Surprise!

SUSHI modified

When the lights went out during the GFC, a lot of guys who make cars lost their jobs. The sprawling GM plant east of Toronto, in Oshawa, was hit particularly hard. As the truck operation there ceased, almost three thousand people were thrown overboard. Most of them had houses. And mortgages.

“A personal friend of mine is a mortgage broker who was living and working in the area when all those layoffs were taking place,” Dan the realtor tells me, “and some of his lenders were calling in loans, based on property values. They were making the homeowner re-qualify on renewal.”

And Dan adds this thought: “God help the parents that signed for or pledged their homes!”

This is relevant today for two reasons.

First, big layoffs are back with us. Seventeen hundred yesterday at Bombardier. Eight thousand coming at Canada Post. Blackberry exiting Canada. Sixteen hundred at Sears. Heinz. Kellogg’s. Encana. BestBuy. Potash.

On Wednesday the Bank of Canada’s Stephen Poloz warned again about disinflation, which is baby deflation, saying the economy won’t likely heal now until 2016. As you know, our trade deficit is a mess, exports have stagnated for two years and the world no longer looks on us as recession survivors. The dollar cascaded lower again at mid-week, now back at 90 cents. Commodity prices have weakened, and US oil imports have been slashed. Consumer debt is extreme and retail sales are slagging. So, I’d say there are more layoffs to come.

Second, the banks know this. And you should expect many lenders to start acting like they did back in 2009. Hell, TD has already started.

An industry site, MortgageBroker News, broke the story this week that the bank has changed the fine print in its contracts for conventional (no CMHC insurance) variable-rate mortgages – the kind where your interest charge rises each time the central bank causes primes to move. But it’s not rising rates the bank is worried about, rather falling real estate values.

Here’s the change: If, at any time or for any reason, the value of your house drops to a level which results in your mortgage exceeding 80% of it,  the bank can demand you write a cheque to cover the difference. If you don’t, your mortgage goes into default. You also have the right to have your property appraised (at your cost) to prove it’s worth at least 80% of the loaned amount, whenever the bank demands such proof.

The old limit was 75%, and the former wording also limited the nightmare scenario to situations in which rising interest rates triggered the action. This time anything – like unemployment triggering a highly local market decline – means you have a problem.

Says one mortgage broker: “Property value decreases would have a huge impact on all TD variable rate mortgages.”

Says realtor Dan: “I think it’s preparation in the event of a price melt down and they want a 20 % cushion instead 25% to minimize the bank’s exposure to non CMHC mortgages.” Exactly. The bank is preparing its non-insured portfolio against what might be inevitable, if the Bank of Canada is correct. It’s only prudent, if you’re the lender. It’s a potential hell on wheels, if you’re the borrower.

For example, let’s say you bought a $400,000 condo in 2012 with the help of a $75,000 loan from your suffocatingly helpful helicopter parents, then took a $320,000 VRM from the boys at TD. The economy continues to wobble, interest rates don’t change, you’re not selling or moving, but units similar to yours start changing hands for $300,000.

If you’re a bank client, expect a letter like this:

It has come to our attention that the outstanding Principal Amount (including  Deferred Interest) of your mortgage now exceeds 80% of the fair market value of the Mortgaged Property as determined by us (with or without an appraisal/valuation), (such amount being the Trigger Point), therefore we give you notice of this excess (the Trigger Point Excess) and within 30 days of the date of this letter you must do one of the following:
(i) make a lump sum payment to us at least equal to the amount of the Trigger Point Excess; or
(ii) satisfy us that the outstanding Principal Amount (including any Deferred Interest) does not exceed 80% of the fair market value of the Mortgaged Property as established by a qualified real estate appraiser, approved in writing by us, but at your expense.

There are many people who thought this day would never come. Now you know.

183 comments ↓

#1 Derek R on 01.22.14 at 7:02 pm

Scary times to be a mortgagee. Glad I’m out of that.

#2 Jonathan on 01.22.14 at 7:04 pm

Scary…….
it’s falling……..

#3 MarcFromOttawa on 01.22.14 at 7:06 pm

Early tonight Garth!

First!!!

#4 T.O. Bubble Boy on 01.22.14 at 7:11 pm

Are these going to be personal letters from Ed Clark?

Dear ,

It has come to my attention that you bought an over-priced piece of crap, and now that crap is worth 20% less than it used to be.

Please write me a cheque for the difference.

Love,
Ed.

#5 chopper on 01.22.14 at 7:13 pm

I don’t have that problem Garth I am the person in Brampton that won lotto max $50 million. Woo hoo.

#6 Cow Man on 01.22.14 at 7:16 pm

Sir Garth:
Not only that, my Whole Life Insurer sent me a letter dated November 28, 2013, telling me that my Policy on which all Premiums have been paid, and was sold as now being “Fully funded from Policy Values”, may require future Premiums to be paid even if I never take out any cash, or a loan against Cash Value. The Policy is an “Insured Retirement Portfolio”. A lot of retired folks are going to be in for a shock if the low interest rates on Bonds continues, any longer.

#7 Jimmy on 01.22.14 at 7:18 pm

Jimmy says he is number one when it matters.

#8 Carpicker on 01.22.14 at 7:19 pm

http://www.torontosun.com/2014/01/22/target-slashes-475-us-jobs-after-weak-performance-in-canada

As above…..

#9 I love GT on 01.22.14 at 7:21 pm

Love you Garth!!

#10 Roman on 01.22.14 at 7:27 pm

Just go to another’s bank nearest branch, they’ll gladly provide you with a credit on outstanding Principal Amount (including Deferred Interest).
Problem solved.

#11 prairie person on 01.22.14 at 7:32 pm

The people pushing the mortgages out the door can lie all they want but it is the people who are in charge of the money who will tell the truth. Banks prefer to lend to people who don’t need money. In recent years they’ve been lending to people who do need money because it is all driven by commission. They won’t say we were stupid to lend you money, we should never have lent you any money. They’ll say you shouldn’t have borrowed it. You should have known better. Now, give us back our money you irresponsible little toad. I wonder if the banks will start taking back commissions on mortgages that go bad? Seems only fair. The poor sap who borrowed too much shouldn’t be the only one who has to give back the money. Never works that way, does it?

#12 economictsunami on 01.22.14 at 7:33 pm

So the PM once again rolled out the old tired blather about “one million net new jobs since the depths of the recession.”

The truth lies somewhere between the above statement and the fact that Canada’s working age population increases by 350k annually.

As in the US, our unemployment numbers look better due mostly to the decline in labour market participation; quite simply, not actively looking for work, not counted.

Economists have argued the best way to gauge jobs is the overall employment rate which currently stands @ 61.8%. Not a helluva lot better then “during the depths of the recession” and actually a slightly worse level then a decade ago…

Why was the Bank of Canada so wrong for so long?:

http://www2.macleans.ca/2014/01/22/why-was-the-bank-of-canada-so-wrong-for-so-long/

#13 Jim on 01.22.14 at 7:33 pm

I guess they won’t raise interest rates in my lifetime ?

#14 blue steel on 01.22.14 at 7:35 pm

Interesting. Glad I held off buying a property.

Also, what will happen to a property’s assessment value if homeowners begin receiving such notices ?

#15 martin on 01.22.14 at 7:35 pm

Canada’s Poloz: Canada housing gains in line with fundamentals
—–
he said it dude

#16 Mr Happy on 01.22.14 at 7:36 pm

Uh oh….

Glad I am mortgage free….

Debt free….

Otherwise I would be crapping my pants right now…

#17 sir paul on 01.22.14 at 7:43 pm

furst!!!! im the winner winner of chicken dinner!

#18 sir paul on 01.22.14 at 7:45 pm

also this will never happen, the harper gov’t would step in.
Or people just declare bankruptcy and walk away.

#19 LazyJason on 01.22.14 at 7:48 pm

Garth,

Hope you’re feeling much better.

Also, with the Big 6 banks pretty much all dropping their mortgage rates (to pump up business during the slow season I assume) should I look at adding more banks to my portfolio, sell some or stay put?

#20 dosouth on 01.22.14 at 7:53 pm

Wohoo, can hardly wait for the main stream media to pick this up…..if ever.

#21 thedoubter on 01.22.14 at 7:57 pm

How come there is no media coverage of this news (a change from 75% to 80%)?

#22 Jenn on 01.22.14 at 7:58 pm

This is so stupid that it is actually funny. Lets see the banks try and get huge swaths of underwater neighborhoods to pony up. I don’t think so.
Nothing to see hear and nothing to fear. Just banks flexing a little pseudo muscle.

Water from rocks???

#23 Silver on 01.22.14 at 8:02 pm

Garth, you forecasted the Canadian dollar dropping in value against the U.S. dollar which was an excellent call. What’s your expectation for a Canadian $ low and what catalyst(s) may cause it to reverse course and rise against the U.S. dollar.

Unknown, of course. Goldman called 88 cents. Now Canaccord says 85. It will probably overshoot on the downside. — Garth

#24 shane on 01.22.14 at 8:12 pm

Garth, let’s not get ahead of ourself, let’s see the market drop 15 percent first before we can talk about the letter from the bank.

The ‘market’ is irrelevant to what properties around you may be worth. — Garth

#25 PJ on 01.22.14 at 8:14 pm

Man am I glad I sold my house and stashed my cash. Still keeping my gold though.

#26 Dean on 01.22.14 at 8:17 pm

what suprise?

West-end house attracts 32 bids, sells for $210,000 above asking

http://www.thestar.com/business/real_estate/2014/01/22/westend_house_attracts_32_bids_sells_for_210000_above_asking.html

#27 Victor V on 01.22.14 at 8:20 pm

I have no mortgage or any consumer debt.

My diversified portfolio includes a bunch of TD bank shares.

Announcements like this simply mean my dividends will continue.

Life is good.

#28 Paul on 01.22.14 at 8:21 pm

#22 Jenn on 01.22.14 at 7:58 pm

This is so stupid that it is actually funny. Lets see the banks try and get huge swaths of underwater neighborhoods to pony up. I don’t think so.
Nothing to see hear and nothing to fear. Just banks flexing a little pseudo muscle.

Water from rocks??
———————————————————- No they get it before it’s under water! Like just up to there neck. If they don’t pay up the bank can put the property up for power of sale and still get all there money out.

#29 Real Patiently Waiting on 01.22.14 at 8:22 pm

Garth,

Clearly it would be an interesting year to come for cdn economy and consumers, which Mr. Poloz knows very well is tapped out. Now the banks would ensure that they really put a stop to the marginal borrower.

