New CMHC rules: How much impact?

At first glance the new CMHC rules sounds like a minor tweak rather than a major change, and it might be just that.

When the CMHC announced the change they specified that the products being eliminated made up less than 3% of their insured mortgage products by number of mortgages.  What we haven’t seen anywhere are numbers in mortgage value, and BOM pointed this out yesterday:

Read this:

“The Crown corporation has been offering insurance on second homes since 2005. It has been offering insurance to self-employed people without strong income validation since 2007.”

And then read this:

“CMHC says its second home program and its self-employed-without-third-party-income-validation programs combined account for less than 3 per cent of its insurance business volumes in term of the numbers of mortgages insured.”

CHMC has a pool of mortgages insured accumulated over the last 25 years. They have only offered the products they are cancelling for 7 to 9 years but they make up 3% of that pool. Simple math indicates over the last 7 years about 10% of mortgages would have been part of the program they are cancelling otherwise it could never reach 3% of the total pool which was already significant prior to the program starting.

So how much demand was there for insured mortgages on second homes and mortgages for the self employed without income verification?  The numbers may be higher than we first thought.

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Son of Ponzi
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Son of Ponzi

Self employed comprise about 16% of the workforce in Canada.
https://www.ic.gc.ca/eic/site/061.nsf/eng/02724.html

Bull! Bull! Bull!
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Bull! Bull! Bull!

soft landing.

VHB
Member
VHB

Apr-2014
Total days 20
Days elapsed so far 18
Weekends / holidays 10
Days missing 0
Days remaining 2
7 Day Moving Average: Sales 171
7 Day Moving Average: Listings 335
SALES
Sales so far 2759
Projection for rest of month (using 7day MA) 341
Projected month end total 3100
NEW LISTINGS
Listings so far 5370
Projection for rest of month (using 7day MA) 670
Projected month end total 6040
Sell-list so far 51.4%
Projected month-end sell-list 51.3%
MONTHS OF INVENTORY
Inventory as of April 28th, 2014 16564
MoI at this sales pace 5.34

Looks like best April since 2011. That’s not booming; but obviously not crashing either.

April
sell list sell/list
2001 2253 3556 63.4%
2002 3785 5215 72.6%
2003 3095 4139 74.8%
2004 4106 5665 72.5%
2005 4043 5731 70.5%
2006 3345 4452 75.1%
2007 3490 5724 61.0%
2008 3218 7010 45.9%
2009 2963 4649 63.7%
2010 3512 7648 45.9%
2011 3225 5847 55.2%
2012 2799 6056 46.2%
2013 2627 5876 44.7%
Mean 3320 5474 62.2%
median 3285 5695 63.5%

would-be buyer
Guest
would-be buyer
If this market does not correct significantly soon (at least 25%), then those of us on the sidelines may find that we missed the boat entirely. I am a bear, but I will admit this. I have friends and family who own multiple properties with 0-5% down. They look at me like I’m daft for not buying. They could make out like bandits as the rest of us get priced out of this market even more by these continued mortgage tightening rules (with more to come apparently). I think we are at a pivotal point where either the market corrects this year (fundamentals suggest this should have happened years ago) or real estate becomes an asset class of the rich. My fear is that I am wrong on an impending correction (5 years and counting!) and the property rich continue… Read more »
VanRant
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VanRant

@ #3 VHB
Oh oh. Just did the calculation using paul b’s number and we are over 3000’s sale and with two more days to go in April.

DaMann
Member
DaMann

This market is not even close to slowing down yet. I just don’t get it. I don’t even bring up RE in conversation anymore cause I’m laughed at for my views and having been wrong for so long. I give up.

Royce McCutcheon
Member
Royce McCutcheon
@would-be buyer: “I don’t know how the average Vancouverite is affording to buy. Yes, banks will lend you the money, but you still have to make the mortgage.” 1) New buyers are only a small segment of the market. Anyone buying 5+ years ago can apply bubble-fueled returns on their original purchase to their next purchase. In doing this, some people are congratulated for their “investment acumen”. I just see it as congratulating them on being born earlier than me. People who bought in 2009 or 2005 or earlier may be able to access hundreds of thousands of dollars to put towards their next purchase (never mind what their outstanding mortgage looks like against their day job’s wages though). (Please don’t take this as an endorsement of the so-called property ladder.) 2) Basement suites can be levered up to borrow… Read more »
patriotz
Member
Active Member

@4:”or real estate becomes an asset class of the rich”

Rich people don’t get or stay that way by buying or holding bad investments. Selling bad investments, yes.

