Category Archives: mortgage

CREA cuts forecasts for 2012 and 2013

There’s less than half a month left in the year, so that’s a good time to revise forecasts. The CREA has revised their 2012 national sales forecast from an increase of 1.9% to a drop of 0.5%. I’m guessing they’ve also revised their forecast for 2008, 2009, 2010 and 2011.

Looking ahead they expect 2013 to see a sales drop of 2%, but here in BC they forecast both sales and prices to drop just by 0.3 percent.

“Annual sales in 2012 reflect a stronger profile before recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.

“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted before the most recent changes to mortgage regulations.”

Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

FFffffff! Is anybody else getting sick of the miopic talk of ‘tougher’ mortgage rules? Here’s a great point from Ben Rabidoux about how to put these mortgage rule ‘changes’ and Flahertys ‘tightening’ into historical perspective:

Before looking more at the implications of a mortgage rule change like the one being proposed, it may be helpful to provide a brief overview of the mortgage changes that have occured over the past few years:

  • In 1999, the National Housing Act and the Canada Mortgage and Housing Corporation Act were modified allowing for the introduction of a 5% down payment….a far cry from the minimum 25% of a few years earlier.
  • In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.
  • In 2005 and 2006, CMHC began insuring 30, then 35 year amortization mortgages.
  • In 2007, CMHC allowed people to purchase a home with no down payment and ammortize it over 40 years. This was changed back to a 5% down payment requirement and a maximum amortization length of 35 years in 2008 once the idiocy of this policy was blatantly obvious.

Here’s the point: CMHC has been in existence for almost 65 years. For the first 60 of those years, they never insured mortgages with amortizations greater than 25 years. Only in the past 5 years has this experiment been started. The 35 year ams that are now on the chopping block have been around only since 2006. So let’s understand that any move to shorten amortization lengths is NOT some new, revolutionary move, but rather a move back towards norms that are both long-standing and fiscally prudent.

Government meddling hurts first time buyers

Peter Simpson is the former president and CEO of the Greater Vancouver Home Builders Association and he’s got a column in the Vancouver Sun that strings together some numbers and anecdotes and then blames the federal government for hurting affordability.

Since this column is about first-time homebuyers, I must comment on federal Finance Minister Jim Flaherty’s changes to the rules governing federally insured residential mortgages, including a reduction in the maximum amortization period from 30 to 25 years.

It is not clear that a tightening of mortgage rules helped Canadians to manage their debt. What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.

Now of course this ‘reduction’ in the maximum amortization period is actually just a reset to a historical norm, not to mention that it only applies to government insured loans.

Mr. Simpson refers to an older generation with homes that are paid off, but I can guarantee you that those homes were not bought on a 30 year amortization, so did longer morts help or hurt affordability? Is it possible that pushing more money into the housing market simply helped to drive up prices and worsen affordability?

It may be that Mr. Simpson is not primarily concerned with the well being of the first time buyer, but is instead concerned with a reduction of customers for his industry.

His conclusion is especially telling:

Finally, Vancouver-area pundits predict there is a sales shift to moderately priced homes, and a buyers’ market will continue until mid-2013. There is no assurance interest rates will remain low through 2013. The bottom line is it seems to be a good time to consider buying a new home.

Read the full thing over at the Vancouver Sun.

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.

Is the door closing on home buyers?

Airborne Canine pointed out this PDF from the Real Estate Board of Greater Vancouver arguing that taxes and government regulation are putting home ownership out of reach of buyers.

That’s right, it’s not a problem with prices, it’s the PTT and ‘government regulation’.

As Best Place on Meth angrily points out, that last one is a bit odd.  The recent changes to insured mortgages weren’t government interfering more in the mortgage market, it was less.  They’re simply rolling back the increases in amortization terms to their historical norm.

He also points out a math error:

“How much do the new federal rules cost a buyer of a $609,500 home with a 15% down payment of $91,425?
$270.20 more per month”

In order to make that math work you have to disregard that you’ll be paying that lower monthly cost for 5 more years which means more interest payments.  In fact a 30 year mortgage under the old terms would cost a buyer $53,849.76 MORE than the new 25 year standard term over the life of the loan.

The proposal to reduce property transfer tax and lobby the federal government to increase the amortization period for government-backed insured mortgages doesn’t actually address the root problem: Speculation has driven house prices beyond what the local economy can support.  Trying to juice the market further is not a long term solution.

On a side note Data Junkie is a commenter on this blog who says they’ve done some work for the REBGV as a government relations policy analyst.  If you have a questions about his experience working at the board you can post them in the comments section below.  The highest rated questions will be sent on for Data Junkie to answer.

And last but not least 604x points out that the Select Standing Committee on Finance and Government Services accepts submissions from anyone through their web portal:

https://www.leg.bc.ca/budgetconsultations/survey.asp

As 604x puts it:

Perhaps some of our VCI heavyweights like Jesse, Scuba, VHB, VMD, b5baxter, AG Sage, and the rest could submit summary data illustrating the insanity of past government policies and the impact of CMHC loosening.

The big push now from real estate lobby groups seems to be on restoring the bubble through looser finance and tax breaks. The Committee needs evidence that the bubble is ultimately destructive over (and short-term pain of adjustment downward in prices will help everyone over the longer-term).

Housing Affordability deteriorates to new low

Thank goodness we don’t have a housing bubble in Vancouver!

Otherwise one might start to worry about these latest numbers on housing affordability.

The housing affordability index takes local family income and then looks at what percent of it would would be required to service the debt on an average benchmark bungalow.

The entire province of BC is at 69.7% and blows away the rest of Canada for overpriced houses. Only Ontario starts to come close with an affordability index of 43.9%. Even Toronto can’t compete in the overvalued housing arena, coming in at 54.5%.


According to RBC Vancouver is the champion of overpriced houses. To buy the benchmark bungalow here it would take 91% of a local families pre-tax income to service the debt.

From Macleans magazine:

Nothing, of course, could persuade condo king Bob Rennie that the Vancouver housing market is in a bubble (or, worse yet, a bubble that’s starting to let the air out).

For everyone else, take a look at this chart RBC put out today with its latest survey of housing affordability in Canada (which is deteriorating in most provinces, by the way)

No problem, just arbitrarily knock 20% off those Vancouver numbers and we’re not much worse than Toronto.

If you look around the world, you may be able to find a few markets that have an even worse affordability index than Vancouver, with lower incomes or higher house prices. But for some reason, most of those places seem to be able to pull in higher rents than Vancouver.