The day a gang of my Conservative colleagues punted me out of the federal party caucus room for the high crime of being a populist, Jim Flaherty took to the microphone, looked stern as hell and addressed the gathering.
“Garth Turner,” the finance minister said, “is not running an alternative government.” Several minutes later a snap vote was called, and I was on my way to the showers. Or, at least, to sit as an independent MP, no long a thorn in the prime minister’s powerful paw. No longer in government.
Now I don’t mention this to reignite old wars because I actually suck as a politician. I’d also throw me out. Too mouthy. Too opinionated. Too damn many ideas. Too challenging of authority. Too much a loner and a blogger and a democrat. Worse, I’d been the only MP in Ottawa who tried to stop 0/40 mortgages – something Mr. Flaherty himself initiated.
In fact, the finance minister was pissed at me for a vocal media campaign I was waging to have income-splitting brought in for married couples, after I’d convinced him to do the same for retired folks. I was also pushing hard for a tax-free savings account, and lobbying him to go easy on income trusts since so many seniors were utterly dependent on their cash flow.
But you know the rest. Income-splitting is still elusive, and he nuked income trusts. And me.
So I mention this as a little warning to those who think he is incapable of turning the ill-conceived 5/35 mortgage game into a much more prudent 10/30 situation. This could well happen in the March budget, meaning anyone who wants to buy a house and get mortgage insurance (which is virtually every new purchaser) would need a 10% downpayment and could only amortize as long as 30 years, bringing bigger monthlies.
This idea has many people apoplectic.
Says mortgage lender Marcus Tzaferis, “Twenty-five per cent of buyers – these people that are buying with 5% down and those that are buying with 35-year amortizations – won’t be able to purchase anymore.”
Adds the mortgage brokers association in BC: “First time buyers drive the housing market. Raising interest rates and reducing amortization periods will severely impact affordability for this important demographic group… potentially causing home values to decrease, penalizing people who have bought into the market over the last two or three years.”
And I mentioned a day or two ago CIBC economist Benny Tal laments that 10/30 would be like “a hammer to kill a fly.” He hasn’t seen the kind of flies I have in the bunker…
I sure expect a vociferous campaign against any tightening up of mortgage lending standards in the next couple of months, along with a mad rush by the few couples remaining who don’t own a home to snag one while they still don’t need money to do so. I’m also thinking we’ll be seeing an explosion of new listings come February or so, as it dawns on homeowners that they may just have missed the last stop for the real estate gravy train.
Of course, the fact bank economists and mortgage brokers are wailing about the massive hit this would cause to the market makes a lie of their other claims that 5/35 buyers constitute just a small and manageable slice of the action. Lots of them have recently been throwing around a misleading and bogus stat that only 4% of the country’s mortgages are of this nature.
Wrong. At least according to Benny Tal’s own numbers – which show of all the financed homes in Canada, over 12% have mortgages greater than 80% of the property’s value. That means if real estate values were to fall by 20%, then 12% of all families with houses would be in negative equity. For comparison sake, after a 5-year real estate collapse, 18% of US families with mortgages are in that situation – enough to decimate the middle class and cause the worst downturn since the 1930s.
Of course, 12% is not 18%, but it’s close enough.
The real story is something else, though. The vast majority of all new mortgage originations for the past year have been 5/35 deals – at the very time when prices have hit an all-time high, mortgage amounts have never been larger, and household debt levels have achieved a US-style crescendo. So, anyone with just 5% of their skin in the game is almost 100% guaranteed to have a singed butt if the market returns to a normal state, let alone correct recent excesses.
Oh yeah, and mortgage rates will be resetting as well, according to central banker Mark Carney. More trouble for the equityless homeowners.
All this is the consequence of radical, experimental federal policy – like taking interest rates down to 0.25% . Or waking up one day and legalizing zero down payments for houses. Or reversing yourself two years later. Or creaming income trust investors.
A 10/30 mortgage would say it clearly: We screwed up.
And it’s probably coming. Much sooner than my redemption.
73 comments ↓
“And it’s probably coming. Much sooner than my redemption.”
I welcome it, lets put some reality back in the market, people with money who can actually afford to buy..instead of cash starved debt junkies.
Jesus provides redemption to all, even Jim and the conservatibles.
Garth, Merry Christmas and Happy New Year to you and everyone !
Sorry I did not have a chance to ask this question earlier but for the RRSP mortgage you mentioned is there any disadvantage to it? Put it this way who should not do it?
Do you talk about this in details in your new book?
Thanks
I hope you are right Garth (I know this is the right thing to do for Canada). We are looking at a 340K home in Whitby and have saved 300K to date… by July will have 100% saved… just hope with interest rates hikes and 10/30 mortgages it will be a great time for us to buy in the summer!
Happy Boxing Day, Flaherty.
The gloves are off!
Look Garth, you don’t need to convince me what a twit Flaherty is. The only good thing both he and Harper did was turn me away from party politics for good.
