Can we fix affordability with more debt?

Most people agree that there’s a problem with the BC real estate market, and that problem is usually called ‘affordability’.

Affordability usually means what you’re buying is too expensive, but it can also mean that you just can’t afford the monthly payment.

Interest rates look at risk of rising, but have been at rock bottom levels for years.  That means there’s not much room to move on ‘affordability’ when it comes to interest rates.

So we’re stuck with two options: price comes down or government starts giving away money.

Important announcement” for first time home buyers from the BC government.

Daily Hive says they know what this announcement will be.

Update: They were correct, here are some details:

The B.C. Home Owner Mortgage and Equity Partnership program will provide a maximum of  $37,500 — or up to 5 per cent of the purchase price — with a 25-year loan that is interest-free and payment-free for the first five years.

“The dream of home ownership must remain in the grasp of the middle class here in British Columbia,” said Premier Christy Clark.

The intention of the program is to assist people who can afford the mortgage payments on a new home but are challenged to make the down payment.

The province will start accepting applications for the program on Jan. 16, 2017.

Homebuyers will pay no monthly interest or principal payments over the first five years as long as the home remains their principal residence.

After the first five years, homebuyers begin making monthly payments at current interest rates.

If too much debt got us into this problem, surely it can get us out of it right?

Meanwhile the Bank of Canada is warning again about huge mortgages and growing household debt.

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ostritch
Member
ostritch

Yes we can. We’ve booted money out of the top end to subsidized the low end. It’s what most people wanted. They weren’t asking for a bear-style crash w/ all its unintended and intended consequences.

Shut It Down Already
Guest
Shut It Down Already

Oh? Shall we check the archives?

bullwhip29
Guest
bullwhip29

I will go on record by saying this could backfire on her bigtime. As much as RE bulls want prices up, they do NOT want to cover their neighbors’ losses should things continue to go south. The Feds are trying to reign things in while she is doing the opposite. With the exception of glowing comments from RE players, she is getting torched online. Maybe she overplayed her hand and assumed the cash was there for the taking to do anything she wished (at our expense) and we would all be none the wiser? OR maybe too many are finally fed up with all the BS (a la Hilary Clinton) and will turf her to the roadside come May?

space889
Member
space889

So when the housing market crashes as the bear expects, how long before calls for this loan to become a forgivable loan? And how long can politicians resist before caving in to get votes?

Who will be stuck at least the $703M cost over the next 3 years, which are likely to increase even more? Taxpayers! Including the bears! So lose-lose…..

And bears thought they get to laugh in homeowner’s face about their misfortunes. No, everyone pays in a crash, including the bears. The only ones that benefits are cash rich investors or people who took advantage of this program and have it forgiven.

bullwhip29
Guest
bullwhip29

you forgot to mention the poor homemakers, students and farmers

patriotz
Member

“And how long can politicians resist before caving in ”

Forever. Reason is the people who take out this loan will be far, far outnumbered by existing homeowners who will see even bigger losses in the event of a bust (because their houses are worth more). They will not put up with such a small group being bailed out and not them.

As well the bond rating agencies would go ballistic if the government even hinted at loan forgiveness.

Chinabuyeverything
Guest
Chinabuyeverything

This is really teaching younger people to put all their eggs in one basket…. housing. Not much room for tfsa or rsp at these prices.

YVR
Guest
YVR

The free interest for the max of $37,500 works out to about $5700 over 5 years at 3%. If prices in the $750K and below range go up 1% due to this (or fall 1% less) that offsets any free money.

Shut It Down Already
Guest
Shut It Down Already

It doesn’t really work like that in practice. The buyers won’t magically qualify for an extra $5700 on the purchase price. But it may pull in more buyers who then start bidding against each other. The net effect could be far greater than 1%.

yvr2zrh
Member
I’m having a hard time see what the true benefit is to someone other than giving them a small amount of funds interest free for 5 years (so maybe it’s worth around $5K max). The reason is that it seems that the person already has to fully qualify on their own, with their own down-payment and then apply to get an additional amount of funds to increase their down payment by borrowing on an interest-free basis. This is basically similar to a 5% reduction of the mortgage rate for 5 years (i.e. – if the mortgage rate was 3.0% now it is 2.85%) – so in today’s world – it’s like a 15bp rate cut. Given that rates have increased so much and the stress test will still be applied to these borrowers, it does not really do much to… Read more »
Shut It Down Already
Guest
Shut It Down Already

About half of all homes in Vancouver are priced under $750K, as that’s close to the median price according to Zolo. Across the entire lower mainland you’d see more than half.

