What if mortgages were harder to get?

Right now mortgages are easy to get and interest rates are dirt cheap.

But the one thing you can rely on in economic cycles is change.

What will it look like if interest rates start to rise or mortgages get a little more difficult to obtain?

Or worse, what if the CMHC wasn’t there to insure low equity mortgages and everyone required a 20% down payment?

The Globe and Mail has an article outlining some of the repercussions: lower prices, economic fall out, etc and comes to this conclusion:

For the time being, mandatory 20-per-cent down payments are merely an academic discussion. Our government wouldn’t risk such a bold change. That said, the trend of transferring more housing risk to the private sector may continue.

Other countries deem us lucky to have a proven and reliable housing finance system. Rather than dismantle it, it’s likely safer to spot the risk areas and carve out those malignancies with a scalpel. That would minimize collateral economic damage, incentivize proper risk taking, and further reduce the odds of government-funded mortgage rescues.

It would also preserve housing options for qualified Canadians who have lesser payments but can afford to own.

Read the full article here.

 

Sort by:   newest | oldest | most voted
specuskeptic
Member

Anybody here giving thanks for the CHMC? They’re going to need some sympathy before too long….. Oh wait.. That’s us taxpayers. Good thing those who didn’t buy into the hype can mitigate their losses (for teh most part).

patriotz
Member

“Other countries deem us lucky to have a proven and reliable housing finance system.”

Our housing finance system has been the enabler of a runup in house prices and consumer debt equal to that of the US in 2006.

A sensible system of housing finance would not allow house prices to rise above sustainable levels – roughly the levels seen in the US today.

Objective observers in other countries know this perfectly well.

yvr2zrh
Member
Well, sitting here in Zurich I think I can comment on some of this, given the Swiss reference. In Switzerland you have a very large percentage of properties owned either by long established family history or by institutional funds. As well, properties rarely change hands, thus creating a very stable environment in which to rent. Finally, many policies are in place to ensure balance between owning and renting and some tax policies are even punitive against owners (although you can deduct interest expense, you must include in your income the hypothetical rent that the property would earn if it was rented). However, balancing it all out, there is a very well funded retirment and pension system. Every employer is required to provide a pension and every employee is required to save. A person earning 100,000 per year (a modest amount… Read more »
Joe_blown_away_by_high_housing_costs
Guest
Joe_blown_away_by_high_housing_costs

@yvr2zrh

I want to move to Switzerland now. That sounds wonderful!

Meh
Guest
Meh

Vote stuff up because some loser realtor is hacking the vote system.

patriotz
Member
@YVR2ZRH: The message comes through loud and clear that voluntary pension savings, even in a country like Switzerland, do not work for most people. As you said, left to their own devices people will turn to the most visible get rich scheme which in most Western countries over the last decade – the German-speaking ones being notable exceptions – has been RE. Mandating employer pensions for everyone would probably be next to impossible in Canada given our close economic ties with the US. That leaves a bigger CPP to be the only feasible solution to getting Canadians saving effectively for retirement – a solution which the Cons oppose. Now add to that the raising of OAS eligibility and the clear outcome will be a large cohort of seniors who will forced to compete with younger workers for jobs. If anyone… Read more »
N
Guest
N

I wonder if it would be possible, or desirable, to link CHMC insurance to a rent multiplier. For example, just as insurance is now only available for homes under one million dollars, you could say that insurance would only be available for homes selling at x times average square foot rents in the city. That might put an effective cap on prices for FTBs.

Keeping An Eye On The Pimps
Guest
Keeping An Eye On The Pimps

http://ca.linkedin.com/pub/rob-mclister/17/aa3/b07

Rob McLister (the pimp that wrote the article)is afraid that if the government should stop the unethical practice of punnishing savers, it would cut into his profits.