My question to you is that do you have a view on the super successful RBC ‘preferred’ share issuance that closed yesterday (raised $500m on original issuance of $200m), which has a forced conversion to equity clause? I know you think there will be no Bail-in in Canada, but this smells like a half-step to me, especially will be triggered when the bank will be in trouble with its capital adequacy ratios. Your thoughts?

Thanks

You’re paranoid. The issue was attractive, and sold. — Garth

#30 screwed on 01.22.14 at 8:22 pm

@Jenn #22
It’s “blood from a stone” and yes, you are right to think the banks are bluffing.

However, banks have the law on their side and they can claim title to the property if the home”owners” (I’m using the term loosely) fail to comply with the bank’s request for more collateral or equity.

The banks are themselves under scrutiny to provide collateral under the Basel II agreements.

What can homeowners do? Individually not much, I’m afraid. It will be gut wrenching and tear jerking to say the least when the bank forecloses. Maybe some will get lucky and banks renegotiate the loans as they did in the US. Banks asking the mortgagee back then: “Mr Smith, how much can you afford to pay each month?” That was when the banks were concerned about cash flow and before the Fed bailed out every bank and paid the bankers regardless of what they were doing. The flood of foreclosures stopped but the process didn’t end, maybe delayed at best.

Individually the fight is tiresome and almost impossible. If the collective of mortgagees defaulted or refused to pay everything from loans to taxes to utilities, we might have a fighting chance and TPTB would feel inclined to forgive debt, cut wealth and allow changes.

Don’t hold your breath. It didn’t happen in the US and it’s less likely to happen in Canada.

#31 Next move on 01.22.14 at 8:25 pm

Hey Garth
admit you are wrong. poloz next move is to lower rates, our fiat dollar will hit 60 cents US. BUY REAL ASSETS NOW IN CANADA!!!! Gold and real estate baby to the house! Admit you are wrong if you are a man!!!

#32 Tri-Guy on 01.22.14 at 8:28 pm

this blog is as scary as the forecast. i hate cold weather more then my mortgage

#33 recharts on 01.22.14 at 8:31 pm

#26 Dean on 01.22.14 at 8:17 pm
what suprise?

West-end house attracts 32 bids, sells for $210,000 above asking

http://www.thestar.com/business/real_estate/2014/01/22/westend_house_attracts_32_bids_sells_for_210000_above_asking.html

The usual media campaign preceding the spring market.

This article is pure B$. According with this heat map http://i.imgur.com/vK6bAW4.jpg they got nothing but the price of the area. On the other side the author of this article seems to have missed some of the sales at the opposite end of the spectrum http://i.imgur.com/ZJ4zJb4.png (-25% under the asking price!!) . I wonder why

#34 not 1st on 01.22.14 at 8:31 pm

Garth, did you forget to mention the recent layoffs and store closings in the U.S.? Target, JCs, Texas Instruments and other retail outlets.

http://www.cnbc.com/id/101353168

The use of the word recovery is sorely misplaced. I think you got ahead of yourself.

US job creation positive, ours negative. Enough to worry about here. — Garth

#35 Juan Refrito on 01.22.14 at 8:33 pm

Garth, do you pay any heed to indicators like Shiller’s PE when investing in the stock market? Certainly agree that real estate is overvalued and that investing in equities is likely a better play. But some rational commentary (e.g., John Hussman in the States) seems to suggest equities are pretty darn overvalued as well. Just dive in, stay diversified and forget any market timing cues?

#36 Arse on 01.22.14 at 8:35 pm

I think the Canadian dollar is going down to 83 cents this year.

#37 takla on 01.22.14 at 8:40 pm

This is another shot over the bow of the masses holding over inflated ,non cmhc insured residential morgages,,,the banks are clearly getting nervous as deflation is becomeing more evident.When are the middle class consumers going to figure out the banks are NOT our friends after yrs of makeing easy credit available.As always when and if this all comes crashing down they {banks}can and will be bailed out….not so much so for the home-owners.I think this knowledge is becomeing more mainstream ,thanks god for the internet!

#38 saskatoon on 01.22.14 at 8:40 pm

garth,

so fixed mortgages eliminate this risk?

if so, why encourage people to go vrm?

#39 dbcooper on 01.22.14 at 8:41 pm

@#5
I am the dude living in a Brampton basement that won $50 million. WOOT!!

#40 bentoverpayingtaxes on 01.22.14 at 8:41 pm

The Bank Act has always stated plainly that zero equity is a no-no….but HELOCS and Liar Loans skirted that little issue of ‘the law of the land’ with impunity. Your right that letters should be in the mail like a lake effect flurry soon…if not already…due to the growing numbers of loans underwater. What will people without parent do…….apply for new credit?

Now…..risk is always managed with some form of hedge…..Garth calls it diversification…..I call it investing in companies that run counter to the demise of other assets…like the C Dollar and Real Estate.

People should be looking at what they should be buying…instead of what they may have to sell out on the front lawn in mid winter. I’m talikng about dual listed issues that get most of the revenue they produce in USD…… Look at what happened to TRP today with the opening of the southern leg of the Keystone……who else is following Icahns stake in TLM? These are only two of dozens that hedge the risk of lesser performing assets…… If the world hands you lemons you better learn how to make lemonade.

#41 sheane wallace on 01.22.14 at 8:41 pm

Unknown, of course. Goldman called 88 cents. Now Canaccord says 85. It will probably overshoot on the downside. — Garth
———————-
agree, at least 80 cents, maybe lower.

suppressed interest rates, CMHC–> triggers:
capital miss-allocation, real estate bubble, stolen savings due to inflation–> triggers:
loss of productivity, reduced consumption (that mortgage eats the whole income)–>triggers:
job losses, trade deficit–> triggers:
week dollar, less capital investment–> triggers:
the need to keep interest rates low and ‘stimulate’ the economy, ‘insuring’ bad mortgages

and in loop it goes – self feeding contraction in economic activities, replacement of free market with rigged market and monetary tricks to keep banks solvent,

How to fight it?
– disband CMHC and leave the banks on their own
– increase the interest rates
– let the bad loans fail
– bring foreign capital with incentives
– leverage commodities, build infrastructure
– let the real estate market crash
– stop messing with the markets and market risks

#42 In Victoria on 01.22.14 at 8:46 pm

Garth, how would this payment work? Would this be considered a prepayment on the mortgage and reduce the principal outstanding? Would there be a penalty on this prepayment?

Correction: the payment goes to restore the LTV ratio. — Garth

#43 Observer on 01.22.14 at 8:46 pm

Why all the fuss by the central banks? A market sometimes needs to aspirate with temporary deflation. You can’t keep injecting caffine into an exhausted runner. Down time is healthy and allows for proper healing to make way for a healthy recovery. It just seems like no one wants it happening on their watch….

#44 Untervasser on 01.22.14 at 8:49 pm

#39 dbcooper on 01.22.14 at 8:41 pm
@#5

Both of you… cut that out… I am the dude living in a Brampton basement that won $50 million. WOOT!!

*Pop*

OOPS… woke up…. nevermind.

#45 Cowtown Refugee on 01.22.14 at 8:50 pm

Unknown, of course. Goldman called 88 cents. Now Canaccord says 85. It will probably overshoot on the downside. — Garth
———————-
agree, at least 80 cents, maybe lower.

+++++++++++++++++++++++++++++++++++

I work overseas and get paid in USD. Bring it on!

#46 Cowtown Refugee on 01.22.14 at 8:55 pm

#42 In Victoria on 01.22.14 at 8:46 pm
Garth, how would this payment work? Would this be considered a prepayment on the mortgage and reduce the principal outstanding? Would there be a penalty on this prepayment?

No, just send cash. You still owe the same. — Garth

++++++++++++++++++++++++++++++++++

Sorry, oh bearded one, but that doesn’t make sense. The Pecodan must be rattling you. Payment would have to go against principal to bring your ratios back into line. If they wanted 100% of their $$ back it doesn’t mean they they get all their $$ back and you still have a mortgage.

Quite so, of course. — Garth

#47 Joe Average in Vancouver on 01.22.14 at 8:56 pm

What to invest in 2014? – feels like the market is just due for an adjustment.Maybe taking a few months break from new investments is in order?

#48 Alero01 on 01.22.14 at 8:56 pm

Garth, I appreciate that the article above is specific to variable-rate mortgages.

However, I’m still curious to know your thoughts.

Do you anticipate that the banks will implement a requirement that they have to obtain an updated property appraisal when mortgage-holders attempt to renew a fixed-rate mortgage given the banks’ fear of falling property values?

#49 Realtor #1 on 01.22.14 at 9:00 pm

Won’t deter buyers, if they thought prices would drop more than 20% they wouldn’t be buying.

Like I said before a spike in job loss or interest rates is whats needed. Until the all banks and telecoms start laying off people we are safe.

The real story is that banks are sending in Appraisers and determining a lower market value than the price that is being offered. Thus the buyer must come up with the difference. For example I had a client offer 400K on a property but his bank said it was only worth 340K thus the lender said my client who only had 10% down had to come up with another 20K.

Lender crash markets not buyers.

#50 TD also going after cmhc mortgages on 01.22.14 at 9:02 pm

Garth, you are incorrect in your post as TD is also going after cmhc insured mortgages in their fine print. Once the mortgage is 105% of the property value, TD will call the loan.

#51 Bob Kerman on 01.22.14 at 9:06 pm

“For example, let’s say you bought a $400,000 condo in 2012 with the help of a $75,000 loan from your suffocatingly helpful helicopter parents, then took a $320,000 VRM from the boys at TD. ”

Jesus H Christ on a bicycle, I know a few early-30 something in Vancouver who have done exactly that. A %20 decline is within many predictors’ models. One more reason that I’m glad I rent in TBPOE.

#52 Ret on 01.22.14 at 9:08 pm

Sorry TD. You never should have lent me a dime in the first place. You were fools to think that I’d ever have a pot to piddle in or a window to throw it out of!

Herewith, with respect to the Trigger Point Excess term on my existing TD mortgage.

1. It has come to my attention, that an adequate inspection of the property to determine the true value of the property was not done before a mortgage on the property was offered and funds were advanced. At no time was I advised or furnished with a copy of your inspection report.

2. Furthermore, TD bank freely offered me the mortgage and terms in question knowing full well that the municipal property tax assessment was far less than the value of the property.

3. TD’s enforcement of the Trigger Point Excess mortgage term may be found to be inconsistent with that of other mortgage holders living in the vicinity nearby and indeed, may be found to be discriminative and/or punitive in nature.

