Bad advice

escalator1

More than a sudden spike in rates or a shift in public sentiment, it was a credit drought which killed the US housing market. So, is that where we’re headed? What happens if buyers can’t get mortgages?

After all, the feds are pushing the envelope. Last week’s news that CHMC is now rationing the insured money it makes available to banks was a big step in this direction. As you know, virgins have to qualify for loans today under much stricter guidelines than in the past. And rates keep creeping up. All this might congeal into a sticky mess gumming up a housing market already knee-deep in problems.

Like those poor folks trying to unload million-dollar houses in demand areas of Toronto, or almost every hood in Vancouver (where 4,850 homes worth more than seven figures are for sale). Since F caused mortgage insurance to be banned for any listing over $1,000,000, the damage has been palpable. Properties selling for above their $1.5 million asking prices in the Spring of 2012 are now languishing without offers at $200,000 less. Suddenly it’s become clear just how many people were gobbling Mercedes houses on Chevy Malibu budgets.

All this has revived an old idea. It’s called the VTB, or vendor take-back mortgage. It was the rage back in the early 1990s, for example, when a five-year home loan cost 14.25%. (No, kiddies, that is not a typo. It’s why houses were cheap then.)

During those high-rate days a homeowner would offer a private mortgage to a seller, handing over the keys only for a down payment and a monthly cheque, based on a rate which was immensely more affordable – like 10%. After the term was up, and rates presumably dropped, the buyer would refinance with a bank, giving a balloon payment to the seller, who meanwhile collected fat, juicy amortized interest.

So why would anyone mess around with a VTB when mortgages are still in the 3% range? Because (a) you can’t find a buyer for your million-dollar house who has 20% down or (b) your buyer can’t get approved as credit is further restricted. But be aware this is a dangerous path to walk.

The best advice I can offer is not to read this. Lawyer Mark Weisleder’s article on seller financing, just published in the Toronto Star, is powerful evidence he was sick the day they taught mortgages in law school.

He suggests a VTB is great because a seller can probably get more money for the property (and close faster) since the buyer doesn’t need to go through that irritating process of actually qualifying for bank financing and securing CMHC coverage for a high-ratio loan. So when the seller also acts as the bank, more bidders might appear and a better deal struck, since nobody has to pay those hefty insurance premiums.

Sounds safe, right? You deliver the house, take 5% down and look forward to monthly cheques from a person who almost certainly failed to pass any bank’s credit check process. What could possibly go wrong?

“There is a risk that the buyer will not make the payments.” Weisleder admits. “However, if this does happen, the seller will be able to very quickly step in and sell the property if default occurs, under the powers contained in the mortgage.”

Fail.

In Ontario, for example, if someone defaults on a mortgage you cannot just change the locks and toss their sorry ass on the curb. Under the power of sale process, after a long and reasonably expensive period of time (during which the deadbeat owner continues to live there), the property is listed at market value. If it’s fire-saled for less, the mortgage-holder (the former owner) could actually be sued by the owner (the dipwad buyer). And all along the way, the process can be halted if the mortgage arrears are paid, with no guarantee monthlies will continue.

By the way, you can only sell with a VTB in place if you have first cleared out an existing mortgage, or have 100% equity in your property. Now, do you really want to risk handing the keys to some credit-challenged dink, knowing you can never get title again if he whacks you?

Forget the lawyerly talk. It ain’t worth the risk.

There’s only one drop-dead way of selling a house. And you already know what that is.

143 comments ↓

#1 Randy on 08.12.13 at 6:53 pm

Nice dog…Call the Shouldice Clinic for prompt hernia surgery…

#2 city that smells like it sounds on 08.12.13 at 6:56 pm

Second!

#3 jaguar on 08.12.13 at 7:00 pm

Good article being carried by the press today about the Calm Before the Storm in Canadian real estate. Huffington Post, CBC all carrying it. One wonders if house horny people read the media reports. Google Calm Before the Storm to pick it up. Adore you Garth.

#4 canute on 08.12.13 at 7:00 pm

Thanks!
A very useful lesson in Mortgages 101.

#5 Penny Henny on 08.12.13 at 7:04 pm

i was just talking to a beautiful young girl looking for a rental apart in central etobicoke (west toronto, very west). she was telling me how rentals for 1 bdrm in decent buildings are going for 1300 +++.
holy crap. that makes my 1100 sq ft 1 bdrm basement worth 1100 all inclusive. hydro, cable, internet included.
all of a sudden my 600,000 bungalow my be worth the money.
because the upstairs will rent for 2,000.

I’M RICH!!!!

#6 CrowdedElevatorfartz on 08.12.13 at 7:05 pm

Ahhhhh yes 14.25% mortgages.
How I remember thee.
When I tell people about those “good old days” they look at me with either abject horror OR smirks…..smug in the knowledge it could NEVER happen again…….

Never say never.

#7 Sebee on 08.12.13 at 7:09 pm

Yeah. Slap a coat of paint in that slanted semi-pig, price it low and wait for the bidding wars to go nuclear after a daily yellow heli fly-by.

See, we’ve been paying attention.

#8 Today's thoughts on 08.12.13 at 7:12 pm

Today I really feel there is a turning point. Maybe it’s the I told you so email that I recieved from a realtor I would never use. The house I looked at sold for $400,000 under multiple reduced asking prices and the realtor twisted it to claim victory. I told you that it would sell for that much. FYI he didn’t even recieve a commission on the sale but still sent the “I told you so” email. I. My
Opinion it’s still $400000 too much money even at this sale price… But it gives me a good idea of where prices will be after the downturn and with a 20% future reduction in prices it looks more then ever that I will be right and have the last laugh because apparently
According to our friendly realtors there is no
Downturn. Hope this made sense. Today was eye opening and a lesson in how not to get a client.

#9 Steve French on 08.12.13 at 7:14 pm

Is this a #8 posting which I see before me?
The handle toward my hand? Come, let me clutch thee.
I have thee not, and yet I see thee still.
Art thou not, #8, a fatal vision, sensible
To feeling as to sight? or art thou but
A blogposting of the mind, a false creation,
Proceeding from the heat-oppressed brain?
I see thee yet, #8, in form as palpable
As this which now I draw.

#10 ILoveCharts on 08.12.13 at 7:14 pm

It’s like being a landlord except that you are slowing giving the house away instead of slowly building up equity. Bad deal.

Any numbers on how many sellers are actually in a position to do this?
” you can only sell with a VTB in place if you have first cleared out an existing mortgage, or have 100% equity in your property.”

#11 Today's thoughts on 08.12.13 at 7:16 pm

Additional details Original asking over 3 million. Last listed price $2600000. Final sale price $2200000. Still at least $400000 over Asking. No house horney people do not read or listen to the news. They listen to their friendly real estate agent.

#12 Alberta Girl on 08.12.13 at 7:17 pm

Holy S%&T Garth! Just for fun & games I just did a search on realtor.ca for homes OVER 1 Million Dollars in Edmonton. There are TWENTY EIGHT pages on the realtor.ca website of them. That’s JUST the Edmonton area!?! Holy Crap…. I am so glad that I am frugal and own a small reasonable home that will be paid off in less than a decade and at least 25 years before I retire.

This is NOT going to end well.

#13 Zimbabwe is coming on 08.12.13 at 7:19 pm

DELETED

#14 AisA on 08.12.13 at 7:19 pm

Look at every page of the contract, if you can’t spot the dipwad…. it’s you.

This is the best they can come up with to slow the mushroom cloud that will form from the soon to be crater that will be left behind by today’s prices?

RUN.

#15 Peter Schift is coming on 08.12.13 at 7:25 pm

DELETED

#16 mark on 08.12.13 at 7:37 pm

The closer it is to the end, the stupidier the financing methods.

#17 TurnerNation on 08.12.13 at 7:41 pm

Bond prices really breaking downwards.
Don’t take D.M’s advice; call a M.D.!

#18 NotAGreaterFool on 08.12.13 at 7:44 pm

Due to the recent spike in interest rates and CMHC’s MBS ceiling rule (higher rates coming), Ross Kay says a full correction is ahead an no longer a slowdown.

Time will tell.

#19 Stinky the Fish is coming on 08.12.13 at 7:55 pm

I knew you would let me post here, Garth.

#20 Dean Mason on 08.12.13 at 7:58 pm

Vendor take back mortgages VTB’s are really vendor total bull mortgages.It’s the desperate real estate junkies trying to put a band aid on a deep wound that clearly needs stitches and even surgery.

These real estate industry piggy backers like real estate lawyers,real estate agents,mortgage brokers and lenders are really trying to squeeze this lemon to the fullest.People will learn the hard way.

