Guess what?

Do you have a HELOC? Millions do. In fact one of every two dollars Canadians borrowed last year came as part of a home equity line of credit.

No wonder. These things turn your house into a bank. After most people (well, 70% of them) decided to stuff big amounts of their net worth into real estate, this was the next logical thing to happen. HELOC horniness. If you toil in a Home Depot, make granite or cement countertops or import Japanese toilets that squirt hot water on parts of your body you’ve never met, you should worship these suckers. But maybe not for long.

The reason? F and the peckerettes are at it again.

HELOCs scare these guys. They’re terrified you can walk into any bank and walk out with a secured line of credit representing up to 80% of the value of your home, and get it at prime – currently just 3%. This means every time house prices go up, there’s another little pot of paper equity which can be turned into real cash with a HELOC. There’s that new kitchen. The deck with a hot tub which can hold up to eight full-sized Amazons. The media room with speakers that melt heads.

And this is exactly what people have been doing – borrowing their buns off.

HELOCs have exploded 170% in the last decade, and the big banks now have almost $190 billion in outstanding home equity lines of credit on their books. It’s a massive part of the debt binge we keep hearing about, mostly because they’re so easy to get and cheap to own. HELOCs, you see, are not amortized – there is no decades-long term for interest calculation on which blended payments are based.

In fact, you can make interest-only payments for as long as you want, which means the cost of a $200,000 HELOC is a mere $500 a month. And if you use the money for a really smart investment, like buying a condo on which you will lose money every month, the interest is even tax-deductible.

In fact, home equity lines of credit have played a major role in setting us up for the coming condo implosion. This is exactly where an army of investment geniuses are getting the 20% they need to make Brad Lamb throb. After all, I hear you can buy a condo in downtown Toronto with $59,000 down and make 282% on your money! Hey, hon, let’s get three!

Enter the peckerettes.

Weeks ago the bank cop, OSFI, floated the idea that letting people drain off 80% of their equity to rack up more debt was  insane. With real estate values at historic highs and mortgages at generational lows, the risk of a market correction was obvious. And look what similar behaviour brought in the United States. When people started ‘spending the equity’ that a crazy rising housing market brought by turning their homes into ATMs, well, it was time to stick a fork in. The middle class was done.

Now it looks like the feds will be acting. Soon the maximum amount people will be able to suck out with a HELOC will be 65%, and those folks with an outstanding loan for a higher LTV (loan-to-value) amount might be forced to amortize them.

This has brought howls of anguish from mortgage brokers. This comment was published in the evil trade mag, Canadian Mortgage Trends:

“Wow !! I’m flabbergasted at these knee jerk reactions of the federal government and the OSFI that are forced upon the banks. I honestly don’t think that Flaherty and his ¨Thinktank¨ in Ottawa have fully assessed the ramifications of these regulation changes. Most Canadians are in a ¨House rich, cash poor¨ situation. Where will people get their cash to pay for :renos, tuition, investments ?? If the govt doesn’t want a major part of the Canadian population to become a burden of the state in their old days, they shouldn’t cut off the valve on one of the few remaining cashable assets that Canadians have !!”

Will this have an impact? Probably so. After all, 15% of $183 billion in outstanding HELOCs is $27 billion, which represents one hell of a lot of vibrating Japanese toilets. And this home equity thing is just one aspect of the new OSFI regime. As I have been warning you since March, if the full reforms come into play, borrowers will face far more scrutiny about their personal finances, properties will be appraised more conservatively, homeowners will have to requalify for mortgage renewals and banks will be banned from handing out down payments.

See what a mess we’ve gotten ourselves into? I just wrote a whole damn post about equity lines of credit.

I am so ashamed.

221 comments ↓

#1 shanks on 05.30.12 at 10:11 pm

fu fu fu fist!

#2 furst on 05.30.12 at 10:12 pm

Won’t post FURST!!!!!

#3 MarcFromOttawa on 05.30.12 at 10:12 pm

Don’t read what’s next Garth:

FIIIIRST!

#4 CP on 05.30.12 at 10:14 pm

F and the peckerettes… sounds like a Motown group

#5 50% correction predictor on 05.30.12 at 10:14 pm

Why? No one is around here?

#6 randman on 05.30.12 at 10:14 pm

We are doomed!

“OTHER VISIBLE SIGNS OF A TOP

The construction of the Empire State building began right after the crash in 1929. If you believe in coincidences, two of the tallest buildings (one in the US, the One World Trade Center and the other in Toronto, the tallest residential building in the world were both recently completed. Both Manhattan and Canadian real estate (especially Toronto) are still near their real estate bubble peaks. GET OUT WHILE THE GETTING IS STILL GOOD.

SPECIAL WARNING TO MY CANADIAN FRIENDS

“Get out of all your speculative real estate holdings, while you can. The old adage that when the US catches a cold, Canada catches pneumonia still holds true. Canada cannot possibly continue to prosper with both the USA and Europe heading first into recession and then depression. At least the Canadian Banks are still sound.”

http://www.gold-eagle.com/editorials_12/baltin052912.html

Oh yeah…first!

#7 vinny on 05.30.12 at 10:15 pm

Is HELOC guarantee by CMHC?

#8 T.O. Bubble Boy on 05.30.12 at 10:16 pm

Sounds like the undoing of the “Economic Action Plan”… will a 2% GST hike be next?

Someone call Marty McFly and Doc and tell them the Delorean is missing – we’re heading back to 2005!

#9 Bob on 05.30.12 at 10:16 pm

first

#10 Can it be? on 05.30.12 at 10:17 pm

Loving the post as per usual.

#11 TaxHaven on 05.30.12 at 10:19 pm

It’s all utterly dependent on Canadians staying employed, and it all “works” until they lose their jobs…

Coming soon.

#12 Smoking Man on 05.30.12 at 10:19 pm

Garth,

OSFI will not act until after the next eliction. The game is rigged.

GTA will climb another 30% before you see any of these types of regulations.

This is a sober assessment of the facts by a trained student of the machine.

#13 Sebee on 05.30.12 at 10:20 pm

Those Japanese toilet seats are magical indeed. Everyone should have one. Worth 183B in HELOC anyday. Someone has to help pull Japanese economy out of the gutter.

#14 Chris on 05.30.12 at 10:20 pm

Garth, some blog dawgs have suggested OSFI reforms will be stonewalled by politicians/lobbies, or at least watered-down to irrelevance. Are you saying there’s a good chance today’s proposals will be adopted come year-end?

#15 Smoking Man on 05.30.12 at 10:21 pm

Fitting In

Fitting in is the most self destructive characteristic a human can have. It is the absolute sign of weakness in any Man. It’s why we have a housing bubble, it’s why people compromise their convictions and do what ever it takes to fit in no matter how much down the road pain it will deliver

The elite, they privately agree with all my ideas on how to fix this world. Yet in the company of their peers, they dare not bring them forward with an audience of their kind.They wanted me to do it. f-em they don’t pay me enough.

What is their kind anyway , they eat, they shit and get the occasional runs. The Track 6ers give them so much respect, which they dwell on, it gives them a irresistible feeling of supremacy,

They get this mojo not by the belief in ones own abilities , but by the Track 6ers licking their feet.

Fitting in starts in kindergarten and is rewarded handsomely all the way to the day you get to put our obidiance certificate in a frame.

Until the people who line up on track six say, screw this, then cross the track to 5 and shout out. I am special I count, I am worth something, their diminishing life style and standard of living will keep drooping.

Next time you give your kid an apple to take to the teacher, put a razor in it.

The machine does not want kids today making a survivability rate of pay, yet they are the future tax base to pay for medicine, F35′s, fund pensions and social programs. Something is going to give.

Hell is coming, learn to lie, cheat, steel, and sell. You are running out of time.

#16 Wolfenstein on 05.30.12 at 10:22 pm

Where can we send letters/emails of support for these Fed actions? The industry lobby must be going crazy and citizen input may provide them with a counterpoint perspective.

#17 timbo on 05.30.12 at 10:24 pm

love the post today Garth, keep it up……

#18 mid-Ontario on 05.30.12 at 10:24 pm

Changing the rules will affect those in the future more than the lucky dogs who managed to get into debt up to their armpits already.
$200,000 for $500 per month brings a lot of happiness that our parents could only have dreamed about.
When the gravy train crashes, it is understood that there will be a full government rescue team there to help out. Tis only fair. In the interim, enjoy life, you only go around once.

#19 Lost cash on 05.30.12 at 10:24 pm

I’m first today

#20 Seven Stars and Orion on 05.30.12 at 10:24 pm

Jeez Garth,
Such a late post I was starting to think the zombie apocalypse had reached your bunker.
Um, it hasn’t, right?

It’s Spring. I was sowing oats. — Garth

#21 Dontcallmeshirley on 05.30.12 at 10:25 pm

Of course the broker lobby is anguished. If your $27 billion number is right, broker commission (say 0.005%) is $135 million which won’t be there at next renewal. Ouch!

You hear the new one about Canadian covered bonds being sold in the US? Royal has started paving a path. The banks need a funding source to replace what Bill C38 takes away from them here.

Personally, i don’t think they’ll find much interest because the underlying mortgages still aren’t insured.

#22 Soylent Green is People on 05.30.12 at 10:26 pm

Dave Thomas to Stephen Harper: Take off eh!!

Go tell it on the mountains, Dave! Save us from the bird-eyed freak! COO-ROO-COO-COO-COO-ROO-COO-COO!

http://wholebuffaloreview.tumblr.com/post/24080006857/dave-thomas-harper-is-probably-the-worst-thing-thats

…………………………………….

At 1: 35: 30 into the interview, host Ken Plume says, “You can’t even say the grass is always greener, because Canada’s had a Conservative Government.”

Thomas responds, “Oh, yeah. Canada’s just such an absolute suck-up to America. This guy that’s in there right now, Harper, is probably the worst thing that’s ever happened to Canada.

And where Canada had a definition and an identity at one time, with people like Pierre Elliott Trudeau, now it’s just like you’ve got this bird-eyed freak running the country – that’s just – he was in Bush’s pocket, he’s in the pockets of big business. He is the most insidiously conservative – eroding the liberties of Canadians at such an incredible rate that it would make Americans go to their cellars and get their muskets and start shooting. It’s unbelievable.”

Listen to the clip here:

http://thewhimsiad.ca/wp-content/uploads/2012/05/Dave-Thomas-A-Bit-of-Chat.mp3

.
.
.
.

.

#23 Just Say No on 05.30.12 at 10:27 pm

HELOC interest only explains so much…that is the new car etc…..what about when the time comes to pay it back? Maybe not in this lifetime. Are these the last of the best times we will ever see?

#24 T.O. Bubble Boy on 05.30.12 at 10:29 pm

On a separate note — hopefully people weren’t taking their HELOC dollars and investing in RIM.

#25 Smoking Man on 05.30.12 at 10:30 pm

#12 is a fake

#26 Smoking Man on 05.30.12 at 10:38 pm

Ahhhh, ya…what you posted.

Yeah, fake. — Garth

#27 East Van on 05.30.12 at 10:39 pm

The CONs know we are in the midst of a Japan-like lost decade (or century). Interst rates will not be going to “normal” levels for a very very long time. Uncertainty in the global financial markets, low consumer demand and confidence, high unemployment (especially among the youth), low growth, social unrest, disasterous climate change, and wars fought for dwindling natural resources – these are the the new “normal” conditions in the world.

This will not end well.

#28 Stupesing in Cabbagetown on 05.30.12 at 10:39 pm

#7 vinny on 05.30.12 at 10:15 pm – Is HELOC guarantee by CMHC?

It was but I believe that was changed in March of last year. So, the tax payer is on the hook for all those vacations, renovations, large screen TVs, motorboats and other status symbols purchased with debt in previous years. Fair, eh?

#29 ydnew on 05.30.12 at 10:39 pm

You know that the bubble is about to burst when Costco gets into the buy versus rent discussion. It is under “Dialogue”:

http://www.costcoconnection.ca/connectioncaeng/20120506#pg16

#30 ydnew on 05.30.12 at 10:42 pm

Another sign that the bubble is about to burst?:

http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/what-to-do-with-the-money-from-selling-your-home/article2447832/

#31 Calcanadian64 on 05.30.12 at 10:46 pm

Ahhh I remember these days… (As I sit on my rented homes front porch rocker with well worn corn cob pipe)

I witnessed this first hand here in Calipornia…
A time when Mortgage ATM vampires gathered in great numbers, sucking the the last of the equity lifeblood from their suburban micromanions. It was the last chance to purchase “necessities” like 5 series beemers, 5 star Palm Springs time shares, and wife-breast’s so firm you could chip a tooth on them. Then… it crashed. BMW salesmen were no longer packing their dockers with 1970′s gym socks, as it just didn’t matter any more. 43 year old buck tooth flat chested school girls stayed, 43 year old buck tooth flat chested school girls. The palm springs Hilton “Lazy River Pool” was less than 18 % urine… a number so low, wall street insiders bellowed “GO SHORT ON HLT”. This was then end. This was the end my friend.

#32 Retired Boomer - WI on 05.30.12 at 10:49 pm

Ahhh…well. ’bout time the government told people without money where to get off. I certainly wish ours would have before we taxpayer’s had to Bail out an insolvent Banking system. We still have nearly 950 Banks on the official problem list. Wait til yours hit the fan, they have even less reserves than ours did.

Good Luck with that and the bull-teeky CHMC and the Taxpayers are so SCREWED!!!

And you thought Equities in the market, or preferreds were a bad bet? Eat your house, now.

#33 Junius on 05.30.12 at 10:50 pm

Great post Garth. HELOCs are considered a fundamental right in Vancouver. We are the HELOC capital of Canada. If you listen to talk sports radio (like me) you will notice that HELOC ads are non stop all day.

What is interesting is the way the ads have changed. Last year and 2010 it was very high octane testosterone. Tag lines like “we will lend you money even if your mommy won’t” and my favorite which is an “Apocalypse Now” Wagner infused ad with the line “I love the smell of YES in the morning”. Robert Duvall would be proud.

This will end badly.

#34 Lost cash on 05.30.12 at 10:51 pm

Don’t invest in a house is the advise here! With the stock market falling apart where the heck should I put my cash? I’ve hired an advisor and his stratagy has cos me almost 5 percent loss in just 2 months. World is an uncertain place.

If you fret about ‘losing’ portfolio value during a market correction you should not be an investor. — Garth

#35 dave on 05.30.12 at 10:52 pm

relax folks. the osfi rules DO NOT apply to insured mortgages, and the requalification guidance for conventional mortgages is very very vague in terms of how it will be applied. there is nothing in the osfi doc that explicitly says that you will be rerisked and could be denied at renewal. it is much more vague than that.

Why not just read this and stop guessing? — Garth

#36 Shane on 05.30.12 at 10:52 pm

#1, #2, #3, #9 and #19; GET A LIFE!!!! Stop wasting my time!

#37 JSS on 05.30.12 at 10:57 pm

Some are using their HELOC to purchase a diversified portfolio of stocks, bonds, etf’s, preferreds, etc.

And some are buying boats and babes. — Garth

#38 MediaBuff on 05.30.12 at 11:01 pm

What is so wrong about 80% HELOCs? They sure beat a 95%+ regular mortgage.

The difference between a HELOC and a regular, open mortgage is repayment and loan options are more flexible and incremental. This is good for consumers that desire the flexibility, and they pay a price for that (higher interest rate). When you startup or run a business, it is easily the least expensive way to capitalize or maintain a float.

