Year after year the screws have tightened on kids trying to buy houses. People with less than 20% to put down have been mercilessly squeezed in the belief they pose the greatest risk when the inevitable market-toppling events occur. So for them 30-year loans are kaput. Expensive mortgage insurance is mandatory. Stress tests mean they have to qualify for rates they don’t pay. Source of funds must be proven.
What’s been the result?
Simple. Insured mortgages (those with lower downs, also called ‘high-ratio’) have shrunk drastically. After the moister stress test came into effect a few months ago the volume of CHMC-insured loans crashed 41%.
But house sales didn’t crash. In fact, until weeks ago, they were steamy. Seems the stress test was so onerous buyers have found their way around them, securing that prized 20% down payment through gifts, private loans, sub-prime borrowings and, especially, the Bank of Mom.
So here’s the result. And in a moment, the astonishing government response nobody’s ready for.
As a direct result of burning the kids with over-regulation, a giant pool of mortgage risk has been created. Half of all the mortgages on the books of the big banks are not covered now by CMHC insurance. Eight in ten new mortgages being made in the GTA or YVR are not insured. A stunning 50% of all these uninsured mortgages not only have 30-year amortizations but equal 80% of the value of the homes financed. Uninsured mortgages are growing by 15% a year while insured ones fade fast. Almost a third of all these uninsured bank mortgages are to people whose debts equal at least 450% of their incomes.
In other words, the feds took high-ratio real estate risk and shoved it elsewhere. Now they’re panicking, and about to bring down a new hammer affecting everyone.
The bank regulator (OSFI) intends by the end of this year to force the banks into stress testing all borrowers – regardless of how much money they have for a down payment – including people who are renewing. The test will involve ensuring they have enough income (and secure employment) to make their mortgages payments at current rates plus 2%. It’s estimated by RateSpy guy and mortgage broker Rob McLister that this will “slash buying power for prime buyers by roughly 18%.” And just imagine what that’ll do to house prices already under pressure.
But it gets worse.
The stress test of rate+2% will become rate+3% for anyone renewing a mortgage where the value of their home has decreased and they no longer have 20% equity – or if the financial stability of that borrower has changed (think divorce, or a spouse on unpaid mat leave). In order to retain the lender’s financing, some additional money might have to be ponied up to bring the loan-to-value ratio back into line.
The impact?
Depends on who you listen to. A poster here last week whose job makes him privy to such things says: “This means a minimum reduction in mortgage credit of about 17 % up to 22 % and substantiates anecdotes of lenders instructing appraisals to come in 20% (or more) light. If so, the 17 % to 22% reduction in available credit will apply to a market now down approximately 19% on average and which will be down how much more by the time this is implemented. We could therefore see that 40 to 50 % drop by year end as that “Guru” poster stated last month on this blog.”
For his part, McLister is dark. The change, he suggests, will mean slashed buying power and therefore an inevitable haircut in home prices. “OSFI’s much tighter credit policies could conspire with other factors (e.g., rate hikes and debt loads) to kill a portion of demand and jeopardize equity for 70% of the Canadians who own. That soft landing we all hope for could harden up, tout suite.”
The mortgage veteran also says the changes will drive more borrowers into the arms of less-regulated credit unions and subprimers like Home Capital where no stress test exists, but loan interest rates are far higher. That, he states, “just accelerated the coming retirement crisis by five years” and increases overall economic risk.
Well, there you go. The latest from your government. They call it a stress test for a reason.
207 comments ↓
It’s OVER you dirty lying SHYSTERS!
Your lies will have no more power and everyone will look and HATE all the SHYSTERS.
Home Capital is not subject to OFSI oversight yet qualifies for CDIC depositor insurance? Scary if so.
Unbelievable. These steps should have been taken 10 years ago by Harper. There would have been a a bit of grousing and a little complaining.
Now we have the Liberal Red Wedding; a whole lot of stabbing and a little beheading.
First
Another variable that puts downward pressure on already exaggerated house prices in the GTA .
from reading this blog and other sources…these variables that also will help bring down prices are
1. Increasing interest rates. Most current mortgages are variable and many are over-indebted. 2. A loss of steam behind this market 3. The foreign buyers tax..even though foreign buyers make up a small portion of buyers , they are still a variable 4. New policies in China that is making it harder for Chinese citizens to take money out of China ..also a small variable but still one worth mentioning 5. New stress test regulations 6. Older mortgage regulations put in place late 2016 and early 2017 which made it marginally harder to get a mortgage 7. Possible new AirBNB rules in the GTA and elsewhere ( it is in the news)
Plus other variables and forces working to lower prices .
Stress will destroy your immune system. You will develop illness that you will be unable to overcome. It might take 10 years for illness to manifest itself.
Would like to hear if there are stats out there that estimate how few/many mortgage-holders have any Life/disability/critical illness insurance in case life throws them a curve ball they’re not prepared for? Talk about stress!
Funny how the effect of all of this in Vancouver is still “Must buy now before party is over.” Demand for condos and townhouses is insatiable as they are the last “buyable” (won’t say affordable as they are ridiculously overpriced) properties.
Prices continue to go through the roof, without a care in the world about how in about 6 months time there won’t be a sane person out there with access to enough capital to buy what you just bought. Those “wealthy foreign investors” out there didn’t get rich buying 70 year old one bedroom apartments for $600K a piece and they’ll have no interest in yours.
“Doesn’t matter; only a loss on paper until I actually need to sell. Need to live somewhere!” Just live in a van for six months. I bet you will be able to afford 25% more property at 25% less of a price if you can just keep your genitals out of this market til the orgy is over.
People will eventually realize the Angus beef burgers they were paying for were actually McDoubles (hold the chee$e) all along.
no one will ever buy a house then if it will be that hard crazy! might as well be a communist government take away all our investment opportunities..
Not to worry. 10 year visa investors will save us….
Buyer who walked away from real estate deal ordered to pay $360K — Blog famous ‘Derek’ should get his money as well in due time.
http://www.cbc.ca/news/canada/british-columbia/buyer-who-walked-away-from-real-estate-deal-ordered-to-pay-360k-1.4232844
Also according to zolo MEDIAN detach in Vancouver was 2.28 million in February this year and now 1.75 million 5 months later. People have explained that it’s because of a sales mix. I’m wondering how because this is median prices.
https://www.zolo.ca/vancouver-real-estate/trends
While this increased scrutiny (decade late IMO) is welcome news, if true, I’m still not optimistic here in crazy Vancouver… but regardless, hope that this brings more people aware of how much risk they take on when they sign the biggest financial transaction of the lifetime
The unfortunate truth is that regardless of any intervention by govt or other bodies, it all seems to be a temp blip before things escalate once again…at least in YVR anyway.
I hate the meme that it’s different here, that everyone wants to live here and/or YVR is a “world class” city, but I’m beginning to taste the Koolaid. Nothing makes sense anymore…
Oh, and before I forget: finally some validation to my constant opinions on this topic
https://www.google.ca/amp/www.cbc.ca/amp/1.4237710
Regulators doing their job, however belatedly, is refreshing. However, typical government overkill. Increasing the stress test for renewals for those who presumably have been making reliable mortgage payments for five years is just dumb.
The 2% stress test on new applicants, however, is reasonable and sensible, and should have always been there. Those who don’t pass stringent stress testing should be paying higher rates.
Unfortunately, this comes way too late to prevent the bubble, but just at the right time to completely burst it and make it more painful on the way down. Totally pro-cyclical. Bureaucrats’ timing is impeccable as always. They’ve gone from picking winners and losers to creating losers. Lots of them.
OK. I still say that 10 years from now, GTA houses will cost much more than they do today.
Hey Garth.
Starting reading your blog in Feb and sold in May.
What dumb luck I must have .
Enjoying our rental and patiently waiting for an opportunity to come along .
THANK YOU
Oakville guy
Thank you Garth. I’ve been waiting for this post.
Peter Schiff was outside a Walmart store in a state that was pushing for $15/hr min wage with a box strapped around his shoulders with a sign on it saying “15% for $15”
He asked people leaving the store if those workers inside should be paid $15/hr. Everyone said yes.
He also asked everyone to give him 15% more of their purchases in order to dole it out to the workers at the end of the night as they all thought the workers should be paid more. No one agreed to pay more.
Happy housing crash guy, this is your moment!
But seriously, if YVR and GTA and most Canadians in general weren’t house horny financial illiterates, gorging on cheap credit, believing that if you don’t max out your mortgage, get a 150k down from bank of mom, and buy as much house as possible, that you will have no life in Canada… then maybe it wouldn’t have come to this.
