CREA cuts forecasts for 2012 and 2013

There’s less than half a month left in the year, so that’s a good time to revise forecasts. The CREA has revised their 2012 national sales forecast from an increase of 1.9% to a drop of 0.5%. I’m guessing they’ve also revised their forecast for 2008, 2009, 2010 and 2011.

Looking ahead they expect 2013 to see a sales drop of 2%, but here in BC they forecast both sales and prices to drop just by 0.3 percent.

“Annual sales in 2012 reflect a stronger profile before recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.

“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted before the most recent changes to mortgage regulations.”

Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

FFffffff! Is anybody else getting sick of the miopic talk of ‘tougher’ mortgage rules? Here’s a great point from Ben Rabidoux about how to put these mortgage rule ‘changes’ and Flahertys ‘tightening’ into historical perspective:

Before looking more at the implications of a mortgage rule change like the one being proposed, it may be helpful to provide a brief overview of the mortgage changes that have occured over the past few years:

  • In 1999, the National Housing Act and the Canada Mortgage and Housing Corporation Act were modified allowing for the introduction of a 5% down payment….a far cry from the minimum 25% of a few years earlier.
  • In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.
  • In 2005 and 2006, CMHC began insuring 30, then 35 year amortization mortgages.
  • In 2007, CMHC allowed people to purchase a home with no down payment and ammortize it over 40 years. This was changed back to a 5% down payment requirement and a maximum amortization length of 35 years in 2008 once the idiocy of this policy was blatantly obvious.

Here’s the point: CMHC has been in existence for almost 65 years. For the first 60 of those years, they never insured mortgages with amortizations greater than 25 years. Only in the past 5 years has this experiment been started. The 35 year ams that are now on the chopping block have been around only since 2006. So let’s understand that any move to shorten amortization lengths is NOT some new, revolutionary move, but rather a move back towards norms that are both long-standing and fiscally prudent.

53 Responses to “CREA cuts forecasts for 2012 and 2013”

- ♦ ↓ ↓ ↓ Click here to leap to comment form ↓ ↓ ↓ ♦ -
    Ralph Cramdown Says:
    1

    Oh the horror. Wanting to release this news at the last possible second before the holidays when nobody’s watching, but knowing that you have to be in the office for at least a few hours after it goes out to field questions from the odd reporter who might call.

    Hot debate. What do you think? Thumb up 15 Thumb down 1

    Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

    No he didn’t. The principal part is not an expense. That’s not a nitpick, but an example of the financial illiteracy found in RE reporting.

    Actually since prices have now gone down in almost every market since then, payments have become less expensive.

    Well-loved. Like or Dislike: Thumb up 26 Thumb down 1

    news junky Says:
    3

    The new $2.43 billion Port Mann Bridge can’t handle the first snow. Yesterday was the first major snowfall in Metro Vancouver since the new bridge opened up last week and big chunks of ice were falling from the cables, badly damaging two cars and injuring two people. The bridge had to be closed for hours during the afternoon rush hour. Engineers say the old Port Mann (which never had issues with falling ice) has another 30 years of life left but it is going to be demolished anyways because the it is part of the P3 agreement with the private operator of the new bridge (don’t you just love P3s!). This is going to turn out to be an epic boondoggle for BC taxpayers. You see, other cable-suspension bridges in BC have cables over the sides of the brdige but this new bridge has cable running over lanes of traffic so when snow gathers on the cables, it falls right down onto the traffic below. Officials blamed “extreme weather” yesterday. But Metro Vancouver can count on getting heavy wet snow every year. The weather wasn’t that extreme. We get days like that every winter here. The bridge should be able to handle wet snow. BC taxpayers just paid $2.43 billion plus $3 tolls and are paying to demolish a perfectly good bridge right next to it for a bridge that has to be shut down every time it snows. This was supposed to relieve traffic congestion, not create it. Epic Fail for the BC Liberals!!!

    http://www.cbc.ca/news/canada/british-columbia/story/2012/12/20/bc-port-mann-ice.html

    Well-loved. Like or Dislike: Thumb up 48 Thumb down 9

    Yes, there is much gnashing of teeth at CREA over these “draconian” actions by CMHC, which in a historical context are still more lax than what we had in 1999.

