If you’re thinking about a 30-year mortgage, think fast. Our elfin but brutish finance minister is about to murder it. Maybe within days. Of course, let’s enjoy the irony. It was F, after all (as I detailed on this wretched blog yesterday) who invented the 40-year amortization, just so renters could become owners but without all that useless financial freedom and mobility.
Backpedaling on that and 0% down, as housing markets turned into casinos, he banned the four-decade-long loan, then later crushed the 35-year replacement, and now appears ready to squish the thirty-year mortgage down into a 25. So, if the announcement I’m hearing is scheduled for the next few days actually takes place, mortgage payments for all those property virgins will rise. In order to qualify for CMHC insurance (because they don’t have enough money to buy a Fiat, let alone a house), they’ll have to agree to the shorter am period. This saves them money over decades, but for most young couples long-term planning is later the same day.
The change probably won’t come in the Spring budget that hollows-out old age pensions and slashes government spending (how much good news can a nation take?), but as a quickie dump delivered via an Ottawa presser. And it will happen before the feds figure the Spring housing market commences, which was a couple of weeks ago.
But will there be more draconian measures to prevent bubbly Toronto, Vancouver and Skatch from turning into (shudder) Kelowna? Does F even understand what’s happening on the ground? That it may be too late?
Maybe I should send him some of my emails. Like this, from Jon:
Garth, I’m a transplant from Seattle, and have seen this whole thing go down before. It’s honestly a bit surreal watching this.
We’ve been wanting to get out of our condo in Abbotsford but with a new baby and job changes it’s been hard to get all our ducks in a row. Our neighbor just put their condo on the market and we’ve been eagerly awaiting the results. The realtor told them it’s one of the nicer units in Abby and should get good traffic. They had a two day open house this weekend and not a single person came. After the open house #fail the realtor told them nothing is moving in town and they are trying to get people to drop their prices to get the market moving, in their case from $225k to $210k. With rates this low it is clear what is happening, and I saw this happen in the States; the market is tapped out. Everyone who could have afforded to be in is in and now there is an oversupply or people priced out. Not even the low rates can lure the last few suckers.
It’s a valid point. In a country where 70% of families already own houses, where you don’t need money to buy real estate and where borrowed funds cost the same as inflation, this leaves only the destitute, social outcasts, criminally insane, the permanent underclass, the incarcerated and Greater Fool blog readers. So the higher home values trickle in major urban areas like Calgary and Montreal, the more devastating will be the trip back down.
However, F doesn’t listen to the likes of Jon. And you know what the minister said about me the day Mr. Harper’s loyal followers threw my butt out of the caucus room. “Garth Turner does not lead an alternative government,” he thundered into the microphone behind those closed doors. Which is a damn good thing. We’d be too busy with bikes, babes and balanced portfolios to care much where we lived.
No, F listens to mainstream economists, most of whom work for major banks. Like Doug Porter, of BMO Capital Markets, who said this week that outside of 416 and 604, “there’s really little evidence whatsoever that the market has gotten ahead of itself.” In fact, in a survey of 14 establishment econs done for Reuters, a majority say real estate prices will flatline in 2012, maybe decline 5% next year, then recover.
“There is some genuine concern that the housing market and households have been overstretched,” said Mazen Issa, economist at TD Securities. “But in the absence of several triggers for a housing market decline, which are not likely to be forthcoming until at least the middle of next year, the underlying theme is of gradual moderation.”
Could this be so? The crash that didn’t? Or is this the message that a worried financial and political structure needs the masses to digest? With almost a third of the country’s GDP now tied directly to the housing industry, is it an exercise in damage control? Or have the numbed psychopaths on this blog been drinking the Amazons’ bathwater again?
Time will tell. But I’m sticking with my views. And if you disagree, go buy a condo in Abby.
Now, just to make me feel better, here’s this.
I recently discovered your blog. Perhaps a month ago. I bought your most recent book. I am now one of your addicts. I need my daily fix. Born and bred in Scotland, the land of the frugal, I made a career in the oil and gas industry, moving from country to country, and finally landed in Canada where I decided to stay. I got out of oil and into property. That was a decade ago and I have designed and built high end recreational houses since — because I enjoy it.
It did fairly well, albeit that the property boom made average talent provide good returns. So now I sit on waterfront property on Salt Spring Island and wonder what to do next.
Your blog tells me everything I don’t want to hear, don’t want to know, but know deep down is right. I hate that. Every bone in my body wants to invest more in property. Why? When all the facts confirm that I rode a lucky boom and I should smile and move on.
So, as part of my therapy, I read your blog daily. The humour would be worth it even if the information and advice was crap. But I know you are right…..