Zero down = zero house?

Reprinted from condohype blog (Vancouver), here.

Unless you’ve been sequestered in your condo’s windowless “flex room” for the last 48 hours doing nothing but basking in the glow of your own self-appreciation, you’re well aware that the feds popped a cap in the ass of the 40-year amortization and the zero-down loan.  With this decision carried out by the government to minimize the risk of a “U.S.-style housing bubble” happening in Canada, the threshold to borrow moves higher.  And as such, the pool of potential home buyers grows smaller.  Could this be the bullet that kills B.C.’s real estate bull for good?

While the media and the experts are far from waving the white flag, it’s impossible to interpret their analysis as positive in tone.  In fact, the Sun’s sensational front-page story about the new mortgage rules is probably the most negatively toned story related to B.C. real estate since the leaky condo crisis of the 1990s.  What’s sad is that the current story isn’t actually very negative — it only appears so in comparison to the euphoric “Vancouver real estate is hotter than sex with Angelina Jolie” coverage of the past five years.

The disconnect between public opinion and media opinion on the B.C. real estate issue is growing.   When Cameron Muir took questions on Thursday’s Bill Good Show, many callers expressed serious concerns about mortgage lending and approval practices.  I was struck by the technical nature of the questions.  They seemed to catch Muir a little off-guard, forcing him to fall back to broad key messages about the “strength” of the Canadian banking system as a safeguard against bad lending.

Like everyone, I watch and wait with great anticipation.  We have the makings of a meltdown.  The heat is on.


#1 Westcoaster on 07.12.08 at 12:02 pm

It feels like we are peering over a precipice which is crumbling underneath our feet while looking over at our neighbour (to the south) who has already fallen and is making a lot of noise in the first few feet of a free fall. Wondering when/what the next kicker will be: a hike in interest rates? Another global crisis? Another war (?Iran)? In any case I get the feeling that it wouldn’t take too much at this point to get to the point where even the RE hypers would have to ‘fess up that the party is over – I say it will happen well before October 15 and my guess is that it will be a combination of rumours of interest rate hikes (or the real thing) or a serious stock market collapse.

#2 nonplused on 07.12.08 at 12:37 pm

I say it’s reactionary. All credit induced bubbles deflate due to exhaustion not new rules. The fact is to keep writing 0/40’s sooner rather than later they were going to have to start targeting minors. I mean, really, is there anyone out there who wants a condo and hasn’t already bought 1 or 3?

If the government really wanted to introduce some sanity they’d go to at least a 5%/25 and I say they will soon enough.

And as for the Canadian banking system being so “strong”, where do these jokers come from??? We don’t even have our own crises yet and already Canadian banks are writing off billions in losses on thier misadventures in the US. The “strength” aregument is a myth. Our banksters are greedy fools just like thier banksters. As Buffet likes to say, when the tide goes out, we’ll see who’s been swimming naked.

#3 calgary on 07.12.08 at 1:09 pm

I enjoyed this blog and found relieve from what I was reading in the papers. I found it helpful to enforce my thoughts in what is actually happening in the housing market. Everything I see in the Media appears to be contradictory to the numbers.

Sure the “GREATER FOOL” views may appear to be doom and gloom, but I saw them as a warning to those who had recently bought or thinking of buying. A fool is someone who invests in the future (1/2 million average SF home) without knowing all sides. Just as some speculate the market is going up, some speculate it’s going down.

Real Estate agents have their own agenda, they want to make sales, it is their job and income, (they are not volunteering there services and they take a percentage-the more you pay the more they make) whether they represent the buyer or seller. It is the system we use, just know the rules.

Newspapers have “Home” sections that generate revenue for them; publishers are not going to blatantly bite the hand that feeds them by predicting a huge slowdown. Few benefit from a RE meltdown, maybe bargain hunters (not a negative reference), but bargain hunters don’t take out full page ads every week.

When the Real Estate numbers cannot be spun or swept under the carpet anymore, the house of cards will fall. Then the story of how the market is falling will be the new “hot” story, by then its too late for all the “Greater fools”.

No, we cannot predict the future, but we can look South as an indicator. We have always mirrored the U.S. Why is this different?

#4 jrochest on 07.12.08 at 2:32 pm

This is important and all, but I’m getting a little concerned about our neighbour to the south: it’s one thing when the RE market goes pear-shaped, which all here expected, but it’s another when banks close (Indymac). And Fanny Mae/Freddy Mac are teetering perilously close to disaster: not good.

Anyone got any ideas about how this is likely to shape up? It’s starting to look like major, massive impact on a global scale is possible.