Still long way to go to change the mentality. Only serious pain will stop Canadians from believing that a box in the sky is the way to financial bliss.
Why bitch about what the government does now. Where was that when 0 down 40 year was introduced, paid for CBC Real Estate news was introduced, liar loans, shadow flipping, Yellow invasion FOMO marketing in YVR, and on and on…
all by design. The herd is in hook line and sinker, now, let’s do what we want with them..
Now that houses cost 9-12x average family incomes, if you are lucky, they want to put an end to the madness? Now that a sh**ty condo costs 700+k an hour drive to YVR? Or Apartments in YVR cost 600+k on average? Where was that 5 years ago, oh, right, dropping interest rates to the floor and pumping HGTV and Real Estate sponsored news.
Raise rates another 2% and then lets see how fun it is spending 90% of your friggen income on accommodation.
Stable rental, stable and affordable housing helps the economy. Not insane and almost criminal rents or debt servitude for 20-30 years. Whatever, everyone must love living around Canadian big cities…seems like a ton of fun…. pay 400k for a 1 bedroom 1hr commute to the city or rent the same for 2k a month, good thing Canadians are so rich and have unreal pay checks coming in every month.
Weird concept, what the f**k you mean you need money to live like a king? Why can’t I just buy a house on massive credit (at 1.99% free money rate) and then take out a HELOC, at 2.99%, buy a cool BMW, take a nice Disney vacation and maybe pick up a skidoo or two…I mean, I have equity.
They can’t implement this soon enough. Then maybe people will have conversations that don’t involve real estate and how much equity they have…just don’t bring up what they owe to the big banks.
Don’t worry CBC will run an article tomorrow with BMO mortgage specialist and GTA real estate expert to explain, how none of this matters. Just make sure to buy now before any of this gets implemented.
I’ll believe it when I see it in price changes for Vancouver real estate. For years we’ve been hearing that prices are inflated, unsustainable, and multiple agencies have warned about a housing bubble, yet we haven’t seen any substantial price drops. Real estate is still ridiculously expensive, especially compared to Seattle where there are far more job opportunities and many of them pay better. Could this all be do to the 10 year visas the Feds have been handing out that allow people to park their money in real estate?
We’re run by flakes and idiots, from coast to coast.
Does this mean “You are poorer then you think?”
Wurst
Why is the govt doing all of this over such a short time frame when in previous years they set policy in order to encourage home buying?
It’s a classic protection racket. The elites flash on teevee old stock film footage of VeryScaryStuff like hooded men marching or stock footage of projectiles.
Hand over your cash to them – and our elite leaders will protect us. Honest.
Still waiting…
People buying into an over valued asset class?
This should prove most amusing.
Here in Chilliwack (the animal abuse capital of Canada) lots of real estate action. Listings last about two weeks. I have a tidy little rental not far from the war zone where the crackheads and fentanyl freaks hang out with the rest of the walking dead. Aprox 20 houses have sold on the street in the last 10 weeks. They are 1970’s units selling for 500k+
The new buyers have no clue what kind of place Chilliwack is. Wait untill they realise they are in the blast radius of the 890,000 barrel/day Kinder Morgan pipeline.
Glad now to be renting and looking to buy somewhere in Canada in early 2018. Vindicated, sort of!
First
We are on the cusp:
“North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen,”
https://www.reuters.com/article/us-northkorea-missiles-china-idUSKBN1AO011
The Summer of Hell is about to explode.
PREPARE.
What seems to be coming is controlled and engineered market correction, the powers that be have determined that a potential loss of .50 to .75 in GDP is a acceptable loss in the face of a potential outright collapse of real estate values nationwide and in particular Southern Ontario and Coastal BC
So put your hard hat on Its Game On Time, another .25 this year possibly 2 and a minimum 3x.25 2018 all but in the books.
going to be a interesting ride.
There seems to be relatively calm attention being paid to the fact that the GTA is down something like 17 to 19 % from peak already. Perhaps it can be considered a ‘market fluctuation’ by the media.
These new regulations to constrict credit are not present in the popular media that I have seen.
The effects of their implementation will be.
Ergo, this could hit an already woozy, uninformed and confused market quite hard one would think.
So the stress test rates will move upward, along with the bank rates? So when the B of C hikes its rate, the stress test rates move higher? Though we have seen (i.e.: last month) that the banks can hike their rates all on their own, regardless of what Poloz decides to do, in the end.
I knew about the rate +2% for newbies, but can anyone point me to the reference for rates +3% on renewals? I had not heard of that one.
What is the process if the credit unions go belly-up? As co-operatives are members obligated to ‘bail in’ the CU if the debts pile up? Or will the BofC step in to sell failing CUs to the big banks the way that the Fed did for all the small banks in the US that failed after the credit crisis?
Please tell me that at least they learned enough from the great recession to have some contingencies in place?
It will be interesting to see what comes of this. Certainly I know that times in Vancouver are tough. Not sure if this will move the market that much at all.
I had a few friends over last night, most of them are working professionals with dual incomes (probably $150k together on average) who say they cannot afford to buy anything in Vancouver.
Something is wrong with this picture. They’ve given up, most of us have decided to just keep renting, saving, and investing and others are looking into co-ops and other forms of cheaper alternative housing. One couple is moving to the interior.
Then again they say capitulation is the last stage of a bubble. Well…. we’re all there! :)
Good. I’m not interested in bailing out the fat cat banks.
If they implement these it won’t be long before they reverse
This will likely collapse the economy and tax revenues
These rules are good but should NOT be implemented during a sharp correction. Keep them ready and wait until the market has stabilized for 6-12 months then do one rule and wait
I lend for a living
These rules will trigger a spiral effect. As a credit based system less credit is less spending which is less income and the system is at nose bleed leverage
This shock credit tightening will dramatically increase unemployment and reduce asset prices so that more and more people at renewal will be forced to sell as quite a few will not be able to refi with other lenders who charge reasonable rates
This will further pressure home prices and GDP and the economy will be in a death spiral until these policies are stopped
About the only good thing that would come out of this is that the provincial and federal Liberals will be destroyed and likely gone for a generation
The government always attacks the major bubble of the day but like horses who’ve long taken off they always shut the barn doors way too late
typo: The mortgage veteran also saysS …
Another toothless measure that is heralded as killing the market. last Fall’s stress test was supposed to be my stir killer and eliminate 15 to 20% of the buyersand yet sales and prices went through the roof because people found other ways of boring this time will be no different they will just go to Alternative lenderssorry buyers want to buy and they will find a way and this will not kill the market
“Here is a list of terrible things,
The jaws of sharks, a vultures wings
The rabid bite of the dogs of war,
The voice of one who went before,
But most of all the mirror’s gaze,
Which counts us out our numbered days.”
― Clive Barker, Days of Magic, Nights of War
Are Big Banks Risky Investments?
“Half of all the mortgages on the books of the big banks are not covered now by CMHC insurance.”
*****************************************
Well, not to worry, big banks have lots of equity financing on their books right? Like Royal Bank, it has $65.9 billion in common equity. That’s a LOT! And assets are, let’s see, $1203 billion. So that means equity is 5.5% of assets. That mean they’d have to lose 5.5% of their assets to loan losses or market declines before they would be broke.
Ummm RUN?
Actually, banks are probably still safe. But they are finely tuned machines and in the event of major loan losses banks can go broke. OSFI knows this.
In other words, people who have never missed a payment, try to renew, fail test, bank forces a sale.
This is called fear mongering 101. I don’t care what ‘the lending industry’ says, what they do is more important, and they wont be doing this.
No sale will be forced. The mortgage just won’t be renewed, prompting the homeowners to shop elsewhere. — Garth
Stress Tests
With banks being leveraged 10 to 20 times their equity it is never hard to come up with a stress test that they would fail.
The stress tests and the impacts on credit that Garth described would be idiotic to implement. They sound like they would ensure a financial crisis when they would be meant to prevent one.
“Government” … Thats cute.
Your confusing governing with financial terrorism.
Unilateral decisions by different levels of govt on the way up and likely the same on the downslide, however, as mentioned on this blog weeks back “nobody wants to hold the hot potato”
add this fed initiative with whatever the Govt of BC decides to do and it could be one interesting end of year.
Relax everyone, these new regulations are simply a way to try and reduce housing prices while maintaining or increasing the government’s ability to tax and borrow. In the old days we would have just increased interest rates, but today it is understood that unlimited borrowing by the government is a good thing, so we don’t want to do that. Instead we will keep rates low and then simply legislate how much people can borrow, but not the government.
including people who are renewing.
Ugh… say it ain’t so!
So regardless of the ****load of equity in the house, if you renew, you need to qualify at high rates?