    CREA never met a housing bubble it didn’t like…

    Well-loved. Like or Dislike: Thumb up 26 Thumb down 2

    Keeping An Eye On The Pimps Says:
    5

    “Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.”

    I don’t think this was a flip flop, but a well thought out plan from the beginning.

    The maximum amortization was increased not so that it would make housing more affordable; everyone knew it would eventually inflate prices, but rather to create the wealth effect.

    The idea is to stimulate the economy buy getting consumers to go into debt, rather than the government .The consumers took the bait.

    The politicians got the stimulus they needed, the consumer has the debt.

    Whoever bought that leaky box at extremely inflated prices, or that shack and the two hour commute, deserves it.

    Well-loved. Like or Dislike: Thumb up 34 Thumb down 0

    Anonymous Says:
    6

    @#3 News junkie

    No, you’re right, that bridge is an epic failure. It has to be shut down like 5 times a year, meanwhile, it only saves hundreds of thousands of potentially productive time for workers each year.

    Regardless of whether the bridge has issues it still contributes significantly to the economy. You can’t see the forest for the trees if you think the bridge is a failure.

    Hot debate. What do you think? Thumb up 7 Thumb down 13

    news junky Says:
    7

    @Anonymous #6

    “Regardless of whether the bridge has issues it still contributes significantly to the economy.”

    Yeah, the new Port Mann Bridge contributes to the economy with all the lawsuits and ICBC claims that are going to result from this.

    I don’t know how you can’t see this as a failure–and you’re accusing me of not being able to see clearly!!!

    There is NO excuse for what happened yesterday on the Port Mann. The CEO of the private operator blamed it on “extreme weather”. Does anybody on this forum think yesterday’s weather was extreme? Can’t we expect a few centimetres of slushy wet snow every single winter! That’s normal weather for us! It shouldn’t be too much to ask that a brand spanking new bridge can remain operational during a minor snow event! The CEO is basically admitting that the bridge was not built to handle yesterday’a “extreme weather”. It wasn’t the bridge’s fault, it was the weather’s fault. That means every time we get a few centimetres of snow, the bridge will have to be closed. This is worse than the old bridge, which remained open during snowfalls.

    The hidden story is the P3 agreement that says the old bridge must be demolished. I swear to God I read an engineer’s report that says the old bridge would be structurally sound for at least another 30 years. The bridge was replaced not because of structural or safety concerns but because it couldn’t handle the volume of traffic. I read that the private operator of the new bridge does not want to be liable for maintenance on the old bridge and that is why the old bridge is coming down. It’s all about liability and legalese in the P3 agreement as to why the old bridge is coming down. There is nothing wrong with the old bridge. It could remain open as an alternative to the new bridge. It could be used as a transit bridge. Get the busses off the new Port Mann and free up more space for traffic. Combined, those two bridges have 15 lanes. Imagine how much traffic we could get over 15 lanes! That would be awesome. Of course the real reason the private operator wants the old bridge demolished isn’t just liability issues. I’m sure it has to do with tolls. They couldn’t justify tolls on the old bridge because it was already paid for. They didn’t want to give drivers a toll-free alternative right next to the tolled bridge–so the bridge wants to come down.

    This is a perfect demonstration of how the BC Liberals shaft the BC public in order to help their rich private sector friends with P3s. This makes the fast ferry fiasco look like small potatoes.

    Well-loved. Like or Dislike: Thumb up 31 Thumb down 11

    news junky Says:
    8

    And it looks like Christy Clark has gone back into hiding again. Yesterday morning it was widely reported that Clark and the Minister of Transport were going to make an announcement concerning the Evergreen Line yesterday. There were even some federal politicians in town for the announcement. Then the announcement didn’t happen. The Port Mann bridge is closed and the Minister of Transport all of a sudden is not available for comment? Weren’t they all just getting ready for a press conference on the Evergreen Line? Oh I guess today is not a good day for the Liberals to talk to the media about transportation infrastructure in the Lower Mainland with their new multi-billion dollar Port Mann out of commission with the first MINOR snowfall–extreme weather, my a$$!