#21 Bob Copeland on 08.12.13 at 8:00 pm

Grandma always said: If the bank can’t trust them – neither can I.

#22 jess on 08.12.13 at 8:11 pm

look back
http://www.cbsnews.com/8301-504803_162-57397490-10391709/whistleblower-facing-foreclosure-wins-$18-million/

update: the underlying evidence was never revealed until the case was unsealed last Thursday.

Monday, Aug 12, 2013 07:58 AM EDT
Your mortgage documents are fake!
Prepare to be outraged. Newly obtained filings from this Florida woman’s lawsuit uncover horrifying scheme (Update)
By David Dayen

http://www.salon.com/2013/08/12/your_mortgage_documents_are_fake/

#23 TurnerNation on 08.12.13 at 8:13 pm

I believe the euphemism for Broke is, “Mercedes houses on Kia budgets”.

#24 Ballingsford on 08.12.13 at 8:16 pm

Not to worry blog dogs. You still have a chance to fill up on blackberry shares before the takeover.

Also, get a few more CIBC shares in Aeroplan while you still have the opportunity.

Smart investing advice offered here for free.

#25 Bad advice — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer™ on 08.12.13 at 8:17 pm

[…] via Bad advice — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. […]

#26 DaleFromCalgary on 08.12.13 at 8:19 pm

Never ever give someone a take-back mortgage. In the early 2000s, I had a family member who did so on a rural acreage. The buyer contaminated the land with a leaking underground fuel tank, then walked away. We couldn’t foreclose because then we would be liable for clean-up costs, which were $200,000 more than the land was worth. Under Alberta law, if the mortagee skips, then the mortgage holder is liable. Fortunately the council seized the land for non-payment of taxes, then converted it into a Public Works depot. Unfortunately my relative only got a year’s worth of payments and lost 90% of the capital.

Drug dealers love take-backs. They bring in a young white couple carrying a baby and with fake references. After buying the house, it is converted into a grow-op. After six months or a year, they abandon it due to rot and stop paying. The take-back vendor repossesses and finds himself with a toxic house that usually has to be gutted or demolished at his expense.

Bear in mind that when you give a take-back mortgage, you are not a landlord and have no right to enter the property. If the buyer defaults, you can’t enter until after you have foreclosed, by which time you are liable for leaky tanks or grow-op rot.

#27 not 1st on 08.12.13 at 8:21 pm

Garth, real estate costs are going to come way down once this is built:

http://www.businessinsider.com/elon-musk-hyperloop-plan-2013-8

I can just travel to Toronto and Vancouver for the weekend in about 45 minutes. No need to live there.

#28 Victor V on 08.12.13 at 8:21 pm

http://www.theglobeandmail.com/report-on-business/economy/housing/after-decades-of-stoking-mortgages-ottawa-in-a-mess-of-its-own-making/article13705668/

“The evidence is fairly telling,” analysts at corporate bond manager Canso Investment Counsel Ltd. of Richmond Hill, Ont., argued in a recent newsletter. “Housing became more expensive for Canadians because of the misguided efforts of the CMHC to make mortgages easier to obtain.”

Canso estimates that the combined impact of successive federal programs may have added as much as 50 per cent to house prices in key markets, such as Toronto. Canso estimates that the “affordable” price of an average two-storey home in upscale North Toronto is $615,000 – well shy of the actual price of $900,000.

As Canso bluntly puts it: “Canada borrowed its way out of the 2009 recession by stoking our residential housing market to absurd levels. We cannot afford the houses we are in.”

Ottawa is now wisely unwinding many of its pro-home-ownership policies.

It’s not yet clear if these efforts will produce a soft landing or a more disorderly unwinding, as some analysts fear.

Looking back, Finance Minister Jim Flaherty’s constant badgering of Canadians about excessive borrowing may have been a diversion.

He could have worried more, and sooner, about the government’s own behaviour in pumping up house prices.

#29 polecat on 08.12.13 at 8:28 pm

That is some scary talk from the industry. bad ju ju all around, the smell of blood is getting stronger. Wow.

#30 jess on 08.12.13 at 8:29 pm

economic substance
STARS is short for “structured trust advantaged repackaged securities.”

http://www.reuters.com/article/2013/08/11/us-usa-tax-stars-idUSBRE97A0CF20130811

#31 Waterloo Resident on 08.12.13 at 8:31 pm

With 1-bedrom apartments renting for $3,000 + per month, and 3 bedroom house renting for $7,000 per month, i CAN see how a $800,000 3-bedroom house in the Greater Toronto Area can ‘EASILY’ go for around $3 MILLION in 2 or 3 year’s time, regardless of the mortgage rates.

#32 Money talks on 08.12.13 at 8:42 pm

We take our kids to the park near the home we’re renting in south west YWG and the last few times, not one family was speaking English to each other or their children (it was not french either). Ok, no problem. We say hi to the other parents and we are lucky if we get a nod in return, never a “hello” back. It feels like each culture sticks with it’s own and there is limited attempts at integration. Missing “community” big time.

Prices in this neighborhood average 500k for a SFH. Walking through the neighborhood, you see many homes with weeds for lawns (never landscaped) & house numbers written on paper tapped to the window (homes referenced are at least 2 years old, some 4). Our rental meets both those criteria but we do a good job of cutting our weeds to make it look half decent and pretend we have green space. Can people not afford to put grass in and numbers on their homes or do they just not care?

On a walk last night in the neighborhood (which was like a ghost town), we noticed several real estate calendars still stuck in door frames which were delivered early last week. Vacant homes?

When we looked in this neighborhood for a rental, every single home we went to view was owned by foreign families/new to Canada, some who claimed the owners were still overseas and planned to come in a few years. Some could not speak English at all and had a translator with them.

Are all these people coming here buying with cash? My brother sold his home to a man from China who paid cash after a bidding war to boot and I thought he was joking. How can we find out how many immigrants purchase with cash?

On another note…

Just a sample of some rental ads from YWG. Would this fly if it said “White people only”?

http://winnipeg.kijiji.ca/c-real-estate-house-rental-Attention-Punjabi-Girls-and-Boys-W0QQAdIdZ512886159

http://winnipeg.kijiji.ca/c-real-estate-room-rental-roommates-Looking-for-Indian-Punjabi-roommate-W0QQAdIdZ506382102

http://winnipeg.kijiji.ca/c-real-estate-room-rental-roommates-PUNJABI-INDIAN-GIRLS-ONLY-W0QQAdIdZ512463141

http://winnipeg.kijiji.ca/c-real-estate-room-rental-roommates-looking-for-punjabi-girl-W0QQAdIdZ512301646

http://winnipeg.kijiji.ca/c-real-estate-room-rental-roommates-ROOM-FOR-RENT-IN-TYANDALL-PARK-W0QQAdIdZ512411488

http://winnipeg.kijiji.ca/c-real-estate-room-rental-roommates-Punjabi-female-roommates-required-W0QQAdIdZ510405002

http://winnipeg.kijiji.ca/c-real-estate-room-rental-roommates-PG-ACCOMODATION-FOR-INDIAN-GIRLS-Ready-to-move-in-W0QQAdIdZ510856884

Those ads sound like they’re written by people who feel most comfortable around others of their own ilk. Just like your post. — Garth

#33 Unknown Marketer on 08.12.13 at 8:48 pm

This is what jaguar # 3 was referring to…supports what is being discussed here.

Canada Housing Boom In ‘9th Inning’; Will Market Crash Or Coast?

http://www.huffingtonpost.ca/2013/08/11/canada-housing-boom_n_3739063.html?ir=Canada+Business

#34 timmy on 08.12.13 at 8:50 pm

More than credit issues, it was high oil prices that brought this on, just like every other recession

#35 Sideline Sitter on 08.12.13 at 8:53 pm

VTBs are more reasonable (some say essential) for Commercial properties, as VTB means no environmental assessment, no % commission on mortgage amount, far less stringent lending standards, and sometimes lower down payments.

#36 Housing Crash will be painful for all on 08.12.13 at 9:04 pm

The Government , bankers and of course your greedy uneducated realtors help create a Housing bubble that is bigger then the American bubble. Many Canadians are maxed out and living on borrowed time. The jobs in the RE industry are getting hit hard and spilling into retail sales. F knows Canada can not continue the Ponzi scheme . The banks will not be lending their money to deadbeats without money at a low interest rate. Sellers are already getting worried as buyers are all but gone now. Look out below it’s going to be a ruff ride down.

#37 Babblemaster on 08.12.13 at 9:05 pm

I wonder if in four year’s time we’ll still be talking about crazy RE prices and debating when the correction is coming.