And the one thing you forgot about why you make a crappy politician is that you are honest [and nice ... well - most of the time
].
Fascinating that being ‘up to my neck in debt’ seems almost trendy.
Over an eggnog the woman at the cocktail party was sounding like she won the Lottery.
“The Agent says we have a good shot at getting the place – we outbid two other people. The one couple withdrew their bid when they found out that they couldn’t flip the condo they bought in that Hotel/Condo that is only 10% occupancy….”
I was wondering if this woman was referring to what is soon to be the STORY in Canada.
To whit: How badly Vancouver BOMBS as these Olympics draw flies.
The Hotels are screaming and already the fools that thought they would be renting out their home in Coquitlam to some ‘luge mad’ Swiss for a ‘g’ a night, are realizing they have been sucked into the Olympic vortex.
I go on record as saying that we are going to see an economic train wreck in Vancouver, that will make us all swoon.
No way can you run a billion bucks into the ground and run at 10% occupancy. Someone is getting just creamed.
Maybe Lotus Land isn’t Shangri-La after all.
Garth, in the First & Last post u mentioned that rents are coming down. this might be true in rural areas/small towns.
In the GTA, is this true for individual landlords only or does it apply to properties run by rental mgmt companies?
the mgmt company has sent me a notice of 2% increase from feb. other rental properties in Richmond hill & Mississauga seem to be holding or increasing. long time renter hoping for a 30% correction here. my personal thought is that the govt thought the US would be back on keel within 24 mths & so if they could ride out that timeframe then canada could ride their coattails again and all would be hunky dory here.
TIA
Garth,
Do you see our esteemed Finance Minister phasing this in over a period of time,i.e. not until next year. I just can’t imagine the insanity in the housing market this spring if he announces 10/30 and then gives these first time idiots another 9-12 months with low interest rates and fear of downpayments the opportunity to buy. You will be able to sell your RV in multiple as long as you can park it in Bloor West Village.
Mike
These mortgage brokers disguise their concern for their own pocket by pretending to be in the first time home buyers’ corner and crowing about “affordability”. The only affordability these brokers are concerned with is whether tighter lending might hamper their ability to buy that new Range Rover…
So I guess I shouldn’t buy now with only 5% down eh?
Looks like it will be a while until I’m ready to enter the game.
I’ll be renting for the forseeable future.
I hope my “nesting” wife will understand.
Now call me stupid but… Quote :
“Twenty-five per cent of buyers – these people that are buying with 5% down and those that are buying with 35-year amortizations – won’t be able to purchase anymore.”
THEY CANT F-ING AFFORD IT NOW!!! If you CANT AFFORD 10% down, and you have to take out 35%.. Then You CANT AFFORD THE PLACE YOU’RE BUYING!!! This isnt rocket science is it?!!?
Im from the uk. When i bought my first property i wasnt allowed to borrow more than 3 times my income. When my parents bought a house they had to put down AT LEAST 50% as a deposit!!!!
Both myself and my parents however COULD afford to buy what we were buying. To moan that a 10% deposit would mean you “couldnt afford it” is absolute NONSENSE! Because if you cant afford to put a 10% deposit down, then you REALLY cant afford to be buying property in the first place.. and you are part of the long term problem this country is currently facing.
The mind boggles it really does. Im not an expert in these things by any stretch of the imagination – but only a complete idiot couldnt grasp such simple concepts surely?
Thank you very much for income splitting information. My income is $63, 000 and my wife is $5000 in 2009, she mostly takes care of our son and only works on Saturdays. Every year we struggles to save less than $10,000 to make our dream to own our home with a yard is only a dream.
We have a share cheque account and each of us has our own saving account.
How could we save some tax on this “income splitting”, if yes, do we need to do something before Jan 1st, 2010?
We really appreciate your help.
Garth,
Are you sure the banks are not paying you to try to scare guys like me to dump my prime -.50% open mortgage and lock in?
The 10/30 sounds like a better idea to cool a bubble then uping prime when the CDN $ is already near = value.
Sure we will a lose some equity “on paper” but the change in prime will hit ppl in the wallet from the first payment.
Merry Christmas to you all.
Imagine, a Conservative Government acting in a conservative manner! Unheard of for over 20 years.
“And it’s probably coming. Much sooner than my redemption.”
Garth, not to worry 99% Canadians would be hard pressed to name 10 past Cabinet Ministers or even MP’s for that matter ….. your name would would be one the few that would be mentioned. Quite frankly Charlotte who gives a dam about any past politician?
The word has been out on the street that Flaherty’s budget has been designed for yet another early election. So any mortgage talk is just that talk! When they hit trail and need to scrap it for yet more votes …. it’s gonzo, it’s just that simple.
