Tag Archives: amortization

advice, BC, CMHC, data, debt, hype, mortgage, predictions, prices

Government meddling hurts first time buyers

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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.

Canada, debt, economy, prices, supply

Housing market keeps on cooling

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106 Comments

The Globe and Mail has an article about the drop off in real estate sales across the nation.

It’s got some gems in it for predictions from bankers and real estate associations, but it’s also got the standard partial information about ‘government interference’.

As evidence mounted that rock-bottom interest rates were fuelling house prices and consumer debt loads, Mr. Flaherty has changed mortgage insurance rules four times, each time making it more difficult for consumers to take on housing-related debt.

While the three previous rounds crimped both housing activity and the demand for credit, economists and real estate industry experts say this latest round, which took effect July 9, looks as if it is having a bigger impact.

And off course what’s missing is any mention of the government previous moves to make it easier for consumers to take on housing-related debt: moving amortization from 25 to 30 to 35 years, dropping down payment requirements all the way to zero down and shoveling money into mortgage buybacks via the CMHC.

So anyways, it’s getting harder to buy than it was when you could get a zero down mortgage with a longer amortization schedule.  And what sort of horrors has this wrought?

A number of economists, real estate agents, and industry observers say that many prospective first-time buyers have found themselves unable to secure a mortgage, especially in Toronto and Vancouver, and are therefore remaining renters.

Paula Roberts, a mortgage broker based in Markham, Ont., said one of her clients, a young teacher, was preapproved under the old rules, but now that she has found a home she likes, is having trouble securing the mortgage. She will likely have to get someone to co-sign the loan, or come up with a larger down payment, Ms. Roberts said.

“It’s really hindering people,” she said. “Her rent is basically the same as her mortgage payments.” In Ms. Roberts’ opinion, “it’s always better to try to buy something instead of rent.”

Of course, it’s always better to try to buy ..Says the mortgage broker.  Business slowing down Paula?

But this article ends on a bit of a down note for those hoping for a ‘plateau’

David Madani, a bearish economist at Capital Economics, reiterated his forecast Monday that house prices will fall 25 per cent in the next year or two. “The first sign of trouble at the peak of the U.S. housing bubble was that home sales began to drop in 2005, well before house prices began to fall in 2006,” he wrote in a research note.

Read the full article at the Globe and Mail.

Open Topic

Friday Free-for-all! New Rules Edition

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308 Comments

Welcome to the summer of 25 year amortizations!

You’ve made it to the end of another weekend and that means it’s time for our regular end of the week news round up and open topic discussion thread.

Lots of ink spilled over the new mortgage regulations released yesterday.

Here are a few links to kick off the chat:

–New rules in effect July 9th
–How rules effect mortgage numbers
–How new rules will sink houses prices
–Final OSFI guidlines released
–Brokers not so happy
–Inventory growth takes a breather
–Be very afraid of the Canadian bubble
–Falling prices, no more home ATMs
–Moody’s downgrades RBC 2 notches
–USA 2006 “I’m not giving it away”

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

Canada, CMHC, debt, mortgage, predictions, prices

No more 30 year mortgages.

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..well that headline is a little misleading, you’ll still be able to get a 30 year mortgage but you better have a big down payment. No more 30 year mortgages for CMHC insured mortgages.

The country’s biggest banks were caught off guard on Wednesday night as the Department of Finance prepared to clamp down on mortgages by reducing the maximum amortization for a government-insured mortgage to 25 years from 30.

Ottawa will also limit the amount of equity that can be borrowed against a home to 80 per cent of the property’s value, down from 85 per cent.

The moves are designed to cool the housing market and limit the record levels of personal debt Canadians have amassed in recent years. Figures from Statistics Canada show the average ratio of debt-to-disposable income climbed to 152 per cent, up from 150.6 per cent at the end of 2011. A rise in interest rates or further job losses could put some households at financial risk, endangering any economic recovery.

So we’ve come circle with mortgages going from 25 year, cranked all the way up to US bubble style zero-down 40 year mortgages and then ramped back down over the last few years to a maximum 25 year amort. It will be very interesting to see what this does to some of Canadas overpriced markets.