Mortgage Flux
With the passing of the March 18th deadline, where CMHC reduced maximum amortization lengths to 30 years from 35, there has been discussion over how many buyers have advanced their purchases to qualify for lower payments. (A move from 35 years to 30 years, all else equal, increases monthly payments by about 7%.) But that’s not all that has been going on recently in MortgageLand. If one looks closely, banks have been pulling their 35 year amortization advertising. To wit:
- TD’s and Scotia’s mortgage calculators won’t let you put in an amortization longer than 30 years
- CIBC says one can get “An amortization period of up to 30 years to pay off your mortgage”
On the other hand, it seems business as usual over at Canada’s largest non-bank lender First National, where 35 year amortization options are displayed.
It appears like the Big 5 banks are reducing their advertised amortization lengths in close conjunction with CMHC reducing its amortization length. However banks have other tricks up their sleeves, including:
- Scotia has dropped advertised qualification criteria on their loans.
- Despite posted 30 year amortization, banks will, apparently, offer extended 35 year amortizations “behind the scenes” to those who negotiate and qualify, likely on loans that are deemed not to require any mortgage insurance even if less than 80% LTV.
- Smaller lenders like some credit unions still use “offset” instead “add to income” for adding revenue from rental properties to mortgage qualification amounts. (I know some major banks used offset a while ago and, for sub-markets like Vancouver, may do so today; this would need to be verified.)
So the question is, why would banks reduce their posted amortizations to 30 years? Are their risk departments raising a big stink in the boardroom and are they tightening standards in response, or maybe the government has had something to do with it? It was made clear by Bank of Canada governor Mark Carney that banks must bear long-term responsibility for ensuring homeowners can afford their mortgages for the duration of the planned amortization. I should hope so; his bosses bear the brunt of any fallout damage if prices significantly weaken. Here’s what Carney said back in November 2010:
The one thing we can say with high degree of certainty is that over a thirty year mortgage interest rates are not going to be at the same level as they are now, they’re going to be higher, and that Canadians, individuals, should be comfortable that they can service their debt at higher interest rates, and the banks that lend to them should also be comfortable about that.
Hm. I just noticed now how he said “thirty” and not “thirty-five”; that’s a bit odd. Now we see banks starting to tighten even on low ratio loans, albeit not universally. The margins of loose lending are being pushed out into the fringes.
So is anyone seeing any change in what/how lenders are lending to non-high-ratio customers? I’ve given up going into lenders to find out; every time I do they run a credit check and ding my rating 
Spot The Speculator #31 – “My neighbours (late 60s, early 70s) have decided the way to fund retirement is to go into the RE development business.” | Vancouver Real Estate Anecdote Archive Says:
March 27th, 2011 at 5:06 am
[...] at vancouvercondo.info March 22nd, 2011 at 9:37 am- “My neighbours (late 60s, early 70s) have no retirement plan other than the government so [...]
Friday Free-for-all! | Vancouver Condo Info Says:
March 25th, 2011 at 1:12 am
[...] escape? -Low income and no savings? Vancity says buy a house! -Election to kill spring rate hike? -Anecdote on retirement planning through real estate -Shaw lays off 500, 90 in Vancouver -Hot Asian Money will prevent Irving California market collapse [...]
March 23rd, 2011 at 12:02 am
AG Sage Says: "I would say is designed purely to make more money and therefore is begging for some consumer protection laws"
If you lent this guy $400,000 and was expecting a high rate of return, would you let him pay you back early without penalty or would you charge him the $30,000 for breaking his contract?
March 22nd, 2011 at 11:18 pm
@Devore: I would never have conceived that they would compare the longer original term to financing a shorter term when figuring out their "loss". That's pretty punitive and I would say is designed purely to make more money and therefore is begging for some consumer protection laws.
March 22nd, 2011 at 6:01 pm
@Devore: Bah! that’s what I get being late to the party.
March 22nd, 2011 at 5:14 pm
@oneangryslav2:
Nice analogy. My old baseball coach put 50k+ into Nortel @ $108/share around that time. Sad part is, he was 57 at the time and 3 yrs. from retirement. Tried to hit a "home run" on tech… ooops! Now teaches piano 3-4 days/week as part of his retirement plan…
Begs the question… how many people trying to play catch up on their retirement planning are going to get hammered by Van RE. My guess is waaayyyy too many.