4. As the bank has erred in granting a mortgage for an excessive amount on the said property, and in spite of the precarious financial position and emotional angst that this has placed me in, I have instructed my solicitor to negotiate a fair and reasonable solution to this matter and to seek damages in my favour if warranted.

Wow, this is easy! How am I doing so far Blog Dogs?

#53 Chickenlittle on 01.22.14 at 9:18 pm

“If your friend jumped off a cliff, would you?”

Maybe not jump off a cliff, but they would buy a house they can’t afford. Same thing. They are about to hit the bottom…

#54 sm_YYC on 01.22.14 at 9:26 pm

would existing customers of the bank have the option of adding the cheque amount to the principle amount thereby increasing monthly payments in case they don’t have the amount lying around to avoid default? is this possible?

#55 45north on 01.22.14 at 9:33 pm

therefore we give you notice of this excess (the Trigger Point Excess) and within 30 days of the date of this letter you must do one of the following:

scary, very scary

the lender is the mortgagee, the borrower is the mortgagor

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

#56 As Is Old Man on 01.22.14 at 9:37 pm

Blackberry isn’t exiting Canada. They are selling real estate and renting instead so they can invest the proceeds – perhaps they read your blog?

#57 nothingtosee on 01.22.14 at 9:39 pm

#25 @PJ

actually, you should have sold both the house and the gold :p

#58 -=jwk=- on 01.22.14 at 9:47 pm

Garth you missed the real scary point. Under the old 75% rule they would convert you to fixed if you couldn’t cover the difference. So your worst case scenario is you lock into a fixed rate.
The new 80% rule does not have that option. It’s pay up, or get out. That’s the real change here, the 5% is a red herring to get people to not see the real big change.

#59 vatodeth on 01.22.14 at 9:49 pm

Garth,

You forgot to mention anything about HELOCs. If they have a HELOC, it will affect their LTV value. Add in a HELOC and even more people will hit the 80% limit in a declining market.

Regards!

#60 Smoking Man on 01.22.14 at 9:55 pm

I hate TD, jacked my Heloc with out the BOC doing anything. It was in the small print.

I had 3% loot, invested in 10% return on commercial mortgages. that added .5% after tax really affected my profit, plus that was a win fall for them. pissed me off. I wrote the head of mortgages a nasty letter.

I closed my account, a year later got invited to a work group, gays behind the glass, asking why I closed the account.

The suits learned some words of profanity they never heard before.

It was a hundred bucks the fee they give you, then walking out with them all kidding aside, I handed the bill to a homeless guy.

walked away never said an other word. ……..
………………………………………………………………

Ying Yang , put the female friendly version up. Same points delivered a different way.

Which is better, Losers Lounge, or Monster in Vegas?

#61 Daisy Mae on 01.22.14 at 9:56 pm

“And Dan adds this thought: “God help the parents that signed for or pledged their homes!”

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

“Signing for or pledging” a parental home is all very touching…but to do so is simply insane.

#62 Andrew Woburn on 01.22.14 at 9:58 pm

#52 Ret on 01.22.14 at 9:08 pm

Wow, this is easy! How am I doing so far Blog Dogs?

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

Pretty good. Or you could just move to South Africa. They have actual legislation that penalizes banks for granting credit to people who didn’t really qualify. Of course Canadians are too smart to need such handholding.

“ABIL Pays $1.9m Reckless Lending Fine”

VENTURES AFRICA – JSE-listed African Bank Investments Limited (ABIL) late on Thursday said it had decided to pay a R20 million ($1.9m) penalty for loaning money to its customers in an irresponsible manner.

African Bank has agreed to pay a settlement…to the National Revenue Fund,” South Africa’s biggest provider of unsecured loans said in a statement.

http://www.ventures-africa.com/2013/10/abil-pays-1-9m-reckless-lending-fine/

#63 Ben on 01.22.14 at 9:59 pm

Garth won’t the banks learn the lessons of past recessions? Repo and you have to sell which means increased supply at a time of facile demand. Instead won’t they try to forbear – like in the UK and Ireland where if you tell your bank you can’t pay your mortgage they say “oh that’s terrible, why don’t you pay half over a longer period” all the while thinking “please please say yes”.

When you owe the bank $100 and can’t pay it’s your problem. When you owe them $10MM it’s theirs.

#64 Tiger on 01.22.14 at 10:01 pm

Oh yeah!
It’s ugly out there!
Reminds me of when I first started my co! 80s
I diddent even know wtf was going on!
Dum young and a drive for success, never did crack though, the mayor thing not interested,re agent I’m smarter than that, smoking man, just google that!

#65 Andrew Woburn on 01.22.14 at 10:04 pm

22 Jenn on 01.22.14 at 7:58 pm

Water from rocks???
================================

Perhaps you are forgetting that we taxpayers are on the hook to repay the banks through the wonderful CMHC mortgage guarantee program that we all voted for. They can pull the trigger at will.

#66 economictsunami on 01.22.14 at 10:04 pm

American retailers mostly missed the Canadian consumerism boat but sticking with a diet of strictly US retail is non starter also…

A ‘tsunami’ of store closings expected to hit retail:

“On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It’s the latest of about 300 store closures in the U.S. that Sears has made since 2010. The news follows announcements earlier this month of multiple store closings from major department stores J.C. Penney and Macy’s.

Further signs of cuts in the industry came Wednesday, when Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.”

http://www.cnbc.com/id/101353168

#67 DR on 01.22.14 at 10:06 pm

26 Dean on 01.22.14 at 8:17 pm what suprise?

West-end house attracts 32 bids, sells for $210,000 above asking

————————————–

How come no one is talking about the semi at greenwood and gerrard that sold for “only” 6000 above asking….for $895,000………with NO PARKING

#68 saskatoon on 01.22.14 at 10:06 pm

#58 -=jwk=-

thanks.

this answered my earlier question.

#69 Garth is not God on 01.22.14 at 10:12 pm

Lenders let you to borrow upto 125% of the value and liquidate when it goes below 80% :-) what a steal

#70 jan on 01.22.14 at 10:17 pm

#60 Smoking Man on 01.22.14 at 9:55 pm
I hate TD, jacked my Heloc with out the BOC doing anything. It was in the small print.

I had 3% loot, invested in 10% return on commercial mortgages. that added .5% after tax really affected my profit, plus that was a win fall for them. pissed me off. I wrote the head of mortgages a nasty letter.

I closed my account, a year later got invited to a work group, gays behind the glass, asking why I closed the account.

The suits learned some words of profanity they never heard before.

It was a hundred bucks the fee they give you, then walking out with them all kidding aside, I handed the bill to a homeless guy.

walked away never said an other word. ……..
………………………………………………………………

Ying Yang , put the female friendly version up. Same points delivered a different way.

Which is better, Losers Lounge, or Monster in Vegas?

gays behind what ???
You so funny smoking man and you do rule !

#71 Westcdn on 01.22.14 at 10:21 pm

I see that the Air Canada pension deficit has been eliminated. http://www.theglobeandmail.com/report-on-business/air-canada-37-billion-pension-deficit-eliminated-small-surplus-at-jan-1/article16444449/
Frankly, I consider this accomplishment a miracle considering it occurred in less than a year. Have the Air Canada executives (who I think are 1%’s) discovered a solution to end pension sustainability woes? Being jaded and cynical, I think the executives have only found a way to get their bonuses restored just in time to take advantage of the recent stock price run-up. The executives weren’t allowed to collect bonuses will the pension plan had a deficit as per this March 2013 article. http://www.theglobeandmail.com/globe-investor/bonuses-for-air-canada-executives-tied-to-pension-deficit-payments/article9805501/
I hope Flaherty takes a closer look because I think it is BS and I want to be proved wrong. Getting paid for nothing is just another form of waste which costs everyone but the recipient.

#72 Observer on 01.22.14 at 10:25 pm

And for all you HAM lovers. Just think if you bought a property in Canada.

You used Chinese dollars exchanged to Canada. Now your down about 12% just because the house you bought is still on the Canadian market, but you paid Chinese dollars.

Even worst, if you used Chinese Dollars, Got a USA loan (international money) at a deflated US greenback, bought a Canadian house. Now you have to deal with an 11% lost + a very strong looking US economy which can cause the Canadian dollar to be worth only 85 cent or even worst 65 cent. Now you would be down15 to 35%.

If a bubble does burst. Holy smokes. How low can the Canadian dollar go. Lets say default and useless. Yep, can you say smoked ham and sausage?

#73 pinstripe on 01.22.14 at 10:25 pm

Whatever happened to duffie, wallin, and brazo?

The three promised to reveal everything about the dealings in the senate, and to date there is silence.

H has a subtle way in handling these situations. How will H and F handle a housing crisis?

#74 gladiator on 01.22.14 at 10:28 pm

Aren’t these new rules applicable only to new mortgages? If they also will apply to existing ones, I don’t like the way our future looks like…

#75 Hicksville Alberta on 01.22.14 at 10:29 pm

To add to all the growing volatility and uncertainty including the declining Canadian dollar, one may want also to consider the impact of the ever growing drought in the U.S. West and the likely effects on prices and availability of food.

See: http://theeconomiccollapseblog.com/archives/u-s-cattle-herd-is-at-a-61-year-low-and-organic-food-shortages-are-being-reported-all-over-america

Maybe its time to consider growing a little garden in the back yard by the fence and filling the freezer.

#76 Dave on 01.22.14 at 10:30 pm

After reading this article, I can’t help but feel very thankful to be wealthy.

#77 Investment Virgin on 01.22.14 at 10:36 pm

So, which option is going to turn out to be true?

http://www.moneynews.com/MKTNews/Portfolio-Financial-Investments/2013/05/30/id/507152

#78 Freedom First on 01.22.14 at 10:40 pm

Beautifully written article Garth. Very informative.

I am continually amazed at the # of people who use leverage without knowing that the lender, who has the borrowers gonads in a vise, not only has all of the rules and laws on their side, but knows these rules and laws, while the borrowers, the ones whose gonads are in the lenders vise, rarely ever bother to research these rules/laws before signing on the dotted line. (This goes for the helicopter parents too).

As time moves on, Garth’s financial knowledge he has been freely sharing is sure to awaken more people than he already has. May you learn in time.

I believe in balance, diversity, liquidity, cash flow, income streams, and being debt free at all times, while staying with this, always, Freedom First.

#79 Andrew Woburn on 01.22.14 at 10:41 pm

If you are reading this in your basement from behind a wall of sandbags and freeze-dried food, braced against the Apocalypse, combat shotgun in hand, you won’t like this.

