Category Archives: debt

One bubble down, one to go

The Vancouver real estate slow down is making news all over and people are now wringing their hands over Toronto.

This Financial Post article talks about our bloating inventory and collapsing sales while pointing out that Toronto sales are up 11% year over year.

..and yes, there’s yet another warning from the Bank of Canada:

“Although economic growth in Canada was slightly slower than expected in the first quarter, underlying economic momentum appears largely consistent with expectations. However, the composition of growth is less balanced. In particular, housing activity has been stronger than expected, and households continue to add to their debt burden in an environment of modest income growth.”

The warning is apt. Rosenberg said if the Bank of Canada felt the need to re-establish parity between short-term rates and its inflation target it would have to raise the rate 100 basis points.

“That wouldn’t cause a recession, but it sure would be painful for many households,” leading to more loan defaults and less spending growth.

If you can’t afford a 100 basis point increase in rates you probably shouldn’t be taking on too much debt.

Vancouver Real Estate: listings up, sales down

Over at the CBC there’s an article about the ‘uncertain fate’ of Vancouver real estate.

Vancouver’s real estate market has taken another interesting turn, with listings up and sales down during what is usually a busy time of year.

In May, average prices for houses have dropped about $150,000 compared to one year ago. That 12-per-cent drop wiped out two years of price increases.

The reason appears to be that too many more sellers are trying to cash in at the same time. Listings are up by 23 per cent, but fewer are buying: sales are down 24 per cent.

“Probably, on average, about a 150 or 160 homes in Vancouver are reducing their price every day in the hope of catching, getting ahead of the train and maybe get out before they can’t,” said realtor Larry Yatkowsy.

Larry is an interesting fellow, he seems to change opinions frequently, but isn’t it in most realtors interest to get sellers to lower listing prices to make a sale?

Heloc LTV going to 65%?

Canadian Mortgage Trends is saying that changes to HELOC loan to value (LTV) limits are a done deal.

If so this means the maximum HELOC you’ll be able will move from 80% to 65% of the total value of the property.

Read the original link for full details. Many commenters there seem to think this is too big a move.

Appraiser said…
65% is too much of a leap all at once.

I can’t understand why OSFI doesn’t ratchet the LTV ratio down a little more slowly (i.e., 5% at at a time and sit back to observe the consequences).

As has been noted lately, the previous three sets of mortgage tightening guidelines have been gradually working their way through the credit markets effectively.

You can kill an ant with a hand grenade, but it usually makes a hell of a mess.

Mortgage brokers warn about new rules

Canadian mortgage brokers are freaking out about new refinancing rules proposed by the OSFI which has taken over responsibility for the CMHC. Reasonably enough, they’re asking for clarification about proposals to require banks to check income and current house value before refinancing.

Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.

“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).

“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”

Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.

Read the full article in the Globe and Mail.

Days of ultra-cheap money coming to an end

..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.

Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.

The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.

That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.

The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.

Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?