The surprise

SURPRISE modified

It was a sweet package. Four acres, heritage Regency brick bungalow, meandering trout stream, barn converted into studio space, woodlot with lake view, geothermal, full reno, ninety minutes to downtown Toronto. Paul and Jan thought they’d lucked out with an undiscovered property gem. At less than $900,000 it smelled like a deal, especially since the listing price had been well over $1 million last year.

A few hard days of negotiating later, and they had an accepted offer. The elderly owners were tired after 18 months of showings, and agreed to let their baby go for $825,000.

“We were ecstatic,” Paul said. “After almost two years of looking for the perfect country property within striking distance of the GTA, we thought we’d finally found it. This place had everything – history, upgrades, energy efficiency, a lifetime supply of wood, and a dream space for my cars. Best of all, it was a bargain. We thought we’d bought 20% below the market value.”

Sadly, he and Jan hadn’t made their offer conditional on financing, or obtaining a satisfactory appraisal. They were planning on putting 20% down and getting a conventional 80% mortgage for the rest – about $660,000. But the bank had other ideas.

Two weeks after they removed their home inspection clause (“The place was almost flawless,” Paul says), the lending officer called them at home in Mississauga with the bad news. The appraised value was $630,000. Not only that, but because this was a rural property, the bank was willing to extend only 65% financing. In other words, $410,000. They’d have to find the other $415,000 elsewhere.

“We’re screwed,” Paul wrote me. “No way we can come up with that kind of money by closing – and yet we have a firm deal. What can we do? What are the options?”

So, here’s a little hunk of reality for you. While real estate boards in Toronto, Vancouver plus Calgary trot out big sales numbers and fat price increases, and the media slides back into its ‘housing boom’ mode, there’s another agenda happening at the banks. Even as these guys offer some of the lowest mortgage rates since the invention of Jell-O, they’re also preparing for what comes next – a market in which today’s buyers will be facing loan renewals at costs which could be substantially higher.

Appraisal shocks are taking place across the country, and with good reason. Bankers aren’t dweebs. They know (unlike most people who read this pathetic blog) mortgage rates will be higher later, which means house prices will be lower. After all, a SFH in 416 averages $921,127 these days for one reason only – you can borrow money, lots of it, for 3% or less. If mortgages were 6%, the value would be different. And since that’s where we’re headed, banks are moving now to ensure their exposure is contained.

Said the Bank of Canada last month: “High household debt-to-asset ratios and debt-service ratios would increase the likelihood of bankruptcy if their debt burdens become unsustainable following an increase in interest rates or if their homeowner equity was eliminated by a decline in house prices.” Exactly. And because the Big Five Canadian banks have massive exposure to the residential real estate market,despite CMHC backing, it only makes sense that they worry, too.

Now, most people don’t believe any of this. It’s the recency effect. What’s happening now, and has happened recently, is presumed to happen in the future. This is human nature at its most devious and deceptive. It’s why Americans were shocked when housing cratered there, or how Nortel shareholders felt when that iconic company imploded.

Our miserable little comment section brims with folks saying rates will never rise ‘because the government can’t afford it’, or ‘it would crash real estate,’ or ‘look at Japan.’ But all the wishing and rationalizing possible won’t change the fact global growth will resume, the US recovery will continue and higher rates are in our future.

The only real debate should be around what kind of landing we get. Will prices decrease slowly (soft landing) or with a thud (the hard version)? There’s no question in my mind that people currently buying homes in a competitive situation, or at asking prices, will not see those levels attained again for a long time. If ever.

At least, that’s what the banks’ actions are saying. They know what it’s all about. Risk.

Now, how about Paul and Jan. Can they get out of this deal, and rescue their $40,000 deposit?

Maybe, but it’s not assured. If they simply signal their intention not to close the deal, they can be sued immediately for breach of contract. If they fail to pay the amount owing on closing day, they can be sued at the time. The settlement will likely end up being the difference between the offered price and the eventual sale price, plus costs and damages. Either way, they’ll never see the deposit again.

So the better route is honesty. Approach the sellers, admit they misjudged the bank, and say they’re in distress. Ask for a mutual release, arguing it’s not in the sellers’ interests to have their property off the market in anticipation of a deal that will likely not be completed. As a last result, offer some compensation – a quarter of the deposit, for example. It would be an expensive misadventure, but a lot less consequential than fighting a suit, and losing.

The moral: if you’re buying, make it conditional on a satisfactory appraisal. It the houses passes, great. If it fails, offer less.

175 comments ↓

#1 Yogi Bear on 07.06.14 at 5:11 pm

Stories like this need more publicity. This is an expensive lesson and one this couple will never forget.

Sadly, it was also completely preventable.

#2 TurnerNation on 07.06.14 at 5:13 pm

A coiled screamer.

#3 I'm stupid on 07.06.14 at 5:16 pm

They deserve to lose their money. I wouldn’t let them off the hook. It’s a learning lesson, don’t buy what you can’t afford. You’re poorer than you think!

#4 Peter on 07.06.14 at 5:23 pm

Hi Garth ,

Why did they waive the financing clause before securing financing? Surely they had a lawyer explain why rural properties are mortgaged differently , much more volatile, than city ‘hoods, then take the time to find out how to get out of the deal, he must have read this blog before right?

#5 TRT on 07.06.14 at 5:29 pm

In person Appraisals are now usually required if you touch Genworth or Canada Guaranty for anything.

Gov only backs them for 90% of home price. So a little skin in the game finally. Gov should drop it to 80%.

#6 Vanectodal on 07.06.14 at 5:30 pm

I too can attest that lending standards have changed dramatically recently. Recently renewed mortgage with a new lender, and the proof-of-income-hoops we had to jump through were rather extraordinary, by comparison to the more, “if you can fog a mirror please take our money” approach experienced 3-4 years ago. There is a definite change in the air, the banks know what’s coming. If you want a great rate, now’s the time to lock it in, but be prepared for a thorough vetting by your chosen lender. (Which is how it should have always been), imho.

#7 TRT on 07.06.14 at 5:31 pm

5 year fixed rate mortgages renewing this Christmas will be the first in a long time to reset at higher levels.

These will be the mortgages taken out in late 2009.

3.99% by Christmas. (+1% Bond yields)

#8 Andrewski on 07.06.14 at 5:33 pm

Sage advice Garth, in a completely preventable situation.

#9 Ray Skunk on 07.06.14 at 5:36 pm

After a long all-day booze and bbq session yesterday, that toilet looks rather like mine did this morning.

#10 Happy Renting on 07.06.14 at 5:38 pm

Ugh, three hours round trip to Toronto? If they were going to commute more than once a week they’re nuts.

Could they come up with the 415k if they had more time? They could request a delay in closing (I imagine the sellers would agree, they probably don’t want to have to find new buyers and go through negotiations all over again.)

#11 Bobby on 07.06.14 at 5:41 pm

Stories like this abound. I’m always surprised when a realtor even suggests that a buyer not have any conditions that give them an out.
People always forget this is a contract. Get everything in writing for goodness sakes.

#12 bigtown on 07.06.14 at 5:43 pm

It is shocking to realize that there are people out there who have MUCH MUCH MUCH MORE MONEY than brains. Now after several decades I am able to understand that ALWAYS WITHOUT FAIL MAKE SURE THAT DEAL IS CONTINGENT ON SATISFACTORY FINANCING. The couple spent months looking for that special home and maybe five seconds on financing.

#13 Peter on 07.06.14 at 5:46 pm

Or, negotiate for a vendor take-back mortgage.

#14 Cici on 07.06.14 at 5:46 pm

Ouch! Not planning on buying (in Canada) any time soon, but thanks for the warning. So I guess being pre-approved is no protection either, because the bank can still stiff you based on the “appraisal.”

How do they determine the appraisal amount? I guess since it’s their money that they are lending, they have the ultimate power to decide…

#15 stop lying on 07.06.14 at 5:50 pm

damn, 18 months on the market and they make an unconditional offer with a 40k deposit? talk about fools.

anyways, we all know there are lenders who will get them their money so they just need to look a little harder if they want to save their 40k.

The offer was conditional on a home inspection. A deposit equal to 5% of the purchase price is common. — Garth

#16 OttawaMike on 07.06.14 at 5:54 pm

152 TurnerNation on 07.06.14 at 12:29 pm

Still awaiting the Great Reset.

– Stocks will go to zero
– Bonds will go to zero
– Fiat Currencies will go to zero.

We will conduct trade with crypto currencies and shavings from gold bars, using a handy gold bar shaving tool clipped onto our belts.
I might just have new line for sale, only $19.95 or $30 for two – plus S&H and HST. Offer not available in Quebec.

This message is brought to you and approved by
Sheane/Shawn/shane.
——————————————————
Good one Mr. Nation.
Had to repost that.

#17 Strathcona on 07.06.14 at 5:57 pm

Garth,

We’ve seen a dying bond market for several weeks now, and rising equities. It hasn’t been since 2008 since I remember bonds being sleepy and unfavorable, despite their low yields for several years. Bond velocity is nearly half of what it had been.

I follow a Harvard professor, Niall Ferguson, who has made the case that much of modern history has been decided on the bond market. I believe the underlying bond market has helped this inflated housing market along, and this will be its undoing.

#18 Dwilly on 07.06.14 at 6:05 pm

Garth, stupid question. Did the bank only deny him because he put 20 percent down (ie no cmhc)? Ie if he hadve put 5 percent down and bought cmhc insurance (so the bank is protected) would they have given him more?

There is normally no relation between the appraisal and the lender’s intentions. It is an independent process. — Garth

#19 winterpeg on 07.06.14 at 6:06 pm

So let me get this straight:
1)They offered 820,000, but the appraisal came in at almost 200,000 less? Holy….!
2)Appraisers are independent of the real estate board. correct?
Are they independent of the banks? Sort of?
I remember when I had my house appraised for the purpose of obtaining a HELOC, the bank sent me an independent appraiser. (appraisal came in lower than the value the city uses for taxation assessment (which is based on real estate values; ie recent sales of similarly priced homes)).
The banks then, know full well the “value” of what the buyer is to pay and are prepared to lend the buyer more than what the house is worth? But , they avoid this truth by knowing that they are just “the money lenders and the onus is on the buyer (and his agent and lawyer)
to do their due diligence on their end.
Seems as though no professional really has the “duty of care” to the client. (as was talked about yesterday.) Or do they?
Since it doesn’t appear to be that way, then it is buyer be very, very, very aware.

#20 Mark on 07.06.14 at 6:06 pm

“3.99% by Christmas. (+1% Bond yields)”

Bond yields aren’t going anywhere. But what will be changing is investors’ perceptions of risk in the housing loan market.

Remember, that a mortgage rate contains 2 components, the benchmark rate, and the spread.

The “spread” on residential RE loans is currently quite abnormally low. The “spread” on business/corporate loans is currently quite abnormally high. This is why we have a RE speculation, but very minimal private sector job growth sort of economy.