Even when renewing with same lender?
I hope that they axe that idea quickly.
Raging renter #1
The rate +3% on renewing buyers is meant to keep those that want to move up from their starter homes from speculating on more house than they can afford.
If you’re a current owner, with a good history of paying down debt and never missing a payment, chances are that your loan-to-value ratio has continued to drop since the time that you bought, and that you’ll be well under 80% at renewal.
If you’ve instead pulled 60% of your equity out of your home via a HELOC, or to play ‘bank of Mom’ to manipulate your kids into staying close to home, you could still avoid the stress test, if your home was well paid off and any decline in value is moderate.
Neither of these scenarios represents a risk, and so would likely not be subject to a stress test (or maybe a very small one).
But if you live your life ‘one mortgage payment at a time’, have over-extended your income, or have severely over estimated your income, just to pay too much for real estate, then you DO represent a risk to the system, and should be stress tested accordingly. Best to stop spending on credit and start saving for that big ‘balloon payment’ that you know is going to be coming.
Looks like Justin doesn’t just screw some people, he wants to screw everyone equally.
Here comes a buyers market…
“What is the process if the credit unions go belly-up? As co-operatives are members obligated to ‘bail in’ the CU if the debts pile up? Or will the BofC step in to sell failing CUs to the big banks the way that the Fed did for all the small banks in the US that failed after the credit crisis? “
I’ve written about this here a few times. I have theorized that the government, in the backrooms, would force the big-5 to take over failed credit unions as a sort of “quid pro quo” for continued CMHC bailouts. Even at a loss.
Obviously the “owners” of the credit unions would lose their equity, but there would be no bail-in of depositors.
#35 Debt slave creator
Think about how debt works in this country – all the companies that rely on credit to make payroll until they themselves are paid. This use of credit dwarfs the residential mortgage market in this country.
When the recession hit, there was so much bad debt out there that ALL credit dried up, for all industries.
These latest measures, while they may have a pronounced effect on a portion of the residential financing market, likely won’t affect the majority of responsible borrowers, with paid off, or well-paid down homes that they’ve owned for years.
These changes will affect less responsible credit users and speculators, but it is better to have this minority (however vocal) be brought back in line with normality, than to let their actions ruin all credit everywhere.
Keep in mind, no bank or politician, or typist on this blog, or the blog host has been able to show that any of those non cmhc loans are a problem for lenders.
These are the same politicians who did nothing to address the supply of new SFD homes, because they cant, they are agents of the UN= you don’t even have a government.
all you have is artificial scare city
stooges in ottawa saying ‘you are the problem’
Finally!!! Some data on this. I’ve been looking everywhere for analysis on this, but of course the media focuses on how great real estate is rather than a screaming headline of ‘2% Stress Test Ominous Warning’.
This, combined with Happy BoC Day coming in October, takes Toronto median prices down min 35% and possibly much more by year end.
And btw, I was thinking the other day that Transunion needs to dust off its interest rate sensitivity report for the October rise. They only looked closely at a 1/4 rise.
Huge uninsured mortgage pool …. connected to the banks … but don’t worry, the banks will not be affected?
Hmmm …. ok
Uninsured Mortages
Half of all the mortgages on the books of the big banks are not covered now by CMHC insurance.
*************************************
Wow, half sounds high. But sure enough page 31 of Royal Bank’s Q2 shows that figure to be 52% of residential mortgages for for Canada and 55% counting their U.S. and international residential mortgages.
Don’t worry, Royal Bank has already set aside 0.4% of its loans as an estimate of future loan losses. What could go wrong in a deep recession with cratered house prices?
Basically, the first 0.4% of loan losses has already been expensed. After that it would start eating into that not so thick 5.5% equity ratio
RUN?
How to Save a Bank from ruin
Any bank that senses even a whiff of danger in regards to loan losses that would threaten its equity ratio has a prime duty to immediately issue equity at whatever price it can get in order to protect depositors.
This whole affair is an excellent example of the government intervening and trying to control markets … first by offering mortgage guarantees, and now by trying to keep people from committing financial suicide … sigh*
comment at # 15 I think I know something
Basing this vision on what ?
Your “intuition” ?
Never been through a major RE market downturn, have you?
But what was it before?
Half of all the mortgages on the books of the big banks are not covered now by CMHC insurance.
***************************
Is this new? In 2015 Q2 Royal Bank’s figure was 56% versus 55% today. Thought this was diue to recent changes.
In 2013 Q2 was 55%.
Thought there was news here????
Facts need to be put in context, like if half today, what was it before?
Thus the payoff to Buffet,the govt will now drive a lot more people to HCG,seen this one from a mile away!
This is stupid.
If I understand correctly the lenders, who happily gave out these mortgages at “emergency” interest rates, made their commissions and enjoy their monthly payments, will now do some fictional calculation with reduced equity and higher rates?
Where was this “regulator” for the last 8 years?
I can see people being very upset with this fictional and hypothetical what-if test. As we all know most people who ignored the “warnings” and purchased RE have done well. Their backs will bristle at OSFI telling them otherwise Ina fantasy world of 4% interest rates as this point.
The responsibility for the bubble is not purely on borrowers but on these predatory lenders and useless institutions (CMHC, BoC) as well.
MF
There is a kids game called Ker-Plunk. There are 30 sticks stuck through a cylinder and 32 marbles piled on top of the sticks. Each player gets a turn removing one of the sticks. The loser is the guy that removes a stick and the marbles fall through. Think of government policies as the sticks being removed and the marbles as house prices. At some point it will be one policy to many.
“Seems the stress test was so onerous buyers have found their way around them, securing that prized 20% down payment through gifts, private loans, sub-prime borrowings and, especially, the Bank of Mom.”
___ ___ ___ ___ ___
Was there ever a better illustration of the “Greater Fool” than this?
I would imagine most of these folks are 55+ somethings, faux-cultured, well-heeled, latte-sipping Volvo types (Bank of Mom and Dad).
How many middle class moister progenitors are ponying up hefty down payments who themselves are retirement-savings challenged? Who is paying off student debt and wedding nuptials? What will remain for Craftmatic beds, polident, and metamucil?
This is the kind of Wall Street inspired horsesh!t that drives a bull “vampire market”. Just when you think this insane market is plateauing or correcting (as we all hope who pathetically follow this unworthy blog everyday) another band of sexting moister fools (and their financially illiterate knuckle-dragging cro-magnon parents) find a way to circumnavigate regulations all in the name of unrestrained house-lust!
Release the OSFI hounds I say!
From OFSI:
1. Roughly 80% of new big bank lending in the richly valued Toronto and Vancouver markets is low-ratio mortgage lending (Src: BoC).
2. About half of new mortgage originations are clustered near the conventional LTV limit of 80% (Src: BoC).
3. More than half of low-ratio mortgages now have 30-year amortizations.
The above means that about 50% of YVR and 416 mortgages are BARELY able to qualify as uninsured, even with 30 year amortizations AND the vast majority of YVR and 416 mortgages are uninsured.
Since they are BARELY qualifying as uninsured, able to scrape up just enough money & the BARE minimum as is and that a +2% stress test will affect:
-50% of mortgage seekers in Canada
-80% of the YVR and 416 RE market
You have got to be dreaming in technicolor if you think that a +2% stress test will not affect YVR and 416 RE.
Maybe on Planet Claire, with Pink Air, will this not have an impact and for some time to come.
And as for other lenders like Home Capital & CUs, here is what OSFI has also said:
“By volume, the share of uninsured mortgages with loan-to-income ratios above 450% (the government’s preferred warning threshold) is up from 19% to 27% in two years (Src: BoC).”
Yup, Home Capital and CUs are going to lend to these people which are now about 1/3 of the market, well….unless they have a death wish.
“OK. I still say that 10 years from now, GTA houses will cost much more than they do today.”
Now that is worthy of a discussion … who thinks housing will be more “affordable” 10 years out ???
That all sounds pretty good to me, I’m not sure why the negative tone of the post today Garth.
(It is hard to judge a tone on the net sometimes, maybe I’m wrong about you sounding negative)
This blog repeatedly advocates financial prudence and not taking on more than one can handle. A stress test is something that every logical person should be doing for themselves when taking a 25-year debt. Having the regulator ask for this to be done is prudent, not negative. If the borrowers are too financially illiterate to do it themselves, well, that is why we have regulatory bodies in western countries. We regulate our doctors to make sure they have proper education, we regulate our water supply and medication safety. There is nothing wrong with regulating the financial risks people are allowed to take. We know from behavioral psychology that human kind is very poor at managing this kind of long term thinking. (which is also why having a financial adviser is important, to help manage this long-term thinking).