March 22nd, 2011 at 4:49 pm
@vci_sucks: Vancouver is so special, it can maintain sold over listing indefinitely!
March 22nd, 2011 at 4:48 pm
Just a reminder that weekly stats from REBGV and FVREB are on Rob Chipman's site: http://www.robchipman.net/
It's pretty nice.
March 22nd, 2011 at 1:55 pm
so, my question is when do you think we need the price drop?
March 22nd, 2011 at 1:46 pm
@lol cats:
"march 18th has gone by. the greatest fools have now been pre-approved to buy. in 3 months there will be no one left to buy"
Pre-approval wasn't sufficient to get a 35yr term after the 18th. You needed to have completed your mortgage application by then.
March 22nd, 2011 at 1:15 pm
here we go… march 18th has gone by. the greatest fools have now been pre-approved to buy. in 3 months there will be no one left to buy… since 35yr mortgages are kaput, and van is way overpriced, so much so no one will ever get another mortgage approval. patience bears… soon you will be dancing naked in the streets. for now…high 5!
March 22nd, 2011 at 1:14 pm
@HAM Sham:
I've always wanted to meet the guy/gal who paid $1,305 per share for Infospace.com in March, 2000.
March 22nd, 2011 at 12:48 pm
@Best place on meth:
Or more accurately, every single one of those sales took place prior to March 18th.
A few of them are from 2 or 3 weeks ago.
March 22nd, 2011 at 12:45 pm
@paulb.:
Relax dude, every single one of those sales took place last week.
March 22nd, 2011 at 12:40 pm
What is the pizza delivering engineer complaining about? At least he got some of his downpayment back – or so he says. Assuming he is telling the truth about buying in 2006 and just sold recently, there is no way he did not make a profit on his place. I'm thinking he is just another greedy person who is pissed that the bank is taking a big cut of his profits.
Read the fine print dumba$$
March 22nd, 2011 at 12:33 pm
I guess Vancity never got the memo:
https://www.vancity.com/MortgagesRenos/CustomFit/…
Who you are:
You currently live in Non Profit housing and are on a low income with no savings. You are ready to make the commitment to own a home, but need a structured plan to help you.
https://www.vancity.com/MortgagesRenos/CustomFit/…
March 22nd, 2011 at 12:01 pm
wow.
sold over listing.
haven't seen this one for a few months.
March 22nd, 2011 at 12:00 pm
@Best place on meth:
Holy Shit!
March 22nd, 2011 at 11:45 am
Silver closed at its highest level in over 31 years at $36.27 up 27 cents. The bankers were trying to keep gold and silver at bay today but failed.
March 22nd, 2011 at 11:40 am
The numbers tonight are crazy!
As I am in fact a "closet bull", I am going to extrapolate tonights figures as proof that sales will now exceed 7k each month for the foreseeable future.
Based on this meticulous quantitative analysis, I hereby proclaim that the median attached in Vancouver will be $2.72 million by March 2013, and Detached… $11.71 million!
Silly bears! Betcha didn't see that comin'! Keep dwelling in your basements, cuz' this baby is going up forever! blah blah blah blah… we're different here! blah blah blah…
Sorry… always wanted to do that just for kicks.
Seriously though, the sales #'s from today are one for the books! I guess those were all the people like me who do their X-mass shopping at 7:30pm on December 23rd. Trying to cram in a 35yr. loan while wading right into the teeth of the biggest RE crash we may ever see… epitome of the "last of the greater fools".
March 22nd, 2011 at 10:39 am
@Devore:
A house is not a retirement plan, but it is certainly an investment. An investment is any asset that provides (or is expected to provide) a future return. Having a place to live constitutes a return on investment, just as food from a farm or oil from an oil well or electricity from a power plant is a return on investment.
The reason why people were able to predict the US and other housing busts was that they could apply standard investing metrics to RE to prove it was overvalued.
The problem today is that the great majority of the population can't tell the difference between investing and ponzi schemes, and believe that "investing" means "buying something that I know I can sell for a profit".