2010 will see a massive “King Steve” majority perhaps the largest in Canadian History and all will be fine once again as RE sours with new homes, company raises, more appointed Senators, yet another mover to the right wrt Afghanistan, more non tendered contracts, a boom in auto sales and household goods for 10′s thousands new homes all with a wave of the hand from King Steve, as 50% of Canadians voters cheer: Long live King Steve.
Happy New Canada
Correction, Garth, you’re not the lousy politician, they are, but so what.
I can smell the upcoming Harper line against the wind: We’ve had a close call, but avoided the worst due to the government’s economic stewardship. It now is time to consolidate the situation by prudent and responsible measures blah blah blah …
The worst part is that they are going to get away with it, because – Garth excepted – there is no credible opposition that anyone would listen to. The real pain is yet to come, but it will be easy to blame the imprudent victims who should have been fiscally conservative.
Who is looking after Canada? Damned if I know.
Merry Christmas Garth and fellow blog dogs.
Question: Does “Jimmy Boy” Flaherty know what to do to help save the real estate market from a meltdown? Or is he just talking up a storm of threats.
It is a bubble Jimmy Boy!! Do something. The current valuations a putting the screws to my investment business.
Freddie Mac sees rates headed to 6 percent…
http://www.reuters.com/article/idUSTRE5BP0EF20091226
It should not be so difficult to see it:
The easier it is to buy a home the more difficult, because prices will increase. But, magically, the bank-gov-crea makes it easy: just get in debt. People should realize they trade freedom for house.
Think of this: it is very hard, to save your money for a few years, and then put a heavy part of the total price. In about 10-15 year become free of mortgage… wow! Wait, wait, that’s not good for b-g-c. Banks won’t get so much $$, Gov won’t control so much and CREA won’t get so much commission. So…, scratch it, don’t even think on that.
If everyone had to put 25% as down payment, then the price will come down to where that 25% is reachable for most. Or do you think that bank-gov-crea will make the market to have less buyers-sellers?
Just some thoughts… of course, from someone that doesn’t know much about re.
merry Christmas and a happy and prosperous new year to all. garth , have you any plans to visit st. john’s nl? Thanks
The need for fresh new buyers…
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Cornerstone for all pyramid schemes
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Hey TJ Re: Post #7,
I may not be quite as doom scenerio as you on the Vancouver situation but I agree that a fall is headed and it is going to be a pretty bad storm.
I was at a friend’s house yesterday for a few hours of Xmas day cheer. The crowd included a number of real estate industry types including a developer. I asked about the “rumours of a bubble” and they all laughed.
The usual answers – “We are the best place to live in the world” followed by “those rumours only apply out East” blah, blah, blah. I was looking for what I might be missing in the analysis but the “all is well crowd” doesn’t gaze very deeply.
A March budget announcement such as Garth suggests would be the double Tsunami in Vancouver. There will be a flood of rentals in Vancouver after the Olympics with many places locked up now for the event. Prices will go down at the same time that housing values drop for many investors who require a substantial rent to cover their investments. Interesting.
Hongcouver RE gonna collapse.
…Toronto RE gonna collapse.
Rural Canada RE gonna collapse too.
…All Deserving Canadian Renters being officially retired, gonna be paid $100K income per person, become squatters where they live and also run the new Canadian Govt.
New Political Party in Canada called….”Entitlement Party”.
Sounds fair to me, sound fair to you renters?
Nostradamus jr.
I think we may see 5/30 OR possibly 7/30. This will be seen to be “responsible” while causing less of a ruckus.
Remember, an election is coming.
Garth:
Let’s see, “you are right Garth, very right, history is going to prove you right”.
Let’s see, “Mr. Jim Flaherty” is out to lunch. Completely on a different planet….
Let’s see, too little too late, like putting a bandaide on a severed limb. Nothing to stop the flow.
When the poo hits the fan, and the economy goes for the big dive, and hundreds of thousands start loosing their homes, and the banks say to the poor people who lost their jobs, We got our money from the CHMC, go live in the gutter, we shall see sad times indeed. I say bravo Mr Jim Flaherty, bravo. You have now succeeded in “destroying” the everyday average joe Canadian. Bravo, everyone stand up and cheer for “Mr.Jim Flaherty”…Whoo Hooo.
Garth you are way too optimistic….way too optimistic. The Glass has turned from being half full, it is now half empty.
Well I have an extended family member that just closed a deal on a 50 year old bungalow for $400K here in Edmonton with 5/35. I tried (politely) to suggest she wait for 6 months, maybe longer, but you could see it in her eyes that she was going to have a house…now. She will be relying on the income from a basement suite to make mortgage payments and will be 60ish by the time it is paid off…and the house will be 85 years old. Something is wrong with this market….and the 5/35 is not helping.
I can’t see 10/30 happening, Garth. Maybe 5/30. Maybe. I think it’s too late for this move to have any measurable effect of lowering household debt. In fact, it probably would have the reverse effect of creating the mad rush you describe to buy before the rates take hold.
