Ottawa’s bubble


With house prices rising, and incomes not, with bidding wars in many centres and real estate values at a record level, one question looms: Where’s the money coming from? How are buyers, especially newbies, pulling this off?

Well, chew on this: Two years ago when RBC did its annual survey of homebuying intentions it asked first-time buyers how much of a down payment they planned on making. Twenty-one per cent said their down would be “between $1 and $5,000.”

That was in 2007. Since then there’s every indication things have gotten worse. In fact, for people taking out mortgages today it’s estimated the average amount of equity they have is just 6%. The leaves 94% of the house value as debt. And while reliable statistics on this are hard to find, my banker buddies tell me that virtually every new loan they write these days is for 5% down, with a 35-year mortgage. After all, if you’re buying in Vancouver. Calgary or Toronto, that’s the only way banks can swing the deal.

So this answers the question of where the money to fuel this housing bubble originates. Bankers. And why would banks take the major gamble of loaning, say, $380,000 to people who are buying a $400,000 house and only have $20,000? If markets fall 10%, or even 5%, that homeowning couple’s equity is entirely wiped out. In fact, the value of the home could easily drop beneath the value of the loan, which would constitute an absolute loss for the bank.

And here’s another good question: If I want to buy that $400,000 house and have $200,000 for a downpayment, why am I paying the same mortgage interest rate as the first-timers who barely have pizza money? Don’t they constitute a larger risk? Where’s the risk premium on the money loaned to them? Why is this system so screwed up that ultra high-risk borrowers have money showered upon them by our famously conservative and prudent banks?

The answer’s simple: the banks don’t take any risk. It’s all on the taxpayers, thanks to CMHC.

CHMC1 And these days, Canada Mortgage and Housing Corporation is turning into a financial behemoth, as Ottawa uses it to fuel a housing boom that’s clearly turned into an asset bubble. Last year alone, CHMC  did 919,780 deals worth a staggering $148 billion, or about twice what it had planned. To accommodate that, the feds have raised its allowable insured mortgage limit to $600 billion, or about double what it was two years ago.

Here’s how CMHC and the federal government are inflating the real estate bubble:

  • CMHC provides insurance to the lender (the bank) for the entire amount of any mortgage it makes when the purchaser has less than 20% to put down. These days, that’s virtually every new deal.
  • If the homeowner defaults, the bank gets 100% of its money. The taxpayer’s on the hook for the loss.
  • This insurance means the banks face no risk lending money to people with little or no credit rating and virtually no equity, so they charge no rate premium.
  • Buyers are then able to access money at the same current cheap rates as the bank’s wealthiest and most credit-worthy customers, allowing them to bid up house prices.
  • There is no penalty anywhere in the system, except for CMHC insurance payments, for having close to a zero downpayment.
  • Banks will allow borrowers to simply add that insurance payment to their mortgage principles, so many buyers are not even aware of it.
  • And through CMHC, Ottawa has bought up tens of billions in existing high-risk mortgages from the banks, even though there was no default, which opened up their balance sheets and allowed them to make even more high-ratio loans.

CMHC is now larger than at least one of the Big Six banks and is, comparatively speaking, unregulated.

A nation of debtors. Guaranteed.


#1 Grace on 10.16.09 at 10:33 pm

Back in 1981 when the interest rates zoomed up to 20%, thousands of Canadian left their house keys on the kitchen counter and walked away. The taxpapers picked up the tab by millions of dollars.

History does repeat itself. What has changed????

#2 DrC on 10.16.09 at 10:47 pm

The prudent will bail out the foolish through higher taxes. While the too-big to fail Big Six cotinue to cartel their way to profit. Can anyone tell me how much they bribe, sorry, “donate” to the Liberals and Conservatives each year?

#3 HouseBuster on 10.16.09 at 10:47 pm

Hey, it all works as long as house prices keep going up.

#4 Ted on 10.16.09 at 10:57 pm

Until now the premiums paid by buyers have always covered claims by banks for losses and tax payers have been spared any cost to them. CMHCs billions of surplus $$ is what paid for those risky mortgages from the banks. realistically its the buyers who have paid the premiums the have funded the bailout and not tax payers.

#5 bcweatherman on 10.16.09 at 11:23 pm

Yikes. And these guys used to be the reform party, with a deficit cutting agenda! Is everyone asleep?

#6 hal smith on 10.16.09 at 11:27 pm

With interest rates so low and with govt. of Canada bonds paying diddly squat people have to invest in the stock market to get any kind of real returns, causing the bubble-ish overvalued stock market we have now. If interest rates rise and investors want to park their cash in bonds , what happens to the stock market? Does it then crash like housing soon will? They have to keep interest rates low or the dollar will keep rising and kill off exports and tourism or we will be really screwed here. The only option left will be to print more money. You laugh Garth, but last year there was” no recession, no deficit, solid as the canadian shield” yadda yadda………now there is a recession, high unemployment, huge deficits, quarter percent interest rates, CMHC taking all the risks, and even Carney has uttered the words “quantitative easing”. What else can they do?

#7 vantown on 10.16.09 at 11:34 pm

…my banker buddies tell me…

There’s some hard data for us all.

…that virtually every new loan they write these days is for 5% down, with a 35-year mortgage. After all, if you’re buying in Vancouver. Calgary or Toronto, that’s the only way banks can swing the deal.

Are you saying that a 35-year mortgage is required if you only have 5% down, or because prices are so high? Or both?

I’ll throw my own anecdotal hat into the ring: I don’t know anyone who has bought a home, ever, with 5% down for 35 years. So there. Would love to see some real numbers on this.

…the value of the home could easily drop beneath the value of the loan, which would constitute an absolute loss for the bank.

There you go again insisting that if and when a home value is less than the loan value, the buyers panic and immediately bail. I don’t think this is true. Prices have often fluctuated, and I have never heard of anyone who obsessively and repeatedly checks the current value of their house. People have lives, and get on with them. Chances are, in 25 (or 35) years, the value of the house will probably increase.

And it’s not a loss for the bank if the buyers keep making payments, is it? In fact, isn’t it better for the banks to give loans when prices are high, so they have more people on the hook for more money? As you point out, it’s not like the bank loses either way. Unless they’re lending to lower-risk clients. Which, I’ll grant you, is pretty weird.

#8 InvestX on 10.16.09 at 11:49 pm

Another great post Garth.

“If the homeowner defaults, the bank gets 100% of its money. The taxpayer’s on the hook for the loss. ”

How so? Through which taxes? I thought the insurance premiums pay for the losses?

#9 nonplused on 10.16.09 at 11:56 pm


I love it when you pick up on one of the themes I have been harping about, because you do a much better job of collating the argument and putting it all in one place, in easy to understand terms. Your skills as a writer and communicator coming through.

As Canadians, we always do things a little differently than our US partners. They needed Fannie, Freddie, and FHA to do it (3 entities in total, with supposed market participation (public share offerings) for 2 of them, whereas we roll it all into one and never make any attempt to put a free market “shareholder” spin on it. Which is good because the nationalization of Freddie and Fannie wiped out the shareholders so at least we didn’t allow that fraud to happen here.

But our own little CMHC Ponzi scheme is just as big per capita as all three of their failed “market influencing entities” are down there.

And it is a Ponzi scheme. It’s just like Social Security, UI to some extent (the best funded of the programs), CDIC, or even medicare. They have some capital, but it’s only enough to cover the bills if we don’t really need them for the function for which they were designed. As soon as the $hit hits the fan, they will not have the funds to honor their commitments and the government has to bail them out.

They are a lot like AIG, writing lots of credit default swaps, declaring the risk of Lehman or Bear going down to be remote, bonusing out all the premiums, and declaring happy days! With the exception that to be fair they didn’t bonus out the premiums, they have them in reserve, but the amount is no where near what would be required if we have a US style correction. So they offer an insurance, propagate risk, but do not charge sufficiently for backstopping that risk.

That is, in my opinion, why they continue to flood the market with phony baloney insurance. It’s quite easy to see that if housing prices collapse even 20%, they will be underwater. So they will continue to do whatever they can to relax lending standards to save off that day. They understand full well that the bubble must be continued, or it will collapse completely, and take the federal finances down with them. And maybe the banks. Certainly the dollar.

CMHC would work fine if they charged on the order of 3-5% annually, instead of the one time fee of close to nothing they charge now. But then buyers would see the effective risk premium of their loans (paying 3-5% above prime) and be put off from their foolish decisions. But unfortunately, once enough foolish decisions have been made, there is no course of action available but to continue to the end of the road. We can either insist CMHC grows up and acts responsibly, in which case the housing market corrects to take account of default risk, and wipes CMHC out, or we can continue as we are until the credit bubble exhausts itself. Obviously choice 2 is the current preference.

Some will argue my inclusion of CDIC in the group. I say google FDIC to see what happened to one of our most similar programs to the US version. And they are actively keeping banks at risk of failure, and even one large one that did fail, off of their list of troubled banks just because they don’t want to admit the scope of the problem. Which is the same thing US banks are doing with the “political contribution” inspired abandonment of mark to market regulation by FASB. In my opinion, the accountants had it right. The politicians made the accountants change the rules so the banks wouldn’t have to admit the extent of the damage.

#10 Snowman on 10.16.09 at 11:57 pm

Buying a house has never been easier, however the % of people who pay more than %5 is scary high. No sane house buyer shoud pay one penny on top of the %5. You have 200k, pay 20k down payment and invest the rest of it. Oil, up %100 since january, NG up %100 in couple months, finacial/energy/tech stocks up %10+ since January.
Why would anyone waste any money on a down payment? Money is free these days people, educate self and take advange of it. Should anything go wrong, you lose the down payment, the taxpayer is going to make up for the rest of it. Life is more than just living in fear in a bunker ….

#11 chojo on 10.17.09 at 12:05 am

from the G&M today about CMHC increasing funding:

“It’s a lot of money and it could justify debate in Parliament,” said John McCallum, the Liberal finance critic. However, he acknowledged that suggesting the reins be pulled in on CMHC is ticklish for politicians and said that CMHC should be able to continue growing “as long as they’re prudent.”

Translation: We are going to pretend nothing is happening until disaster strikes and then it will be “nobody saw this coming.”

#12 Rene on 10.17.09 at 12:06 am

How much are CMHC’s reserves?
Do they keep a significant amount for times of crisis or does the money simply flow into the fed’s general revenue? In other words, when the bubble goes pop, say to the tune of a modest 15% dive, how will CMHC fare? The taxpayers will only be on the hook when CMHC is broke.

#13 Michael_H on 10.17.09 at 12:15 am

“And here’s another good question: If I want to buy that $400,000 house and have $200,000 for a downpayment, why am I paying the same mortgage interest rate as the first-timers who barely have pizza money?”

The answer to this is quite simple. The person putting 200k down on a 400k house is higher risk for the bank. This because anyone putting 50% down likely recognizes the personal cost of carrying CMHC insurance, and the fact it protects the banks and not the purchaser. Why would I pay to buy insurance that protects someone else if I don’t need to??!!”

Should the purchaser without CMHC coverage default, the bank is left with no recourse other than to go after the purchaser. So much easier for the bank to fill out a form, send to Ottawa, and get reimbursed.

Government policy in this country is very screwed and really starting to make my blood boil.

I’d be interested in understanding the history behind CMHC, key influencers around policy change, financial statements, etc. Anyone know if this informaiton is available?

#14 rog on 10.17.09 at 12:16 am

Boy are housing prices in vancouver making me depressed. I have saved close to 70 grd and a dumpy 60 year house here is 600 thousand and up. Savers are not rewarded with the bank of canada just allowing people with instant gradication, and the rates dont look like going up anytime soon . My money makes almost no interest because i’am not not lock in.
”playing the waiting game”

#15 LB on 10.17.09 at 12:21 am

Hmmmm. The government is also insuring bank Depositors’ money under CDIC, while the Banks are paying out only nominal interest. This indicates our government has become merely an extension of, and owned by, the banks, whose guaranteed and unlimited revenue source is now our taxes. Mystery solved as to why we can’t resolve health care, education,housing or poverty issues in Canada.

#16 Gord In Vancouver on 10.17.09 at 12:33 am

Here’s how CMHC and the federal government are inflating the real estate bubble:………

By now, it looks like a huge tag team – that includes politicians as well. None of these entities want real estate prices to drop as such a scenario brings in lower property tax revenue and results in fewer well-paying construction-based jobs.

There’s also the “pride” factor as consistently high Canadian real estate prices strengthen the contrast between economic conditions here and in the USA. Successful Canadian banks are enough to show the rest of the world that our rules are better but I guess more proof is still needed.

Ironically, Canadian real estate bears are now chanting what their bull counterparts were screaming two years ago – only those with solid financial wherewithal should be in the market.

#17 BAD on 10.17.09 at 12:40 am

The fact that, as far as CMHC mortgages go, the bank’s profits are private yet any loses are public has always been disturbing to me. CMHC has been created to make home ownership easier for Canadians but the end result is quite the opposite. Usually that’s what happens when the government meddles in otherwise free and healthy market. As you point out Garth the banks don’t care as they can’t lose, but all of us should since we are on the hook for any losses. Classic example of authority without responsibility for the banks and responsibility without authority for the rest of us.

Seems we do need a new federal political party to straighten things out. Our conservatives are that only by name and perhaps by their view on marriages, our liberals are in limbo, others are just as bad or worse.

I seriously think that you should start looking at creating a charter for new party. I’ll bet a loonie that you could get enough support across the country to register with the Chief Electoral Officer of Canada. Heck, I’ll bet another loonie that you would get much more than the minimum membership of 250. I will bet a third loonie that the party would succeed in endorsing at least one candidate in a general election.
Anyone in a gambling mood? :)

#18 Nostradamus Le Mad Vlad on 10.17.09 at 12:42 am

“. . . leaves 94% of the house value as debt.” — ‘Spose one or both partners gets downsized or laid off, can’t make their mtge. pymts., times that number (of couples) by a lot — who gets to keep all the houses, and what happens to CMHC? Who bails them out?

The link further down about the global economy may end up playing a part in all this,

I certainly don’t feel bad if and or when the suffering begins to take hold; if these klutzes can only be bothered to put 6% down, it indicates they have lost all their marbles, have no common sense at all.

Sympathy? Sympathy For The Devil, but no more than that.
From the prior post — #72 Kash is King — “More loss of liberties will come in Bill C-6 if they manage to sneak it through.”
— and —
#121 GregW. — “. . . the government plans to have “100 per cent of Canadians“ vaccinated with the “swine flu“ jab, in a programme starting from the first week of November.”

Interesting how all these things are happening almost simultaneously. If Larry Edelman (Uncommon Wisdom) is correct, and the US is defaulting on their debt, then Kash and Greg’s comments add to a ve-e–r-r-r-y-y-y interesting Christmas.

About 18 months ago, Japan warned China to dump US debt ASAP (Japan was already doing this) and now the reason is patently clear.

Kash, you may be interested in this — bill

. . . and for money lovers, this goes with the soon-to-be defunct CMHC — global

Wot say the next major war will have its birth somewhere in South America?

#19 kc on 10.17.09 at 12:44 am

A couple days back i said that G&M was doing a special report on retirement problems in Canada. Here is part one of the series.

#20 TheFirstRick on 10.17.09 at 12:50 am

CMHC is a nothing more than institutionalized fraud. I was forced to pay the premium twice, cojoled to pay it a third time, even though I passed the litmus test. I will never pay it again, under any condition.

If the average homebuyer saw what this scam cost, over the life of the payment, questions would be asked.