    Well-loved. Like or Dislike: Thumb up 32 Thumb down 6

    news junky Says:
    9

    Sorry, it’s off topic, but it bears repeating:

    Taxpayers of BC are being denied 30 years of utility out of the old Port Mann bridge because of some stupid P3 agreement! The old bridge still had another 30 years of life left but it is being demolished because the private partner doesn’t want to be liable for maintenance (and be denied toll revenue on new bridge).

    This is an example of the misuse of resources. A perfectly good bridge demolished because of a P3 agreement! These bridges are very expensive to build. Getting people over the Fraser River is a huge challenge in Metro Vancouver–which is why we have so many bridges. Taxpayers should be demanding that all bridges paid for by taxpayers are used for as long as they can be used safely. Taxpayers should be outrages that a bridge with 30 years life left is being demolished because it’s in the best interests of a private company! We paid for that old Port Mann bridge and if it has another 30 years of life left, that’s what we should get! Outrageous to destroy perfectly good infrastructure!

    This is a fundamental flaw in the P3 approach espoused by the BC Liberals!

    Hot debate. What do you think? Thumb up 21 Thumb down 9

    Many Franks Says:
    10

    @Anonymous: Right, we’ll just route that traffic over the Pattullo 5 times a year. Easy peasy, smooth as glass.

    Hot debate. What do you think? Thumb up 17 Thumb down 2

    space889 Says:
    11

    @news junkie, I’m frankly shocked that people still believe P3 are anything other for shirking government responsibility for services and generating profits to private sectors friends and campaign donors. Is there a single P3 deal that was ever positive for taxpayers in general?

    Yes, yes, I know that P3 “can” save money because they don’t have to pay government union wage rates and can build faster. However, that can also be achieve by simply contracting out the construction with a fixed priced ceiling, just like how regular private sector projects are done. No need for all these guaranteed obscene profit rates, while taxpayers are still saddled with all the major maintenance / refit costs and risks.

    Hot debate. What do you think? Thumb up 17 Thumb down 3

    patriotz patriotz Says:
    12

    ” However, that can also be achieve by simply contracting out the construction with a fixed priced ceiling, just like how regular private sector projects are done.”

    That is also just how regular public sector projects have always been done. Tenders go out, the low bidder wins, if if costs them less they make a profit, if it costs them more they lose money.

    However it seems that this approach (which used to called “business”) is too tough for the big guys.

    Hot debate. What do you think? Thumb up 19 Thumb down 4

    RealityCheck Says:
    13

    The moves by CMHC in 1999 and 2003 is what set this whole thing in motion. The later extensions to 30..35..40 year Amortizations and LOW interest rates just added fuel to the fire. Add to this the propaganda perpetrated by the Gov/Banks/Developers/RE complex + Naive sheep who believe MSM media to be true + Immigrants settling in concentrated areas like never before…—–> and you got our present situation:

    Gov afraid to raise interest rates, Carney jumping ship, and a storm brewing. There will be winners and Big losers after this is over.

    Like or Dislike: Thumb up 9 Thumb down 0

    Why is anyone still listening to the forecasts of the real estate industry? These guys haven’t had a clue for decades. Lets look at a previous bubble in Vancouver.

    January 1981

    “…property values are not expected to slide back and [the chairman of the Real Estate Council of BC] believes they will increase about 10 to 12 percent a year…”

    In reality, prices were down by 30% within 18 months. Oops.

    Give the old article a read. There are some scary parallels to today.

    http://news.google.com/newspapers?id=QXVkAAAAIBAJ&sjid=cn4NAAAAIBAJ&dq=vancouver%20real%20estate&pg=4041%2C4096181

    Well-loved. Like or Dislike: Thumb up 36 Thumb down 0

    RealityCheck Says:
    15

    newsjunky:

    You think people like you (honest, tell it like it is)run the show. Give your head a shake.