With the economy pretty much flat, I don’t see anything this bold taking place. I think this is more posturing, just like on the Canadian dollar’s rise.
10 % down? Why don’t they make it a minimum of 20%? Having a mortgage for 90% still allows people to get in the market who shouldn’t be in the market. Given the avg 2 bedroom condo is around 1/2 a million in Vancouver, I can’t imaging carrying a mortgage of $450,000, plus paying condo fees of a minimum of $250 per month and another $100 a month for property taxes. All this and you don’t even own a home!
I saw Flaherty on BNN, trying to take credit for “saving” the economy. What a joke! All Harper has done-aside from showing no leadership at Copenhagen and putting us back a few steps on climate change and embarasing Canada- is spent the surplus money that Martin managed to save. How can anyone spend 12 billion??? I though conservatives were supposed to be fiscally responsible. He’s spent more than any other Prime Minister in history-and he’s a conservative? Canada has been criticized for low productivity and not producing enough value-added goods and services. What does the finance minister do? Sets up a home reno tax credit, which puts trades people to work, but does nothing for white collar workers.
I just don’t understand why the government will implement the 10/30 policy. From the post above I understand why they won’t do it (because of the strong RE lobby), but could you clarify what will force them to put the breaks on RE in Canada, especially in the light of the fact that its the only sector driving the economy right now.
Thanks in advance
Bubbles always end badly. Better to pop it before we have a US-style resolution. Economic growth built on debt is illusory. — Garth
Was talking to my local Credit Union mortgage lender last thursday and discussing rates with him. Was telling him about another Credit Union that had raised their VRM prime from 2.25 to 3.25 last April and no longer handing out Prime +O mortgages but now this same institution is lowering their long term rates by .20. He tells me this is totally opposite of what others are doing. Wondering what they know that others don’t. Anyway, I asked what he thought of Mr. F raising the rates next summer. His thoughts were that he didn’t think they would be raised by a full 1% and that they would be raised gradually. On the other hand he said if he did raise them too drastically that they could always go back to the Prime Minus mortgage. So, it seems that the institutions are not that jacked up on raising interest rates just yet and their seems to be some opposition by them against higher rates. Seems as long as they are making their 1.5 to 2.0 they are content. Was talking to a friend of the family, a young lady in her early 30′s who purchase a home in Vancr about 1.5 years ago for around 800m and at the time were given a prime -2 mortages so now are sitting with a mortgage of .25%, seems quite unbelievable. For certain their bank can’t be happy with that and they are locked in for 5 years and lots of room to play with. It is going to be interesting to see the games that are going to be played with interest rates by the banks in the months to come. I think I may been seeing the beginning of it. Should be interesting.
A 10/30 mortgage would say it clearly: We screwed up.
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10/30 is still too generous – the bare minimum should be a 20% down/25 year amortization mortgage.
When the average person begins to question the reality of the market, we will be near the tipping point. The other day I was wrapping gifts with my sister-in-law and she said that her plan was to put her house on the market (on the island) in the spring and just renting for a while.
I’m no longer looked at strangely when I say me and my spouse are just going to rent for a while…people are seeing the sanity in doing so.
I smell a tipping point.
#13,
In your case, try to put all the savings under your wife’s accounts (include all her earnings) only, use your earning for all the spendings, including her spending. Also put 5K/year into her TFSA account. If you still have money left, spousal RRSP might be good too, if you have room.
Bubbles always end badly. Better to pop it before we have a US-style resolution. Economic growth built on debt is illusory. — Garth
yes , but that implies that we have a government which makes sensible decisions. Historically that has obviously not been the case. Instead the conservatives inflated the bubble. It seems to me that the more likely scenario would be reflate or die, since popping the bubble will harm them politically big time. I hope I am wrong on that one…
#33 Janice,
I agree with you about the tipping point on the west coast. I heard a number of similar conversations at our holiday gatherings.
The Real Estate Industry – which in Vancouver is much more than the directly employed and includes a huge number of citizen speculators – remains mostly locked into the “it is different here” mentality. These are the lambs headed for the slaughter.
‘I can smell the upcoming Harper line against the wind: We’ve had a close call, but avoided the worst due to the government’s economic stewardship.”
Do you think Harper will do anything about his hair?
The changes to CMHC rules can happen before the March budget. Last time Flaherty changed the rules from 0/40 to 5/35 he did it in July 2008.
Let’s take a walk down memory lane….
Deja Vu – Flashback to 2008
Reuters – Canada’s Flaherty: no housing bubble
The Canadian government changed the rules for government-backed mortgages last week to avoid a U.S.-style housing market decline, even though the domestic market remains solid, Finance Minister Jim Flaherty said on Wednesday.
Officials were concerned about a recent trend towards long mortgage amortization periods and low down payments, which prompted the rule changes, Flaherty said in a Calgary speech. “There is no bubble in the Canadian housing sector, that has not been our concern,” he told reporters after the speech. “Our concern has been a tendency for longer amortization period of 40 years and purchasers putting very little money down.”