#21 ruraldude on 10.17.09 at 12:51 am

The first thing that comes to mind is SUBPRIME. This won’t end well!

#22 Real Estate Bear on 10.17.09 at 1:05 am

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#23 Marc on 10.17.09 at 1:11 am

Does the CMHC insurance premium shrink as the equity increases? If so, as equity builds, the premium gets smaller, but when and if equity falls, in a correction, the homeowner may get hit with a double whammy of interest rate increase and insurance premium increase?

Also, if a homeowner buys today with 20% down, and market corrects, say 10% in 12 months, does that homeowner now suddenly have to pay CMHC premiums, or would that come up at time of mortgage renewal?

#24 Real Estate Bear on 10.17.09 at 1:15 am

From Vancouver Real Estate Anecdote Archive

9:46 PM
“What type of mortgages are most new buyers taking?”from Vancouver Real Estate Anecdote Archive by vreaa

This in the trenches report on risk taking from Anonymous at October 16th, 2009 at 4:36 pm –

“I spoke with my banker at Vancity in Richmond today. I asked “What type of mortgages are most new buyers taking?” She said without a doubt it was at least 95% “variable with the 5 year term” I said “quite risky”. She says no, because they can lock into a 5 year fixed at any time. This rate of course being double what they are paying now. Most current buyers only qualify @ the current 2.25% rate. If rates go up, I think all these current buyers will be broke.”

#25 BRITTANNY on 10.17.09 at 1:35 am


#26 Paul on 10.17.09 at 1:44 am

Is this much different to the subprime problem south of the border? Seems very similar, is the Pengulum swinging?

even CTV getting in on the news …lol for the first time. Even though they probbley copy’n’pasted it as I did sitting at home..

CMHC’s growth fuels worries over new risks

#27 CJ on 10.17.09 at 2:15 am

I’ve had some major doubts about what’s going on with CMHC myself, and reading Garth’s thoughts doesn’t exactly reassure me. It’s hard to understand why there isn’t more public discussion about this. One of the few extensive treatments of the subject available is at a blog called AmericaCanada (no, it’s not my blog). Here’s a link to a very readable exposition:

CMHC – Canada’s Breaking Point

#28 Onemorething on 10.17.09 at 2:36 am

This is why when the crash in Canadian RE occurs along with interest rates going up up up, that those of us WITH MONEY will be treated like KINGS at the bank.

The min. will be 30% down. We will be able to negotiate for better rates for every $ down after that!

Even the Aussie’s suffered 15-20% decline in housing values are now tightening lending and increasing rates because they know monitizing debt, printing money and cheap money is not the answer. The decline now continues on the rate rise.

We will just repeat Nov 08 and finally let the markets find a bottom along with housing.

Blame the government for not regulating or the banks for ponzi activity it just doesnt matter moving forward. The Elite wins along with us playing the contradiction cards and everyone else 95% of the population eats it!

#29 GregW., Oakville on 10.17.09 at 2:59 am

Hi Garth, FYI (off topic, some science stuff this week, some on TVO you might be interested in. info below)

It is said that making order out of chaos is what we humans do. Another way of putting it is that we are story-telling creatures. However, that does not mean that either the order is solid or that the stories are true.

Leonard Mlodinow, this weekend’s BIG IDEAS speaker, has written a book about how our desire to make sense of things takes us into all manner of cul-de-sacs because of our inability to cope with randomness. The book is The Drunkard’s Walk: How Randomness Rules Our Lives.

The lecture was presented at the Perimeter Institute for Theoretical Physics in Waterloo, Ontario which also explains why the choice of this lecture at this time is by no means random. It is timed to coincide with the Quantum to Cosmos Festival which is taking place at the Perimeter Institute between the 15th and the 25th of October. You can find all the information about the festival events at

TVO is the festival’s presenting media partner. We are going to bring you on BIG IDEAS many of the talks and lectures which are being presented there. Keep in mind that you can also watch all the events streamed live on .

If that is not enough science for you, The Agenda with Steve Paikin will devote its programming next week to science and technology and will be coming live out of the Perimeter Institute. On Monday it will tackle space exploration, on Tuesday the focus will on computing and the internet, on Wednesday the subject will be genetics, on Thursday it will offer insights in the impact of robotics and on Friday it will raise the questions about the role of science as the avant-garde which creates the conditions of out collective future.

If you would like to be part of the audience for the 8:00 pm productions, please go to for information about ticket availability

BIG IDEAS airs on TVOntario every Saturday and Sunday at 5:00 pm. To download our podcast, please go to our website at

If you miss the weekend broadcasts, you can also listen to BIG IDEAS podcasts via iTunes.

Don’t hesitate to share this e-mail with friends who you suspect might be interested in BIG IDEAS lectures.


#30 Future Expatriate on 10.17.09 at 3:10 am

So let’s get this straight: what you are saying, is through the mechanism of CMHC, Canada’s banks HAVE ALWAYS had pre-arranged taxpayer bailouts FROM DAY ONE of that agency’s creation.

That they don’t HAVE to go to the gov for bailouts; their bailouts on bad mortgages are ALREADY insured. And as such, they have NO INCENTIVE WHATSOEVER to write GOOD mortgages, but EVERY INCENTIVE IN THE WORLD to write BAD ones, so they’re CERTAIN to be paid off by the gov in due time?

This MUST change.

#31 Mike (Authentic) on 10.17.09 at 3:16 am

When we purchased our first home we put down about 11%, but that took a lot of hard work to save up for a $178k home.

I think mortgage lending should go back to traditional standards and you need 25% down to buy. Sure, we couldn’t have “afforded” to buy a home with 11% down then, but give another 12 months and we could have.

CMHC is good, but they should not be insuring 5% (or less) down mortgages, too much risk to the taxpayer IMO.


#32 Daystar on 10.17.09 at 3:17 am

Stephen Harper was asked just yesterday on CPAC about whether or not he thought Canada was in a housing bubble during an action plan PR gig just yesterday. Harper flatly denied that there was a housing bubble in Canada and didn’t forsee a problem in the future.

We have, as Garth has pointed out, gone through a major credit expansion under this Harper government. Not a lot of people know about this, or the consequences of using CMHC to fuel this housing asset bubble in the first place and, just as all other bubbles pop and leave those indebted ruined in its wake, this will end badly.

#33 GregW., Oakville on 10.17.09 at 3:23 am

Hi Garth, re: high risk loads

Your blog today reminds me of the whole USA house sub prime thing, but didn’t the banks down south repackage the loans as AAA rated investments and sold them off onto the world markets to get them off they hands. Isn’t that partly why we are in this recession now?

The Canadian banks sound like they have it even easier, since they don’t need to repackage the hig. h risk loans and try and flog them off to someone else as AAA rated investments. The Canadian Government seems to be more them happy to help them!

The whole thing sounds like a bad idea for the people/tax payers here, who pay with they labor.
Don’t the harper boys&girls and mass media keep telling us our banks are different than the USA?

It sounds like just another example of how the government is not looking out for the common good of the people!

The whole thing smells of economic slavery.

#34 Mike (Authentic) on 10.17.09 at 3:25 am

“(50% down) why am I paying the same mortgage interest rate as the first-timers who barely have pizza money?”

This will really get your gull then! PC Financial actually encourages borrowers to take out a BIGGER mortgage by giving discounts to that effect…So those who saved their cash to have a smaller mortgage are punished.

Mortgage Size 5 Year 7 & 10 Year

$500,000 and higher Our posted 5 yr. fixed rates less 0.10% Our posted 7 & 10 yr. fixed rates less 0.15%

$350,000 – $499,999.99 Our posted 5 yr. fixed rates less 0.07% Our posted 7 & 10 yr. fixed rates less 0.10%

$200,000 – $349,999.99 Our posted 5 yr. fixed rates less 0.05% Our posted 7 & 10 yr. fixed rates less 0.05%


#35 Phil on 10.17.09 at 4:13 am

Great summary Garth. When the facts are reviewed it becomes clear that we are in more trouble than the U.S. ever was.

“Privatize profits, socialize losses”.

#36 Daystar on 10.17.09 at 4:43 am

This is a Harper interview from yesterday where he is asked about whether or not Canada is in a housing bubble and if he has any concerns. Harper answers (4:20) simply that the numbers don’t give cause for concern and that its too early to talk about bubbles. In other words, all Canadians can sleep well knowing that Stephen Harper is on the job and has just assured all Canadians that there is no bubble and therefore, nothing to address.

And y’know, I’m not sure if anyone has actually taken a look at the federal governments link informing all Canadians as to just what action it has taken as a measure to counter today’s economic slowdown:

If it reads like a Conservative ad, its because it is!

It made me chuckle to hear about the Harper governments “sound” policy to cut taxes in the face of tax revenue declines (if they say its so, it must be true, right?). But what I found to be pure propaganda in its worst sense is this claim:

“The Harper Government also paid down billions in debt while the economy was strong.

Since 2005-2006 the Harper Government has reduced the federal debt by $37 billion.”

The truth is far more unsettling:

2006 – 07 federal surplus 13.8 Billion

2007 – 08 federal surplus is 9.6 Billion

2008 – 09 federal deficit is 5.8 billion

13.8 + 9.6 – 5.8 = 17.6 Billion worth of surplus over 3 years. Obviously, we are running a 55.9 billion dollar deficit and counting which will erase all surplus’s, but what I found interesting is the Conservative need to claim 37 billion in debt reductions as their own when clearly, their performance is more than 19 Billion short.

Its all propaganda from what I can tell, the entire link, and the taxpayer pays for it.

#37 David Bakody on 10.17.09 at 6:01 am

A nation of debtors. Guaranteed.

So in simple terms Garth, at what interest point increase will panic set in to set approx 1 million new Canadain homeowners on their butts? We are all aware of the financial tidal surge south of the border as US nightly news still continues to report of it’s massive destruction reaching far into America’s economy.

#38 SaraBeth on 10.17.09 at 6:32 am

So, when buyers default, and the CMHC gives the banks back their money (at 100%)…. who then owns the house?

#39 LatinLife on 10.17.09 at 6:34 am

Great post.

Clean. Crisp.Precise and to the point.

We are freaking doomed.

Give it two more years max. It’s all gonna pop.

#40 El Rojo on 10.17.09 at 6:37 am

How can this continue unchecked? It’s not making any sense to me. Something has to go pop!

#41 Ben on 10.17.09 at 6:39 am

Common sense isn’t so common, eh?

The bubble WILL burst, that is a certainty…those who foolishly gambled will lose…but so will ALL taxpayers, as we are left to pick up the tab for this deplorable mess.

But Mr. Turner….please elaborate….who is in charge here?

Who is it that legislated CMHC’s doubling of taxpayer exposure?

Who is it that has permitted banks to lend to people at ridiculously long amortizations?

Surely someone in the Federal government is pulling the strings.

After all, someone sets the rules for CMHC and defines how they can use (and apparently abuse!) our taxpayer money.

Perhaps it’s time Mr. Turner…to talk about WHO…and about WHY?

Is it incompetence or calculated self serving malevolence by those to whom we citizens have given control?

#42 mooncake on 10.17.09 at 6:47 am

Me Me Me generation, are so totally house poor. Let’s buy a shoe box and spend the next 35 years to pay it off. The young generation these days are so financially stupid that even Shakepeare can’t even write a better tragedy.

#43 I. Muvrini on 10.17.09 at 6:58 am

Words fail me…this is pure lunacy.

We’re on a plane without a pilot, and the proximity warning system is going “Pull up. Pull up. Pull up.”

#44 Johnny Five on 10.17.09 at 6:58 am

Interesting that I spoke to a person who arranges money for mortgage brokers to lend about this very subject last night. He got ANGRY with me when I suggested that it was unfair that the risk was passed on to the taxpayer. He actually started yelling at me saying “well how the hell did you get YOUR mortgage then, a-hole?” I just smiled and said “2003 – $285K house. Put $150K down. Financed $135K. Wife and I have a combined income of $155K. No CMHC.” The response before he walked away was “Well, aren’t YOU f-ing special.” Yes, yes I am.

#45 eddy on 10.17.09 at 7:16 am

great post Garth. it looks like Ottawa is just printing money and calling it something else. obviously cmhc should be abolished, but if we went back to conventional firsts morgages the market wold tank- for an an average TO box people would need 100k down. insuring loans is like a credit default swap. the writing is on the wall- government sponsored inflation

#46 miketheengineer on 10.17.09 at 7:21 am

When the bubble bursts, the balloon will go down….it is looking to be a very interesting Crisis, and when the bubble pops in Canada, a lot of people are going to be in for a big surprise.

#47 Wealthy Renter on 10.17.09 at 8:03 am

We recently had a shooting outside our “luxury condo,” in Toronto so that makes the tally 2 murders (a shooting and stabbing,) 5 shootings, and two stabbings in our hood in less than two years. This hood is less than 1 km from $800K homes. I wish I was making this up.

There is point coming somewhere. :)

We have again started to look for houses in Vaughan (north of Toronto.) The house we saw last night is well over $500K and very nice, but what really surprized me is the home is being targeted to people paying 5% down. The house is being sold by a major Canadian realty company, and the realtor’s site delves into mortgage calculations on how to carry the house with 5% down. Real Estate is insane in the GTA.

If we buy it, we will put 75% down on it and still keep our RRSPs intact. Perhaps, CMHC or taxpayers should pay US a no-risk premium.

Send the cheque :)

#48 David Bakody on 10.17.09 at 8:11 am

#3 HouseBuster on 10.16.09 at 10:47 pm

And if they go south?

#5 bcweatherman on 10.16.09 at 11:23 pm

Breaking News ………. They still are!

#14 rog on 10.17.09 at 12:16 am

If your personal goal is to own a home …. “MOVE” there are decent homes and jobs outside of BC and beyond. Mortgage slavery is still slavery!

#38 SaraBeth on 10.17.09 at 6:32 am

Simply the banks, they turn it over for sale via RE and the poor owner is left to pick up the short fall ‘PLUS all other costs …..

This morning on CBC’s “The House” they are now saying its a buyers market ….. and that would suggest competition the overall big picture and lower pricing. Add to this news of higher B of C rates (4% in 2yrs) many people will lock in now perhaps forcing the banks to raise rates on top of the B of C rate to pay for the short fall …. unless of course Banks take the hit and say sorry about that to their share holders ….. lol

I just came from Tim’s and told the boys ” That’s it I have cast my last vote” what’s the use I am now part of the 50% who will stay home …. they were shocked.

#49 shane on 10.17.09 at 8:21 am

our government is so corrupt and they have been since they have started but whats going on now is just unbelieveable i’m a person who hasn’t voted in about 5yrs because i never believed in any of the people that where running at the time of voting and this is why.


#50 The Vulture on 10.17.09 at 8:32 am

Humpty Dumbdy Fell of His 2 Million Dollar Wall.

Globe and Mail Business (Saturday, October 17, 2009)

CIBC senior economist Benjamin Tal describes CMHC as the “secret weapon” that has now been revealed. “One of the main reasons we did not need a bailout [of banks] is because of CMHC, and the ability to provide cheap credit through its facilities,” he said.

“Did CMHC help to improve house prices today? Yes, they did because they gave cheap credit to bank and banks were able to provide credit and low mortgage rates, which I think is the main reason why house prices are rising now. That’s a reflection of a system that works, in my opinion,” Mr. Tal said.

Canadian TAXPAYERS are on the hook if CHMC fails though……..It is great fun to play with money that is not your own…

“CMHC said housing affordability has improved over the years. The monthly mortgage payment on an average-priced house has decreased as a share of workers’ incomes, the agency said.”