For those of us who try for an intelligent interest in the role of gold in international markets, I have found an intelligent blog. It is written by a long term manager of the Perth Mint. For example, his take on the painfully slow repatriation of German gold from the Fed is that, quite possibly, the Bundesbank was happy to leave its gold in New York but is having to react to pressure from German politicians. Perhaps they are dragging their feet in the hope that the whole idea will go away. Yes, Minister.

This could be wildly inaccurate but it makes more sense to me than the idea that the Fed filched German gold and now can’t get it back from all the Indian brides that melted it into necklaces. Anyway,see for yourself – http://goldchat.blogspot.ca/

#80 Pulp Faction on 01.22.14 at 10:42 pm

So, the banks will get as many people to “pay up” as possible, thereby somewhat mitigating their risk of loss if the market tanks.

If the banks need to, they can foreclose on the rest, already having this “safety blanket” of future mortgage payments to insulate them somewhat from the lack of cash flow that would ensue from trying to sell off the illiquid properties.

Is that correct ?

#81 Suede on 01.22.14 at 10:42 pm

economy won’t improve till 2016.

2016-2008 = 8 years and counting. Sounds like another country with low rates and little progress…

if CAD/USD goes lower by another 10% my USD portfolio will jump another 10%…keep ‘er coming! Part of a balanced breakfast.

#82 WhiteKat on 01.22.14 at 10:44 pm

Did anyone see the NDP press release today about FATCA?
http://www.ndp.ca/news/canadians-deserve-answers-fatca

And how’s about today’s Rick Mercer Report with his pot shot at FATCA? Too funny!
http://www.youtube.com/watch?v=ConFWM-Pbfc

#83 Ontario's Left Coast on 01.22.14 at 10:47 pm

#52 Ret — Wow, this is easy! How am I doing so far Blog Dogs?
—-

Well done, sir! You should go to work for the law firm of Dewey, Cheetham and Howe.

#84 WhiteKat on 01.22.14 at 10:49 pm

And before I forget, there has been a slew of Canadian media reports about FATCA within the last week:

Canadian banks to be compelled to share clients’ info with U.S. (CBC News)
FATCA under fire from tax experts & Canadian citizens (CBC Radio)
U.S. tax law called ridiculous (CBC News)
U.S. FATCA tax law catches ‘accidental Americans’ (CBC News)
How will the new U.S. tax law affect Canadians? (CTV News)
U.S. FATCA tax law catches unsuspecting Canadians in its crosshairs (CBC News)

#85 Smoking Man on 01.22.14 at 10:49 pm

#70 jan on 01.22.14 at 10:17 pm

Ha ,wasn’t ment to read, gays. should have been guys.

I downloaded this thing called ginger,fixes grammar. Obviously it’s not that good.

#86 WhiteKat on 01.22.14 at 10:54 pm

Ooops sorry, I forgot the links for the above Canadian Media reports on FATCA:

http://www.cbc.ca/news/politics/canadian-banks-to-be-compelled-to-share-clients-info-with-u-s-1.2437975
http://www.cbc.ca/thecurrent/episode/2013/11/13/fatca-under-fire-from-tax-experts-canadian-citizens/
http://www.cbc.ca/player/News/Canada/ID/2429871653/
http://www.cbc.ca/player/News/ID/2429927085/
http://www.ctvnews.ca/business/q-a-how-will-the-new-u-s-tax-law-affect-canadians-1.1638582
http://www.cbc.ca/news/canada/u-s-fatca-tax-law-catches-unsuspecting-canadians-in-its-crosshairs-1.2493864

#87 valuedude on 01.22.14 at 10:55 pm

Love your blog Garth. Keeps us value investors entertained at work in the morning. What would you say is the best way to short the Canadian housing market?

#88 sasquatch on 01.22.14 at 11:00 pm

So that is what will happen to mortgages without CMHC insurance. What will happen to those with the insurance that become worth less? Will the banks try to cash in the insurance for the difference?

#89 Son of Ponzi on 01.22.14 at 11:03 pm

When the Banks get scared, we all should be scared.

#90 Snowboid on 01.22.14 at 11:06 pm

#5 chopper on 01.22.14 at 7:13 pm…

Is that you, son?

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

#13 Jim on 01.22.14 at 7:33 pm…

Is that you, great-grandpa?

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

#66 economictsunami on 01.22.14 at 10:04 pm…

Dept stores are so 1980s – can’t remember the last time I was in a Sears, JC Penney or Macys. Target? No thanks.

Occasionally we hit discount stores like Nordstrom Rack, the outlets, or factory stores like Antigua.

Most of our major purchases are now online from Amazon or Costco.

#91 Toronto mine sweeper on 01.22.14 at 11:12 pm

Does that “trigger point” only apply to VRM’s or does it affect fixed rates too?

#92 Stoopid Idiot on 01.22.14 at 11:16 pm

Not sure if this has been posted yet….

Half of Every Mortgaged Home in America Still Completely Underwater-Fabian Calvo

By Greg Hunter’s USAWatchdog.com

Forget what you are hearing about stiffer mortgage lending requirements. It’s not true. Real estate expert Fabian Calvo says, “If you can fog up a mirror or you have a pulse, they will give you a home loan. That’s what they have done with the car loans, and that’s what they are doing with housing loans.” The so-called new rules do not have any down payment credit score requirement. Zero percent down loans are going to make a very big comeback. According to Calvo, “After the mid-term election, you’re going to see no-money-down loans just really roar back. It’s all part of the pump and dump I’ve been telling you about for well over a year.” So, are the housing market problems behind us? Calvo, whose company buys and sells $100 million in distressed real estate debt annually, says, “Bottom line is we are still in a situation where half of every mortgaged home in America is completely underwater, and the Fed is going to have to print money for a very long time before those values return. It’s just a matter of fact.” Calvo goes on to say, “Now, worst of all, they are beginning to securitize so they can bring in even more capital. A third of all real estate in America is rental properties. You are going to have Wall Street being the biggest landlord in America. It’s subprime 2.0.”

According to the Director of the Consumer Financial Bureau, Richard Cordray, new mortgage lending rules are supposed to make sure “the great mortgage meltdown never happens again.” So, is the housing market more resilient to another downturn? No way, says Calvo, “They’ve securitized the rental properties, which are now making the net effect of a collapse in values in the market much more devastating for the economy.” Calvo predicts, “The next leg down in the real estate market will be much, much larger . . . Homeowners, who may have a little bit of equity in their home, should be very cautious right now.” Still, Calvo says don’t expect a crash in 2014, and he says, “We’ll pretty much see a repeat of 2013.” Calvo says to watch when hedge funds start selling their real estate holdings. He says, “I think that will be around 2015. That will be the handwriting on the wall that the collapse in housing prices will be coming.” Calvo thinks the next real estate collapse will be caused by forces outside of the housing market. Calvo says, “I think the next leg down in the real estate market won’t be centered around the housing collapse. It will be centered around the multi-bubble collapse of the dollar, the bonds, the government debt, all collapsing simultaneously. . . . This next collapse will make 2008 look like a dress rehearsal for the really big multi-bubble collapse we will be seeing.”
So, how are the rich going to protect themselves? Calvo, who does business with millionaires and billion dollar hedge funds, says, “A year ago, a third of the room would say buying gold and silver was just kind of crazy. Today, you have half of the room investing much more than 10 or 15% of their portfolio into physical gold and silver. To me, that is a big signal.”
Is there any good news? Yes! Calvo says, “There’s going to be spectacular sales, spectacular deals, way more than you saw back in 2008.”

http://www.youtube.com/watch?v=iegX-ZGtQ5U

#93 YVR on 01.22.14 at 11:24 pm

Realtor #1: Won’t deter buyers, if they thought prices would drop more than 20% they wouldn’t be buying.

Like I said before a spike in job loss or interest rates is whats needed. Until the all banks and telecoms start laying off people we are safe.
_________________________________________

The price only needs to drop a few percent to be below the LTV, not 20%. When prices are falling buyers will hold off. Then more homes come on the market due to foreclosure for those who can’t come up with the money the bank demands.

The job losses come from the people who are in industries related to home building and selling homes. It wasn’t bank and telecom layoffs that spiked unemployment in the US after their housing crash.

They must have taught you all this in realtor school, no?

#94 timmy on 01.22.14 at 11:27 pm

When’s the last time we had a twenty percent drop?
The banks will just keep lowering mortgage rates like they did in 2009

#95 45north on 01.22.14 at 11:30 pm

Hicksville Alberta: consider the impact of the ever growing drought in the U.S. West

from your link: The reason why the agriculture industry in California is so important is because it literally feeds the rest of the nation.

California is D2 “severe drought” or D3 “extreme drought”

http://droughtmonitor.unl.edu/Home.aspx

#96 Basil Fawlty on 01.22.14 at 11:30 pm

What would the bank do if one sent them a quick note that said: “Pound sand”? By the time they foreclose, get a person out of the house, pay sales commissions etc, they will wish they had left the homeowner alone.

#97 :):(Ying Yang on 01.22.14 at 11:48 pm

Smoking Man go with Loosers Lounge. Us gays like it!

#98 tom on 01.22.14 at 11:55 pm

wont happen

Can you imagine the media frenzy when single mom gets this letter?

Just what the banks need, an invitation to the feds to come snooping like they did with the telcos and destroy their market cap cuz they are being mean

#99 Andrew Woburn on 01.22.14 at 11:57 pm

#92 Stoopid Idiot on 01.22.14 at 11:16 pm
Not sure if this has been posted yet….

Half of Every Mortgaged Home in America Still Completely Underwater-Fabian Calvo
======================================

New YorkTimes – The Bubble Is Back

“Today, the same forces are operating. The Federal Housing Administration is requiring down payments of just 3.5 percent. Fannie and Freddie are requiring a mere 5 percent. According to the American Enterprise Institute’s National Mortgage Risk Index data set for Oct. 2013, about half of those getting mortgages to buy homes — not to refinance — put 5 percent or less down. When anyone suggests that down payments should be raised to the once traditional 10 or 20 percent, the outcry in Congress and from brokers and homebuilders is deafening.”

Insert face palm here.

http://www.nytimes.com/2014/01/06/opinion/the-bubble-is-back.html

#100 the jaguar on 01.23.14 at 12:09 am

Deja vu all over again, as Yogi Berra might say.