#39 shanks on 05.30.12 at 11:04 pm

#36 Shane
did i do it right?

#40 Walter Safety on 05.30.12 at 11:05 pm

You mean homeowners can act like CEO’s and make useless acquisitions with their equity? I didn’t know .

#41 Observor on 05.30.12 at 11:11 pm

GET TWO HELOC’s

Use one to pay the other, the bank’s computers don’t care.

Or withdraw $500 cash on your HELOC and then stick it back in the machine. The bank’s computers count that as a payment.

Debt repayment has become a sham where many payments are borrowed.

Rock on…

#42 ydnew on 05.30.12 at 11:11 pm

Re #29

This should read that the discussion is under “Debate”

#43 Bo Xilai on 05.30.12 at 11:12 pm

It’s ironic… mortgage brokers extol the virtues of Canada’s “conservative” mortgage policies and solid financial system, while at the same time spewing vitriol over policies to ensure the stability of that same mortgage market.

#44 Observor on 05.30.12 at 11:12 pm

Number 13 Sebee said:

“Those Japanese toilet seats are magical indeed. Everyone should have one. Worth 183B in HELOC anyday. Someone has to help pull Japanese economy out of the gutter.”

That would be out of the toilet, I believe…

#45 Smoking mans smarter coousin on 05.30.12 at 11:18 pm

Yeah..CrowdedElevatorFartz.

All you can eat Mexican Food….with your Heloc….

PS I”ll hold down BPOE.

#46 Mr Buyer on 05.30.12 at 11:19 pm

#12 Smoking Man on 05.30.12 at 10:19 pm
Garth,

OSFI will not act until after the next eliction. The game is rigged.

GTA will climb another 30% before you see any of these types of regulations.

This is a sober assessment of the facts by a trained student of the machine.
………………………………………………………………
I will not openly deride your forecast as I still have egg on my face from the red hot TO spring prediction as you based that upon increased job numbers. While your rational was suspect your prediction was pretty much right on the numbers. We have a much different environment going forward with an obvious top having been reached but I will bite my tongue. I can safely assert that this thing left to run its course will end in a CRASH regardless of who does what and when at this point. As a true gambler you put your money where your mouth is in a sense by quantifying your assertion with the predition of a 30% increase yet to come (30% of what I am not sure but I will not be a stickler for details). I am pretty sure you yourself know that the end is near (most gamblers have a pretty good idea when they have pushed things or are pushing things a little too far). The feds have talked up a ton of things and done nothing and each little panic served to further inflate the bubble (buy now, buy now before…). We have falling sales across Canada. BUYER BEWARE. NOW IS NOT THE TIME TO BUY A HOUSE. THE BUBBLE HAS TOPPED AND EVEN SMOKING MAN CAN HEAR THE FAT LADY WARMING UP (he is just trying to get his last beer at last call).

#47 eddy on 05.30.12 at 11:20 pm

everyone should have a heloc set up, even if you dont need it now. when you do need it it’s handy to access large amounts without having to talk to a banker. if you have no mortgage it acts as a kind of fraud buffer- because it’s in place an identity thief cant register a fraudulent mortgage on your house

#48 martin on 05.30.12 at 11:21 pm

If you fret about ‘losing’ portfolio value during a market correction you should not be an investor. — Garth

it takes a year to gain 5% and hence you can loose it within a month.

No sale, no loss. But if you lack the confidence, stay home. — Garth

#49 martin on 05.30.12 at 11:23 pm

i think this is the opportunity that garth has been forecasting for a little while.

#50 Mr Buyer on 05.30.12 at 11:29 pm

If #12 SMOKING MAN is a fake then disreguard my rebuttal

#51 PoorgEoisie on 05.30.12 at 11:30 pm

Talked to a GO transit buddy of mine, when there is a platform on both sides they open one side first to let people off and then the other side to let people on. The screens inside union tell people to go to the side that will cause less people to collide and make for a quick departure.
It’s kinda like how the 401 has an eastbound and a westbound side. Next long weekend when I head to Ottawa instead of crawling eastward from TO to Oshawa, I’ll hop on the westbound and blow by those stupid east bounders. Maybe one day they’ll wake up and join me. But what happens when they do? That’s right: we become England. Is that what you want? Well sir I enjoy pronouncing the letter H and I sure as hell ain’t gonna stop calling it an elevator

#52 Stop the insanity on 05.30.12 at 11:33 pm

#33 Shane,

you forgot #6! The forum host should NOT publish any comments that contain these inane references as he promised. That would put an end to this stupidity once and for all ….

#53 Balmuto on 05.30.12 at 11:34 pm

Great post, Garth, but a little disappointed that you did not highlight the fact that the LTV calcs on HELOCs are pure fiction to begin with. This makes matters worse – noone is scrutinizing the “generous” appraisal values banks are using to calculate HELOC LTVs. OSFI is not stupid, I’m sure they know what’s going on – they probably figure that it’s easier just to lower the LTV ratios than it is to contest bank appraisals directly. But it’s all a sham, make no mistake – the reported “LTVs” aren’t the real LTVs, they’re much worse than that.

#54 Devore on 05.30.12 at 11:37 pm

Enter the peckerettes.

Weeks ago the bank cop, OSFI, floated the idea that letting people drain off 80% of their equity to rack up more debt was insane.

Even earlier last year, the head pecker himself went on national TV to tell us about the evils of asset-based lending. That it is unsustainable. And not something to base an economy on. And when asset values deflate, as they always do, the debt remains.

#55 Cory on 05.30.12 at 11:45 pm

“IF” they bring in the new rules……I highly doubt they will do it.

#56 daystar on 05.30.12 at 11:48 pm

#21 Dontcallmeshirley on 05.30.12 at 10:25 pm

I wouldn’t be so sure about that. Whatever elevated risk gets priced in not only with higher rates but through derivatives.

http://en.wikipedia.org/wiki/Derivative_(finance)

I haven’t done the math yet and its premature to say (trying to spark a conversation here with those in the know if there are any), but derivatives would be where the real money is made particularly with derivatives on currency, interest rates and CDS’s on covered bonds themselves. (btw, MBS’s are defined as a derivative even if we don’t say so):

http://financial-dictionary.thefreedictionary.com/Derivative

In short, if derivatives provide more leverage and more profit potential (like literally betting on MBS’s to fail, one way of shorting the housing market) then why wouldn’t the investor do so through derivatives on covered bonds?

Bear with me. Lets say you see Canadian gross public debt as high (because it is, its currently in the high 80′s) and a potential currency risk (a loonie at par falling to the low 90′s would do the trick, not hard to imagine) that can quickly elevate gross public debt to GDP in the high 90′s forcing Mark Carney to do what he has to do in order to attract bond investors to continue to buy our debt… which is bumping up interest rates. There are at least 3 derivative plays involved: 1) Profit on a currency derivative leading to profit potential on 2) an interest rate derivative play leading to profit potential on 3) Credit Default swaps on MBS’s. Its tic tac toe, easy as 123 but over a realistic 3 to 5 to 7 year timeline.

Like I say, I haven’t worked out the numbers yet or which institutions to go through in order to capitalize on shorting a housing bubble (not just in Canada but anywhere) through derivatives and my line of thinking is premature but I’ll voice what I’m thinking or speculating presently for some feedback.

The political imlications are that if the profit margins on noted derivatives are substantial, it points to the motive of why the Harper government engineered a housing bubble in Canada in the first place. First you gain power through the wealth effect of the bubble itself, gaining the support of financials, media and insurance to crown a majority government and then you engineer the RE/credit bubble’s collapse to fill the pockets of derivative investors shorting the housing market unless… there is derivative reform.

If there isn’t reform (because derivatives have been known to form bubbles overnight), one would again have to question the competance if not outright corruption within our current government for not introducing reform with specific derivatives in Canada in the area of MBS’s and CDS’s through a housing/credit bubbel that they themselves engineered and if my suspicions are correct and it all points to one man and a few major supporters… but its early in the game and pure speculation at this point.

It should go without saying that the truth holds high value not just from an investors perspective (how many of us have asked on this blog how to short the housing market? There some pent up demand here) or real estate perspective (from valuations to interest rates and potential mortgage defaults) but from a political perspective for obvious reasons. Corruption/incompetance isn’t cool and if revealed mainstream is known to topple kings.

Feedback anyone?

#57 Gun Boat denier on 05.30.12 at 11:55 pm

“Why not just read this and stop guessing? — Garth”

I have, and in support of Dave@35, that document is so full of “shoulds” it’s almost meaningless. What we wind up with will be very watered down and vague.

#58 Gun Boat denier on 05.30.12 at 11:59 pm

56 Daystar – is that positive (de-stabilizing) or negative
(stabilizing) feedback?

#59 Stupesing in Cabbagetown on 05.31.12 at 12:03 am

Here’s a particularly illogical piece from Canadian Business: http://www.canadianbusiness.com/blog/investing/85885–when-will-housing-armageddon-arrive . I used to like to read Larry MacDonald but he has really started to crank out some nonsense lately.

#60 Inglorious Investor on 05.31.12 at 12:07 am

It’s quite disturbing to see how mainstream HELOCs have become. Canadians are making all the same dumb debt mistakes that Americans were laughed at for making just a few years ago. (And anyone who believes our mortgage brokers are somehow better or more honest then their mortgage brokers should give themselves a shake.)

Consider that mortgage broker association complaining about the imposition of limits on how much home equity Canadians can borrow against. Like that’s a bad thing. Maybe they think the banks should also allow hapless homeowners to borrow against their old shingles.

As oil becomes cheap again and the oil sands become less profitable, one of the few remaining supports for Canada’s economy may be unceremoniously pulled out from under us. And Canadians will indeed become house “rich” and everything else poor. Only our wealth will be as illiquid as Syncrude raw tar.

What a turnabout if America prospers again while Canada is mired in a debt-induced nightmare. Who will be laughing at whom then?

#61 Carpe Diem on 05.31.12 at 12:09 am

#47eddy

My father always told me. Don’t depend on debt, depend on savings and revenue.

Credit cards to university students, students loans, HELOC, etc are simply to ensure losers keep borrowing and ensuring their legacy will be slaves.

My father … ensured I had the smarts to save for school in my teens. I had enough to get through school. I am now saving for my 3 kids’ university years. They are all under 7 and it’s hard. I will make it harder for them to get through school and at 15 they will have jobs.

I have no debt, our family are on a budget. I have a buddy with a sailboat and he’s the skipper but sure tell him when he’s about to make a mistake and should reverse course. He listens.

Bottom line, idiots go into debt unless it will make them money.

Eddy I think you are just that.

#62 Carpe Diem on 05.31.12 at 12:10 am

An idiot that is.

#63 T.O. Bubble Boy on 05.31.12 at 12:32 am

Another thought on the HELOC phenomenon (not to side with the Mortgage Brokers, but):

If a country is allowed to issue debt well in excess of 100% of GDP (with no intention of ever paying down that debt below a certain level), why can’t an individual with a stable income have a line of credit that they don’t plan on paying down?

I guess the main difference here is that the HELOCs are tied to inflated assets (houses), and not to incomes?

#64 John Ratadlin on 05.31.12 at 12:34 am

Garth, why are you not talking about record government bond yields today? A B.C. 31 year bond is yielding 3.26%. I hope real estate stays flat for the next 31 years. The slow torture of dropping interest rates for the last 31years is being felt by punished responsible savers. Real estate investors and owners will get shafted in due time.There is an old saying my father used to say those who don’t pay Saturday will pay Sunday.

#65 Rich Renter on 05.31.12 at 12:57 am

F will do nothing as usual.

#66 syd on 05.31.12 at 1:00 am

This is a new one. what’s next.. ? gays fueling home prices.. ?

http://www.moneyville.ca/article/1182075–toronto-condo-boom-being-fueled-by-single-women

#67 Nostradamus Le Mad Vlad on 05.31.12 at 1:11 am

-
“And this is exactly what people have been doing – borrowing their buns off.” — If one maxes out a HELOC, then puts the total amount into a balanced portfolio paying X thousand per month, uses the monthly income to pay down the HELOC, what are the tax implications? Is the gross monthly income still 80% tax avoidance?

“I honestly don’t think that Flaherty and his ¨Thinktank¨ in Ottawa . . .” — That is the biggest oxymoronic quote I’ve ever read!
*
Interesting that Christine Lagarde pays no income tax on her income, while in Greece there is an ongoing suicide epidemic. Let them eat cake has taken on a whole new meaning. The Fourth Reich a.k.a. a collection agency, and German Super State; Growth in the national debt The republocrats are jst as bad as each other, as the chart shows, Japan – China Wonder if they will include India, Russia and Brazil? UK Teens don’t care about stock markets, they want jobs; New Lows for US real estate; The Number of the Beast (ECB, IMF etc.); Union Busting Good for the economy? Greece and Spain ‘Owzaboud both exiting toute suite? 4:52 clip The largest transfer of wealth; ChIndia India can’t beat China, so join them instead; Planes, Boats and Trains Seems trains are the cheapest; Payout or Pension? If the payout is large enough and invested well, I’d opt for the former.

SArabia The Muslim world turning on itself? Using oil prices, but if all those quake-o-canoes go off, there won’t be anyone to sell oil to; Mega Bears with mega chart; Black Swan What if the US and EZone tank together? And EZone meltdown would crush Asian stocks, so the three would be gone instantly; Euro Implosion near? With all the ‘quake-o-canoes erupting simultaneously, this may as well be a part of it; Super Highway Not for the NAU, but from India – Burma – Thailand; Lost Mature workers don’t have a cat in hell’s chance of landing a relatively decent job anymore; China buys Spain’s assets.
*
2:24 clip Space stuff and other updates, Yellowstone about to blow? One way or another, we’re only here for a short and good time. The Rothschilds and Rockefellers may join us in the next worlds! And more Volcanic Rumblings, Interesting. Could be linked with the two preceding. Links in, plus Two Small Asteroids and Gamma Ray blasts We’re being bombarded from all sides! Hawaiian Volcano Reflection of humanity? Kombucha Tea First I’ve ever heard of it; Russia to build second nuke power plant for Iran; Trilogy Another axis of evil, beyond the US, NATO and the UN, plus BBC Propaganda Tool plus dirty nukes in Libya; Jaws Part 2 makes an appearance in UK, and not the Greatest Swimming Companion to cavort around with; Obomba’s God Complex The psychopathic prez. driven by Soros, and and Lying Prez. Like dubya, Clinton, Nixon — one and the same; Soda Ban Not a bad idea, but the method reeks of Big Brother.
*
Harlee – More to the sex and money stuff!

#68 Davey Boy on 05.31.12 at 1:13 am

The Canadian population is aging and running out of “tax far slaves”(as Smoking Man would say). So why would it not be in the interest of “The Machine” to let people become heavily indebted therefore making retirement unattainable and voila problem solved no mass exodus of the work force.

#69 John Prine on 05.31.12 at 1:20 am

Good post Garth, diminished only by the “first” morons. I thought they were going to be exorcised. Recommending this blog is hard when the first time readers see this idiocy

#70 Johnny O on 05.31.12 at 1:25 am

Confessions of a Vancouver Homeowner…
http://citycaucus.com/2012/05/the-persian-rugs-going-out-of-business-sale/

#71 Teuton on 05.31.12 at 1:25 am

Garth – not sure your calcs stand up to scrutiny. You’re assuming every HELOC at max allowable when many are only partly advanced. So the $27 billion cited as a required pay down is overstated.
And BTW the Toto with the kanji controls is great!