So I agree that mortgage rates are going up, but don’t look for the bond market to be dictating such. It will mostly be on account of the banks and other investors deciding it is more profitable to start charging higher rates on account of the higher risk, rather than the bond rates moving. This will certainly be to the benefit of bank shareholders, so make sure there’s generous exposure in your portfolio. The 1990s taught us that the Canadian banks can still go up 400%-500% in a flat/declining RE market.

#21 Sue both agents, and their brokerages, they have insurance on 07.06.14 at 6:08 pm

I’ll make one assumption here, the buyer’s agent recommended a COF, or course I could be wrong. There are no assumptions with banks and insurance companies.

The buyer could sue the buyers agent, and do a RECO complaint.

“Of course we wanted that condition! The agent said it was not necessary, that it would weaken our offer , we’re just ordinary people Your Honor, we looked to our agent for guidance (sniffle sniffle)” I would recommend a child or infant in court, as a prop.

Smart agents avoid that possibility by printing COF and COI in EVERY offer, if the buyer says “we don’t need That” they just cross it out and initial it. Agents recommendation documented.

#22 Mark on 07.06.14 at 6:13 pm

“We’ve seen a dying bond market for several weeks now, and rising equities. It hasn’t been since 2008 since I remember bonds being sleepy and unfavorable, despite their low yields for several years. Bond velocity is nearly half of what it had been.”

In Canada, a lot of it seems to be driven by risk-aversion amongst investors. Garth constantly reminds us that TFSA’s and RRSPs contain a disproportionate quantity of GICs. There are many people, particularly elderly, who have sold their houses for top dollar in places like the GTA, GVR, and have literally parked 100% of the proceeds into GICs with their local banks.

It is these GICs that actually end up being the source of funding to the new buyers.

As prices continue their decline, there will be fewer people converting their windfall gains in housing, to GICs, and hence, the cost of financing housing will increase as the quantity of funds being recycled back into the housing finance sector is diminished.

Want proof of this? At least out west here, it is quite evident that the Credit Unions are the most aggressive financiers of residential RE and of small business in the business of RE supply. Credit Unions mostly do not have access to the bond market. They’ve experienced dramatic expansion over the past decade as their elderly base of customers have been flush with housing sale proceeds and pension money. Many credit unions have invested in RE-correlated ventures like drunken sailors. I personally believe the next phase of consolidation in the Canadian banking sector will involve the significant failure of many of these credit unions. Which will eventually be swallowed into the folds of the more efficient, and far more prudent “big-5” lending institutions.

#23 gut check on 07.06.14 at 6:19 pm

“#1 Yogi Bear on 07.06.14 at 5:11 pm
Stories like this need more publicity. This is an expensive lesson and one this couple will never forget.”

True. I’ve bought and sold around 9 homes and until this last go-round I hadn’t realized that pre-approval didn’t actually mean APPROVAL. Seriously. And I’m 43, educated, and I do pay attention. During the boom times we never had a bank blink. This time, however, the bank insisted on the appraisal (and acted like they did it every time, duh, which they categorically did NOT do in the past.) We had the finance condition and the house passed the appraisal so it turned out fine, however it may not have.

In the end, the deal fell through on the inspection and we ended up renting. Still and all this pre-approval thing could have trapped us, too. We know better but not thanks to any of the experts we dealt with.

#24 Paul Andrews on 07.06.14 at 6:22 pm

this sounds very familiar, there are forces at work that are changing the game as far as mortgages are concerned the moral of the story – buyer be aware – if you are looking to purchase a property in this market you as a consumer should have the golden get out of do do clause in any and all offers of purchase and sale : This offer is subject to a acceptable appraisal and further subject to the purchaser being able to obtain a first mortgage( or as meets the situation), that is acceptable at the sole discretion of the purchaser any professional real estate agent would recommend such a clause , and as the purchaser bear in mind that a pre approval of mortgage funding is based on your ability to repay the loan, not based on what the appraisal or bank may consider when considering your loan application in short any offer should have a subject to financing clause unless you are a all cash in hand purchaser – buyer beware !!!

#25 Mark on 07.06.14 at 6:22 pm

“I remember when I had my house appraised for the purpose of obtaining a HELOC, the bank sent me an independent appraiser. (appraisal came in lower than the value the city uses for taxation assessment (which is based on real estate values; ie recent sales of similarly priced homes)).”

Assessments bear very little correlation to what a house is actually worth or would sell on the market. You are aware that assessments basically use a computer program that calculates the square footage of your house, and multiples by some local average? A house that hasn’t been updated internally for 50 years and has a lawn mostly of weeds will ‘assess’ at the same as a house that has undergone a complete interior renovation/refurbishment with immaculate landscaping.

Appraisals, OTOH, are merely one person’s opinion on what a house is ‘worth’, not even tested by the market. They should be discounted accordingly quite significantly by any prudent lender. This is one of the reasons why, at the very least, 20% down is required for a prime loan in Canada, with most lenders effectively requiring higher. Appraisal and valuation uncertainty isn’t trivial. As Canadian RE prices continue their downwards trajectory, the risk premium demanded by the lenders will continue to increase to, and even beyond more historically normal levels.

#26 gut check on 07.06.14 at 6:24 pm

“#6 Vanectodal on 07.06.14 at 5:30 pm
I too can attest that lending standards have changed dramatically recently.”

we experienced the same. It was Dramatically Different this time. Excruciating, in fact.

#27 Big English on 07.06.14 at 6:27 pm

Garth,

Was this to be their main residence or their country cottage (second home)?

Just wondering if that was any factor in the decision of the bank to further reduce its risk.

#28 Timmy on 07.06.14 at 6:29 pm

ScotiaBank is the most diversified bank with almost half of it’s revenue from overseas. TD has significant holdings in the US. What percentage of the banks profits come from residential mortgages in Canada? Probably a small percentage.

You jest. — Garth

#29 bguy1 on 07.06.14 at 6:29 pm

Is “conditional on a satisfactory appraisal” the same as “conditional on financing/mortgage approval”?

The end result may be the same, but the conditions are different. A condition on financing scares off many sellers. But remember, being pre-approved for financing does not mean the property will qualify. — Garth

#30 Ronaldo on 07.06.14 at 6:46 pm

A good example of never buying without having a property appraisal done or making it subject to financing and inspection. Hard lesson to be learned here. Hope they are successful in getting out of this deal without too much hardship.

#31 LL on 07.06.14 at 6:46 pm

I don’t understand.

In the past and even today all houses were/are sold much higher then the assessment, even trailer!

(By the way, municipality assessment are too high, it’s another money grab – tax)!

Is it new bank politic looking at the assessment before lending money?

It’s about time they come back to reality!

#32 Catalyst on 07.06.14 at 6:57 pm

Great post Garth. Condition precedents are very important and should always include some basic conditions like home inspection etc.

Where was the buyers realtor in this? Aren’t they supposed to be able to tell if their client is going to pay 200K over fair market value or which conditions they should include? This is either a couple who went it alone and is a great ad for a reason to use a realtor or they got screwed big time. If the later is applicable, hopefully the realtor is held accountable.

#33 Flawed on 07.06.14 at 7:00 pm

It’s only just begun……..to fall apart
White face lies and promises
A kiss for luck and and govt is on its way……out.
It’s only just begun.

http://armstrongeconomics.com/2014/07/06/the-6th-wave-shift-pubic-to-private/

#34 Temporary Foreign Prime Minister on 07.06.14 at 7:07 pm

“…. If mortgages were 6%, the value would be different…”
=========================

If CMHC wasn’t so pre-occupied with pumping record bank profits, the value would be MUCH lower…..”

#35 Freedom First on 07.06.14 at 7:12 pm

Great post Garth!

Recency+Making Assumptions=Getting Screwed.

Ignorance is very very expensive. Due diligence is a must, and if you can’t do it yourself, hire someone to do it yourself, as it is much cheaper than what ignorance will cost you. Garth’s post today is another example, 1 of many Garth has laid out in front of us.

I shudder at the mentality of the financially insane. The thought of taking $1,000,000, say 1 persons/families total net worth, and shoveling it into buying 1 house, at any time, let alone at the prices of the major cities RE madness taking place today, makes me cringe. I can only comprehend the $1,000,000 being in a liquid, balanced, diversified portfolio at all times as per Garth’s formula. And yet, Canadians, by the millions, have done the exact equivalent of this piling into one asset with all-in, and many of them leveraged to the hilt. Recency, RE will always go up and interest rates will never go up. Remember, the Boomers at one time thought the interest rates would never go down as they drove up the price of housing as the interest rates climbed to unbelievable highs. Many many Boomers lost everything, but a lot of people only pay attention to the Boomers who managed to hang on through the RE insanity they experienced. Fact.

#36 Irene on 07.06.14 at 7:13 pm

The buyers need to go to a lender who handles rural residential properties. It sounds as though they are using a regular lender, who will lend based only on the value of the house and 0.5 acre of the land. That’s why the appraisal came in low.

The same thing happened to our buyers when we sold (privately) our rural residential property in 2012 — the appraisal came in at less than half the selling price because most of the value was in the land and the land wasn’t being appraised. We simply advised the buyers to try other lenders and eventually they found one who would lend based on the entire value of the property.

#37 mic on 07.06.14 at 7:23 pm

#33 Flawed …”pubic” to private …a bit a proof reading please

#38 Smoking Man on 07.06.14 at 7:34 pm

When in a dispute, you need to hire the most bad ass law firm.

I had 2 flip property’s back in the early 90s bought from builder, where under construction. First flip when great, mad 45 k profit.

I noticed the market turning. Reduced price on second, a real estate agent took the bait. Firm Deal.

It was six months before build would finish. Once the agent noticed the market caving she tried to get out of it.

Said she has an autistic child, things are bad she won’t be closing.

I ask my lawyer would where biggest guns on Bay Street. That scares the crap out of mall based lawyers.

We went down to see the guy, he took notes on his tape recorder. My wife was 6 months pregnant with son 2.

When he realized this person was an agent, older trying to take advantage of these two kids he lost it.

He sent the letter from hell, to her lawyer… Basically saying she better find a new occupation, and we are comming for you.

It wasn’t the content of the letter that scared the shit out of her forcing her to close at a loss.

Her lawyer knowing the firm I hired told her, she I am deep shit now.

An easy 30k in my pocket….. And the bay Street lawyer only charged us 100 bucks.

Moral of the story, you get in shit, always go with the best.