    Like or Dislike: Thumb up 3 Thumb down 4

    OT: meanwhile in the UK…

    “Analysis – Next BOE chief Carney is more bark than bite”
    http://reut.rs/UTFX28

    “It’s more of an academic approach where he is simply reviewing all the opportunities just to give a fuller understanding of the literature as opposed to advocating one approach over another,”

    “To his credit, Carney has put some creative ideas into practice. He is best known for preceding the U.S. Federal Reserve in making an explicit commitment to keeping interest rates low for an extended period.”

    They got a classic corporate ladder climber for their team, the motto is: be more popish than the Pope, let others make real decisions.

    Like or Dislike: Thumb up 9 Thumb down 0

    news junky Says:
    17

    I just learned that the Port Mann is in fact NOT a P3. So my argument must be revised. It still does not make sense to demolish the old Port Mann if it has 30 years of life left.

    Hot debate. What do you think? Thumb up 10 Thumb down 6

    Many Franks Says:
    18

    @Simple: Great find! Pretty much the whole thing is gold. I’d quote it here, but I’ll just end up reproducing the whole article. Submit that for headlining.

    Like or Dislike: Thumb up 3 Thumb down 0

    @News Junky

    “don’t you just love P3s!” To be fair, the issue with falling ice will not cost a single penny to the taxpayer to be fixed. In a P3 contract, all those risks are transferred to the private contractor and it has to fix the problem at his own cost. Also, the province will be compensated for the loss of traffic during the closure.

    I’m not trying to convince anybody that P3 contracts are a good thing here, but I’m not convinced myself even though I work in that area (and worked on that project)…

    Hot debate. What do you think? Thumb up 9 Thumb down 2

    Groundhog Says:
    20

    @news junky

    I think the annual maintenance costs are quite substantial and may be one reason for tearing it down.

    I also think it might be a good idea to keep the old one, and that always seemed to be the way it was presented by either the government of media when they said they would be “twinning” the Port Mann. Was a bit surprised when I found out as couple years ago they were tearing the old one down. But if our leaders say it must be done, I’m sure it must be done:)

    Like or Dislike: Thumb up 7 Thumb down 1

    Wow, you could republish that article today almost word-for-word, and with a couple minor changes (dates, etc), nobody would notice a thing. Shows you how the real estate “experts”, media bias, bubble dynamics, and everything else really hasn’t changed at all.

    Keep in mind we already know “what happens next” 30 years ago. Nonetheless, I see no reason to think that could possibly happen again. It’s different this time.

    Hot debate. What do you think? Thumb up 19 Thumb down 0

    Anonymous Says:
    23

    INews Junky: “just learned that the Port Mann is in fact NOT a P3. So my argument must be revised. It still does not make sense to demolish the old Port Mann if it has 30 years of life left.”

    LOL. Yup it was a good old fashioned government project.

    If it was a P3 the private company would be responsible for the ice problem. Now it is the governments (and tax payers) resposibility to pay for what ever is required to fix it. If it was a P3 the ice problem may have been mitigated without government dictating what happens. This example shows why a P3 can be a good thing.

    Hot debate. What do you think? Thumb up 8 Thumb down 8

    Ben Rabidoux Says:
    24

    Probably the best overview of the mortgage rule changes and why they were necessary from Alan Walks at the U of T:

    http://neighbourhoodchange.ca/wp-content/uploads/2012/12/Walks-2012-New-Mortgage-Regulations-Canada-CC-RB-461.pdf

    Well-loved. Like or Dislike: Thumb up 20 Thumb down 0

    Wait, why is the bridge builder only picking up the insurance deductible for the damaged cars? Doesn’t that mean they “stick it” to the rest of the taxpayers for covering the remainder of the costs for these repairs? Really?

    Hot debate. What do you think? Thumb up 7 Thumb down 3

    southseacompany Says:
    26

    @ #14 Simple:

    Wow, look at some of those comments in that January, 1981 article. The more things change, the more they stay the same.

    “But others say… continued western migration, lack of serviced building land, and speculation will keep the housing market bubbling.”