#72 mac on 05.31.12 at 1:26 am

Garth,

Don’t forget the changes coming to the Strata Property Act that will mandate a depreciation report for all condos with greater than 4 units. This law will be mandatory except for those condos who use the ‘weasel’ clause and delay this report 8 months at a time, until eternity.

But even this weasel-like behaviour may have ramifications with our newer more anal banks who may decline to fund mortgages on units where no depreciation have been conducted.

We’ll see. But you should know.

#73 Phil Indablanque on 05.31.12 at 1:37 am

How does that expression go … something about outgoing tides and naked swimmers… HELOC. Who knew you’d use it all up?

#74 TJ on 05.31.12 at 1:52 am

How about some discussion on how to profit from the coming RE crash? I wish there was a way to short sell condos directly, but there isn’t. Why anyone would want to speculate long in a market where there is no short selling is baffling. (for the real estate agents who don’t understand, shorts = future buyers, so guess what longs are, and guess what a market full of only longs means)

#75 DondWest on 05.31.12 at 2:07 am

Well, this has been a rather eventful month. Shorted Facebook mostly for the laughs, everyone thought I was crazy, wish I made more decisions such as the following on whim. Wish I threw in more than a few thousand, but hindsight is 20/20.

Seems the “key” is to find “glitches” in “the machine.” What’s my intake from all of this? Kids, the grown-ups are wrong, life is indeed a video game, so keep playing.

Seems we have entered an era of chaos; where only what on the surface comes across as stupid ideas will prevail. Logic must be thrown out of the window in this world – logic will fool you.

So what’s next on the agenda? From my most recent experience, I must say it’s time to engage in the most maddening concept of all. Time to short the beast whom people regard as impenetrable, unstoppable, and invincible.

Yes, that’s right, my plan is to short the ENTIRE Harper government! Going to write a blog about how I’m going to do it real soon. . .

#76 Superman on 05.31.12 at 2:13 am

hey Garth, why don’t you put a message board up on the site? Like vbulletin or something. That’s how you generate traffic to a site… every post someone makes = another searchable term in Google. You can also start a new topic for each daily blog post and have users post in the forums. I’m sure you’ll shoot down the idea (since you’re an egomaniac and it didn’t come from you), but it’s a good solid idea. Think about it for a while. You can even choose not to publish this comment and take credit for it yourself.

#77 Michelle on 05.31.12 at 2:19 am

@ #180-Canuck Abroad

“Michelle, I tried to open your attachment yesterday but it required a username and password so couldn’t access it.”

Oops! Sorry! I’d checked the link to see if it opened, but I guess my computer was remembering my password. Here’s a brief exerpt of the article I had linked to entitled “Are all doctors rich?”:

“In Canada the average gross fee-for-service billing for a full-time family physician was $235,420 according to the most recent data (2009), while the average gross fee-for-service billing for a full-time specialist was $323,004.

Indeed, based on the CIHI averages, the Canadian Medical Association came up with estimates for net incomes: Canadian family physicians took home an average of $163,792, while specialists got $251,255.”

(These are net incomes after expenses and before taxes.
RRSP contributions, health plans, life/disability insurance etc… would still have to be paid out of those net incomes.)

#78 grantmi on 05.31.12 at 2:20 am

#35 dave on 05.30.12 at 10:52 pm

relax folks. the osfi rules DO NOT apply to insured mortgages, and the requalification guidance for conventional mortgages is very very vague in terms of how it will be applied. there is nothing in the osfi doc that explicitly says that you will be rerisked and could be denied at renewal. it is much more vague than that.

Why not just read this and stop guessing? — Garth

Because he won’t Garth! The doc has more then a paragraph of reading… and all Dave cares about is a sound bite!

Come Here!! Go Away!!

#79 Harlee on 05.31.12 at 2:42 am

Nothing to be ashamed about writing a whole blog about HELOCS.
What should be shameful to an adult person is never having met all the parts of your body. Hot water squirts or not.
Go exploring today !

#80 blase on 05.31.12 at 2:46 am

Imagine what will happen to the prices of homes in Toronto when the Boomers have to turn off the cash money to their begging-pathetic children who never grew up.

Am I the only one who finds adult children who demand on their parents to pay their bills and buy their homes pathetic? No self-respect. I can see women doing it, they grow up expecting someone to take care of them, it’s in most women’s DNA, but a man who does it, extra pathetic.

#81 Aussie Roy on 05.31.12 at 2:47 am

Aussie Headlines

THE Reserve Bank must keep cutting interest rates to stop the housing sector sliding into recession, according to the nation’s leading property industry group.
Despite a dramatic rebound in sales of new homes last month, spearheaded by Victorians, the Housing Industry Association is calling for a concerted federal and state campaign to stop a longer-term slump.

Industry experts warned Victorians were only flocking into the market for new homes ahead of the looming expiry of the First Home Bonus program.

The State Government scheme ends on July 1.

http://www.news.com.au/money/property/housing-sector-in-a-slump/story-e6frfmd0-1226373260617

Not that we have anything to worry about, there never was a bubble in Australia – LOL.

#82 TRT on 05.31.12 at 3:03 am

watching the overseas markets…fear is spreading…hopefully time it right (inflection point)…Yen shooting up…New Buzzword —- “Portugal”. Love these made up crises.

#83 TRT on 05.31.12 at 3:05 am

The other Buzzword….”deflation”…. moral hazard?? QE3 is coming!!!!! Get your cash positions ready!!

#84 Smartalox on 05.31.12 at 3:13 am

Wow, that link to the OSFI’s draft rules for mortgages is pretty clear. Some of the proposed rules were so basic and straightforward, I’m a little bit concerned that these rules have to be stated at all. Like what kind of whisky and car key frathouse operations have these FRFIs been running, anyway?

#85 Blacksheep on 05.31.12 at 3:48 am

Daystar,

“The political imlications are that if the profit margins on noted derivatives are substantial, it points to the motive of why the Harper government engineered a housing bubble in Canada in the first place.”

Bubbles occurred in concert in most western countries, Harper ‘engineered’ nothing. Just coincidence? I think not.

“First you gain power through the wealth effect of the bubble itself,”

This slight of hand was meant to keep the consumer complacent and spending, via zero % real rates, even with stagnant wages and impending job loses due to outsourcing.

http://www.youtube.com/watch?feature=endscreen&NR=1&v=LhIgvkc5CoQ

“gaining the support of financials, media”

The Political and Monetary scientists Cabal has had an incestus relationship for centuries, no cozying required. The media oligopoly already whores themselves for corporate tax breaks, once again, nothing to do with a RE bubble.

“insurance to crown a majority government”

With 40% of the vote, a minority elected him, not that the hood ornament matters.

“then you engineer the RE/credit bubble’s collapse to fill the pockets of derivative investors shorting the housing market”

Cause that will get him re-elected.

“Unless there is derivative reform.”

IDSA stiffed insured Greek bond holders, even @ 70% cuts. They’ll just change the rules, ‘For the greater good’ : )

“It should go without saying that the truth holds high value”

You sir, are a Frigg’in comedian!

take care,
Blacksheep

#86 maxx on 05.31.12 at 6:41 am

“Wow !! I’m flabbergasted at these knee jerk reactions of the federal government and the OSFI that are forced upon the banks. ”

Knee jerk? Lending industry predators rely on precisely the knee-jerking of the general public vis-a-vis buying junk (mostly imported and inferior in quality) that it doesn’t need.
The OSFI has acted in a sensible, measured and responsible manner. It has targeted exactly that which is causing enormous damage to the Canadian economy.
The general population has gone nuts, borrowing insane amounts in a system which encourages “knee-jerk” consumption. As long as this borrowing behaviour is allowed to continue, government will have no choice but to continue to “stand pat” on ZIRP, print obscene amounts of money, wallow in ever-increasing public debt and continue to lose its competitive edge in the global arena.
Balance will only ever be achieved by incrementally tightening up on lending rules and raising interest rates so that the economy gets traction from other sources of spending- by those who actually have the money to harness interest in the real economy, thereby contributing solid, additional streams of income- from spending, to the higher taxes on interest.
We live in a world where impatience rules and few are interested in solutions that take any time at all to be successful.
Bravo, OSFI! I have no doubt that following through on your vision will see the economy emerge from its current weakness.

#87 maxx on 05.31.12 at 6:49 am

“F and the peckerettes”-

Garth, you start my day with a huge grin…thanks!!

#88 maxx on 05.31.12 at 6:49 am

Garth, you start my day with a grin…thanks!!

#89 John on 05.31.12 at 6:51 am

“F” isn’t terrified, concerned or worried. F is an illusion. F is not involved.

The illusion only steps in for reactive tweaking. The same as a flight attendent in an emergency. That is not opinon. The only potential “response” to opening a discussion of what this means would be to leave it out of the equation.

Know who is terrified? ( under the numbness). The 61 year old guy who bought the Lexus for cash, with wife present…and lecturing his son around the “Hollywood kitchen” to “avoid renting” and to “own”.

A society where neutered males do what they’re told, are addicted, codependent, uninformed, uninterested, compulsive, isolated, opinionated without thought, arrogant, entitled and utterly de-gendered should be terrifying. But it seems to be irrelevant.

What was the topic again? Oh yeah, how much I’m up or down in the casin. Uh…net worth was it?

Yeah. Net bloody worth man. That’s the ticket.

#90 Jim on 05.31.12 at 7:27 am

This would be really bad for me. I think those who have used credit ridiculously to drive up house prices and “invest” in stainless steel should get skewered.

But my HELOC is borrowed to 80% for investment purposes (I own my pile of bricks outright). That money is invested in the markets, earning a good return (and a nice tax deduction on the interest). It is also highly liquid and I could pay down the debt at any time. Even if I took a substantial loss on my portfolio, I would still be able to pay down the debt. Worst case, would be I would have a small debt which could be converted into a mortgage.

They need to do an assets test on people before pulling this kind of trick on everyone. If your assets are greater than your liabilities, then you should keep your HELOC (this would save investors). If on the other hand you are indebted to your eyeballs and loaded down with shiny pretty things, then you get what you deserve — a forced conversion to an amortizing mortgage. If you don’t have the discipline, then OSFI should discipline you. But leave those of us who are self-disciplined alone.

The other issue with HELOCs is that they have already painted folks with a broad brush. My credit rating took a hit when I drew on the HELOC for investment purposes. As a result, it appears that I am a credit risk. But I have the assets to cover my liabilities. To guys like Flaherty and Carney, however, I (from a statistical perspective) appear to be part of the problem.

#91 jess on 05.31.12 at 7:32 am

class action suit The lead plantiff, Mary Yakas, filed the suit after her HELOC was frozen in late 2008 based on Chase’s Automated Valuation Model.

Courthouse News Service reports:

“Yakas filed a class action, alleging breach of contract and unjust enrichment. She said Chase breached the HELOC in three ways: by failing to obtain an appraisal by a licensed appraiser, by using the unreliable AVM to assess her property value and by charging her a $20 annual fee after it suspended her credit line.”

Lenders can certainly limit or even freeze HELOC lines if there is not sufficient equity remaining in a property. However, it is unfair to freeze HELOCs in batches or based on these so-called “automated valuations” that do not require any actual appraisals or personal considerations.”

Most HELOC lenders reserve the right to reduce or freeze your HELOC line should the value of your home decrease. Although this is very uncommon in booming markets, it is a possibility. Over 100,000 HELOC customers had their lines frozen with no advance warning in early 2008.
http://www.courthousenews.com/2010/01/27/24117.htmhttp://www.docstoc.com/docs/83488320/Yakas-v-Chase-Manhattan_-Plaintiffs-Memo-re-Motion-for-Class-Certification

http://online.wsj.com/article/SB121077622984191953.html

The fine print on the back of the offer says this sum is based on “statistical data,” not on an appraisal, and the solicitation isn’t a commitment on their part).
legal rights to freeze or even withdraw a HELOC for circumstances spelled out in a loan’s documents. Worse, if your loan has been sold, the new mortgage holder may require some additional proof that you still meet the original conditions of the loan

#92 House on 05.31.12 at 7:34 am

80% or 65% is the same as, fiddling while Rome burns, rearranging the deck chairs on the Titanic,….. I will believe there is sanity in Ottawa when the limit is below 40%.

#93 Dontcallmeshirley on 05.31.12 at 7:41 am

@56 daystar,

Are you saying the gov’t has made market rules and changes so some other folks can profit from derivatives?

It’s possible, but unlikely because the counter-parties in derivative trades are at least as smart and devious. Stalemate.

Our gov’t has simply acted desperately to perpetuate a consumer spending economy.

#94 Dontcallmeshirley on 05.31.12 at 7:44 am

@35 dave,

relax folks. the osfi rules DO NOT apply to insured mortgages

——

The OSFI rules apply to all mortgages. It’s not vague at all.

The details of some of the measures aren’t stated, you’re correct there.

#95 jess on 05.31.12 at 7:46 am

crime
The Ocean’s 11 Of HELOC Fraud
By Ben Popken on February 9, 2011 1:00 PM
http://consumerist.com/2011/02/the-oceans-11-of-heloc-fraud.html

“Ocean’s 11″ of HELOC fraud.
With just laptops and cellphones set to the right area code, he and his crew would drain home-equity lines of credit from unsuspecting homeowners accounts, piecing together enough of a profile on them from publicly available information to break through their account security. At his peak, he was pulling down millions a week, operating out of fancy hotel suites and drinking heavily from an endless stream of high-end liquor, jewelry, and prostitutes. And despite the FBI’s best dragnet efforts, he still remains at large today.

The king of home equity fraud [Fortune]
criminal genius who used his talents to filet a poorly regulated banking and credit system. In less than three years Onwuhara stole a confirmed $44 million, according to the FBI, which believes the total may be anywhere from $80 million to $100 million. All he needed was an Internet connection and a cellphone.

Onwuhara called it “washing.” He’d set up a boiler room in a fancy hotel (the Waldorf-Astoria was another favorite) to wash information on wealthy victims. Then he’d wash bank accounts. One group in his crew would do online research using databases and websites to harvest names, dates of birth, and mortgage information. They’d build profiles of victims for a second group, who would call banks posing as account holders. The callers cadged security information and passwords. Then Onwuhara would breach the accounts and wire funds from them to a network of money mules he had established in Asia. The money would be laundered and wired back to his accounts in the U.S.

“I call it modern-day bank robbery,” says FBI special agent Michael Nail. “You can sit at home in your PJs and slippers with a laptop, and you can actually rob a bank.”
Onwuhara stole a confirmed $44 million, according to the FBI, which believes the total may be anywhere from $80 million to $100 million. All he needed was an Internet connection and a cellphone.

#96 eddy on 05.31.12 at 7:53 am

@Carpe Diem

you are reading things into my comment that are not there.
Nowhere do I advocate debt for consumption. i advocate convenient access to money

#97 Ross Thomas on 05.31.12 at 7:58 am

“Most Canadians are in a ‘House rich, cash poor’ situation”

In other words, “poor”.

#98 Kevin on 05.31.12 at 8:00 am

Garth – What happened to the embargo on moronic “first” posts? That only lasted like 2 days! Count me among the crowd who won’t miss ‘em.

#99 Steve on 05.31.12 at 8:16 am

Garth ashamed? Somehow I think not.