#39 Hamish 42 on 07.06.14 at 7:35 pm

I have been following the GTA data and have recently sold a house in Oakville, to pocket the money before the downturn hits.
Have looked at the TREB data over the weekend, my assumption is that all the data is suspect except for the active listings, which can be searched. Here are the current active listings for GTA;
21569 listings in GTA on July 6th 2014.
14397 of these listings since June 6th 2014
19093 of these listings since May 6th 2014
20567 of these since April 6th 2014
Very odd that so many were listed in the last 30 days, clearly some are re-listings (price reduced so re-list). Notice that only 1000 homes have been on the market for more than 3 months, seems hard to believe, in Oakville the higher end homes are definitely sticking I have seem them stay on for > 4 months.
If the market is stuck at 7,000 homes per month of actual, completed sales (as opposed to 10,000 per month predicted sales), which would be the average for the last few years, then the inventory has increased up to 3 months supply.

#40 clos on 07.06.14 at 7:42 pm

Question to mortgage broker:

I asked a Mortgage salesman from cibc if banks can ask for an “equity top up” on renewal.
Answer:
From what I have been told, the banks can not ask for cash payment due to a decline in equity. This apparently is being reviewed by the overseer of the banking system, but it is something that would cause a lot of unnecessary defaults, so I don’t believe they would go that far.

I think they are preparing for what is coming. Why else would they out these rules in the playbook that they would “never” use.

#41 Vangrrl on 07.06.14 at 7:44 pm

On interest rate hike:
http://www.cbc.ca/news/business/interest-rates-may-see-earlier-hike-in-wake-of-strong-jobs-data-1.2695370

#42 Porsche on 07.06.14 at 7:45 pm

Remember the Friendly Giant… Look Up… Look Way Up

You probably don’t.

Anyways I work with this 26 year old kid, he’s a great kid but I swear to god…
working, eating, drinking, driving, socializing and probably intimate (haven’t seen that)…
there isn’t a minute go by without him having to look or thumb that friggen thing

https://www.youtube.com/watch?v=Nn-dD-QKYN4#t=10

#43 Nemesis on 07.06.14 at 8:06 pm

#CoiledPythons&Porcelain? #OrWhyIt’sNeverAGoodIdea. #ToEncourageNemesis’. #PenchantForRibaldry. #SubPlot:WhyRealBritishPubs. #AreSoChummy.

http://youtu.be/zJ3SpnsjfzI

#44 james on 07.06.14 at 8:19 pm

#25

“You are aware that assessments basically use a computer program that calculates the square footage of your house, and multiples by some local average? A house that hasn’t been updated internally for 50 years and has a lawn mostly of weeds will ‘assess’ at the same as a house that has undergone a complete interior renovation/refurbishment with immaculate landscaping.”

Funny, just got an appraisal two weeks ago for my home in Seattle, and it included components for landscaping and interior renovation.A lot other things besides.

#45 -=jwk=- on 07.06.14 at 8:22 pm

I but residential R/E for rental. I always get my own appraisal first. It’s $300. Seriously, you were going to spend 850,000 without knowing what the place was worth? I but 1 in 4 houses I look at, well worth the $900 I ‘waste’.

@ Mark #25
An appraisal is not just an opinion piece. You generally get 3 numbers: recent comparative properties (adjusted for size, lot size, # beds etc), replacement cost (cost to build today) and, if asked, and potential income (what it would rent for based on comparables, not realtor/seller wishful thinking.). So that gives you 3 numbers to think about.

#46 j shum on 07.06.14 at 8:25 pm

Can they not renew a mortgage based on appraisal?

JS

#47 lee on 07.06.14 at 8:27 pm

Great advice Garth. The problem is agents hate appraisals because they shed light on the process. An independent professional telling you what some house is really, really worth is not what either agent wants in this market. I wonder whether the purchaser’s agent will want his commission if the deal aborts?

#48 Smoking Man on 07.06.14 at 8:31 pm

#41 Vangrrl on 07.06.14 at 7:44 pm

Bank of Canada will not raise rates till we export more than we import, and we are creating a shit load of jobs.

Inflation that triggers rate hike on the over night rate is Wage inflation.

And when it does happen, they will let it ride for a while..

#49 Andrew Woburn on 07.06.14 at 8:32 pm

On the last house we bought, we made it subject to financing even though we were paying all cash. It is simply a safety net you should always take when making a major purchase. It just gives you that much more time for due diligence.

#50 mortgagebrokeron on 07.06.14 at 8:35 pm

#40 clos

Yes the banks reserve the right to do anything, almost all banks in Canada give the borrower breathing space….. Hypothetically, if you were to let your grass grow too long, paint your house ugly colors that is in breach of your standard terms and conditions. You are to maintain the value of your home. This is a requirement by the bank.. However rarely if ever enforced……. Most importantly if you are looking at having a mortgage with cibc or any of the other big banks, there are two things you should know. 1. They collateralize their mortgages, you can not transfer to a different bank without a fee, usually legals… 1,000 or so… 2. They also use high posted rates in calculation of the interest rate differential calculations when it comes time to break your fixed rate mortgage… we just spoke with a woman who paid $10,000 to break her mortgage with Scotia…. Use a mortgage broker instead. We have lenders that don’t do that to their clients..

#51 Fed-up on 07.06.14 at 8:37 pm

Hmmm but our “cautious” banks don’t bat an eye at approving a conventional loan for a $1,000,000+ toward a run down shit hole in Leslieville or nearly double that for a condemned crackhouse in North Vancouver.

I get it now.

#52 Fed-up on 07.06.14 at 8:43 pm

“…. If mortgages were 6%, the value would be different…”

————————————————————————

I figure since rates are so low, I should just go ahead and pay double or even triple the normal market value for everything. Cars, clothing, hardware, electronics, energy…you name it. Why not?

The essence and credo of Canadian home buying buffoons.

#53 Porsche on 07.06.14 at 8:46 pm

#48 Smoking Man

Canada has no say in interest rates, we follow.

#54 middle west on 07.06.14 at 8:46 pm

The banks are going back to their ‘old’ ways. Bought my house in 1992. Bank rep shared the full appraisal with me. it incucluded photos (meaning someone actually went there), distances to ‘nuisances’ like railway tracks (+5 kms), schools, neigbourhood conditions etc. It was quite thorough and very accurate. Get used to it, its back. Oh and you had to pay for it and then have the cost waived once the mortgage and rate was agreed to.

#55 Andrew Woburn on 07.06.14 at 8:52 pm

Our miserable little comment section brims with folks saying rates will never rise ‘because the government can’t afford it’, or ‘it would crash real estate,’ or ‘look at Japan.’
————————————————–

I’m not sure what ‘the government can’t afford it’ means any more, but it sure didn’t stop the Fed from cranking interest rates up to “n” in the 80’s. Mysteriously, the US government didn’t crumble. I don’t think it will now. If they don’t like the rules, they just change them. This is a pretty flimsy peg on which to hang a really big bet.

#56 torontorocks on 07.06.14 at 8:56 pm

Ok. So jan and dean cant get financing. Someone else an. Cascade effect?

#57 Mark on 07.06.14 at 8:58 pm

“@ Mark #25
An appraisal is not just an opinion piece. You generally get 3 numbers: recent comparative properties (adjusted for size, lot size, # beds etc), replacement cost (cost to build today) and, if asked, and potential income (what it would rent for based on comparables, not realtor/seller wishful thinking.). So that gives you 3 numbers to think about.”

Sure sounds like an opinion to me. Obviously the opinion can be bolstered by some credible evidence, but at the end of the day, appraisals are subject to uncertainty. Which is why any prudent lender discounts an appraisal accordingly.

The CMHC, of course, Canada’s most prolific subprime mortgage guarantor, does not sound like a prudent lender, and there are reams of evidence to support such.

#58 Mark on 07.06.14 at 9:04 pm

“….From what I have been told [by a mortgage broker], the banks can not ask for cash payment due to a decline in equity. “

For your sake, please find a new mortgage broker. One that preferably can read and isn’t still wearing diapers.

Not only can the bank refuse to renew a loan at any term expiration, many new loans explicitly give the bank an option, even with term financing, to demand a payment into equity, if, in the lender’s opinion, the value of the collateral has designed.

If your mortgage broker had actually read an actual mortgage contract, she/he would realize that they are incredibly one-sided documents.

Of course, on floating rate loans, if there is a significant widespread fall in house prices, lenders can simply adjust the applicable “prime rate” in most circumstances, upwards, to extract a higher risk premium.

For what the credit cycle giveth to home-borrowers in cheap credit and unearned equity, it will eventually taketh away.

#59 Andrew Woburn on 07.06.14 at 9:07 pm

I was feeling a little depressed after posting that article about an expert computer system that is running the daily maintenance program on the Hong Kong subway.

I cheered up at the thought we could eventually build an honest, competent computerised prime minister (modelled after Garth, of course). Then I read this.

Evolving Robots Learn To Lie To Each Other | Popular Science

http://www.popsci.com/scitech/article/2009-08/evolving-robots-learn-lie-hide-resources-each-other

#60 Sheane Wallace on 07.06.14 at 9:08 pm

#17 Strathcona

Yep, it is the bond market that will force interest rates up.

It seems commodity currencies are sinking slower than the rest, the sinking of currencies this will drive rates up.
How many years more could we have with 24% food inflation in the states and ZIRP… not many, not even 1…

#61 John on 07.06.14 at 9:19 pm

Looking at the recent sales in Vaughan looks like we’ve already started seeing prices retreating http://www.torontomls.net/PublicWeb/CL_CF.asp?link_no=53471001.059400&t=l&fm=M

#62 rower on 07.06.14 at 9:29 pm

We made our purchase of a 100+ year old home conditional upon financing and insurability. We didn’t do the home inspection clause as hubby is an electrician and son is a gas fitter/hvac tech and we knew what we were getting.

Insurance was dependent upon the assessed value. If the assessed value was below the amount financed, there would be no insurance extended, therefore, no house sale.

A buyer has to cover their ass and leave a way to get out of the deal.

NO house is worth an offer without conditions. I feel for the sellers.

#63 sheane wallace on 07.06.14 at 9:31 pm

#16 OttawaMike
……….
You are barking up the wrong tree.

I never said stocks will go to zero, on the contrary, I believe DOW will hit 30 k soon,

I never said anything about bitcoin as I don’t believe in it.

Yes, I said gold will go up and up it goes up lately, it will go much higher but as I said put no more than 10 % in it as the market is highly manipulated.

Fiat currencies will decline but as I said there would be no hyperinflation, high enough inflation will wipe out savers effectively anyway.

No doom and gloom at all, just reality check.
So find another tree.

#64 sheane wallace on 07.06.14 at 9:36 pm

152 TurnerNation on 07.06.14 at 12:29 pm

As it seems you are the one that needs reality check:
Never underestimate gold. It will surely be worth something/much long after you and me are gone.

#65 hawk on 07.06.14 at 9:40 pm

Offer 25% of the deposit as compensation?

They would be lucky if the entire $40,000 deposit was all that they lost and weren’t successfully sued for the difference between $825K and $630K.

I think they’d be best off asking the old couple if they can walk away with just forfeiture of deposit.