Everything I’ve read indicates that most people holding small scale investment RE are middle income. Remember an owner of RE that rents it out at a loss is getting poorer and the renter is getting richer.

This is essentially why bubbles have to end. The owners eventually have to cut their losses or they go broke.

Oh Grow Op!
Guest
Oh Grow Op!

@ wouldbe: I sympathize with your frustration, I feel the same way, but I’m curious about this:

“I have friends and family who own multiple properties with 0-5% down. They look at me like I’m daft for not buying. They could make out like bandits as the rest of us get priced out of this market even more by these continued mortgage tightening rules (with more to come apparently).”

How are your friends doing? I only ask because I know people like that as well in vancouver, and they all seem to be struggling financially. If prices keep going up then it’s worth it I guess, but if they don’t sell how will they profit? You can’t make money in the current market by renting out property at current rents so are they actually doing well financially?

would-be buyer
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would-be buyer
@DaMann, I was mocked just last week at dinner with friends for my bearish views on real estate. There is still so much goodwill toward Vancouver real estate (they aren’t making any more land, everyone in Canada wants to live here, the Chinese will keep coming) that I am starting to reconsider my position. If the market won’t correct based on fundamentals (that ship sailed a long time ago), then I must be missing something. If it’s not Chinese buyers (don’t want to fuel that debate any longer) then it has to be carrying costs. Is everyone maxed out? You wouldn’t know it because default rates have not budged. Restaurants are packed. The roads are full of luxury vehicles (I have seen 2 Teslas in the last week). If Vancouverites have bought too much house, then the only thing that… Read more »
would-be buyer
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would-be buyer
@oh grow up: I questioned how my friends were affording it as well, but they seem to be. They go on nice vacations, have nice toys, raise kids in expensive daycares etc. I know that one of my friends has to subsidize her rental condo by a couple hundred bucks a month, but she was happy to do this to hold on to the asset. She can afford to do this. I have a family member that owns 2 condos as well as an almost $1M house. She subsidizes her Coal Harbour condo (thinking she paid around $700K for it 5 years ago), but the other condo is cash-flow positive (bachelor in a good building which she likely paid less than $300K). They own 2 luxury vehicles and have 2 kids in downtown daycare ($2K a month). They are still… Read more »
DaMann
Member
DaMann
@Would be. Right there with you. I have given up. I follow the stats daily, check listings in my area just to see what inventory is doing and I see absolutely nothing of note about market slow down. I am now convinced that without normal rates ( higher) this market will not drop. I have friends that own two condos and rent the house they are living in. They are looking to buy a house. Granted they are cash strapped and always complaining of not having enough money, but they are getting by and will continue to do so until something changes. Only thing I see changing are rates and it seems they never will. Seriously, why ARE rates so low? What exactly is so wrong with our economy to justify this? I see no financial stress anywhere, everyone seems… Read more »
squeako
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squeako
#4 I hear you, but this is temporary and will pass…in time. The yearn to have a piece of the rock, to call your own, right? But when looking at the devils in the microscope, my chosen poison is to rent and stash away for a sunny day. I know those houses are not worth that much. I don’t think I would feel that happy/superior owning (or making the bank more richer) a mortgage which is multiples more than rent. Add salt to the wound: Imagine coming home exhausted mentally/physically from work, long drive in the famous Vancouver traffic jam, in the famous Vancouver RAIN/darkness, and here is your bonus, you discover a leak in YOUR roof, or a leaking toilet that is YOURS, or YOUR yard that has been neglected too long, do you want more on Your plate?… Read more »
Happy Renter
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Happy Renter

Depending on your financial position, income, and rent, you probably did well by renting.

According to GVREB Van West apt HPI was $463k at peak in 2008. Now it is $490k; about $30k more over 6 years. I’ve spent $90k on rent over that time. Total ‘loss’ $120k.

But, I saved on condo fees, property tax, heat = about half my rent = $45k
Also saved $240k toward DP. Savings on interest for 25 yr mortage = $155k
Total savings $200k – ‘loss’ of $120k = $80k ahead.

Not bad.

patriotz
Member
Active Member

@10: “I also question whether we are in a bubble now.”

Investors are prepared to buy houses they will rent out at a loss, just because they think prices will keep rising—the very definition of a financial bubble

http://www.economist.com/node/4079027

This relates to my previous post. If you are carrying an investment which loses money in the hope that the next buyer will make up your losses, eventually this chain must fail.

Guy Smiley
Member
Guy Smiley

#10 The BOC just release its first 50 year bond! Should this be signaling us that low rates are here to stay?