The changes, due to take effect in October [2008], include ending government-backed mortgages with 40-year amortization periods, and a new requirement that buyers have a minimum down payment of 5 percent.
Jim is singing the same song now. Bears – 10% down 30 year amortization is just around the corner.
Follow on to last post. The changes made in July 2008 were done without the need for a budget. Finance department just instructed CMHC to change the rules.
My bet is for an announcement in late January or February. The recent talk by Flaherty and Carney is just preparing the stage for the announcement.
Just by by making these comments they have put gasoline on the fire. Buyers are reading that the 5% down door may be closing and sales will increase as a result starting in January. They have no choice now but to slam the door and put out the fire.
#8 Alf:
“Garth, in the First & Last post u mentioned that rents are coming down. this might be true in rural areas/small towns.
In the GTA, is this true for individual landlords only or does it apply to properties run by rental mgmt companies?
the mgmt company has sent me a notice of 2% increase from feb. other rental properties in Richmond hill & Mississauga seem to be holding or increasing.”
That’s not correct. My landlord – management company in Mississauga, tried to rise 1.8% this year. They always do. I suggested them to reconsider and they did. Admittedly, I din’t get a deal I hoped for, just no increase, but it has been no increase for fifth year in the row, so I can live with it. Now I see units in my complex posted for 15% lower than I’m paying. Maybe I should’ve stayed on month by month to try to sign around New Year…
Anyway, you can and you should always negotiate and negotiate hard. Especially now. Refusing to sign a year lease is a first step if your landlord doesn’t want to be reasonable. But be ready to move. Usually it’s not a big deal and you’re better off afterwards, though it is sure an inconvenience.
Happy Holidays Garth . . . so sorry to hear about your run-in with Harpy’s foul dwarf
All the best for 2010
Mish Shedlock refers to Canada as in a ‘massive property bubble’:
http://commoditywatch.podbean.com/2009/12/21/predictions-for-2010-number-3-mish-and-dr-bubb/
Interesting reading the economist and business leader responses to Flaherty 10/30 comments on the Canadian Mortgage Trends Blog – Click Here
“The fact that the finance minister is talking about it suggests to me that the government has been seriously looking at ways to cool the housing market without necessarily resorting to interest-rate increases.” – BMO economist Doug Porter
Two-thirds of CEO’s polled by BDO agree that the government should “urge mortgage lenders to tighten up on their terms, requiring significantly higher down payments.”
“We support the minister in reviewing this now to ensure consumers are not taking on more debt than they can handle in a more normalized rate environment.” – Sonia Baxendale, CIBC’s head of Canadian lending operations
“We probably won’t see the housing market cool off for the next several months because people will be rushing out” to buy before mortgage rules change. – TD economist Don Drummond
Just like you in Ottawa Garth, it’s easy for us to pick holes in other peoples ideas (in this case mostly yours).
I thought the real estate market was done last year, but I was wrong. We all were. Because the government has the ability to keep it going. From dead to bubble in 8 months? I don’t think so. But it is in everyone’s interest to keep this market going.
That’s why the government is not going to take drastic measures to cool it. They don’t have to – they have Garth Turner doing it for them.
I find it hard to believe that the harper gang know what they are doing , except for the silence of the opposition . I have written several times to my mp (ndp) with no reply . To make these changes re; 40 , 35′s without modeling the consequences is in a word ( wish I could come up with one that is apt ) evil . If they knew what they were doing … Then what is their end game ? If they don’t know what they are doing then what the hell are bloc ,libs,ndp , greens , and inddy’s doing. The craparty are going to own this mess no matter how it washes out but the way I see it the opposition will also have earned a trip to the wood shed. Was I the only one that was embarrassed by “harpertrolium the tarbaby “at the copenhagen summit ? I hope not. Has he ever run a business ?
Hi Garth,
It is easy to see how 10/30, would curb demand in this market, even if helicopter parents (aka the bank of mom and dad) dig deeper into their piggy banks to provide the offspring a bigger downpayment.
But isn’t 10/30 a trial balloon? Does Jim Flaherty really have the stones to challenge banking interests? I doubt it.
“Garth, in the First & Last post u mentioned that rents are coming down. this might be true in rural areas/small towns.”
I don’t know about the really high end or low end rentals, but I see rents going down in Toronto. My rent is $200 cheaper, than it was five years ago. The thought that my landlord would raise my rent right now is laughable.
what the hell are bloc ,libs,ndp , greens , and inddy’s doing.
Silence of the lamb’s ( lame’s) …. good tittle for a blog.
#21 TOM…..
“How can anyone spend 12 billion??? I though conservatives were supposed to be fiscally responsible. He’s spent more than any other Prime Minister in history-and he’s a conservative? ”
There’s an MP across the aisle called Bob Rae, former Premier of Ontario, who wrote the book on spending 12 billion (that the government didn’t have!!!) and dropped Ontario into the manure tank……..a lesson in history, Tom!