#66 Mark on 07.06.14 at 9:48 pm

“How many years more could we have with 24% food inflation in the states and ZIRP… not many, not even 1…”

Food, energy, etc., definitely will become a larger portion of the CPI basket. But RE should continue its decline. As the RE decline drives the next phase of the deflationary cycle, we could have a few more years of US ZIRP. Since we’re just at the head end of RE declines in Canada (only minor to date), low BoC policy rates could continue for quite a few more years given how much deflation is in the pipeline in Canada (or rather, isn’t in the pipeline, since we’re likely to be awash in an energy glut as the oil pipelines will take years to be built!).

#67 Mark on 07.06.14 at 9:54 pm

“Canada has no say in interest rates, we follow.”

Are you kidding? Nothing could be further from the truth.

#68 notagreaterfool on 07.06.14 at 10:03 pm

Garth : Reminder me please what your prediction is for soft vs. Hard landing in each of the top markets in Canada? Toronto, Vancouver, Calgary, Montreal. :)

#69 stop lying on 07.06.14 at 10:04 pm

The offer was conditional on a home inspection. A deposit equal to 5% of the purchase price is common. — Garth

I see. Too bad they didn’t get financing while waiting for the inspection.

5% my be common in a hot market in Toronto but for something that’s been on the market that long, no chance I would give them 5%, more like 2%.

anyways as long as banks are competing for mortgage business the way they are right now I don’t see the today’s blog being an issue if you’re buying an urban home < 1 million dollars which is still the majority of housing.

If you, as a seller, would take a 2% deposit, you’re a fool. — Garth

#70 sheane wallace on 07.06.14 at 10:05 pm

#66 Mark

The bond market for US treasuries will determine interest rates for USD, and BOC would have very little say in the Canadian rates once the US rates start going up.

Yes, it might last few years with certain tricks but I highly doubt it, specially after the signs that Europe is catching different rain. Look at the Euro well, it will thrive.

We will see much higher rates in the next 2-3 years, much higher.

#71 sheane wallace on 07.06.14 at 10:05 pm

specially after the signs that Europe is catching different train.

#72 sheane wallace on 07.06.14 at 10:09 pm

66 Mark on 07.06.14 at 9:48 pm

Food, energy, etc., definitely will become a larger portion of the CPI basket

No they won’t, it is against the rules of the game. As I have said we are witnessing a game where players participating in real economy – commodities, stocks will succeed and savers and borrowers will fail.

People on fixed income would have hard times, very hard times.

#73 rapier wit on 07.06.14 at 10:20 pm

Great column… and particularly pertinent just now. The only question that I have is how would one, a real estate lawyer, the bank, and/or Garth define a “satisfactory appraisal”?

Easy. Satisfactory to the buyer in her or her sole and absolute discretion. — Garth

#74 YVR on 07.06.14 at 10:31 pm

“The offer was conditional on a home inspection.”

Then they had an out. You can interpret the home inspection anyway you want and decide based on the inspection report you do not want the house regardless of what the inspection report says. If they lifted that subject prior to getting the appraisal and financing approved then they deserve to lose the 40K plus. Why would they lift the subjects until just before deadline? Really poor advice from the realtor.

Having said all that if the appraisal did come in 200K plus less than they were going to pay then they are better off not closing. They clearly were going to over pay. Appraisals are usually high not low and in most cases come in at exactly the selling price.

Nothing in this story makes sense.

You clearly know little about either appraisals or the incorrect wording of a home inspection clause. — Garth

#75 Country Girl on 07.06.14 at 10:34 pm

Banks won’t mortgage rural-residential acreage, only the value of the house. They can likely get a private mortgage for the full amount of house + acreage.

#76 45north on 07.06.14 at 10:41 pm

Timmy : What percentage of the banks profits come from residential mortgages in Canada? Probably a small percentage.

You jest. — Garth

pretty funny

#77 Ronaldo on 07.06.14 at 10:41 pm

Taken from the comments section of ”Road To Justice and Accountability” re: Mr. Irvin Leroux. Incredible.

”Robert Smith

22 hours ago

My name is Robert. I approached you almost 22 years ago and asked you if you could lend me enough money so I could buy a hamburger because I hadn’t eaten in two days. I was destitute and I was trying to make my way back home to Whitehorse from Vancouver. Without hesitation, you reached in your wallet and gave me, a total stranger, $200 for a meal and a bus ticket. I now live in PG and just read your story; I am sending you $500; I wish I could send more. In my eyes you are true Canadian hero.”

#78 Shawn on 07.06.14 at 10:41 pm

Get Another Appraisal

Irene at 36 said:

The buyers need to go to a lender who handles rural residential properties.

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

My thoughts exactly, a different lender, different appraisal. A personal appraisal not an automated one.

Robo-appraisals are a thing of the past. — Garth

#79 Inglorious Investor on 07.06.14 at 10:42 pm

Aside from the “buyer beware” and “due diligence” lesson embedded in this parable, Garth also touched on another very important and perhaps little understood reality: that a house is only worth what a bank is willing to lend.

It’s a good reminder about how to properly assess the real value of a property. While it’s true that the market can never be wrong about price, the market CAN be wrong about fair value.

This usually happens when an outside influence, such as government sends signals (e.g. via artificially low interest rates) that corrupt the markets, interfere with price discovery, distort values, and cause malinvestment of capital. Programs on HGTV, which amplify house horniness, don’t help either; but far be it from me to tell people how to waste their free time.

Of course the laundering/investment of foreign capital via purchases of Canadian RE is another issue, but its effects are often debated.

#80 Jon on 07.06.14 at 10:45 pm

Isn’t common practice to get an appraisal before making an offer, you can look it up online?

Appraisals and assessments are not the same. — Garth

#81 noodles '79 on 07.06.14 at 10:47 pm

Appraiser’s? You mean theres actually some of those guys lefft ,where have they been the last ten years .lf banks would have used more appraisers , there would be less morons with debt beyond their means!

#82 Musty Basement Dweller on 07.06.14 at 10:54 pm

The story in this post is a good testament to how useless the “asking price” is as a benchmark.

Real estate agents and the mainstream media still love to quote “sold over asking” it while engaging in house porn stories but it’s not worth much as a reference or statistical tool, only good for over enthusiastic vendors and real estate agents as a fantasy.

#83 Mr. Reality on 07.06.14 at 10:55 pm

The price of a home is simply the price buyers are willing to pay. In the Canadian market, the record low rates and debt binge has allowed people to be willing to pay more.

Its that simple. Now imagine what the opposite will be? Its happening right now.

Mr. R.

#84 devore on 07.06.14 at 10:55 pm

This was kinda dumb. ALWAYS make your offer conditional on financing (which will indirectly also cover appraisal), even if you’re going in with 20% down and pre-approval for more than you need, heck, even if you’re paying cash.

#85 VICTORIA TEA PARTY on 07.06.14 at 10:57 pm

LOWER HOUSING PRICES ON THE WAY…

…in other words, and according to many of your contributors this time around, St. Garth of What’s-In-Your-Empty-Wallet?

Better advice for hot and horny wannabe real estate cannon fodder (putative buyers) is to NOT line up at some primped-up sale of condos not yet built and, instead, sink your actual and borrowed loot into various Canadian chartered bank shares, or ETFs reflecting same, or closed-end mutual funds similarly reflecting our glorious banking system. At least you’ll be the screwer and not the screwee.

The possibility of some credit unions (#22 Mark) dissolving into the steely embrace of, say, RBC is just too delicious to contemplate. Let’s hope, please!

Therefore lower housing prices, nationwide, are now utterly baked into potential buyers’ cakes of foolish dreams.

It’s always the “little” things that precipitate the onslaught of the “really big shew” that quickly forms up on so many doorsteps. Wait for it.

Economist Niall Ferguson’s right about the bond market’s power. On a daily basis its clout outclasses the stock market by at least ten times in the constant movement of money destined to be invested. It must ALSO be remembered that there are only two ways to raise money in the markets: equity (stocks); debt (bonds). That’s it.

In a related matter, the central bank money printing adventures of recent years, that is a massive financial boondoggle whose eventual failure will be sinking a lot of us everywhere; a very scarey prospect. But QE’s various depredations seems to have a closer association with debt that equity, but still affects both markets mightily.

Of all recent postings, this group on this date is fascinating and wholly worth reading; some considerable brilliance! Well done all.

#86 Patient in Richmond on 07.06.14 at 10:58 pm

@#9 Classy

#87 KommyKim on 07.06.14 at 11:04 pm

Time lapsed street view pictures of Detroit from 2011-2014. You can see neighborhoods and houses deteriorate:
http://www.liveleak.com/view?i=937_1404673887

#88 devore on 07.06.14 at 11:06 pm

#31 LL

(By the way, municipality assessment are too high, it’s another money grab – tax)!

Does this have to be explained a million times before people understand? Assessed value doesn’t matter to the city. Yes, city assessments are too high, but as long as they are too high for everyone about equally, you’re not getting screwed on taxes.

Cities set a budget, and determine how much money they need to raise from property taxes. If property values fall by 50%, property tax rates will simply double.

#89 devore on 07.06.14 at 11:07 pm

#32 Catalyst

Where was the buyers realtor in this?

Probably making plans on how they’ll spend their commission check.

#90 Sunshine Coaster on 07.06.14 at 11:10 pm

MFC starting to climb. Extremely interest rate sensitive stock. This tells me that the smart $$$ is starting to take positions in anticipation of higher rates.

On the RE front, people we know of recently sold their huge beautiful acreage home and cashed out. They lucked out and got top $$$ for it. They expressed how happy they were to “get solvent”. This lasted about 6 months before they decided to buy back in again. [email protected] told them that they should take as large a mortgage as possible to “keep their investments working” and to not worry about paying off their mortgage before retirement. No problem carrying a mortgage into retirement she said. Also gave them a large Interest-Only LOC to cover the renos that they want to do.

Insane. These people had gone from having no cash to having it made, to having a massive leveraged exposure where they are at much more risk than they were before. All on the say so of [email protected]

I learned early in my life that the if banker offers to take you for lunch it’s important to remember that she’s also just a few hours away from having you for dinner.

#91 Family Fun! on 07.06.14 at 11:16 pm

My kid sister has found a way to work around all of these problems! Get daddy-boo to buy you a house! Great scot, I have no idea how he can afford it, retired and all, but he did it! So if anything goes wrong there he looses his house too! Yay, family is so great!

The best idea I can give anyone who finds themselves in a position to be independent is to divorce your family as soon as you are able. But don’t do it the way I did, by pointing out what a bunch of lazy leaches they were and that they should get jobs and stop living off dad and mom in their 30’s and no I am not giving them any more money either. That way didn’t go over well. Instead, I would recommend trying to just fade from sight. That way weddings and funerals aren’t as awkward and you don’t have a hater’s club hoping you slip up and fall down so they can kick you.