In regard to the reduction in CMHC insured mortgages, surely you agree this is a positive thing. Since when should the taxpayer be on the hook to save a lender who approved a poor borrower? If the lender wants to insure the mortgage it should have been purchased on a free market, not backstopped by the government. This is one of the issues that led to lax lending and that got us here in the first place. It is obvious that CMHC caused some of the moral hazard in the system, distorted risk/reward and should be limited if not scrapped.
We were pre-approved for a purchase price twice what we planned on buying. Because we self-stress-tested our ability to renew in 5 years at 5% and would not take on more than that would allow us, we ended up not buying. This is prudent and everyone should be doing it. Good on our government for making sure people act with care, for me this is akin to having speed limits.
I am curious to know what are the policies you believe are right to tame our RE market and the damage it caused to personal finance. I come here daily because I value your opinion and your message resonates with me, on top of the funny pictures and writing. But recently the tone is very negative when discussing any change in policy. Maybe the negative comments are getting to you. I’m truly interested in a through explanation of what policies you believe will work, not because I want to argue about those points, but because I think we can all learn from your point of view.
(here, I finished with an obligatory suck up instead of open with one!)
The Jaguar calls ‘bullshit’ on this one. Time the big 5 grew some gonads and told OSFI to F.O.
If a customer of any bank is making his or her mortgage payments as originally contracted why should they have to endure re-qualification? Yes, they would have agreed to allow their credit bureau to be pulled on a continual basis when they signed up and the bank can do that till the cows come home. But as an earlier poster said “horses are all out of the barn” and there is nothing to entice them to come in when called. Stress test for what? If the mortgage is in arrears follow the normal course of action, otherwise with no arrears they will just be auto renewed into a new term. And how would a decrease in value be assessed? Property assessments? They have been known to be higher than market appraisals which is what the original approval was based on. Who is going to pay for any new appraisal? Any attempt to deny renewal of a mortgage that was being paid per contractural agreement because one member of a household was on a maternity leave or ill would result in serious reputational risk to the bank that tried to pull such a stupid prank. It would be front page news, not fake news. And exactly where does OSFI think banks are going to get the additional manpower hours and staff to make customers jump through all these hoops? They are already trying to run as lean as possible in a highly competitive marketplace. OSFI needs a serious reality check. And where were they when these horses where stampeding out of the barn in the first place. “Regulators” my jaguar ass. OSFI needs to be taken out behind the barn for a good whipping.
Good insights from a legend.
https://www.oaktreecapital.com/insights/howard-marks-memos
From Richard Murphy :
http://www.taxresearch.org.uk/Blog/2017/08/03/get-the-currency-and-the-tax-system-right-and-an-independent-scotland-could-flourish/
….” It’s a fact that all governments with their own currencies and central banks can create as much money as they need, at will, and costlessly. But they can’t do this forever. If they keep injecting money, without limit, into their economy a government will eventually create inflation. This, however, need not happen because it has the perfect tool available to it to reclaim the money it has created, and effectively cancel it out of circulation, and that is tax.
I stress, this is the actual reason why in a modern economy a government must tax. Tax does not pay for services. Instead, tax stops government spending creating inflation.”…..
Yes, being in debt can end up being a much more complex situation to be in than many people can foresee.
I remember Boomers I knew back in the day carrying a 20% mortgage and having to refinance and add a 2nd mortgage at 27% to keep their house. Many Boomers went bankrupt, which stressed the sh!t out of them. But even the ones who managed to keep their house carrying a very high % mortgage were in big stress.
For myself, those days were as glorious a time as today.
All I can say, for me, is it was just as difficult to be around most people then as it is now.
Not being part of the Herd=Freedom.
Not everyone was/is happy for me, but that is ok. I only have to please myself. I must do this. As I am a man.
#1
Freedom First
Master of Freedomonics
Its my life
Just a heads up for those of you that have little interest in the world around you, Canada’s housing problems will hardly even matter if that clown in the White House launches a nuclear weapon at North Korea.
It’s your “ass” you need to worry about not the value of your house or portfolio, as they will crash.
If you know how to pray ………….start now
The sub primers killed these markets. All it takes is one shady deal on a street and everyone else uses that jacked up price as the comparable
@#29 Trumpocalypse2017-18-19
God bless yew!
I was worried. My telephone messages were unanswered….
But then I realized you were prepping!
Vacationing in the abandoned mine shafts of Sudbury were we? Financial armageddon. Civil Order gone. Solar flares, Electrical Grid toasted.
Well, not to worry. Your secret hideout in the bottom of Shaft C with 2 years worth of dried prunes, beans and bumwad is safe with me.
I wont tell a soul…….
Canada’s entire housing market is on the verge of collapse
http://investmentwatchblog.com/canadas-entire-housing-market-is-on-the-verge-of-collapse/
At the risk of awakening the tin foil hat wearing crowd; it sounds like a ‘controlled demolition’ of the CA R/E market (namely YYZ & YVR).
Mon Dieu !
I guess the debt gorging will be over soon.
Then the banks’ feast starts.
They have created the theoretical maximum credit (and then some) that the economy can handle.
“all thems cattle been corralled boss, yessir”
As this maximum lending has caused ‘peak pricing’ of the collateral, the banks can now rationalize the risk premia they will slap on debt as the collateral shrinks in value.
Think rate hikes in addition to the BOC increases.
Restricts new lending and increases the costs of existing borrowing.
Bubbles end in 1 of 2 ways. Either government identifies, intervenes, causing a hard landing. Or they do nothing, and the bubble collapses under its own weight, causing financial systemic failure. Bring on the hard landing. I have no empathy for people who bought invisible trousers from a man wearing no pants.
If these items all actually are pushed through, it’s a great time to be a landlord.
If you will be looking to rent a house, expect even higher rent, especially in Ontariowe, where rent increases are limited to a pittance. With tenant turnover the rent amount will shoot up to increase income, in anticipation of mortgage renewal stress-testing down the road, and artificially low appraisals (if the banks will play that game). It is what I will be doing to cover my ass with the bank.
So then you have even lower vacancy rates. Many can’t qualify to buy, prices haven’t dropped much, sellers in for the long haul, waiting for millions, and immigration numbers are rising. Rising rent for apartments due to increased demand. Rent for condos and houses, due to rising demand, rising rates, AND increased stress-test rates AND stress-testing upon renewal.
I couldn’t have made this shit up. roflmao
Biggest impact will be Trudeau voters. I’m lovin’ it.
Remember that there has never been a successor to a two-term president in U.S. history who didn’t face a recession during his first year in office. Big changes in the wind, folks. It’s not just the Canadian real estate market that is in a bubble, friends. Prepare accordingly.
Watch for a dead cat bounce in prices this week or the next.
I first heard that this was going to happen by the fall now by end of year. Seems like OSFI is having second thoughts about it and may not do it all.
The fall is October. The end is December. You can’t be that thick. — Garth
Why is the govt doing all of this over such a short time frame when in previous years they set policy in order to encourage home buying?
——————————————————–
The name of the game is control; they control by creating a disaster.
No sale will be forced. The mortgage just won’t be renewed, prompting the homeowners to shop elsewhere. — Garth
—————————————————–
So, no forced sales, just repossessions. I can see that happening, especially when ‘elsewhere’ won’t lend them the money either. The elsewhere firms are the ‘NOT too-big-to-fail’ ones.
Banks do not take over deeds if they dislike a renewer’s financial status. — Garth
comment # 65 the Jaguar
If upon renewal the property (collateral) value is in question, the bank can demand an appraisal which the mtgee does indeed pay for.
If they deem there to be less than 20 % equity, you are going to be anteing up a lump sum or paying a much higher interest rate if you want that mtge renewed as they would impute a higher risk profile than when the mtge was originally made.
If anything else has changed negatively in the applicants financial life, the renewal has a right to re-assess that risk and address it with commensurate rates.
Think as if you were the lender – its not just about making the payments when the collateral value is / has eroded.
Go read a mtge document from a Big 5 / 6 bank.
#18 Frank
(1) Peter Schiff is a goldbug unable to compare gold w TSX. Best to ignore him.
(2) If Walmart wages do +15% then Walmart grocery bill will not do +15% but instead +1% at best.
Product cost and building rent far outweigh the cost of Walmart labour.
How much of a CA$ 7.99 for a gallon of organic milk goes to the store employee you think?
Hint: it is not 15%
If I had been asked to donate, I would indeed give them 1% of my bill, but not 15%
#65 Jaguar is correct.