March 22nd, 2011 at 10:30 am
Behold the power of the last minute shopper!
Dailies – List | Sold
Vancouver East & West*
New Listings – 85
Back On Market Listings -0
Price Changes -34
Sold Listings – 126
Vancouver All Areas*
New Listings – 288
Back On Market Listings – 7
Price Changes – 101
Sold Listings – 334
*Attached & Detached – Date: 03/22/2011 Time:17:39 Pacific YatterMatters.com:
March 22nd, 2011 at 10:22 am
Ok people get this:
Last weekend the wife and I decided to go for a drive around the South Surrey area. We saw this really nice lot on which the house had burned down a year or two before. Well, after speaking to the home owner who happened to be there, we decided to make an offer or at least explore the possibility further (yes, I know – yes, I am a bear, my personal circumstances were a bit different in regard to this particular property).
The next morning we went to the city of surrey and pulled up all the information on the land and the bylaws regarding building on it.
It turns out that the land, because it was a narrow piece, would not allow for a typical size home without applying for various exemptions. These exemptions might not be granted. Why the hell would I take on a mortgage, hand over my life savings, for land I am not even sure I can build on? (To clarify, you could build on it but you would have to live in a very narrow house, I guess on the upside you could put a bowling lane in your basement)
A lot of people were interested in the property and I don't think most were taking the time to investigate these facts. This shows the stupidity of the "must buy" buyer. But what really showed the stupidity is the response of the realtor when my wife contacted him. He was totally unaware of what we had dug up, and up until that point he seemed to be sticking to a story that was completely wrong!!! I am assuming that is the story he told the other potential buyers – I can't say for sure, but it was what he told us.
In summary:
1) Realtors, in my opinion and experience are: unintelligent, lazy, and unprofessional people that don't serve a value-added purpose in real-estate transactions anymore.
2) Impulse home buyers are stupid and deserve to be ripped off.
3) The crash of the century is still coming.
March 22nd, 2011 at 10:14 am
@jesse: Too many people not willing to face the hard facts and admit their income is not sufficient to support their standard of living (including savings and investments to fund retirement, and no, your house is not an investment or a retirement plan).
That is the key to the financial crisis facing the middle class: losing sight of the big picture, and the real goal, sufficient planning and execution to have enough money to last your lifetime.
Personally, I like how so many of our modern clusterfucks can be boiled down to "something for nothing". Something (comfortable retirement) for nothing (living in a house).
March 22nd, 2011 at 9:54 am
@AG Sage: It looks like they take the time remaining on the mortgage, round it to the nearest year, and check the posted rate for that length term. If short term money is much cheaper than longer term money (1 year vs 3, or 2 vs 4), the IRD could be quite large. $30k seems kinda high though, I think the article mentioned he had a 5.2ish% 5 year fixed.
March 22nd, 2011 at 9:29 am
Border Kit Required for Visiting the USA for more than a few weeks
When crossing the border it is wise to have a 'border kit'
A border kit consists of:
1. A Copy of your rental agreement or ownership papers for the place you live – a property tax bill is nice
2. A copy of your Provincial driver's licence
3. A copy of your Canadian Passport
4. A copy of your provincial medical plan and the bill or statement showing the address it is sent to
5. A copy of your telephone bill and the address it is sent to.
6. A Copy of car registration and licence and address registered to
7. copies of the assessments for your last three Canadian tax returns including the address they were sent to.
6. letter from your employer stating where you work, etc.
7. A statement about your business, its location and type if self employed.
8. A copy of the front of the telephone book and your current listing page from the book (the three past is really good)..
9. copies of invoices to your address from unions, clubs, banks, credit unions, etc..
10. copies of any membership cards you have such as health club, tennis club, archery club, etc.
11. copies of your doctor or dentist bills and the address
12. anything else you feel is relevant and will show your intent to return to Canada.