There’s no doubt that RE prices are insane and unsupported by the fundamentals. There’s no doubt that Canadian RE is facing strong headwinds. There’s no doubt that RE prices are about to stall and reverse downwards. However, all of this has been true for over four years and they’ve only gone up thanks to Ottawa’s meddling with the RE market. There’s also no doubt that if prices do come down significantly, Ottawa will pull out all the stops to raise prices again. That includes schemes that will cost taxpayers money. They’ll do this because the electorate is so indebted that it’ll be in any political party’s interest to do so. Look at the US and how Washington wasted taxpayer funds on refinancing schemes.

I just see red every time I see Flaherty’s smiling face on TV.

#38 Smoking Man on 08.12.13 at 9:06 pm

Toronto Sucks.

Our Mayor gets shits faced on the Danforth, Those friendly Greeks loading him up on ozzo and beers.

Love this guy.

Watching the news today, all those communist with there comments, Disgusting, Inappropriate behavior, disgraceful. Bla Bla Bla, like they are perfect….

What planet are these Lonnie Lefties from, bet most are home owners.

For the love of god, please lets have a real estate crash.
What can I do to help.

Greatest Mayor we have ever had, I’m just waiting for the wicked school mistress (Catleen Weenie) to weigh in.

Don’t get this wrong, I would never vote for hipo harpo.

Ford eats what he kills, business man, a Smoking Man with a heart, he helps everyone one who asks.

I’m leaving this city for sunny beaches or desert forever soon.

Toronto people suck……………

#39 Wise guy on 08.12.13 at 9:16 pm

#31Waterloo Resident

Where do you see. 1 bedroom apartments in Toronto going for $3000/month? Are the toilets made of gold?

I’m born and raised in Toronto and have never heard of crazy prices like that.

If you want a 1 bedroom downtown condo, you’re paying $1600/month tops and even that is too much!

I live in Bloor West Village of Toronto, where the houses all hit very very close to $1 million and up and I rent the who middle floor of my modern house for $1100/month.

Furthermore, I don’t have to take an elevator ride down to the garage, I simply walk to my driveway and back my car out and don’t have to deal with cluttered condo traffic!

#40 fodork on 08.12.13 at 9:18 pm

Blackberry and Canadian housing market are symbolic of how this country operates. Behind the times, in denial, passive aggressive and the list goes on and on.
Why would someone buy blackberry when it couldn’t deliver results as a public company? oh wait my pension fund will at my cost. why would someone buy a home in toronto right now? Many will at the taxpayers expense.

#41 Money talks on 08.12.13 at 9:23 pm

Was my comment offensive Garth? I sure hope it didn’t come across wrong, just sharing our experience.

#42 Money talks on 08.12.13 at 9:25 pm

Subsequently found this link which reflects the rental links I shared are in fact discriminatory as per our human rights commission in MB.

http://digitalcollection.gov.mb.ca/awweb/pdfopener?smd=1&did=16658&md=1

#43 Nonconfidencevote on 08.12.13 at 9:28 pm

R.I.P.
Mr. Anderson

You will be missed.

#44 Ret on 08.12.13 at 9:30 pm

If he defaults and you are relying on that monthly VTB check to pay a mortgage on your new property, you will be out on the street because you can’t make your mortgage payment to a big bank on the new property.

The banks have huge legal departments that have unlimited resources to kick you out in a couple of months. He’ll still be living in your house while he endlessly games the system.

How long could your family live in a minivan in the back lot of a 24 hour fast food joint? Better run this scenario by the wife before you go the VTB route.

Banks loan money. I don’t.

#45 OttawaMike on 08.12.13 at 9:36 pm

Reminds me of 09. Sold my country estate place believing that real estate’s days were numbered. I was offered a centrally located multi residential unit for $950k and the vendor was willing to finance $700k with me putting $250k down. I couldn’t stomach the thought of dealing with the “under privileged” tenants and instead downsized to a small central SFH.

Saw the vendors today and they lamented on how the recent $1.3M sale of the famous building is being scuttled by an inability to obtain financing, even with said buyer putting $500k down. CAP rates, inspections and all other due diligence have passed muster but no mortgage.

The big piece to all this is the vendor is not even considering offering a VTBM at this point.

#46 Money talks on 08.12.13 at 9:38 pm

“Those ads sound like they’re written by people who feel most comfortable around others of their own ilk. Just like your post. — Garth”

Far from it Garth, I run a grass roots organization that unites people from all walks of life with no gender/race/age discrimination in the hopes of regaining community. You have my email address if you want more information to back this. Quite offended by your comment.

If people wish to room with others like them, why’s that news? — Garth

#47 IM in C on 08.12.13 at 9:49 pm

DELETED

#48 HDJ on 08.12.13 at 9:55 pm

More bad news for condo owners in British Columbia. The government now requires strata corporations to prepare depreciation reports to help plan for the repair, maintenance and replacement of common property, limited common property and common assets. As a consequence, condo owners, especially those in buildings constructed in the 1970s, 1980s and 1990s, are beginning to discover that required repairs and maintenance costs will require significant increases in monthly strata fees, as well as expensive, special remediation assessments. These steps are good ones for the structural health of condo buildings, but are already beginning to pressure owners into selling, and condo prices will surely go down, for reasons other than (and in addition to) the ones often repeated on this blog. Of course, potential buyers “in the know” are now asking to see these professionally and independently produced depreciation reports. Condo owners in Vancouver and Victoria, hang onto your hats.

#49 45north on 08.12.13 at 10:01 pm

money talks: We take our kids to the park near the home we’re renting in south west YWG

Prices in this neighborhood average 500k for a SFH. Walking through the neighborhood, you see many homes with weeds for lawns & house numbers written on paper tapped to the window

YWG is Winnipeg, just say it

okay the message I get is you wouldn’t pay $500,000 for these houses. You wouldn’t pay $400,000. I am really doubting you would pay $300,000. So I’d say south west Winnipeg is looking at a 50% devaluation.

50%! That sure as hell is different!

#50 Sebee on 08.12.13 at 10:12 pm

OK boys and girls, I solved it. I know why RE board numbers are all out of whack last few years. They use those Xerox copiers that turn 6es into 8s.

http://www.telegraph.co.uk/technology/news/10230810/Xerox-offers-patch-for-number-changing-scanners.html

#51 Notta Sheeple on 08.12.13 at 10:21 pm

“…..Last week’s news that CHMC is now rationing the insured money it makes available to banks was a big step in this direction…..”
=====================

Canadian banks, having been restricted from future self-mutilization during the Paul Martin era, have been
gloating record profits right through the latest global recession.

Given the size of the current federal deficit, there are more proably more sensible alternatives for spending limited taxpayer revenue than subsidizing record bank profits through the CMHC.

Rather than privatize the CMHC (adding another layer of cronyism to an already self-indulgent cartel) simply dismantle the CMHC entirely and let the banks suck up their own mortgage risk.

#52 Julia on 08.12.13 at 10:29 pm

Money Talks
Landlords and roommates discriminate all the time. It’s just that if you are not chosen how would you ever prove that it was because you were not white, not straight, not born in Canada, not able bodied, not good looking enough…

#53 takla on 08.12.13 at 10:39 pm

that poor home-owner is faceing the wrong way on the down elevator garth.I see he’s fighting it but me believes he’s about to get it doggie style from the powers that be. “F” has really set-up the 70% home-owning canadian public and this will be messy .I firmly believe that the idea private home ownership is going to lose some of the luster for future generations and the banking morgage industry on the whole will be sucking the hind tit going forward…..

#54 Her Indoors on 08.12.13 at 10:39 pm

I represent the soon-to-retire baby boomer, empty – nester who resisted all attempts by my husband to convince me to sell our suburban family home in Calgary while the market was still hot. In desperation he introduced me to your blog and I am glad to say I eventually figured out the logic of not sitting in (on) your primary equity. With the profits of the house sale we were able to buy a lovely heritage home and 3 acres on the Medway River in Nova Scotia for our retirement and invest $250,000 in a balanced portfolio. We now rent a trendy townhouse downtown that is 10 minutes from work. Do I miss the expensive granite kitchen; swanky reception rooms, gargantum deck & garden – or the enormous heating bills, crippling maintenance costs and the gridlock commute every morning – not for one second! It’s a great feeling to have money in the bank and the freedom to travel to visit our sons and now grandchildren. Thanks Garth. I hope this is a wakeup call for more wives like me who stubbornly cling on to the family heap. Ladies – a holiday in Hawaii sure beats a new furnace as a Christmas present.

#55 Shawn on 08.12.13 at 10:57 pm

BABES IN THE WOODS

So a Vendor Take Back Mortgage is where someone with no knowledge of lending and the risks associated with it lends hundreds of thousands to a person that the professional lenders refused to lend to.

Yeah, what could go wrong?