Huh???? I am really confused now. Homes certainly seem to be extremely expensive now!

“Whatever the reason, critics like Mr. Lee say that the institution’s stunning growth deserves new scrutiny. Yet, because CMHC enables more people to buy homes, it’s unpalatable for politicians to criticize it, Mr. Lee said.”

Time to audit the CHMC????

No Strings Attached (Globe Real Estate Friday, Oct. 16)

“There was barely time for buyers to think, let alone make a well-informed decision. The first showing of the small East Vancouver bungalow was on a Friday, the last on Sunday. Dozens of people milled through the modest 1956 home, which overlooks the weeping willows of John Hendry Park, and as the women winced at the 1970s-era faux wood panelling and burgundy shag carpet, and the men snuck second peeks at the girlie calendars in the basement, the realtor repeated his refrain: Inspections would be allowed Monday at 9 a.m., and offers would be considered the same afternoon. The implication? Get your questions out of the way, then bring us an offer with no strings attached.

I saw it one day and the next day we had to write an offer,” says Van Cho, a home buyer who didn’t even have time to arrange an inspection, and found out just hours before making an offer that there was an old oil tank buried in the back yard – an issue that could cost tens, and even hundreds, of thousands of dollars to remedy if the soil was contaminated. “That was way too much pressure. I needed a couple more days, at least.”

Cho and her husband didn’t bow to the pressure to go in with a “clean” offer – theirs was subject to inspection, and stated that the oil tank was the owner’s responsibility – but the majority of the nine bidders did. The winning bid was nearly $200,000 over the asking price; the page that would normally include conditions on the sale subject to financing and inspection was blank.

It’s an increasingly familiar scenario for buyers navigating Canada’s newly reheated real estate markets: Hit a relatively desirable property, and you’ve got to go in with an unconditional offer or face losing out.

Greater Fooling needs greater schooling and that’s no deluding…

#51 DG on 10.17.09 at 8:34 am

OK, surely if the CMHC-insured buyer defaults then the liability is the difference between the market value of the house and the size of the loan. How could it be anything else?

Back of the envelope math says that if CMHC did $148 billion worth of deals last year, in which the average down was 5%, and real estate falls by 15%, the maximum taxpayer liability is about $15 billion.

Your post implies that the taxpayer is somehow on the hook for the entire value of the insured loans.

The entire mortgage is insured. If there is any default by the borrower, the lender (bank) is paid 100% of the value of the insured amount by the insurer (CMHC) regardless of the market value of the underlying asset. The post is correct. — Garth

#52 Robert1 on 10.17.09 at 8:45 am

#7 Vantown

” Prices have often fluctuated, and I have never heard of anyone who obsessively and repeatedly checks the current value of their house ”


WRONG …. my friend. Perhaps you should open your eyes to those that are over leveraged and house poor and the delusional house watching they do . Do the math on this beauty:

wage: $18.00 per hour
work week: 20 hours
mortgage: $ 125,000.00
monthly mortgage payment: about $600.00 plus
approx. resale value TODAY: $ 150,000.00
age: 55

Obsessive watching ?…. as Ms. Palin would say ” you betcha “. Can the operating costs of owning this home be met on that income ? CIBC thought so………. but then CMHC is backing it. I’ll keep my $ under the matress and rent. The BUST is on the horizon my friend, and you can thank Herr Harper and Dim Jim Flaherty for it when it mushrooms.

By the way … the only one in Ottawa I see with half a brain and an a$$hole is the Parliamentary Budget Officer, Kevin Page….. and we all know that his tenure at that position is at best limited. ” The truth will set you free ” and you can be assured that Harper and Flaherty will “set free” Mr. Page, as he is the ONLY truth that is coming out of Ottawa. Stay Tuned ………..

#53 DrC on 10.17.09 at 8:49 am

Ok so we’re not sure how much the taxpayer is on the hook for, but we assume that like in every other situation we will eventually be paying for others profligacy.

I still wonder whether this bubble can burst, or whether it must deflate slowly. Comes back to the issue of recourse vs nonrecourse. Many of the imprudent subprime loans in the United Socialist States of America were nonrecourse, so with little to lose it has been emotionally less difficult to jinglemail and walk away. With full recourse in Canada (minus Alberta) it will be emotionally very hard indeed for Joe Hoser to default, give back the keys, find a place to rent, move the family, pay the rent AND then continue paying the bank for the loss. People will irrationally hang in there long after it made sense to crystallize their losses. And I can’t believe that the banks will take the CMHC payout and then forgive the debtor. Especially if enough people are underwater that they fear the CMHC funds will run out.

#54 Finanzkrise on 10.17.09 at 8:53 am

Once has to wonder how much different the newly bloated CMHC and last fall’s $75B government purchase of high ratio mortgages from the big Canadian banks, really differs from the US antics with Fannie, Freddie and now Ginnie Mae and the FHA?

Massive government intervention in the US housing market has merely managed to reduce the decline. As soon as the bond markets dictate that there isn’t another trillion + Obama dollars to sink into the housing market, the decline could resume with a vengance.

The outcome has of course not been nearly as ugly in Canada, nor will the correctly likely be as severe, but the government intervention principles are very similar on both sides of the border; Harper and Carney just don’t communicate it as such…

#55 Ultraman on 10.17.09 at 8:55 am

vantown says “I’ll throw my own anecdotal hat into the ring: I don’t know anyone who has bought a home, ever, with 5% down for 35 years.”

As a lender for a large CU here in Vancouver I can assure you that you are way off the mark on that one. 5% down, 35 yrs amortization is the norm. I also see big trouble when those 5 year term matures if interest rates goes up, even by a small percentage.

Marc, CMHC premium is paid once at the funding of the mortgage and added to the amount financed. It’s a one time premium and that’s it regardless of what happens to the market value or your mortgage balance. If you win the lottery the next day and pay off your mortgage you don’t get a refund of that premium. If the market crash and you house drop 50% of it’s original value, you don’t have to pay another premium.

#56 Weeping in Windsor on 10.17.09 at 9:04 am

#17 Bad
“I seriously think that you should start looking at creating a charter for new party. I’ll bet a loonie that you could get enough support across the country to register with the Chief Electoral Officer of Canada. Heck, I’ll bet another loonie that you would get much more than the minimum membership of 250. I will bet a third loonie that the party would succeed in endorsing at least one candidate in a general election.
Anyone in a gambling mood?”

I see your three loonies and raise you three more.
Garth, what this country NEEDS is someone like you.

#57 Maurice on 10.17.09 at 9:07 am

AMigos: CMHC for houses Farm Credit Corporation for farms. The total numbers don’t compare to CMHC but the individual debt carried by farmer through FCC are much more frightening. Canadian farms are leveraged 200 to 1 through FCC. U.S. farms are “only” leveraged at 20 to 1. Farm debt in Canada is financed by the tax payers and the FCC agent are paid commission based salaries. The more debt the better.

#58 Devil's Advocate on 10.17.09 at 9:12 am

The point here is that lax credit practices are the norm where they ought not to be with respect to many of those who qualify for CMHC insured financing. That the bank’s loans are insured causes the bank to qualify those of less credit worthiness based on the same criteria they do those more worthy. There is no risk to the bank.

The only difference here in Canada to the “Sub Prime Mortgage Crisis” south of the boarder is that Canada is missing interplay between the “too large to fail” private financial institutions. Canada’s banking industry is higher regulated. But when it all comes crashing down like a house of cards it will not be a matter of bailing out the financial institutions with tax payer money as it will right away be the taxpayer who is on the hook through the insolvency of CMHC.

Haven’t you ever wondered why CMHC is in the business of producing monthly, quarterly and annual housing reports which are the foundational information source of the BIG Spin Machine that feeds the bull news press releases? CMHC is bullish for sure… Full of Bull Shit more like it…

#59 double mike on 10.17.09 at 9:15 am

Hey, haven’t you figured out who really owns this country yet?

#60 Grey on 10.17.09 at 9:25 am

I read this blog post late at night and had to get up and comment on it as soon because I couldn’t get it off my mind.

My husband and me are both in our early 30’s, first time home buyers. We’re supposed to be looking for a new home as we actually need to move because of our expanding family and job change. We don’t care about granite counter tops, stainless steel appliances and bragging rights. Unfortunately we also have the “privilege” of living in the middle bidding war chaos in the Centre of the Universe that is Toronto, where it seems people have lost all common sense. Right now we are just watching from the sidelines at the insanity that our also 30 something first time home buying friends are going through.

When we applied for a mortgage we had our broker look around for the best deals of course and we said we wanted a 25 year one. Oh. Well. That’s not happening. Even though we have 20% saved for our maximum purchase price, every response we’ve gotten back has been a 35 year offer. “Oh but you can pay down extra if you want and help pay down your principle and then re-finance down the line!”. Really? Then why can’t we just get the 25 year one right off the bat? So you’d better believe that’s why this blog post hit a core with me. Because the banks are offering up almost only 35 year mortgages to all of the first time home buyers.

So I keep thinking, what happens in 5 years when rates, hypothetically speaking, go up to say 7%? I did the math and that’s why our Real Estate probably hates us because we said “If there’s even an option of a bidding war that goes above our budget, we’re not interested. This is the maximum we can go. End of story”. I actually want to be able to afford the home we buy in 5 years and not have to hand my keys over to the bank and still have money to feed my child. But for some reason it seems that almost everyone that is buying right now, the first time home buyers that is, can’t look beyond the bidding wars to even think about what’s going to happen in 5 years. I’ve had people say, oh if we can’t afford it down the line, we’ll just sell and break even. Yes genius, you and just about every other buyer have the same idea. In which case when all the same homes come flooding on the market, how are you going to sell yours if everyone else’s is on the market and there are no more buyers? Have you thought that when you lower your selling price, everyone else is going to be doing it too? So you won’t take a hit financially when your 400K home home sells for even 300K? Whatever happened to buying a house and staying in it for, oh I don’t know, *gasp* 10 years? Can you imagine telling your grandparents that you are buying a “starter” home? They’d look at you like you are nuts. Most grandparents I know have lived in the same house that they bought back after they got married, 50 years ago.

Everytime I read articles in the Globe and Mail and in The Star, flogging how great the market is and we should all buy, buy buy now, I think Go to hell. You are part of the problem of this false hype and those of us who actually “need” a new home, not wanting to make a cash grab because the market is in a frenzy, are just screwed for buying one right now for what it’s actually worth. I am not going to pay 400K for a piece of crap semi-detached house near the Danforth with some aesthetic remodelling and have asbestos hidding under the dry wall. We haven’t so much as gone out to look at homes that we get from our agent daily because the I read enough blogs and have enough friends who are agents and brokers to hear about what is going on behind closed doors in these bidding wars. For example a basic basement level townhouse in King West Village went on the market for 309K. By the time the bidding wars were done, it had sold for something like 379K. 800 sq foot plus a terrace. Next to the train tracks. Our friends recently sold their condo. Looked at a home for 430K. They bid 460K. Lost. Saw another home for 399K. Put in a bid for 480K. Lost. After I heard that I thought “Do you not realize you’re a part of the bidding war problem?” If all first time buyers had a budget, stuck to it and told their agents we’re not playing this game and called their bluff, they probably could have gotten the house at the selling price or under. Why the hell are people so afraid to tell their agents “I will not participate in a bidding war”. I am not talking arguing over 5K over the asking price against another couple who also wants the house – I am not stupid enough to think that we’ll be the only ones putting in an offer on a given home after looking at it. But these are 30-100K price increases for these homes that people get into bidding wars over. You have that much money to expand your house hunt budget? We don’t. Sorry. So be my guest. You can have it. Because no house out there is worth me not sleeping at night wondering how the hell I am going to pay for it down the line.

We may be a rare breed in this current feeding frenzy, but I know we can’t be the only ones out there who think like this. I just wish more people would stop buying into the hype because the repercussions will affect everyone in the economy after this blows up.

#61 Kash is King on 10.17.09 at 9:29 am

#18 Vlad, thanks for the links.

Bill C-6 sounds so draconian, it’s almost like it was created by the Nazis?

Let’s hope our meat puppets (politicians) can find an ounce of decency in their souls, and scuttle this for some technicality before it’s enacted.

How would the Nazis create this? Here’s one Canadian’s view (now expat in Japan and former Forbes Magazine Asia correspondent)

Here’s his blog addy:

#62 Kash is King on 10.17.09 at 9:45 am

Garth thank you so much for your entries over the last couple of days. You have demonstrated that there is no longer what most people would consider to be a democracy here.

I had held out hope that as long as one of the main parties was willing to tolerate a crusty free-speaker like yourself, that we had a glimmer of hope.

Hope appears to be slipping away, and in last ditch efforts to awaken the sheep…. get them to put down their flouridated water, turn off Idol or Hockey on the TV and WAKE UP!!.

If enough of use awaken and peacfully and lovingly resist what may be coming…. well, they can’t round up and arrest all of us.

I for one have decided that I would rather be put into a FEMA deathcamp , or whatever they have planned, and die as a full human, than to live as a nano-chipped borg.

#63 kw on 10.17.09 at 9:52 am

Friends in AB who bought in ’02 for $196,000 just refinanced for $333,000. After consolidating 3 vehicle loans, plus a line of credit and paying $15,000 in penalty to get out of their previous locked in mortgage. They told me they were appraised at $340,000 even though a similar house down the street sold for 311,000 just days previous. They were only able to get a locked in 3 year. By the way, they are approaching 50 years old and have a 35 year amort.
What is going on in this world?

#64 T.O. Bubble Boy on 10.17.09 at 9:59 am

One of the only hopes we have is that Carney and others try to persuade the CMHC to change its policies in an effort to slow the housing&mortgage bubble, since he’s essentially stuck with a Bank of Canada Rate at 0.25% until the economy stabilizes — and I don’t just mean the Conservative Press Releases about the recession being over, since we all know the only growth in Canada right now is in the re-paving of roads with stimulus money, and in producing ridiculous political advertisements with Iggy hanging out in a forest telling us he wants to grow India/China or the Conservatives trying to convince us that only people who’ve never left the country should be called “Canadian”.

What’s worse – on top of the $600B insured by CMHC, Flaherty is still buying $60B of mortgages from the banks this year!!! So, there’s really no way that a bank can lose any money on any mortgage!

Socialized Risk is here folks — and the only way it dissapears is for the housing market to crash so that all of the 5%/35-yr folks lose interest in jumping into the bubble.

Too bad trying to tell Canadians that they aren’t sitting on a $1M goldmine in their 3bdrm teardown in Vancouver or Toronto is political suicide — I would personally vote for any politician who ran on a platform of reforming the CMHC. All of these other tax credits and stimulus projects are a bunch of crap. What would really save me money would be if a politician was willing to pop the bubble and make my next house 30%-50% cheaper.

Another point about the people with $200k down on a $400k house: these mortgages are truly what the banks would call “risky”… not because they will default, but because these investors will minimize the amount of mortgage interest, mortgage insurance, line of credit interest, and other goodies that the banks make. Someone with 95% principle to pay back is a slave to the bank for life vs. someone who has the flexibility to avoid many of these costs.

#65 CalgaryRocks on 10.17.09 at 10:00 am

Was anyone complaining about the CMHC pouring billions in government coffers when times were good?

What billions? Link. — Garth

#66 Nostradamus jr. on 10.17.09 at 10:03 am

“”CMHC is now larger than at least one of the Big Six banks and is, comparatively speaking, unregulated.””

Very easy why understand this…

…Hong Kong buyers in Vancouver paying cash for properties….so no R E Bubble here.