But anyway that is a bit off topic. My point is that true to the post today many people are begging, borrowing, and stealing to live the life they think they are “entitled” to. Yes, they really think they are entitled to a certain lifestyle. The money doesn’t matter, that’s a worry for another day. And if the bank has to take a loss, friends don’t get repaid, or dad has to forgo his retirement plans, oh well. “I deserve it” is the rallying call.

#92 Cici on 07.06.14 at 11:19 pm

#28 Timmy,

Just in case you didn’t notice, Bank of Nova Scotia was recently downgraded due to emerging-market exposure:

https://www.moodys.com/research/Moodys-changes-outlook-on-Bank-of-Nova-Scotia-to-negative–PR_301578

#93 Tony on 07.06.14 at 11:21 pm

Re: #3 I’m stupid on 07.06.14 at 5:16 pm

Either way they’re going to lose money, that cottage was probably less than $40,000.00 30 years ago. Safe to say the value of the property will fall well below half a million dollars in the near future. If the cottage was in another province it might still sell for around $40,000.00 today. The best thing to do is sell the house in Mississauga before it tanks in price and lose the deposit money on the cottage. Mississauga is next-door to a city that could lose 70 percent plus, that being Brampton.

#94 Mark on 07.06.14 at 11:32 pm

“BOC would have very little say in the Canadian rates once the US rates start going up.”

Disagree. The BoC acts on the condition of the domestic economy, namely, whether the 2% inflation target is being met or not. There are numerous scenarios possible in which the USA experiences significant inflation requiring a FOMC policy response, but Canada experiences a continuation of the current no inflation and even moderate deflationary environment.

As the data tells us, there’s a lot of housing-led deflation in Canada’s future, but a significantly reduced amount of such in the USA since they’ve already 6-8 years into the decline phase.

I personally believe the BoC is going to have a major fight on its hands in actually lowering rates and keeping policy adequately stimulatory in the next few years as the USD$ continues its long-term secular decline, while CAD$ continues the resumption of its ascent. This will keep the relative cost of capital in Canada quite cheap historically speaking, after many decades of an abnormally expensive cost of capital. Fun times ahead in Canada, unless you’re married to an over-leveraged boat anchor of a house and have no money to play with!

#95 Tiger on 07.06.14 at 11:32 pm

Burk mountain , Coquitlam British Columbia ! Did a tour today absolutely streets were bare, no biding wars here
Loads of sfh for sale , and loads of condos as well!
and there still building like crazy , high rises steel in the air so rusted I guess it makes for a better product!
I sold now rent it’s fun to watch the fire works unfolding from the 21 floor oh my land lord is onni dev corp I think! But they say that the purchaser of this condo had to relocate to a nother province due to work funny thing is the realtor that’s selling other units in this build say the same thing owner had to move for reasons undisclosed, there selling the remainder units on the sly
All the poor effers that bought here are dun, as well if you bought 8 years ago your dun at least most of you sheep

#96 The Man From Nantucket on 07.06.14 at 11:41 pm

#13 Peter on 07.06.14 at 5:46 pm
Or, negotiate for a vendor take-back mortgage.

I think you’d need to find an imaginative lawyer to make one of these happen at terms that benefit the sellers.

Wonder if Lionel Hutz has any brothers.

#97 AACI home-dog on 07.06.14 at 11:44 pm

Low appraisal likely because bank did not want any outbuildings included in the appraised value. Ask first, when you apply for the $$$…

#98 AACI home-dog on 07.06.14 at 11:47 pm

Plus, the bank probably wants ‘no surplus acreage included’ in the appraisal.

#99 Tony on 07.06.14 at 11:58 pm

Re: #33 Flawed on 07.06.14 at 7:00 pm

More than likely the opposite will happen with tariffs making a comeback.

#100 Tony on 07.07.14 at 12:07 am

Re: #41 Vangrrl on 07.06.14 at 7:44 pm

Dream on, wait for the jobs report up in Canada for June 2014 (big job loses) and of course the downward revision in America to a shade over 200 thousand. Rates will turn negative in America as the real estate market takes the second leg downward.

#101 screwed on 07.07.14 at 12:10 am

Ugh, here we go again. Scaremonger Garth at his finest.

Rates won’t go anywhere, folks. If anything, rates go down further to NIRP territory.

Garth, if you’re so sure to dismiss all the “dweebs” telling people that rates won’t go up, why don’t you make a case as to why rates could go up?

Please make a solid argument for what comes next and not some mantra that rates have “nowhere to go up”.

My mortgage is 200,000. I have 250,000 in cash savings and stocks. Give me higher rates already. Pffffffft won’t happen! I’m nervous to hold this much in paper wealth! As should everyone else! The only logical move is lower rates and confiscation. So where does the rational person stuff the money if not in the mattress? PMs, land and other tangibles. Don’t give me this “rates will surely go up” balloney. They won’t, not in my lifetime and I’m barely 50.

#102 Haiku Harry on 07.07.14 at 12:18 am

Eleven coiler
herpetologist special.
Cold slitherin’ dump.

#103 screwed on 07.07.14 at 12:22 am

Residential mortgages are the lifeblood of Canadian banks.

If rates go up, the banks are killing the goose that lays their golden eggs.

Do you really want to hold “dividend paying” bank shares at a time when rates rise and bank’s balance sheets go in the crapper?

Lower home values are the kiss of death to the banks’ balance sheets. There’s no adjustment entry for that, only writeoffs and lower assets. Collateral goes in the crapper, banks are overexposed and BOOM goes the dynamite. Ottawa will probably have to step in and rescue the banks.

Seriously, Garth? You don’t think that the wise men at BoC et al have figured this out and want to avoid a RE correction at any cost?

And please stop badgering us with the US recovery story. It’s NOT entertaining to read the propaganda. Are you just a mouthpiece of the US.gov? There is NO recovery of sorts. People have no money, period.

#104 Lurcher on 07.07.14 at 12:29 am

Appraisals in BC take into consideration renovations based on recent city/municipal building permits.

#105 SHELTER THE MONEY NOT THE PEOPLE on 07.07.14 at 12:34 am

#51 Fed-up on 07.06.14 at 8:37 pm

Hmmm but our “cautious” banks don’t bat an eye at approving a conventional loan for a $1,000,000+ toward a run down shit hole in Leslieville or nearly double that for a condemned crackhouse in North Vancouver. I get it now.
_____________________________________________Yea.. Just like us small business people who create most of the jobs.
We can’t get a loan so we use our credit cards at 20%.

#106 Rabbit One on 07.07.14 at 12:35 am

Appraisal and Inspection, Pre-approval and firm approval are all different.

Appraisal for mortgage financing is sent by banks.
As a buyer, you can also hire independent appraiser.
Appraisal is also done for tax purposes, Estate filing, etc.

Home inspection is done by inspectors for the buyers.
Their job is to find any defects and assess the life of the major structures.
Inspectors referred by buyer’s agents are often too easy to go ahead with “greem light” for purchase.
You can also hire independent inspectors if you wish.
Inspection is not to do with financing.

Pre-approval is done merely by income, downpayment, credit history of the potential borrower.
Pre-approval has a clause = subject to satisfactory appraisal

Firm approval is granted after satisfactory appraisal, type of property, and firm offer of purchase / sale with all condition removed.
Plus if your downpayment comes from other property sale proceed, firm purchase / sale of the subject property.

#107 Mark on 07.07.14 at 12:37 am

“MFC starting to climb. Extremely interest rate sensitive stock. “

Really? MFC seems to be a leveraged play on the TSX, more than anything. The TSX has risen, MFC has written a lot of annuity products and principal guarantees that are tied to the TSX, so obviously MFC does well.

But rising rates, generally speaking, are horrific for companies in the insurance business who tend to be loaded up with portfolios of long-term bonds.

#108 Rabbit One on 07.07.14 at 12:37 am

Someone above already mentioned, but how this person ended up with no financing condition?
They were not in bidding war on this deal.

>A few hard days of negotiating later

Maybe caught by real estate agents’ drama theatre?
“Congrats! Now it’s yours! “

#109 Rabbit One on 07.07.14 at 12:43 am

Home inspectors are often not liable if they cannot find major defects which discovered right after the house purchase.
Their reports have very long clause saing their job cannot be perfect.
For this situation, buyers have very little chance to pursue compensation from Inspectors, but best way is to claim through home owner insurance.
(Premiums will be up immediately)

#110 Ayn Rand Army on 07.07.14 at 12:47 am

#172 raider on 07.06.14 at 8:44 pm

“I also asked him what advice he had for anyone who feels they been unfairly targeted or penalized by Canada Revenue Agency.”

Well, the sort of ‘Garth’ for that particular problem:
http://alexdoulis.com/

Maybe they should pair up :)
—–
Thanks for that raider. That’s what i need too. Take money and run is right.

#111 juno on 07.07.14 at 1:51 am

Just like a chess game. You don’t send a single man out to fight the enermies army. You need backup and support on every move.

They will get what they deserve, you can’t be stupid in the game of life. After all its only money. 40G is chump change. You made the mistake live and learn and get on with life

#112 Questions on 07.07.14 at 1:55 am

This happened. There. This is not happening en masse. It won’t until it’s obvious and publicly irresponsible for banks to do so. Financial institutions throw down big money to forecast and manage risk, and the conclusions seem to be that it’s much more profitable to not be prudent as they approach an inflection point. All that would get them is a few brownie points at the “too big to fail” hearings, and a huge market share loss as the others go full steam ahead. And that is the problem. When you can fail, and you’re good at running your finances, then you always question the changes, whether it’s positive or negative.

#113 Smoking Man on 07.07.14 at 6:38 am

#53 Porsche on 07.06.14 at 8:46 pm

#48 Smoking Man

Canada has no say in interest rates, we follow.

……
We are but a small shit hole of a country, our dollar don’t enjoy reserve status..

We need to export more than we import or we die a quick death.

The CAD dollar is on fire, job growth week, in fact IMF just cut their global out look on growth.

Prozac talk ain’t working… He’s going to cut the overnight rate to slay our dollar…

Just watch and lean grasshopper…

#114 TO Renter on 07.07.14 at 6:51 am

Sold this Spring in Toronto, in Kathleen Wynn’s riding at list, in a day. Very desirable location, established premier hood, it was far from a feeding frenzy, we priced fairly.

Buyer’s financier sent his own appraiser over, most thorough I have seen. Then weeks later they call to get access to the property again with an independent consultant to do another appraisal, this one even more thorough.

It may be imperceptible to some, but when you have your ears to the ground you can sense the shift…

Terribly curious to know what number they came up with in a mad bubbly market. Wish the new buyer well.

#115 The real Kip on 07.07.14 at 7:48 am

Did they go to a bank in Mississauga for the money? If yes, they should go to a local bank near the property and likely get a much better reception.