If you want to lend money buy a bond or buy bank shares.

#56 KommyKim on 08.12.13 at 11:12 pm

RE: #39 Wise guy on 08.12.13 at 9:16 pm
#31Waterloo Resident
Where do you see. 1 bedroom apartments in Toronto going for $3000/month? Are the toilets made of gold?

Of course, that’s why RE prices are crashing! It’s all those gold fixtures that have lost 30% of their value. ;-)

#57 Insider on 08.12.13 at 11:13 pm

Ref comment #32

In the company I worked recently about 3/4 of engineers are foreign trained. Some barely speak English. Some appear to barely understand what they do. How some of them got license is a big question. The employer – the corporation does not care. As long as the newcomers are cheep and can fog a mirror they are allowed to design those condos. In the worst case scenario (remember Elliot Lake Mall collapse last summer?) the corporation has liability insurance. Design budgets are unrealistically low – consulting corporations cut each other throats to get a jobs from developers.

The city building department inspectors look the other side and appear to be either incompetent or corrupted or both (and you thought the corruption in construction sector is present in QC only?)

Gordon Gecko was right – Greed is good…

#58 TRON on 08.12.13 at 11:14 pm

#48 HDJ

The contingency fund and strata fee increases are not part of the legislation in British Columbia. The only thing legislated was the report has to be done for the strata.

#59 Snowboid on 08.12.13 at 11:19 pm

#31 Waterloo Resident on 08.12.13 at 8:31 pm…

About two years ago (#18 on 09.18.11 at 8:32 pm) you wrote:

“Real Estate is “Sticky”, once prices reach a high point they don’t want to come back down.

That $500,000 house you have your eyes one will soon have bidding wars on it, and it will sell for $10 Million in about 6 years time, just wait and see.”

In the meantime you now quote ridiculous rental figures to justify a value increase to $ 3 million in 2 or 3 years?

Your humour is appreciated, I only hope you aren’t involved in real estate or serious!

#60 Snowboid on 08.12.13 at 11:22 pm

#38 Smoking Man on 08.12.13 at 9:06 pm…

“I’m leaving this city for sunny beaches or desert forever soon”

Toronto will never appreciate what they missed.

Viva Las Vegas!

#61 Snowboid on 08.12.13 at 11:33 pm

#48 HDJ on 08.12.13 at 9:55 pm…

The reports aren’t required if 3/4 of strata owners vote to opt out or there are 4 or less strata units.

http://www.housing.gov.bc.ca/pub/stratapdf/Guide12.pdf

Of course, opting out (unless a small strata) would likely raise suspicions there are serious problems.

You do have some valid points, and any prospective condo buyer would be wise to tread carefully with any purchase.

In any case, at least in the Okanagan, it’s far less expensive to rent than buy a condo and no worries about fees or assessments (or taxes, maintenance and repairs)!

#62 TO and GTA Sales and stats 2013-08-12 on 08.12.13 at 11:38 pm

TO and GTA Stats and Sales 2013/08/12
http://recharts.blogspot.ca/2013/08/416905-condo-sales-and-stats-2013-08-12.html
http://recharts.blogspot.ca/2013/08/905-sfh-sales-and-stats-2013-08-12.html
http://recharts.blogspot.ca/2013/08/416-sfh-sales-and-stats-2013-08-12.html

#63 Sask Girl on 08.13.13 at 12:20 am

Are any cities in a position to come through this RE situation without any negative impact? Or will it hit hard everywhere at this point?

#64 HAWK on 08.13.13 at 12:39 am

#32 Money talks on 08.12.13 at 8:42 pm

=========================

Agreed it’s shameful, am non-white (S. Asian) and concur fully with your sentiment.

#65 Tony on 08.13.13 at 1:09 am

Re: #24 Ballingsford on 08.12.13 at 8:16 pm

Blackberry shares will fall further in price as there’s no reason for any company to buyout blackberry.

#66 NetCentric on 08.13.13 at 1:12 am

Re: the VTBM idea here’s another example of the real estate industry colluding with writers and newspapers to mislead the public. What really gets my goat is that in this case they are trying very hard to mislead young people.

The Toronto Star headline: Take-Back Mortgages Help Young Buyers When Banks Say No

According to his own website, Mr. Curtosi, the “young person” who is the subject of the article, was born in 1960. He’s a baby boomer. I suspect he was chosen for this piece because he is a musician and dresses like a young person. Yet the article is all about how a VTBM can help young people get mortgages when they can’t qualify for one from a bank. I suspect he was chosen for this piece because he is a musician and dresses like a young person, hat and all.

If there’s nothing fishy about vendor take-back mortgages, then why do they need to resort to such a clearly staged deception? A 53 year old man is not a “young person”.

For me this manipulative PR piece just hammers home Garth’s warning. Something is rotten in Denmark.

Toronto Star story at http://tinyurl.com/ndg7qoj

#67 wallflower on 08.13.13 at 1:26 am

Money talks typed:
When we looked in this neighborhood for a rental, every single home we went to view was owned by foreign families/new to Canada, some who claimed the owners were still overseas and planned to come in a few years. Some could not speak English at all and had a translator with them.
= = = = = = = =
Similar experience here in Markham. Searching for rental but open to buying. Rental budget and type was “flex.” Every unit viewed was owned by overseas-type people. The ones that did not have current inhabitants – which was most of them — stunk to high heaven. One agent explained to me – broken English so maybe I didn’t get the story right – that the people left in a hurry. They left everything just as if they walked out of their daily routine. Half empty pop bottles on the counter. Dirty dishes in the sinks. Grunge all over the floors. These places were vacant for weeks and months. We saw this again and again. The last one I looked at by appointment, I just poked my nose across the front door threshold and hollered at the agent who was waiting inside for me, “I won’t be coming in. So sorry! This place stinks.” I had vowed I would not look at any more stinky homes. We opted for the cleanest unit which was old but empty (2,000 sq ft 12th floor for $2500 – but in 18 months: methane leak in one bathroom, ceiling of unit below fell down in another bathroom after our first shower, frightening electrical system, kitchen sink that leaked a bucket a day, many other problems related to shut down of services – 20 year old building that was falling apart – unit now on market for $675,000 on Bullock Drive – hello sucker). Then we found a townhouse that was messy but did have current tenants. No stink from grungey squalor. Just stinky from the bird and the dog… I can deal with that.
I have heard the term “absentee landlord” but this experience redefined the term for me. Oh, and another thing. Actually having a landlord who resides half-way around the globe where the laws are totally different – not a good idea.

#68 Devore on 08.13.13 at 1:30 am

#32 Money talks

These are ads for roommates, not exactly your normal rental. Would you rather they weren’t up front and waste your time looking at the place?

Legal or not, I never understood this attitude. If someone doesn’t want to be associated or do business with you, why would you want to shove your face into their lives? Let them wallow in their ignorant, bigoted cocoons.

#69 Gor Gon Lin on 08.13.13 at 1:37 am

My brother was taken by a professional house thief in a TBM in the early 90’s in Waterloo. The guy’s family moves in and never makes a payment after the initial entry costs. The thief ends up buying it from the bank after my brother was foreclosed on. My bro tried to keep up the payments and did for 9 months before he ran out of funds.

It sucked to watch him go through it. Especially the last few months. At the time he actually thought he was helping out a family. Man did he get shafted.

#70 Aquaviva on 08.13.13 at 3:10 am

I don’t get it why people buy these expensive homes, I mean u could buy a really really nice new build 100% freehold (no road maintenance fee either) roughly 1600sq ft home by the lake in Fruitland (Stoney Creek) Ontario for roughly $370,000. Ok so u need to drive a little ways to get to work oh well but look at what you get to live in. All these people renting and or buying half a million or more $$ homes. Pretentious people. Over valued homes in Burlington, Oakville and Toronto. Even if I could have afforded a half million dollar home i woud not have bought one when u can get what i just described above. People need to think b4 u buy and stop being pretensious.

#71 Jim on 08.13.13 at 3:18 am

#32

Fear not, Garth always steps in to quell any notion that white people should be allowed to care about their own coethnics and their own culture. He prostrates himself before the legions of third worlders who are swamping both the indigenous (First Nations) population and wiping out our culture.

He probably cheered when various suburbs in the GTA shut down their hockey programs because the ethnic demographics spelled their doom.

Not really. I just try to keep xenophobic, redneck statements off this blog. That’s what the Sun is for. — Garth

#72 Peter on 08.13.13 at 4:46 am

Hi Garth, I spent the weekend in beautiful Hudson QC-Im from the GTA. An odd thing occured to me. Why are two houses for sale on every street in town? Everybody at the event noticed this aspect of the town.
“Prix reduit” was everywhere.