Traditionally: late in mortgage payments = red flag on the account, no flags= auto renewal
If stress tests are introduced where no flags exist the bank is losing good payers, and every business wants good payers. Ottawa is trying to introduce a solution to a non existent problem. First they have to demonstrate that there is a problem with non cmhc loans, and they cant.
Just a heads up for those of you that have little interest in the world around you, Canada’s housing problems will hardly even matter if that clown in the White House launches a nuclear weapon at North Korea.
It’s your “ass” you need to worry about not the value of your house or portfolio, as they will crash.
If you know how to pray ………….start now
………
prayer? what could that possibly accomplish? peace of mind?
Re: #23 Shawn on 08.08.17 at 7:03 pm
Because Poloz cut the Bank of Canada rate twice in 2015 and because Trump won the election and said he’d kick all the illegal immigrants out of America. The latter part sent the speculators on a house buying spree in the GTA.
#18 Frank on 08.08.17 at 7:01 pm
Peter Schiff was outside a Walmart store in a state that was pushing for $15/hr min wage with a box strapped around his shoulders with a sign on it saying “15% for $15”
He asked people leaving the store if those workers inside should be paid $15/hr. Everyone said yes.
He also asked everyone to give him 15% more of their purchases in order to dole it out to the workers at the end of the night as they all thought the workers should be paid more. No one agreed to pay more.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$44
So Frank, what you believe here, is that paying Walmartians whatever amount more, equalling $15.00/hour new total pay, is going to raise the price of a $100 basket of Chineseum by another 15% which equals $15.00/$100.00 purchase?
Go watch some more Faux News.
Unbelievable. These steps should have been taken 10 years ago by Harper. There would have been a a bit of grousing and a little complaining.
…………..
that chap was deer in the headlights? …..its all good, Trudeau will carve the ‘rich’. Sorry.
to # 64 noname
The drop in CMHC insured lending is NOT GOOD !!!
The 41 % reduction in CMHC volumes means that people borrowed the additional downpayment to get to minimum 20 % to avoid paying the inurance premium to CMHC.
They borrowed the additional downpayment funds (usually from private MIC lenders and at 7 to 10 %) and “bundled” them with their own amount to reach the 20 % needed.
This means that these buyers are now MORE HIGHLY leveraged and now UNINSURED !
Also the borrowed “bundling” loans are shorter term (typically 2 to 5 years) with no obligation for renewal by the lender.
Do you see why it is not good now.
#82 Reality 1 on 08.08.17 at 8:49 pm
comment # 65 the Jaguar
If upon renewal the property (collateral) value is in question, the bank can demand an appraisal which the mtgee does indeed pay for.
If they deem there to be less than 20 % equity, you are going to be anteing up a lump sum or paying a much higher interest rate if you want that mtge renewed as they would impute a higher risk profile than when the mtge was originally made.
If anything else has changed negatively in the applicants financial life, the renewal has a right to re-assess that risk and address it with commensurate rates.
Think as if you were the lender – its not just about making the payments when the collateral value is / has eroded.
Go read a mtge document from a Big 5 / 6 bank.
—-
in the early 90s property values dropped 25% almost overnight
in the subsequent years
the banks were auto renewing everyone who made their payments on time, nothing was getting ‘re appraised’, banks just want the money on time
In the 1990s there were no 5%-down buyers and interest rates were coming down from historic highs, not going up from historic lows. Real estate values took three years to decline 30% in the GTA. — Garth
No sale will be forced. The mortgage just won’t be renewed, prompting the homeowners to shop elsewhere. — Garth
—————————————————–
So, no forced sales, just repossessions. I can see that happening, especially when ‘elsewhere’ won’t lend them the money either. The elsewhere firms are the ‘NOT too-big-to-fail’ ones.
Banks do not take over deeds if they dislike a renewer’s financial status. — Garth
—————————————————————
Yes, Garth, but what happens in the end if tens of thousands of people can’t find financing anywhere because the credit dries up? The banks aren’t going to jump to take the deed but they will have to if the debtor can’t come up with any money. They won’t just let the homeowner keep the house without paying (unless of course the govt makes a rule that they must in extreme cases).
Will force sub prime borrowers (re-fiers mainly) into the arms of Home Crapital and kindly-looking elite Warren Buffet.
They’ll foreclose in swaths, pennies on the dollar spent. What Blackstone – BX.US – did in the USA. This system works.
Watch their actions not smirking smiles.
Once written, twice sly.
to comment # 58 M
Bingo !
RBC lifting mortgage rates effective tomorrow. 5 year fixed at 3.14
Of all the gov’t housing interventions of late this one has me the most excited. Next to BOC hikes this will have the biggest impact nation wide . Won’t matter if your in the GTA, the Peg, Cowtown or the city that rhymes with fun like me… the pain will be felt everywhere! Is it the end of the year yet?
No regulatory body wants to be embarrassed. The Irish regulators went HAM on FI’s after the GFC which was clearly reactionary and likely too onerous. I assume OSFI wants to preserve the value of their role in our financial system and if they are astute they’ll learn from other regulatory “failures”.
If there’s an RE crash then we have bigger things to be concerned with. Many of the postings here likely want to jump in if a massive correction takes place. But chances are getting in will be tougher, some may have less employment stability etc. One thing I learned from the crash of 09 was the inability to borrow against my home to buy the dip in equities.
So my lesson learned was to be balanced, have some form of liquidity and have conviction.
I think this is only prudent. This measure and others are a bit too late to come to fruition . I think this should have been implemented in the time of Stephen Harper.
I know of a bank forclosure sale that was RE listed, and the bank accepted 70% of a ridiculously low ask on day three!
I wish it were not so.
Hello Friends,
Warm hello here, from the Mayor of Milton. I really wanted to write last night, but came in late after our wonderful family fun event at the Halton Municipal Waste Dump. For those of you that could not attend, you missed a wonderful, Happy Aluminum Siding Day, here in our golden city. Thanks for your understanding about the cancellation of our fireworks display, due to the higher than normal methan gas that was present, Health Canada has assured us that the gas is 100% natural and should not result in any long term health issues. Sorry to those standing close to the venting pipes that experienced those asthmatic coughing fits during the ceremony. We were pleased that the kids enjoyed the cotton candy stand that was located next to the Hazardous and Electronic Waste Area. We are still investigating the metallic taste to the cotton candy, so please don’t worry, your children are safe.
Good news though, we were so happy about all of our visitors – a special shout out to Happy Housing Crash Guy, we were so pleased that the Psychiatric Ward was able to give him a limited supervised day pass to attend our event. Of course he had his usual “Realtor Shysters Must Die” tee shirt on, but that’s ok, he was only asked to leave when he started yelling “A thousand terrible deaths to you and your shyster families” as the kiddies became a bit afraid. The Hannible Lector Mask came in handy though a few times, especially when he started calling all the realtors, “Clarice.”
Good news though, Tony the Gino came down and bought a slew of townhomes as an investment. He chose the middle sections for added privacy, only windows at the front. He kept wanting to pay more than the asking price, so we threw in some 30 oz carpet to sweeten the deal. Four Finger Watson came, of course he was wearing “it’s just a blip” tee shirt. He convinced Tony to buy the townhomes so that worked out well. He was only asked to leave when, as many of you don’t know, used his 4 fingers to grab himself in inappropriate ways.
Smoking man came, he had his tinfoil hat on, trying to connect to the mothership. He wasn’t able to communicate with the aliens, but his yellow teeth seemed to glow in the dark and the kids enjoyed it as part of our, glow in the dark display. He was able to get great Cell phone connectivity from our numerous Cell towers, he said that the radiation from the towers were making him feel alive again, so that worked out well.
A special sorry to, Garth that you were turned down entry into our festival, it’s just when you rolled up on your Harley, with your ripped abs and gorgeous wife, we knew that the men from Milton with their “dad-bods” and frumpy wives, would start questioning why they were driving around in a white Kia mini van. We prefer that their quiet lives of desperation not become too disturbed. You know with all your talk of “investing and diversification” well we just thought people would become confused about why they poured their life savings into a particle board house, with faux brick accents. We hope you understand.
Anyway have a great week everyone, I hope to run into some of you at Walmart or East Side Marios!
Ker-Plunk on 08.08.17 at 8:06 pm
There is a kids game called Ker-Plunk. There are 30 sticks stuck through a cylinder and 32 marbles piled on top of the sticks. Each player gets a turn removing one of the sticks. The loser is the guy that removes a stick and the marbles fall through. Think of government policies as the sticks being removed and the marbles as house prices. At some point it will be one policy to many.
__ __ __ __ __ __
The Big 5, sub-prime lenders, Family Credit Union*, private borrowing, former Federal government’s (and BC) misguided mortgage loosener policies**, and CREA have been jamming in sticks in the game tube for almost a decade.