Ottawa first time buyers big dummies…only 5% downpayment.

Canada breaking up into two…Western Canada capital will be Hongcouver…Eastern Canada capital will be Montreal…so to keep Eastern Canada bilingual and keep French people happy to stay.

Eastern Canada soooo broke soon, they sell Nova Scotia to Europe…just like France take away Lebanon from Syria many years ago.

Garth Turner is smart man, he start new Eastern Canada Party and then he become Prime Minister…he learning French language now w/ private teacher.

je m’apple… Nostradamus jr.

Hong Kong has most expensive RE…Vancouver is soooo cheap

#67 T.O. Bubble Boy on 10.17.09 at 10:16 am

Wow – apparently I spoke too soon… I just read the CTV News link that was posted. Apparently John McCallum (Liberal Finance Critic) is in fact calling for CMHC to be reformed.

from the article:

The two main programs it uses to achieve that goal – insurance and securitization – have ballooned in the past year. CMHC planned to insure 578,539 housing units last year for $86-billion in 2008. Instead it insured 919,790 units for $148-billion.

It guaranteed 2.5 times more mortgage securities than planned, an extra $64-billion, which is nearly double the 2007 level. Part of the reason for that is the emergency mortgage purchase program that Mr. Flaherty unveiled at the height of the credit crisis in October, 2008, to help ease the banks’ funding costs. But even prior to that program’s launch, CMHC’s securitization activities were on a steep upward trajectory.

Canada Housing Trust, which carries out CMHC’s securitization activities, has seen its assets grow by more than 20 times since it was established in 2001, according to Moody’s Investors Service.

The opposition Liberal Party says the cap increases and the surging size of CMHC may warrant more attention.

“It’s a lot of money and it could justify debate in Parliament,” said John McCallum, the Liberal finance critic. However, he acknowledged that suggesting the reins be pulled in on CMHC is ticklish for politicians and said that CMHC should be able to continue growing “as long as they’re prudent.”

“I don’t think we want the government to be rationing Canadian home-buying.”

I am shocked at the 20x growth of the Canada Housing Trust since 2001…. I’ve never seen a more obvious bubble statistic than that one. Could you imagine if some other large government program like EI or CPP or the Military grew 20x in 8 years?!?!?!?

#68 Hiteclowtec on 10.17.09 at 10:28 am

They can keep the Ponzi going even after the bubble pops. Like what is happening in Spain. I have a feeling a version of this is already going on, in the soft markets of our rust belt. Banks holding a lot of repo`s and not dropping the prices. So all the stats look great and Harper can feel us more pablum. Don`t worry be happy !

#69 G.P.girl on 10.17.09 at 10:28 am

Int the word mortgage, mort, is from the latin word mori (via old french mort) for death and gage is from the sense of that word meaning a pledge to forfeit something of value if a debt is not repaid.

So mortgage is literally a death pledge. Hhhmmm….

#70 Hiteclowtec on 10.17.09 at 10:29 am

They can keep the Ponzi going even after the bubble pops. Like what is happening in Spain. I have a feeling a version of this is already going on, in the soft markets of our rust belt. Banks holding a lot of repo`s and not dropping the prices. So all the stats look great and Harper can feed us more pablum. Don`t worry be happy !

#71 Bottoms_Up on 10.17.09 at 10:32 am

Is it true that less than 20% downpayment is only acceptable if you’re a first time buyer?

If so, then with the majority of house purchasers being first timers and only putting down 5%, I don’t see how these individuals will be able to ‘move up’ in 5 years, because they will not have the equity or savings to put 20% down (unless house prices continuously rise).

This definitely doesn’t bode well for future house prices. Get out now while the gettin’ out is good!!

#72 robert on 10.17.09 at 10:37 am

All those foreign pension and hedge funds buying our stocks, bonds and currency are going to be so disappointed. The eventual exodus of this fickle, hot money from our shores could certainly prove to be the catalyst for higher rates and CDN$ reversal. And rates don’t need to go to 7 or 8% to do real damage in this low inflation, stagnant/falling wages environment. A 30% increase (to 2.92%) should be more than sufficient to upset the apple cart. A double to 4.5% would be nuclear winter.

#73 double mike on 10.17.09 at 10:56 am

Garth, just do it. What do you have to lose?

“He either fears his fate too much,
Or his deserts are small,
That puts it not unto the touch
To win or lose it all”
— James Graham

#74 DG on 10.17.09 at 11:01 am

Garth, I don’t believe you are correct. Here is my understanding of how CMHC works:

Once the mortgage has been in default for three months, legal proceedings commence through power of sale and the lender takes possession of the subject property. The lender will then sell the property at a minimum of fair market value and submit a claim to Canada Mortgage and Housing Corporation (CMHC) for the shortfall. A judgment is then obtained from the courts against the defaulted mortgagor for this shortfall and CMHC’s National Recovery Centre attempts to collect this shortfall directly from the defaulted mortgagor. If this attempt is unsuccessful, the account is then forwarded to one of four collection agencies under contract with CMHC.

Again, your post clearly implies that CMHC (and therefore the taxpayer) pays 100% of the value of the loan to the lender, when in fact it appears that CMHC covers the shortfall that occurs after power-of-sale proceedings have completed.

You are wrong. A POS process takes at least a year, and banks rarely go that route. Even if it happens, a mortgage defaulter is almost never made to pay, as bankruptcy is the usual course. Therefore CMHC is on the hook for the full mortgage amount, and the bank is paid in full. Get out into the real world. — Garth

#75 $fromA$ia "Garths Nugget Boy" on 10.17.09 at 11:11 am

This last thread and the fact you have this blog is the reason the Liberals don’t want you Garth.

I’d say, go NDP!

General Canadians are looking so oblivious right now.

#76 Jeannie on 10.17.09 at 11:13 am

Look, I’m just the messenger, so don’t anyone get their knickers in a twist at what I’m about to say.

In the past few months I’ve met many very happy retired Canadians who’ve sold their 30 year old Vancouver houses for more money than they’ve ever dreamed of.
These of course are tax-free dollars, and now as a bonus they see those loonies headed for par with the US.dollar.
In this part of the world these dollars are buying them mortgage-free homes that formerly would have been a fantasy.
The icing on their cakes… they get to live in a climate that will moat probably extend their lives. So some Canadians are very, very happy with the present real estate boom….maybe it’s time for you to sell that house!

How does rain make you live longer? — Garth

#77 Watched Bubble Never Pops on 10.17.09 at 11:18 am

CMHC’s Growth Fuels Worries Over New Risks

I just read this and saw the blog change. I’m guessing that some of this is related.

No change. — Garth

#78 CalgaryRocks on 10.17.09 at 11:32 am

Was anyone complaining about the CMHC pouring billions in government coffers when times were good?

What billions? Link. — Garth

Look for the word ‘retained earnings’. As in, ‘retained’ by the government in it’s public account coffers so as to reduce the federal deficits.

According to five-year projections by CMHC, in 2009 the organization will be sitting on cumulative retained earnings of $ 8.3 billion. This is far in excess of the $ 3.8 billion required by OSFI as capital reserves. So what will become of that extra $ 4.5 billion? As a Crown corporation, that money technically belongs to the federal government.

Billions of $$$$ that first time buyers have contributed in excess to the CMHC. In the US, you pay 70$/month and can stop paying if your house goes up in value. The CMHC just takes your 3.5% upfront and laughs all the way to the bank.

It says in the article that after 5 years, only a very small percentage of homeowners default. This is in keeping with my experience, having paid off half my mortgage in 5 years.

Past experiences do not presage future ones, which is the point of the post. Did you not get that we are in uncharted territory? And what’s so hot about $4 billion in retained multi-year earnings (which does not mean cash) on a portfolio of $350 billion, for a company with a government-mandated monopoly? — Garth

#79 Alberta Girl on 10.17.09 at 11:32 am

Garth….I think #55 “Weeping In Windsor” is onto something. You should seriously consider it.

#80 Ian McDonald on 10.17.09 at 11:38 am

CMHC is unfunded to the tune of 600 billion …

CPP is unfunded to the tune of 600 billion … you might want to check out where CPPIB invests its so-called surplus funds …

That is 100% of Canadian GDP by 2 entities …

Did I miss anyone?

So far that is 60k per working Canadian.

So what is the problem here?

#81 Kash is King on 10.17.09 at 11:38 am

#126 miketheengineer from yesterday. Thx for the info .

Here’s some more info on wonderful old vitamine D:

Snip: “A short while later, a group of scientists from UCLA published a remarkable paper in the prestigious journal, Nature. The UCLA group confirmed two other recent studies, showing that a naturally occurring steroid hormone – a hormone most of us take for granted – was, in effect, a potent antibiotic. Instead of directly killing bacteria and viruses, the steroid hormone under question increases the body’s production of a remarkable class of proteins, called antimicrobial peptides. The 200 known antimicrobial peptides directly and rapidly destroy the cell walls of bacteria, fungi, and viruses, including the influenza virus, and play a key role in keeping the lungs free of infection. The steroid hormone that showed these remarkable antibiotic properties was plain old vitamin D. ”

Full article:

Do your own DD of course.

#82 confused and a little crazed on 10.17.09 at 11:41 am

Judging by the postings here CMHC will bail out the banks and “we ” will bailout the over extended buyers. Can we do anything to stop them ie cap the losses to what CMHC current assets are

I doubt it because Flaterty bought 40 million of mortgages last year to help Stimulate the economy and will probably do it again

#83 Jane54 on 10.17.09 at 11:46 am

As alway Garth an interesting post.

I am a Canuck living in England and shortly to be posted to the Middle East in the university trade.

From my more global perspective the CHMC is indeed a giant Ponzi fund and I am amazed that the regular Canadian does not appear to appreciate the in-built risk to this system. The tax payer is indeed walking blind and assuming huge risks but then to be frank my fellow Canadians tend to be very insular and lack a wider perpective, through dare I say it, lack of travel.

Here in England ‘three year bank rate plus mortgages’ are available from 3% to 6% depending on the applicants’ down payment and personal credit history. If my 27 year old daughter applied with 5% down she would pay 6%, if her parents applied with 50% down we would pay 3%. Seems fair to me.

Strangely enough in another life I was a RE agent in TO in the 1980’s. What I am reading in this blog about my home and native city is a total replication of what happened in 1988. The RE market was flying high with bidding wars on shoeboxes in E03 and E06 one day and completely dead the next week. It was like a tap turned off. The difference from one week to the next was incredible. It is seared on my mind as we sold our own house for top dollars the week before the turn.

Please be careful everyone. If you buy now you will indeed regret it for the next decade. Many in 1988 in TO did exactly that.

#84 Got A Watch on 10.17.09 at 11:57 am

“Harper flatly denied that there was a housing bubble in Canada and didn’t forsee a problem in the future. …simply that the numbers don’t give cause for concern and that its too early to talk about bubbles. ”
When they have to deny it on the news, you know it’s already bad. The only thing Government and politicians can foresee accurately is payday.

“Looked at a home for 430K. They bid 460K. Lost. Saw another home for 399K. Put in a bid for 480K. Lost. ”

“consolidating 3 vehicle loans, plus a line of credit and paying $15,000 in penalty to get out of their previous locked in mortgage.”

Sure, in Canada ‘We Are Different’. The Laws of Gravity Do Not Apply, by PM order. Keep chanting that mantra, keep those pyramids floating.

Does it not scream “unsustainable bubblenomics” in neon letters 100′ high? Or the behavior of drug addicts? Somebody fly signs overhead “You Are All Crazy!” We are a nation of credit-drunk idiots. Probably half the jobs in this country depend on continuing the credit crack party in real estate. It’s a ‘Gift Certificate’ economy, and they come from taxpayers.

Stephen Harper, for a man always touted to be a “university trained economist!”, is living down to his “qualifications” exceedingly well. His Doctorate in Advanced neo-Keynesian Klownism with a secondary in Cluelessness serves him well. We have not had a Government mis-manage the nations finances since…Brian Mulroney. The only thing Conservative about the Conservatives is the name. Hey, I’m guilty too, I voted for these morons.

He’s always loved American style, so he thought it best we blow up the same bubbles the Americans did and have taxpayers pick up the tab the same way. Following the US case-study to the letter: “How to Cause A Massive Debt Crisis in 10 Easy Steps!”

In a delusionary way it makes some sense. If we have to print boatloads of CDN $, it’s value will sink like the US $, making our economy more competitive and promoting exports of all types. Create some inflation, which is surely better than the present (urk) deflation? Let’s announce QE! Roll the presses. (channeling a Central Bankster here)

This country is going to hell in a handbasket. Is there no one with integrity other than a handful of Bloggers who can stand up and say it aloud? I am so fed up with the smug complacent sheeple I see around me who get their “economic news” from a talking head on TV who works for a Bank.

If you want to think karmic, as in “You get the Government you deserve”, then the consumer nation are getting just what they ordered, I suppose – a “Government credit card” to charge their life to. Somehow we will all pay the bill, one day, one way or another.

#85 Peter Wiener on 10.17.09 at 12:03 pm

Re # 49 THe Vulture

Why would you listen to anything that overpaid POS (not power of sale) shill Benny Tal says. Just watch his body language and his eyes on TV next time he appears on BNN. I wouldn’t trust this guy to give me directions to the house next door.

Just reread his exact quote – its a Freudian slip. He actually states that CMHC causes house prices to rise by virtue of their insurance as a good thing. He should be fired for that assertation by his boss. What a moron!

Completely disregard ANYTHING said or written by financial institution ‘economists’ or ‘analysts’ from any country. To me they are subhuman trash that have already sold their souls for a wage to mislead their fellow citizens. Disgusting!

#86 Peter Wiener on 10.17.09 at 12:19 pm

# 59 Grey

Great post – thanks for the viewpoint from the ‘frontlines’. Don’t you dare enter a bidding war unless you like supporting the new criminal class – RE agents who engender and encourage bidding wars. In any other field their activities would be considered OUTRIGHT FRAUD and COLLUSION.

Good luck with the hunt – patience will be rewarded, just maybe not on your timeline I’m afraid.

#87 Debtfree on 10.17.09 at 12:19 pm

Nostrodamus jr. Get off this two canadas kick your on Canada has never been a country in the true sense of the word .We are a confederation . We don’t even have free trade in the “country” . We are the only so called country in the world with out a national securities commission and don’t think the new one is for real ,it would be except provinces can opt out ….what a joke!. If the wants to change anything they must go begging the provinces for permission . To break something up it must first be one whole . Garth must lol when ever he reads this break up theme of yours. Not withstanding lol.

#88 kc on 10.17.09 at 12:22 pm

59 Grey on 10.17.09 at 9:25 am

“I just wish more people would stop buying into the hype because the repercussions will affect everyone in the economy after this blows up.”

The death of common sence…

Here is the opening to a true little ode’….

Obituary of Common Sense !

Today, we mourn the passing of an old friend by the name of Common Sense.

Common Sense lived a long life, but died from heart failure at the brink of the Millennium. No one really knows how old he was since his birth records were long ago lost in bureaucratic red tape. He selflessly devoted his life to service in schools; hospitals, homes, factories and offices, helping folks get jobs done without fanfare and foolishness.


#89 tjmikey on 10.17.09 at 12:22 pm

More like a nation of slaves… debt.

#90 Jake on 10.17.09 at 12:22 pm

I have really been enjoying the political themes lately. It’s discouraging that we cannot trust the politicians to serve our best interests anymore. It’s even more discouraging that, whether we vote or not, we really have very little influence over policy. I mean, who are we in comparison to the financial and corporate elites. Keeping in mind the next big tax coming down the pipeline, here is another globalist politician caught in an awkward, unscripted moment. Discussion begins at 4:30 min into the clip.