Bob Rae is not a Conservative. I think that was Tom’s point. — Garth
I find it peculiar that there’s been this concern that it may not be in the Government’s best interest to diffuse a housing bubble before an election because it may work against them.
The thing is, if you read all of the housing articles across the board on the G&M, CBC news etc and then go to the Comments sections, you will find that an overwhelming majority of posters will give a Thumbs Up/Agree to the posts that criticize the housing bubble and think that we would all be better off if housing prices crashed back down to ‘normal’ or became affordable again.
I am starting to think it’s a huge misconception that voters want to keep this inflated market going.
I know speaking for myself, I’d vote against a Government that would continue to let this housing bubble grow and would be the first one to vote for a Government willing to diffuse it. And I am supposed to be a prime candidate to want to get into the market right now as a first time, “younger” home buyer. Yet the market is so out of control, that we’ve been officially priced out.
I am still in the hopes that they’ll go above and beyond the 10/30 and go for the 20/25.
20% downpayment, 25 years max.
Pipe dream perhaps, but I don’t want to be 75 years old and still paying off my mortgage.
And right now I am being punished for essentially having saved enough money for a downpayment and refuse to buy a house for 400K that should be selling for 200K.
“Garth Turner,” the finance minister said, “is not running an alternative government.” Several minutes later a snap vote was called, and I was on my way to the showers.
One knows the mind of the man who fires one so the next lines has my attention:
So I mention this as a little warning to those who think he is incapable of turning the ill-conceived 5/35 mortgage game into a much more prudent 10/30 situation.
Tightening the rules would only bring the Minsky moment forward a few years. Even if they go back to 0/40 eventually all the forward demand that can be brought present is satiated and the bottom has to fall out. Even if they go to 0/100 eventually there are no more people who want to own houses.
But for my money, there will be no significant tightening. Our rates are not going up until we have an $0.80 US loonie, unemployment trending down, and a majority government. Unless the US raises of course, but Carney will still lag behind.
The more expedient solution to tightening the mortgage market is to just backstop CMHC the same way the US government is backstopping Fannie, Freddie, FHA, and all the other various programs. It won’t work, but it’s way more popular than tightening standards.
“Good idea — Repent” — Ah have seen da lyte, and here is a swell idea — everyone can repent of their mortgages! Yup, let the BoC (which is us anyway) pick up the tab for whole damn lot, then we live on Easy Street!
#24 Nostradamus jr. — Not overly sure if West and North Van. will bite the bullet — they may decline slightly, but HK, Singapore, Malaysia, etc., have plenty of billionaires who want to park their lolly in different places.
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New currency? — Bullion “The announcement by the United Nations this week that it will license the minting of silver and gold bullion coins bearing the UN logo may be the button that launches metal prices into orbit.”
Webmaster’s Commentary: “… and trash the dollar.” (wrh.com). Economy 1
Recently, Barrick said that gold production was almost finished, so what gives? Where is the new gold coming from? Once this planet runs out of gold, oil or the like — that’s it.
It doesn’t really matter anyway, because of the soon-to-be Ice Age. “Who needs WMDs when you can kill billions by starvation and freezing cold?”
See how easy it is to connect the dots 1. / dots 2. When the AfPak war sinks the US, they will take us down with them.
Add in Flaherty’s / Carney’s / Harper’s non-verbal mixed messages about “Cdns. being more prudent with their money” (HAH! That’s a laugh!), it seems clear the elite are quite happy to let sheeple commit hari-kiri. Saves them from doing the work, no?
Putting these links together is really quite easy. Remember the Swine Flu, and how bad it was? Well, it’s all Diamond Encrusted Fairy Poop! — Swine 1 / 3:24 clip — Swine 2 The main reasons for this are 1) economic; 2) depopulation. To paraphrase Jimi Hendrix: “If I don’t see you here again, I’ll see you on the other side — AND DON’T BE LATE!”
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In case any of you were unaware, the BBC has admitted that al qaeda doesn’t exist. Well, at least telling the truth is a credit to them! 10:12 clip.
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The day wouldn’t be complete without a surreal conspiracy theory!
economic growth built on debt is illusory.
Garth bit to the marrow here….the US was in a 30 year debt bubble built on suburbs and strip malls.
and us Canucks followed them down that path a bit too far .
Garth we all wish for reality and fairness,you were our voice for both…unacceptable i guess in a vote buying care less government with their entire caucus cowering at the feet of one man (pretty much covers all political parties).You stood above the crowd and your opinions would have changed the state our country is in today…that is a fact! So all i can say is i do not blame you for refusing to rub shoulders with such a bunch of pathetic losers–bought and paid for by big corporations…living on our tax dollars.