    “”There’s no one solution to Vancouver’s housing crisis,” (Senator Pat Carney) said. “We have to look at a lot of different options. People have to start thinking about something other than condominiums or single family homes on large lots. That means mews housing (homes built on the rear of lots on lanes, thin houses and high density projects for middle income families.”

    30 years, same debate.

    Well-loved. Like or Dislike: Thumb up 22 Thumb down 0

    Re #25:

    I think ICBC should have a talk with the bridge builders.

    Like or Dislike: Thumb up 7 Thumb down 1

    OOT anecdote. Was in a dinner with 2 dental technicians (the people who makes crowns, veneers etc) few days ago. One owns a dental lab, the other works in another large lab in Vancouver.

    Both were complaining how bad business had been this year.
    The lab owners were all getting nervous about the “record low” orders. They think the reasons include people no longer having benefits (or jobs), and that people are less willing to spend on luxury items (veneers, etc).

    Business has picked up in December, but only because people are rushing to get dental work done before benefits expire at year-end.

    We’re probably going to see discretionary spending continue to go down ..

    Well-loved. Like or Dislike: Thumb up 32 Thumb down 3

    Anonymous Says:
    29

    wow, that google news archive linked to in #14 is a great resource. Search for CMHC and enjoy.

    How about this March 1980 headline: “Cmhc Faces Severe Losses: Secret Report”. Apparently CMHC became the country’s largest landlord due to defaults on “high-rise” loans.

    Hot debate. What do you think? Thumb up 14 Thumb down 1

    UnagiDon Says:
    30

    Port Mann is rather off-topic, but here’s the explanation from a friend who is an expert.

    —–

    The problem stemmed from insufficient right-of-way availability for a multi-pylon ten-lane deck. In project planning, twinning of the original bridge was envisaged. This posed an unnecessary constraint on the design. Another bidder dealt with it by designing a double-deck superstructure with cable planes at each side. This would have reduced but not eliminated the risk from falling ice. The double-deck superstructure was more costly to create (the transition structures at each end are expensive) and introduces other risks and operational problems.

    The design-build contractor is expected to produce the minimum-cost solution that meets the requirements. In this case the design-build contractor will correctly claim to have done that, and point out that ice accretion was not specifically addressed in the project requirements and that he took appropriate measures to mitigate ice accretion that are routinely undertaken to address aerodynamic concerns.

    The bridge cables have a coating which is intended to minimize ice accretion, but any mitigative strategy is only partly effective. Other similar bridges in northern climates have similar issues. Likely this problem will recur on Port Mann. Denmark has two similar bridges. They monitor ice formation and close the bridges when conditions become dangerous – typically one or two days a year.

    Note that the nearby Pitt River bridge does not place cables above the roadway and had no problems yesterday.

    Hot debate. What do you think? Thumb up 16 Thumb down 2

    patriotz patriotz Says:
    31

    “It still does not make sense to demolish the old Port Mann if it has 30 years of life left.”

    The reason for tearing down the old Port Mann is obvious – if left open it would take traffic away from the new Port Mann and reduce the toll revenue.

    The old Port Mann can’t be tolled because it was built under the Trans-Canada Highway agreement back in the 60′s which forbids tolling.

    If in fact this isn’t a P3 and the government has no commitment to tear it down, this is going to be a HUGE issue in the upcoming election.

    Hot debate. What do you think? Thumb up 24 Thumb down 7

    patriotz patriotz Says:
    32

    ”There’s no one solution to Vancouver’s housing crisis,” (Senator Pat Carney) said.

    And of course there turned out to be exactly one solution – lower prices.

    Well-loved. Like or Dislike: Thumb up 33 Thumb down 5

    Bag it and tag it Says:
    33

    Why don’t they wrap the Port Mann cables with an electric heat sheath that they could turn on when it snows?

    Like or Dislike: Thumb up 4 Thumb down 3

    HAM Solo Says:
    34

    I agree that the 80′s archive is great.

    I’m always interested in the start date of data series. In any type of instrument, price histories typically begin some period after a historic wash-out. “We haven’t seen a correction of more than x% in the modern era,” is usually supported by a price history that misses the previous crash. For some reason most residential home price data series in Canada don’t go back much before 2000.