Anonymous
Guest
Anonymous
@patriotz: “That leaves a bigger CPP to be the only feasible solution to getting Canadians saving effectively for retirement – a solution which the Cons oppose.” The CPP is poor value for the average working person when you factor in the amount paid in. I have done the math on my contributions combined with employer contributions and I will never get the amount put in out. I would have significantly more if that money was put in an RRSP. Increasing the CPP would be like increasing taxes on both workers and business to fund a retirement welfare system. There is also significant risk having everyone’s pension in one fund. What happens if CPP screws up and loses a lot of money. Everyone in Canada is screwed. I think a better system would be a mandatory Pension similar to an RRSP… Read more »
Unsettled Worker
Guest
Unsettled Worker
@patriotz: When you mentioned Switzerland, I remembered how it worked in Argentina. During the administration of Carlos Saúl Menem in the 1990s, whole pension system was privatized. People started to save money and private pension funds used their money on buying the Argentinian bonds. When economy started to slow down, many of these companies were not able to pay to their clients, and government had to pay instead of them. In the end, the crisis in 2001 completely destroyed whole system and left country on the edge of poverty. In Canada, we have housing funding system instead of pension system. When I observe what is now considered as a common marketing strategy (How credit unions escape new mortgage rules) I can not stop to think that they use the same parasitic means to destroy the financial stability of many Canadians.… Read more »
Anonymous
Guest
Anonymous

@YVR2ZRH: “In Switzerland you have a very large percentage of properties owned either by long established family history or by institutional funds.

I am assuming is Switzerland most of the housing is attached? I think for attached renting is great. There really is not much difference from a strata since the strata controls so much. For a detached house owning is much better (assuming normal price to rent). There is just too much stuff in a house you want to change, add, remove, etc that you cannot do with a rental.

Here is an interesting article on Swiss housing. It looks a little bubbly to me. Prices have doubled over the past 10 years. They claim 40% renters where Vancouver is around 50%.

http://www.theglobeandmail.com/report-on-business/international-business/is-a-housing-bubble-drifting-toward-switzerland/article618805/

Vulture Fun
Guest
Vulture Fun

My Amateur Landlord Panic Index (ALPI), measuring rentals available in a certain range, has reached a new high of 710. I will post again when the 800 mark is reached. Over the years (since 2008) normal seems to be 350 to 500. Last October, when we had to rent a place, there was very little available. We can get a lot of house now, for much less money.

Anonymous
Guest
Anonymous

@YVR2ZRH: “A person earning 100,000 per year (a modest amount by Swiss standards)”

Below is a link to Swiss salaries by position. The Swiss Frank (CHF) is at close to par with the Canadian dollar. With the average Swiss house being close to 900K it looks like they are in similar territory as Vancouver. The salaries look similar to what a person could earn here for the same position.

http://www.payscale.com/research/CH/Country=Switzerland/Salary

Not much of a name...
Member
Not much of a name...

Just noticed a “new” condo development in North Van offering $100,000 reduction in price for the final few available units (4 or 5 of the original 26 I think). Obviously, the get a “free” BMW promotion didn’t work. You have to feel bad for the one resale in the building that is asking $739k and the developers price is $649k. Ouch. I think this will be a sign of things to come.

The Lonsdale corridor, as well as Marine Drive in NV, will offer endless entertainment as this will continue to play out over and over again.

jesse
Member

@YVR2ZRH: “I would be much more encouraging changes to pensions”

You’ll see gun control before you’ll see the current federal government relinquishing individuals’ control over their investments.

Dire Straits
Guest
Dire Straits

http://www.bloomberg.com/news/2012-08-21/netherlands-house-prices-dropped-the-most-on-record-last-month.html

Netherlands House Prices Dropped the Most on Record Last Month

“Prices declined 8 percent from the same month a year earlier, after falling 4.4 percent in June, national statistics agency CBS in The Hague said on its website today. Values have fallen 15 percent from a peak in 2008 and are back to about the same level as eight years ago, CBS said. Prices had already dropped 5.5 percent in May from a year earlier.” Ouchh

Bubbles are popping in europe one by one..swiss will not be spared

jesse
Member

@Dire Straits: “swiss will not be spared”

They’ll probably come out neutral.

patriotz
Member

@Anonymous:
” With the average Swiss house being close to 900K it looks like they are in similar territory as Vancouver.”

