Reckless Canadian Banks not so Reckless

There’s an interesting opinion piece over at the Tyee:

Canada’s Reckless Banks Inflate House Price Bubble

The story suggesting house prices were overvalue by just 20 per cent was based on a report from Fitch ratings — a company which rates mortgage backed securities. A less sanguine and more objective estimate of the overvaluation comes from a report by The Economist, which says the figure is 78 per cent as against rents (the highest in the OECD) and 34 per cent (second only to France) as against income. The U.S. is undervalued by seven per cent and 20 per cent respectively, which gives you an idea of how bad things can get when a bubble bursts, or even if a balloon deflates — the favourite analogy of the wishful thinkers.

Writer Murray Dobbin calls the banks ‘reckless’ for pulling in buyers with rock bottom interest rates, but they aren’t being reckless at all. It would be reckless to leave taxpayers money on the table when the government is so eager to give it to them via the CMHC.

He does wrap up the piece with a very clear statement of who is to blame for the mess we now find ourselves in:

Responsibility for the intractable mortgage dilemma can be laid decisively at the feet of Flaherty and his own recklessness back in 2007. That’s when he opened up the CMHC’s mortgage business to U.S. competition. We soon had the same lunacy here as they did south of the border: no down payment, 40-year sub-prime loans. That year-and-a-half experiment (Flaherty finally got scared smart and started to rein it in) is what spurred the irrational drive by so many Canadians to own a home.

Read the full article over at the Tyee.

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rp1
rp1
7 years ago

Banks are taking a hit simply because lending slows and spreads narrow. They’ll compensate with fees. The wonders of oligopoly!

Jerry Boyle
Jerry Boyle
7 years ago

The cynical, but I think accurate, view of the CMHC is that it guarantees the banks a bailout well in advance. This saves the feds from having to arrange a direct bail-out in the midst of a real-estate collapse, when anger towards the banks will be at its height. If you accept this view, then it makes no sense to think the CMHC will try to dodge its liabilities by nitpicking at underwriting standards. The CMHC exists precisely in order to funnel taxpayer dollars to the banks in a way that leaves the government hidden behind the curtain. I do think there is an unrecognized risk in the banks’ mortgage business that I’ve never seen mentioned, though. If an insured mortgage goes into default, the bank gets paid out fairly quickly, and the CMHC winds up with the house. This… Read more »

JD
JD
7 years ago

@Anonymous1
If you look, there are plenty of places for rent in Surrey for less than $700.
You can even find 2 bedrooms for this price.
http://vancouver.en.craigslist.ca/search/apa/rds?zoomToPosting=&query=&srchType=A&minAsk=&maxAsk=700&bedrooms=2

Whistler
Whistler
7 years ago

I recently bought a property in whistler for a 70% discount of its peak price a few yrs back, deals are available if your looking

Anonymous1
Anonymous1
7 years ago

Rents going up in Surrey.

For those currently renting the same place for over a year may think I’m BS’ing since you haven’t searched.

Take a look on Craigslist. $900 gets you a basement suite that cost just $700 just 18 months ago.

Looks like those that bought 8+ years ago have most of their mortgage paid by tax-free suite income..

Seriously thinking of leaving the country to the US and use my skills there…

Anonymous1
Anonymous1
7 years ago

Painted turtle;

That Mcleans graph shows that we are 1% below 2 year ago sales (moving average)….

The Y-axis scale makes that graph very misleading.

Good to be out
Good to be out
7 years ago

I just got around to looking at the REBGV report for February and was stunned to discover that Whistler benchmark HPI apartment price is down 45.4% from 5 years ago. All I can say is what a great pre-winter Olympic investment that turned out to be!

Good to be out
Good to be out
7 years ago

@ 50

The inside photo and Google views are of a 50’s bung. The listing says house built in 2013. That is not consistent. It would therefore seem that the description is for a house that has not yet been built. I guess that makes this is the ghetto version of the fictitious 38 million dollar west Van property listing. More realtor misrepresentation anyone?

JD
JD
7 years ago

@vanpire
Think you are right, bank just wants the insurance.
@short’em & @vdtf
Believe it is meant to stress the banks, without it actually being the worst case.
The 44% might just agree with the economist.
Certainly it is normal for financial markets to over-correct so 44% may not be worst, but a bad enough and justifiable scenario if one strictly looks at rents and has the same data as economist magazine.

kabloona
kabloona
7 years ago

#48, 49, 50, 52:

Mountain views so astonishing we cannot show them to you – else your head might explode!