My recollection is that these are the same folks who sent out a form letter in 1987 to all the customers whose leverage loans suddenly hit the wall….”bring in a cheque for xxx amount to avoid us selling off your portfolio”, etc. No consideration to what anyone might be worth on a “signature basis” to offset concerns.
Just knee jerk, form letter, hit the panic button mentality. Remember that when you next view one of their folksy “have a seat in this overstuffed green leather armchair” commercials. “Open 8:00 to 8:00”. That will be helpful when you need to crawl in on your knees with the payment they require to bring your loan to value into line. They feel your pain, of course. All those marketing calls in the evening cause they are dying to hear your voice, but when the shit hits the fan they only want to know you through form letters.

Course in the creditors paradise of Alberta where if one doesn’t comply they have to choose between you and the house (foreclose or go after the customer) they can experience the sticky trigger finger syndrome. Piss off the Albertans and they might find the keys dropped off instead of the requested paydown. Oh dear! Hot potato, hot potato, it’s your grow op now, banky!

Take a deep breath. Life is a carnival, after all. Sun comes up the next morning regardless of the previous days calamity.

#101 Babblemaster on 01.23.14 at 12:09 am

#13 Jim

“I guess they won’t raise interest rates in my lifetime ?”

—————————————————–

Not unless you’re 5 years old and destined to be a centenarian.

#102 Blacksheep on 01.23.14 at 12:13 am

JWK # 58,

“The new 80% rule does not have that option. It’s pay up, or get out.”
——————————————-
Ding! Ding! Ding!

Read the comments (second one) by the brokers.

http://www.mortgagebrokernews.ca/news/td-mortgage-clause-change-176155.aspx

#103 CalgaryGuy on 01.23.14 at 12:15 am

Garth – In Alberta, the courts have indicated that they will not grant foreclosure orders based upon the loan to valuation going over 80% (including at time of renewal of mortgage) if the borrower has been making the payments as agreed. Do you see courts in other jurisdictions taking this approach? Thanks.

#104 NorthOf49 on 01.23.14 at 12:25 am

http://www.thespec.com/news-story/4321955-thorold-paper-plant-to-be-idled-/

Not as big as Bombardier but 109 job losses at this Georgia-Pacific plant will be another hit to the already economically depressed Niagara region. This plant produced the paper that goes into drywall construction. The GP drywall plant in Caledonia has already been idled, throwing 60 people out of work there.

http://www.thespec.com/news-story/4220562-caledonia-drywall-plant-to-be-idled-/

As new home building slows to a crawl, so does production at related industries, net effect being further job losses.

#105 NAGA on 01.23.14 at 12:26 am

Garth – been a while since I have posted.

Your forecast for imminent RE price drop is about to be wrong for 2014 – yes at some point when interest rates do go up you may be provein right.

Question – Interest rates not going up soon and Mortgage rates heading south by spring. When will both go up to have any effect on RE prices? My answer as I have posted in the past not this decade!

I am glad that I invested in RE throughout the 80’s and 90’s betting against the Garth of that era!

Now a new dilemma – we own RE in Italy – rental and a unit that we get to use and enjoy thanks to the investments in the 80’s and 90’s and my great grandfather.

During 2012 and 2013 the Italian government headed by two different PMs and supported by Burlusconi before he got convicted and expelled from holding office – have introduced many new taxes on RE owners – and in many cases owners with multiple properties that are about to go in disrepair as owners will walk from them. Mostly inherited and in many cases have seen 50% drop in value.

For owners that have rental units or want to sell a new law was recently enacted that requires special certification of home to establsih a rating based on energy efficiency. Plus in the past could register leases for duration of up to 4 years – now they must be done annualy. These two changes are costing these owners in the range of 200 to 300 euros. Add to it the various taxes owners have taken a hit of about 1000 to 1500 euros to own RE (Average).

My dilemma – sell now as things could get worse – both price and carrying costs even though no mortgage costs. Or hang on and continue to enjoy the RE for family get aways in a country that still has one of the best climate in the world and more importantly great food, wine and amazing ladies.

I have decided to increase my travel to Italy while I resolve this dilemma – anyone want to rent a nice apartment in Italy on the adriatic sea put a request in a post! It is available for rainy season only….

Not planning to resolve this issue anytime soon – my great grandfather built the place and I am sure that my future grandkids will appreciate having a place to get away now and then.

I wonder how many of you renters dogs had your grandfather renting as well – must be part of DNA. Glad that mine was programmed to be an owner/investor.

Finally it is a sad state of affairs when Garth stretches the facts to try and prove his forecasts – BB leaving Canada, rehashing old stats of past layoffs – I agree that wages and growth is constrained – so then how can we extrapolate and conclude that both interest rates and mortage rates are heading higher? But still enjoy the blog and the variety of opinions that are generated.

Naga

#106 connie on 01.23.14 at 12:35 am

doses this also apply if you have a line of credit instead of a mortgage???

#107 Tom from Mississauga on 01.23.14 at 12:39 am

USD gasoline futures up, CAD down. We’ll have inflation soon enough.

#108 Cici on 01.23.14 at 12:39 am

Wow, seems to me they are almost going after the wrong bunch (the ones that did have the 20% downpayment).

So the non-savers who took on CMHC insurance are going to fare better on the backs of their saver or helicopter-parent-leveraged counterparts.

That’s a lot of potential savings and intergenerational wealth transfers down the toilet.

Yeah Canada, good thing we’re so much smarter here, eh?

#109 800 RMK on 01.23.14 at 12:53 am

This article further reiterates how CMHC creates a moral hazard, and has propped up housing values and created this housing bubble.

How in the hell can someone with more skin in the game have harsher lending conditions then someone with less skin in the game.

#110 Shawn on 01.23.14 at 12:56 am

80% LOAN TO VALUE MEANS HOUSE IS WORTH 125% of MORTGAGE?

I was about to argue with YVR at 93 who said the price only has to drop a few percent to trigger the payment. But I think he is right.

Garth said:

Here’s the change: If, at any time or for any reason, the value of your house drops to a level which results in your mortgage exceeding 80% of it, the bank can demand you write a cheque to cover the difference. If you don’t, your mortgage goes into default. You also have the right to have your property appraised (at your cost) to prove it’s worth at least 80% of the loaned amount, whenever the bank demands such proof.

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

Actually at inception a non-CMHC mortgage has to be 80% of the value or less. This means the house is worth 125% of the mortgage or more. THAT’s what you have to prove, 125%!

So if you put 20% down, it would only take a 1% price drop to put you off side.

What this may mean is the banks will now be asking you to take out CMHC insurance even if you have 20% down. They may decide they will only do non-CMHC with 25 to 30% down. They will just point out the clasue and say see, we need a cushion, 20% down is too close to the line.

I rather doubt that they would be too keen to come after existing loans but yes they might in a downdraft.

Can’t see them running in when house value declines to 124% of loan, budget down close to 100% of the loan and yeah they might come in.

Bank’s are not in this to foreclose though, they far prefer you pay the mortgage.

#111 takla on 01.23.14 at 1:22 am

since the recent drop canadian $ is worth 10% less and heading lower against the U.S Dollar does this mean my au,ag,has gone up 10 % in value as the metals are valued in U.S currency?? YESSSSSSSSSSS!

#112 HouseBuster on 01.23.14 at 1:25 am

Sounds like a margin call.

#113 Rob on 01.23.14 at 1:31 am

Garth,
If the banks know property values will drop why are they lowering rates when doing so only brings in people who really cant afford to buy?

#114 Dragonslayer on 01.23.14 at 2:21 am

If the bank tries to hit you up for the “Trigger Point Excess”, could you not simply apply for a personal loan for the amount owing? I realize this would be at a higher rate than a mortgage loan, but it would keep you from having to sell your home. Assuming, of course, you meet the debt to income ratios the banks use.

#115 screwed on 01.23.14 at 2:39 am

US Banks were bailed out and given ample taxpayer’s money to be able to write off loans which they did. But not until they resold the property and evicted countless of so called “deadbeat” borrowers. Remember, the banks are just as deadbeat when it comes to paying their bills. Couldn’t have done it without Uncle Sugar.

All the world is awash in debt. But debt equals wealth. Debt creates wealth and one man’s debt is adding to another man’s wealth The debt balloon is bigger than ever which is why some are richer than ever. Just look at the sales of luxury items such as cars, yachts and small jets.

Governments and banks know full well that they’re slowly approaching the end of the road where only a reset and currency reform can avoid widespread mass poverty, hunger, instability and political chaos.

They’re meeting right now again in Davos. Will they discuss these issues or will they agree to once again just paper it over, extend and pretend for as long as people are willing to accept the paper games?

China is a mess and cracks are appearing. The growth rates are unsustainable which is Chinese undoing. It was nice while it lasted. The US economy has not recovered in the sense that the US is back to the same level of proportional wealth distribution before the GFC wiped many Americans out.

Canada has fared well during the recession but a slow global economy is now also catching up to Canada. Who could blame Canada and Canadians for sticking it out as long as they could? Who could have foreseen this recession would last 5 years and counting?

Canadians have bought real estate and signed mortgages to finance the purchase in good faith. Banks were eager to loan the money and grow their balance sheets. Record profits year after year were a boon to the banks, the shareholders and the economy.

The financial as well as the political sector will be well advised to stave off any correction to property values and work together and protect the interests of all Canadians in a potential downturn. We live in unprecedented times with many challenges that require some more unconventional wisdom.

#116 Sam on 01.23.14 at 2:56 am

Garth,

Its not gonna happen no matter what you wish. Its wishful thinking. no bank will send any letters and the market will keep going up and up and up… until then…. zzzzzzzzzzzzzzz

#117 CDN in DE on 01.23.14 at 3:24 am

So appreciate the candour and wit of this pathetic blog. A daily read… with a chuckle and a wince.

#118 Buy? Curious? on 01.23.14 at 4:20 am

Garth, you’re getting a little short with people and their dumb comments. I haven’t seen such cattiness since the debut of Real Housewives of Barrie (it’s a web show that will soon be picked up). Don’t let your injury make you cynical and cold. You need to get back out there. Do a speaking tour. (By the way, what do you have in mind with your Harley? If you’re selling, I’m buying.) Canadians will come out in droves and shower you with Love, rose petals and maple syrup. Think about it.

http://www.youtube.com/watch?v=m01YktiEZCw

Rob Ford 2014! It’s the year moobs get the respect they deserve!

#119 Bill on 01.23.14 at 4:57 am

The BOC just made a very tactical error that will cost Canadians dearly. Poloz stated language that basically ensured that rates will remain low or may even get lower.

He thought that by talking down the CDN $ he would be able to increase inflation and maybe exports.