I have some Newfie friends who live in Scarborough. They want to return to the to The Rock, found a house, failed to get financing in Toronto. They went to a local bank in Newfoundland and got everything they wanted, no problem.

#116 maxx on 07.07.14 at 8:27 am

In the current RE climate of angry red dots, just try and back out of a deal.

Once upon a time, for the most part, no one even raised an eyebrow- change of heart, cold feet, short on funds, blah, blah, blah…..

Today, most WILL have to pay to back out. At very minimum, even if the sellers do let you off the hook, most offers to purchase contain a clause which obliges the buyer to pay realtard commission if you back out of an accepted offer….and today, no way are realtards going to toast their commissions.

Recency is a huge financial gamble with long-term consequences and Garth is right- banks never take their eyes off of the risk ball. Ever. Unlike the average joe with access to cheap and ultimately, grossly misspent money.

#117 liquidincalgary on 07.07.14 at 8:49 am

that has amazing similarities to the ‘spine rattler’ i dropped this morning :)

#118 Sam Grantin on 07.07.14 at 8:52 am

Housing market is a ‘crapshoot’

http://money.cnn.com/2014/07/07/investing/housing-market-case/index.html?iid=Lead

The housing market is a “crapshoot” now, according to one of America’s leading real estate experts
Karl “Chip” Case is an economist whose name is synonymous with home prices. He is co-creator of the much watched S&P/Case-Shiller home price indexes with Bob Shiller, who won the Nobel Prize in economics last year

“I think it’s because people got hosed. They thought that housing prices will never go down. That’s just bull — you know what.”

He calls the real estate market “segmented” these days. It’s no longer a guarantee that housing prices will go up across the country. That only happens in some places at some times.

The demand side of the equation will also be key. Will millennials actually purchase homes? Will foreign buyers keep coming?

“The Chinese are coming over here with millions and billions of dollars, and they want to spend it on assets that tend to hold their value. And at least the theory is that housing does. But it is far from what it was in 2004,” Case notes.

The advice Case gives to first-time homebuyers is familiar to most. Be sure you can afford the house and don’t expect a quick profit.

“If you’re not buying it for the long haul, don’t buy because there’s a good chance you’ll have to sit through some down cycles. But when it goes, it’s very nice,” he says.

#119 LL on 07.07.14 at 9:09 am

….”Cities set a budget, and determine how much money they need to raise from property taxes. If property values fall by 50%, property tax rates will simply double”….

Ya right…they also calculate how much money they need to vote their salaries. In some small municipalities, annual salary is 100K +!

They are just municipality employees….

#120 LP on 07.07.14 at 9:13 am

#77 Ronaldo on 07.06.14 at 10:41 pm
Taken from the comments section of ”Road To Justice and Accountability” re: Mr. Irvin Leroux. Incredible.

”Robert Smith

22 hours ago

My name is Robert. I approached you almost 22 years ago and asked you if you could lend me enough money so I could buy a hamburger because I hadn’t eaten in two days. I was destitute and I was trying to make my way back home to Whitehorse from Vancouver. Without hesitation, you reached in your wallet and gave me, a total stranger, $200 for a meal and a bus ticket. I now live in PG and just read your story; I am sending you $500; I wish I could send more. In my eyes you are true Canadian hero.”
*******************************
What goes around, comes around. How wonderful that Robert can pay back in this way. Good on him!

#121 Captain Sensible on 07.07.14 at 9:39 am

Paul, the potential buyer, should contact Harold the Jewellery Buyer for a second mortgage.

http://haroldjewellerybuyer.ca/

#122 dontcallmeshirley on 07.07.14 at 10:08 am

“Appraisal shocks are taking place across the country…”

Just hearsay, or is there a credible source for this statement?

Read the comments. — Garth

#123 eddy on 07.07.14 at 10:08 am

Buyer’s agent looks negligent.

‘we have the money or we’re pre approved’
is not enough, when you say to the bank ‘we have the money’ the bank says ‘prove it, provided statements’
Even if these folks are pre approved it ‘s not enough for the agent to let them go in firm
has anyone even read a banks pre approval?
it’s a meaningless document, it is not in any way a guarantee of financing, it just another perversion of the English language to confuse people, these are the people who call it a ‘bonus’ when they charge discharge fees on a mortgage, it’s a bonus, for them

#124 liquidincalgary on 07.07.14 at 10:44 am

on the Euro…

no currency union can survive WITHOUT a monetary union

#125 liquidincalgary on 07.07.14 at 10:54 am

have to agree with SM @ #113

#126 WhiteKat on 07.07.14 at 10:55 am

@Setting The Record Straight re: #128 from yesterday

You asked: “Assuming the Alliance wins it’s challenge, what happens to dividends paid to Canadians from U.S. Stocks, and U.S. etfs? What about ADRS?
Canadian based ETFs investing in US stocks?
What would happen when you sell a ?US asset such as a stock holding?”

I appreciate your question, and posed it to one of my isaacbrocksociety friends. Here is his answer:

The banks and perhaps a few individual investors are willing to sell out certain Canadian citizens in order to protect their investments from US government theft. Theft of profits or companies in investment is called “sovereign risk”. If you buy a gold mine in Venezuela and the government of Venezuela seizes it, you made a bad investment from the stand point of sovereign risk. Who pays for those kinds of mistakes? The fund manager gets fired, the individual investor loses his investment.

Now the US with FATCA has become a bad sovereign risk, but the banks want to shift the risk to the US persons in Canada, etc. But what they are doing is selling the innocent for money. This has been recognized as wrong for millenia. See:

http://isaacbrocksociety.ca/2012/12/27/human-rights-trump-money-why-we-must-say-no-to-fatca/

#127 liquidincalgary on 07.07.14 at 10:59 am

i misspoke @122

no monetary union can survive WITHOUT an economic union.

they share a currency, but have differing economic targets

#128 };-) aka Devil's Advocate on 07.07.14 at 11:02 am

Don’t run with scissors

and

SHIFT happens.

};-)

#129 Mark on 07.07.14 at 11:10 am

“Lower home values are the kiss of death to the banks’ balance sheets. There’s no adjustment entry for that, only writeoffs and lower assets. Collateral goes in the crapper, banks are overexposed and BOOM goes the dynamite. Ottawa will probably have to step in and rescue the banks.”

You couldn’t be any more wrong about this. The value of the bank’s assets, the mortgages, is protected in full by the CMHC to the tune of nearly $1T worth of CMHC subprime mortgage insurance. The CMHC paying on its legal obligations is not “Ottawa stepping in and rescuing the banks”. Higher rates are great for the income statement and balance sheets of Canadian banks.

#130 Calgary Rip Off on 07.07.14 at 11:38 am

This attempt to find security among housing. There is none. Ever.

For everything there are positives and negatives.

In light of this story, these buyers in Toronto who are now severely overextended wont have to worry about anything when they are dead. When you are dead it is final.

I have ideas in place that protect me mentally should things go badly in the financial sector:

1)I am not in prison. I have my freedom and Im not willing to trade that freedom for any degree of doing anything. Given that modern society is forced domestication(you cant shoot people you dont like or tell your boss what you really think)a person is forced to go along with things, in essence lie, and that is just reality to get along in society. So I go along with things. Being dead, in prison, or homeless to me are not options, although the first option is eventually inevitable.

2)I have board games I can play anytime, anywhere. Chess books are widely available and you can obtain chess boards at the dollar store to review games. What a deal!

3)I can exercise anywhere. Pushups, situps, one legged pistol squats, a person can go at it anywhere. So if a bus falls out of the sky on my bank owned house I can exercise somewhere and stay in shape.

4)I can play guitar anywhere. Guitars are cheap. Get one and get a metronome and make up stuff that pleases you-no radio required-its all about you.

5)I blame the worlds problems on everyone else. Im not responsible. I have seen the Prince of this Planet and he is the prince of darkness. There are many levels of Hell on this planet. I prefer to keep myself away.

6)I have done menial labour jobs happily. I consider that I still have drinkable water and edible food. I dont have to worry about turning on the tapwater and getting sick from some funky disease.

This post of these wealthy buyers reminds me distinctly that money doesnt buy intelligence. I would rather be dead than be some of these rich people with their deception and lies. Its like all those @ holes on the entertainment tonight shows and e talk that are on these tv shows-the majority of those people are a waste of space. In fact I would rather be myself. Be yourself or be dead. Who else will you be?

#131 TurnerNation on 07.07.14 at 11:43 am

#16 OttawaMike

And any action from the government will only be punishing shavers.

#132 Dupcheck on 07.07.14 at 12:05 pm

Try another bank.

#133 kommykim on 07.07.14 at 12:07 pm

RE:#131 TurnerNation on 07.07.14 at 11:43 am
#16 OttawaMike
And any action from the government will only be punishing shavers

I think Mike was talking about the Canadian government and not the Brazillian.

#134 Rational Optimist on 07.07.14 at 12:19 pm

131 TurnerNation on 07.07.14 at 11:43 am

“And any action from the government will only be punishing shavers.”

Are you talking about if Mulcair manages to seize power somehow? I won’t soon give up my inalienable right to go beardless, I can tell you this much.

#135 Setting the Record Straight on 07.07.14 at 12:30 pm

@WhiteKat #126

I understand your position and think you folks have a good case. ( speaking as a non lawyer)

My concern is more restricted. As a non- US person, I am just trying to figure out what happens to my dividends generated by US stocks if you are successful? What happens if I sell? Does the US government take 30 percent?

What about Canadian domiciled Etfs with US assets?

What about ADRS?

I suppose the Canadian government could use the not withstanding clause if the government loses.

On the other hand, I assume your group will be asking for an injunction to prevent such data from flowing to the US until the issue has been litigated.

#136 Aggregator on 07.07.14 at 12:34 pm

#92 Cici – Just in case you didn’t notice, Bank of Nova Scotia was recently downgraded due to emerging-market exposure

That's what happens when the Big Five fund Canadian mortgages with PIIGS interest rate swaps. All it takes is one wrong move in European bond yields and the party is over for Canadian banks.

But don't worry. Mario "whatever it takes" Draghi will fix everything with QE.

#137 Inglorious Investor on 07.07.14 at 12:38 pm

#129 Mark on 07.07.14 at 11:10 am

“Higher rates are great for the income statement and balance sheets of Canadian banks.”

It’s not so much the rates per se, but the spread.

#138 screwed on 07.07.14 at 12:59 pm

You couldn’t be any more wrong about this. The value of the bank’s assets, the mortgages, is protected in full by the CMHC to the tune of nearly $1T worth of CMHC subprime mortgage insurance. The CMHC paying on its legal obligations is not “Ottawa stepping in and rescuing the banks”. Higher rates are great for the income statement and balance sheets of Canadian banks.

Mark, they tried this elsewhere and couldn’t keep up. Defaults and haircuts ensued. Canada is no different in that. CMHC has a direct line to the Finance Ministry.