As someone has already pointed out, a far smaller % of households live in detached houses in Switzerland versus Canada. Thus comparing median price of a detached house versus median income is not a valid comparison.

You have to compare price versus rent.

patriotz
Member

@Anonymous:
“I have done the math on my contributions combined with employer contributions and I will never get the amount put in out (from CPP). ”

Then please share the numbers with us. It wouldn’t give away your income because CPP caps out around the median income. Also you are incorrect characterising CPP as a tax because its assets are separate from government.

As I’ve said voluntary plans aren’t working and any compulsory plan would share the same basic features as CPP. They would be investing in the same markets.

TNT
Guest
TNT

This is a global issue.
The Banking system is connected, in more ways then one, and it will systematically trash Canada just like everywhere else.
The US Fed already injected a cash infusion into our Banking system months ago.
Its house of cards and its just starting to unwind in Canada
We are no different.
Sell and rent if the math works.
Interest rates will go up,the banks do not care about you they make money either way.

Sorry for sounding so gloomy but the States and Europe for starters are full of horror stories.

The housing recovery they speak of in parts of the US.
How is it a recovery when the previous owners forclosed, and it is being sold off for a fraction of the original cost?

Its crap, lies,smoke and mirrors.
Do your homework and insulate yourself from the future.

Dire Straits
Guest
Dire Straits

jesse :
They’ll probably come out neutral.”

ha-ha good one, i forgot that they money cockrouches 🙂

Anonymous
Guest
Anonymous

@patriotz:

You sound like Bob Rennie. He too believes if you can afford a shoe box then housing is affordable and there is no bubble. You only have to look at the salaries and prices provided on the previous links to know there is a bubble brewing. A mechanical Engineer in Switzerland makes 81K per year. They make more than that in Canada but look at the housing prices. If rent reflected those prices the average professional cannot afford to live there.

Welcome to the exorbitant world of Swiss real estate, where the median price for a family house is now 1.93 million francs in Zurich and 2.34 million francs in Geneva, according to a recent report from real-estate consultancy firm Wuest & Partner. The firm says the median price for a house across Switzerland is 780,000 francs ($887,000).

http://www.theglobeandmail.com/report-on-business/international-business/is-a-housing-bubble-drifting-toward-switzerland/article618805/

Anonymous
Guest
Anonymous

@patriotz: “Then please share the numbers with us.”

Just to keep it simple we will use todays $ for everything assuming CPP rates and payouts will be adjusted according to inflation.

45 years working x $4613.70 per year = $207,603 contributed (employee + employer).

CPP pay only $986 per month at age 65. You only get the contributions back ($207,603) when you are 82 years old at the current payout.

On the other hand if you invested $4683 in a RRSP and made 5% per year return for 45 years you would have close to 9 million at age 65.

swissmacchiato
Guest
swissmacchiato

@Anonymous: I work in IT in Switzerland, that payscale site seems to be quite a bit on the low side. With company pension contributions, I earn more than 30% more than what I could make in Canada. An investment bank offer I had was probably 50K more than I could make in Canada.

Further, in Switzerland, even the lowest wages are still quite high. Starting wages at a supermarket are around 50K a year. The non-mandated minimum wage is around 40K. Welfare for a single person is apparently 2200 a month, people consider this terribly poor. Point: overall, it seems to me salaries are much higher than in Canada.

crashcow
Member

“There has been lots of talk about the market slowing down…a summer that offered wonderful weather…contributed to this notion.”
A realtor from Ottawa

One one hand, the RE industry says “no bubble” – implying that the market is driven by rational buyers & sellers that have priced homes efficiently.

On the other hand, they suggest buyers are like monkeys with short attention spans and things like weather can easily distract them from making the largest purchase in their life.

wpDiscuz