortgage rates that are low because the government is guaranteeing that the lenders will get their money back. And naturally banks are pushing mortgage lending because of this – they'd be stupid not to.
That's the reason for the excessive borrowing – not the low BoC rate but the removal of risk to the lender by the GoC.
December 14th, 2010 at 8:37 am
Carney takes the show on the road, spends half hour on BNN (http://watch.bnn.ca/#clip389237) 3 parts, won't post all links, post will get banned.
Talks about all manner of issues, those dear to us, as well as comments on US economy and policy (QE1/2/3), Euro problems, world economy, too big too fail, the financial crisis.
Some key points I heard:
- On mixed messages (rates low, but don't borrow): we're targeting inflation. Period. F has regulatory and legislative tools available to restrict borrowing.
- On tightening of lending rules: changes earlier in the year slowed consumer borrowing, but borrowing still growing faster than incomes, further tightening almost certain, 25 years amorts within realm of possibility.
- On asset-based lending: while debt is up, so are assets. But you cannot lend solely based on assets, ability to service is very important. Asset based lending tends to inflate asset prices, which drives further lending, in a cycle, not sustainable by any economy, assets eventually (de-)revalued.
- No country can grow debt faster than incomes sustainably.
Fairly light and polished, but there was no optimistic talk of future growth, prosperity, rising (asset/house) prices, employment, everything was very cautionary and low key. That the BoC is sounding alarm bells before an election, rather than keeping a happy face lid on things, I think is quite telling, and that they are expecting significant movement in the near term, and are just covering their bases.
December 14th, 2010 at 8:02 am
@Anonymouse: BMO obviously forgot to read Carney's statement. When house prices drop, the mortgage amount will still be there.
December 14th, 2010 at 7:13 am
@Anonymouse:
You mean those inflated house prices? Well they have a way of going back to normal while the debt lingers on, as Mr. Carney pointed out.
December 14th, 2010 at 7:02 am
http://www.cbc.ca/money/story/2010/12/14/f-debt-a…
"The cacophony of concern over rising Canadian debt levels is overshadowing other encouraging personal finance data, a prominent economist says. 'The continued laser-like focus on debt overshadows the other half of the balance sheet,' BMO chief economist Doug Porter said Monday."
December 14th, 2010 at 6:26 am
http://www.montrealgazette.com/Montreal+Ritziest+…
"MONTREAL — The penthouse at Montreal's Ritz-Carlton Residences has sold for a whopping $13 million — taxes included — The Montreal Gazette has learned. The 8,000 square foot unit — which includes a terrace the size of a large three-bedroom apartment — is the most expensive condo ever sold in Montreal."
December 14th, 2010 at 6:17 am
Useful advice from Mark Carney Says:
December 14th, 2010 at 1:18 pm
“The debt endures, the asset prices go up and down,” he said. “People in Ireland, people in Iceland, people in the United States that took out big mortgages on assets that were worth a lot more for a long period of time, found out that the asset’s not worth very much but the debt’s worth exactly what it was when I took it out.”
Wow, I can't believe he said that! He's basically spelling out that Canadians are overpaying for houses by loading up on debt they can't pay back.
Carney's all over the news these days, there must be some really scary numbers going on behind the scenes to prompt this media blitz..
December 14th, 2010 at 6:09 am
Freak out!
Look at these closing numbers [14 Dec 2010 16:00]:
Light Crude $88.88
BP $44.44
Co-incidence? I think not!
December 14th, 2010 at 6:01 am
@Useful advice from Mark Carney: From that article:
According to some of our resident bulls incomes have been rising. I wonder who is correct. Of course, incomes could still be rising in Vancouver while falling in the rest of the country which wouldn't surprise me given the vast economic powerhouse Vancouver is. (That last sentence was sarcasm, of course.)
December 14th, 2010 at 5:46 am
@Useful advice from Mark Carney:
Everthing Carney says about Canada goes triple for Vancouver.
Especially with our pathetic -3.6% savings rate.
December 14th, 2010 at 5:18 am
"The debt endures, the asset prices go up and down," he said. "People in Ireland, people in Iceland, people in the United States that took out big mortgages on assets that were worth a lot more for a long period of time, found out that the asset’s not worth very much but the debt’s worth exactly what it was when I took it out."
http://www.theglobeandmail.com/report-on-business…
December 14th, 2010 at 5:07 am
@space889: "Not saying it will happen but just saying it can be done."
Actually I'd be surprised if it could be done even in theory. Inflation/valuation risk would cause yields to increase due to what would be seen as erratic monetary/fiscal policy decisions.
December 14th, 2010 at 4:28 am
122 Troll Says: " I don’t think we’ll see much more than token changes though, because of the political ramifications."
I never understood this rationalization. Are other countries populated by idiots? If it was just a matter of policy, a signature on a piece of paper, don't you think the US, Ireland and others would be keeping Joe 6 Pack happy too? Economies are not infinitely malleable to short term policy, governments can distort them for a while but eventually the bill gets paid.
