For a mortgage broker, a guy who scratches out a living giving money to house-lusty GTA couples, Damian is a skeptic.
“I’ve had clients in the last couple weeks come in looking for additional financing,” he says. “It seems ‘shadow lending’ is more prevalent now-a-days and people are trying to pay these awful loans out before their renewal period… If people are borrowing from these lenders at 12% and also have an 80% mortgage with a credit union or maybe a bank if they’re lucky, wouldn’t this be considered sub-prime?”
You bet. And it’s a far more common practice than most people think. With the average detached 416 shack now at $1.047 million, and no CMHC insurance available, buyers have to cough up a 20% down payment, plus finance the double land transfer tax. On a modest $1.5 million house, it means showing up with $352,000 in cash, then taking on a $1.2 million mortgage. If you lack that in your chequing account, there are brokers who will happily lend you the missing hunk of the down. Yes, at double-digit rates of interest. And, yeah, it’s prime Canadian subprime.
Debt’s a disease now out of control in our midst. In fact, Damian’s mom is a good example. “She’s 66, got laid off in the summer, not enough money to live on, and has a townhouse in Vaughan worth roughly $700,000,” he says, “with a mortgage. I’ve talked to her about selling and renting, to max out on this crazed market. I know what you’re thinking. Good luck trying to predict the peak. But if I’m advising her, I don’t want to be the guy that convinces her to sell at 700k and prices soar to 800k… I have enough brothers and sisters that I won’t hear the end of it.”
Adds the broker: “But I just feel when people in the GTA run for the door, they’ll run for it faster than they got in.”
Nowhere are the dangers of the one-asset strategy most Canadians have adopted more acute than on the coast. All real estate is local, and in BC its obsession has produced the only negative savings rate in Canada, as locals routinely spend more than they earn, making up the difference with debt, delusion and basement suites. The average house in Metro Van, as a result, costs $1.248 million and increased 23% last year. The average detached in the city is $2.5 million. The mega-lending credit union Vancity helps facilitate this with a palate of mortgages you won’t see anywhere else – dishing out loans to unrelated buyers of a single property, financing sketchy laneway houses, or gifting the self-employed who have no proof of income, plus enabling first-time buyers without savings.
As prices detach from the economy and local incomes, people look to cast blame. While an intoxicating mix of cheap rates and rank speculation has led to the embrace of debt and an obsession with houses, the social consequences turn ugly. The young feel shut out and blame the old. Long-time residents watch their hoods fall victim to speculation and excess. Old stockers decry foreign buyers, blaming them for idiot prices while they relish in the wealth effect they bring. And so Vancouver morphs from a hip and livable city into a giant cauldron of listings, simmered in greed and anti-Chinese.
Politicians are feeling the heat. And succumbing. The federal Libs say they’ll be collecting and analyzing the data on foreign buyers – everyone’s favorite straw men. The provincial government is now playing along, issuing a request for proposals on a “Foreign Investment Research Initiative” which may report in six months. The mandate: “Examine key factors affecting prices for new and resale homes in B.C.; impact of foreign home ownership on home prices, with a particular focus on the Lower Mainland; what sources of data are needed to measure the extent of foreign home ownership and price impacts; to what extent other jurisdictions are experiencing impacts from foreign home ownership, and what measures they are taking.”
What will it find?
Not much, muse the premier and the BC Real Estate Association – which has been providing politicians (secretly) with data over the last five years. Christy Clark is on record as saying most real estate deals in YVR are local-to-local, while her government claims: “There is a perception that foreign investors and speculators are driving an affordability crisis in residential real estate — particularly in Greater Vancouver. The data we have does not support this perception.” Meanwhile the realtors say their numbers show “less than 5%” of buyers are non-residents.
Well, let’s wait and see. The report might confirm that rich dudes escaping from mainland China are destroying Vancouver, or it could prove human greed and mania are fomenting a destructive racist envy.
Meanwhile there’s hard data from the closest major market. Victoria ain’t Vancouver, but it’s not Winnipeg, either. Here’s what an internal report from the local real estate board shows. Apparently everybody dreams of living in that lovely burg. But they’re not.