You know you’re in a housing bubble when bankers privately reveal that 95% of their new mortgage customers finance 95% of their purchases. When almost 100% of new mortgages have the longest approved amortizations – 35 years. When houses with crumbling basement walls but new stainless countertops attract fourteen offers. When the average house price hits an historic high in the midst of a recession. When buyers panic because they think they’ll be priced out. When emotion trumps rational thought. When debt’s nothing. And greed rules.

As dark as all that is, darker still is the growing sense in Canada that owning a home is no longer an earned privilege. But a right.

That’s when a bubble becomes a bomb. The collateral damage can be morality.

This arrived today from Alberta:

I know you’re a very busy man, but I trust your judgement and value your opinions.  I’m a daily greaterfool blog reader (for at least the last year and a half), and thank you for all your time and effort you’ve put into it.  I hope that you can spare a moment to shoot a nugget of advice in my direction.

I rent a house in from some old guy who wants to sell the house and move to Victoria (Victoria eh?  Way to fight the stereotype).  We love the house, and have absolutely no interest in moving.  He wants to sell the house to me, and he’s asking fair current market value for it.  I know he’s still paying for the house, and it’s on a HELOC at prime plus 0.5%.  Assuming I could convince him to sell it to me through a VTB mortgage (for say the next three to five years, upon which time I’d move the mortgage to a bank because I don’t know how much longer he’ll last and I don’t want to fight with his estate executors) at his HELOC rate plus a little bit, my monthly mortgage would be almost exactly what I’m currently paying him in rent.  I figure that this would benefit me in the following ways:  Insulate me from price increases because I’ve already bought it for x amount, and insulate me from significant price drops, as if the price of the house falls by more than what I’ve already paid him, I could just walk away from the deal and let him take the loss (with no effect on my credit report), then buy it when he lists it at a lower price.

Do you see any reason why I should not try to pull this off?  I am a very convincing man, and I figure the odds are better than 50/50 I’d be able to convince him to do it.  He’s a first time landlord, a kind man, and definitely not trying to rip us off.  Do you have any other suggestions about how to handle this?  (Ideally more than “grow some morality”, or “get a conscience, you crook”). — Chris

After you grow some ethics, along with a set, you might ask yourself why the guy would ever sell you a home with a VTB when the property’s already subject to financing?

Fact is, to ink a purchase and sale agreement with you, the owner/landlord will have to agree to discharge the existing home equity line of credit on the day of closing. And how’s he going to do that when you presumably give him no money? Are you that convincing, dude?

Even getting past that little roadblock, there’s the issue of the VTB rate you need to pull this thing off – prime plus a half. Why on earth would the old guy give you financing at 2.75%, locked up for between three and five years? Without a doubt, the prime rate will be double what it is now within 36 months, and could be three times higher in 60. He’d be foregoing income on hundreds of thousands of dollars – just so you could own his property for the same amount you’re now paying him to rent it. Are you on drugs?

Finally, as for your strategy of stealing the house from this senior who (you say) has treated you with kindness and respect, you’re actually asking me for an opinion on “walking away from the deal.. letting him take a loss…” and then vultching it when he is forced to list? And you’d do this even assuming he gave you financing to buy his home with no money down, at a bargain rate?

You may be a regular reader, but you’re also a narcissistic, greedy, self-centred, compassionless loser. If you want a house, pal, buy one.

May you get mugged by a guy in a walker.