Hell, it’s starting to look — well, very very bad indeed.

#5 poorguy on 07.12.08 at 3:16 pm

“Hell, it’s starting to look — well, very very bad indeed”

Well,this is the best time to buy property if you listen to
RE pumpers

#6 EssGee on 07.12.08 at 3:33 pm

I completely agree with jrochest on this one.

Although I wouldn’t mind seeing some blood on the floor from this whole mess, a crumbling financial system definitely doesn’t do us any good.

Indymac was the second largest bank failure in US history. The scary part is that there are another 100 or so banks in the exact same situation that are just teetering on the brink of collapse. Also, if FNM and FRE are actually insolvent, the government’s reaction will make the Bear Stearns bailout seem like chump change in comparison. That’s a $5 trillion dollar mess – or about a third of total US GDP.

Lehman Brothers is in a whole heap of trouble as well and Bank of America lost about $80 billion since it bought Countrywide.

Should be an interesting week on the street…we’ll see how this thing sorts itself out.

#7 David on 07.12.08 at 3:33 pm

Talking about minimizing the risk of a housing bubble at this late juncture is laughable to the point of parody. Families that would under normal circumstances have waited and saved up a down payment rushed into the market with no equity and high hopes of ever rising prices. Families that were not financially ready for the responsibilities of home ownership joined the party anyway, regardless of potential financial risks or price considerations. Prepare to watched the real estate bulls get gored.

#8 Farley Mohawk on 07.12.08 at 3:37 pm

In coverage of the CMHC changes, I keep reading that the government backs mortgage insurance issued even by the private insurers like Genworth.

Is the idea that there are alternative ‘private’ insurers in the marketplace really just smoke-and-mirrors?

#9 poorguy on 07.12.08 at 3:46 pm

oops! Forgot the source

CP24 channel

#10 Another Albertan on 07.12.08 at 3:49 pm

Lehman is on the ropes too, as I posted a few weeks ago. There are too many reports that have come through Bloomberg, Reuters, etc that have conflicting comments from government, industry and company talking heads.

If the markets do not like the tone (to which they have not in recent weeks), the reaction can be and is usually swift, deep and brutal.

The global impact has been underway basically since spring 2007 when the CDO market started to seize. We are dealing with a series of chained implications as the effects ripple through the global economy.

The work week starts Sunday afternoon when the Asian markets open…

#11 Gord In Vancouver on 07.12.08 at 3:57 pm

This article pretty well summarizes the Greater Vancouver media sentiment right now – minimize the exposure of the recent policy change. Print and radio media have given it considerably more attention than television outlets have. Global BC is in an awkward situation as Remax is one of its sponsors.

Let the sweating begin !!!!!

#12 grant on 07.12.08 at 7:55 pm

A BMO and CIBC banks aren’t even waiting till October! They changed their policy overnight starting today!!!!

Watch for the other banks to follow suit!!!

#13 My_view on 07.12.08 at 9:10 pm

Why is Canada not rich and I mean stinky rich? Canada has some of the worlds most natural resources! Saudi Arabia has oil and sand. Canada has oil, soil, fertilizer, trees, water, copper, steel ore, gold, nickel and on, on, on, on!!!

2nd largest country, very low population and the worst government managing the country I love………

#14 Sam on 07.12.08 at 9:22 pm


It’s the taxation that kills us. low population = less spending= higher taxation required. – Simple.

#15 patriotz on 07.12.08 at 10:35 pm

My_view, Canada is much richer per capita than Saudi Arabia. The average Canadian is much better off than the average Saudi, not to mention the 1/2 of the population who are not citizens, can never become citizens, and work for slave wages.

Don’t believe that the super rich Saudis you see in the news are in any way representative of the general population.

And if you think Canda has bad government – take a look at countries like Saudi Arabia.

#16 sarah on 07.12.08 at 10:47 pm

Love that condohype blog!

#17 WetCoaster on 07.12.08 at 11:34 pm

Why is Canada not rich and I mean stinky rich?

Simple. It doesn’t belong to the people that live here. It’s already been divided up among various elites and has been since its inception. They are ‘stinky’ rich, however.

Don’t get confused: the wealth of the nation does not equate to wealth of the citizens. There is no correlation.

#18 prairie gopher on 07.13.08 at 12:50 am

Here in Saskatchewind(Spelled it wrong on purpose), we are told it’s the best time to buy. The streets will soon be paved with gold. I’d just be happy with decent asphalt. Don’t realtors and politicians have any morals. Oops, I forgot, how silly of me. The greater fools are loading up with real estate waiting to make a fast buck. How naive!!