#73 devore on 08.13.13 at 7:01 am

#70 Aquaviva

Not wanting to spent 2 hours a day on a commute is now pretentious? Different people like different things, this is why there is choice in the market.

#74 KG on 08.13.13 at 7:27 am

@23: I believe the euphemism for Broke is, “Mercedes houses on Kia budgets”.
——-
Careful most of them also have a leased Mercedes on the drive way.

#75 Tony Right on 08.13.13 at 7:27 am

So many lazy professionals these days. Everyone’s in it for the money and status, not the passion.

#76 Mike on 08.13.13 at 9:00 am

#75 Tony Right on 08.13.13 at 7:27 am
So many lazy professionals these days. Everyone’s in it for the money and status, not the passion.

—————————————————-

Very true, to a large extent. I was just talking to my brother about this the other day. Many professionals do not really care about you. Although there are some good eggs, they are few and far between, and I’m talking about every profession. I’m not sure it’s because they are lazy, rather, I believe they don’t care for others enough to provide good service.

#77 The Big M on 08.13.13 at 9:23 am

Canada is compared to the US here and constantly implying what happened is the US will happen here.

Not a chance!

Not even close although a pull back here is imminent, that will be the extent of it. A blip on a 5 year chart. Those who think they can sell now and buy back in a year or two and save $200K are dreaming and unfortunately I think several folks have done just that. They are now sitting on a rental unit and have missed the biggest appreciation in house values in the last 4 years or so.

A house in N. Toronto or Richmond sold for $1.4 million in April of 2012 can now be had for $1.2 million. So much for your argument. — Garth

#78 Daisy Mae on 08.13.13 at 9:26 am

#11 Today’s thoughts: “No house horney people do not read or listen to the news. They listen to their friendly real estate agent.”

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

And they don’t THINK. So easily manipulated.

#79 gladiator on 08.13.13 at 9:27 am

VTBs in a time when rates are far below historic average but going up, which means house prices going down…
I can’t imagine anything more idiotic than this.
Get the popcorn ready. The show will be epic.

#80 Gotthardbahn on 08.13.13 at 9:29 am

Hey Garth – I’m confused.

‘…that CHMC is now rationing…’

‘…financing and securing CMHC coverage for a high-ratio loan…’

Both sentences were excerpted from today’s article. Is it CHMC or CMHC? Enquiring minds would like to know!

You confuse easily. Better stay indoors. — Garth

#81 The Big M on 08.13.13 at 9:37 am

A house in N. Toronto or Richmond sold for $1.4 million in April of 2012 can now be had for $1.2 million. So much for your argument. — Garth

That’s one year.

I said 4 years.

So much for your argument.

Actually you made fun of anyone who thinks prices can drop 200K in a short period. That was an ill-considered statement. — Garth

#82 Daisy Mae on 08.13.13 at 9:49 am

#31 Waterloo Resident: “With 1-bedrom apartments renting for $3,000 + per month, and 3 bedroom house renting for $7,000 per month, i CAN see how a $800,000 3-bedroom house in the Greater Toronto Area can ‘EASILY’ go for around $3 MILLION in 2 or 3 year’s time, regardless of the mortgage rates.”

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

The stupidity has to end. And soon. Prices will revert to the mean.

#83 younameit on 08.13.13 at 9:54 am

Vendor take back – is a proof that housing market is on the verge of breaking down; Sellers are getting desperate; & in an attempt to escape from declining housing bid price, they are getting into another troublesome commitment of VTB.
They shouldn’t have bought a house in the first place.
People never learn from others mistake (US subprime); They have to do it themselves..

#84 Daisy Mae on 08.13.13 at 9:59 am

“Those ads sound like they’re written by people who feel most comfortable around others of their own ilk. Just like your post. — Garth”

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

My relatives lived in Vancouver, off Kingsway. All the houses on the street were systematically purchased by East Indians. My aunt and uncle were the only Caucasians left on the block so yes, ethnic groups do prefer to be with others of their own kind.

#85 Infused with Opiates on 08.13.13 at 10:05 am

66 Netcentric – the article clearly states he employed this strategy 30 years ago to buy his first house. He would qualify as “young” back then.

69 Gor gon Lin – I dont get it. How did he give a TBM when he still had a mortgage with the bank?

#86 -=jwk=- on 08.13.13 at 10:18 am

so with the flood ravaged basement all cleaned up/cleared out, my landlord just has a few more tasks to do. Today they are installing a new furnace, new back door, unclogging the downstairs toilet (I tried the plunger, didn’t work) and measuring for the new floor in the main hallway. After ten years of owning my own place(s) I am getting used to this rental thing….

#87 Steven on 08.13.13 at 10:21 am

The American real estate market ought to be dead but it isn’t quite there yet unfortunately. People have not repudiated real estate as an investment and that has got to happen before any kind of sanity is restored.
As for Canada the real estate market and house prices are still in cloud cuckooland. It might take 25% interest rates and an ice age to kill that financial perversion.

#88 Alberta Ed on 08.13.13 at 11:07 am

Speaking of ‘bad advice’, CBC breathlessly announced this morning that they’ll be exposing the ‘housing crisis’ in Calgary. Something smells here; a brief glance shows more than 300 listings on Craigslist alone.

#89 island renters on 08.13.13 at 11:23 am

Our ex-landlord has a VTB or ‘rent-to-own’ agreement with the current ‘tenant’. Unfortunately, the new tenant neglected to check for liens against the property. Can’t imagine this type of arrangement ever works out for anyone.

#90 calgaryPhantom on 08.13.13 at 11:36 am

About today’s topic. ( one wasted day of awesomeness )

I bet 99% of Canadians don’t have enough knowledge or balls to pull off VTBs.

#91 brainsail on 08.13.13 at 11:41 am

“Stocks to Avoid in a Slowing Canadian Real Estate Market”

http://www.fool.ca/2013/08/13/stocks-to-avoid-in-a-slowing-canadian-real-estate-market/?source=c75yhocs0040001

#92 Mister Obvious on 08.13.13 at 11:44 am

#84 Daisy Mae

Just such a thing happened in my neighbourhood starting in the early nineties up until about 2005.

It was a huge improvement. Slowly, drunken young Caucasian partiers were replaced by quiet, law abiding parents of recent arrivals mostly from Hong Kong and Malaysia.

The entire neighbourhood became more peaceful and generally better maintained. I may have been the last Caucasian living on my street but I got along well with my neighbours and found them to be quite respectful.

#93 45north on 08.13.13 at 11:53 am

snowboid: Waterloo Resident two years ago you wrote:

“Real Estate is “Sticky”, once prices reach a high point they don’t want to come back down.

he did

http://www.greaterfool.ca/2011/09/18/big-plans/#comment-124383

the internet is forever

#94 Gary on 08.13.13 at 11:54 am

There has been an enormous amount of immigration to Canada from Asian countries in recent years and decades. The demographic profile of our communities has been dramatically transferred. There are all sort of implications as a result–implications for real estate, but also for other areas of business, employment, politics, government, society, community. You can’t change the racial–and more importantly–the cultural composition of a country without having profound implications on all these domains. Some people would like to think through these implications in a way that allows us to express ourselves without being bigoted and racist. But unfortunately this is type of discussion is not possible in politically correct Canada. It is understandable that Garth is running an investment blog and doesn’t want it taken over by these discussions (the problem is the racial/cultural transformation of Canada has all sorts of implications for investors). Someone should create a new blog dedicated to talking about how immigration and investment from Asia is transforming Canada–often in ways that many who were born in Canada find unappealing (unappealing is an understatement for those who have been priced out of their communities by foreign investors). Anywhere in the world where Chinese invest significantly in real estate has created a back lash–back lash in Hong Kong against RE investors from PRC, back lash in Singapore against RE investors. I guess those people in Hong Kong and Singapore who complain about Chinese investment in real estate must all be a bunch of racists–oh, wait, that doesn’t work because the locals there are not white (side point–many locals in Canada who are upset about foreign investment in real estate are non-white too! Are they racist against their own race?)–only white people are capable of racism. I wish we could have a blog or somewhere where we can talk about these things in an honest, frank, respectful way without being labeled racist.

So, start one. I won’t be there. — Garth

#95 45north on 08.13.13 at 12:02 pm

wallflower: We opted for the cleanest unit which was old but empty (2,000 sq ft 12th floor for $2500 – but in 18 months: methane leak in one bathroom

methane leak! how can you have a methane leak? Single family houses have natural gas which could leak but in a high rise?

#96 jess on 08.13.13 at 12:11 pm

common denominator

Who created the loan programs that caused problems ,underwrote the loans to ensure quality control, trained the brokers/loan officers on loan requirements, controlled pricing and allowed predatory terms/rebates . whose loans have a higher level of fraud? and finally who designed those destructive derivatives?