It is strange that there are only one or two other references to the gem of a statement from Canadian mortgage Trends…especially this incredible paragraph:

Most Canadians are in a ¨House rich, cash poor¨ situation. Where will people get their cash to pay for :renos, tuition, investments ?? If the govt doesn’t want a major part of the Canadian population to become a burden of the state in their old days, they shouldn’t cut off the valve on one of the few remaining cashable assets that Canadians have !!”

It starts with a generally acceptable statement of ‘truth’, especially for the house rich/cash poor, but sneaks in the ‘most’ quantification to be all inclusive: “Most Canadians are in a ¨House rich, cash poor¨ situation.”
Then we get “Where will people get their cash to pay for: renos, tuition, investments ??” which implies that there are no(few) other options than a HELOC, and also suggests that these are somehow rights. (How about not renovating or investing if you do not have the money? How working to earn tuition (student) or student loans for tuition if you do not have the money?)
Finally, we get the most incredible distortion of logic, which starts with anti-government sentiment: “If the govt doesn’t want a major part of the Canadian population to become a burden of the state in their old days, they shouldn’t cut off the valve on one of the few remaining cashable assets that Canadians have !!”

Really? Letting people spend their equity now, equity that may dissolve leaving only debt, is going to make people less of a burden in their “old days”? Wouldn’t continuing with current standards make them MORE of a burden?

The whole paragraph stinks of fear mongering and snake oil sales techniques. Sadly, like the machinations of Brad Lamb, they seem to work on enough of the people (sheeple) that we are likely to see more and more of this nonsense. It sounds to me like the howl of a trapped beast…the mortgage community is about to lose a large part of their market…expect more of these last ditch attempts to save themselves – but let’s not be fooled

#100 Mackie on 05.31.12 at 8:33 am

Don’t invest in a house is the advise here! With the stock market falling apart where the heck should I put my cash? I’ve hired an advisor and his stratagy has cos me almost 5 percent loss in just 2 months. World is an uncertain place.

If you fret about ‘losing’ portfolio value during a market correction you should not be an investor. — Garth

Fair enough Garth, but people seem to fear a 15 per cent correction in the house market and think nothing of a 15 per cent correction in the stock market. I think the risk in these two assets are both very risky. I’m still fully invested but it’s getting ugly out there.

Actually it is the other way around. Stocks fall 5 per cent and people freak, while viewing a dump in real estate as party time. — Garth

#101 W. Buffett (Willy) on 05.31.12 at 8:43 am

#73 Phil Indablanque

“How does that expression go … something about outgoing tides and naked swimmers…”

That would be the quote of the great Warren (no relation)Buffett. “You don’t know who is swimming naked until the tide goes out”. I think when the credit clamps get put on in full force we will see many naked Canadians…

#102 Mackie on 05.31.12 at 8:47 am

lol. I guess it depends what side you are on. I think a 5 per cent drop in house prices would freak out the homeowners and get the renters cheering for more. Many of my stocks, on the other hand, seem to rise and fall 5 per cent by the hour.

#103 In Amighty GARTH not God we Trust on 05.31.12 at 8:49 am

#34 Lost Cash

I’ve hired an advisor and his stratagy has cos me almost 5 percent loss in just 2 months. World is an uncertain place.

Some other wise words from the Omaha sage (not to be confused with the sagacious mystic oracle, all knowing, all wise, former right honourable minister of revenues in this fair land, vocal denouncer of all parliamentarian peckerheads and peckerettes, lone voice of reason crying out in the heloc infested land of Canada, our fearless and intrepid leader Captain Garth) are the three rules of Warren Buffett money management.

Rule #1 Don’t lose money

Rule #2 Don’t lose money

Rule #3 Don’t screw up on the first two rules

#104 Steve on 05.31.12 at 8:50 am

#47 eddy on 05.30.12 at 11:20 pm

“everyone should have a heloc set up, even if you dont need it now. when you do need it it’s handy to access large amounts without having to talk to a banker. if you have no mortgage it acts as a kind of fraud buffer- because it’s in place an identity thief cant register a fraudulent mortgage on your house”

Eddy, if I am not going to use the HELOC, except to access large amounts of money without talking to a banker (are you planning on paying ransom??? fleeing the country???) then why does it need to be a HELOC (@prime) rather than a LOC (@prime +2)? The HELOC is attached to my house, and I have to pay the bank to release their lien someday – in fact banks upped these HELOC closing fees recently. If I am not using the HELOC or LOC anyways, the actual interest cost is the same, and the bank does not get to use my house to reduce their risk.

A fraud buffer, if you have no mortgage? So if I read between the lines, you own your house, have a HELOC with $0 balance, and are worried that someone is going to mortgage your house behind your back? Except for the potential paranoia that last bit exhibits, congratulations if that is indeed our finacial situation.

Looking a little deeper, perhaps you are a person who enjoys the benefit of commission on selling HELOCs and that is why you would regurgitate the loaning industry paradigm that we should all have one, even if we do not need it now???

Having things we do not need is what is getting/has gotten us all into this mess in the first place. Few are able to resist the temptation of spending what is readily available to spend. F thinks OFSI can fix that for us, or at least partially protect us from ourselves by setting more survivable limits. Some of us frogs may already be boiled, but it is not too late for the rest if they limit the supply of gas to the burner in time…

#105 Mortgage Brokers and Realtors in an all out PANIC! on 05.31.12 at 8:54 am

The house of cards is going to come crashing down and every uneducated six week trained realtor and mortgage broker knows it. They are kicking and screaming. Canada`s FAKE economy is going to come down. It`s over an dthe crash is going to be swift and HARD! for the out of work realtors and mortgage brokers goodluck in finding a $10 hr job as your skills are not even worth that.

#106 Percentages on 05.31.12 at 8:55 am

Reduction from 80% to 65 % will be more like 34 billion.
183 – (183/80)*65

#107 jess on 05.31.12 at 8:58 am

http://blog.buzzflash.com/node/13517

According to this article , the very rich don’t Like making risky investments, take on risky jobs nor spend on “Amercia.”
==================
ROMNEY WARNS ‘WORLD NOT SAFE’

The United States now has two paths forward, Romney said. He called one “the pathway to Europe,” suggesting Europe had acquiesced to geopolitical threats. “To shrink our military smaller and smaller to pay for our social needs.”

The other path, Romney said, is “to commit to preserve America as the strongest military in the world, second to none, with no comparable power anywhere in the world.”

http://www.youtube.com/watch?v=t3OkbYAhJv4

jobs not jets
http://www.theglobeandmail.com/news/video/skype-chat-nanos-says-canadians-want-jobs-before-jets/article2442642/

I wonder how Mr. O’leary would respond to “The Mendelsohn Affluent Survey confirmed that the very rich spend less than two percent of their money on new business startups. The last thing most of them want, apparently, is the risky business of hiring people for new innovation.”

#108 fancy_pants on 05.31.12 at 9:01 am

… and we’ll continue holding our breath to see if all these “restrictions” come to fruition…just like the rate hikes.

MC has established the all bark no bite policy. Warn, warn, warn without action. Ask the average parent how effective that is.

When will the peckerettes figure it out?…when it comes to political finger wagging, sheeple react to ACTIONS not words.

get on with it already. I like Garth’s identifier for the lot – little peckers.

#109 Buy? Curious? on 05.31.12 at 9:01 am

Warren Buffet is an ass. Why is swimming naked in the ocean so bad? If I was tanning on the beach and the tide suddenly retreated to reveal some brave skinny dippers splashing around, my speedos would be off in a second as I ran down to what’s left of the water. Party time!

It’s funny how if something is said enough times, it soon becomes taking as truth.

Smoking Man, we need you the way Gothum City needs Batman (and Catwoman, of course)!

#110 Mortgage Brokers and Realtors in an all out PANIC! on 05.31.12 at 9:02 am

Observor on 05.30.12 at 11:11 pm GET TWO HELOC’s

Use one to pay the other, the bank’s computers don’t care.

Or withdraw $500 cash on your HELOC and then stick it back in the machine. The bank’s computers count that as a payment.

Debt repayment has become a sham where many payments are borrowed.

Rock on…
——————————————————————–

This is why we have been able to avoid a housing crash. People using fake wealth(heloc) to pay off debts, mortgages and even their Heloc using HELOC. Debt to pay debt with no intentions of paying it back. This was a set up to distory Canada and even smokingman can understand this. The US was taken down and now Canada/Canadians is going to be taken down so our country can be sold to the lowest bidder to pay for our debts. The game is over smokingman and you know it.

#111 timbo on 05.31.12 at 9:06 am

http://globaleconomicanalysis.blogspot.ca/2012/05/eurozone-retail-sales-crash-record.html

“High street spending across Italy contracted sharply on the month during May, albeit at a slightly slower rate than that registered during April. This was signaled by the seasonally adjusted Italian Retail PMI® posting at 35.8, up from 32.8. Sales fell for the fifteenth month straight, and panelists continued to highlight low consumer confidence and falling disposable incomes as the main factors behind the decline.”

wait….the news gets better, right?……

http://www.businessweek.com/ap/2012-05/D9V3ME7O1.htm

“The number of Americans seeking unemployment benefits rose last week to a five-week high, evidence that the job market remains sluggish.

The Labor Department said Thursday that weekly applications for unemployment aid rose 10,000 to a seasonally adjusted 383,000. The four-week average, a less volatile measure, increased for the first time in a month to 374,500.”

#112 Daisy Mae on 05.31.12 at 9:28 am

36Shane on 05.30.12 at 10:52 pm
#1, #2, #3, #9 and #19; “GET A LIFE!!!! Stop wasting my time!”

**********************

Agree!

#113 refinow on 05.31.12 at 9:53 am

IT is so funny to watch the OSFi saga unfold…

Trying to quantify or validate the spending habits of so many in the past.

Not sure where you get your stat Garth that 1 of every 2 borrowed was on a secured line of credit. Possibly because credit lines fall under demand position promissory notes, secured by Collateral Charges not by mortgages. So maybe they are comparing each dollar borrowed as a loan and not as a mortgage, then maybe I can accept that stat. Certainly not in comparing to a dollar for dollar vs all the monies borrowed including mortgages.

I understand the concerns of OSFI but I am really sure who is driving that particular bus???

We are all crying boo hoo at the effects of these changes, in the grand scheme of things they are good as over time it will create positive results on the over all affordability of future borrowers. But it is going to sting like hell to a very large percentage of the existing home owners.

For the last 25 years I could drive my car and talk on the cell phone and I was not breaking any laws. It was perfectly legal, I think over the years I actually got pretty good at it…

But last year all of a sudden talking on your cell phone while driving is now breaking the law.

We are going to see the same with these OSFI changes that will be implemented. We have been lending with the same guidelines, same policies with no concern for borrowers for the last 20 years, (With little changes). And client’s, brokers and realtors alike all got pretty good at it… Houses increased in value, Bank’s lent more money, people were receiving the gift of equity by just owning a home. Everyone was winning, no one complained, sunshine and rainbows everywhere….

But what goes up eventually will come down….. and that is when the lending hangover kicks in.

We all had our party, clients, Banks realtors, brokers, investment portfolios, mutual funds…

But it is now the morning after and you find yourself waking up in the Bathtub with a face tattoo, trying to remember what the hell happened????

You can’t party like Rock Stars for 10 years and not eventually have to pay the tab.

Time to pay for our lifestyles…..

#114 John on 05.31.12 at 10:04 am

I’m sitting in Starbucks trying not to hear some really ridiculous “business meeting” conversations going on over my right shoulder and to my left.

And then it became clear. A Goldman Sachs press release coming out of Italy from Mario “Three Card” Monte…in Brussels. He knows the obvious ( which is why he was put in the job).

From “EMOL” ( Chilean national paper)…paraphrase right after:
“El primer ministro italiano, quien en el pasado atribuyó el riesgo para Italia a la mala situación económica en países como España, se apresuró hoy a aclarar que estas posibilidades de contagio no responden a la debilidad de un país en concreto sino “de todo el sistema”.”

(Italy is in deep doo-doo with Spain…contagion is an ENORMOUS possibilty. It’s not a country problem, but a systemic problem)

If MARIO THREE CARD MONTE is allowing this to get into mainstream media ( our media is part of the fraud), what should that mean? Goldman Sachs press releases that speak strong negatives are tricky. Sometimes they
( like F & C), they need an employee to mouthpiece a pretense of concern. Nonetheless, the message is loud and clear.

Real Estate in Canada? The debtor might live there, but his money sure aint there.

Three Card is a high level non-decision making technocrat, SYSTEMICALLY working for Goldman Sachs. Just like Carney. F just cleans the bathrooms. It’s important to watch their reactions. They aren’t that close to the real decision makers, but close enough…and worth deciphering from time to time.

And to consider the implications.

Does anyone in Starbucks wonder why you are murmuring to yourself in Italian about contagion? — Garth

#115 Blacksheep on 05.31.12 at 10:06 am

Kevin,

“False. We’ve repeatedly covered your fundamental misunderstanding of fractional reserve banking. I’m quite confident Garth does NOT wish to have another thread hijacked by your ignorance.”

“Suffice to say, only governments have the power to create money out of thin air.”

I will refrain from unflattering comments that would be entirely suitable, for this deceptive statement.

“Out of thin air” or Multiplied is just word play. Additional money is created BY private for profit, commercial banks, PERIOD.

The new money introduced by the central bank is MUTIPLIED by commercial banks through fractional reserve banking; this EXPANDS the AMOUNT of broad money (i.e. cash plus demand deposits) in the economy so that it is a MULTIPLE (known as the money multiplier) of the amount ORIGINALLY created by the central bank.

http://en.wikipedia.org/wiki/Money_creation

take care
Blacksheep

#116 Live in Ontario on 05.31.12 at 10:09 am

More proof that home buyers are idiots these days. Woman decides to pay off her 0% car loan instead of putting 20% down on her house because it “feels better” to her.

Doom.

http://www.moneyville.ca/blog/post/1203372–why-10-down-on-a-house-worked-for-me

#117 bigrider on 05.31.12 at 10:12 am

Garth- “Actually its the other way around. Stocks fall 5% and people freak,while viewing a dump in real estate as partying time”.

I would modify and enhance that comment by saying that a drop of 5% in the stock market is a reason to sell and freak while a rise of 5% is also a reason to sell and get out before another drop. In other words perception of people towards the stock market is SELL SELL SELL.

Now a drop in real estate prices( of course RE never goes down) will be met with a BUY BUY BUY attitude, hence party time, while continuing price escalations are also being met with a BUY BUY BUY attitude.

RE is religion in the GTA

And you wonder why people sell declining assets and buy advancing ones. They love to sell low and buy high. — Garth

#118 refinow on 05.31.12 at 10:13 am

#110, who is evil deviant who’s plan took 20+ years to unfold, who’s plan was to take down Canada and the US and most of the civilized population of the world ??

Wait……. let me guess !!!!

The Mortgage Broker’s. That’s it. It was the secret society of evil Mortgage Brokers, who some how had a hand in WWII, convinced the government to create a lending program known as CMHC to help Canadian’s afford homes back in the 40′s. Then secretly convinced women that they should no longer be complacent being a stay at home mom, enter the work force, and then tear down stereotypes giving equal pay for men and woman alike. That one was a tough one, took a few extra years, extend the time lines on the evil plan…

As incomes doubled during this time, and with husband and wife now working we now had often triple the family income, it put new demand on home ownership.

They also had a hand in the ever increasing population and immigration putting further demand on housing, forcing prices higher and higher.