    To think that they were already running out of land back in 1980! Lo and behold, I guess they found some.

    Hot debate. What do you think? Thumb up 13 Thumb down 0

    Anonymous Says:
    35

    “Why don’t they wrap the Port Mann cables with an electric heat sheath that they could turn on when it snows?”

    This is Vancouver; the bridge wasn’t designed to operate when warm.

    Like or Dislike: Thumb up 3 Thumb down 3

    Anonymous Says:
    36

    How about this CMHC related article from 1985. They were running a billion dollar accumulated deficit and received a $307 million bailout from Parliament in ’84. Insurance in force was only 38.8 billion.

    http://news.google.com/newspapers?id=1nZkAAAAIBAJ&sjid=9n4NAAAAIBAJ&dq=cmhc&pg=1088%2C391137 (or search for “Housing Plans Play Havoc With Cmhc Insurance Fund”)

    “Ideally, mortgage insurance would be a self-financing operation … All those aims haven’t been met since defaults on mortgages began soaring in 1978″

    Well-loved. Like or Dislike: Thumb up 22 Thumb down 1

    Anonymous Says:
    37

    Re. #33

    Why are you asking a bunch of RE bears such a question?

    Like or Dislike: Thumb up 3 Thumb down 3

    patriotz patriotz Says:
    38

    Genworth Benefits From Implementation of Government Guarantee Legislative Framework In Canada

    I don’t know what all this is supposed to mean, but I do know that the share price of MIC took a jump today.

    Like or Dislike: Thumb up 6 Thumb down 2

    New Listings 47
    Price Changes 28
    Sold Listings 59
    TI:14749

    http://www.paulboenisch.com

    Well-loved. Like or Dislike: Thumb up 71 Thumb down 0

    Academic Says:
    40

    Haven’t heard Tsur Sommerville lately? What are his thoughts on latest CREA news releases?

    Like or Dislike: Thumb up 5 Thumb down 3

    UnagiDon Says:
    41

    #33:
    A Swedish bridge has a cable heating system but it consumes gigawatts of power. Likely not cost-effective.

    #37:
    As it happens, some RE bears are also bridge experts.

    Hot debate. What do you think? Thumb up 12 Thumb down 5

    Vote Down The Facts Says:
    42

    Interesting how none of these bridge experts voiced their concerns before the first snowfall.

    Hot debate. What do you think? Thumb up 9 Thumb down 14

    Total days	19
    Days elapsed so far	14
    Weekends / holidays	6
    Days missing	0
    Days remaining	5
    7 Calendar Day Moving Average: Sales	58
    7 Calendar Day Moving Average: Listings	63
    SALES	
    Sales so far	900
    Projection for rest of month (using 7day MA)	291
    Projected month end total	1191
    NEW LISTINGS	
    Listings so far	1151
    Projection for rest of month (using 7day MA)	317
    Projected month end total	1468
    Sell-list so far	78.2%
    Projected month-end sell-list	81.1%
    MONTHS OF INVENTORY	
    Inventory as of December 20, 2012	14749
    Current MoI at this sales pace	12.38
    

    Well-loved. Like or Dislike: Thumb up 30 Thumb down 1

    Bag it and tag it Says:
    44

    #41 UnagiDon
    considering they’d only have to turn the heat on at times when the alternative is closing the bridge, I really don’t think the cost of the electricity would be of concern. Thanks for the Swedish bridge reference.

    Like or Dislike: Thumb up 7 Thumb down 2

    Bag it and tag it Says:
    45

    Hidden due to low comment rating. Click here to see.

    Poorly-rated. Like or Dislike: Thumb up 3 Thumb down 15

    Anon36, CMHC was bailed out in a few ways:
    - There were some funds set aside to handle distressed underwater homeowners, most notably in Alberta
    - CMHC increased its premiums for insurance to recoup some of the losses
    - It got through it in the end

    If Canadian housing turns out to be uncontrollable CMHC is going to be in a similar situation. The biggest issue for them is procuring bridge loans to handle a hypothetical wave of foreclosures and payouts. A harsher stress test requires a bailout of some tens of billions of dollars from the government. Milder cursory stress tests I’ve run show them remaining whole but needing low interest loans to get by.

