Category Archives: Canada

Close your eyes and load up on debt

This National Post commentary is one of the most direct attacks on Canadian personal debt levels I’ve seen in the mainstream media.

The takeaway is this: YOU are responsible for your own debts, don’t go whining to anyone if it gets you into trouble.

It’s mindboggling to think that an entire population can look at what happened in the US when personal debt levels got this high and shrug it off.

Analysts and economist are filled with forecasts of doom, and that was before the latest figures showed debt had continue to pile up over the past year to a record 163% of household income, which is where the U.S. was before the 2008 collapse, and about 10 points higher than anyone thought. As the housing market cools and home prices slip, a lot of people could find themselves making monthly payments they can barely cover for a house that isn’t worth what they thought it was. If you can’t cover the mortgage, you just have to pray the roof doesn’t start leaking or the furnace fail.

And borrowers won’t really have anyone to blame but themselves. The warnings are out there. The examples are rife: all anyone has to do is examine the experience of U.S. homeowners over the past few years. The dangers aren’t a secret, they’re just being ignored.

But people keep borrowing, because it makes them feel good to spend, because they’re too busy to think about it, because they figure they can cover the payments in the short term and will deal with the future when it comes. And because they can always blame it on someone else when the roof caves in.

Read the full article here.

Vancouver prices now lower than 2011

If you bought property in Vancouver BC last year and were planning on flipping it this year for a profit, well…

Better luck next year.

Teranet has released their stats for September 2012. Prices are dropping across Canada, but still up Year over year.

This is not so in Vancouver, where prices dropped by 1.2% for the second month in a row, bringing Month over Month (MOM), Year over Year (YOY) and Year to Date (YTD) measures all negative according to Real Professional:

% change y/y: -1.42%
% change m/m: -1.19%
Year to date: -0.60%

The only market that saw a larger monthly drop in the Teranet Home Price Index was Victoria which saw a 1.3% drop.  Together Vancouver and Victoria continue to drag down the national index.


Should incentives go to the supply or demand side?

The Canadian Mortgage and Housing Corporation (CMHC) is Canadas national housing agency.

The front page of their website says this:

Backed by more than 65 years of experience, we work with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges, anticipate tomorrow’s needs, and improve the quality of life for all Canadians.

This is a bit vague, but let’s assume ‘today’s housing challenges’ includes the availability of affordable housing for all Canadians.

With this goal in mind there are two ways you could use government money to create incentives for housing: The supply side or the demand side.

CMHC works on both sides, but over the years they’ve shifted the bulk of their support to the demand side.  This means that instead of directly funding the construction of housing or providing incentives to builders, they provide support to the buyer mainly in the form of mortgage insurance for risky loans.  Of course this support is actually provided to banks to make their loans risk free, but the end result is that more people are able to pay a higher price for housing due to more availability of credit.

In concert with record low interest rates and a speculative mania this has driven housing prices to record highs in Vancouver and inflated prices across the country leading to talk of a national Canadian housing bubble similar to that seen in the US.

If we really want to use government to assist in the creation of affordable housing shouldn’t we be providing incentives to the supply side instead?  It shouldn’t be a stretch to understand that building more housing and providing less credit to home buyers would drive prices down making homes MORE affordable.

But nobody really wants to drive prices down do they?  So instead we get vague statements about housing challenges and smoke and mirrors attempts to improve ‘affordability’ by providing ever cheaper credit.

That hasn’t worked in any housing bubble yet, but hey! Maybe it’s different here!


Realtor: DO NOT PANIC about bubble.

There’s an interesting read over at BCBusinessOnline about those crazy bubble bloggers and forum bears:

The “Bears” talk cover up which I always find so intriguing. Commenting on the September stats from the Real Estate Board of Greater Vancouver, Seth M. says:  “This will only make the conspiratorially minded angrier — most of them convinced that the so-called benchmark indices produced by organized real estate are covering up a major decline.” The reality is the numbers from behind the HPI are actuals.  They aren’t fabricated to prop up a cyclic market so that realtors can hang onto their markets.

Now there may be some of you that believe the ‘cover up’ angle on the HPI, but I think you’re maybe a little crazy.  There is nothing to be gained by massaging the numbers.  My feeling on the HPI is that there seems to have been no good reason to change the methodology for calculating it.  It used to be a very decent apples to apples historical comparison, but by changing the measurement and then recalculating it they’ve killed its value as a long term gauge.

I think any problems with the HPI come down to opacity and bad math, not any smoky back room conspirators whose only goal is to keep house prices high.

But what do I know?  I’m just a crazy anonymous bubble blogger.

Is financing getting tougher for the self employed?

It seems that more and more Canadians are self employed.

The self employed tend to have less steady income then full time employees and as a group it can be more difficult to get a mortgage or refinancing.

As a self-employed website developer who had recently restructured his business, Greg Schmidt knew that refinancing his mortgage wasn’t going to be a piece of cake.

“I had a little bit of a line of credit built up from shifting the focus of the business and my car lease had come up for being bought out, so I needed money to take care of that,” said Mr. Schmidt, a single 42-year-old who owns a home in Toronto that includes an apartment for income. “It turned out the best way to go was to do a new mortgage, increase the amount of the old one and take care of those costs.”

However, when he approached his bank, he was told “the numbers didn’t work for them.”

Read the full article in the Globe and Mail.