In the last federal election Harper denied the recession until shortly after he was re-elected. My money is on the Cons doing everything possible, at whatever cost, to keep the party rolling until the next one. The fact they say any discouraging words at all should be raising the hair on the back of your neck.
December 14th, 2010 at 4:26 am
#116 Devore,
You said, "Someone on GF brought up an interesting point… if 70% of Canadian households already own, and we have 8% official unemployment, how many could actually own?"
I saw that. It is a very interesting question. One thing for sure is that a lot of demand was pulled forward over the past number of years. If rules tighten, affordability erodes generally along with interest rates rising you know what happens next.
December 14th, 2010 at 4:26 am
@jesse: "We also haven’t forgotten how far yields have fallen from the middle of last decade. "
Yes, and debt has skyrocketed. The point Carney and others are making is that if we begin to retrace the yields of the past, the current debtload will be very heavy to carry.
The world didn't collapse with the yields faced in 2007. But there was a lot less debt in 2007. The problem is 2010 debtloads with 2007 yields.
December 14th, 2010 at 4:25 am
@jesse: Most bonds in Canada are issued in Canadian dollars. Worst come to worst the central bank can wrestle the long bond yield done by purchasing bonds from the market, eseentially becoming the bond market. Granted that would wreck havec with the currency and probably cause lots of other problems but depending on what the government's main concern is, long bond yields can be forced down.
Not saying it will happen but just saying it can be done.
December 14th, 2010 at 4:24 am
@Troll: "People are forgetting that we are coming off very low bond yields which fell significantly"
I don't think anyone here is forgetting. We also haven't forgotten how far yields have fallen from the middle of last decade. A relative of mine got 5 year fixed at 3.1% earlier this fall. He plans on paying off the principal in full in 5 years.
December 14th, 2010 at 4:19 am
@Troll: "Joe6P wouldn’t understand the Cons are making houses ‘less’ affordable for him by going 25 years."
I agree with you. Moving to 25 years from 35 would have a significant impact on affordability and demand, more than a 1% rise in rates.
I was reading through CBC.ca reader comments on the article summarizing Carney's recent speech. The comments that were getting the most thumbs ups were the ones outlining how the government is screwing the middle class for the benefit of their rich banker buddies by raising rates. That small sampling of opinions tells me there will be significant political pressure to keep things going as-is but it also tells me debt isn't just the realm of J6P but extends into the upper tiers of society who read CBC
I'm not so certain the government will have much ability to fight the long bond market. In fact I'm certain they have no chance of doing so. Likewise, keeping ams at 35 years won't fool a $90 trillion market.
December 14th, 2010 at 3:10 am
@jesse: I agree that changes to the mortgage rules going from 35 to 25 year ams would be much more significant. I don't think we'll see much more than token changes though, because of the political ramifications. Joe6P wouldn't understand the Cons are making houses 'less' affordable for him by going 25 years.
December 14th, 2010 at 3:08 am
The games realtors play….
Check out these two townhouses next door to each other:
v858893
v860521
The first one listed at $948K which is $769/sqft. The second listed 18 days later at $959K or $760/sqft (it's 30sqft bigger). It only took a couple days for the higher priced unit to figure that $936K would price them at the same $/sqft as the neighbor so lowered their price, but not to $936K but $938K 'cause you gotta get that "8" in your price somewhere!
Regardless, both these guys are dreaming as their other neighbor got lucky (1420 Strathmore Mews) and sold for $709/sqft.
BTW, these yaletown townhouses just off beach crescent all look onto an empty lot that Concord has been using for storage. The future plan for this lot is non-market housing so these "alley" townhouses will get upgraded from a dirt/storage view to a view of what often happens in an alley besides low-income houseing!
December 14th, 2010 at 3:04 am
Here's the mortgage rates if you don't believe me:
http://www.ingdirect.ca/en/accounts-rates/histori…
December 14th, 2010 at 3:03 am
@jesse: Well, we'll see. I'm looking at 5 year mortgage rates from April to July and they were around 4.5-4.6% with prices slightly higher. Prices at that time were pretty flat. Would that situation be bullish for prices? No. But it sure wouldn't be a catastrophe, all other things being equal. People are forgetting that we are coming off very low bond yields which fell significantly over the summer/fall. Affordability improved but prices stayed flat. Now we are simply retracing those steps. People are making way too much of this recent rise in yields, take a look at 3 year graph and you'll understand why.
December 14th, 2010 at 2:44 am
@Troll: "That’s higher, but not catastrophic"
If you say so. A change from 3.5% to 4.5% reduces total mortgage qualification by 10% for the same amortization. If the government goes ahead and reduces amortizations to 25 years from 35 years as well, that would be 25%.
That's all off the top. I'll take 10% in a year because I like to extrapolate.
Pray to God that doesn't happen Troll.
December 14th, 2010 at 2:44 am
@Devore:
Realistically we could go to about 65% without government intervention or a bubble (or both).
It didn't even hit 70% in the US before things imploded.
I wonder what that number is in Vancouver.
December 14th, 2010 at 2:29 am
@Junius:
Due to lending rule and interest changes, we may actually see another run up, like we did earlier in 2010, which will no doubt be interpreted as very bullish.