#13, Jeffrey. You can gift your wife money to invest in her RRSP, and deduct it from your income, basically doubling the amount of RRSP deduction you get in the year.
Boombust @ #37,
since you mention Harper’s hair, I am reminded of Dan Gardner describing Harper as “Richard Nixon on a bad hair day” in one of his Ottawa Citizen columns.
Don’t think Harper will do anything about his hair. He seems to be quite pleased with himself where and the way he is.
Bob Rae is not a Conservative. I think that was Tom’s point. — Garth
That’s why I stated across !!
In fact we’re not sure what Bob Rae is for this coming year…..1st. NDP……next Liberal……for all we know he may have sniffed the wind and feels his chances of becoming Prime Minister would be stronger if he did decided to make another change ???
I know him. Do you? — Garth
Garth,
I appreciate your warnings of dire real estate bubbles and the consequences of falling housing prices. Fact is, you’re wrong and have been wrong for a long time.
I am not a believer that increasing the minimumdown payment to 10 percent is going rock the real estate world. You are forgeting many people have significant cash from the sale of their homes and/or cash from selling their stocks and cash sitting in money market funds.
If you are only referring to those people who can least afford real estate (low down payment individuals) then we need to see a significant and independant report that proves the elimination of this population of buyers significantly reduces real estate prices. I see no evidence of this rumour. In anycase, forcing people to save more money in order to qualify makes it better for all real estate in Canada. The only people that will suffer are those developers who build for the first time buyer. If they stop building the rest of the real estate will be priced at a premium and rents go up as a result of increases in renters versus buyers. Again, the higher end market has its own set of buyers and I see no relevance.
Lastly, I’m old enough to remember 9 percent interest rates and we all paid and survived. Getting a 6% interest rate we were in heaven. It’s all relative.
Best,
Still in Vancouver
Read more carefully. The claim that real estate would be impacted by reducing 95% mortgages comes from the industry itself. As for people sitting on piles of money, you’re not referring first-time buyers who have largely inflated the bubble with gargantuan 2% mortgages. And the last thing that will be going up are rents, as the residue form the bubble ending will be endless condos seeking tenants. I suggest you leave Vancouver for a few days. You’re showing signs of moisture damage. — Garth
Latest Breaking News
Treasury removes cap for Fannie and Freddie aid. The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac. The Quantitative Easing (money printing) will persist to infinity. Any talk of a strong dollar or skyrocketing interest rate hikes is just that, talk. Our government in Canada has followed our big brother to the south lead, but simply change the names of the government entities. CMHC instead of Fanny and Freddie, 5/35 mortgages instead of ACORN and low income interest only loan approvals. To blame this all on coincidence, or claim government has our best interest at heart is naive at best and probably outright lying at worst. To say Bernanke and Carney are smart enough to fix things is downright dangerous to people who use this blog for advice . Allow yourself to think freely and realize there is no such thing as coincidences or accidents in government policy. These people know exactly what they are doing, and the results they are achieving are exactly what they are after. Over extend the middle class of the western world with massive private debt. So when the system collapses we will be willing to accept whatever is forced down our throats. A new reserve currency based on carbon credits, the U.N as the new world government, and a world bank controlled by a group of unelected officials who set and control interest rates and the issuance of money and credit. Until a person accepts these goals as reality, nothing happening in the financial or housing markets makes sense.
#42 Jonathan
If they were true economic bears, they’d say short the stock markets right now.
Take the drug away from the junkie, and he’ll do anything he can to persuade you he doesn’t have a drug problem.
As days go by and the multiple grows of how much I rent my place vs. a 10/30 for a mortgage on the same property (currently at 2.35, and yes, it is Vancouver), it makes me wonder how many sheeple there are left to get sucked into the vortex.
Methinks we’ll find out in the new year, and fast.
- Pensquire
I know him. Do you? — Garth
You told me in one of your former blogs to “stop boasting” !
I now return your advice!
Garth, he’s a politician and you don’t know him in that sense, because he doesn’t know himself, which is the one thing you and I both know about Mr. Rae ( with the exception he could be the Liberals challenger to Harpers piano playing!! )
So you never met him. I see. — Garth
The elephant-in-the-room is that if he doesn’t go 10/30 and shut it down soon, the market will do it for him…probably more brutally. He knows that and the industry know that. Unless there’s some serious denial going on…
Garth – I replied to your question about who you know and who Iknow and it’s not posted!
A problem?
“So you never met him. I see.” — Garth
And I never met Martin, Trudeau, Diefenbaker, Pearson, Ghandi or Jesus Christ and on and on and on ….
I did meet Lord Mountbatten!
So Garth, what do you see?
Into the Sunset:
time to fade off
I’ve been trying to figure out the mechanics of how they would reduce the term from 35 to 30. What happens to the borrower on a one year renewable term who just signed up for a 35 year. On renewal do they have to drop to a 30 year? If that is the case I don’t think Flaherty has the stones to do it.