It’s high time a few sticks were removed allowing a few marbles to drop.
*Bank of Mom & Dad
**The Reformicons (Harper-Cons) flipped-flopped on housing regulation during their tenure, twice! BC government introduced foreign-buyers restrictions and then went ahead with help for first time buyers!!!!
https://www.theglobeandmail.com/real-estate/mortgages-and-rates/seven-ways-jim-flaherty-changed-the-canadian-mortgage-market/article17600143/
#63 Response to houses will likely be more expensive in 10 years than they are today:
i think the completely unsustainable increase in house prices primarily as a result of artificially low interest rates was a once in a life time event, most of the unjustified gains if not more will be lost in the next 18 months as the reality hits the real estate sector
rates will return to historic averages and remain there in all likelihood home values will remain very close to adjusted after crash values for a couple of decades if not longer time will tell.
central banks and politicians will be loath to get painted into a real estate fiasco such as the one unfolding now in the future.
Turns out Cohodes was right about Home Capital. The fraud was much bigger than most of us believed. How many of these liar mortgages ended up in mortgage pools backstopped by the Canadian taxpayer? Only time will tell.
http://www.hcgexposed.com
This could explain a lot in YVR and The Big Smoke:
http://www.huffingtonpost.ca/2017/08/08/airbnb-property-owners-sucking-up-canadas-housing-supply-repor_a_23070814/
To my impostor few places up.
You guys know that corect speling eloquent dude is not me.
Thar mortgage pre approval doube we buy half 5% oh how smart i am could not be more farted from the truth, it was actually opsite, and you are almost corect for interest rate 1st term was over 4%.
funny thing branch manager that signed of on our mrtg, gave us book… every time since then i see “guy” i ask any more book for us. He doesn’t think its funny but i do.
I know you are wondering now what is mystery book, value investing by Ben… Graham or Automatic Millionaire by Dav.. Bach or Swing Trading power strategies buy JD Markman.
Plz stop trolling me dot you see that i am an impulsive and have no self control.
press play
https://www.youtube.com/watch?v=vyztAr3CBg0
#99 Mayor of Milton on 08.08.17 at 9:23 pm
^^^^^^^^^^^^^^^^^^^^^^^^
Do you have any vacation time shares available?
Did the sky ever fall in Calgary? The guts dropped out of oil prices but I haven’t heard a peep about their housing market (yes I do “try to keep up” lol).
Severance packages must have run out by now and an MEC job won’t carry the payments on a mcmansion, so what gives?
No rules coming. Banks don’t like it. Period
If they apply the 3% rule on renewals and the equity test then if the lender declines renewal the most likely scenario is a high rate open renewal during the period of time between maturity and the payout by a new lender
Unfortunately for the small but ever growing number of borrowers who will face this the monthly payments will skyrocket
Most borrowers pay on time and as long as their equity
is good and beacon good they should be renewed at the going rate
But for some others who are offered renewal but at a sharply higher rate of .5-1% then those will shop and
Probably be stuck in the higher rate open mortgage and then in rage be forced to renew at the higher rate but lower than the open
“Wow, half sounds high. ”
One thing to keep in mind is that the uninsured stuff on the Canadian banks’ balance sheets is fairly low ratio. Is there really any way that, for instance, a 30% LTV loan written to a dentist is going to default? No reason in the world to have insurance against those sorts of loans, nor to worry about them.
As this maximum lending has caused ‘peak pricing’ of the collateral, the banks can now rationalize the risk premia they will slap on debt as the collateral shrinks in value.
Exactly! I’ve been writing about this for years. Spreads have been expanding in the post-2013 peak era (as has bank profitability) as the banks inch towards their goal of converting assets of the borrowers to their own through credit.
So the housing crash dude is back, wishing decent hardworking people all kinds of harm and calling them “shysters”.
Hmm….a psychopath and an anti-Semite.
Charming.
No surprise that OSFI mortgage stress-testing is part of this governments arsenal.
Yes, we are dramatically off peak housing values over the past several months.
But let’s be realistic, the year over year increase as of March 2017 was market euphoria disconnected from any semblance of economic reality. The Canadian housing market ascended to oxygen deficient heights that even our American cousins never came close to reaching*.
Is it any surprise the price drop is historic? It was beyond absurd from the get go!
Have year over year valuations dropped dramatically? Not quite yet in most markets. This is the key metric in my opinion. By late Fall 2017 or early Spring 2018 we should have a better idea.
Is this correction just a blip? I hope not, but many folks believe this to be the case despite what this blog peddles.
Today’s post illustrates beautifully just how far folks will go to drive the market doing an end run around regulation.
Have Ontario/BC regulations really slowed this freight train? Not sure we have enough data at this point in time to determine if this is temporary or an ongoing trend.
OSFI has the power to slow or stop this freight train if need be. If required, it’s certainly the next logical step.
It’s also their job to ensure “prudential regulation and [monitoring] institutions for solvency, liquidity, and safety and soundness.
I suppose OSFI could become an emasculated lap-dog of our banks and corporations, much like the bond rating agencies in NYC and the SEC did prior to the 2008 World Financial Crisis! That didn’t work out so well ….
*Before Wall Street burst the bubble peddling worthless mortgaged-back paper poisoning the world financial system.
#100 Mayor of Milton
Great post. You left me in tear from laughing so hard. [email protected]$king funny bro.
Chose a flag, make a stand. New Orleans is sinking and I can’t swim.
https://youtu.be/gYlmofOhnhM
What a road trip
Shawn: Why is the govt doing all of this over such a short time frame when in previous years they set policy in order to encourage home buying?
to protect the system
people bid more and more on houses as they took on more and more debt
the US Fed steadily increased interest rates
Canada followed
the banks and the government regulators became nervous
Home Capital Group ran into financial difficulties. It was a small player but it revealed the thinking of the big players
Smoking Man sold
the banks and government regulators see that the housing market is about to crash and put in place measures to protect themselves.
The rumor had been spread in the YVR that one of the local North Shore realtors is now selling single, developable lots on the Moon and on Mars. Mars is still quite affordable he says! You will get a title certificate and the satellite will determine your lot measurements to the exact specifics. One must have an escape plan from this planet when SHTF. Buy now or be priced out forever!
If the rules already in place have slashed CMHC covered mortgages & the rules being proposed will increase the number of mortgages not covered by CMHC, does that not mean the risk is being held by the financial institution holding the mortgages in question? So, would not the banks/credit unions et al not demand the borrower pay higher interest to help offset the risk? So those institutions hold greater risk, but garner more profits (for now) due to higher interest rates. On the plus side, presumably if one can’t get a loan then one does not end up shouldering far too great a debt load. On the other hand, if that means people are seeking out less than reputable outfits to fund them, I can’t see this ending well.
It’s too bad this is all about 10 years too late. Now they’ll just crater the economy. Genius folks, genius.
My brother-in-law privately rents from his landlord (who resides in another jurisdiction (Quebec)) with no rental agreement in place. I suspect attempt to avoid such an agreement may relate to the landlord not reporting rental income (amongst other speculative guesses). The CRA is after my brother-in-law to prove his relocation within the same remote, arctic hamlet.
In terms of tenant-landlord legislation, which jurisdiction regulations apply – the jurisdiction of the civic address of the actual dwelling or landlord’s address?
-AG:Q
Whoa, did not see that coming.
Most expensive yvr RE deal last week was for a town home!
Crazy expensive town home of course.
Must be some sort of record in Canada, surely?
But it says something about the high end market, that the mansions in pt Grey or Shaughnessy are no longer selling.
http://www.vancourier.com/news/5-priciest-home-sales-in-vancouver-july-24-30-1.21720350
Well it’s about damned time this got dealt with. This stupid country has been drunk off disproportionate returns from real estate, and a return to fundamentals is necessary for Canada to have a future.
Bring it on.
@ #28 Zed in Geneva on 08.08.17 at 7:10 pm
Eastern Townships, QC (Sherbrooke / Magog)
111 Honest Realtor
What happened? dishonest shyster was taken? Maybe shysters like yourself will turn to fiction writing. You will need to be more creative. The few one liners you and your fellow shills have used for a decade are now a little old and useless. Much like your shyster profession. Just dont become a crossing guard. you will try and scare child into crossing the street at the worst time. “hurry…. cross now or never” .Wishing everyone a Happy Housing Crash!
My friends burnaby house assessment up to 1.6 m from 1.2 last year I bet it wouldn’t go up and I lost. I still can’t believe how much it keeps going up in van I see stats saying down but my friend showed me his assessment so I had to pay. Seems like this blog may have giving the worst advice of the decade. Still think it crumbles but the shot to the upside is staggering.