=================
For the most part, public subsidies are development charges that were never collected or were charged directly to taxpayers rather than to property owners. They also include grants for facades, rebates for building fees and other handouts. ..”

http://www.therecord.com/news-story/4028812-kitchener-grapples-with-cost-of-downtown-subsidies/

==========
supply & demand?
Northdale Waterloo
student ghetto /slum landlords
======
TTP- Trans pacific trading
investor states
Trans Pacific Partnership
Dr. Brian Moench is president of Utah Physicians for a Healthy Environment and a member of the Union of Concerned Scientists.
http://truth-out.org/opinion/item/18115-mankind-death-by-corporation-part-iii-the-tpp-as-corporate-deathstar

Internal communications released by the Interior Department’s Bureau of Ocean Safety and Environmental Enforcement, which approves offshore drilling permits, revealed that top regulators had openly wondered how the agency could approve offshore fracking jobs without issuing an environmental impact review.

http://www.tibetanreview.net/news.php?&id=12511

…The report cited lawyers and advisers as saying that while cities across the PRC regularly compete for investors, the package of incentives available in Lhokha was unusually aggressive and was beginning to attract interest. It added that the enticements for private equity funds to set up shop in Tibet were part of China’s push to develop the region’s economy and at the same time to establish firmer control over it.

The report noted that while some scholars had called for a more flexible approach to the restive Tibetan minority, top leaders had vowed to take a hard line against anyone seen as agitating for independence. It added that the investment companies that had been lured there were almost entirely managed by Han Chinese, consistent with the government’s strategy to encourage Han to populate areas inhabited by minority groups….”

#97 father on 08.13.13 at 12:15 pm

not every person is the same so cut the ethnic talk

#98 Form Man on 08.13.13 at 12:22 pm

trouble brewing for Trump tower ?

http://www.huffingtonpost.ca/2013/08/13/trump-tower-toronto_n_3745382.html

#99 Vamanos Pest on 08.13.13 at 12:39 pm

#71 Jim
Never mind that your comment today that special combination of paranoia and delusion that tells us all it’s time go up on the meds, you had the audacity to disparage my education, critical thinking skills and vocabulary over my use of the word ‘haters’.
Well, there must be something wrong with my education, or critical thinking skills, or vocabulary, because I was not aware that the word ‘worlders’ was in common use amongst people of your uncommon intelligence and learnedness.

#100 Mortgage conundrums | MoneySense on 08.13.13 at 12:45 pm

[…] On a related note, The Greater Fool has good blog post on VTBs, or vendor take-back mortgages. Here’s why the concept popularized in the 1990s is catching on again and why he thinks you should be wary of it. […]

#101 The Big M on 08.13.13 at 12:49 pm

Actually you made fun of anyone who thinks prices can drop 200K in a short period. That was an ill-considered statement. — Garth

Love the way you twist things around using a $1.4 M example.

Now find me an example of a house that dropped from $300K to $100K

You just ate the last of your creds. — Garth

#102 StatisticsFreak on 08.13.13 at 12:56 pm

#3 Jaquar may adore you, but I adore you more.

It is torture waiting for your next post. Can’t get enough.

#103 LP on 08.13.13 at 1:00 pm

#9545north on 08.13.13 at 12:02 pm
wallflower: We opted for the cleanest unit which was old but empty (2,000 sq ft 12th floor for $2500 – but in 18 months: methane leak in one bathroom

methane leak! how can you have a methane leak? Single family houses have natural gas which could leak but in a high rise?
**********************************

Couldn’t methane result from an empty plumbing trap? If the place was unoccupied for 18 months, the water in the trap may have evaporated. That’s reason enough to have someone in occasionally to flush the toilets and run water down the sinks for a minute or so. What does Mike Holmes always say?…air behind water.

#104 DM in C on 08.13.13 at 1:08 pm

Here’s the link to the CBC Radio story on the Calgary housing crunch. Is it 2006 all over again?

Anecdotal notes from in our area of the NW — slim to no rentals available. Those that are range from $4700/mo fully furnished and utilities included, to $2750/mo for a ‘normal’ house, to $1,200 for a basement.

http://www.cbc.ca/thecurrent/episode/2013/08/13/post-flood-calgarys-low-vacancy-rate-leaves-renters-in-a-lurch/

#105 jess on 08.13.13 at 1:20 pm

according to miss ironside:
oldies don’t want to have sex they want to garden

http://www.telegraph.co.uk/news/uknews/10236837/Pensioners-feel-pressured-to-have-sex.html

#106 Uwinsome on 08.13.13 at 1:22 pm

Fitch says Canadian Banks can handle a moderate to severe downturn in housing:

http://www.theglobeandmail.com/report-on-business/fitch-says-canadas-big-banks-can-withstand-housing-downturn/article13727373/

Of course they can. — Garth

#107 Bill Gable on 08.13.13 at 1:35 pm

The Fitch ratings service says it believes Canada’s big banks can likely withstand a moderate to severe housing downturn — but they would feel the pinch.
The Chicago-based service says Canada’s biggest six banks — TD, RBC, Bank of Montreal, CIBC, Scotiabank and National — all have equity ratios well above what is required under the new Basel III requirements.
But the U.S.-based rating service says a housing crash in Canada would push down those ratios as the value of their mortgage assets plunge in relation to their considerable loan levels.
In fact, Fitch says, it’s because Canadian home values have been rising in the last seven years despite a soft economy that the six banks have been able to appear so financially sound, as their rivals in the U.S. and Europe have struggled.
Fitch also says loan-to-value ratios can reverse quickly during a housing correction.

LINK: http://tinyurl.com/ksurxgf

#108 Suede on 08.13.13 at 1:39 pm

media outlets reporting that US is considering taking away the tax-deductible mortgage interest.

That would suck.

http://seattletimes.com/html/businesstechnology/2021551760_harneycol11xml.html?prmid=4917

#109 Daisy Mae on 08.13.13 at 1:40 pm

#92 Mister Obvious: “#84 Daisy Mae
Just such a thing happened in my neighbourhood starting in the early nineties up until about 2005.
It was a huge improvement. Slowly, drunken young Caucasian partiers were replaced by quiet, law abiding parents of recent arrivals mostly from Hong Kong and Malaysia.”

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

I’m happy it worked out for you. In my relatives’ case, the street was full of respectable Caucasian families who, over time, simply moved away. Not remotely interested in integration, a single Ethnic group bought up all houses as they became available.

Garth is going to cut us off any time now! ;-)

#110 Canadian Watchdog on 08.13.13 at 1:48 pm

#98 Form Man

"And in a court document obtained by the Toronto Star, the developer of the Trump International Hotel & Tower hinted that fewer than 20 per cent of the investors in the hotel-condo project have closed on their units."

That's what happens when you sell real estate like a bushel of wheat on a futures exchange.

#107 Uwinsome

Fitch says Canadian Banks can handle a moderate to severe downturn in housing

Just like when Fitch said Bear Stearns and Lehman Brothers had enough cash to contain subprime mortgages in late 2007. We later discovered Fitch was paid off to say 'everything is ok.'

No Canadian bank will falter or even stumble because of residential real estate. — Garth

#111 Grantmi on 08.13.13 at 1:49 pm

#109 Suede on 08.13.13 at 1:39 pm
media outlets reporting that US is considering taking away the tax-deductible mortgage interest.

That would suck.

Holy crap….. That would be a game changer in the US!!!!

#112 TnT on 08.13.13 at 2:02 pm

#94 Gary

No need to worry about immigration changing the fabric of Canada.

First – we have a charter of rights – hard coded law…

and more importantly any teacher in a public school classroom can see how fast “new” Canadians become “old” Canadians within a single generation. Any “new” Canadian born here that goes to school here quickly adapts and blends. Check your local school yard and see how the kids have no visible barriers when interacting with people of different race / religions…

I’m tired of Kraft Dinner and Kool Aid anyways… it’s about time we get some new flavors…

#113 T.O. Bubble Boy on 08.13.13 at 2:02 pm

@ The Big M

You seem to be comparing owning stocks/etc. against owning a home in terms of the possible losses.

However, most home buyers are extremely leveraged in their investments. The 5% down crowd is leveraged 20x vs. a maximum of 2x for margin investing!

So, it is not a question of whether a house can go down $100,000 or $200,000 vs. a stock dropping $X.

The question you need to ask is: if someone puts $50,000 against a $1,000,000 house, what are the odds that the house can drop 5% and wipe them out?
(vs. a stock dropping 50% or 100% to reach the same outcome)

#114 TnT on 08.13.13 at 2:08 pm

#110 Daisy Mae

Back in the 20’s Brits and Scots were saying the same thing about the Irish.