Someone on GF brought up an interesting point… if 70% of Canadian households already own, and we have 8% official unemployment, how many could actually own? We can of course go to 100% with enough government help, but realistically, how high could we go?
December 14th, 2010 at 2:25 am
@patriotz:
It is of course no surprise to me that subsidizing things makes them more expensive, basic economics, but apparently a huge revelation for some people no doubt. I'm sure initially it worked like a charm, but like so many well-intentioned initiatives, it achieved the exact opposite effect.
Time to end (or greatly limit) this moral hazard-inducing institution.
December 14th, 2010 at 2:08 am
@Best place on meth: "Will October be the start of much larger declines?" No. October 2008 and October 2010 are very different. Are you clowns serious? Are trying to troll the trolls?
December 14th, 2010 at 2:05 am
@McLovin: I can't engage with anyone who thinks that you can measure inflation by the price of gold. You're clearly a bear troll. Back to school git.
December 14th, 2010 at 2:04 am
It will be interesting to see the Teranet data for October when it comes out near the end of this month.
According to them the Vancouver market peaked in June, both in 2008 and 2010.
In 2008 the index fell only a total of 0.8% over the following 3 months, July-Sept, before starting a sharp fall in October.
So far in 2010 it has fallen 1.0% in the same 3 month period following the peak.
Will October be the start of much larger declines?
December 14th, 2010 at 1:52 am
OK I will engage you Troll.
The upward trend in the long bond has been in anticipation of higher rates and inflation. The market is telling us something and that is rates are going higher. The bond market anticipates not reacts. What makes you think we have no inflation dumb ass? Just because "official" Gov't stats say we don't? (The ones that leave out just about everything important) Have you looked at the price of:
Food, Oil, Copper, Coal, Steel, Gold, Silver, and even natural gas lately?
Inflation is alive and well my mental midget and it will lead to much higher interest rates. The non-stop printing press in the US coupled with years of cheap money have assured us of this. The Bond market is telling us this and now the Gov't is too.
Better lock in your 40 yr. Mortgage today Troll!
December 14th, 2010 at 1:45 am
@patriotz:
Going back to where rates and prices were in April 2010 is not catastrophic cause we were just there and the world didn't end. Too many doom mongers on this site.
December 14th, 2010 at 1:35 am
@Troll:
Coming off of today's rates and levels of debt and RE affordability you'd better believe that would be catastrophic.
And that's exactly what Carney was talking about.
December 14th, 2010 at 1:26 am
@McLovin: Are you retarded? You clearly have no idea what you are talking about and you just keep jabbering on and on and on. I think you're the Realtor candidate.
Bond market did not respond to Carney's speech in the way you think. They interpreted it as pretty dovish. The upward trend in yields has been in place for a couple of months now as people shift money from fixed income to equities. Point is, and this is the part you need to listen. In the absence of inflation these long bonds are not going much higher than last summer. That will mean 5 year mortgages maybe 75-100 basis points higher than today. That's higher, but not catastrophic. It wasn't catastrophic last summer and it won't be now. Get a grip doom monger.
December 14th, 2010 at 12:49 am
Did the bond markets take yesterday’s events seriously? spiking up, baby..
VHB please stop posting this. You are simply confusing all Realtards and 95% of Vancouver Real Estate Investors.
Remember the banks set the rates. What is this long bond gibberish?
December 14th, 2010 at 12:42 am
@VHB:
>sarcasm on<
This is a great time to go long bonds. The decline in prices and increase in yeilds, shows that the bond market is really dumb. The bond market must not know about Rich Asians.
Because of Rich Asians, the government does not need to restrict lending and the BOC does not need to raise rate.
I'm surprised that the bond market does not know about Rich Asisans because the real estatate agents always talk about Rich Asians in the newspapers and on TV and RE agents have been right for 10 years and therefore they will always be right.
December 14th, 2010 at 12:27 am
@jesse:
"They do within confines of the Charter;"
I bet you are not a lawyer. The Charter of Rights and Freedoms does not apply to Banks. It applies only to restrict governments.
Things like the Canada Human Rights Act apply to banks and would hold them nominally accountable for discrimination on the basis of things like race, gender, etc. Credit risk is definately not an ennumerated ground of prohibited discrimination.
December 13th, 2010 at 11:53 pm
@102 Keeping An Eye On The Pimps: You forgot 'trust me'.
December 13th, 2010 at 11:46 pm
Did the bond markets take yesterday's events seriously? spiking up, baby..
December 13th, 2010 at 11:20 pm
For those who bought at high prices and are mortgaged to the max….. don’t worry everything will work out just fine.
You are in good hands.
A finance minister, a central banker and a government institution loan shark, will engineer a soft landing in the housing market. I can’t see anything going wrong with that.
And let’s not forget, that officially there is no housing or debt bubble, this is just to prevent it.
December 13th, 2010 at 10:42 pm
#99 Patriotz,
Agreed. Even if they simply tightened the requirements to 20% down and 25 year amorts it would solve the problem. However getting out sounds even better.