March 22nd, 2011 at 7:46 am
@ # 4 specialfx3000:
My Shoe Shine boy story I've been telling everyone at work since it happened a couple of weeks ago:
I was taking the #10 bus home from Downtown. Female bus driver mid 40s starts talking to another off-duty bus driver. She goes on to tell the off duty driver that she is trying to buy an investment property at Main & Hastings (yes I couldn't believe it myself and I had to think really; Main & Hastings!?). Her rational: "It's an up and coming area and she could flip it for a quick profit. Worse case I rent it out for a few years and sell for a big profit later on." Her words – not mine. You can just sense the how she really crunched those numbers to come up with an investment plan like that.:)
It reminded me of when I was in Vegas with some buddies. We were going through the airport screening on the way home and I started talking to one of the security screeners while waiting in line. She told me she was leaving her job to become a realestate agent. She explained to me that Vegas realestate was 'the place to be because everyone wants to move there'. After we left the screening area I turned to my buddy and said -'That is what a market top looks like- people without any experience in that field explaining why everyone should be in it; this bubble will crash hard' That was the summer of 2005. I don't think I need to tell anyone on this blog how Vegas RE did since then.
March 22nd, 2011 at 7:32 am
@space889:
As a matter of fact, I lost my own job about a year after buying my first house. But I wasn't worried about losing it, because…
Drum roll…
I could have rented it out to cover the mortgage payments and taxes.
.
Wow what a concept, eh? So what follows logically from this?
Don't buy a house or condo if your monthly costs would be higher than renting.
Do you think our engineer friend was capable of figuring this out?
March 22nd, 2011 at 7:07 am
@space889: "If you get too happy at other people’s misery…"
Well if you're talking about the guy in the CBC article, his "hardship" was having another child and his wife going on mat leave taking a lower salary from EI. Sorry, when a guy has another child and hasn't considered what's affordable when his wife takes leave and there's another mouth to feed, that's not financial hardship, that's financial idiocy, and the guy's trained as an engineer for crying out loud — idiocy should be no excuse.
I don't think anyone's reveling in this guy's plight. I'm guessing most of the readers here are way more fiscally prudent than he was and have sacrificed their standards of living to do so. Now you ask us to shed a tear. Sorry if I'm all dried up from caring about real tragedies.
March 22nd, 2011 at 7:00 am
@Best place on meth:
The thing that irks me is that while buying an overpriced condo to house your family is one thing, that isn't why many people have bought in the past few years. The people I know who have huge mortgages have this attitude that "I'm going to get rich owning all this real estate! Sucks to be you, renter!!!" These are guys in their 20s and 30s who seem to think that life is a game of monopoly and the more houses, the more mortgage debt, the better. They are the kings and people like me, renters, are just peasants in their empire.
Fine, I will cry for the poor sod who came to Canada as a new immigrant and didn't realize that this is a housing bubble and no, it's not normal to pay $400k for a tiny condo. I will not cry for people who bought into the hype that real estate is the road to riches. It's greed, plain and simple.
March 22nd, 2011 at 6:45 am
@DaMann: …because all three Opposition parties have announced they will vote against the budget?
March 22nd, 2011 at 6:43 am
@space889:
>>>Not every homeowner who get into financial trouble is an idiot that deserves to be wiped out.<<<
Dear god, enough of your sympathy for all the assholes who overpay for real estate, it's getting tiresome.
There are so many people in the world deserving of sympathy, Japanese and Libyans come to mind right now.
Who else should we cry for, NFL players on strike who are forced to live off the millions they made last year?
This clown is part of the problem, as is every other moron who pays $400K or more for a shoebox, or $800K for a shack in east Van on a mediocre income just because they want to keep up with with all the other idiots who are overpaying for a fucking roof.
Screw him, screw the pathetic whiny OV buyers, screw everyone who thinks they're doing the right thing buying a severely overpriced piece of crap when they could have opted out of this insanity and rented instead.
They all get nothing but scorn and laughter from me as they fail one by one because they all contributed to the disease that plagues this city.
March 22nd, 2011 at 6:43 am
@jesse:
"A = 5.19%
B = (benchmark interest rate on remaining term)"
That's not quite true,
B = (benchmark interest rate on remaining term MINUS any discount he got to get him the 5.19%)
But there's still something that doesn't quite add up.
March 22nd, 2011 at 6:34 am
dear space889,
please lighten up.
thank you.