Would a graduated 10/34, 11/33, 12/32 etc. over successive years be too slow?
Being too lazy to re-read through the posts and your latest article… whoever mentioned that reducing mortgage term reduces afforability is a jack*** of magnificent proporition. Reduced interest rates, longer mortgage insurance terms, smaller (or eliminated) down payments, and limited due diligence have increased house prices and affected affordability.
Oh the perverse consequences of an unbridled sense of entitlement.
It doesnt matter if 5/30 comes into play, the raise in interest rates and boomers running for the exits will be enough to hammer RE bubbled values.
Canadians will be known as the worst RE casualties on the Globe!
And the Big L will be known as the insider! Btw, your theory could be correct, it will just take over a decade to implement and by then something new will change the direction!
We are trying to help the short termers right now bro!
Hah! I just realized why I never stop reading you, even when I am annoyed. You are me, or, is that me that is you?
Some of those … hmm, …, on The Hill make me mourn for Master Fawkes. How did these people like Flaherty, and Harper, and Baird, et al, get to be so creepy?
I guess years of being called “Fatty”, “Shorty” and “Dweeb” leave a stain on the less fortitudinous of us.
How in Helsinki in winter did you sit in the same room with them, for as long as you did, without going all Mac 10?
@ #68 Ginner:
I don’t think that there is a need to stagger the change from 5%/35-yr to 10%/30-yr. When 0%/40-yr dissapeared, there wasn’t any sort of tiered transition.
Also – the main reason to implement this change is to stop NEW mortgages. There isn’t a lot you can do for the existing ones… they would keep the existing terms up until the 5-year renewal, at which point they’d better pray that they have 10% equity and can afford a 30-yr amortization.
At the most, I could see a “grandfathering” approach where those people with 0/40 and 5/35 are allowed to negotiate to keep those same amortizations with their bank… it would be rather ironic if the banks rejected the renewals on these risky mortgages within 5 years of pumping the market full of them.
#67
45 North – “time to fade off”
Now 45 N., when you have earned your spurs to be granted some type of authourization to decide if I should participate in this blog or any other, you still won’t be allowed to censor, due to the contributions myself and a great number of other good people have made to ensure this is the case.
You certainly can make the statement you have made….. due to what I just interated above!
You have to realize this all emenated from my sojourn into the political history of Ontario in answer to how someone could squander $12 billion so easy as asked by another blog participant. Mr. Rae is a prime example.
However, Garth has a sensitive nerve when individuals “he knows” are spotlighted. His neck hairs bristle and he must ask in a sarcastic manner “Do you know him”? The question is irrelevant.
The main point is Mr. Rae well knows how to spend the taxpayer’s money accomplishing nought!
The answer was only to Tom’s question, and has provided a great deal of enjoyment in the thrust and perrie revolving around Garth’s insistence that unless you personally know someone like Mr. Rae you had better not say anything about him.
Garth, tell the folks why he is so special and why not give the ignorant to the political facts of Mr. Rae why he could be called on by any government for consultative advice contemplating more defecit spending.
By the way good sarcasm ! I would count that as a thrust!!
Garth…..I really enjoy your blog and I say that not as a perrie!
“In the GTA, is this true for individual landlords only or does it apply to properties run by rental mgmt companies?
the mgmt company has sent me a notice of 2% increase from feb. other rental properties in Richmond hill & Mississauga seem to be holding or increasing. ”
It is a bluff. We have owned real estate since early 90′s. We sold in Jan of this year.We now rent. We took a 6 month lease even though the management co. was against it, they did it. After the 6 months they sent me an urgent notice to come to the office. I went because I thought I was getting a rent reduction since I had been threatening to leave since our lease was up, so were vacancy rates.
In Alberta they must give you 3 months notice of rental increase. When I went to the office this is what they gave me, a rental increase notice with the increase scratched out saying the manager was new and they would not be raising, but please sign here. They wanted me to feel relief since they were not “raising” the rent. I said if you are not raising the rent then no need to sign this 1 year lease is there? I said I wanted a rental reduction and here is a list of rentals and rates for similar units in our area and there are alot (reluctant landlords not included). They said rental rates never go down. I said ok and left.
A week later I got another letter from the area manager saying they would give me a 6% reduction but could not do a full 12% as his would be “irresponsible”. They said they do not typically give reductions to past “sales”. Had I been in front of her I would have reminded her there was no sale and we were cash flow to them. If I rent a car for $100/day from company A, and company B across the street is renting for $50/day, I simply return the car to A and goto B. Of course she knows this though but was hoping the ploy would work with me as it did with others I saw coming into the office and signing the 1 year lease renewals with the “non” increase in rent…..These tennants were relieved….lol
The bottom line is it is a game. They know the market too and will do everything they can to make it “appear” the way they want to take advantage of those with the inability to think. And it works.
I wait for my next renewal letter to see if they drop it again. If they don’t, we are fully prepared to move.