FYI, I am not a FOX, O’Reilly, or Beck fan, so relax Bill Muskoka (great posts yesterday by the way). This was just the best quality vid, and Dennis Miller can be funny now and then.

#91 99 bottle pops on 10.17.09 at 12:23 pm

the song is so catchy Canada want to sing the same song along with the good neighbours. It’s karaoke night why don’t we all sing along.
To make it more fun we’ll use the number of bank failures in the states in the song. Don’t worry the number can go up as for as 400 we can sing all night long
99th bank failed and that’s just for ’09.
And a few millions here and a few billions there…you know what song coming up…

#92 taylor192 on 10.17.09 at 12:27 pm

#7 vantown

You should stop posting, you’ve lost perspective.

Of the 10 recent buyers (3 of them not new buyers) I know, all 10 have a 35yr mortgages. All 7 new buyers have 20% down?

#93 taylor192 on 10.17.09 at 12:31 pm

#67 Hiteclowtech

Vancouver has essentially pledged to do the same. There are ~500 unsold Olympic village units (cause they are over-priced and under-sized). The city essentially owns them and has promised to keep them off the market until they can sell them to recoup costs.

There’s > 1000 condo units in the West End/False Creek area for sale. Adding 50% more units would be a nightmare for prices.

#94 Keith in Calgary on 10.17.09 at 1:14 pm

How can this be true ?……everyone keeps telling me that there is no SUBPRIME mortgage problem in Canada……

If you have a pulse, and the CMHC fees, you’re approved…….and we’re f-ed.

#95 Kash is King on 10.17.09 at 1:24 pm

Garth, you’ve delivered the bad news about Canadian debt… but is it possible there is a silver lining (pun intended).

There is much talk on the web of a Marshall Plan for the Earth (don’t confuse with Martial Law!), in which an unreal amount of heretofor uncounted gold/silver/ other precious metals are being gifted to the world by benevolent “goodguys”?
The figure I’ve seen is a quattrodecillian dollars worth… that is a 1 followed by 40 zeros.
Each nation and people will benefit from this, and the goodguys wish that each nation and each human retains their sovereignty. From what I gather, the badguys are trying to stall this, and/or take it over to continue their domination over the planet. Maybe try to “chip” us before we get it?
Apparently, part of this plan involve a one-time governmental debt forgiveness (a debt Jubilee), and a ban on any further external debt (ie International banking cabal) to be wracked-up in the future… ie all future debt financing would be self instituted.
It could be there will be an individual debt forgiveness as well.

Could the gov’t be aware of this, and could this explain the maniacal accumulation of these debts you are pointing out?

Once again, Ben Fulford:

#96 taxpayer like you on 10.17.09 at 1:32 pm

73 DG – Despite Garths retort, your post describes how I also understand the process to unfold. And even in the
likelihood of bankruptcy, there may still be assets of

54 Ultraman – we need posts from you and others in the
FI biz. Can you tell us anything about the this process from your experience?

Garth – if it doesnt work like DG has described, just how does it unfold? That would be more productive than just
blasting the poster.

There are no assets to recover in personal bankruptcy. — Garth

#97 Men With Hats on 10.17.09 at 1:36 pm

Stuff you need to know :

EKOS polling firm paid the RCMP $80,000, for access to the gun registry .
When the gun registry was originally instituted, one of the concerns of gun owners was that their privacy rights would be invaded, that there would be this kind of intrusiveness. Now they see it actually happening. That further advances their concerns .
The Canadian Firearms Centre commissioned the poll to survey gun owners .
Asking such pertinent questions as
” Do you own a gun ?” or ” Do you like your gun ?” Do you sleep with your gun ?”Why do you own a gun ?”
Figures Van Loan is in charge of this .
So EKOS phones one thousand CRAP supporters and they come up with the magic number of 40% support.
Yea, right .

#98 Subversive on 10.17.09 at 1:58 pm

@70 Bottoms Up. No, anyone can put 5% down, has nothing to do with being a 1st time buyer or not.

#99 taylor192 on 10.17.09 at 2:07 pm

Garth, my post #91 got mangled.

Did not touch it. — Garth

#100 Barb .. a reader in Calgary on 10.17.09 at 2:14 pm

Harper’s changes to CMHC policy is his attempt at Canada’s 9-11. But Harper hopes we won’t see the bodies or connect the dots.

Al Qaeda’s Osama caused 9-11 in the sure expectation it would lure the U.S. into Afghanistan, baiting the U.S. to a war they’d lose, knowing that a war ‘there’ would bring the nation of America to it’s knees just as surely as the Soviets invasion of Afghanistan before them.

.. the goals of 9/11 itself, of that attack was to draw the U.S. into Afghanistan to fight a counterinsurgency as the Soviets had done before them. And like the Soviets, to destroy the remaining superpower. That was actually what they were thinking. It’s one of the reasons why a major northern alliance leader was assassinated, was blown up a couple of days before 9/11. The anticipation was this would draw the United States in, and the United States would be defeated on Afghan soil.
— Mark Danner, Bill Moyers PBS Oct. 16

Now Canada’s Prime Minister Stephen Harper, having never held a real job, and apparently still acting as though he’s still the appointed president of the NCC corporate lobbyist agency, has purposefully turned CMHC into our 9-11 in his sure expectation it will be one way to bring Canada to it’s knees, poor, depressed, fearful, easy to manage. Our ruination will hand Mr. Harper his golden tools to pursue his personal ideologies, this man is no dummy in getting his way, to turn Canada into his extreme right wing vision using the money, influence and tools of greedy corporations. Those are his roots, this is the path he has taken. Canadians have turned out to be the perfect pawns Harper expected they would be.

Either that, or he and Flaherty are the two stupidest people on earth, in the cockpit of Canada, and unwittingly heading us straight for the ground.

#101 Robert Stanley Adams on 10.17.09 at 2:17 pm

Garth & Friends…
You’ve gotta read the short essay below from the blog “Whiskey & Gunpowder” as it correlates so closely with today’s “Ottawa Bubble” article.

Hyperinflation and Our Bankrupt Babushka Future

Oct 12th, 2009 | By Paul Tustain

Those people who have saved for the future could soon form our own generation of bankrupted, Babushka pensioners…

Twenty-five years ago the Russians found themselves in a hole.

They had an official price for petrol (gasoline) of 1 ruble. But the cost of providing it, for example by buying it on world markets, was 8 rubles. Insofar as the state could supply any petrol to anyone at all, it was definitely going to be at a big loss. Yet they obstinately refused to accept that their price was wrong.

How we laughed at this dogmatic denial of the discipline of the market! We put it down to some sort of political imperative, but in fact it was much simpler than that.

Rather than lose money at a world-record rate, the Russian state responded by distributing official petrol in limited quantities, and only to favored clients, which in their society meant party members. The members used to fill up their Zil limousines with this cheap petrol, and effect a supply chain to retail via the simple device of draining their tanks into the jerry cans of local teenaged entrepreneurs – at 6 rubles per liter. That left the last 2 rubles to the entrepreneur, who sold it on the side of the street at 8, with hardly a murmur from official sources.

Party members were getting rich, after all, and the taxpayer was footing the bill.

Now substitute USA for Russia, and credit for petrol, and you have the essence of what is going on today. Can you get a mortgage in America or the UK at 2%, even if you pay a 50% deposit on your house? Certainly not. In America, only government mortgage agencies (Fannie and Freddie) and megabanks which are too big to fail have access to the 0.25% credit provided by the Fed. And once again, those megabanks are making very large sums, much of which gets distributed via bonus pools to those with an unremarkable talent for re-selling this cheap credit at market rates of 5.0% or more.

Political leaders regularly rail against greedy bankers, but the problem – all that cheap money – has for the last five years come directly from the false market in credit extended by ultra-low rate policies sourced in the Treasuries of the West.

Who’s at fault is academic. The issue now is that this artificially low interest rate environment can set off a hyperinflation chain reaction, just as it did in Russia once market forces prevailed. Not much is different from previous hyperinflation episodes, save that the melting of a glacially frozen stockpile of $50 trillion in government bonds performs the role traditionally played by the printing press.

In the end, those who have saved for their futures could form our own Babushka generation of pensioners. Paid out monthly, and in full, their pension will buy them a sandwich or two. The nominal value of sovereign debt will not decline, but the value of it will inflate away, taking with it the value of all those bonds.

We could end up needing to remove a couple of zeros from banknotes, because otherwise the coinage will be melted back into nickel and copper ingots as soon as it is issued, and then sold to the Chinese…

Paul Tustain

October 12, 2009

#102 Jon B on 10.17.09 at 2:22 pm

I want to be a bank.

#103 Marty on 10.17.09 at 2:24 pm

Much like the quasi-governmental Phony Mae and Frauddy Mac created the moral hazard in the US by buying up mortgages, or backstopping others, hence allowing banks to make risks they otherwise wouldn’t take, it’s the same story here. The inevitable market correction just hasn’t caught up yet.

#104 wondering on 10.17.09 at 2:41 pm

Right there with you Grey – only we’re in Victoria.

#105 Ottawa’s bubble – sasamat 2 on 10.17.09 at 2:44 pm

[…] If I want to buy that $400,000 house and have $200,000 for a downpayment, why am I paying the same mortgage interest rate as the first-timers who barely have pizza money? Don’t they constitute a larger risk? Where’s the risk premium on the money loaned to them? Why is this system so screwed up that ultra high-risk borrowers have money showered upon them by our famously conservative and prudent banks?… […]

#106 JO on 10.17.09 at 2:47 pm

Thanks for getting the message out on the NHA/CMHC – one of the fundamental tools being used to intervene in the housing market to keep the quasi ponzi scheme going. The CMHC has succeeded in making housing unaffordable for most Canadians, and also in setting up a catastrophic outcome for most recent buyers (really speculators, and definitely not homeowners) between 2010-2015.

Once the rates go higher (and that they will at some point between 2010-2015 no matter delfation or inflation) most buyers of 2002 onward, stuck with large balances and artifically low rates and payments based on these artifical rates, will be renewing into a higher rate environment. They will not be able to sell unless they take a 30-40 % haircut, so most will go into POS, and that will in turn force most into BK. A real catastrophe.

Home prices will drop soon enough. The prudent will be rewarded evenutally.

#107 taxpayer like you on 10.17.09 at 3:01 pm

“There are no assets to recover in personal bankruptcy.”
— Garth

Here’s what I mean:

“In a bankruptcy, assets in excess of your allowed personal exemption, such as, real estate, automobiles and boats that are the property of the bankrupt as at the date of bankruptcy and anything that the bankrupt acquires during the bankruptcy vests in the trustee for the benefit of the creditors of the bankrupt.”

If a mortgage is recourse, does not the above apply?

But enough diversion. How about an answer to the CMHC mortgage default process? If not POS, how does it usually work?

If there is no equity, only debt, there is no asset value exceeding debt. In practice, insured mortgages in default trigger insurance payouts. — Garth

#108 Ali on 10.17.09 at 3:36 pm

Vancouver’s bubble

700 SQ.F 1 bedroom apt in Mount Pleasant….seriously?,FV&imdp=0&RSPP=5&AIDL=9&SRTB=P_Price&ERTA=true&MNAGE=0&MXAGE=200&MNBT=0&MNBD=0&PTYTID=1&MNPRC=0&MXPRC=9000000&SCTP=OPEN

#109 Argentum Aurum on 10.17.09 at 3:39 pm


What about investment real estate, triplexes, fourplexes etc? What is your view on the rents and Ottawa as a city to invest in?


#110 Jeannie on 10.17.09 at 3:52 pm

Garth..your retort”How does rain let you live longer ?”

Who said it’s rainy here ? This has been an ‘endless summer’,and when it does rain it pours during the night, tropical style, dry in the morning. 72 above here right now…O.K. Mexico, gotta love it.

Still have interests in Canada, and this blog keeps us

#111 Schroedinger's Bull on 10.17.09 at 3:56 pm


Sorry, I’m a little confused. Sure, the entire insured amount becomes payable from the CMHC to the lender if there is a default, but then the house is foreclosed right?

If the house is sold, then I assume that the proceeds of sale end up back with the CMHC? If that’s the case, then there’s a timing difference between CMHC writing the cheque to the lender, and recouping some or all of that payment from the sale of the home, but the actual CMHC liability is the difference between the insured amount and the proceeds of sale of the home (when it sells). Not that this is a good thing, but it’s certainly better than just writing a cheque for the insured amount and never looking back.

So let’s say the CMHC underwrites 450 Billion in loans (previous limit + current year’s loans). According to the info above, they’re really only going to take it on the chin for:

(Total insured defaults – total proceeds of sale).

If 20% of all insured loans default (for example) and house prices fall by 20% (again, arbitrary number), then would that mean the CMHC is exposed to about $450 Billion x 20% x 20%, or roughly $18 Billion, after foreclosure proceeds. In addition, they would still recover some percentage of that from borrowers as well, correct?

Have I got any of that wrong? Other than my estimates of future house price declines and default rates, which were just chosen for the simplicity of the math more than anything.

Feel free to castigate me if I’m wrong…Your comments always elicit a chuckle.

Foreclosures are unknown in most of Canada, while POS is more common. This is a lengthy and expensive procedure. Homes that do eventually change title are sold at market levels, less commission and legal overhead, and money is recouped by the lender – which is not CHMC. That agency does not loan money, but rather insures it, in return for premiums paid by the purchaser upon closing. Stop thinking ‘real estate’ and think ‘insurance.’ — Garth

#112 Watched Bubble Never Pops on 10.17.09 at 4:07 pm

#105 JO

It depends on what you mean by ‘unaffordable’. The CMHC disagrees with you:

“CMHC said housing affordability has improved over the years. The monthly mortgage payment on an average-priced house has decreased as a share of workers’ incomes, the agency said.

“As of the second quarter of this year, the mortgage payment on an average-priced house was 29 per cent of disposable income per worker, down from just under 39 per cent at the end of 2007.”

Your prediction about rates rising, although amusing, are as likely to be wrong as they are right. Real estate does not necessarily need rates to rise in order to falter.

#113 Watched Bubble Never Pops on 10.17.09 at 4:12 pm

#100 Robert Stanley Adams

Interesting thoughts on hyper-inflation (which would actually save everybody taking out massive mortgages and make them out to be geniuses).

However Canada hasn’t gotten the memo.
CPI from Stats. Can. (thanks Shifty):
September 2009 -0.9
August 2009 -0.8
July 2009 -0.9
June 2009 -0.3

This seems to be the exact opposite of what posters who were raving about inflation being ‘just around the corner’:

“We’ve long felt that the only value of economists is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
– Warren Buffett

#114 Watched Bubble Never Pops on 10.17.09 at 4:20 pm

#66 T.O. Bubble Boy

Getting CMHC ‘reformed’ when they are making money hand-over-fist would be impossible in this economic climate.

That’s like telling a pack-a-day smoker that they should reform or they MAY get cancer.

Good luck.

#115 Kitchener1 on 10.17.09 at 4:39 pm

Garth or someone else in the know, can you please answer a CHMC question.

If the banks are reimbursed 100% for the loss on a property should it be foreclosed on, then how is it possible that we have recourse loans in Canada (excpetion being Alberta)? And why are we responsible for loss vs mortgage amount (if there is one).

If CMHC takes 100% of the loss, then are the banks double dipping buy also going after the difference in selling price vs mortgage amount from the owner?