Also mortgage brokers used a secret mind control ray, that convince consumers that all home owners need a 2 stry 2 car garage, granite and stainless steel $600K home…. ~~~~~~~~~~~~

Get off your high horse…. accept your actions

#119 bigrider on 05.31.12 at 10:14 am

#103 In almighty Garth not god we trust.

Seems Warren Buffett forgot his own rules past 12 years.

What a ride to nowhere Berkshire has been.

#120 Daisy Mae on 05.31.12 at 10:22 am

“….Then we get “Where will people get their cash to pay for: renos, tuition, investments?” which implies that there are no (few) other options than a HELOC, and also suggests that these are somehow rights. (How about not renovating or investing if you do not have the money? How working to earn tuition (student) or student loans for tuition if you do not have the money?)

Finally, we get the most incredible distortion of logic, which starts with anti-government sentiment: “If the govt doesn’t want a major part of the Canadian population to become a burden of the state in their old days, they shouldn’t cut off the valve on one of the few remaining cashable assets that Canadians have !!”

*****************

Yes, agree — this line of thinking is the height of stupidity.

#121 Doug in London on 05.31.12 at 10:35 am

I’ll use another one of my comparisons here. Imagine you are the captain of a diesel electric submarine. You have spent may hours submerged, possibly even in combat, running the submarine on battery power. now the danger has passed and you can surface. Wouldn’t it make sense to start the diesel engine RIGHT AWAY to get the batteries recharged? better yet, wouldn’t it make sense to turn off some loads to free up more ampacity to charge the batteries sooner if they are really low?
Similarly, if you just took on a big amount of mortgage debt would’t it make sense to use those historic low interest rates, as well as cutting non essential consumption (like those granite counter tops) to free up more money to pay off that ball and chain burdensome mortgage? I guess some people are adventurous and like living on the edge, unlike boring and conservative persons like myself.

Incoming! — Garth

#122 disciple on 05.31.12 at 10:36 am

The only way to “lose” money is if someone steals it from you. Or if you inadvertently throw it into a fiery volcano or something like that. The thieves come in various forms but one thing is common: they are members of the financial parasite class. Why do you fear these thieves? You don’t realize in fact that it is yourselves you fear, and they play you like violins.

#123 crashing yuppy on 05.31.12 at 10:38 am

Garth you are rapidly losing credibility. You said you would stop the idiot “first” people and you have not. Blog is great . Posts are great. You, however, need to do what you promised.

Oh, so that’s what my creds rest on. I wondered. — Garth

#124 AACI Okanagan on 05.31.12 at 10:48 am

well I am looking forward to our annual AIC conference in Ottawa next week. One venue that I will be checking out is :

“OSFI Presentation
Vlasios Melessanakis

Mr. Vlasios Melessanakis, Director of Policy Development at the Office of the Superintendent of Financial Institutions Canada (OSFI) has accepted our invitation to speak on the Proposed OSFI Residential Mortgage Underwriting Practices and Procedures (Draft Guideline B-20). Mr. Melessanakis has been involved in the consultations with the Federally-Regulated Financial Institutions and in the drafting of the Guideline. His presentation will touch on the context behind the Proposed Guideline and more specifically, the appraisal and collateral requirements, and what they mean for our members and the appraisal profession. This is a great opportunity for the AIC, particularly in light of our recent response to OSFI on this issue.”

#125 DM in C on 05.31.12 at 10:52 am

Sigh. And the Calgary Herald reports that there have been more $1Million + sales in May 2012 than at the peak of the boom in 2007.

Calgary’s a place to work, save money, and get out. Not a place to sink over a million dollars into a home. Not when it’s -10 for nine months of the year. This city has more money than brains. And yes, more trucks with danglies than brains too.

#126 Karie on 05.31.12 at 11:00 am

The firsts people are funny – I don’t think they take away from the blog.

@Jim #90 – You are either very financially savvy or completely crazy. Do you manage your investments or an advisor?

#127 Bottoms_Up on 05.31.12 at 11:02 am

Took a different route home in the morning from daycare yesterday (~8:45am) and noted that the price of gas was $1.243 per litre.

Drove past the same gas station 12 hours later…lo and behold, the price was $1.193.

A 4.2% mark-up for the morning commuters needing gas.

#128 bigrider on 05.31.12 at 11:03 am

#117 Garth to Bigrider-

Exactly my point and the reason for my sarcastic overtone in the comment.

Again Garth, rear view mirror investing is the only method of investing acumen employed by the masses.

#129 Johnny D on 05.31.12 at 11:06 am

Another day of watching commodities fall… Hope they bounce back for a lil bit in the near future to bring the Canadian dollar at par with the greenback… then I can convert all my savings into U.S. dollars… Or should I just do that now and cross my fingers?

#130 Andrew on 05.31.12 at 11:13 am

Actually, the impact could be far greater. For example, if someone has a house appraised at 500k with a 300k mortgage … they would currently be able to get a HELOC for 100k (80% of 500k = 400k … less the 300k mortgage on the property).

However, after the new rules they would only be able to get a HELOC for 25k (65% of 500k = 325k … less the 300k mortgage). This is a reduction of 75% for this individual.

People that have 50% equity in their home will see their maximum HELOC reduced by 50%. People with less equity than that will have even greater reductions.

#131 debtified on 05.31.12 at 11:20 am

#49 martin on 05.30.12 at 11:23 pm
i think this is the opportunity that garth has been forecasting for a little while.

Yep, he said on March 2nd:

BTW, there’s another buying opp coming.

I am actually getting excited.

#132 AG Sage on 05.31.12 at 11:23 am

>#41 Observor on 05.30.12 at 11:11 pm
That’s why the new forced amortization rules are such a critical part of this. After some time the balance can no longer increase and it must be on a payment schedule that includes principal. Which is how they are in the States, and have been for a while. Oh you safe Canadian bankers!

#133 timbo on 05.31.12 at 11:23 am

http://www.bloomberg.com/news/2012-05-31/oil-extends-drop-after-u-s-supplies-rise-to-22-year-high.html

“Inventories of crude oil rose 2.21 million barrels to 384.7 million, a 10th consecutive weekly increase, the department said. Supplies were forecast to grow 1 million barrels. ”

Take the foot off the pedal Alberta. You are heading downhill and the left rim feels loose……….

http://www.streetinsider.com/Economic+Data/Chicago+PMI+Shows+Big+Surprise+Drop,+%22Business+Slowing+Down+Right+Now,%22+Respondents+Say/7483034.html

“One company in the survey commented that “Business is slowing down right now. We had a decent first quarter but its gotten quiet.”

Crickets……….

#134 Bond junkie on 05.31.12 at 11:30 am

#122 disciple

And it’s wonderful music, can’t you hear it? Ooops. May stop soon though

http://media.pimco.com/Documents/PIMCO%20IO%20June_GLB.pdf

#135 debtified on 05.31.12 at 11:31 am

#112 Daisy Mae on 05.31.12 at 9:28 am
36Shane on 05.30.12 at 10:52 pm
#1, #2, #3, #9 and #19; “GET A LIFE!!!! Stop wasting my time!”

**********************

Agree!

Shane/Daisy Mae: What you must realize is that, as useless as the “furrstt” posts may seem to you, your comments on them are even more useless. Somewhere deep inside your being there is a place where this sort of behaviour may seem humorous. It’s a better place than where you are now. Find that place and you will begin to see a whole new world that is much more fun.

For the record, I have never posted a “furrst” comment but I can’t help but smile when I see them. The fraction of a second that I “waste” scrolling over each one of them is time well wasted.

#136 AG Sage on 05.31.12 at 11:33 am

>#127 Bottoms_Up on 05.31.12 at 11:02 am

The price of gas is set to keep gas flowing at a constant rate into the gas tanks of customers. The price of crude and everything else is secondary to this. The flow rate to the gas stations is exceedingly hard to adjust either up or down, but the price is a great lever to control how fast gas leaves the station.

The rolling inventory capacity (vehicle gas tanks) far exceeds the gas delivery system storage capacity. The average tank on the road is at 1/3 full. So it is frighteningly feasible for the rolling inventory to suck up the entire selling capacity at any given time. The last thing any station wants is to run out before the delivery truck comes. If they lower the price too far they will run out. Contrarily a few cents makes people resist filling up the tank. The worst that happens from raising the price is it dents profits (true story, because they don’t sell their entire inventory because people are more price sensitive than is rational). Given that running out could set off a buying panic, which would you error toward?

#137 Bond junkie on 05.31.12 at 11:40 am

Aside: for all you Smoking Man bashers on the blog. Read the PIMCO link I just posted above. Here you basically have the smartest bond manager in the WORLD summarizing our latest market predicament in the exact same fashion as SM’s monopoly analogy yesterday, albeit using an ecological metaphor vs. SMs game theory. so who’s the real bumbling idiot?

#138 Ian - Ottawa on 05.31.12 at 11:41 am

So it is single women now who are to blame for Toronto’s Condo Boom. Wait till they want to upgrade for that family. ieee… Good Luck Selling those Downtown Playpens.

“Their significant buying power, and exacting standards, have helped drive the move to granite and stainless steel designer kitchens, better bathroom storage and even lighting — especially over the makeup mirror, says Jim Ritchie, president of Canada’s biggest condo builder, Tridel.” http://www.moneyville.ca/article/1182075–toronto-condo-boom-being-fueled-by-single-women

#139 van grrl on 05.31.12 at 11:42 am

#127:
There’s gas in Canada that cheap? 1.46 here in Van. Ah well, guess that’s the price to pay for living in the best place… yadi yadi..

#140 disciple on 05.31.12 at 11:55 am

I don’t play games. I sent the following message to Euro Pacific Partners Toronto office on King Street:

Peter Schiff is a character played by Paul Reubens, the same actor that played Pee Wee Herman.

http://xdisciple.blogspot.ca/2012/05/peter-schiff-is-paul-reubens-pee-wee.html

#141 Nonno Nicola Bigga Rider's Financial Adviser on 05.31.12 at 12:01 pm

#117 Bigga Rider

“I would modify and enhance that comment by saying that a drop of 5% in the stock market is a reason to sell and freak while a rise of 5% is also a reason to sell and get out before another drop. In other words perception of people towards the stock market is SELL SELL SELL”

Vat is vrong vith you Bigga Rider. I tella you to a reada da Market Wizards and you no a read dem. If you hadda listena to Nonno Nicola, you would understanda how da bigga traders maka da moneta. Da bigga traders all let theira profito runna while dey cutta da losses. Da amateurs, dey grabba da quicka profito (wronga mova) and hanga ona to da losers because dey thinka da losers are gonna come backa (another bigga mistaka). Da winning trades hava to be bigga enougha (homa runs as Drunkenmiller saya) to paya for da small losses among da losers. Now go an buya da booka or I quita being youra financial advisor!

#142 Doug in London on 05.31.12 at 12:12 pm

@Johnny D, post #129:
It wasn’t long ago there was all a lot of bellyaching about how speculators were driving up the price of commodities, including oil. Now they are bailing out and getting burned. So what of the long term prospects for commodities? Although more slowly, emerging market countries like China and India are still growing. As for that commodity we all need, namely oil, I was worrying about its long term prospects as I filled up at a petrol station yesterday. I also worried about its long term future while travelling on a jet fuel gobbling plane and diesel powered bus last week, or while travelling on a diesel powered train in March.

#143 disciple on 05.31.12 at 12:20 pm

#127 Bottoms Up… Oh come on, that’s just a crazy conspiracy theory.

#144 Nonno Nicola on 05.31.12 at 12:21 pm

#119 Bigga Rider

“Seems Warren Buffett forgot his own rules past 12 years. What a ride to nowhere Berkshire has been.”

Heya Bigga Rider, it is Nonno Nicola againa. Just causa dat mangia caka Warreno Buttettino no follow his owna principales no mean da rules are not da verita. Da gooda traders alla knowa dat whena you losa da moneta, it is very harda to maka da losses uppa. You cutta da losses quicka, no watch dem go downa, downa, downa. Da profito gotta ride higha, higha, higha to pay for da small losses of da losing trada. You capisce Bigga Rider? Now go an buya da damna booka Market Wizards and New Market Wizards and reporta backa to your financial advisor Nonna Nicola!

#145 Balmuto on 05.31.12 at 12:22 pm

Re: the OSFI draft guidelines (see #35 for link)

A couple of things caught my eye:

Page 13: “FRFIs (federally-regulated financial institutions) should assess, and adjust as appropriate, the value of the property for the purposes of calculating the LTV by considering appropriate risk factors that make the underlying property more vulnerable to a significant house price correction or that may significantly affect the marketability of the property. These factors would include, but are not limited to, the location of the property, the type of property, its current market price and the expected use of the property for which the loan is granted.”

Sounds like OSFI expects banks to come up with realistic market value estimations, then apply a haircut so they have a buffer in case of a market correction. In other words, use the most conservative appraisal values for LTV calcs.

Page 14: “Sound industry practice is, therefore, to limit the HELOC component of a residential mortgage to a maximum authorized LTV ratio of less than or equal to 65 percent. OSFI expects that the average LTV ratio for all HELOCs to be less than the FRFI’s stated maximums, as articulated in its RMUP, and reflect a reasonable distribution of LTV ratios across the portfolio.”

This reads to me like 65% is the maximum, but that OSFI does not want 65% to be the norm. So, it actually expects your standard HELOC to be less than 65% LTV. Based on conservative appraisal values.

Party’s over, folks.

#146 refinow on 05.31.12 at 12:24 pm

All is well according to survey…LOL

83% of all Canadians have at least 25% of equity in their home…. (Really so why has CMHC insured almost $600,000,000,000. in mortgages).

You have to read the details of that survey… And this is the basis why they suggesting OSFI not make any upcoming changes, if it aint broke why fix it…

Very funny reading

http://www.mortgagebrokernews.ca/news/breaking-news/report-osfi-has-the-wrong-end-of-the-stick/123796/

#147 Dontcallmeshirley on 05.31.12 at 12:30 pm

#124 AACI Okanagan

well I am looking forward to our annual AIC conference in Ottawa next week. One venue that I will be checking out is :

“OSFI Presentation
Vlasios Melessanakis

——-

Please relay what you learn at this presentation.

The fact that senior OSFI folks are doing a guidelines road-show, circumstantially, imply those guidelines are just about carved in stone.

Brokers are you paying attention?

#148 Derek R on 05.31.12 at 12:35 pm

#115 Blacksheep on 05.31.12 at 10:06 am wrote:
The new money introduced by the central bank is MULTIPLIED by commercial banks through fractional reserve banking; this EXPANDS the AMOUNT of broad money (i.e. cash plus demand deposits) in the economy so that it is a MULTIPLE (known as the money multiplier) of the amount ORIGINALLY created by the central bank.

Well that’s what the textbooks say but when economists Kydland and Prescott checked what the banks actually do they found that the commercial banks issue the loans first and the central bank creates the broad money about nine months later. So the reality is actually the opposite of the theory.

#149 Mortgage Brokers and Realtors in an all out PANIC! on 05.31.12 at 12:45 pm

Look at the mortgage brokers kick and scream on this blog about the free markets which they hate. “How will the average job with no money buy things they can not afford“…or lol house rich and cash poor. Americans were house rich and cash poor until they became house poor and cash poor. The house of cards is going to fall hard.