They can absorb smaller hiccups but they couldn’t deal with a potential multi billion Dollar payout.

Current target date for rising US rates is mid 2015. Mid term elections this fall coming up. Everything is bubbly and the Fed has supposedly reduced stimulus but so far “Mr. Market” is shrugging it off.

We have seen this movie before.

#139 rosie "moving forward" in the knowledge that, "this won't end well" on 07.07.14 at 1:28 pm

Whatever happens, keep that stuff. It came in handy for this dynamic couple.

http://www.tampabay.com/news/business/realestate/human-props-stay-in-luxury-homes-but-live-like-ghosts/2187417

#140 takla on 07.07.14 at 1:38 pm

re#95….Anyone buying an Onni hi-rise condo unit is setting themselves up for a fall,Cheapest/most substandard builder ive encountered in my 38 yrs in construction.I speak from experience having worked on their numerous projects the last 15 yrs.Sup par materials and trademen,Lowest quotes accepted with unrealistic building completions pushed continuously
translateing in a sub par product.They will be the first to drop prices to push product out the door as was witnessed in 08 with their condo firesales

#141 hamish42 on 07.07.14 at 1:51 pm

3 Appraisals
The home I sold last month in Oakville was sold to buyers with an unconditional offer, which I was happy to accept, they wanted to trump another offer. But the house was large, 4 beds, pool etc. so I was surprised they had no inspection. They then sent round three different appraisers to value the house over the next few weeks which I thought was odd, since we had had it appraised 18 months prior to the sale in order to take out a HELOC, that appraisal was only 50 K below the selling price.
Can we conclude that banks are starting to price in a price reduction?

#142 Mr Zipper on 07.07.14 at 1:57 pm

The agents will collect the full commission….that’s written in stone. No way will they forego $25,125.00. The agency rule is ‘always collect a deposit equal to or greater than your commission”……and guess who’s holding the deposit….that’s right….the agency. So kiss the first $25,000 good bye that goes to the agent.

You’re right….removal of all subjects was a big mistake…..writing an all cash deal was obviously the worst advice from the agent they could have possibly received……but the agent smelled a fat commission….and the buyers were obvious ripe for the picking for not getting legal advice on such a large purchase.

But..thats just the beginning of the bad news….they are in breach of contract by even threatening not to close. The seller is in no way obligated to settle…why should they? And yes….they will lose the case….and will be forced to pay the sellers legal costs as there is no question that they brought the challenge without merit or standing. Being stupid is no defense.

The bonehead buyer has plenty of options for alternative financing…..there are plenty of second tier lenders who’ll line up to finance this deal…..at much higher then market rates…of course….and every judge knows it… a few may even follow the case after being tipped off by the sellers lawyers that a fat fish is squirming on the hook.

In all likelihood this deal will breal them down financially for many years…such is life…..the lesson here for everyone…never trust a realtor. For $150.00 or less they could have gone to a lawyer and avoided the whole mess in the first place.

#143 WhiteKat on 07.07.14 at 2:00 pm

@Setting The Record Straight #135

I am going to ask someone else your specific questions re: your dividends, etc, but to generalize, FATCA does not disappear from the USA’s perspective if the Canadian legislation that implements this American law in Canada, is deemed unconstitutional, or if there is an injunction. This puts Canadian financial institutions in a lose-lose situation – they must either break Canadian law or break American law. The whole point of the IGA was to allow the banks to violate Canadian privacy laws and Charter Rights legally.

The other side of the coin is how will USA react if the IGA legislation is struck down, and Canadian banks choose to obey Canadian laws rather than American laws? Will the bully to our south actually withhold 30% from US passthrough payments, and risk the global financial fallout from that? Many people who are more knowledgeable than me think not.

#144 Ogopogo on 07.07.14 at 2:08 pm

#128 };-) aka Devil’s Advocate on 07.07.14 at 11:02 am
Don’t run with scissors

and

SHIFT happens.

};-)

Your faux meme is about as clichéd as everything else you spew here.

How about commenting on the desperate situation of many Kelowna home would-be sellers. This is how the CMHC report puts it, with characteristic realtor-speak:

“Buyers will continue to benefit from an ample supply of listings and price competition among sellers”. It doesn’t take a genius to read between the lines. Translation: “Sellers will continue to suffer due to an oversupply of listings and desperation among sellers”.

I’m lovin’ it!

#145 WhiteKat on 07.07.14 at 2:15 pm

@Setting The Record Straight #135

I hear the sucking sound now (actually for awhile now), of investments leaving the US economy.

#146 GBayBoater on 07.07.14 at 2:18 pm

#123 Eddy

In what universe does a buyers agent have the buyers best interests at heart? I learned the hard way that buyers agents will say anything to get their cut of the commission. There may be some honourable ones out there, but I trust no one.
As far as I am concerned the only thing they are good for is a free taxi service and getting into houses to view them. After that you are on your own, and any offer should be run past your lawyer before being presented. It’s no trouble for the lawyers as I think most would rather see you avoid a problem than have to dig you out.

#147 Flawed on 07.07.14 at 2:20 pm

#63 sheane wallace on 07.06.14 at 9:31 pm
#16 OttawaMike
……….
You are barking up the wrong tree.

I never said stocks will go to zero, on the contrary, I believe DOW will hit 30 k soon,

I never said anything about bitcoin as I don’t believe in it.

Yes, I said gold will go up and up it goes up lately, it will go much higher but as I said put no more than 10 % in it as the market is highly manipulated.

Fiat currencies will decline but as I said there would be no hyperinflation, high enough inflation will wipe out savers effectively anyway.

No doom and gloom at all, just reality check.
So find another tree.

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

I agree entirely except I do think Bitcoin will replace sovereign hierarchical currencies for the very reasons you have stated here. Corruption and co-option. That is impossible with Bitcoin and every month more and more govts and companies are accepting it. Its only a matter of time.

How can anyone possibly believe an unregulated, rogue, volatile medium of exchange will morph into a currency? — Garth

#148 shawn on 07.07.14 at 2:21 pm

Banks will Benefit from higher rates:

Inglorious Investor responded to Mark as follows:

#129 Mark on 07.07.14 at 11:10 am

“Higher rates are great for the income statement and balance sheets of Canadian banks.”

It’s not so much the rates per se, but the spread.

*******************************************
True it is the spread that matters. But banks have a lot of deposits that are basically receing zero interest rate. They have hit the lower bound.

In this case Spreads WILL go uo with higher interest rates. Banks will benefit.

Sometimes investing is a bit like the question why rob a bank? “Because that’s where the money is”

Perhaps same answer for why own bank shares.

Investing is simple but not easy (Warren Buffett)

#149 eddy on 07.07.14 at 2:47 pm

While the agents mission is commission, no closing means no payday

#150 Mike T. on 07.07.14 at 2:58 pm

‘How can anyone possibly believe an unregulated, rogue, volatile medium of exchange will morph into a currency? — Garth’

willful ignorance, but you knew that

it is the same reason people believe the Earth was flat when they could clearly see a round sun, round moon etc

the dis-info folks have us figured out

#151 WhiteKat on 07.07.14 at 3:05 pm

@Setting The Record Straight,

My investor friend (ex-‘US person’) gives the following advice:

He should sell his direct and indirect US investments before we win the lawsuit to reduce his US sovereign risk.

US investments will eventually drop greatly in value due to the collapse of the US dollar as the world reserve currency. US is bad investment either case. He can count himself lucky to have done so well in the last few years because of the Federal Reserve propping up the US stock market.

#152 Ralph Cramdown on 07.07.14 at 3:07 pm

#142 Mr Zipper — “But..thats just the beginning of the bad news….they are in breach of contract by even threatening not to close. The seller is in no way obligated to settle…why should they? And yes….they will lose the case….and will be forced to pay the sellers legal costs as there is no question that they brought the challenge without merit or standing. Being stupid is no defense.”

You’re funny. One day maybe you’ll take your own advice, stand on your rights and get taken to the cleaners by your own lawyer. Then you’ll get a rude awakening when the Judge hands down the costs award and your lawyer explains it to you. Then you’ll understand why people settle.

#153 Son of Ponzi on 07.07.14 at 3:17 pm

#148
*******************************************
True it is the spread that matters. But banks have a lot of deposits that are basically receing zero interest rate. They have hit the lower bound.

In this case Spreads WILL go uo with higher interest rates. Banks will benefit.
————–
Banks usually manage their interest rate risk though rate swaps.
So their spreads are locked in.

#154 Aggregator on 07.07.14 at 3:18 pm

#147 Flawed – I do think Bitcoin will replace sovereign hierarchical currencies

I fully agree. The cryptocurrency genie is already out of the bottle, but it will take years before the general public gets involved. And those who say don't buy it because it's too volatile are banks or investment companies who can't earn a commission off it, or, are the same folks who missed Apple's stock when it was swinging from $11 to $7 back to $11 decades ago.

Innovative marketable ideas in a rising trend is where you always want a portion of your assets before the public begins to particpate. As new ideas come to fruition, old ones die. Innovation won't drive Apple stock in 2014

#155 Entrepreneur on 07.07.14 at 3:49 pm

I look at it this way…another buyer that is burned by their real estate agent and cannot be part of the economy. How many more are being burned by the system; the couple should be protected automatically by the system, not ruin them. Look what happened to Irvin Leroux; another example of backward thinking. Let’s get him attitude. That backward attitude by our system has to stop for the economy to move on. Just think, 18 years of Irvin Leroux life destroyed, 18 years of productivity lost, 18 years of not able to part of the economy. Was that intelligent? Time to revamp the system.

#156 Big Brother on 07.07.14 at 4:15 pm

Smoking Man we were your lawyers too. Smoking Man at his Casino all weekend drinking and Smoking with his peeps!

#157 Dean Mason on 07.07.14 at 4:28 pm

I would not be surprised to see over the next 16 to 22 months, $1.75 to $2.00 a liter gas and high peak Canadian real estate prices combined with much higher food, water, heat, electricity prices all conspiring to crash stock indices and real estate by at least 25% to 35%.

Look what happened in 2007 to 2008 which about 90% of people learned the hard way.

History is just going to repeat itself but just with a different beat.

It looks like this time will be worse and bond yields will be lower as well. Happy 2015 to 2016!

#158 Blacksheep on 07.07.14 at 4:30 pm

“How can anyone possibly believe an unregulated, rogue, volatile medium of exchange will morph into a currency? — Garth”
—————————————————-
Talk about your old systemic guard.

Technology is often, a double edged sword.

Governments initially allowed electronic $ to facilitate the eventual tracking of every buck handled, but may rue the day was it ever created, as the technology has clearly morphed into a veritable Pandora’s box in regards to non traceable exchange.

Don’t give a rat’s ass about Bitcoin, just an observation.