The bank is the lender while CMHC is the insurer. Title does not revert to the insurer, but to the lender to cover losses for uninsured portions of debt. — Garth

#116 CalgaryRocks on 10.17.09 at 5:03 pm

This seems to be the exact opposite of what posters who were raving about inflation being ‘just around the corner’:

Oviously you’re not the one doing the grocery shopping. Those that do, don’t need government numbers to tell them that the deflation story is highly suspect.

Also, I’m sure you’ve heard about Asia. This guy, ‘onemorething’ may have mentioned it before.

It turns out they are doing quite well and getting better everyday. They are much smarter than the Americans and have all of their money too.

You’ll want to be in Alberta when Asia decides it needs more oil. I heard secondhand that when things pick up, they’ll pick up with a vengeance. Of course, I don’t work in O&G so it’s all greek to me.

Annectodally, the COSTO down south was so busy today that we had to park in the adjacent parking lot. I was mentiong to my wife that if this is what a depression looks like in Alberta, I wouldn’t want to see this place during boom times.

Costco and Wal-Mart are good barometers of economic stress. — Garth

#117 char on 10.17.09 at 5:12 pm

Alright, since others have mentioned bill c-6, I would urge everyone to go to and e-mail some senators.

This bill will result in a huge loss of our charter rights. The dark forces just won’t quit, so neither can we.

(As for real estate, chill–it will crash.)

#118 Nostradamus jr. on 10.17.09 at 5:25 pm

The U.S. & Canada are not financially screwed……the Rest of the World is screwed even worse.

I predicted the following nearly 500 years ago…

….Unfortunately, the Free World is waiting for a “world event” to level out the playing field…and its population.

China is the likely first mover into Siberia.

the U.S. will liberate Cuba

Venezuela will implode

…Money is just paper…

Nostradamus jr.

#119 hp on 10.17.09 at 5:28 pm

First time buyers putting 5% down may be acting rationally. Perhaps they realize they are taking a chance on bankruptcy. Five years down the road, if interest rates are high and property values have dropped, they may be willing to file for bankruptcy. In the meantime, they had a nice house.
Also, there is new legislation that RRSPs will be protected during personal bankruptcy. Why not put all your savings in your RRSP and pay minimum payments on your house? Then see what happens when your huge mortgage comes up for renewal in 2014?

Morality? — Garth

#120 Peter Wiener on 10.17.09 at 5:38 pm

re #110

# 105 JO is correct – houses are less affordable as the principal purchase amount goes up (especially while wages are stagnating / falling) as demand goes up.

The monthly mortgage payments as a percentage of gross income has gone from 39% down to 29% (lessened) because the average amortization period is much longer (10 years approx I believe) to pay off that mortgage, thereby MAKING IT APPEAR TO BE MORE AFFORDABLE!

The longer the amortization, the lower the monthly payment, BUT THE GREATER THE TOTAL INTEREST paid.
Get it now?

#121 T.O. Bubble Boy on 10.17.09 at 5:39 pm

@ Watched Bubble Never Pops (#113):

That logic sounds like pre-AIG/pre-Lehman US regulators… those single-billion profits won’t look so great when those hundreds of billions in risky 5% down mortgages start to go belly-up.

A 20-to-1 leverage ratio is the average for Canadian Banks, and somehow this government entity is allowed to have $800B PER YEAR in insured mortgages, and only single-billions in cash. I know, I know, there’s no way everyone’s mortgage could default all at once… but when you’ve got a 50-to-1 or 100-to-1 leverage ratio, only 1%-2% of the mortgages need to default before you’re in trouble.

AND – keep in mind – the only mortgages that even have this CMHC insurance are the ones with under 20% equity.

Yes – let’s all sit back and not correct this perfect storm. It’s not like we could predict the outcome by observing every other country’s recent real estate crashes or anything.

#122 obsessing Over Stats on 10.17.09 at 6:09 pm

” Prices have often fluctuated, and I have never heard of anyone who obsessively and repeatedly checks the current value of their house ”

#123 Dubble on 10.17.09 at 6:11 pm

Think of it in simpler terms.

I lend my neighbor ten g’s and tell him I want 10’500 back in 3 years. He cant pay me in 3 years so I knock on every door on the block and recoup the 10’500.

I know that any sane neighborhood would not allow me to lend the money to the neighbor, and my butt would end up excommunicated.

Why isn’t this happening on a larger scale?

#124 Grumpydawgs on 10.17.09 at 6:24 pm

Garth, this is getting really ugly. as a taxpayer it scares the bejusus out of me that so many newbies can’t withstand even a 5% hit in value before going insolvent. Am I just paranoid or is this a master plan to shore up an industry that really should be self regulating.

#125 conan on 10.17.09 at 6:35 pm

I think each neighbourhood has its own low interest rate “add on value”.

It will be interesting to see what that value is once interest rates decide to take the blue pill.

#126 JoeK on 10.17.09 at 6:47 pm

An interesting article from MSN on “Strategic Defaults” on mortgages in the USA. It ‘could’ happen here from the sounds of it.

#127 Schroedinger's Bull on 10.17.09 at 6:55 pm


Sorry again. But I just don’t get it. Are you saying that the lender gets an insurance payment for the entire outstanding mortgage from the CMHC, and then the CMHC washes it’s hands of the secured asset. Later when the house sells, the bank gets to keep those proceeds too?? And then gets to sue the homeowner also??

That’s truly insane.

I am thinking insurance btw…If I insure my car, and then it’s stolen. I get an insurance payment. But if the car is found, the insurance company gets the car, and if there’s any value in it, I’m sure they sell the bloody thing. I don’t get to have my insurance cake and eat it too, in other words. You seem to be saying that the banks are stuffing themselves on taxpayer funded cake.

#128 jess on 10.17.09 at 7:00 pm

fail to deliver ftd’s


#129 ValueHunter on 10.17.09 at 7:05 pm

“That agency does not loan money, but rather insures it, in return for premiums paid by the purchaser upon closing …” –Garth

So the insurance premium is paid by the purchase, but the benefit goes to the lender? Shouldn’t the lenders take out the insurance and pay the premium themselves?

#130 Calgary_rip_off on 10.17.09 at 7:20 pm

Hey Garth.

The latest from the Herald on the positivities of real estate in Calgary.

Wow. This newspaper never fails to make me want to take a dump and then fling it inside at the walls of one of those hastily constructed shacks.

It’s too bad too. Calgary used to be known for its affordability. Now it’s known for the people who work and then stay in a shelter, people who cant afford winter tires cause they just bought a house, its gridlock. On the positive side many of the people are friendly, although the service generally sucks at places and slowwwww……

Lately Ed Stelmach of the suppository party is trying to cut wages for everyone but himself. How are people to afford the shacks then? This is funny-people elect a farmer to be the premier. What’s next, an ex-mcdonalds cashier for premier?

Some party needs to be introduced to actually do something with the taxes, such as better EI programs, rent controls, continued public health care, etc. Now they are going wildrose party. Whatever happened to NDP? NDP is good enough in Saskatchewan and Manitoba. Why not Alberta?

By the way, Harper is a hypocrite to tell you garth to shut down your sites and then he posts himself playing piano on his. What a goof. Tell Harper that he is pathetic and the whole PC party should go unload on the Americans with their crap.

#131 Nostradamus Le Mad Vlad on 10.17.09 at 7:42 pm

#65 Nostradamus jr. — “1/ …Hong Kong buyers in Vancouver paying cash for properties….so no R E Bubble here. . . . Hong Kong has most expensive RE…Vancouver is soooo cheap . . .”

Sister-in-law has lived in HK most of her life and loves it. Says it’s like living in a barrel of very rich apples, almost no free space there. Used to have a townhome in Victoria, but hardly ever used so she sold it.

A friend said that if I wanted to get rich quick (legally), stand in the middle a a street in HK for half-an-hour with my arms wide open, and the money would come flowing in (never done that).

Great subway / bus system there, terrific (fairly new) airport which was built on reclaimed land. There is so much wealth it’s not even funny, so the mainland govt. leaves it alone — free income-producing gift.

With China now buying Cdn. companies all over the world, using their US debt holdings as instant cash, you are right — ultra-rich Chinese parents are buying up West and North Van., sending their children to get university educations here while they continue to travel to and fro.

By paying cash for their places, they stay out of the limelight. On this continent, almost all North Americans and their govts. are off their rockers with debt.

As for separation, I read a link recently which said the North West — Oregon, Washington, BC, Alta., NWT / Yukon, Alaska, Montana and a couple of other states met not too long ago to discuss various issues.

Sask. and Man. weren’t included (as yet) and didn’t specifically talk of separation, but the idea has been floated on more than one occasion.

Link shows Chinese stocks are ready for take-off — — china

#132 Bill-Muskoka (NAM) on 10.17.09 at 8:00 pm


Inside-trade case nets billionaire, five others

Lets’ see these Scum Bags ‘leverage’ and ‘Hedge’ their way out of of this GOTCHA!

#133 pbrasseur on 10.17.09 at 8:21 pm

This CMHC scam will explode, it’s just a question of when.

Then we’ll all be sorry.

#134 InvestorsFriend on 10.17.09 at 9:51 pm

CMHC is barely Solvent

All ‘y’all have been discussing whether CMHC or the taxpayer is on the hook for losses.

Well let’s bring a little financial literacy to bear and look at their balance sheet.

It indicates $8.17 billion in equity to support $203.5 billion in assets.

So it’s got 4.0% equity.

If houses prices drop a lot and CMHC has to pay out on a lot of mortages, it will R.I.P. through its equity pretty fast and the tax payer will have to recue it.

Don’t you love the irony? With 4% equity CMHC could not qualify for a mortage insured by CMHC!.

Just to make sure it will self-destruct CMHC has been insuring mortages at 5% down but the mortgage insurance is added to the mortgage and I think some closing costs so really there is 0% or less equity there off the get-go. I mean, the bloody real estate Commission if it were sold eats up probaly 5% or more. Realistically CMHC has zero equity security in these mortages.

Then CMHC qualifys people based on 35 year amortisations and historically low interest rates so that with the slightest bump in the road, the home-owner can’t afford the payments.

CMHC basically encourages a system of No margin of safety. One spouse loses their job and their toast.

#135 InvestorsFriend on 10.17.09 at 10:04 pm

CMHC is not run like a business.

As Garth mentioned the CMHC premium is the same whether you put down 19% or 5%. The 5% guy is more risky of course.

More dramatically, the CMHC premium is the same whether your initial amortisation is 10 years or 35. Clearly the family that selects 25 years or less has more wiggle room. If one spouse lost their job that family could extend their amortisation and therefore they have a margin of safety and are less risky.

And what about different credit scores and net worth and age? None of this matters, the CMHC premium is the same for all.

CMHC’s formula to qualify for mortage insurance (payments and taxes and heat maximum 32% of gross income using your interest rate – mimimum interest rate is the 3-year rate I understand) does not take into account the risk that interest rates could rise. Logically the risk of higher interest rates is higher when rates are at 50-year lows but CMHC takes no account of it.

Also the risk of unemployment as unemployment rates rise is not accounted for. No change to formula to reflect that. Why not go down to maximum 25% of income in bad times on the basis that more people can be expected to lose their jobs?

There is I understand a private competitor to CMHC. But how can they compete against a brain dead government insurer that is under-charging at least for the 5% 35 year crowd?

Logically, what the private insurer should do is cherry pick and insure only the better risk customers and maybe undercut CMHC on those customers.

Can any bankers comment / confirm above?

#136 InvestorsFriend on 10.17.09 at 10:16 pm

Houses more affordable now?

#105 commented houses more affordable now, 110 and 119 responded.

They are more affordable because of 35 year amortisation when it used to be 25 year max a few years ago.

And lower interest rates dramatcially improve affordability.

But if rates go higher the mortage becomes unaffordable for many on renewal.

These two factors make high house prices affordanble on a cash flow basis.

But it also means that it is dramtically harder to pay it off early. On a $150k house ,a $10k one-time payment whacks many months off the amortisation. On a $450k house with $425 mortage, that same $10k may whack off weeks instead of months.

And it’s probaly no easier to come up with the $10k now than it was back when houses were closer to the $150 mark. Even if it is easier it would probaly take $30k to whack off a decent number of months from the amortisation and I doubt our 5% down 35 year crowd is going to come up with $10 k very often let alone $30 k.

#137 taxpayer like you on 10.17.09 at 10:20 pm

130 Mad Vlad

Sounds like a variant of Cascadia.

#138 ralph on 10.17.09 at 10:40 pm

How come it’s only politicians and rich people who say the recession is over?

#139 Dan on 10.17.09 at 10:47 pm

First time buyers putting 5% down may be acting rationally. Perhaps they realize they are taking a chance on bankruptcy. Five years down the road, if interest rates are high and property values have dropped, they may be willing to file for bankruptcy. In the meantime, they had a nice house.
Also, there is new legislation that RRSPs will be protected during personal bankruptcy. Why not put all your savings in your RRSP and pay minimum payments on your house? Then see what happens when your huge mortgage comes up for renewal in 2014?

Morality? — Garth”

Garth that is what 90% of new home owners are doing. My buddy laughs and knows if things go bad he will file for bankruptcy and laugh his butt off. He has 50,000 in avalible credit and claim he will take it all before laughing and walking away. The socialist CONs are trying to BANKRUPT Canada and by lending money to idiots with NO MONEY it will happen and then we will be forced to join the US and mexico . Harper is a wolf and a man how hates Canada. I fell terror from what haper is doing. If I feel terror what does that make Harper?

#140 Santa on 10.17.09 at 11:07 pm

Re: #50 DG
Garth, you can’t be right saying the bank gets 100% of the loan paid back in buyer default. If the whole loan is paid back to the bank by CMHC then who gets to keep the house? The bank? Do they get all the money AND the asset? This would be outrageous even by the banks’ standards. Then who? The “people”? CMHC? Hmmm…
I think you missed this one. I think CMHC covers the bank’s loss after it pulls a POS on it.

#141 Santa on 10.17.09 at 11:10 pm

… still looking for any clues… CMHC site is curiously devoid of any meaningful info. Only propaganda.

#142 Watched Bubble Never Pops on 10.17.09 at 11:15 pm

#115 CalgaryRocks

With regards to groceries, at least Real Canadian Superstore and Loblaws are helping to keep inflation low:

#143 Watched Bubble Never Pops on 10.17.09 at 11:21 pm

#120 T.O. Bubble Boy

“Yes – let’s all sit back and not correct this perfect storm. It’s not like we could predict the outcome by observing every other country’s recent real estate crashes or anything.”

I understand what you are saying.

but just like Long-Term Capital Management, leverage doesn’t matter when profits are fat. Cinderella doesn’t want to leave the party when nobody knows what time it is.

Everybody understands the link between smoking and cancer, but the pack-a-day smoker doesn’t care about all that scientific mumbo-jumbo.

#144 Watched Bubble Never Pops on 10.17.09 at 11:26 pm

#132 pbrasseur

“This CMHC scam will explode, it’s just a question of when. Then we’ll all be sorry.”

I agree. Regardless of how bad it gets, ultimately taxpayers will foot the bill.

