Shopping for a mortgage? Get it before March 29th. Word has it that’s the day F commits bubblicide. The federal budget will also irritate civil servants (layoffs in all departments will flow), piss off seniors (OAS starting to look DOA) and give us a mythical balanced-budget date, just slightly past the next election. Machiavellian.
In fact, if you pat the little guy on the head (as I’ve done several times), you can actually feel the horns.
Beyond the GTA, the housing market is already deflating fast. In Vancouver, for example, listings are running 20% ahead of last year while sales sag by the same amount. Richmond’s sinking. Condos have turned turgid and illiquid. But the real news is what’s being heard on the street.
“People now think it’s a bubble,” our well-connected realtor source reports, “and so they are hesitant to buy. The main change now is that people actually think this is over and the only ones here buying are the few remaining Chinese and those who just can’t avoid a transaction (or whose fortunes do not depend on it). Looking forward to the month-end stats – they will be brutal with (again) only 2009 being worse in the past decade.”
It is impossible to underestimate the impact of a housing implosion in Van on the rest of the country, and especially all of Western Canada. As I have said often, this is ground zero, where the market’s been held together by vapours, myths and emotions. When it blows, the spray will be on everyone’s pants.
This is what happens when markets turn. Like gold yesterday, plunging $100 an ounce in minutes. With real estate, people want rising assets and flock to get them – engaging in bidding wars or standing in the cold all night in front of a sales trailer and peeing into a Pepsi can. But when the herd sniffs that prices may have peaked and could decline, buyers suddenly evaporate. After all, why spend money on a condo today which will cost less in July? Sales drop, inventory builds up, then prices wilt. It’s always the same pattern.
But back to F. He’s about to make it hurt more.
The buzz is the budget (or a prior announcement) will do a few things: Ban the 30-year mortgage, dropping the maximum insurable amortization period to 25. The result will be higher mortgage payments, and more disappointed virgins. He’s also rumoured about to end stated-income mortgages, those ‘liar loans’ the banks hand out to self-employed and commissioned people.
But of most significance could be guidelines telling the banks not to loan to anybody unless they have the income to support that mortgage. Right now a rich Chinese guy (just saying) can show up with a fat deposit and get a mortgage for 50% of the property value with the same effort as ordering a Happy Meal. Or an unemployed homeowner in Leaside can score a HELOC for $500,000 on an appraised value of $1 million, regardless of earned income.
But what if mortgages and HELOCs were only handed out to those with the proven ability to service that debt? No river of cash flow, no loan. No verifiable Canadian income? No financing. And an end to the banks’ ability to make such low-ratio loans, drizzle on some CHMC insurance, then securitize the suckers as covered bonds.
The result: A 7.3 magnitude quake in delusional VanCity, and an effective way to stick a cork in the credit gusher without raising interest rates.
On another topic, there was some talk here days ago of American real estate, particularly Texas. One of our regular blog dogs has been on the road, house-hunting in Houston. Here’s his report:
We have viewed about 20 houses so far, most of them not very good and a few we have put into our “maybe” pile. The issue in Houston (as we see it) isn’t the upfront cost of the home, in fact, it’s pretty cheap vs Canadian real estate, it’s the property tax, which for a $200k home can be $7000 a year, yes, it’s 5x property tax vs. Calgary! Although you can deduct mortgage interest and property tax off your total income and pay 0% state tax, the total US total income tax is still around 30ish% even with the 0% Texas discount, and the US taxes you on your Canadian RRSP earnings apparently too.
The homes down here are about 30 years behind Canada in building standards, in fact, it wasn’t until 2005 they started using double pane windows and insulation! It’s very, very common to find homes with single pane, aluminum frame windows, old kitchen cabinets adorned with new granite and old appliances with 19+ year old roofs… and this is in the nice areas of Houston! With electricity bills in to the $300+ a month just for AC, square footage really matters to keep costs down, but even a “starter home” here is a 1700sq/ft bungalow! We are looking in the 1958-1980′s areas.
Weather is pretty amazing, it’s 26°C today, clear and sunny. Roads are insane (like the I-10 which is 26 lanes wide!) and no public transit in the city to speak of.
According to our realtors, 55% of Houston RENT, only 45% own a home. Sales are increasing slowly and sellers are starting to list (as they newspapers said it was a good time to do that now). They say prices have been very flat (2% yoy increase since 2000) but areas we have seen have gone down 20-25% so that’s most likely “select areas”. So far we have had a hard time finding the right cared for home at the right price. Even with house prices so low vs. Canada, no one wants to pay $32,000 in property tax a year
Finally, I need some advice. Sue this guy? Or hire him?