Vancouver Condo Info

A new report issued by US ratings agency Fitch says that fast-rising home prices and record levels of household debt pose a threat to the credit portfolios of Canadian banks.

The agency examined the exposure of Canada’s six largest banks to mortgage risk and found that household debt fuelled by mortgage credit expansion in Canada is the largest threat to credit profiles.

“These are quite high levels of debt for households and the movement in house prices, we don’t think this is sustainable in the long term,” said report author Fabrice Toka, senior director at Fitch.

The six banks have a combined $730-billion in mortgage exposure and an additional $182-billion in home equity loan exposure, the report noted.

High unemployment or interest rate shock “could aversely affect the ability of leveraged homeowners to meet their mortgage obligations,” the report said.

The risk testing scenario looked at drops of 1 to 10% and sees CIBC and RBC as the most exposed to mortgage value risks. The debt-to-income ratio in Canada is currently higher than it was in pre-recession US, but Fitch points out that there are structural differences in our housing market.

Here’s the full article in the Financial Post.

This post was submitted by rj.

Donald pointed out this discussion over at the SeattleBubble blog about 10 reasons NOT to buy a home:

10. Renters don’t have to fix leaky plumbing, pay for a new roof, or buy major appliances.
9. The moment you sign the closing papers, you lose ~10% of your home’s value.
8. Better job offer in another city? Hope you can afford to sell…
7. Lousy neighbors move in next door? Too bad, you’re basically stuck!
6. Your down payment and equity are anything but liquid.

Read the rest of the list at SeattleBubble.com.  One interesting thing to consider is this list is based on a theoretical situation where home prices are at reasonable levels and supported by local economic fundamentals.  In a hot housing market where prices only go up and people fight for the right to overbid on a teardown in a bad neighborhood it’s always a good idea to buy instead of rent.  Always.

For most people a home is the largest purchase they will make in their life.  And it’s so complicated!

Now you could do a bunch of research or you could relax and let an expert tell you what to do.

Fortunately there’s a whole bunch of people that specialize in the finer points of buying and selling real estate and they form organizations to help you, the potential buyer/seller.

In the USA there’s the National Association of Realtors or NAR and they put out this great ad in 2006:

LOL on bad timing.  In 2006 in the US only one of those options was a good move.  And yes, that’s a real ad.  Found it over at Burbed with thanks to gordholio.

This post was submitted by Ronco.

Jesse pointed out this article bloomberg: Asian Buyers Buoy New Home Demand in California’s Orange County.  It turns out we’re not the only place that get’s the hype about suitcases of cash:

“You know why Orange County is doing better?” said Wang, a native of Taiwan who splits her time between Shenzhen in southern China, where she oversees a toy-manufacturing business, and Irvine, California, where she raised her three children. “It’s because all my neighbors are from China and Taiwan, and they all bought their homes in cash.”

And you know what ‘doing better’ means?  It means house prices dropping by ‘only’ 39%.

Demand has kept property values from declining as much in Orange County as in other regions. The median home price was $392,000 in January, down 39 percent from the June 2007 peak. That’s less than the 49 percent decline across Southern California and the 51 percent slump nationwide, DataQuick said.

Pretty good news eh?

City by city data for US markets is just out showing how much prices fell in the year and how far they’ve come down since the market top.  Here’s what last year looked like in some major US markets:

South of the border: city -by-city breakdown of latest Case-shiller data

Las Vegas: Prices down 8.8%, and 61% below peak.
Los Angeles: Prices down 5.2%, and 41% below peak.
Miami: Prices down 3.8%, and 51% below peak.
New York: Prices down 2.9%, and 24% below peak.
Phoenix: Prices down 1.2%, and 55% below peak.
Portland: Prices down 4%, and 29% below peak.
San Francisco: Prices down 5.4%, and 41% below peak.
Seattle: Prices down 5.6%, and 32% below peak.

Remember, it’s not a bubble, it’s a balloon.  Balloons don’t pop, they deflate.  Slowly over the course of many years.

Hat tip to VMD for the link.

Until renters can take out a mortgage to pay their rent they’re limited by income to how much they can pay. This is different than buying because mortgage rates and easy credit can change ‘affordability’ enabling people to take out larger loans and ‘afford’ higher prices.

Since rent tends to be more stable and directly related to the local income it puts a theoretical ‘floor’ on how far house prices can fall. As soon as it’s cheaper to buy than rent you should have investors who can do math buying up property.

Of course there are other complicating factors: psychology, ease of credit and liquidity.

Bloomberg has an interesting article looking at the situation in the USA after their housing bubble popped.

Many people who are technically homeowners are really renters. They put little if anything down. In many cases, the equity is negative when, for example, home-improvement loans piggybacked on first mortgages and brought total indebtedness to more than 100 percent of the house value. Many also planned to refinance their mortgages with cash-outs due to appreciation before their mortgage rates reset upward or, in some cases, even before they skipped enough monthly payments to be foreclosed.

It’s easy to be in a negative equity situation if you buy at the peak with very low down payment.

Of course it’s different in Canada right? The CMHC even introduced rules in 2008 eliminating zero down payment mortgages and now requires everyone to put down a huge 5% down payment..

So now we call it a ‘cash back mortgage’ and there are so so so many ways you can get a zero down mortgage in Canada today and be on your way to negative equity!