A good topic for a post would be Airbnb.
Apparently that’s out of control in Toronto.
Do people pay tax on that?
#95
Funny that the friendly banks are raising rates even before the hikes are announced,I bet another small hike before the September rate hike is implemented.
I can realistically see bank rates over 4% by December, add on 2%-3% stress test and voilà a tripling of the rates in a year.
Next years qualifying rates could be close to 10% by years end,so a $600,000 mortgage would now be $5300/ month at that time,TDS would be a $16000/ month take home required to carry that mortgage,should be interesting!
Sorry but confused about your statement that Credit unions could fail …..affecting depositors?
Are there some that are not insured by CDIC…Canadian Deposit Insurance Corporation? $100,000 per different account?
Did not know that some Credit unions are less regulated. Very enlightening. Thanks
I believe MERIDIAN is regulated …and it is covered by CDIC.
Maybe CDIC has never been really tested?
I give up!! The average house in Vancouver will be $10 million in 5 years. There is no end in sight.
“Half of all the mortgages on the books of the big banks are not covered now by CMHC insurance. ”
…ups… itmeans our banks are on the hook :)
I am happy that slowly but surely you’re coming around Gartho baby.
..so we’re going to a bailout. This will actually GUARANTEED that shorts on banks WILL BE PAID in full.
Precisely my point a few posts ago :)
Truly yours,
“The Breathlessly thick”
(as you baptized my nom du guerre on your blog)
:)
1003 SEMLIN DRIVE, Vancouver, British Columbia V5L4J9
$2,399,500
—————–
one new listing in the area maybe for flop to track.
i believe it went for 1.35 a year or two ago.
full reno and flip. 2.4 is stupid, it’s a half sized lot.
not worth more than 2.0 on a good day.
they will have to do a flop-drop for sure.
no other new listings in ages. nothing available prices not budging.
#105 – NoName: My apologies, didn’t realize there is a blog dog which commonly uses the NoName name. No impersonation intended.
#90 – Reality 1: Maybe I am not understanding something about CMHC and mortgage insurance. If someone comes in with 20%+ down-payment, and therefor is not required to pay for CMHC insurance, is this mortgage still insured by CMHC but the premium just paid by the bank, or is this mortgage not insured at all? Meaning, if the borrower defaults, is the lender insured? I am assuming that the mortgage is not at all insured and if the borrwer defaults the lender stays with the collateral only. (please correct me if I’m wrong).
Following you example, if a borrower scrapped together a 20% down-payment and leveraged himself to the nose in order to not be insured, and then goes bankrupt, I am fine with that. The borrower who made a stupid call suffers and loses their home (which would have happened regardless of the insurance), and potentially the lender loses some if the value of the collateral (house) collapsed.
What I have an issue with is a borrower who puts 10% down, borrowed way more than he should have (encouraged by the bank to take it on), then went bankrupt and now the lender gets the insurance money from CMHC, meaning, from all of us. (well, of course there are the premiums payed into the insurance pool which not all taxpayers pay into, but I assume in a really bad bubble burst and financial crunch some money from the general government coffers will find its way to the lenders).
More generally, I don’t think the government should be insuring lenders who give money out so easily. There is no incentive for the lender to scrutinize the borrower ability to repay if they know the government will pay them in case of default.
This is why I am happy to see the stress test. Just like any insurance scheme, the insurer wants to know that the insured is taking reasonable steps to not get into the trouble for which he is insured. When you buy medical insurance the insurer makes sure you are generally healthy (or you pay more in premiums), when you buy car insurance, the insurer makes sure you are a decent driver (based on prior claims and police records) – if you are not you pay more. But when a mortgage is insured by CMHC there was no scrutiny that it was given prudently – the only qualifier is the down-payment, which is not a predictor of the borrower ability to reply. This is why the stress test is fine with me: this is the insurer way to make sure the insured object (a mortgage lender in this case) has taken reasonable (v. unreasonable) risk.
Much like #98 – paracho, I think this should have been there the whole time, but better late than never.
Ya Ya Ya…..we all know housing is stupidly unaffordable, thats why no one on this rueful blog is remotely interested in buying a home. Garth give us more investing insight to keep all these boomers on the path to eternal happiness. Markets have been uppa for so long people forget the crushing blow a major correction can give. Way back when it was recommended to scoop up CPD and ZPR i did and they have been stellar for me in my cash account. This is the what really drives my enjoyment here. Thanks again, I read ,I learn and I pay it forward to many others.
111 Honest Realtor
Aw, Happy HC hurt your feelings, cause he speaks the truth ?
Maybe you want some stinky cheese to go with your Shyster wine ?
You should ask that nice man, the Mayor of Milton to give you a job doing something, before all the other guys at the office do !
@#100 mayor of milton
Dear Sir/Madam?
I look upon your posts with a perverse glee.
Like a flaming car crash at an Indy 500 track or a slow motion replay of football players ridiculously bent legs……
I just cant stop looking.
Does Milton have a “Tourist Appreciation Day’?(TAD for short).
I would love to visit! The methane gas at the local landfill seems particularly enticing but the metallic flavoured cotton candy has me wanting….
Do you have highrise buildings in Milton? With elevators? Or is it a lowrise mecca? Surely the hotels are multistoried…with elevators……
Perhaps I could organize a conference for fellow elevatorios…..
It could be an explosive economic blast.
@#111 “Honest Realtor” Bwahahahahahaha
“Hmm….a psychopath and an anti-Semite.’
********
Ahhh yes.
When all else fails…….. attack the person.
Pathetic
P.S. When you’re helping the kids cross the street in your new job.
Remember.
They actually trust you to tell truth that its safe to cross
#77 Cdn Mom on 08.08.17 at 8:38 pm
If these items all actually are pushed through, it’s a great time to be a landlord.
——————
Before you start counting on it, take a look how rents have fared in other crashes and corrections. In Calgary, for example, they have dropped 30 to 40% over the past couple of years. Generally, investors give up on selling and rent as a way of covering their asses, just as you plan to do, so stock that has been kept off the market becomes available. At the same time, the poor economy means people move back into their parent’s houses, or stick it out with more roommates, so there is less demand. It is always better to be a landlord on the way up.
Happy Housing Crash Commissioned Sales “people”
( my apologizes to people)
#29 First on 08.08.17 at 7:12 pm
“First”
—————————
Worst “First” ever… 29th!!
“Did the sky ever fall in Calgary? The guts dropped out of oil prices but I haven’t heard a peep about their housing market (yes I do “try to keep up” lol).”
Yeah Calgary pricing is down ~30% from peak 2011 levels.
Anecdotally a lot of easterners who moved out are essentially trapped in Calgary at this point.
“Mayor of Milton”. You are awesome. I don’t usually read lengthy comments, but yours are amazing. So funny, so clever, so good!!!!!
Forget about house prices. Dooms day will arrive on September 23,2017. As the solar eclipse happens, North Korea and US will unleash their nuclear war head to decimate humanity.
August 21,2017. In 12 days, solar eclipse will consume all light and left the world in darkness.
#59 M on 08.08.17 at 8:05 pm
Ding! Ding! Ding! We have a winner folks!
Like sheep to the slaughter…
It’s been good reading what people think about the RE market, especially 416 & YVR. I have learned much from you all.
Living in Italia and looking to return to Canada.
I have to say, I have never seen this much turmoil and uncertainty in Canada about RE for quite some time, going back to the early ’80s?
I posted why OSFI was worried and I agree with them, I would be worried too if I were a bank regulator if the BoC stats are correct.
From what I am reading from Garth and commenters here of late, I think it best not to make any snap decisions to return and buy into RE or even rent for that matter in 416 and YVR.
This OSFI +2% stress test will be a RE killer.
So far, the vast majority of mortgaged RE buyers are avoiding the high ratio mortgage stress test with +20% downpayments that from the BoC it reads they are barely able to scrape that amount together.
Now, they will be subject to it as well.
So that’s the ENTIRE mortgaged RE buyer market having to qualify at higher rates than they will actually pay.
Crazy if you ask me!
OSFI and BoC must be very worried about a RE crash to plan such draconian measures in mortgage lending.
Staying put in boat sinking RE Italia for now, well, until the dust settles either way in Canada.