    The hard truth is that CMHC isn’t really in “first loss” position, it’s homeowners. Also, if prices are to drop, it will likely mean higher premiums for homeowners with deteriorating equity. Insurers have a funny way of getting their money back ;)

    Hot debate. What do you think? Thumb up 9 Thumb down 1

    Vote Down The Facts Says:
    47

    jesse, I assume you’re referring to mortgages which weren’t high LTV at the point of origination but now require CMHC insurance at renewal time due to reduced equity?

    Like or Dislike: Thumb up 3 Thumb down 0

    vdtf47, yes that’s correct. The way CMHC got out of the last SNAFU was by raising premiums, the same any insurer would do when faced with large-scale and correlated defaults (think flood or hurricane insurance). I expect CMHC to behave no different.

    Like or Dislike: Thumb up 7 Thumb down 0

    HAM Solo Says:
    49

    @ Patriotz

    The Genworth news just relates to being able to book some funds earmarked as a reserve to equity. However, the equity requirement on Genworth increased, so they can’t pay the money out. Technically speaking it is a “profit.”

    I think in the end, it won’t really matter to Genworth. Whether they have $2.5B or $2.6B of equity is kind of inconsequential compared to what their ultimate losses will be on their $260B of dodgy insurance in force.

    What the market ought to look at is the number of homes that Genworth MIC has insured which are below water in terms of market value being lower than the mortgage value. And the market should look at the difference in realizable value of the underwater homes and the gross amount of the mortgages. These numbers are not pretty and are probably fairly well estimated by MIC management. However, don’t expect a press release from MIC saying “estimated 2013 loss grows by another $80 million today.”

    Like or Dislike: Thumb up 6 Thumb down 2

    Also, if prices are to drop, it will likely mean higher premiums for homeowners with deteriorating equity. Insurers have a funny way of getting their money back

    The thing that bothers me is that they haven’t increased premiums as prices increased (as far as I know, at least). Why wait until prices start to fall? Theoretically, premiums ought to reflect the risk inherent in the insurance. Since higher price/rent and price/income ratios mean higher default risk, I would assume premiums would have increased to reflect that risk.

    Any sane actuarial analysis would likely have concluded the same thing, especially in light of the US meltdown that just occurred. Given that they have not increased premiums, it’s obvious they are not acting in the best financial interest of the corporation or its liability holders (a.k.a. taxpayers).

    This to me is the single biggest “smoking gun” revealing that the real levers of power inside the CMHC have been wielded by special interests in the FIRE sector (who oddly enough dominate their board). No other explanation makes sense. If and when this puppy blows up, I’d like to see someone go to jail over the whole fiasco, but I doubt that will happen.

    Like or Dislike: Thumb up 7 Thumb down 0

    Told-you-so Says:
    51

    @ Ben

    Thanks so much for posting a link to that paper from the U of T- it was extremely well written. Congrats on the reference as well!

    Like or Dislike: Thumb up 4 Thumb down 0

    Bailing in BC Says:
    53

    Simple #14

    I know that it’s not the most relivant point but EVERYONE MUST checkout Dad’s fur coat on the Bay advertisement on the next page. No wonder their RE went down- God was punishing them.

    Like or Dislike: Thumb up 1 Thumb down 0

    Anonymous Says:
    54

    Bob Rennie condemns Vancouver Art Gallery consultants’ response to his proposal

    http://www.straight.com/arts/bob-rennie-condemns-vancouver-art-gallery-consultants-response-his-proposal

    Not sure why Bobth didn’t propoth building the Gallery in Eath Van, the new Thaughnethy, where all the high rollers live.

    Like or Dislike: Thumb up 2 Thumb down 1

VCI Network

  • Take a Peak.

    The Vancouver Peak Discussion Forums are now open for collecting stats, sharing data, etc. Please register at the new site and let us know what you think.
Leap to comment form