40’s and 50’s the Irish and East Coasters were saying the same thing about the Italians, Greeks and Portuguese.

70’s and 80’s the Europeans were saying the same thing about the Hong Kong, Vietnamese and Indians

90’s and 2000’s the Hong Kong, Vietnamese and Indians were saying the same thing about Main land Chinese and Sri Lankans

Etc….

#115 Musty Basement Dweller on 08.13.13 at 2:47 pm

#107 Uwinsome on 08.13.13 at 1:22 pm
Fitch says Canadian Banks can handle a moderate to severe downturn in housing:
————-

Well duh? Isn’t it amazing how helpful CMHC and the Canadian taxpayers are in that task?

#116 Screwed on 08.13.13 at 3:29 pm

#32 money talks / #110 Daisy Mae

The issue is foreign ownership of real estate in Canada. While it has been a boon for some who were able to offload their RE at insane prices to cash bidders from mostly SE Asia, the reality is allot more grim and painful for our people who live and work in Canada and are part of this economy’s make-up.

How much of our current price level has been skewed upwards due to the uncontrolled influx of foreign cash and a period of loose lending practices? In my opinion those two were a toxic cocktail that inflated RE prices across Canada.

Canadians who live and work here and abide within the confines of what this economy has to offer as opposed to foreign cash buyers with wealth from manipulated and corrupt government funding (Chinese construction is one example of easy cash flow from central bank to corrupt officials who buy here).

When foreign buyers start liquidating their RE holdings to save whatever they can from their money laundering, the prices will collapse. Canadians with mortgages will be under water quickly and probably facing economic hardships as well.

What will our smart politicians and banks do then? Probably what they’ve always done. Treat Canadians like dirt and milk them dry for all they’ve got. The whole bunch is a class of self serving sellouts, see the current Senate expense scandal and banks outsourcing jobs.

But what will they do if all Canadians with mortgages stopped paying their debts? They can hardly squeeze all of the people and foreclose on all of them.

The markets were rigged and prices were skewed because politicians and bankers have formed one unholy alliance. Not just in Canada.

If folks here earn money, it’s from working. If foreigners make money and invest it here, it must emanate from ‘manipulated and corrupt government funding’ and ‘money laundering.’ The scary thing is how many Canadians believe this crap. — Garth

#117 Musty Basement Dweller on 08.13.13 at 3:31 pm

#116 Musty Basement Dweller on 08.13.13 at 2:47 pm
#107 Uwinsome on 08.13.13 at 1:22 pm
Fitch says Canadian Banks can handle a moderate to severe downturn in housing:
————-

Well duh? Isn’t it amazing how helpful CMHC and the Canadian taxpayers are in that task?
=====≠==================
AND… The same poor suckers who are foreclosed upon will be nailed a second time to help out the banks via their taxes/CMHC. NICCCCEEE

#118 Screwed on 08.13.13 at 3:49 pm

No Canadian bank will falter or even stumble because of residential real estate. — Garth

**

And why is that so? When the collateral upon which the loans are based goes into the crapper, the bank is under water on that loan and needs to recapitalize. That’s just the beginning. What ratio did the banks use to loan out money (loans/deposit ratio)? When values fall, the home owners may have to secure collateral from their savings which the banks have used as leverage for the loans. Double whammy!

Canadian banks are also not immune from exposure to derivatives that were created on loans. Heck, they even have MBS Mortgage Backed Securities in Canada which they’re flipping to CMHC.

The best thing that can happen to Canadian banks is that the values will never correct downward. They are in huge trouble if there was a massive correction and downturn.

CMHC has been ordered to pull the e brake for a reason.

All high-ratio mortgages in Canada are insured against default. No bank will falter. — Garth

#119 george on 08.13.13 at 3:53 pm

However those houses value $1.4M worth 650K…if owner sale for 1.1M….pufff they are still making money, so at the end the only loser is the one who bought for 1.1 M.

#120 Iso-Classical on 08.13.13 at 3:55 pm

@ #34 – timmy

Oil skyrocketed in 2008 due to the fact that the technicals (fundamentals weren’t so much known at that time) in March ’08 looked bad so the smart money sold their finance stocks and put it in oil…a contract traded on margin (hint hint).
The reason for the GR was not because of oil skyrocketing, oil skyrocketing was because the financials started dying.
CNBC did a documentary on it in Sept. 2009. I’m not saying you should take their word on everything but the case was sound in this instance.

#121 Screwed on 08.13.13 at 4:00 pm

If folks here earn money, it’s from working. If foreigners make money and invest it here, it must emanate from ‘manipulated and corrupt government funding’ and ‘money laundering.’ The scary thing is how many Canadians believe this crap. — Garth

Money didn’t fall from the skies in China. The cheap loans from government for obsolete construction projects has enriched a few families in the process. The families have connections to government. Every Chinese knows this which is why they’re so careful now with new loans.
The reason why the Chinese buyers aren’t parking cash in Canada as much as they have is not for a lack of interest. The Chinese ponzi has come to a full stop and the days of their easy and cheap construction loans are over. Hence no quick and rich schemes for the few families which were in on the take. This is basic stuff.

Problem for Canadian RE is that Chinese homeowners in Canada will sell/liquidate if they need to raise cash. They parked their cash here from ill gotten gains in China and they don’t care if they can pull out 50% if they need to and that’s all the market will bear.

Canada’s market is small in size relative to the quantity of foreign buyers mainly from China who can drive this market into the ground just as much as they drove the market into the stratosphere. All depends on the outcome of the G20 meeting in September and whether the countries will continue stimulus globally or tighten lending (tapering) and thus deflating.

#122 jess on 08.13.13 at 4:07 pm

superlatives

Four Canadians and five Americans have been charged in what U.S. officials call one of the largest international penny stock frauds in history…

‘They cheated, lied and swindled investors into buying billions of shares of worthless stock, then turned around and used a second scam to cheat those investors again.’
— U.S. Attorney Loretta Lynch

http://www.cbc.ca/news/business/story/2013/08/13/toronto-business-penny-stock-fraud-canada-us.html

#123 Smartalox on 08.13.13 at 4:16 pm

@67 Wall Flower and #95:
The ‘methane leak’ is actually sewer gas. The places have been empty for so long that the water that usually sits in the elbow of the drain (the U-shaped piece of pipe you can see under the sink) has completely evaporated. It’s called the ‘water trap’. If there is no water in this part of the drain, the odors from the sewer can waft back up, and come out the drain and into the room.

All drains that are connected to city sewers have this feature. All you need to do is pour a couple of cups of water down each drain to fill the water trap again, and air the place out thoroughly.

But not before you negotiate a healthy discount on the price, eh? ;)

#124 HAWK on 08.13.13 at 4:17 pm

#71 Jim on 08.13.13 at 3:18 am

<<<<>>>>

===============================

You must live in a different GTA, from the one I do.

There is no attempt to “wipe out” white people’s culture (presuming that one considers it fitting to lump all white people together as if they were some sort of monolithic block…….more an insult to people of European persuasion, I would think).

There is admittedly a plethora of liberal stupidity in encouraging multilingual signs, billboards and other such absurd nonsense, rather than demanding an unequivocal commitment from all groups to the English Language, but the majority of such liberal airheads that promote this idiocy, as it happens, tend to be white.

And the propensity of all the ethnic groups that have been indoctrinated to self-identify with their own national origins is also not restricted to non-whites by any means. Italians, Poles, Greeks when queried who they are, never reply “Canadian” to such a question, they always identify in terms of their origins.

You have the left leaning, ant-patriotic liberal worldview to thank for this, not minorities.

#125 usbased on 08.13.13 at 4:28 pm

Read inte USA Today that flood insurance rates in the gulf states will increase between now an ’14 from an averge of $600 p/a to $28,000 p/a. … ya I know…I thought it was a typo too…so did the reporter…..buy a house or condo in Florida if you consider it a throw away product you might own between storms. This should break the back of the investment community in theose areas.

Same paper showed that the ‘recovery’ in US RE is all on paper…..BlackRock bought another 36,000 units today…..watch what you believe when someone supplies you with ‘the econmy is improving because RE sales are up statistics’…..you could be led by a blind man with an agenda of his own.

#126 HAWK on 08.13.13 at 4:30 pm

#94 Gary on 08.13.13 at 11:54 am
=========================

Agreed, even as an immigrant myself, there is certainly nothing wrong with discussing its effects on a society and once certainly shouldn’t have to suffer any demonization (racist, fascist etc etc) on account of it.

After all N. America, is (or used to be) the bastion of free speech.