I’d also guess that if you qualified on your own with 5% down then with the grant you’re not topping that up to 10% – you’re keeping your original down payment to spend on new hardwood and countertops. More like a cashback mortgage.

Newcomer
Member
Newcomer

“• The buyer must already be able to qualify for an insured high-ratio first mortgage for at least 80 per cent of the purchase price.” That’s only an income/credit rating qualification. But they only have to have at least a 2.5% downpayment.

The idea is to stabilize the market and ward off major price declines until after May. It’s gross exploitation of the young, by having those who can least afford it overpay at the very worst possible time for their future financial life, in order to give Cruella de Vil one more kick at the can.

Newcomer
Member
Newcomer

You can see that the buyer only needs to have 2.5% (or a bit more for houses over 500K) at:
https://homeownerservices.bchousing.org/housing-assistance/bc-home-partnership/bc-home-partnership-calculator.html
“Note: Your personal down payment contribution must be at least ½ of the minimum down payment as calculated above.”

Foo Man
Guest
Foo Man

Oops – NDP wishing they could take another cut at a first response:

“The risk of attacking this problem by encouraging people to take on more debt instead of providing more affordable housing is that people will be at increased risk of default if interest rates go up,” said Eby. Eby said the province should not have sold off land parcels in Vancouver, including the Jericho Lands, and instead should have built affordable housing on that land.

Just me
Guest
Just me
This move my save a significant amount on CMHC insurance for some people. If you don’t believe me, see this comment that just appeared on the internet: As a mortgage planner that specializes with First Time Buyers, this will be an excellent way to save the CMHC/Genworth/Canada Guaranty premiums and put more money into their pockets or use to payback the zero interest loan. However, Mortgages, like RRSP’s or investments should be professionally managed. Example: $350k purchase at 5% ($17500) downpayment is $11,970 in insurer premiums (built into mortgage) w/ $1575 per month @2.69% rate. With the “zero %” loan for the additional $17500 downpayment; will reduce the insurer premium from $11970 to $7560 for a $4410 savings there and further reduce monthly payments to $1475 per month; another $6,000 savings to client or to repay the zero % loan.… Read more »
kabloona
Member
kabloona
Garth’s take: http://www.greaterfool.ca/2016/12/15/what-can-go-wrong-4/ “You can’t buy a banana in Toronto without six bits in your pocket, but soon you’ll score a $750,000 house in Kelowna, or Langley, or Nanaimo, without a penny in cash. Yes, kids, 0% down is back – just in time to help keep properties from becoming affordable. Once again, government sucks. Then it blows. Here’s the latest: staring at a looming election, BC’s ruling party has decided to play the real estate card. Again. After bringing in the Chinese Dudes tax, presiding over a sales collapse and a price rout, taking over the real estate industry, then allowing the vacant-condo levy in Vancouver, the Christy Clark government is about to give financially-retarded moisters free down payments. Yes. Zero down….. …..As we all know by now, BC is obsessed with real estate. It’s a world-class fetish. The… Read more »
southseacompany
Member
southseacompany

“‘It really does look like Vancouver’s housing bubble has burst'”, Business Insider
http://www.businessinsider.com/vancouver-housing-bubble-burst-2016-12

“Home prices in Vancouver have dropped for the second month in a row, declining by 1.3% month-over-month in November, according to the Teranet-National Bank Composite House Price Index. The two months of dips follow 21 consecutive months of price increases.

“It really does look like Vancouver’s housing bubble has burst,” David Madani, a senior Canada economist at Capital Economics, wrote in a note.”

bullwhip29
Guest
bullwhip29
bullwhip29
Guest
bullwhip29
bullwhip29
Guest
bullwhip29

B.C.’s interest-free loan to homebuyers offers much risk, few rewards: economists
http://www.metronews.ca/news/vancouver/2016/12/15/bcs-interest-free-loan-to-homebuyers-offers-much-risk-few-reward.html

southseacompany
Member
southseacompany

““In the US, in the subprime market, those loans were really bad because by the time you were trying to find anybody who would qualify, the last people you found to qualify were really lousy risks.””