#19 David on 07.13.08 at 1:31 am

It is standing the English language on its head to call people who got tricked into the 0/40 mortgage rackets owners. Calling these people glorified renters with huge personal liabilities is much closer to the truth. Fake paper real estate wealth will be supplanted by real live financial losses as the bubble unravels.
These technical financing changes in and of themselves will not be the cause of the deflationary pricing on houses.

#20 Future Expatriate on 07.13.08 at 2:18 am

If you think Canada has bad government – take a look at countries like the United States.

#21 GrandePrairiegirl on 07.13.08 at 10:49 am

To prairie gopher, no they don’t have any morals. Realtors are in it for the money in my opinion. I’ve been a single homeowner for years now and getting to the point where it’s becoming too much for me to work fulltime and look after a home fulltime as well. So much as I love my yard work am going to fish and see if I get bites around the end of August. Not a must sell sale and I won’t be using a realtor. Nothing they do would justify my paying them a commission to the tune of $13,000.00. That’s based on 7% on first 100,- and 3% on the balance I believe. I have the means to advertise in local paper in colour as well as online with a do-it-yourself outfit. I’ve done it once before and it’s not rocket science. Once you complete an offer to purchase along with a deposit from the buyer it’s all in the lawyer’s hands after that. Open houses do not usually sell a house either, you’ll usually get tirekickers but nothing else.
Politicians,well I don’t know. Money,Power & Greed come to mind. Also idiocy.
Patriotz & My-view yes we do have wealth & resources even if we don’t have the population base equivalent of the U.S. and trust me we wouldn’t want that, whole new set of problems. Anyone worried about real estate these days I’d have to say it’s the least of your problems in comparison to what’s coming down the pipe potentially. Next time you have a couple of hours to spare try googling some of the following.
– Binational Planning Group
-Security & Prosperity Partnership Agreement
-NAFTA Corridor
-The Bilderberg Group
-Verichip (RFID)
-Rex84 (Halliburton division building compounds for U.S. Feds)
-Proportionality – by Richard Heinberg
A good website for relevant articles is
And as to resources etc. who are the IDIOTS that agreed to & signed the NAFTA agreement containing a clause which more or less states that : ‘Canada must continue to supply the U.S. with the same proportion of it’s Oil & Gas resources in the future as it does now.
Are our politicians retarded?
Our production is in decline, at least in Alberta, the cheap to extract product is dwindling and any new finds in unconvential plays will be more expensive to get out of the ground. Yet we have to keep supplying the U.S.
product for Canadian consumption is bought back on the market at market rates. This is why it’s expensive at our pumps. Further, we are the only oil producing Western Industrial country not to have a SPR, that’s Strategic Petroleum Reserve.
We are so screwed and just don’t know it yet.
Sorry back to real estate and mortgages. Breaking news from Friday July 11th, Office of Thrift Supervision Shuts down IndyMac in California. It’s the second largest regulated thrift to fail and the second largest financial institution to close in U.S. history.
I’m guessing Fannie May or Freddie Mac will be next.
The U.S. will struggle along with ups and downs until January ’09. Keep things going until the new president takes office, it is January when he or she takes office correct? You will start to see inflation accelerating towards hyperinflation by 2010. If not 2010 then within a decade,barring a major world event prior to 2010.
And folks if you think that won’t affect us this side of the “border” then may God be with you. And my apologies in advance for the gloom. I sincerely hope and pray that I’m wrong.

#22 GrandePrairiegirl on 07.13.08 at 11:06 am

Me again,
Just received an email from a friend that needs to be shared. Being a dog owner I think it’s hilarious of course, and could be applied to the real estate conundrum.
Thought For The Day!
“Handle every situation like a Dog”
If you can’t eat it or play with it,
Pee on it and walk away!!


To Garth Turner or anyone here that may have some insight.
I as one lowly peon can not make a difference in the world, only my immediate environment. There is strength in numbers. So what would be the preliminary steps or actions to take on starting a grass roots group that would be able to initiate changes to our lovely governmental system. Not a fly by night group.
Is this an impossibility? I truly want to make a difference in some way but not within the established regime. Don’t laugh.

#23 Mountain Girl on 07.13.08 at 12:15 pm

David from post #19 –
I take no credit for these – I’ve come across them at various other blogs:
a home-owner with a 0/40:
a home-ower
a home-debtor
The last is used with particular vehemence on housing bubble blogs from the US.
I wonder if those words will make it into next year’s Oxford English Dictionary?