#150 truth hammer on 05.31.12 at 12:50 pm

The NDP vision of commercial success.

http://news.nationalpost.com/2012/05/30/money-losing-tim-hortons-in-st-johns-hospital-a-cautionary-tale-critics/

Did you know reading the National Post (soon to be bankrupt) makes you blind? — Garth

#151 disciple on 05.31.12 at 1:02 pm

#147 Derek R… What do you mean by “create” it nine months later. I hope you don’t mean they print paper. Because that’s false. Only 3% of money is in the form of currency.

#152 Devore on 05.31.12 at 1:10 pm

#96 eddy

Nowhere do I advocate debt for consumption. i advocate convenient access to money

Access remains easy and convenient. It’s just a smaller amount. Your house equity isn’t your money that’s trapped in your house, it’s your house. You can re-lever your house when you have lots of equity in it, but only when it is a significant amount, showing you are responsible with saving and paying off your debt. If you want to get more money out of your house, you should build more equity, or sell it, that’ll get you 100%.

#153 Bill Gable on 05.31.12 at 1:12 pm

The scary thing about friends here in Vancouver, is that they are using HELOCS to buy basics, because their mortgage payments are so high, and they are broke every paycheck. Take away cheap HELOCS and you are going to see a lot of consumerism flatline.

#154 45north on 05.31.12 at 1:15 pm

jess: Mary Yakas, filed the suit after her HELOC was frozen

good luck with that, her best chance would be to prove that Chase cancelled her HELOC because she had a foreign-sounding last name

modern-day bank robbery

people ( well men mostly ) who walk into a bank get maybe $5000, after a couple of go’s they get caught, charged with “armed robbery” and go to jail. On the other hand Onwuhara got $80 to $100 million, probably will not be caught. If caught would be charged with fraud and theft. Penalty is much less than armed robbery.

#155 Silver on 05.31.12 at 1:20 pm

But… but… the raise in “The Property Assessment Value”
showed them, guaranteed them that they had “increased” their actual equity position
and all without increasing the Real Physical Equity committed to the property …
and the Assessments couldn’t be wrong…
right???…
you were taxed on it.

I can’t wait for “Discovery” to occur…
I mean the banks to took this paper as “Proof Of Value… didn’t they????

Ask them to “Prove” it though….

Silver

#156 Silver on 05.31.12 at 1:32 pm

If you have to borrow the money the “Equity” does not exist as “Real Free Equity”.
Until the property and it’s liabilities are payed off the “Equity” is “Attached”,
Not “Fee and Clear”
The money exist only as a promise… added to the existing Equity debt…

Silver

#157 jess on 05.31.12 at 1:35 pm

WSJ published article by Scott Patterson and Jenny Strasburg revealed details from the Pipeline Trading scandal that broke last year.

http://gcalhoun.files.wordpress.com/2012/04/12-04-09-wsj-traders-navigate-a-murky-new-world.pdf

The ads said they offered predator proofing and shark shielding!

- The Pipeline Trading affiliate, Milstream, was setup in 2004, with the goal of making sure orders got filled by first executing for its own account in the open market.

http://blog.themistrading.com/what-goes-on-inside-those-dark-pools/

http://www.tradersmagazine.com/news/pipeline-aritas-biancamano-trading-110008-1.html

Apr 26, 2012

http://pogoblog.typepad.com/pogo/2012/04/here we-go-again-sec-reveals-whistleblowers-identity-to-company-under-investigation.html

#158 Sebee on 05.31.12 at 1:55 pm

Is hyperinflation the only way out of this mess?

#159 Chris on 05.31.12 at 1:57 pm

Garth, I was hoping my orig post #14 would elicit your comment. There have been many posts on that subject.

I have answered this before. OSFI will act in the best interests of bank asset stabilization. — Garth

#160 John on 05.31.12 at 2:03 pm

Smoking Man wrote:

“The machine does not want kids today making a survivability rate of pay, yet they are the future tax base to pay for medicine, F35′s, fund pensions and social programs. Something is going to give.

Hell is coming, learn to lie, cheat, steel, and sell. You are running out of time.”

———————————————

There are quite a few good posts on this blog. Really interesting. A ton of comments I’ve never heard in Canada or from Canadians. Outstanding.

Smoking Man, you diagnosed the disease quite well, but left out the cure. The cure is one by one. You know how when you die it’s one to a box? Well, if you really live its one by one too. And the truly awesome interactions in the human race are those one to one or one to few or one to many, where the standard is self esteem. Being value. Having value, offering value, and having strong boundaries against nasty self-hating belief systems carried and acted out by all of us.

Your track 6′er call is so bang on that it’s eerie. But you don’t ever de-rail the train. You still talk us and them. You still think there’s a game to win. YOU are the game…there is nobody else. You, you and you. Period.

You can’t leave track 6 unless you know what it is and actually get off. And realize there is no track 6 anyway. Your ¨Pink Floyd The Wall” belief system outlines Canada’s financial system and the society….and how the housing bubble came to be.

But where’s the win then? Do you really think you and “people” are that “bad” that they have no value? Self esteem is unconditional….with boundaries for the “bad” stuff. There is no mortal sin dude.

Forget the “us and them track 6 victim strategy” you know, but won’t leave…..what about replacing us and them…for you and me.

At least you…doesn’t charity start at home?

#161 John on 05.31.12 at 2:18 pm

Does anyone in Starbucks wonder why you are murmuring to yourself in Italian about contagion? — Garth
————————————

No. They don’t think it’s real.

#162 Kilby on 05.31.12 at 2:33 pm

Bit off the subject but relevant to much discussed here.

Our condo “Atrium” in North Vancouver has 12 stories + Penthouse, there was a notice that the water would be off from 9am to 5pm today because of a water leak in a 3/4″ line going into a 2nd floor unit.

I spoke with the plumber that said that none of the 13 floors can be isolated so this tiny drip going into a 2nd floor apartment warrants draining the entire building for a day.

He said that he has seen new construction where the toilets do not have a valve to turn the water off, so if one needs to change a valve, the entire building has to be shut off…..This to save five bucks per unit for a valve.

Glad to be leasing and feel sorry for the strata owners as these new buildings age and fail early.

#163 Debtfree on 05.31.12 at 2:34 pm

Reading the national post makes you blind ? I thought it only made you stupid or lol . It think the people at sun tv read way too much of it. If they read at all. Helocs are financial crack . Instant gratification for idiots . And bank prefereds best friends . When you collect your divvies do you laugh or cry ? Have I thanked lately for publishing money road ? If not thanks again .

#164 jess on 05.31.12 at 2:40 pm

Abacus Bank Charged With Mortgage Fraud‎

New York Times – 1 hour ago
Abacus Federal Savings Bank, a small bank with a major presence in the city’s Chinese community, and 19 of its former employees have been…

#165 bigrider on 05.31.12 at 3:08 pm

Jean Francois Tardiff on BNN today. Same man who led his hedge fund to be a top performing hedge fund in the world while at his tenure at Sprott.

Quote ” I would not be surprised to see equity markets exactly where they are today, five years from now”

2nd quote ” Interest rates will continue to decline for the next ten years”

I would say that the diehard RE bears ( me included) need to soften there stance a bit and I wish good luck to all those (me included) investing in financial assets.

Very hard road ahead.

#166 Gmaz on 05.31.12 at 3:14 pm

Can anyone direct me to where I can get stats on total new listings or days on market etc. from MLS.

#167 daystar on 05.31.12 at 3:14 pm

#85 Blacksheep on 05.31.12 at 3:48 am Daystar,

“Bubbles occurred in concert in most western countries, Harper ‘engineered’ nothing. Just coincidence? I think not.” – black sheep

Not in concert, nope, they didn’t all happen at once. We didn’t have housing bubble on Jean Chretien’s watch, did we. That’s like saying Harper never deregulated CMHC regs or encouraged lenders and borrowers to lend and borrow their brains out and therefore can’t be held accountable.

You don’t believe in coincidence and neither do I but the tempations to turncoat on your own nation for the will of greeders (foreign and domestic) and perks ego driven or otherwise will always be there. What have I been saying all along with Harper? Harper is a corporate lobbyist who never gave up his old job. Which corporations? It goes back to his days at the NCC, insurance (healthcare, financials), food manufacturing, energy, foreign political parties.

Is it my fault that the masses are financially and politically illiterate? I’m trying to educate here but before I can influence others to vote or support someone else I have to lay out why. Here, you don’t like the word engineer, try “facilitate”. “Pave the way”. “Lay down to unbridled greed” through weakening the system from the inside, can you give me that? (I say “engineer” because pressures to capture market share will always be there. Harper went out of his way to “facilitate” ok?)

How simple and in some intangible ways damaging it is to minimize the role Harper plays or minimize the power of a PM’s position as well as unimaginatively refusing to see what the choices of others who aren’t like him would have been (y’know, sluff it all off as though every other elected PM under the sun would do the exact same thing), while leaving the opportunists who benefit from such weak leadership unnamed.

“This slight of hand was meant to keep the consumer complacent and spending, via zero % real rates, even with stagnant wages and impending job loses due to outsourcing.” – blacksheep

Harper juiced housing in good times when it wasn’t needed and pushed overdevelopment in the tarsands while leaving manufacturing to crumble under a high dollar and a RE/credit bubble ready to bust. This is his 6+ year history and its engineered (you can argue all you want concerning who’s behind it, but put names and faces to it. In Canada, it starts with Harper).

Economic Action Plan? Just another 100 billion worth of spending/debt mainly lent to us externally. What did he do for emerging markets and productivity elsewhere in Canada? Right… we had other productivity/revenue/taxation plays to choose from here if Canada was to choose a high dollar policy. All Harper has left us is debt and a RE/credit bubble sure to breed recession as it has elsewhere as interest rates rise from escalating gross public debt. Its not different here.

http://www.youtube.com/watch?feature=endscreen&NR=1&v=LhIgvkc5CoQ

“gaining the support of financials, media”

“The Political and Monetary scientists Cabal has had an incestus relationship for centuries, no cozying required. The media oligopoly already whores themselves for corporate tax breaks, once again, nothing to do with a RE bubble.” – blacksheep

Thats not entirely true. Governments and banks haven’t always gotten along. Banks ultimately try to control every government elected and often do, but its not the case in practice with every example. The best governments keep banking greed in check through regulation. (didn’t happen with the Harper government, a credit bubble is easy proof, evidence of a weak government if I ever saw it) Btw, media makes huge revenue off of RE, tax cuts are a much smaller part of net profit margins than revenue from advertizing and its hard to win an election without media support . Who pulls the strings of media more, government or banks? Excellent link by the way, more reflective of who Harper really works for. FIRE & bond investors benefit, history repeats.

“insurance to crown a majority government”

“With 40% of the vote, a minority elected him, not that the hood ornament matters.” – blacksheep

I have to address this.

“Cause that will get him re-elected.” – blacksheep

???

“Unless there is derivative reform.” – daystar

“IDSA stiffed insured Greek bond holders, even @ 70% cuts. They’ll just change the rules, ‘For the greater good’ : )

We aren’t Greece. There’s plenty to sell off in Canada that you have not begun to think about like hood ornaments (crown land).

“It should go without saying that the truth holds high value”

You sir, are a Frigg’in comedian! – blacksheep

A final quote out of context, some unsolicited advice for you. This is the 4th or 5th time I’ve told you this now over the last 5 years. When you try to out play someone else at their own game you risk sounding (if not becoming) just like them. You don’t want to be me, trust me, its a lonely place with few rewards. (keep it short, simple, right…)

“Be yourself”.

(from 3 days ago)

#199 Blacksheep on 05.28.12 at 5:42 pm

Housing in Bangladesh (click onto the pics, each pic has its own link and story, if you have hours to kill there’s a labyrinth one can wander through “without getting mugged, it has value!):

http://www.google.ca/search?q=slums+of+Bangladesh&hl=en&rls=com.microsoft:en-ca:IE-Address&rlz=1I7ACAW_en&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=DZXHT9WhPKaC2AWgtPiVCw&ved=0CGUQsAQ&biw=1902&bih=954

Housing in Mexico City (and others)

http://www.google.ca/search?q=Housing+in+Mexico+City&hl=en&rls=com.microsoft:en-ca:IE-Address&rlz=1I7ACAW_en&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=W5XHT4nABa-r2AWEhI2OCw&ved=0CHQQsAQ&biw=1902&bih=954

I don’t have to put much effort into this? Others have done it for me. Housing in Canada and poor nations actually does compare. It’s black and white and precisely so that makes it worth a mention. Give housing a 6 year melt and the pity parties we hear about how rough Canadians have it will begin to become justified but it still by no means compares to how the other half lives elsewhere. They can’t imagine what it is that we’ve lost, never mind able to recover going forward. (I know, I know, it doesn’t excuse the wealth tranfer that is going on here. My point is, its not different “there”. If anything, its much worse) Does human life elsewhere have less value than Canadian ones? (it should be rhetorical but if I’m going to get attacked as lazy for not answering, geez) If readers truthfully answer yes, I would consider them to be lost.

Blacksheep, I like you so I’m going to instill some of the years of my wisdom on you. (I know, you never asked but thats sometimes how its done) When it comes to debate, choose battles not necessarily because you can win them (take the easy ones if no one else will, can’t have lame positions won by default) but battles that need to come to light (war is the larger picture and inequality is at the heart of it, this will never change and why I have zero tolerance for bigotry and abuse of power). As for opponents you need not worry about me unless you get disrespectful, then I’ll treat you like I would anyone else. Defend/attack both sides before you play it out… as you would in a game of chess, moves and counters, don’t stay one dimensional, see it from your opponents point of view, its the best chance you have at a most balanced perspective and makes you a powerful adversary should you ever switch sides on an issue or debate when needed and when it comes to negative tone (I’m not the greatest with that one true? Do as I say, not as I do, hopelessly flawed as we all are :), it has a time and place but is too often motivated for justice driven by ego at the sacrifice of result. It’ll stick on you (massacres meditations). Just trying to help.

take care (I really mean it!)
daystar

ps I had a hernia operation a couple days ago with nothing to do but heal up and you’ve given me lots to think about. Thanks.

http://en.wikipedia.org/wiki/Robert_Axelrod

http://www.youtube.com/watch?v=h5kEYF1FcEU&feature=related

#168 T.J. BONES on 05.31.12 at 3:26 pm

Sir Garth: See what happens when you feed the bears!

#169 mike on 05.31.12 at 3:30 pm

We pay for mortgage + maintenance fee + property tax a total of $1450 per month. The condo is located in North York. If we sell and rent in the same building we have to pay $1400. If we go in a different building, in the area, we might rent for about $1200.
The difference is not huge, but still we do not know what to do: sell and rent, now ? …or wait until the prices go down and buy something larger to accommodate better our family, maybe a townhouse. We can not afford a townhouse now, but we might still not afford it when prices will drop, as our condo’s price will drop too. I do not think we can afford keeping the condo and buying a second property when the prices will drop.

#170 Devore on 05.31.12 at 3:38 pm

#152 Bill Gable

This is what it means when the average BC household has a negative savings rate. Lots of people borrowing money to make ends meet and pay daily expenses.

It’s an oxymoron, like “negative growth”.

#171 Blacksheep on 05.31.12 at 3:41 pm

Derek R,

“the commercial banks issue the loans first and the central bank creates the broad money about nine months later. So the reality is actually the opposite of the theory.”