That said, the main reason why the bulk of migration occurs from Asia to Canada, is simply because large swathes of Asians have an interest in migrating to N. America, Europeans quite simply do not. With the EU, most East Europeans would prefer to relocate within Europe itself.

Asia is for better or worse the region of the world that is over populated and therefore migrating to other parts of the world.

And our outsourcing of our technology and our jobs is the criminality of our politicians and elites, it is not the fault of ethnics or migrants.

#127 Smartalox on 08.13.13 at 4:33 pm

Re: co-ethnic room mates and xenophobia:

Much of any people’s acceptance of others is related to how secure a person feels in their environment: someone who feels more emotionally secure – feeling like they ‘belong’ in their neighborhood or surroundings – are more inclined to be comfortable sharing space with larger and more diverse groups.

Those who do not feel secure as in their surroundings will prefer to surround themselves with others who are similar in language and culture, so that there are fewer challenges to expressing themselves and fewer conflicts about cultural practices, like cooking food, educating children, lifestyles, etc.

Remember, if you surround yourself with people ‘just like you’ then things don’t feel so foreign, and you’ll feel more like you ‘belong’.

#128 daystar on 08.13.13 at 4:48 pm

No Canadian bank will falter or even stumble because of residential real estate. — Garth

Agreed. Canadian banks are well insured against defaults directly from real estate.

Indirectly however, Canadian banks are at risk to HELOC’s, personal lines of credit, credit cards and business loans. Real estate led recessions are characterized by high unemployment, low consumer spending and at some point down the road, defaults and that is bad for banks no matter how one looks at it.

It will be interesting to see how it all shakes out but banks don’t do well through recessions and if Canada is headed for a multi year recession the way I believe it will beginning next year, if its a credit contraction we are headed for around 2015, banks won’t do well in this climate.

#129 Sebee on 08.13.13 at 4:57 pm

Why Toronto is better than Vancouver in today’s Globe.
Here is the punchline!
>
Affordability: An 800-square-foot, two-bedroom downtown condo can be had for $640,000 (not including the $560 monthly maintenance fee and the $3,000 in annual property tax). Talk about a deal!

Talk about it…please.

#130 Sebee on 08.13.13 at 4:59 pm

Oh no, more about why Toronto is greater than Vancouver:

Sanitation: Many downtown Toronto businesses put their garbage out on the sidewalk in the evening, stacked up in bags. As with the streetcars, it gives the city an old-timey feel, like Sesame Street. In the morning, some of the bags have even been picked up.

As in, I can’t drive on Bloor with windows open during evenings because 3-4km of it between Spadina and Dufferin sticks like a Garbage dump – yeah…sanitation.

#131 Shawn on 08.13.13 at 5:06 pm

BIRDS OF A FEATHER FLOCK TOGETHER?

Daisy Mae says:

yes, ethnic groups do prefer to be with others of their own kind.

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

Of course they do, as it is with birds, so it is with humans, even if it is just the color of the feathers that differ.

#132 Screwed on 08.13.13 at 5:16 pm

No Canadian bank will falter or even stumble because of residential real estate. — Garth

Agreed. Canadian banks are well insured against defaults directly from real estate. – Daystar

1) How high is the exposure and how much is in the kitty to pay the “insurance against defaults”?

2) When banks have to adjust the value of their holdings in a declining RE environment, they will either have to call in loans or find collateral elsewhere

Is M2M suspended in Canada like in the US?

#133 What about CMHC? on 08.13.13 at 5:33 pm

Finally, I am glad we’re talking about our tax-funded CMHC! Banks in Canada will always turn out to be winners in any case.

#134 Form Man on 08.13.13 at 5:34 pm

#111 Canadian Watchdog

I agree.

Housing behaves like a commodity in some ways ( low supply leads to higher prices which lead to higher supply which leads to lower prices ). Pre-selling condos is a way of selling housing futures………..

#135 Daisy Mae on 08.13.13 at 7:16 pm

#113 TnT: “Any “new” Canadian born here that goes to school here quickly adapts and blends. Check your local school yard and see how the kids have no visible barriers when interacting with people of different race / religions…”

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

That is encouraging…and about what I hoped to expect. Still, I haven’t seen any evidence of it out in public. I guess it’ll take time….lots of time and a couple of generations. I have four Mulatto grandkids who don’t seem to have a problem. Like Obama, they’re as white as they are black. ;-)

#136 Daisy Mae on 08.13.13 at 7:38 pm

#127 HAWK: “Even as an immigrant myself, there is certainly nothing wrong with discussing its effects on a society and one certainly shouldn’t have to suffer any demonization (racist, fascist etc etc) on account of it.

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

Thank you! I don’t have a problem with anyone — one on one. Collectively, I do. Change can be difficult. It takes time. I subscribe to “When in Rome, do as the Romans do.” Don’t change Canada. Adapt.

Any backlash coming? Bring it on. ;-)

#137 wallflower on 08.13.13 at 8:26 pm

yup sewer gas;

@67 Wall Flower and #95:
The ‘methane leak’ is actually sewer gas. The places have been empty for so long that the water that usually sits in the elbow of the drain (the U-shaped piece of pipe you can see under the sink) has completely evaporated. It’s called the ‘water trap’. If there is no water in this part of the drain, the odors from the sewer can waft back up, and come out the drain and into the room.

All drains that are connected to city sewers have this feature. All you need to do is pour a couple of cups of water down each drain to fill the water trap again, and air the place out thoroughly.

But not before you negotiate a healthy discount on the price, eh? ;)
= = = = = =
And yup, asked for $500 and got it… but bad deal since for two months I had to close off a hallway and closet and bedroom because the stench was so vomitous (I also felt it could be bad for myself and the kids) so I was missing a bedroom and a bathroom. Again, half-way-around-the-world landlord doesn’t care and kept typing, throw bleach down the toilet. I kept saying na uh. This is a bigger problem. I had done all the stupid stuff (water, flushing, airing, air cleaner machine — no change). In the end, landlord hired plumber who said it was a mess of a problem and took out the toilet and did some stuff and put in a new toilet. And that was the least of my problems… watch out for those condo high rises. One of the guys hired to work on one of the problems in my unit (I forget what that problem was but I think it was related to the heavy front door in the hallway falling out — the four superchunky hinges were popping out of the frame) said to me, ‘Lady, I work on all these buildings and a lot in Scarborough. They are so badly maintained I would not dare to live in any of them but yours is well maintained.” In 18 months, I experienced far too many problems for any house dweller: owner or renter.

#138 Brendan on 08.13.13 at 10:39 pm

Hey Garth – I’m confused.

‘…that CHMC is now rationing…’

‘…financing and securing CMHC coverage for a high-ratio loan…’

Both sentences were excerpted from today’s article. Is it CHMC or CMHC? Enquiring minds would like to know!

You confuse easily. Better stay indoors. — Garth

Apparently Gotthardbahn has never heard of Google or typos. – Brendan

#139 Brendan on 08.13.13 at 10:42 pm

I can’t quite put together why so many people think the banks will go belly up or struggle. Worst case scenario the banks may have slightly less profit from the issuing of new mortgages. – Brendan

#140 Sydneysider on 08.13.13 at 10:55 pm

Typical P/R ratios in Sydney are 30. What does that say about our property market?

#141 The Big W on 08.14.13 at 1:07 am

For Ontario

36. Do private lenders need to be licensed?
Private lenders who lend their own money on the security of real estate must be licensed if they are doing business as mortgage lenders. However, private lenders do not need to be licensed if they use a licensed Mortgage Brokerage.

http://www.fsco.gov.on.ca/en/mortgage/faqs/Pages/type-lic-req.aspx#q36

Real Estate Brokers seem to be exempted from VTBs

4.I am a registered Real Estate Broker. Do I need a Mortgage Broker licence to arrange vendor take-back mortgages?
Real Estate Brokerages, Brokers or salespersons who are registered with the Real Estate Council of Ontario (RECO) are exempt from the requirement to have a licence under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (the Act), when arranging vendor take-back mortgages as part of a real estate trade. This exemption only applies if the Real Estate Brokerage, Broker or salesperson does not hold himself/herself out to be dealing in mortgages, and does not engage in any other activities that require a licence under the Act.

http://www.fsco.gov.on.ca/en/mortgage/faqs/Pages/realestate.aspx#q4

#142 JimH on 08.14.13 at 9:12 am

See the PPI numbers out this morning? Not one sign of inflation… not here… not there… not anywhere. Hyperinflation and precious metals? A joke. The Monetary Realists won.

Deflation is much more the real and present danger, and there is NO quick fix.

#143 Vancouver Mortgage Broker on 08.15.13 at 5:44 pm

Pretty much a lease to own. Do your homework and it can work, but like everything, can also fail…