#159 Smoking Man on 07.07.14 at 4:44 pm

#156 Big Brother on 07.07.14 at 4:15 pm

You made it into my book.. Had to for such a loyal fan..

#160 Mark on 07.07.14 at 4:47 pm

“That’s what happens when the Big Five fund Canadian mortgages with PIIGS interest rate swaps. “

Do you just make it up as you go along? Do you even know what an interest rate swap is?

Canadian banks fund their mortgages using deposits, shareholder equity, preferred shares, and MBS. They do not use “PIIGS swaps”, whatever that might be.

“Banks usually manage their interest rate risk though rate swaps.”

Again, a bunch of nonsense in the Canadian context. In Canada, interest rate risk is managed at the Canadian banks through simply matching deposits to loans/investments.

For instance, if they’re writing you a 5-year mortgage, they write “grandma” a 5-year GIC to match that. No interest rate swap involved. Cash deposits get turned into floating rate mortgages and HELOCs. There is no meaningful amount of duration mismatch in the Canadian banks which makes them extremely solid during interest rate turbulence such as was seen in the 2008/2009 period.

Contrast this with the US banks that deliberately, to enhance profits, ran a large amount of duration mismatch (ie: funded 30-year mortgages from overnight funds!). And were subsequently destroyed when that trade turned against them in the 2007-2008 yield curve inversion era.

#161 Mark on 07.07.14 at 4:53 pm

“Mark, they tried this elsewhere and couldn’t keep up. Defaults and haircuts ensued. Canada is no different in that. CMHC has a direct line to the Finance Ministry.
They can absorb smaller hiccups but they couldn’t deal with a potential multi billion Dollar payout.”

Why would a bank full of CMHC mortgages, default, or experience any impairment to their equity? Are you suggesting that the CMHC, in other words, the Government of Canada, is going to default? Especially with access to the BoC’s printing press?

The situation in the PIIGS is that, being part of the Euro, they don’t have access to the monetary policy of the central bank to reliquefy their specific economies (Germany simply won’t allow it). But the GoC/BoC definitely have the policy tools needed to fight Canadian deflation, and they will use them to the fullest extent needed.

#162 jim on 07.07.14 at 4:56 pm

Do houses usually sell above or below appraised value, and by how much?

#163 Son of Ponzi on 07.07.14 at 5:10 pm

Again, a bunch of nonsense in the Canadian context. In Canada, interest rate risk is managed at the Canadian banks through simply matching deposits to loans/investments.
——————
Mark, have you ever worked in the Treasury Department of a Canadian FI?
If you have, then you’re familiar with ALCO, which has the mandate to monitor and fix duration mismatches.

#164 Son of Ponzi on 07.07.14 at 5:19 pm

Mark,
The duration of a standard 5 year mortgage is about 4 years.
Therefore, the proper direct match with grandma’s GIC would be a 4 year term.

#165 Mr Zipper on 07.07.14 at 5:38 pm

Ralph….”You’re funny. One day maybe you’ll take your own advice, stand on your rights and get taken to the cleaners by your own lawyer. Then you’ll get a rude awakening when the Judge hands down the costs award and your lawyer explains it to you. Then you’ll understand why people settle.”

Ralph…. Just because you might have got screwed by a strip mall lawyer that’s not the case every where…with every lawyer.

Here’s what really happens…..the case will sit before a ‘learned master’ before going before the bench. The merits of the case are explained to either party. As you know it is a requirement under law to attempt mitigation prior to wasting the magistrates time….that’s just tradition.

In this case it would be the respondents lawyer ( if he was at all ethical) explaining to his party that they should pay up because they have no defense……and that’s when settlement occurs…..for the full value plus costs. I understand all about ‘practical’ and ‘moral’ judgements…..been there done that. In this case it would be up to the respondent to bite the bullet .

What happens at times like you’re describing is a virgin will be caught by a strip mall shark…and be danced the fandango around the ‘rate book’ . He’ll explain to naive little puss that it will take at least 18 months before a trial date can be set…possibly another 24 months before going to trial…..and he needs 10 grand right now.

In the meantime, the vendor can sell his proper and continue in his defense for liquidated damages. The ‘beak’ will find for the owner and adjust the recovered costs ….leaving the respondent on the hook, even though the seller has taken the cash and moved on long ago.

The respondents lawyer by this time has dragged ‘the rate book’ out as long as possible under the Law Society ethics guidelines. ….and screwed them royally. I hope this is not what happened to you?

#166 Mark on 07.07.14 at 5:46 pm

“Mark, have you ever worked in the Treasury Department of a Canadian FI?
If you have, then you’re familiar with ALCO, which has the mandate to monitor and fix duration mismatches.”

No I haven’t. But certainly there are various programs, both on the lending and borrowing sides, when such fixes need to be implemented.

For instance, at TD, there occasionally are “special rate” GICs, which are for weird terms (like 19 months, 25 months, etc). The purpose of these, and having branch staff flog them, is to fix mismatch as it may arise.

My point stands, however, and that is, the big-5 Canadian banks do not rely upon interest rate swaps to any level of significance to keep their portfolios balanced. They do not seek to improve their profitability through mismatch as the US institutions did leading to the 2008 crash. The Canadian banks are not vulnerable to rapid de-capitalization if interest rates move unfavourably. And all of their ‘at-risk’ book of RE loans falls under CMHC subprime mortgage insurance and is effectively equivalent to a sovereign obligation of the Government of Canada.

#167 Mark on 07.07.14 at 5:50 pm

“Mark,
The duration of a standard 5 year mortgage is about 4 years.
Therefore, the proper direct match with grandma’s GIC would be a 4 year term.”

But remember that GICs themselves have duration as well, which is a function of the payment schedule and interest rate. But anyways, the point was, the Canadian banks achieve their duration matching not by entering into interest rate swaps in any significant manner, but rather, by actually doing the matching in their portfolios.

Practically speaking, this means they sacrifice profit when interest rates are going down. But when interest rates go up, they, at the very least, hold their own. And in many cases, actually benefit significantly through spread expansion.

#168 Mark on 07.07.14 at 6:05 pm

“Do houses usually sell above or below appraised value, and by how much?”

A good appraisal will effectively match the actual market clearing price of a transaction. However, in the practical sense, there can be other factors which are not captured by an appraiser. Someone might need a rapid sale, in which they’re willing to let the house go for less. Some free-spending cowboy might come along and make a higher offer. All appraisals are subject to uncertainty, which means that those who rely upon appraisals to support the valuation of an asset (such as a mortgage charge) should discount them accordingly.

The fact that the CMHC writes subprime mortgage insurance with little more than an automated ‘appraisal’ is an insane and gross abuse of the Government of Canada’s balance sheet. And to think they even lie about being in the subprime business on their own website, tsk, tsk!

#169 Aggregator on 07.07.14 at 6:11 pm

#166 Mark

It's pretty obvious you have absolutely no clue what you're talking about and look like a complete idiot. Canadian banks have $7.1 trillion (T) in notional derivative interest rate swaps as of Q1. Now go read how banks fund and hedge mortgages with rate swaps and stop talking out of your ass.

#170 Ralph Cramdown on 07.07.14 at 6:34 pm

#165 Mr Zipper

As much as I don’t want to go all “Thor’s Hammer of Truth” on you, you gotta quit pretending you know what you’re talking about. You’ve confused mediation with mitigation, stated that the respondent to a suit at law doesn’t have standing(!), stated that the plaintiff will get all his legal costs paid if he wins (I get the Ontario Reports delivered weekly, and I can count on one hand the number of times I’ve seen a Solicitor and Client costs award), and stated that the seller can just sell his house while proceeding with the suit, when any smart defendant’s lawyer would put a lis pendens on title, making the property virtually unmarketable… and then how’s the plaintiff going to fix the quantum of damages?

There’s a reason smart people settle out of court whenever possible.

#171 BRIAN on 07.07.14 at 8:59 pm

Even if the purchasers put a financing condition with the offer, it would have made no difference. Appraisals are usually done after financing has been approved by the lender.

#172 Trojan House on 07.07.14 at 10:17 pm

Ok, I only got to 30 comments and it’s amazing how little knowledge people have when it comes to mortgages, buying homes, appraisals, pre-approvals etc. Most of the people commenting to that point don’t really understand either. Garth is knowledgeable of course but even he is not entirely correct.

First off, a pre-approval means squat. It is a very basic approval based on only a few of your expenses. Don’t buy a house based on a pre-approval from a lender. Most often they will give you a maximum amount in a pre-approval as well. Go to different lenders and then chose which one you want to deal with and get a FULL APPROVAL! This means you give them all of your numbers/expenses and they qualify you based on your TOTAL DEBT SERVICE RATIO which cannot be over 42 or 43 percent. Once this is done, they will give you a true maximum amount you can afford.

Next, in any offer you make, make sure it is conditional on financing, even if you have received a full approval. You really don’t need a condition of appraisal as Garth mentions. Once you give your lender the accepted offer, they will start the process of finalizing your purchase – which means they will appraise the property. The appraisal is completed by an independent appraiser that is registered to do appraisals. A few years ago, appraisers were doing what was known as “drive-by appraisals.” At least for cookie cutter houses. Basically, they’d drive up to the front of the house, take a picture, look at the comparables and submit the paperwork to the lender. As long as it was in the ballpark, it was approved by the lender. In most appraisals, 3 comparable properties are selected. “Drive-by appraisals” were never done on rural properties because there are a lot of different factors that go in to an appraisal of these properties. Today, “full” appraisals are standard, therefore, make the financing condition at least 5 business days in length. And be prepared to extend that condition until the lender has fully approved the purchase. And if you’re not sure, ask if they’ve completed an appraisal on it.

In conclusion, get a full lender approval, never buy on a pre-approval; always use a financing condition in any offer you make (and if the sellers don’t like it, use another condition that allows you to get out of the deal if necessary, like the purchase being approved by your cat!); and finally, KNOW all the conditions of your mortgage, including pre-payment allowances, early termination penalties, etc. Be sure to ask these questions on the FIRST visit or discussion with a lender.

#173 juno on 07.08.14 at 1:23 am

http://www.mondaq.com/canada/x/325626/securitization+structured+finance/CrossBorder+Financing+Opportunities+IPOs+and+Alternatives

#174 Mr Zipper on 07.08.14 at 2:18 pm

Our conversation was that the defendants lawyer was a strip mall shark wherein the defendants get screwed over…just like they did by the agency…..this is very common. And no…….the parties are obligated to mitigate….mediation is quite another matter.

Here’s a case for you…and guess what…costs awarded.

http://www.vancouversun.com/news/metro/million+West+Vancouver+home+saved+from+wrecking+ball/10008125/story.html

#175 Noamd on 07.08.14 at 5:55 pm

Energizer fired 430 people in Montreal. Another punch for real-estate over there.

http://www.lesaffaires.com/secteurs-d-activite/general/energizer-fait-430-mises-a-pied-a-montreal/570428