The loans first model explained:

In the alternative model of money creation, loans are first extended by commercial banks – say, $1,000 of loans (following the example above), which may then require that the bank borrow $100 of reserves either from depositors (or other private sources of financing), or from the central bank. This view is advanced in endogenous money theory.

http://en.wikipedia.org/wiki/Money_creation

Note the commercial bank still needs to acquire the reserve sum of $100 from some source, even though they are lending out $1000, fractional reserve banking, is still taking place.

This model changes nothing, in the money multiplier equation.

As for Kydland and Prescott’s RBC theory, it speculates on temporary production shocks and how the market reacts.

http://en.wikipedia.org/wiki/Real_business_cycle_theory

Nothing I have read supports you claim. Please provide a link.

take care
Blacksheep

#172 daystar on 05.31.12 at 3:47 pm

#93 Dontcallmeshirley on 05.31.12 at 7:41 am @56 daystar,

Are you saying the gov’t has made market rules and changes so some other folks can profit from derivatives?

Some of it is regulatory, most definitely and CMHC it at the heart of it. The system has been around for a long time but the push for insurance (derivatives) and “securitizing loans” has been for profit, not safety and should the system be weakened precisely to exploit for profit especially from foreign entities, than the system needs to change and I’m thinking we need a change in government. Derivatives were a problem in the 90′s, they will be a problem going forward. There is a sequence and timeline, I think its exploitable and predictable.

“It’s possible, but unlikely because the counter-parties in derivative trades are at least as smart and devious. Stalemate.”

Unless its engineered and the market freefalls.

“Our gov’t has simply acted desperately to perpetuate a consumer spending economy.” – Don’t call me Shirley

If thats the case, they should be replaced but its not the case. Our housing market didn’t need juicing in 06′ or 07′ or 08′ (maybe the end of 08′ and 09′ would have been the time to do it but not to the regulatory extremes that were introduced back in 06′) Canada had other far more productive plays specifically with commodity development in Ontario and there could have been a great deal more work with Ontario and the feds than there was to reduce not only debt but strengthen GDP output in Ontario with an economic policy geared to be defensive with a high dollar in mind.

To me, the RE/credit bubble we see has FIRE lobby written all over it, taking wealth, energy and talent away from the directions we should have developed that lead to jobs that generate substained wealth, not mere one off construction. Manufacturing especially should have been encouraged to take as much domestic consumption market share as possible not just through taxation but some forms of protection. Energy hasn’t been the only sector pushing our dollar higher, its been housing. We were led down the wrong path and I’m convinced FIRE lobbies were behind it but thats just me.

#173 vic_guy on 05.31.12 at 3:50 pm

@ #89 Bilbo Bloggins on 05.30.12 at 2:19 am (previous blog posting)

Interesting, this sounds like a done deal but I haven’t heard any news ? Is BC Ferries considered a crown corp ? I wonder which large IT contract this is that you’re referencing.

#174 Intuitive Missus on 05.31.12 at 3:52 pm

Confidence in the Canadian Mortgage Market

A report from Will Dunning, Chief Economist, Canadian Assn of Accredited Mortgage Professionals.

http://www.wdunning.com/docs/CAAMP-2012-Spring-KF.pdf

Here’s the Spring 2012 presentation. Lots of information here.

http://www.wdunning.com/docs/CAAMP-2012-Spring-Pres.pdf

See page 40 of presentation for Final Thoughts.

Biggest risk factor for the mortgage market is:

“Loss of ability to pay”.

Gee, I wonder how many things could cause that.

Hmmmm…… loss of job, lower wages, too much debt, stock market losses, and so on and so on …….

People need to think about the things they CAN control and be prepared for the things they CAN’T.

#175 Can it be? on 05.31.12 at 4:08 pm

So… an update from people I know who are trying to sell. Thornhill… 4 weeks on the market… no showings this week. Mississauga speculators… will flip the house within three years, expecting no changes in the market. Real estate agents I know all going on vacation. Times must be good. My favourite listings in South east/west oakville with $200000 price reductions… has to go a long way down before it’s affordable for me. Port credit… nothing much, Lorne park prices are stable.. listings growing daily. Mineola… more and more listings… and are listed high… additional price drops. The market in my opinion has peaked in Mississauga/Oakville and if this spring/summer market for high end homes is low.. then the fall/winter is looking bleak in my opinion! Good times ahead.

#176 Inglorious Investor on 05.31.12 at 4:13 pm

#128 bigrider on 05.31.12 at 11:03 am:
“[…] rear view mirror investing is the only method of investing […] employed by the masses.”

And, by definition, technical analysts. An oversimplification, yes, but essentially true. Actually, I don’t know anyone who invests based on what happened in the future. As for what is GOING to happen? Good luck with that.

#177 truth hammer on 05.31.12 at 4:15 pm

Re # 149… and I thought it was all the ‘soapy time’ that was making my eyes weak and knees buckle.

The thing that the banks have over the CMHC is that the HELOC’s are ‘demand loans’. No need for that messy foreclosure nonsense……100% non registered debt….easily collectible by garnishment and thumb screw tactics.

The banks don’t wait for the ‘Order Nisi’ before they measure for new furniture…..They can give a yank and a heave ho to your bank account without fear of accountability.

Don’t cry for the HELOC loans the banks hold…they get their pound of flesh long before the taxpayer does.

#178 Inglorious Investor on 05.31.12 at 4:19 pm

#160 John on 05.31.12 at 2:18 pm

BTW, that article was in Spanish, not Italian. But it just goes to show your amazing linguistic legerdemain that, while your first language is probably English, you are able to read a Spanish text and simultaneously recite it in Italian. Bravo! ;)

#179 EB on 05.31.12 at 5:27 pm

The real threat to Canadians at this point – clearly Hoverbears.

#180 bigrider on 05.31.12 at 5:45 pm

#175 Inglorious Investor reply to Bigrider “..as for what is going to happen ,good luck with that”

I actually do hope the future is as random as you seem to be proselytizing. This way ,we actually may have a chance as financial asset investors going forward.

The consensus opinion out there is that in a deleveraging world, full of the obvious problems we hear about everyday at naeseum, most financial assets must fall in value or deliver subpar returns.

Except T.O RE of course…LOL

#181 Blue Monster Lover of Meats and Vegetables on 05.31.12 at 5:45 pm

#139 disciple on 05.31.12 at 11:55 am
Blog has been removed

Sorry, the blog at xdisciple.blogspot.com has been removed. This address is not available for new blogs.

Did you expect to see your blog here? See: ‘I can’t find my blog on the web, where is it?’


Nice blog you got there Dicksickal. Not onlt does everyone here think you’re an idiot but so does blog spot.

Have fun with your law suits moron. Maybe you can convince the judge that money is only in our imagination and walk!

#182 Arshes on 05.31.12 at 6:08 pm

# 90 Jim
The other issue with HELOCs is that they have already painted folks with a broad brush. My credit rating took a hit when I drew on the HELOC for investment purposes. As a result, it appears that I am a credit risk. But I have the assets to cover my liabilities.
———————————————————-
Thats because Credit Scores do not take into account assets. People with large amount of assets dont always pay thier bills and therefore arent always credit worthy, so its something not taken into account on the credit score. But they do take into consideration credit utilization, which is how much of the credit available to you do you use. The larger the percentage used the lower your credit score.

#183 Nostradamus Le Mad Vlad on 05.31.12 at 6:09 pm

#75 DondWest — “Seems we have entered an era of chaos; where only what on the surface comes across as stupid ideas will prevail.”

Chaos is a fair description, which will become far more intense as time rolls on. That’s why it’s refreshing to come here, get a new post from Garth six nights a week, read the comments and keep one’s attention span firmly off the garbage of this world. Good post.

#107 jess — ” ‘ROMNEY WARNS ‘WORLD NOT SAFE’ ”

Hi Jess. Gotta say the world would be a lot safer without all these politicos / lobbyists / crackpot yahoos added to the volatile mix, but I guess they’re the unnecessary evil that we have to put up with.

#157 Sebee and #175 Inglorious Investor — “Is hyperinflation the only way out of this mess?”
– plus –
“As for what is GOING to happen? Good luck with that.”

Put the two together and the same answer comes back — it would certainly liven things up a little bit, but no one knows, and that’s the great thing about life!

#184 Dontcallmeshirley on 05.31.12 at 6:49 pm

@171 daystar

Unless its engineered and the market freefalls.

——-

Even so, one side of a trade must profit. You’re straying into evil over-class fantasy world. I doubt our ruling class is as organized as you think.

I agree that Canada needs a “real” economy to complement the resource exporting.

The first step in achieving that would be lower income taxes. I can’t see that happening.

#185 comfortably numb on 05.31.12 at 7:15 pm

I was closing a clients’ account today and she mentioned she was selling her house. I said Oh, what do you have in mind next ? She says we’re renting because the market is going to drop. I said to her , wow you’re one of the enlightened ones. She says I better be, I work for Remax. She tells me she’s quite nervous about how long it may take to sell. This is in the nice part of Port Moody. (yes Garth, there is a nice part of Port Moody)

#186 Derek R on 05.31.12 at 7:16 pm

#170 Blacksheep on 05.31.12 at 3:41 pm wrote:
Note the commercial bank still needs to acquire the reserve sum of $100 from some source, even though they are lending out $1000, fractional reserve banking, is still taking place.

This model changes nothing, in the money multiplier equation.

You are assuming that there is some legal (or other) measure forcing the bank to have a reserve of $100 for every $1000 loaned. However this is not necessarily the case. In particular this is not the case for Canadian commercial banks which have no legal ratio. So Canadian banks can loan out money without paying any attention to the money multiplier equation. They are much more interested in the risk of running out of reserves.

It’s fractional reserve banking but not as you described it. In my opinion, it’s actually more dangerous than that.

As for Kydland and Prescott’s RBC theory, it speculates on temporary production shocks and how the market reacts.

http://en.wikipedia.org/wiki/Real_business_cycle_theory

Well yes it does but I wasn’t talking about their theory (which has been superseded anyway) I was talking about their empirical research which looked at what actually happens.

Nothing I have read supports you claim. Please provide a link.

Sure, the supporting article which is pretty unreadable can be found at

http://www.minneapolisfed.org/research/qr/qr1421.pdf

A lot of it is about how reality compares with their RBC stuff and frankly not that interesting. The sections of interest are the ones on Monetary Aggregates and the Concluding Remarks.

#187 Derek R on 05.31.12 at 7:21 pm

Blacksheep, here’s some more support for the “Loans first, deposits later” view from the Central bankers.

http://rwer.wordpress.com/2012/01/26/central-bankers-were-all-post-keynesians-now/

Happy reading!

#188 Harlee on 05.31.12 at 7:26 pm

A snapshot. ABC World News with Diane Sawyer on Thursday May 31,2012:
John Edwards trial, New Mexico fire,various highway crashes in the US,20 seconds about stock market slide & house prices rising in the US,NYC banning sugary sodas (with an interview with the mayor),American made goods in the Arab world,new world record for cars squeezing into parking spaces (in China),splashdown of space capsule ,George W. Bush’s visit to the White House.
The End. Good night….
This is the first time I’ve actually watched any American news program straight-through…
I’ve always heard that the American media is very insular but thought that was a judgement that might be unfair.
WORLD news ? I guess the 20 seconds about tight parking in China might qualify.
My gawd, I’m stunned as to what constitutes “World News” on American television…
Poor poor U.S.A. ….

#189 Derek R on 05.31.12 at 7:31 pm

#150 disciple on 05.31.12 at 1:02 pm wrote:
What do you mean by “create” it nine months later. I hope you don’t mean they print paper. Because that’s false. Only 3% of money is in the form of currency.

Rest assured, disciple. I didn’t mean they print paper. A much scarier process is involved: Double Entry Bookkeeping…

#190 JO on 05.31.12 at 7:51 pm

I work in the financial industry and word is out among top level finance/treasury execs that another mortgage price war is about to start any day now..rumours are that BMO will probably shoot first again.
JO

#191 a prairie dawg on 05.31.12 at 7:54 pm

“This has brought howls of anguish from mortgage brokers. This comment was published in the evil trade mag, Canadian Mortgage Trends:

“Wow !! I’m flabbergasted at these knee jerk reactions of the federal government and the OSFI that are forced upon the banks. I honestly don’t think that Flaherty and his ¨Thinktank¨ in Ottawa have fully assessed the ramifications of these regulation changes. Most Canadians are in a ¨House rich, cash poor¨ situation. Where will people get their cash to pay for :renos, tuition, investments ??”

- — -

How about from disposable income. You know, the kind earned from a job…

People spending far more than they make is what’s causing the problem. So the brokers think that is normal? How self serving of them. The reality is, if lending drops off, mortgage brokers will have to apply at Tim’s or Mickey D’s for their next job.

Talk about an industry with it’s head up it’s ass.

It reminds me of the real estate industry…. lol

#192 Nostradamus Le Mad Vlad on 05.31.12 at 7:54 pm

-
Thought For The Day — “The Final Act of the Uruguay Round, marking the conclusion of the most ambitious trade negotiation of our century, will give birth – in Morocco – to the World Trade Organization, the third pillar of the New World Order, along with the United Nations and the International Monetary Fund.” — Government of Morocco, April, 1994 Source: New York Times, full page ad by the government of Morocco (wrh.com.)
*
#187 Harlee — ABC is the WH mouthpiece, full of undredged sludge. Avoid it!
*
Time Bomb? Judge for yourselves; Spanish Panic, EZone Pre-collapse ramp up, Spain’s CDS “With Obama setting up the taxpayers to cover losses from Credit Default Swaps, Wall Street has no reason not to go on selling these CDS just as fast as they can, reaping huge profits, knowing they won’t have to pay the inevitable claims!” wrh.com; Spain Same as Greece, etc; US planned layoffs “Anyone able to talk about a US economic recovery with a straight face, looking at numbers like this, has obviously disconnected from reality entirely.” wrh.com; Bank Deal Students have a whole lotta added debt to pay; Germany’s six-point plan for their sweatshop called Europe; Bruce Springsteen The banker man grows fat, the working man grows thin; Citigroup Lady wins big against them; Wells Fargo seizes Stockton’s City Hall; French Unemployment Sarkozy’s legacy; Dow etc. Worst month for a while; Mark Zuckerberg ATM reject, and More Funny Money! UK Child Poverty When someone is down, kick them harder, and US Child Poverty #2 in world.
*
3:22 clip “Radiation Fallout Forecast for Canada, the US & Europe for the next 48 hours.” — Just wondering — the one reason the m$m doesn’t cover the Build My Burgers conference is because TPTB control the m$m. That’s why they’re main stream, and we’re not such as here — US Propaganda Presented by Auntie Beeb, and 1:38 clip War criminal Kissinger questioned about BdB’s; Boeing 787 Like 9-11? Pilots are not needed, radio – remote control will do just fine; High Fructose Corn Syrup Does anyone believe govts. anymore? Coconuts As good as Coconut Chicken Curry and Ancient Curry Spice; Low IQ? Possibly fluoride; The UN is full of shit.