“Look, there’s a mountain! And another mountain! Astonishing!”

Bring all offers! Me and my Sister gonna buy this if you don’t!

Turkey
Turkey
7 years ago

,

My guess is they couldn’t bear to post this.

Turn around 180° and see what was across the street when Google drove past. Hint: neither astonishing nor a mountain view: another house for sale.

A quick search turns up this listing, which sold sometime in 2012. Last year’s asking price? $839k, versus this listings’s $1.27M. It’s not just the photos that are ugly.

HAM Solo
HAM Solo
7 years ago

@ L Renter

There is a system called Emili that CMHC uses to determine how much a mortgage can be insured for. It is susceptible to abuse. The Globe ran a story about it on a slow news day last christmas. Short answer is banks can defraud CMHC through gaming Emili. One day this will be a page 1 story.

http://www.theglobeandmail.com/report-on-business/economy/housing/shaky-foundations-how-ottawas-computers-get-canadian-home-prices-wrong/article6673774/?page=all

Anonymous
Anonymous
7 years ago

@painted turtle: 5 bathrooms in a 4-bedroom house! Parking for you, *or*, your friends, *or* your family! Look out, realtors hard at work.

My guess is they couldn’t bear to post this.

Chabar
Chabar
7 years ago

‘Magnificent home with astonishing mountain views’

Amazing concentration of retards at one place, unbelievable. Not to mention the price for such craphole in the shitty neighborhood.

painted turtle
painted turtle
7 years ago

Another nomination for the BEST PICTURE contest:

‘Magnificent home with astonishing mountain views’
http://www.realtor.ca/propertyDetails.aspx?propertyId=12925082&PidKey=1794297938

KBro
KBro
7 years ago

Just finished reading reading a lot of stuff on Jeremy Grantham (the King of Reversion to the Mean).
The first thing that came to mind was Vancouver RE, and I took great comfort in the staggering amount our market will have to drop.

Anonymous
Anonymous
7 years ago

Can we end the discussion on the following point once and for all :

Banks dictate Finance Ministry Policy, Flaherty is just a puppet. We lost control of our financial policies, immigration policies many years ago.

Lifetime Renter
Lifetime Renter
7 years ago

@Yalie even before the bubble burst in the US there were reports of fraudulent and near fraudulent activities in the provision of loans. While there is plenty of evidence, including many revealing anecdotes on this site, of what should be considered fraudulent activity by realtors and developers, I have yet to hear of similar examples and anecdotes regarding the financing end of the equation. So if anyone knows of any, please contribute because we certainly won’t hear about it through the mainstream media.

Yalie
Yalie
7 years ago

But I haven’t seen evidence that Canadian banks engage in the outright fraud and semi-legal practices that so marked the U.S. bubble

That’s because our bubble has only started bursting. Just wait until large numbers of forclosures start to appear and your jaw will drop with all the mortgage and related fraud that gets exposed. Mark my words.

Lifetime Renter
Lifetime Renter
7 years ago

@ gokou3: “Well, the US version of CMHC, namely Fannie / Freddie, did go after the large banks and got tens of billions in settlements / refunds.” There is no argument that Canadian banks provide loans to many who should never receive one. People barely able to afford the payments and, when faced with altered circumstances, will default. But I haven’t seen evidence that Canadian banks engage in the outright fraud and semi-legal practices that so marked the U.S. bubble – liar loans, brokers trolling poor neighbourhoods for the vulnerable telling outright lies as they signed them into debt slavery, the purchase of those loans to be bundled and securitized, etc. If I am correct, then on what basis does the CMHC have for going after the banks? And in 2009 the federal government gifted the banks a stunning $75… Read more »

paulb
7 years ago

New Listings 213
Price Changes 99
Sold Listings 112
TI:16155

http://www.paulboenisch.com

frank
frank
7 years ago

Want to see how much our senators spend on travel and other expenses??

http://www.thestar.com/news/canada/2013/02/15/senate_finance_data.html

Click on the senators face to get the number. Pamela Wallin racked up $1000/day in travel expenses alone and is being audited. I know it pales in comparison to the CCP corruption, but this is Canada.

patriotz
7 years ago

Um, no objective definition in Canada.

Where’s that preview button? 🙂

patriotz
7 years ago

“Every fixed mortgage in Canada is sub prime”

False.

Not true or false, but subjective, since “subprime” has no subjective definition in Canada, nor did it to a large extent in the US.