#24 prairie gopher on 07.13.08 at 12:50 pm

Grandeprairiegirl, is your market beginning to decline? I’ve heard your market is flooded with listings?? Any truth to that?

#25 GrandePrairiegirl on 07.13.08 at 1:24 pm

prairie gopher I think it’s heading that way. SFH listings are still at a reasonable level. Condo’s there is a 12 month supply, or so they say.
The daily paper here has a real estate flyer of sorts that comes out twice a month I believe. The latest one had around 700 listings for Grande Prairie proper. This includes new builder homes,resales,condos,mobiles.
I didn’t count the surrounding area listings.
New building has been cut back by 80% however. Builders need to get rid of existing inventory.
Driving around at least I’m not seeing for sale signs on every 3rd or 4th lawn as in Calgary or Edmonton.
However drilling forecasts for the last half of 2008 have been revised upward by 28% to 18,000 wells which is only marginally lower than 2007 at 19,144 wells. But while the CAODC say they have just under 900 rigs ready to roll they only have enough people to comfortably staff 500. So once again a shortage of people.
This may cause a bit of a spike in real estate here,but alot depends on various factors. For one thing I don’t know for certain where the majority of the 18,000 wells will be punched. I have heard southern alberta mentioned as well as northwest of Grande Prairie. Wish I had a Crystal Ball some days :)

#26 hal on 07.13.08 at 3:21 pm

Garth: I just finished your book and I had a few scary thoughts……….Canada’s “robust ” economy is just us selling each other houses at higher and higher prices and this is all funded by mountains and mountains of long term debt……..What happens when this stops and the construction workers are out of work…….. Almost everyone I know is up to their ying yangs in debt…….. government inflation numbers have no relevance to the cost of living.They claim 2% inflation but house prices rise 17% a year and the cost of gas is up 50% since last year and everything in the grocery store is going up and up. Why do they keep lying to us? You seem to be an honest MP so tell me, why are they lying to us? The real cost of living is going up more like 8 or 10% a year. Shouldn’t the inflation numbers reflect the real cost of living?

#27 hal on 07.13.08 at 3:24 pm

Shit, I just figured it out. If we didn’t have a “robust” housing market the economy would collapse wouldn’t it?

#28 nearmilton on 07.13.08 at 5:25 pm

Another factor in this bustling RE industry is phantom bids. There was an article about this in yesterday’s TO star, but it isn’t online. Here is an older article on the topic

How fixed has this market become?

Was in etobicoke lakeshore area, speaking to a seller, friend of their open house today, a bid came in 50k less than asking of 480k. Houses in the same neighborhood were sold much higher than 480k in the past few years, it is amazing how subjective real estate values are…and how quickly they can erode.

It is in everyone’s interest if house prices in the GTA return back to normal affordable levels…A house in Canada is really just 2x4s and some drywall nailed together…

#29 nearmilton on 07.13.08 at 5:28 pm

Found yesterday’s article

#30 rationalnational on 07.13.08 at 7:42 pm

hal, happy to see that you have had an epiphany. This virtuous cycle has been fueled by massive consumption and materialism. “John, the Jone’s just got a new house with granite counter tops and a new car, why can’t we have those things? They make less than we do and can afford it”

So, they go off to buy the house along with hundreds of thousands of others. The companies supplying lumber, fittings, shingles, concrete, windows, cable, etc. etc. all experience a boom…so they decide to expand. They have to expand so much that they need to debt finance to grow. When they ramp up they buy more steel, more raw materials, employ more people who now have the money to buy their own homes. Inflation really kicks in.. Wow…boom times.

Problem is that the systemic growth was all fueled by the cheap, and easy credit. There have been major distortions in the credit markets due to petro-dollars and those returned by China into US treasuries. When these dollars was back on the north american shores in this manner, they push bond yields down. Low yields make credit cheap. The “consumers” have been given an unending supply of heroin by the merchant banks of OPEC and China. Buy more..China buys more treasuries..debt is cheaper…USD stays high…on and on until the music stops.

Now, it would appear that the music has stopped. What next? Well, turn the equation upside down. China and OPEC countries stop buying US treasuries. Interest rates should respond upward, but they don’t, at least not yet, because it would cause the credit mountains to collapse. The slowdown causes corporations to slow down, they even begin layoffs. Some of those laid off are faced with selling their homes. Others affected by the slowdown sell too. Defaults rise as those underwater realize its easier to walk away, others just can’t make it any more. Companies fail faster as demand for their products continues to wane. The banks begin to fail. They are bailed out by the FED (we’ll see the BOC do this too in this cycle). The currency falls (is diluted) as money is printed to support these failed banks due to the “systemic” risk they present. Inflation is the result. The balance sheet of the central banks worsens. It’s a vicious cycle. Further, it’s a race to the bottom. The collapse of the USD is quite possible. What would Canada do to it’s currency if it’s largest trading partner (80% of exports!) has an exchange rate of 10-1? Devalue of course. Watch for the Amero to raise it’s head!