#145 Dan in Victoria on 10.17.09 at 11:33 pm

You know I got thinking about this on Friday.I was in at the suppliers picking up some material and checking out the donut supply.A young fellow that I know came in to pick up material.Now he drives a big fancy 4 wheel drive,twenty something inch rims,big stereo,chrome guck everywhere,zero down, payments for sixty months.Secondly,he’s bought a house zero (or little)down.Thirdly,the supplier is all over him to give him more credit.This guy is out there bidding against me,fair enough.So,he doesn’t own his truck,He doesn’t have anything invested in his house,And he’s been given credit to go run a business.Go figure,So I find a nice unmolested donut,no finger prints,day old more than likley pour a coffee out of the machine.Roll my supplies out the door,Out he goes to his truck,opens the door what do I see?,fresh donuts and fresh coffee.He leaves his cart in the middle of the parking lot,takes off.I roll my cart back into the store.”Oh so and so has really got his s–t together” the manager is saying to me.”Hes got a house, a truck,a buissness,blah blah blah”.I say two words “credit bubble”they all look at me with a long sad look,apparently I’m too old to get it.Times have changed,you’re too conservative.”Whatever,”I say,”This is not going to end well.”

#146 Daystar on 10.18.09 at 12:19 am

.#75 Jeannie on 10.17.09 at 11:13 am

Look, I’m just the messenger, so don’t anyone get their knickers in a twist at what I’m about to say.

In the past few months I’ve met many very happy retired Canadians who’ve sold their 30 year old Vancouver houses for more money than they’ve ever dreamed of.
These of course are tax-free dollars, and now as a bonus they see those loonies headed for par with the US.dollar.
In this part of the world these dollars are buying them mortgage-free homes that formerly would have been a fantasy.
The icing on their cakes… they get to live in a climate that will moat probably extend their lives. So some Canadians are very, very happy with the present real estate boom….maybe it’s time for you to sell that house! – Jeanne

#59 Grey on 10.17.09 at 9:25 am

What we have here is a systemic issue created by a governments policy to inflate the value of hard assets. Its not hard to imagine why any political party would want to do this. Make everyone richer, and you are more popular, mabye even popular enough to win a majority! (hmmm… how can we buy their votes)

How do we make everyone richer? Make mortgages more affordable. As the mortgage affordability gets priced into the market, home values go up. As home values go up, so do lines of credit on your home. So does your ability to invest and consume and as a result, this wealth effect boosts retail, construction, financials, realtors and the markets…

There is, of course, a downside to inflating hard assets rapidly… the increased debtloads it takes to keep these assets inflating in environments where incomes/earnings hasn’t grown at the same pace, eventually becomes unsustainable. Take away the mortage regulations that create mortage affordability, or the low interest rates… or both… and valuations come tumbling down and with it, the bubble or ponsi or pyramid collapses. Just ask George W. Bush how it went for him when his “wealth creation” policies were forced to end as his own debt forced currency down and shot up interest rates.

Hey… lets ask america now. How do they like subprime, the ease of buying homes, 40 year nothing down mortgage regulations, housing bubbles… 10% unemployment, recession, wallowing in debt… must be a nice place to live, U.S.A., houses are so cheap.

And of course, such misery could never happen here for the exact same reasons… never in Canada.

But what if it did, Jeanne. What if we had a housing meltdown from the exact same policies for the exact same reasons as the U.S… what of those seniors who sold out at the top… do they have children living in this nation? Will they know people who are overextended with credit and vulnerable to higher interest rates? Will they know friends and family from Canada, will they appreciate this nation’s people and dreams suffering for their good fortunes?

Because someone, Jeanne… someone bought those houses at their peak. When it comes time to renew a 5 year mortgage or worse, they float into these higher rates with big numbers… they’ll get swamped.

I hate to break it to you, there is a downside coming to all this and its as measurable as the balance sheet of CMHC itself. So yeah, profit off of a fool and call ourselves wise, is this the way we’ll want to be remembered? Is this what our seniors have in mind?

#147 jess on 10.18.09 at 12:40 am save the reputation of the system?

Great Britain
In 1733, naked short selling was banned after the fallout from the South Sea bubble of 1720. The difference between naked short selling and the traditional short sale is that the shares being shorted are never actually borrowed by the short seller.

In the case of the South Sea bubble, speculation arose about the South Sea Company’s monopoly on trade. The company took over most of the England’s national debt, in exchange for exclusive trading rights in the South Sea. This led to a rise in its share prices. Shares rose from nearly £130 to more than one £1000 at its peak. Then the market collapsed. The company was accused of falsely inflating its prices by spreading false rumors about its success

In 1720 there was an incredible boom in South Sea stock, as a result of the company’s proposal, accepted by Parliament, to take over the national debt. The company expected to recoup itself from expanding trade, but chiefly from the foreseen rise in the value of its shares. These did, indeed, rise dramatically, from 128 1/2 in January 1720 to more than 1,000 in August. Those unable to buy South Sea stock were inveigled by overly optimistic company promoters or downright swindlers into unwise investments. By September the market had collapsed, and by December South Sea shares were down to 124, dragging other, including government, stock with them. Many investors were ruined, and the House of Commons ordered an inquiry, which showed that at least three ministers had accepted bribes and speculated. Many of the company’s directors were disgraced. The scandal brought Robert Walpole, generally considered to be the first British prime minister, to power. He promised to seek out all those responsible for the scandal, but in the end he sacrificed only some of those involved in order to preserve the reputations of the government’s leaders. The South Sea Company itself survived until 1853, having sold most of its rights to the Spanish government in 1750.
In 1721 formal investigations exposed a web of deceit, corruption, and bribery that led to the prosecution of many of the major players in the crisis, including both company and government officials.

#148 nonplused on 10.18.09 at 1:12 am

#4 Ted,

I work in risk management and I think I have an idea how these things work. The capital base that CMHC has is only sufficient to survive modest stresses. Under duress, the portfolio will fail. Like AIG. Or FDIC. Or the US banks.

Proprietary trading desks get around this by developing exit strategies, that involve mostly exiting the position when the VaR gets too high or they hit a “stop loss” (a predetermined loss that the traders and management agree will trigger the closing of the position, even at a loss). However, in stressed markets even these strategies fail as markets dry up and liquidity vanishes. The ultimate losses can move towards the underlying exposure very quickly. Ask Brian Hunter about that.

In CMHC’s case, their exposure has no liquidity at all; they cannot sell it even if they want to. Only the government backstop has any hope of keeping them liquid in a stress event.

And they have been dramatically under charging for the risk they are backstopping. Like AIG. Or FDIC. Or the US banks. Or likely CDIC and the Canadian Banks. If (when) the $hit hits the fan, CMHC will not be able to deliver on their obligations without government support. So that means it is the taxpayers who have been underwriting this risk all along, without being compensated for it.

#13 Michael_H

That’s pretty “interesting” thinking. A bank should not loan money to someone with skin in the game, even though it is much more likely they will pay the mortgage or the house can be sold at a price that recovers the loan, because they do not have questionable insurance? That may be exactly what they are thinking, but if so it signals exactly how distorted the market has become via CMHC’s constant meddling.

#30 Future Expatriate

Bang on. The Purpose of CMHC or Fannie or Freddie or any of these programs was never to make housing affordable. The banks have always been able to calculate loan loss risks themselves and set mortgage rates accordingly. The system was designed to expand the pool of eligible borrowers and increase bank profits, while transferring risk to the taxpayer.

#56 Maurice

I don’t know too much about farming but I wonder if there isn’t something there. I just was related a story by a friend of mine who’s brother in law was just involved in buying out his father in law with some other family members. It was basically a passing of the family farm on to the children. But here is what didn’t make sense to me: It was a very large farm, several square miles, and the total ran in the millions of dollars. The children financed it at the bank. I couldn’t figure out what dad needed all this money for. So here is my question: If the farm is suddenly mortgaged for a fortune to pay dad, and then the farm goes broke, does dad keep the money and then pass it on to his children through his estate? If so it seems like a pretty risk free and stunningly brilliant move by the family involved.

And to all,

The idea that a mandated 3.4 billion or 8 something billion in retained earnings has anywhere near the power to cover a stress event on a 350 billion portfolio is sillly. CMHC is dramatically undercapitalized. It’s like 1 or 2%. Not enough to cover any losses unless the market is still going up. Hence the panic abandonment of underwriting standards.

#149 Happy Renter in North Van on 10.18.09 at 1:52 am

I’d really like to know who Nostradamus le mad vlad “blah, blah, blah” is… I could drive 10 minutes in my car and kick his ass… I’m so sick of his constant drivel… In the Lower Mainland, there is no religion but real estate… I’m seriously thinking of moving to Portland, Oregon where the weather is better and prices are more reasonable than here to get away from these morons. The smugness of the this place makes me want to vomit…

#150 dosouth on 10.18.09 at 2:49 am

Okanagan bubble or not!?!?!

Well just can’t believe this was going on in january 2009 in the Okanagan. You’re gonna love the statement about buy now….! don’t miss the boat.

#151 Maureen on 10.18.09 at 3:12 am

I’m late checking this but thought I would stil pitch in.
If you buy for $400000, put down 5%, mortgage $380000 over 35 years your CMHC fee will be $11970. added to the principal. For the sake of argument, if you reflect that fee as an inflated interest rate, a client would actually be paying 5.05% on a mortgage with a face rate of 4.39%. Same scenario for someone who is self employed without verification of income by traditional means, the CMHC premium would be $24320. (Mortgage would be registered for more than the house value.)and the effective rate would be 5.673 on a mortage with an interest rate of 4.39.
CMHC charges an addtional .40 over and above their standard premium if the mortgage is registered for 35 years.

#152 David Bakody on 10.18.09 at 6:15 am

#132 pbrasseur on 10.17.09 at 8:21 pm

Not sure how it will all unfold wrt CMHC …. Harper does not give a hoot about a deficit even a trillion would not fizz him, just blame the Liberals …. it still appears to still work. As for many they will lock in their debt and wait for another type of bailout to which Harper will accommodate for votes. He will and has pass debt and much on to all Canadians past, present and future …. “It’s just that simple” As for me I do not give a hoot …. count me out, Canadians had real money in the bank and real time savings for a rainy day and fell for a “ONE CENT” saving at their favourite coffee shop.

So the old lines prevails for voters and journalist alike.

A fool and his money are soon parted &

There is sucker born every minute.

Hello Canada …. y’all been had on both accounts.

Hey saw Cairo last evening …. a very good movie for a host of reasons …. go see sit back and just enjoy … bright minds will understand.

#153 SaraBeth on 10.18.09 at 6:23 am

126 Schroedinger’s Bull wrote:

“Sorry again. But I just don’t get it. Are you saying that the lender gets an insurance payment for the entire outstanding mortgage from the CMHC, and then the CMHC washes it’s hands of the secured asset. Later when the house sells, the bank gets to keep those proceeds too?? And then gets to sue the homeowner also??”


That’s kind of how I got it too… that the banks are TRIPPLE dipping.

#154 sukhbir on 10.18.09 at 7:15 am

* And through CMHC, Ottawa has bought up tens of billions in existing high-risk mortgages from the banks, even though there was no default, which opened up their balance sheets and allowed them to make even more high-ratio loans.

I think this is key to the bubble. The govt has made $125 billion dollars available to the Emergency MBS purchase program. The banks have sold $65 billion so far to the govt. Mortgage interest rates are so low that investors are still not buying mortgage backed securities. The federal government has agreed to be the purchaser of last resort to keep the bubble inflated. There is no risk for the banks, so there is no sanity in the lending policy.

#155 steven rowlandson on 10.18.09 at 8:14 am

Hello Garth.
I think we have a whole new area of spending cuts identified here. Why should the government insure , guarrantee or in any way subsidize mortgages in any way shape or form? Abolish the CMHC and all loan guarrantees. The country can not afford such indulgences. If the home buyers and or the banksters drop the ball then they can suffer alone for their mistakes. The government need not get involved.
Perhaps with such reforms people would be more inclined to reconsider how much they want to pay for a roof over their head.


#156 Thomas on 10.18.09 at 8:21 am

#151 ” As for many they will lock in their debt and wait for another type of bailout to which Harper will accommodate for votes.”

This is exactly what people are doing. If you take away peoples’ personal responsibility for their actions and give them a perceived “safety net”, which this whole CMHC thing seems to be, said people will take advantage of it. As will the banks. This government is ruining the country.

#157 Don't Believe the Hype on 10.18.09 at 10:25 am

Just look at this report from the CMHC showing the mortgage backed securities issued dating back to 1987. It shows growth from $400 mil. to $600+ Billion this year.

Funny how traders have refered to the national housing act mortgage backed securities as “Cannie Mae”. Hope it doesn’t suffer a similar fate as it’s cousing Fannie…

#158 T.O. Bubble Boy on 10.18.09 at 10:30 am

The more you think about this, the more the irony comes out:

The stated purpose of the CMHC is to make housing purchases more accessible. Yet, all it has managed to achieve is a super-bubble where the ridiculous actions of those fringe buyers has made housing *LESS* accessible to everyone else in the housing market.

The only people able to buy a house are those who are either 100% financially illiterate (and don’t realize the long-term impacts of the decision) or those who understand some of the numbers but choose to ignore reality because they’re addicted to the housing drug.

Good work CMHC – the inmates are now running the asylum!!!

I’d be curious to see everyone email this blog post from Garth & all 150+ comments to your local MP, and see if he/she will even acknowledge the issue (or, if they would rather give you the default “thanks for your comments, the CMHC is making greating progress blah blah blah”).

#159 Daystar on 10.18.09 at 11:41 am

That about covers my rant for the day ;-)

#160 Peter Wiener on 10.18.09 at 12:01 pm

re # 147 nonplused

Great post that everyone should read as it really nails the CMHC situation for what it is. I , for one, thank you for the time you spent composing it.

#161 taxpayer like you on 10.18.09 at 12:08 pm

56 Maurice/147 nonplused

I dont know any particulars on FCC either, but as the sale was not bona-fide arms length, and cannot see the
simple manouver described not being forseen as a
possibility by the lender and guarantor, I suspect there is
either a co-sign and/or personal guarantee by the retiring farmer.

Nobody protects themselves better than the banks and the government.

#162 Chaostrology on 10.18.09 at 12:11 pm

Chillax comrades,

Once Greenland falls into the ocean, it will be a new ball game.

#163 Peter Wiener on 10.18.09 at 12:40 pm

Btw folks, do we know how the “bonus” program for the senior execs at CMHC works? Maybe that is part of the reason for their lending standards being abandoned in addition of course to the political pressure. My guess is that the execs remuneration is somehow bonused on volume and the growth in business.

#164 InvestorsFriend on 10.18.09 at 1:18 pm

CMHC is not run like a business

I was partly wrong in my post 134 when I said that the CMHC fee is the same for different amortizations and down payments.

Here is the fee schedule

In fact the fee is smaller with bigger down payments . That is good and business like.

The fee goes up with amorts longer than 25 years and up again at 30 years and over. That is good and business like.

There is a higher fee too for self-employed – That’s good they are riskier.

A higher fee for self employed non-verified income. Well a fat lot of good a higher premium will be on a “Liar Loan”. These are almost infinitely more risky.

No extra fee reduction if you choose a 20 or 15 or ten year amortisation. A real business would regonise the lower risk there.

No higher fee for poor credit rating…

No change to the percent of income going towards the mortage based on choosing a 3 year versus 5 year lock in (3 year lowers payments but puts the buyer at more risk of a payment increase later)

No recognition of interest rates being at record lows and so paying 32% of your income on payments now could turn into 40% or more when interest rates rise to more normal levels.

But hey CMHC has only 4% equity itself so (see my post 133) so maybe if house prices drop and CHMC R.I.P.s through its equity it will just declare bankruptcy and walk away from the $200 billion in mortgages it has insured. (Just kidding we taxpayers will bail it out)

Any Bankers care to comment?