Unfortunately, what he has more significantly done is signaled to homebuyers or would be purchasers to continue feasting on cheap credit and he also denies that a housing bubble exists. This is the biggest issue facing the country – the housing/consumer debt bubble.

If he thinks job losses and disinflation are bad now, wait until the housing gasbag bursts.

He has to pick the greatest evil to focus on. That is debt and housing. The CDN $ has already fallen enough to help out the economy. A bit more neutral language, leaving the consumer uncertain if higher rates are upon us might have been the best way to usher in a soft landing.

Now, he’s given license for the housing bubble in Canada to inflate more.

Australia lowered rates and talked down their dollar last year too. It’s not helping the economy and their housing bubble and consumer debt crisis is now reaching out of control levels.

http://www.bloomberg.com/news/2014-01-22/australians-in-record-loan-spree-as-house-prices-soar-mortgages.html

Stephen, look at the Australian example and quit providing easing with your language before it’s too late.

#120 Tony on 01.23.14 at 5:25 am

Re: #93 YVR on 01.22.14 at 11:24 pm

American telecoms are losing cable tv subscribers at an alarming rate as can be seen by the increase in Netflix’s profits and subscriber rates in America. It’s only a matter of time up here in Canada that the same thing will happen and if the housing market crashes it will makes things much worst. The stock market right now is worst than a house of cards. People chasing yields are about to get stung bad.

#121 Tony on 01.23.14 at 5:39 am

Re: #71 Westcdn on 01.22.14 at 10:21 pm

Who cares the Canadian airline stocks right now are a big league short. With the falling Canadian dollar and bounce upwards in oil the airlines will only see *red* as the bottom line. Time to make some money!

#122 Dean Mason on 01.23.14 at 6:28 am

To #5 Chopper, if you really won.

Your problem is that CIPF only covers 1 million Canadian dollars if an investment dealer fails or fraud is involved.

Be careful! Easy come, easy go!

#123 Steven on 01.23.14 at 7:45 am

Unknown, of course. Goldman called 88 cents. Now Canaccord says 85. It will probably overshoot on the downside. — Garth

The dollar isn’t backed by anything intrinsicly valuable so theoretically it could go to zero. That is just the paper and electronic currency however. I expect that the gold and silver coinage produced at the RCM will do much better.

#124 Eaglebay - Victoria - Parksville on 01.23.14 at 8:09 am

In Chicago, 2002 there was a hot dog vendor who sold the very best hot dogs by the side of the road. His business was booming, people loved his hot dogs, and his business steadily increases month after month. The man loved his business and believed in the need to provide great food at a great price.

This man was so busy advertising and selling his hot dogs and making lots of money, that he didn’t even have time to read the newspaper or listen to the radio. Consequently, he never heard a word about a predicted recession or the need to cut back to save for the potential economic slowdown. As long as he continued to offer his delicious hot dogs, his customers bought them. He kept selling, and they kept buying.

Then one day his college educated son told him that an economic recession was surely coming. His son told him that people wouldn’t have enough money to buy his hot dogs. The successful hot dog vendor believed this, so on his son’s advice, he cut back on his advertising. Additionally, he started ordering less supplies and product, because after all, people would be cutting back soon.
He even went so far as to take down many of the billboards that lead to his roadside stand. And sure enough, people stopped coming to him. People stopped buying his hot dogs, and he eventually went broke.

Then he thought to himself. “How smart my son is in predicting this.”

#125 Smoking Man on 01.23.14 at 8:15 am

With almost absolutely nothing for sale, sfh 416 that is.

How can anyone deduce a crash is imminent. Or even a soft landing. The othet day someone was chirping how shit long branch was. Not 1 single family home for sale, can you imagine if it waswasn’t shit.

And they call me the crazy one.

Put this in your hat, this spring expect the price of these properties if you find any to explode higher.

#126 drydock on 01.23.14 at 8:49 am

http://www.testosteronepit.com/home/2014/1/22/housing-bubble-20-hits-messy-resistance-in-california.html

#127 Mr. Frugal on 01.23.14 at 8:54 am

Garth, you mention Potash (POT) and Bombardier (BBD.B) as a sign of bad times. But, I think it’s just the employees that are going to suffer. Both of these companies are a solid buy.

#128 Ralph Cramdown on 01.23.14 at 8:54 am

#92 Stoopid Idiot
#99 Andrew Woburn

OK, first, Fabian Calvo, “whose company buys and sells $100 million in distressed real estate debt annually.”

You would not think someone who believed the US was in a housing bubble would be in this business, would you? Of course, he wasn’t always in this business. Just type his name into your Google search bar and let Google Suggest the next word you might want to be typing.

Next, Peter J. Wallison, of the American Enterprise Institute. Says America is in a bubble, because a) prices were increasing faster than rents during the last bubble, b) they’re increasing faster than rents right now. Note that he doesn’t bother himself with inconvenient examination of the relative LEVELS of prices and rents, merely their rates of change. I hope you’re not investing based on that analysis.

Now his premise that Fannie, Freddie and the FHA did it, it wadn’t the big bad banks’ fault at all! is completely at odds with history. The worst of the worst of the loans, and of the securities that packaged them, were private Wall Street deals, go look it up. Here’s Wallinson back in 2011 saying basically the same thing, less the current bubble theory. Wall Street writes 30%, some of the crappiest loans being done, but it’s all the Gubmint’s fault. http://usatoday30.usatoday.com/news/opinion/story/2011-11-23/Fannie-Freddie-financial-crisis/51386932/1

I own equity in a company that will prosper if Americans continue to build and buy new houses, and others that will prosper if they continue to pay their mortgages.

#129 Ralph Cramdown on 01.23.14 at 9:01 am

#120 Tony — “American telecoms are losing cable tv subscribers at an alarming rate as can be seen by the increase in Netflix’s profits and subscriber rates in America. It’s only a matter of time up here in Canada that the same thing will happen”

What’s Netflix’s last mile solution, two guys with semaphore flags? I recently “cancelled” my Rogers cable and internet, choosing instead an internet and “over the top” IPTV provider which delivers my content via… Rogers’ cable. As a shareholder, I’m still getting paid. Also, I hear some TV watchers enjoy live sports. Netflix got an NHL/NFL package yet?

#130 T.O. Bubble Boy on 01.23.14 at 9:04 am

$CDN sitting at 89.82 $USD… time to try Norbit’s Gambit and convert some back.

#131 Sheane Wallace on 01.23.14 at 9:07 am

Ca $ bellow 90. Sad.

#132 Yankee Canuck on 01.23.14 at 9:34 am

The ridiculously high (and unsustainable) Canadian homeownership rate will be the undoing of the Canadian real estate bubble. Today, everybody in Canada NEEDS to own a home…it seems utterly irrational and confusing to your friends and family if you either don’t own something or don’t aspire to own something. This meme will change – that you can take to the bank.

I’ve been living in the US for a while now. The US homeownership rate climbed from ~64% in 1995 to ~69% in 2006. During this time, the NEED to own something approached a fever pitch, as everybody unfondly remembers. Since then, the US homeownership rate has declined back to a more reasonable 65%. This is good for the US economy, as people are slowly becoming more mobile and able to move from place to place for work.

The Canadian homeownership rate has climbed fairly steadily for the last 15-20 years, and is now close to 70%. As prices fall, and more and more stories of real estate related hardship start to make the rounds, owning your own home will slowly start to be seen as not as necessary. Pretty soon, it will be seen as being unnecessary, and people will move on to something else (like stocks – the US stockmarket has soared over the last five years while the homeownership rate has fallen another 250 bps).

High homeownership rates are bad for an economy and for the future of real estate values. It’ll prove to be very bad for Canada.

#133 gut check on 01.23.14 at 9:34 am

#108 Cici and #109 800 RMK:

I was thinking the very same things.
They really are making it impossible to feel good about saving & being responsible.

#134 frank le skank on 01.23.14 at 9:36 am

So in a declining market, this mortgage clause could be used as a tool to negotiate price decreases. The argument would be that as a buyer I need to protect myself against further prices depreciation and reduce the risk of the bank invoking this clause.

#135 Smoking Man on 01.23.14 at 9:41 am

#131 Sheane Wallace on 01.23.14 at 9:07 am
Sad?

Not if you listend to me in Oct, where i told you dogs to go long USDCAD.

I’m in for 50 contracts, in at 1.0368

If you can do the math, know what a contract is pay attention
to my big calls.

If you dont know, skip my posts.

#136 Sheane Wallace on 01.23.14 at 9:55 am

#135 Smoking Man

I diversified already some time ago away for Ca $ – mostly Euro and some US markets

#137 Debaucherous Donny on 01.23.14 at 10:17 am

If the old limit was 75%, isn’t the new limit cutting more slack? Now, a homeowner does not have to cut a check until the house falls in value enought that he is under 20% equity. Under the old 75% limit, he’d get the letter as soon as he fell under 25% equity.

#138 Rational Optimist on 01.23.14 at 10:46 am

110 Shawn on 01.23.14 at 12:56 am

“What this may mean is the banks will now be asking you to take out CMHC insurance even if you have 20% down. They may decide they will only do non-CMHC with 25 to 30% down. They will just point out the clasue and say see, we need a cushion, 20% down is too close to the line.”

Asking for CMHC up to 25% down is already happening with some lenders, particularly for rentals and second homes.

#139 liquidincalgary on 01.23.14 at 11:02 am

@137 Debaucherous Donny

re-read what you wrote, then think about which situation has more value…and yes, it’s still ok to move your lips while reading

#140 RVP on 01.23.14 at 11:06 am

A realtor/city councillor in BC who survived an attempted murder after he was shot last year while showing a house is now suing the son of his ex-wife for a winning lottery ticket worth $3.6 million.

http://www.cbc.ca/news/canada/british-columbia/franz-prokop-sues-ex-partner-s-son-for-3-6m-lottery-win-1.2507630

Doesn’t this just smack of desperation? If real estate sales were strong, would this guy need to sue the young son of his ex-wife for lottery winnings? Also, what’s with someone doubling as city councillor/realtor–shouldn’t that be a conflict of interest? And the attempted murder last year–sounds like a targeted hit as opposed to a random act of violence–so what’s the back story on that?

#141 Smoking Man on 01.23.14 at 11:18 am

:):(Ying Yang on 01.22.14 at 11:48 pm

No it’s got to be chic, friendly.

This is the trick, make the guy telling to story ,moral goody goody. Make Blithe the Smoking Man.

Then you can get away with the insanity.

