Tag Archives: housing bubble

Friday Free-for-all!

It’s the end of another work week and that means it’s time for our regular weekend news roundup and open topic discussion thread.  Here are a few links to kick off the chat:

Time to panic on the housing market
Very few expiries means a quick return to the 15k party.
We’re at the highest inventory for this time of year in years
Tighter mortgage regulations expected
Do banks need to boost risk?
Housing prices flat or falling
House prices drive away staff
Alarming rise in homeless families
Here’s the fake GVREB press release
Seattle (down 32%) was supposed to be immune to price drops
Irish tiger left lots of empty homes

 

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Thanks, and let us know what are you seeing out there.  Post your news links, thoughts and anecdotes here and have an excellent weekend!

Why renters rule the housing market

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!