#165 InvestorsFriend on 10.18.09 at 1:29 pm

Non- CMHC mortgage insurance???

Can anyone post a link to the competitor(s) to CMHC in mortgage insurance (not life insurance ) but the insurance that protects the bank in case the home owner fails to pay the mortgage.

Genworth Financial is apparently out of the business.

I did a Google search and could not find the competitor(s) to CMHC.

I’ll bet the competitor(s) have a much stronger balance sheet since they don’t have the backing of Government.

What if their fees are lower? Your bank might still want you to use CMHC as the bank is better protected even by the near insolvent CMHC since it has that implicit or explicit government gurantee.

Comments from Bankers?

#166 David on 10.18.09 at 2:05 pm

An interesting article but seems light on specific data and sources. I was also under the impression that borrowers who take advantage of CMHC pay additional points – it would be interesting to understand the funding dynamics.

No points in Canada. That’s a US system. — Garth

#167 Mary Kapadia on 10.18.09 at 2:06 pm

CMHC is funded by premiums added to virtually every house in Canada that is purchased. The premiums used to be pretty high but have recently become more moderate. When you say that the taxpayer is on the hook you fail to realize that most houses do not fall to zero – not at all – I would say that the bank can always sell and recover 75% of the value, even in down times. CMHC must have been a real piggy bank until recently and even now must still be in the money. I think it is a disgrace that this is a compulsory insurance and protects reckless bankers, yet again!

#168 gemini on 10.18.09 at 2:12 pm

quoting post #7: “vantown on 10.16.09 at 11:34 pm”
…my banker buddies tell me…

*holly crap this guy is naive. He is probably buying bank stock. Anyone who thinks that this credit crisis is over and we are back in the dreamy days of 2007 has another thing coming*. The housing bubble and financial markets are in worse trouble today than they were before the Lehman collapse. Tick…tick…tick….

#169 Rob on 10.18.09 at 2:25 pm

People might be overlooking the obvious here. As in the states, the Government here is Run by the bankers and told what to do by the bankers. CMHC is just a ponzi scheme that the bankers created to rape this country financially. When things go belly up, and they will, the banks will get bailed out and we will foot the bill. Its called privatize profits and socialize losses. The same thing happend last year in the U.S . Hank Paulson, the treasury secretary at the time and a former Goldman Sachs Ceo. He basically threatend Congress saying the whole financial system would colapse if he wasn’t given 700 billion dollars to bail out toxic morgage backed securities . He got the money and two weeks later turned around and gave every penny to a handful of banks to shore up their balance sheets. Not one penny went towards helping morgages. The same thing has a good chance of happening here through CMHC . The banks will get bailed out and weel will get left holding the bill . We have become a country run by the banks and for the banks.

#170 InvestorsFriend on 10.18.09 at 2:29 pm

166 mary kapaia,

see my post 133 gives you a link to CMHC balance sheet.

They had “amassed” 4% equity through retained profits as at end of 2008.

4% is not a large equity position. A 20% drop in house prices could wipe out that cushion. 40% drop… and a huge number of the 5% down 35 year amort crowd might walk from mortgage and declare bankruptcy and CMHC would lose probably an average 40% on those mortgges after selling the houses and would use up their equity pretty darn quick.

All is well as long as we don’t see a major crash in house prices and/or a huge unemployment rate.

The unemployed (on average) cannot continue to make mortgage payments for very long…

#171 Anon - GTA on 10.18.09 at 2:53 pm


Would the banks double dip?

#172 jess on 10.18.09 at 3:59 pm

remember the privatization discussion on 2006

But the existence of CMHC is an anachronism in today’s competitive environment, argues Derek Holt, assistant chief economist at Royal Bank of Canada.

“There is a weak case to be made for a Crown corporation to be involved in correcting private market failures that once restrained home ownership,” he writes in an analysis issued this summer. “As such, the CMHC should be fully privatized while pursuing other complementary policy reforms.”

Forgive my misunderstanding

…so if the cmhc goes broke would it sell it to the private interests? could these private markets be shorting the cmhc just to end up with it anyway?

#173 Steve on 10.18.09 at 4:26 pm

@ #157:

Bang on. Same thing happened in the USA. Check out Peter Schiff hit the nail on the head at around 30″:

#174 joh2 on 10.18.09 at 5:18 pm

In regards to foreclosures of CMHC mortgages.

The bank pay’s for the foreclosure process, obtains title to the property and list it for sale. Any sale must be approved by CMHC. The sale proceeds are used to pay foreclosure costs and the mortgage principal. If there is a surplus it goes back to the borrower. If there is a shortfall the bank assigns the court judgment to CMHC and gets paid for the shortfall. No double dipping

CMHC then goes after the personal assets of the borrowers for the shortfall. The borrower either pays or declares bankruptcy.

All insured mortgages are full recourse (even if it’s an Alberta mortgage). That means that CMHC can go after all of the borrowers assets.

There are 3 mortgage insurers AIG, GE, CMHC. All are separately capitalized companies. (AIG Canada is a separate company from AIG in the US that went bankrupt)

Interesting fact AIG/GE are 90% backstopped by CMHC. I.e if AIG/GE go bankrupt CMHC will takeover all of of AIG/GE’s business and pay out 90% of insurance claims. It doesn’t prevent AIG/GE from failing but does allow them to compete with CMHC

CMHC itself has equity of 8.4 billion but also has 6.2 billion of unearned premiums meaning CMHC can eat 14 billion in losses before collapse.

We should be demanding that CMHC’s internal stress testing models be made publicly available. Until then we really can’t state whether CMHC is under capitalized or not.

#175 Nostradamus jr. on 10.18.09 at 5:27 pm

“”Canadian authorities are interviewing 76 would-be migrants (refugees) who were on board a freighter seized by RCMP officers off the coast of B.C. Saturday””

…This is just the begining folks….and I predicted the above on this site many months ago.

95% of the world perceives Canada as the safest and consumate Paradise…

You can bet your bottom dollar many more thousands will seek refugee status trying to land on Canada’s shores.

…Houston, we have a problem…

Nostradamus jr.

#176 Maureen on 10.18.09 at 5:59 pm

So far as I know, both AIG and Genworth each have a mortgage insurance program still in Canada. Generally the premiums are the same as CMHC’s. They tend to be more selective about the type of property they will mortgage and limit themselves geographically whereas CMHC has a mandate to provide mortgage insurance anywhere in Canada. This helps people who may live in remote areas where lenders will not lend at all on a conventional basis as the property may not be readily marketable.

There may not be a rate structure based on credit behaviour, but there are minimum credit scores a client must have to qualify. The loan to value can be affected by a less than average credit score…this can quickly tank a deal.
The general consensus now among mortgage brokers is that although CMHC has a “stated income” program for self employed they now use a ‘means’ test to determine if the income that has been stated is reasonable for the occupation. The days of fingernail technicians making $125000 a year are gone. That, however doesn’t deal with what’s in the portfolio now.
As far as the mortgage insurance goes. If the client defaults, the lender starts a foreclosure action. If the matter remains unresolved the lender applies for conduct of sale. CMHC will do an investigation to confirm the covenant has been underwritten according to their guidelines. If not they can choose not to pay out the insurance claim. Eventually, if the property remains unsold, conduct of sale will pass to CMHC after the bank has been paid. In some instances, if a shortfall results after the sale, the customer can be sued for the residual.

#177 Nostradamus Le Mad Vlad on 10.18.09 at 6:12 pm

#136 taxpayer like you — this — california — along with links below is another reason for the eventual break-up of this continent, which a Russian prof. said about a decade (or more) ago predicted would happen.

Also — latin shows that other “third world” countries are in considerably better shape than us.

Look at the headings and see what is happening. — economic warrussiaforextehranfdic

Another reason to switch to Linux or Ubuntu (Linux offshoot). — firefox

Remember them? — python

#178 jess on 10.18.09 at 6:14 pm

aussie perspective
Steve Keen is Associate Professor of Economics & Finance at the University of Western Sydney, and author of the popular book Debunking Economics

(Zed Books UK, 2007;

#179 smw on 10.18.09 at 6:33 pm

Maybe a popping housing bubble with lots of casualties will knock the Canadian dollar down to 70 cents and help with our impending trade fiasco.

#180 Swag on 10.18.09 at 6:42 pm

“And while reliable statistics on this are hard to find, my banker buddies tell me that virtually every new loan they write these days is for 5% down, with a 35-year mortgage”

Your use of anecdotes only encourages others into thinking that’s a useful prop. It’s not and it never is. If you don’t have hard facts, don’t bother with a statement like that.

Here’s a hard fact: Canadians had over 70% equity in their homes in April 2009 (at the bottom of the recent crash). That doesn’t spell disaster. It’s not great but it’s better than the US (it was 43% in the States then and probably worse now)

If CMHC truly underwrites 100% of mortgages as you suggest, why haven’t we had a bubble since the program’s inception? Why don’t the banks hand out mortgage to anybody with a pulse (and they don’t by the way…). Wouldn’t a bubble continue indefinitely until it’s cancelled?

Doesn’t the vast increase in funding correlate well with the vast increase of purchase volume all over Canada this year?

Why aren’t you telling everyone to sell their homes now to get out of the way of the coming crash?

The information about how homes are being bought has been confirmed on this blog by loan officers. Try reading the comments before you spout. As for the 70% equity, that is a meaningless number since it melds in all unmortgaged homes and reflects nothing about current conditions or, more importantly, trends. And we do have a bubble. Not good news for anyone, as you shall see. — Garth

#181 InvestorsFriend on 10.18.09 at 7:07 pm

The Mortgage Insurance (non) Business.

Thank you #173 Joh2
Now we are getting some facts on the table.

Okay AIG also insures mortages
Thier rates are identical to those of CMHC

CMHC rates are at

It’s not surprising the rates are identical as this is a pure commodity product, except the bank might want to choose the safest insurer.

But Joh2 ewvealed that CMHC gurantees 90% of its competitors offerings.

This does not sound like real competition.

Joh2 mentions CMHC has $8 billion equity but $16 billion if you count unearned premiums.4
Well the accountants call unearned premiums a liability so let’s go with that. Meaning the equity is $8 billion only.

$8 billion is an equity level of 4% of their assets as of end of 2008. And that does not count the assets of their competitors that they have insured as to 90%.

CMHC is adequately capitalised only when we consider it has government backing.

At 4% equity I don’t need any stress test to tell me that is inadequate. Just like I don’t need a scale to judge an anorexic as under weight.

Stress tests are just hilarious risk management stuff full of assumptions. Those king of tests told us the American banks were well capitalised.

CMHC would obviuously be at rsk for insolvency in any major house price collapse (say 20% plus) if not for government support.

CMHC is a giant enabler of people blowing their brains out with debt.

Young people signing up for 35 years of $2000 plus mortgage payments!!!. Can you say self-imposed indentured slavery?

CMHC better pray that house prices don’t fall that 20% or more.

#182 john maynard keynes on 10.18.09 at 7:52 pm

Bubbles go up, bubbles go down, but the squirrel population remains constant and un-cooked, and Mad Max is just a novel and a movie.

What we have here is a tendency to exaggerate, on both the bubble side and the crash.

#183 Swag on 10.18.09 at 8:07 pm

Garth so anonymous people(claiming to be loan officers) post anecdotes on an internet blog and that presents meaningful information about all mortgages in Canada, while the fact that the average homeowner owns 70% of their home is meaningless?

But I guess I’m not supposed to question that information since they’ve agreed with you…

You still haven’t recommended that your readers sell their homes; why not if we are in a bubble?

I’ve said it many times. Sellers are geniuses. BTW, anonymous people like…you? — Garth

#184 char on 10.18.09 at 8:12 pm

Anyone can default, including the CMHC. After a real estate collapse there may be sufficient anti-bank rage to fuel a taxpayer revolt. Or at some point, there may be not enough income left to tax.

#185 Peter Wiener on 10.18.09 at 9:57 pm

# 181 JMK

Where is the exaggeration about a bubble and a crash?

Fact: Average Canadian RE sale price is over 7 times the average income of the buyer.

Fact: The same American metric reached 5.3 times income whereupon it collapsed and the average home is now down 30% from the peak nationally and up to 65% down in some markets, despite the tax benefits, higher incomes and lower mortgage rates the Americans enjoyed during their bubble.

Fact: You are ill informed.

Come back to comment when you do some homework hotshot.

#186 Farley Mohawk on 10.18.09 at 10:20 pm

The Globe article about the CMHC contained another nugget which I hadn’t seen mentioned before.

It says the banks are taking CMHC insurance out on mortgages that do not require it (having more than 20% down.) This allows them to resell these loans to other investors (presumably freeing up capital to make still more lousy loans.)

So the banks have three different ways of dodging the risk in crappy mortgages – CMHC insurance on high-ratio mortgages, selling iffy mortgages directly to the government, and using the CMHC insurance to make their mortgages palatable when resold to other investors.

Given that the whole fiasco in the US is derives from the fact that the people originating the loans did not bear the risk of default, we have clearly learned nothing. Or perhaps better to say we have learned even more ways to make the same damn mistake.

#187 Mike on 10.19.09 at 1:13 am

Well after reading this article, you just confirmed that the BUBBLE will never burst. I mean if the banks are garanteed money no matter what , why would they stop lending it? I believe there is a bubble and sometimes hope it will burst for some reason. This goverment is responsible for what is happening and what will be happening soon…….it’s time folks to do something about it!!!!

#188 Zed on 10.19.09 at 2:05 am

Re #133 and #169

While I do appreciate the irony that CMHC wouldn’t qualify to be insured by CMHC, I also would suggest that you are too kind to the state housing funder.

You must also consider the $450 Billion (news flash– being raised to $600 Billion) in CMHC mortgage guarantees. If you think of the risk portion of those guarantees as 50% of the total value then CMHC’s capital base is really between 1 and 2% of total capital at risk.

At that ratio CMHC compares unfavourably to Lehman Brothers.


On a second point, Garth, I understand that the Liberals were not the place for you to run, but someone has to be bringing this issue into the national debate. For the good of the country, you have to run. Start your own party if you have to or run as an independent.

#189 mattbg on 10.19.09 at 11:50 am

Is it really true that CMHC insures 100% of the mortgage? I thought they just insured the first 20% of the mortgage…?

Insuring 100% of the mortgage would seem like a very irresponsible thing to do, whereas insuring just the first 20% still gives the bank a stake in the lending decision and allows them to treat a CMHC loan as any other loan — the risk picture doesn’t change.

#190 Soju on 10.19.09 at 12:43 pm

CMHC has always been around and has always done the same thing in good times or bad. They’ve even increased the amount of their premium not so long ago. It’s easy to grab anything out of thin air just to make a story out of it.

#191 Finanzkrise on 10.19.09 at 9:06 pm

“The worst outcome slipped past us. There will be no neo-depression (an event I pegged as 20% likely). Government spending, crashed interest rates, global cooperation, Obamanomics, market speculation and massive public stimulus have spared us. So put that section of the book aside. But don’t lose it.”

I agree with Garth that a probable scenario is a very slow recovery, where debt overhang at all levels prevents a return to the boom years anytime soon. However, part of me still thinks that the scenario where deflation turns into a spiral, where debts and derivatives start to collapse en masse, swamping any government efforts to reflate the debt bubble. Probability at least 20%… Don’t put “After the Crash” away, indeed.

Can’t wait for the next book!

#192 Curious George on 10.20.09 at 2:23 pm

Is there a way to find out how large a % of all outstanding mortgages is $5K down for 35 years?

Is there a breakdown on all mortages anywhere?