If the storyteller is the sleaze
bag. Bye bye to 80% of the market. Thats just dumb even if i am nuts.

Richard Large will tell the story.
Blithe Barrington, ak the smoking man will be the villan.

#142 Dean Mason on 01.23.14 at 11:23 am

Canada 30 year bond is 3.00% down from 3.26% about a month ago. This is an 8% cut to yields.

Canada 10 year bond is 2.42% down from 2.89% about a month ago. This is a 16.26% cut to yields.

In July-2012 was the new low for 30 year Canada bonds was 2.21%.

Back to square one when our economy goes down!

#143 20something on 01.23.14 at 11:45 am

I drove by that Mississauga ‘mansion’ on my way home from work last night. The drive way and street was clogged with about 100 cars. I’m guessing they held an open house. I’d say it will sell for $7mill (tops). That area maxes out at about 15 million.

Please show us anything that has sold for north of $10 million. — Garth

#144 NorthOf49 on 01.23.14 at 11:52 am

#105 NAGA on 01.23.14 at 12:26 am

Just so we understand, you don’t post often, but when you do, you insult some of the blog dogs here and Garth as well, and then brag about your “dilemma”.

My advice, continue your previous pattern of not posting often, if ever.

#145 Blacksheep on 01.23.14 at 11:58 am

The ‘trigger’ reduction from 25% to 20% is just distraction.

Pay attention to the change that completely removes
the option of conversion from conventional VRM to FRM to solve the problem. Only two options, lump sump payment or default (forced sale?)

#146 Canada is the second best country in the world for doing business on 01.23.14 at 12:42 pm

Hey, things are not all that bad here.

In their recent survey, Bloomberg says drops the U.S. to third place while Canada goes from sixth to second best place (after Hong Kong) in the world for doing business.

http://www.bloomberg.com/visual-data/best-and-worst/best-for-doing-business-countries

Alwyn

#147 Depreciating dollar: is this going to stop or accelerate HAM or foreign investors ? on 01.23.14 at 12:48 pm

Foreign investor’s dilemma: buy Canadian RE now or wait? Buy now because it is at least 10% cheaper or wait because it is going to be even cheaper ?

Re HAM: as far as I understand they are having their own problems so they might want to move their money out of that region asap

#148 luke8929 on 01.23.14 at 12:59 pm

This is what is holding up the high end RE market in Vancouver and Toronto. The True North Strong armed and for sale.

http://www.oftwominds.com/blog.html

China’s “princelings” (offspring and family of the inner political circle and top apparatchiks of the Communist Party) are billionaires, not mere millionaires. A recent expose of offshore accounts held by various Chinese billionaires estimated the wealth skimmed and transferred our of China at between $1 trillion and $4 trillion: China’s Epic Offshore Wealth Revealed: How Chinese Oligarchs Quietly Parked Up To $4 Trillion In The Caribbean.

I know from confidential on-the-ground sources that a significant percentage of the entire top political layer of 3rd, 4th and 5th tier cities have left China for well-padded nests in the West: Australia and Canada are popular choices, as the right to immigrate can be purchased–just bring in the requisite sum of cash looted from peasants.

(Sidebar on how even the lowly functionary skimmer can get huge sums out of China: take a “vacation” to Macau. Buy $1 million in casino chips with your looted yuan. Lose $50,000 at the tables and then go cash in your remaining chips in U.S. dollars. Deposit the dollars in a Hong Kong or other Asian bank and then transfer the cash to L.A. or Vancouver to buy a house for cash. Repeat as necessary.)

Alas, the secret view of China’s leadership is considerably shorter-term: U.S. dollars in Swiss bank accounts, real estate in Vancouver, San Francisco, New York City, London, Geneva, etc. and whatever other assets can be scooped up with looted billions.

#149 Snowboid on 01.23.14 at 1:16 pm

#124 Eaglebay – Victoria – Parksville on 01.23.14 at 8:09 am…

Let me guess, you didn’t really write that, did you?

Either that or you taught the marketing course I took in the mid-1990s!

#150 bentoverpayingtaxes on 01.23.14 at 1:27 pm

Harper Conservatives are pulling an old Liberal trick out of the bag by throwing the dollar under the bus……they’re pandering to Ontario’s unions.

http://business.financialpost.com/2014/01/23/loonie-hits-the-skids-dropping-to-below-90%C2%A2/

People got tired of these scummy tricks and tossed the Liberals out on the collective a**es for pulling these shenaigans…..Do the Cons think the libs have been out of memory so long that they think we’ve forgotten what a wrecking ball Liberal policy was on the countries economy.

Meanwhile if the hand picked handpuppet Poloz is blathering deflation…wait till Canadians go to the grocery store and find everything has gone up another 50% because it has to be imported. Think we’re hearing stories about reamed out seniors eating cat food now……wait till what comes when the real cost of this dollar bashing comes to visit.

Flaherty could sit back and let Mullah Mulcair and the Bong Queen Justininian implode……this new economic policy of bashing the dollar is insane…….even if it was to work….you certainly can’t build a new car factory between now and the coming election……simply stupid stupid stupid.

#151 suede on 01.23.14 at 1:29 pm

Ralph Cramdown

Netflix doesnt have sports but your appletv or roku set top box that has netflix as a channel has tons of sports. You can buy nhl or nfl all access and get every game played in hd.

#152 gay guy on 01.23.14 at 1:32 pm

heres a big wink to THE smoking man from the gay guy behind the glass!

#153 Dean Mason on 01.23.14 at 1:46 pm

Canada 30 year 2.99%, Canada 10 year 2.40%, Canada 5 year 1.59%.

Those last U.S. job numbers and Canadian job numbers did a real number on U.S, Canada bond yields.

Mr. continuing the I will raise interest rates but never will Poloz=Carney is killing our Canadian dollar.

What perfect timing Paul Martin shows up to push the OPP=Ontario Poverty Plan and our dollar goes to 89.50 cents to the U.S. dollar.

Trudeau=60 cent Canadian dollar like the olden days under Martin!

Then see if we have deflation, gas at $2.00 a litre.

#154 bdy sktrn on 01.23.14 at 2:06 pm

loonie 89.6 with a pair of cement shoes.

rob ford and justin beiber are what the world sees from ontario and therefore canada these days. sadly.

tainted reputation.

looks like gold is the new hot item.

#155 Retired Boomer - WI on 01.23.14 at 2:07 pm

SMOKING MAN…

#156 Retired Boomer - WI on 01.23.14 at 2:09 pm

SMOKING MAN……

Blythe Barrington respectfully suggest title be revised:

“Losers on the half-shell”

U R Stuck

#157 Smoking Man on 01.23.14 at 2:42 pm

#155 Retired Boomer – WI on 01.23.14 at 2:09 pm

You know what’s wrong with this world, not enough evil mentors.

The machine does such a wonderfull job churning out such dumb down lap dogs that think superman always beats Lex Luther.

In real life superman will be owned by Lex, imprisoned or be killed.

So much to teach, so little time.

#158 Mike in Surrey on 01.23.14 at 2:43 pm

Wow! 25%off, so you owe the Bank $300,000 still in principle? Sell the Condo to me, no listing required. Just rent the unit back at $1800 (rent has to be in line with comparables) per month, long lease OK? You were paying $1451 (2.6%VRM) per month just on Mortgage alone, is making over $70,000 a year, right? For the new owner is like 7% return every year indexed to inflation as rent always go up every year.

#159 Shawn on 01.23.14 at 3:00 pm

Debaucherous Donny at 137 is correct

If the old limit was 75%, isn’t the new limit cutting more slack? Now, a homeowner does not have to cut a check until the house falls in value enought that he is under 20% equity. Under the old 75% limit, he’d get the letter as soon as he fell under 25% equity.

********************************************
Thank you, you are right, I was reading it the other way. You are the only one, I believe, that saw that the rise from 75% loan to value to 80% loan to value is a relaxation. (and yes other aspects may be tightening…)

I wonder if the old 75% just came from many years ago when you needed 25% to avoid CMHC.

I seriously doubt that they have been enforcing the old clause or that they will enforce the new against borrowers who pay on time. It’s a nice tool to have for them but won’t be used indisciminately.

The ratio is LTV – loan-to-value – not loan-to-equity. — Garth

#160 T.J BONES on 01.23.14 at 3:01 pm

SMOKING MAN; Blyth Barrington = Black Berry?

#161 Ralph Cramdown on 01.23.14 at 3:01 pm

#151 suede — “Netflix doesnt have sports but your appletv or roku set top box that has netflix as a channel has tons of sports. You can buy nhl or nfl all access and get every game played in hd.”

And who owns my town’s pro sports teams? Oh yeah, a partnership of the same local phone and cable providers that you’ll have to pay to get the bandwith to use your alternative set top box. They own a bunch of TV channels, too, so you’ll be paying them if you want to watch any Canadian content besides the pubcaster.

I’m not saying Netflix isn’t a great business, just that it isn’t going to kill your local cable and phone monopolies anytime soon. Nor is the Harper government. I’m anticipating dividend increases.

#162 Hillbillly on 01.23.14 at 3:27 pm

There is very little inventory in the Toronto residential RE market of single family homes (sfh), therefore undersupply relative to demand.

Interest rates are staring to decline as are the yields on Canadian government bond yields on which they are based.

Result should be a spike in sfh prices this spring in Toronto, not necessarily sustainable, but a sharp move up.

Condos a different story due to oversupply.

Please remember that governments the world over have pumped up their respective RE markets to spur demand in their economies, including Canada.

In Canada, I believe that the RE “industry” now is over 25% of the economy and certainly its largest component.

In 2008 /2009 reports indicate that the federal government was prepared provide “rescue” funding of
up to $ 200 billion to “save” Cdn banks and ‘businesses critical to the functioning of the Cdn economy’. They provided the Cdn banks with over $ 125 billion.

Do you not think that F and company will “pull out all the stops” to defend RE values by whatever means?

Authorize a higher CMHC lending limit (currently $ 600 billion), extend insurance to lower LTV loans, extend and rewrite mortgages to even 40 years, provide interst rate relief, etc?

It may or may not be effective, but if they don’t get a “soft landing” then they are darn well going to try to engineer one.

I don’t believe in soft landings in RE or any other market – never seen one, but we live in a semi-centrally planned world now where intervention in markets is a daily occurrence and distorts the usual effects of mal investment.

They intervened on the way up in the Cdn RE market, why wouldn’t they intervene on the way down?