#193 Derek R on 05.31.12 at 7:55 pm

Also loved this little explanation of how banks (or loan sharks) can operate without any reserves at all as long as they can borrow money at a lower interest rate than they charge their customers. This actually explains why banks charge you loadsamoney if you try to pay off your loan early:they can be left having to pay interest for borrowed money which they are no longer loaning out.

http://dailycapitalist.com/2011/07/20/fractional-reserve-is-not-the-problem/

#194 Westernman on 05.31.12 at 7:58 pm

Harlee @ # 187,
You think American news is insular… have you caught a Canadian “news” broadcast lately?
Don’t try thinking lad, just keep drinking the kool-aid in little Saskatoon…

#195 eddy on 05.31.12 at 8:15 pm

@ steve and Devore

i dont sell Helocs, I’m not planning on fleeing the country or paying ransom, and I’m not an idiot

Steve, you are asking why would someone need large amounts? You sound like my banker.
Small business is one example- meeting payrole, paying suppliers etc in a slow month. It can be hard for some businesses to get anything from the bank, so the HELOC does the job. The HELOC avoids having to answer the question:
‘what’s the money for?’
Basically a HELOC means you jump through the bankers hoops one time when you set it up. If you run a business and don’t have a HELOC you have to jump through the same hoops over and over.

My philosophy is- more available credit is better than less, but I am self employed.

Re my paranoia

A Toronto couple with clear title were victims of identity theft and had a mortgage put on their house by a criminal who fled the country, it was reported in the Toronto Star a few years back. It was a nightmare for the victims, a retired couple. It was a major bank who’s behavior was as as bad as the perpetraitors. If they had title insrance there would have been an easy resolution, or if they had a HELOC with a zero ballance the crime would not have been possible

#196 Snowboid on 05.31.12 at 8:19 pm

#161 Kilby on 05.31.12 at 2:33 pm…

Same as the Okanagan in our 3.5 year old high-rise! We are gradually becoming convinced it’s safer and far less expensive to rent – if we want to continue the condo lifestyle.

#197 disciple on 05.31.12 at 8:22 pm

#180 Blue Monster… You’re quite a jerk. But I must have hit a nerve. My blog seems to be up and running now, it must have been some type of warning from the opposition. I know they employ sophisticated tracking cookies and sometimes your speakers can be used as a microphone remotely by them. But I don’t want to scare y’all.

#198 disciple on 05.31.12 at 8:24 pm

#188 Derek R… Ah yes, where liabilities are magically turned into assets.

#199 disciple on 05.31.12 at 8:27 pm

It’s interesting that it was the day on which I confronted Euro Pacific directly over the Peter Schiff/Paul Reubens scam, that this happens. I would assume that the Schiff character is of high importance to their agenda. After all, he did “predict” so many events, and has recently fleeced his investors and turned to the old “pay me to store your gold” stupidity, so perhaps we need to pay more attention to what Schiff is “revealing” to get a better idea of the opposition’s nefarious plans…

#200 Snowboid on 05.31.12 at 8:31 pm

#172 vic_guy on 05.31.12 at 3:50 pm…

Bilbo is probably referring to the 10 year contract with IBM (and its’ subsidiaries) for desktop/laptop support.

As one of the negotiators for the original contract I can confirm the ‘cost-savings’ were imaginary – just as most of what the BC government pumped out about outsourcing over the last 11 years.

Costs remained the same, or were higher – and service levels went down.

The smaller private IT companies in BC gradually lost their contracts in favour of corporations such as IBM and HP/EDS, and the taxpayer was the ultimate loser in the deal.

#201 Market Bull on 05.31.12 at 8:39 pm

TREB weekly sales stats to May 31, 2012. Hot off the press:

2,479 Sales. Mean sale price $509,286.

The GTA is still house-horny as hell.

#202 johnny5z on 05.31.12 at 8:41 pm

Whatever happened to the notion of buying a house, paying the mortgage off, then having a mortgage burning party?

#203 GregW, Oakville on 05.31.12 at 8:45 pm

Hi Nastra, FYI Bilderberg Meetings Final List of Participants, look who’s included, CAN Carney, Mark J. Governor, Bank of Canada
http://www.bilderbergmeetings.org/participants2012.html
That infowars web sites is reporting clams there were also some others there, but they don’t seem to be on this list anyway.

#204 Derek R on 05.31.12 at 8:48 pm

#194 disciple on 05.31.12 at 8:24 pm wrote:
#188 Derek R… Ah yes, where liabilities are magically turned into assets.

That’s the one. Scary or what!

#205 Steve Thompson on 05.31.12 at 8:59 pm

Here’s an article that shows how Texas used legislation to limit the abuse of HELOCs by home owners:

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/03/AR2010040304983.html

#206 a prairie dawg on 05.31.12 at 9:03 pm

Hey Garth, I’ve noticed a few posts before that have a “bold period” after certain comments.

One just appeared on my last post too, right at the end.

Since I know I didn’t type it in my post, is it a forum glitch, or a secret decoder signal to the blog dogs? lol

You have been chosen. More later. — Garth

#207 dr.dr. on 05.31.12 at 9:15 pm

LAST!

#208 a prairie dawg on 05.31.12 at 9:19 pm

Take me to the promised land. :)

#209 Market Bull on 05.31.12 at 9:21 pm

BNN reports for May, 2012:

Gold loses 6%.

TSX down 6.3% for the month.

Oil suffers biggest monthly drop since December, 2008.

And some people wonder why the masses are so hot for real estate.

#210 Helga on 05.31.12 at 9:22 pm

Daughter and I are watching a condo development in her favourite area in Toronto, “The Phoebe”. A two-bed and two-bath was for sale a while back for $419.000. It sold after a few weeks for $417.000. Another one was listed at the same time, one bedroom, den, one bath, 890 sq ft., for $475.000. Now this is a perfect example of somebody looking for a greater fool. Luckily they did not find one. It now is for sale for $ 398.000 because the owners are closing on another condo.

#211 Devore on 05.31.12 at 9:26 pm

#194 eddy

No one is implying you’re a criminal or an idiot. I don’t even know where you got that from.

Your points are void. HELOCs are not going away. They’re still available to those with sufficient equity in their house. The regulations merely reinforce the idea that your your is not your investment account, it’s not a savings account, it’s not an ATM, it’s not a retirement plan. It’s a place to live. You can still setup a HELOC and take money out of it, no questions asked, for whatever unexpected and unplanned expenses come up. The bank regulator intends for banks to ensure their customers have an equity cushion even if the value of their collateral assets declines 30% (not an unreasonable request), so the loans do not have to be recalled whenever real estate has a burp.

Those who have not built up sufficient equity to be in a secure enough financial position to borrow money against their house, they can still enjoy exotic vacations, new cars, flat screen TVs, granite countertops, even covering those unexpected vet bills for their yorkie: they just need a savings account with a non-zero balance.

As for identity theft, there’s already a solution for you that you yourself are aware of, that does not involve going into debt: title insurance.

#212 The American on 05.31.12 at 9:31 pm

At #187: Harlee, perhaps you should then better understand WHAT you’re watching instead of trying to comprehend something of which you clearly know nothing about. The program you were watching is the 30 minute scheduled program which typically condenses “at home” issues for the AMERICAN audience. If you want to see an American-issued newscast that is pertinent to global news, you should be watching the 1-hour program hosted by Diane. Or, you could tune in and watch the Jim Lehrer News Hour, or you could tune in to any number of the other 27 news hour programs issued daily in the U.S. in the evening hours that report global news.

However, let me tell you what was on the CBC, one of about three real channels found in Canada, this evening – Yes, I had to even endure looking at the horrible ties on the anchors included in a ONE HOUR PROGRAM:

Round 1:
1) Stanley Cup Final (yawn yawn yawn) and the Devil’s head coach
2) Nicklas Lidstrom quits hockey (who the F*CK cares!)
3) Vancouver Whitecaps 1/3 of the way through the season (yet another god damned hockey story), a hectic month for them, and a brief with head coach Martin Rennie
4) Major League Soccer and games to come with Houston vs. Vancouver
5) Bob Hartley named new head coach of the Calgary Flames

Round 2:

6)Canadian weather report from Vancouver to Toronto. Basically it is pure crap weather from coast to coast, needless to say.

Round 3:
7) That sicko Canadian porn star from Montreal that mutilated another human being by chopping him up into pieces, sent his foot to a conservative party leader, a hand intercepted by the post, a torso stuffed in a suitcase found behind an apartment, and now INTERPOL has a search for him while he’s on the run. He’s a self-described expert in disappearing (sheesh, one would have thought this would have been at least near the top of the news hours, wouldn’t you think?) The Montreal police are “encouraging” INTERPOL to work quickly. LOL Now THAT is messed up. I have a question, though… Who was the person who lost his/her life? Your “news” reported nothing about the victim whatsoever.

Round 4:
8) 7 seconds on the stock market concerning the S&P/TSX, Venture, Dow Jones, and NASDAQ (I’m not shitting you, literally 7 seconds)

Round 5:
9) Prime suspect, Angus Mitchell, in two separate shooting death incidents in Vernon. The shooter had a privileged upbringing. Again, WHAT ABOUT THE DAMN VICTIMS!?!?! Nada, zip, zilch about those who lost their lives.
10) Vancouver’s police chief reacts, three damn days after the fact, to the shooting from a Police Officer to kill a mentally ill civilian, Paul Boyd. He was shot seven times by the officer as he was crawling on his hands and knees. The officer placed a final bullet in his head that killed him. Your news actually showed the tape of the person losing his life. REAL CLASSY TOUCH!
11) Gang Killing in Port Moody as a man was on his way to play ball hockey (whatever the hell that is). The local police department does NOT fund a homicide department. That’s some terrific infrastructure there. They have no idea who killed the victim and the killer hasn’t been caught. They mayor says there’s nothing to be afraid of.
12) Police don’t know where Donald Baker will live in Vancouver, but they believe he still poses a significant risk to woman and children. He tortured, assaulted, raped, and video taped young girls in a park abroad. He was given a 10-year sentence under Canada’s sex tourism law. He’s out now.
13) Burial site protest as a First Nations tribe, the Musqueaum tribe, views it as a desecration to their sacred site. Yeah, a new condo development is going to go up on it, and the developer was issued the go ahead to do it by city officials.
14) Signs being issued in Chinese to get drivers to reduce speeds in construction sites in Canada
15) Spring session of the provincial BC legislature has ended
16) Thieves stole a wheelchair from a 15 year old girl
17) No less than five cruise ships docked on Vancouver island
18) More weather report for Vancouver…. more rain
19) Canadian dollar ends at its lowest point against the USD in the past three months (that’s only to get worse for the CAD, by the way)
20) Some old guy on a bicycle trip who video recorded his trip in the 70s in Canada
21) Gas prices across Canada
22) More damn weather reports for Canada

Seriously, my mind is numb watching such garbage you would call “news.” Not ONE global story reported in an HOUR of television. I guess you could always tune into the BBC…. Wait, that’s British.

Remind me again who is poor? Oh yes, small-minded people such as yourself who refuse to inspect your own back yard before pointing at the trash in others. Funny the Canadian hypocrisy that is so clearly coming into view of the world (your banks and government included, mind you).

#213 a prairie dawg on 05.31.12 at 9:32 pm

ps,

if it’s the ‘most anal retentive reader award’, then I’d like to decline in advance. lol

#214 Westernman on 05.31.12 at 10:20 pm

The American @ # 211,
Well said… glad you did the elaboration on this Harlee character… I would have done it myself but these small town Canadian homeys are just not worth the keystrokes…

#215 Blue Monster Lover of Meats and Vegetables on 05.31.12 at 10:30 pm

American, that’s hilarious.
Sad but true.
Canada might have a monopoly on stupid. Chinese road signs? WoW.

#216 Brad in Van on 05.31.12 at 11:37 pm

The American, my wife and I thank you very much for pointing out the willing blindness and ignorance of some of our Canadian brethren. We are saddened by the fact your statements were actually very accurate as we watched that broadcast you are referring to this evening too. Have we really become so insipid as a Nation that we try to act superior to our American neighbours? Do we honestly believe we are not behaving just as the Americans? If we do believe it then we are even worse than hypocrites.

#217 Tony on 06.01.12 at 2:26 am

Well when the whole housing market implodes in Canada what will likely happen will be 50 percent down or no mortgage. In British Columbia the banks won’t even consider mortgages the people will have to go to loan sharks or lenders of last resort.

#218 Harlee on 06.01.12 at 7:46 am

#211 The American
These Americans are long-winded aren’t they? Giving me a detailed description of a CBC broadcast that I am sure I could have – and probably did-see sometime on my own TV.
And thin-skinned too,eh ? Where did I diss everything American ? I didn’t.Just how vapid I found this broadcast from ONE American network was. Nor does it make any differance to me that this was a HALF-hour program version as compared to the hour long version. It was still called WORLD News. As I pointed out, it only had one little item from China about how to squeeze a car into a tight space. I guess this justifies the “World” in the title ? Laughable is more like it…
The late-night news broadcast on CBC is called
‘The National’ and it does a pretty good job of covering the country. And it features some good coverage from other parts of the world too. As do the CBC Newsworld and CTV Newsnet channels during the day.Not perfect but certainly informative as to what is happening across the country.The world coverage probably isn’t as good as it could be but at least the items covered are important.
I have watched parts of PBS’s news broadcasts. Probably more intelligent than the other American network news but also rather boring . It tends to drag …(yawn)
And if The American (is the “The” pronounced like Thee?)is more concerned about what kind of ties the anchors are wearing, then that just confirms my suspicion that Americans are fairly superficial. Nice enough people (most of the time) but not exactly the deepest minds around…
All I can say to the Ameicans who live in Canada but have to find ways to diss it by anti-Canadian rhetoric is : “Canada -Love it or leave it buddy. Go back where you came from.”
- With Love, from Harlee

#219 Harlee on 06.01.12 at 8:05 am

#215 Brad in Van
Nice job of “sucking up” to the Yankee dollar…
No really, that’s a compliment. I mean it. It’s a real art (make that an Art – with a capital A) to string words togeather so good as you do. Short (thank goodness)and sweet as you lick the boots of our American masters….I hope you’re blushing with pride at your accomplishment. I wish I was there where you are so I could pin a medal on you sir.
In Van(couver) eh ? Were you by any chance a draft dodger from the US ? No…! Forget I asked that. None of my business !
You just keep on keeping on what you’re doing with the Americans like you do…Make us Canucks proud with the “lickey lickey”.
Your Friend on the bald prairie, Harlee

#220 jess on 06.01.12 at 8:08 am

Building back integrity?

The Case of the Misbranded Drug Leads to Massive Fine and Penalties

“Together, that’s nearly $950 million in penalties that will be returned to federal and state health care programs, a significant windfall to taxpayers.

significant outcome: Merck agreed to enter into a corporate integrity agreement with the Department of Health and Human Services’ Office of Inspector General that will strengthen the system of reviews and oversight procedures imposed on the company.
http://www.fbi.gov/news/stories/2012/may/drug_052912

list of signers
http://oig.hhs.gov/compliance/corporate-integrity-agreements/cia-documents.asp
==============
Job shortages ? Better prove they are qualified?

“According to court documents, the ring passed off unqualified workers as nurses who provided in-home medical care to about 75 disabled patients, many of them children with cerebral palsy or developmental disabilities.

“Why was their conduct wrong?” U.S. Attorney Thomas P. O’Brien asked during a downtown news conference.

“Stated simply, the ring hired unlicensed individuals and passed them off as licensed vocational nurses to both Medi-Cal and parents of disabled children,” news wires on the Bendigo-Lim case went.

#221 disciple on 06.01.12 at 8:40 am

#180 Blue Monstrosity… Why are you checking on my blog every hour? You work for the government, don’t you? You know, the same gov’t which you consistently disparage. Let me guess… a politician. As in someone who thinks they speak for “everyone on this blog.” Such venom from someone who should eat their words along with their meat and vegetables. You’ve been outed by disciple.