Exactly the opposite. It means those truly in the know are locking in their long term borrowing costs. They’d be in no hurry to issue such long bonds if they thought such low rates were here here to stay or might go lower yet.

Who's Ahead...
Guest
Who's Ahead...
Depending on your financial position, income, and rent, you probably did well by renting. According to GVREB Van West apt HPI was $463k at peak in 2008. Now it is $490k; about $30k more over 6 years. I’ve spent $90k on rent over that time. Total ‘loss’ $120k. But, I saved on condo fees, property tax, heat = about half my rent = $45k Also saved $240k toward DP. Savings on interest for 25 yr mortage = $155k Total savings $200k – ‘loss’ of $120k = $80k ahead. Not bad. ______________ Well, here is a flip example where the owner comes out ahead of a long time renter…. Interesting debate between two friends today – one was a lifetime renter of a top floor apartment in Kits and the other just bought his second condo after selling his first condo… Read more »
patriotz
Member
Active Member

@17: ” the other just bought his second condo after selling his first condo in burnaby.”

Which means he can’t include capital gains on the first apartment in his return calculations because he simply changed which apartment he owned. Capital gains only count when you get out of the market.

There’s a LOT of this mentality in Vancouver – “I locked in the gains on my old condo and bought a new one”.

Burnabonian
Guest
Burnabonian
#4 You are creating a false dichotomy by pretending that your only two options were to invest in real estate or spend all your money on ice cream and hookers. In other words: be careful not to confuse “I’m stupid for not having invested in real estate” with “I’m stupid for not having invested.” High-risk high-yield investments (like Vancouver crack shacks leveraged 20:1, which is what you are espousing as the path to riches) have been a dime a dozen over the 5-year period that you cite. For example: My friend bought RBC Mutual funds, not even really knowing what that means, and has averaged 11% since 2009! What have your investments averaged that is so much worse than highly-leveraged crack shack ownership? Do not try to make up for 5 years of poor financial management by ruining the next… Read more »
Burnabonian
Guest
Burnabonian

#17

Neither side contemplates opportunity cost.

The “owner” pisses away $105k on interest and principal payments over 7 years, only to make a $101k “payday” at the sale. Then he blows the rest of his wad on frivolities like strata fees.

I can taste the stupid from here.

Depending on how you count it, that’s a loss of hundreds of thousands.

burnaboolean search
Guest
burnaboolean search

wood-be-buyer never used language like this!

“RE bulls love to ejaculate all over the internet”

would-be buyer
Guest
would-be buyer

@burnabonian. I am not a troll. Just someone who would like to own a house, but can’t seem to pull the trigger because I believe it’s a risky investment based on “fundamentals”. I am just getting fatigued at being so wrong for so long calling for a correction. Yes, I invest my money. Yes, I have made money in the stock market. However, I can’t save $100K in 2 years, which some people have made on owning property. My point is that if, and I hope not, this market does not correct, then I am admitting that I was wrong in not getting on the leveraged RE bandwagon. I am allowed to re-evaluate my position since I have been wrong for 5 years.

UBC in crisis mode
Guest
UBC in crisis mode

Who knows how many $2 million + property sold in April?
I really doubt local buyers have such a kind of money, and I don’t think boomers are buying these houses to help their children. Are they supposed to be “downsizing now”?

24 degrees today
Guest
24 degrees today
Don’t forget about the massive HELOC debt that Canadians have. It’s pretty insane how we have 225 billion HELOC DEBT and USA has 500 billion. From MACLEAN’S: At the end of 2013, according to the Office of the Superintendent of Financial Institutions, Canadians had borrowed $225 billion through home-equity lines of credit (HELOCs)—a figure that doesn’t even include loans from credit unions and other lenders. That’s just less than half the US$500 billion Americans owe in HELOC debt. But America is a far larger economy. Down there, HELOCs amount to 2.9 per cent of GDP, and only reached five per cent at the peak of the U.S. housing bubble. In Canada, though, that figure is 14 per cent, and is up from 12 per cent in 2012, showing that even though Canada’s economy has grown, the pace at which homeowners tapped… Read more »
CPG
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CPG

“The real question is why over the past thirty+ years, did the Fed have to constantly lower interest rates to ever-lower levels with each successive recession?”

The following link is to a blog post which has a chart on it which tracks (the United States) effective federal funds rate versus its total credit market debt to real gdp ratio over the last 40 years.

Please be advised the blog post contains some foul language.

http://ponziworld.blogspot.ca/2014/04/globalization-game-over-man.html

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