No, Ottawa will not be accommodative to real estate. Expect the opposite. — Garth

#163 Hillbillly on 01.23.14 at 4:10 pm

Mr. Turner,

With all due respect, is not the health of the Cdn RE market a critical component of the overall Cdn economy ?

Is it not possible that the Finance Department tries to assist “overburdened” mortgaged homeowners as they did, I believe in 1981, by ‘rescuing’ CMHC when their assets were depleted?

Can you not envision a program such as extending CMHC insurance to lower LTV mortgages should TD demand payments from mortgagors who fall below their 20 % equity level?

There is precedence in Finance acting to ‘protect” both Cdn institutions and borrowers and when RE was not as large a part of the Cdn economic matrix.

I realize that you are a former Finance minister and should know of what you speak, but do you really believe that Finance will stand idly by should there be in fact a substantial decline in house pricing?

I mean, it would curtail bank income and you really can’t have that in Canada now , could you? (sarcastic).

There will be no rescue that would further enhance a real estate economy in Canada. This is a long-term death trap, and federal officials well know it. — Garth

#164 Sheane Wallace on 01.23.14 at 4:11 pm

The CA $ has depreciated 11 % against USD since the beginning of 2013 (over 4 % this year alone) and there is no inflation?

There is at least 11 % inflation on all imported goods (priced in USD) including gasoline in this timeframe.

So Poloz should go ahead and RAISE the interest rates to combat that inflation.

Australian dollar went through similar decline but their interest rates are 2.5 %, not 1%

With such negative interest rates every Canadian bond is a strong sell/dump.

#165 Hillbillly on 01.23.14 at 4:23 pm

Dear Mr. Turner,

I am in basic agreement with your thoughts regarding the future of RE and its pricing in Canada.

Given your response in posting # 163, are you suggesting that federal officials were aware of the CONSEQUENCES of their policies when they empowered CMHC to inflate the Cdn housing market to imprudent and unsustainable levels?

Or are you suggesting that we are here now as a result of their short-sighted incompetence.

If either suggestion proves true, would they not try to move to rectify the errors of their ways in some way?

To suggest that they would not act, in my mind, would to paint them as a pretty callous and dishonest lot.

Rectifying means deflating, not further inflating. — Garth

#166 Hillbillly on 01.23.14 at 4:26 pm

sorry, meant to finish with….

…. to the Cdn public who may or may not elect them based on those policies and actions / inactions?

#167 Hillbillly on 01.23.14 at 4:32 pm

Not suggesting further inflation in nominal values , not sure that is possible with a few geographic execptions.
I am talking about trying to sustain the status quo and keep prices at or near where they reside currently.
The downside with such high ownership rates, general indebtedness and loww LTV’s at the margin would spell serious discomfort, if not outright pain for a large segment of Cdn society.

Specifically recent buyerswith high LTV’s, big HELOC borrowers and retiring folks (of which some 25% still have mortgages, over 30% if you include HELOCS in the house collateralized debt).

#168 Shawn on 01.23.14 at 4:38 pm

Response at 159 and the hanged clause

The ratio is LTV – loan-to-value – not loan-to-equity. — Garth

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

Exactly and being allowed a loan of 80% of value is less retrictive than the old rule of only being allowed a loan of 75% of value.

Maximum loan to equity has increased from 3 times (75/25) to 4 times (80/20).

Invert the loan to value ratio and you get Market Value to loan which formerly had to be 1/0.75 = 133% minimum now can be as low as 1/0.8 = 125%. New clause is less restrictive as Debaucherous Donny at 137 said.

Bank moved from 33% minimum cushion for them to 25% minimum.

Other aspects of the clause I understand are more restrictive.

#169 Shawn on 01.23.14 at 4:43 pm

Maybe D Donny put it more clearly than me.

Old rule, minumum 25% equity, new rule minimum 20% equity, therefore new rule is relaxation…

Neither rule allowed any 20 or 25% reduction in market value. Both could be triggered by a 1% fall in price if you started out very close to the line.

#170 elmsley on 01.23.14 at 4:55 pm

If I have 5% down on a home, what’s stopping them from sending me a letter tomorrow for the 15% balance? Seems like they would just steal my 50K on a $1M home.

#171 :):( Ying Yang on 01.23.14 at 5:22 pm

#141 Smoking Man on 01.23.14 at 11:18 am
:):(Ying Yang on 01.22.14 at 11:48 pm
No it’s got to be chic, friendly.
This is the trick, make the guy telling to story ,moral goody goody. Make Blithe the Smoking Man.
Then you can get away with the insanity.
If the storyteller is the sleaze
bag. Bye bye to 80% of the market. Thats just dumb even if i am nuts.
Richard Large will tell the story.
Blithe Barrington, ak the smoking man will be the villan.
……………………………………………………………………….

Smoking Man new title………

Lock, Stock and Two Smoking Barrels

How about it punk, well do you feel lucky.
:):(

#172 Bill on 01.23.14 at 5:50 pm

#164 Sheane Wallace
“So Poloz should go ahead and RAISE the interest rates to combat that inflation.”
————————————————————-
I am in agreement with you, even it’s just by a 1/4 point to simply get the message about high debt across to the public. I see the disinflation point, but a 1/4 point is not going to slow down disinflation. At the very least, he should retain language that he foresees a rate hike somewhere down the road. Not a bloody drop in rates. That’s the last thing that Canada needs.

With a free fall in the $ he’s going to have inflation to deal with sooner than he thinks.

#173 Bill on 01.23.14 at 5:59 pm

I was listening to a spokesman for the Canadian retail industry today. He was saying that there will be less cross border shopping but other than that a lower Canadian $ will be a net negative for the industry.

He says what we need are policies that promote a stable $. One that might be slightly lower than parity. He was critical of the BOC for allowing a free fall in the currency to create a phantom rate cut. He is predicting bad things for the retail industry if they keep this up.

#174 Smartalox on 01.23.14 at 6:00 pm

Hmm. What about a condo that is facing a special assessment? A looming special assessment can have a very chilling effect on the values of the homes that are affected – also, CMHC will often ‘blacklist’ strata properties that face large assessments, refusing to insure mortgages on those properties until the assessments are settled.

That could be a perfect storm: a homeowner obtains a conventional mortgage on a condo property, because a year ahead of an assessment, CMHC has blacklisted the property. The assessment is then granted, causing LTV for properties in the building to drop below the 80% trigger point just as the mortgagee gets hit with a 5-figure special assessment.

Wow.

#175 AfterTheHouseSold on 01.23.14 at 6:04 pm

#104 NorthOf49
“Not as big as Bombardier but 109 job losses…”

It is the cumulative effect of these job losses, big or small, that will bring down real estate. As more and more people see their co-workers or someone in their circle of friends let go from their jobs, the chill sets in. Heightened awareness erodes confidence, tightens the belt, slows the economy and down goes the ship.

#176 Bill on 01.23.14 at 6:08 pm

Larry Berman is covering 50% of his long US $ positions. He believes that .89 is support.

#177 Retired Boomer - WI on 01.23.14 at 7:49 pm

Blythe Barrington telling the story…then lastly reveals he is A SMOKING MAN has much more power.

Superman peeling off his mask to reveal LEX LUTHER is a much more intriguing ending than just the man of steel defeating the foe. Ho-Hum seen this flick before…

#178 jess on 01.23.14 at 8:15 pm

Former Arkansas Gov. Mike Huckabee (R) said that the government shouldn’t help women who can’t control their “libido or their reproductive system” by providing co-pay-free birth control and that Democrats are encouraging women to be “victims of their gender.”

http://talkingpointsmemo.com/livewire/huckabee-dems-tell-women-they-can-t-control-their-libido

Gottfried’s bill (A5389-A/S2078-A) would create the New York Health Trust (single payer system for new york state)
http://assembly.state.ny.us/leg/?sh=printbill&bn=S02078&term=2013

nafta in hindsight
http://truth-out.org/news/item/21370-the-workers-scorecard-on-nafta

#179 tkid on 01.23.14 at 8:21 pm

I’m astonished at the number of commenters here who are frantically tap dancing around the truth: the banks are tightening up lending standards.

Old rule, minumum 25% equity, new rule minimum 20% equity, therefore new rule is relaxation…

No, no, no. You gain 5% breathing room, but when you go past that breathing room, they won’t let you lock in. Sure you can write them a big cheque to get yourself back into their good books, but it is unlikely that most homeowners will have that cash available in an economic downturn.

Ok, you’ll just put it on the credit card, or the loc, or the heloc. But in the US, they called that in on those who most needed the money (watch Frontline – Season 28 – episode “The Card Game”). Would Canadian banks do the same?

So if you can’t write the cheque, you have to sell up. And if you have to sell up because the house value has fallen, then you’re looking at selling into a bad real estate market.

#180 bill on 01.24.14 at 12:07 am

cant believe there was a bidding war.
defies description almost….
thanks for the frank appraisal Garth.
here is a music link to convalesce to: http://www.livefromdarylshouse.com/welcome.html
Daryl has a lot of great musicians drop by.

#181 thisisbs on 01.24.14 at 2:20 am

section 418 of the bank act states:
418. (1) A bank shall not make a loan in Canada on the security of residential property in Canada for the purpose of purchasing, reno- vating or improving that property, or refinance such a loan, if the amount of the loan, together with the amount then outstanding of any mort- gage having an equal or prior claim against the property, would exceed 80 per cent of the value of the property at the time of the loan.

Thus, the test of whether a loan is or is not below the prescribed threshold for cmhc insurance is define at the the point that the loan is made.

changes in the value of home during the term of the mortgage cannot trigger the 80% rule from kicking in.

if my lender sent me that letter, i would respond with, see you in court. the value of my home at this moment in time is irrelevant.

Garth: where do you see the lenders having any legal basis for this sort of action?? I mean this with an honest question, please!

#182 Tony on 01.24.14 at 4:47 am

Re: #176 Bill on 01.23.14 at 6:08 pm

Recall the long term trend line at 87 cents. The Canadian dollar has lost about 2 cents to the Aussie dollar because of our job December jobs report over the past month. I see the U.S. dollar declining in value over the next several years as they print money and increase bond purchases. Thus the flight to gold that you see right now.

#183 Debaucherous Donny on 01.24.14 at 1:28 pm

Thanks for confirming that Shawn. I was hesitant to post it, as I wasn’t sure I was interpreting things right. But if they’ve increased the trigger point to 80% equity (whether it’s LTV or LTE is beside the point) they’ve increased the slack you are allowed before pulling the trigger.

@liquidincalgary – My lips move while doing basic math too, but I usually arrive at the right answer.