#31 Lance on 07.13.08 at 8:24 pm

“If we didn’t have a “robust” housing market the economy would collapse wouldn’t it?”

Yup. They lie to us in hopes that we’ll have a soft landing and don’t panic… but as we can see across the border, there is no soft landing waiting for us. We’re only just beginning to descend in to the abyss.

#32 Popping Bubbles on 07.13.08 at 8:28 pm

Whooa. We’re all overreacting. Apparently the new rules aren’t going to have much of an impact:

New Canada mortgage rules won’t deflate market

“Not much will change with the government’s new rules”, said Gregory Klump, chief economist at CREA.

“We don’t anticipate that the announcement is going to have a significant impact on resale housing activity,” he said.

Yet another instance of the real estate industry trying to pass of “marketing” as “analysis”. And with record high housing prices, record inventory for sale, home construction far in excess of household formation, declining real estate sales, record consumer indebtedness, record energy prices, ridiculous lending practices (yes, in Canada), increasing unemployment, and an economy in recession, what better time for the “experts” to lure in some more unsophisticated consumers.

Islander… yet ANOTHER example of why I stand by my previous comments that real estate agents are realtors are self-interested, dishonourable scumbags shouldn’t be trusted. Shame.

#33 islander on 07.13.08 at 8:51 pm

GP Girl said: …Realtors are in it for the money in my opinion. …

Hey. No Sh!t. It’s called a “job,” not charity work.

#34 lgre on 07.13.08 at 10:45 pm

as far as realtors go, yes they are money sucking scumbags but so is anyone else who is in a sales position. It’s up to the customers to grow a brain and do their own research and not listen to realtors, buying houses $50k over asking price is just plain STUPID, anyone doing this deserves to go to the poor house in my opinion.

#35 Keith in Calgary on 07.13.08 at 10:52 pm

Well…….the US government is baling out Fannie and Freddie…….say good bye to the USD as you once knew it…..for it shall soon be called the US yuan……as China is the largest mortgage bondholder.

Wonder how those clowns at CMHC are holding up…….with all the mortgage backed securities they have raised and pawned off with their guarantee attached.

#36 mike on 07.14.08 at 12:03 am

Well keith in Calgary you may get a kick out of this one. I went to see a few open house…less than 5 visitors at each place….and one realty SLASH world economist felt that there was good news about freddie & fannie…I guess I missed the good news amongst the talk of the stock dropping 50% plus and the 5 trillion dollar bailout needed. Amongst some sparring over how it will inevitably effect GTA real estate she eventually dismissed me to attend to her clients. Her house, by the way, was an estate sale in a fairly popular area that had been freshly painted in an effort to hide the 60’s kitchen and bath . Ohh…. Forgot to mention…. House had been up for sale for 4 weeks and was not holding back offers ie offers presented to the vendor at some specified time to generate multi bids…..she got no offers just the prospect of one person needing to sell first in order to buy. So stop reading the wall street journal or watching BNN or CNN for financial info…..just call your local realty for some real insights. They’ll set you straight.

#37 PKS on 07.15.08 at 1:06 am

I live in Vancouver. I rent. But i have 2 friends who need to sell a house in the commercial drive trendy area and a condo in new west (due to divorce and moving to another province, respectively).

They’ve both been having open-houses 2-4 times a week since the first week of June.

Neither of them have had a single offer.

A year ago, either of them would’ve had a bidding war within two weeks of putting their properties on the market.

So sure people with a vested interest in the real estate market like realtors or mortgage brokers might say that there’s no bubble, and if there is, it isn’t bursting, but trust the evidence of your senses.

#38 Patricia Houlihan on 07.15.08 at 5:26 pm

Your friends places should sell-but its not doing open houses that will do it! This time last year yes-but not so much now…
Right now, east van is still one of the strongest markets in the Lower Mainland; however, it is critical to price right-at least at where it should sell based on the CURRENT market (a lot of sellers are still thinking last year) or a bit lower than that. We are still getting multiple offers on some properties that are well priced-but little activity on others.
Yes the market is slowing and that was to be expected but I don’t think we will have a melt down like the USA-the same economic factors are not at play….