Frightening.

Hyper-mega-Bull
Member
Hyper-mega-Bull

so funny. people who don’t pay canadian tax drive up housing prices.

the solution is to take money from tax payers and give it back to them to help them compete.

and the all dummies will fall for it and vote for her!

welcome to canada!

fomostyle
Guest
fomostyle

True. And sad.

Oracle
Guest
Oracle

Only until they have to sell their daughters and wives to pay for living. Then it will be too late to protest.

Newcomer
Member
Newcomer

Yes, that’s quite likely. Glad to see you are not letting yourself get carried away.

Oracle
Guest
Oracle

Girls already are. Exploited by foreign worker employers, landlords who want favours, etc.

It’s happening already. But keep your rose colored glasses on.

oopswediditagain
Guest
oopswediditagain

The program is also designed to stay under the 20% cap so that CMHC insurance covers the mortgage. In other words if the home is $200,000 and you wanted to put down $35,000. they would give you $4980. to stay under the cap.

https://homeownerservices.bchousing.org/housing-assistance/bc-home-partnership/bc-home-partnership-calculator.html

I’m honestly not convinced that this program is going to goose the market. They are catering to the lowest denominator in terms of credit worthiness and/or financial literacy. They still have to qualify for the mortgage.

The exceptions are fewer when the home ownership rates are at historic levels. If you couldn’t buy with the stimulus measures over the last 10 yrs. perhaps there’s a good reason why you are renting/living with mom and dad or ????

xyz
Guest
xyz

It’s all Putin’s fault.

Chinabuyeverything
Guest
Chinabuyeverything

“My research shows it’s only B.C. that allows foreigners to donate to political parties,” Travis said. “I have not found anywhere else in the Western world where that happens.”

http://vancouversun.com/storyline/how-much-does-the-real-estate-industry-influence-b-c-politicians

Oracle
Guest
Oracle

7K party!

And Christy’s bullish announcement giving $37,500 free for 5 years!

————-

I think April is going to be one hell of a month for real estate. By then, another 40,000+ people will have moved into metro Vancouver since July’s foreign buyers tax.

Only 100 days or so away.

I’m thinking prices resume upward trajectory.

Newcomer
Member
Newcomer

That’s a shock. You’ve always been such a bear.

Oracle
Guest
Oracle

Just goes to show that governments elected have dictorial powers these days.

Who knows, they can even pass a law stating the death penalty to any person who’s online name begins with “N”.

Don’t kid yourself, we are well on our way there.

Best place on meth
Guest
Best place on meth

All of the industry whores who were screaming bloody murder about government intervention in the free market after the foreign buyer tax have suddenly fallen silent.

Laibach
Member
Laibach

Kinda makes sense…

Vancouver is the ‘rattiest’ city in B.C.

http://www.640toronto.com/syn/112/254041/vancouver-is-the-rattiest-city-in-b-c

bullwhip29
Guest
bullwhip29

Property assessment hikes prompt calls for change to homeowners’ grant
http://bc.ctvnews.ca/property-assessment-hikes-prompt-calls-for-change-to-homeowners-grant-1.3205863

bullwhip29
Guest
bullwhip29

MacLeans: B.C.’s free loans to homebuyers won’t buy much in Vancouver
B.C.’s plan to give new homebuyers interest-free loans is a terrible idea that will only worsen Vancouver’s housing bubble
http://www.macleans.ca/economy/economicanalysis/bcs-free-loans-to-homebuyers-wont-buy-much-in-vancouver/

paulb
Member

New
63
Price Change
12
Sold
73
TI:8027

http://www.paulboenisch.com

bullwhip29
Guest
bullwhip29

‘Terrible policy’: B.C. housing incentives widely panned by experts
http://globalnews.ca/news/3130685/terrible-policy-b-c-housing-incentives-widely-panned-by-experts/

Lurker
Guest
Lurker

Some serious bear spray today.