#68 jess
That’s great for Mr Richard Murphy. While this works on a macro, 10000ft view, it does not for individuals, for money injected into the economy is not distributed even remotely equally, neither is it taxed equally. So it is hardly the ‘perfect tool’. Thus, outcomes favor those who are favored to benefit the most from new money and those who know how to avoid taxation, which makes for the most boring Venn diagram ever.
to # 117 Linda
The big (41 % drop) in CMHC insured mtges means that funds were borrowed elsewhere (3rd party) to be “bundled” with the buyer’s less than 20 % downpayment (usually the buyers only have 5 to 10 % themselves) to make it up to the 20% requirement.
These buyers are then getting 80 % first mtges, telling the lender they have the 20% downpayment.
This avoids the CMHC insurance premium and pretends that to the lender that the buyer is stronger financially than they are.
This also means they are far more leveraged as they owe part of that downpayment to the 3rd party lender (who only gave them the money for 1 to 3 years typically and at much higher interest rates).
It also means that they are UNINSURED, which puts more risk on the lender without the recourse to CMHC if the mortgage goes bad.
This “bundling” violates OSFI rules and OSFI knew it was going on as HCG , Equitable and others disclosed this .
OSFI said 3 or 4 months ago that they are “studying this”.
Think about that – knowingly underwriting conventional mtges (20 % downpayment and uninsured !!!) that really only have 5 to 10 % of the borrowers money on the line.
And these financings were done at peak valuations which went up as much as 30 % from last year alone !
And yes, the risk is on the lender that lent the 80% mortgage and, of course the 3rd party lender who will take the first hit if the mtge goes bad.
Of course it will not end well – if you bought before April / May 2017 the “bundled” downpayment equity is already wiped out ! (with GTA prices reportedly down 19 % from the March 2017 peak).
reply to # 131 NoName 2
1) If the downpayment is 20 %, then no requirement for the BORROWER to get and pay for CMHC insurance. (lump sum of up to 3.75 % of the mtge amount) Therefore the mtge is UNINSURED.
2) However, the LENDER can purchase insurance from CMHC to cover the mtge (often at 0.15 to 0.20 % of the ntge amount), but is not obligated to do so.
3) If the mtge remains uninsured, any loss must be paid by the lender.
I completely agree that at 10 % down that it is ludicrous to insure the lender’s potential losses.
Statistics show that the less equity in the house, the more likely default is.
What is even more ludicrous is that the 10% downpayment guy gets the same interest rate as the guy with 20 % or more down.
Think about that – you have buyers with less financial strength (more leverage) able to compete with buyers with more financial strength (less leverage) and paying the same interest cost !
Now you know why housing demand went ballistic and the prices with it. Borrowing capacity was greatly increased for those that had little money.
Its a government sanctioned (and insured) “house of cards” (pun fully intended) predicated on ever increasing prices. Its a one way economic model !
If house prices decline substantially, the model fails and badly so.
Incredible that Canada would allow this after the recent experiences of the USA, Ireland, Spain where economists said that the house price level would never decline and look what happened when it did!
House price declines were the proximate cause of the disasters that followed due to the leverage that was allowed, crushing the home equity ( that people were using in droves to spend in the economy or build up for retirement).
That Canada has followed such a flawed and dangerous model after its repeated recent historical failures is prima facie evidence that these policies were political in nature and INTENDED to pump up housing prices (to ‘save’ the economy). These are desperate measures that were then gamed and abused by the mtge industry, the RE cartel and the average Joe or Jane.
That is why we are where we are now in the Cdn housing market (standing on the precipice and staring into the abyss) and why, in my humble opinion, barring some miracle, where we are headed.
Remember, this is affecting prices at the margin which ultimately affects the whole market.
Whether you own your home outright or not does not change the fact that it is worth 19 % less in the GTA market than where it was several months ago.
Big deal ?
You bet it is if you have a big HELOC collateralized against your home equity.
“… I don’t think the government should be insuring lenders who give money out so easily. There is no incentive for the lender to scrutinize the borrower ability to repay if they know the government will pay them in case of default.”
Yes, it’s called moral hazard.
https://en.m.wikipedia.org/wiki/Moral_hazard
https://en.m.wikipedia.org/wiki/Risk_compensation
The next day, right at dawn,
Sun got up, Earth was gone.
The capitalised nouns in that Neil Young song were people, but it makes a thought for abstract consideration.
And please don’t tell me the sun is always up, it’s a song.
to # 128 Westsider
Get real.
Unless the buyers are paying all cash, no one is giving anybody a mtge with payments of 50 to 60,000 a month unless they can show multi million dollar incomes.
Nope, barring a government induced miracle, the math does just not work.
Unless you think that there is an endless supply of dumb really rich people in the world, this is pure hype on your part (and probably a lot of despair).
#119 arctic gringo re your Q:
The Physical address of the property would determine the applicable landlord/tenant legislation .
copy’s of utility bills, any goverment mail, noa’s etc should be enough to satisfy them
sounds like the cra is actually after the landlord.
“Tail risk”
Tail risk is developing your Game and then contracting an STD.
The housing markets in Tor and Van (I refuse to call them YYZ and YVR – those are airports, people) have reached hair on the tip of the tail risk levels.
General comment
Don’t be fooled by the recency bias of the past to look to the future for Cdn RE prices.
I was buying light industrial buildings, 65 to 80 % tenanted and good cash flow positive income with 7.5 % mortgages in the mid 90’s for less than replacement value.
How?
The banks demanded up to 45% down cash without personal guaranty, 35 % with personal guarantee.
You’d be amazed (will be amazed) at what constricting credit / increasing its cost / decreasing its availabilty can do to RE prices.
# 2 King West (downtown Toronto – King and Yonge ) sold for Cdn $120,000,000 tenanted in 1988 /9 and eventually resold untenanted for Cnd $14,000,000 in 1996 / 7.
Not a typo – go check the numbers.
My friend bought an empty 60,000 sq ft seven storey building on Wellington Street West in downtown Toronto for Cdn $ 1,500,000 in 1996.
That was less than the value of the actual bricks, mortar and windows alone LESS THE LABOUR to build it and the land it sat upon.
So, history has some pretty big lessons to teach about restricted credit conditions.
Everything I have read indicates that Home Capital, while not a chartered bank, is a federally regulated institution. It therefore falls under OFSI supervision, and would be subject to these rules. Am I wrong?
Although this will be buried, it’s worth reminding people that the ROOT cause of this mess is the irresponsible behaviour of Harper and Flaherty. THEY are the ones who pushed 40 year amortizations and changed the rules to create this gas bag.
The current government inherited an untenable situation and are attempting to fix the mess that Harper made.
Blamingthe current government for this mess is remarkably partisan and frankly, foolish.
Government at all levels have been real estate pimps, and bear a direct responsibility for the mess now befalling us. — Garth
For the past 17+ years, interest rates have been ratcheted stupidly low, FIRE went completely mad because of it and far too few have had to qualify as they once did.
It’s been a kool-aid fueled, economy-decimating party, with the bulk of Canuckleheads polarized on practically nothing but re.
The promise of instant wealth through re caused greed to surface big-time and that weakness was exploited to the hilt by FIRE, jockeyed along by by the suits at CMHC, the BOC and gubbmint for the nice influx of tax revenues and resultant GDP figures.
Fools who borrowed too much and may see their “equity” decline can just suck it up and learn about the behavior of money and its relative value.
There will be fallout because of the new regs, but it’s a small price to pay for a healthier economy.
Anyone can understand the desire to get ahead in life by securing a scrap of land and pressed cornflakes, however exploiting that passion to the extent that FIRE and tptb have has let loose a school of fiscal piranha.
Today, our national, provincial and municipal economies are pock-marked with deficits and debt. Some has come by way of the usual dumb-ass spending, but much more is the result of spending hubris on salary increases and such like in the belief that this party would never end.
Employing other credit products to support mortgage debt and “crossing fingers” in the hope that life circumstances will not change over 20 to 30 years is colossally stupid and simply continues to destroy our economic future.
It’s way past time for a return to prudent fiscal policy when it comes to lending. If T2 does nothing else during his tenure, let it be one of returning to lending to those who can afford it so that the healing can begin.
He saw the Home Capital Opportunity?
#59 M on 08.08.17 at 8:05 pm said:
Thus the payoff to Buffet,the govt will now drive a lot more people to HCG,seen this one from a mile away!
*******************************************
Saw it coming? So how many Home Capital shares have you bought, especially now that the price is substantially lower than the peak it reached after the Buffett rescue?
Home Capital and OSFI
Some asked if OSFI regulates it?
Home Bank and Home Trust are listed under who we regulate
http://www.osfi-bsif.gc.ca/Eng/wt-ow/Pages/wwr-er.aspx?sc=1&gc=1#WWRLink11
street with mansions in san fran goes to auction sells for 90k …say what?
http://nationalpost.com/pmn/news-pmn/san-francisco-street-sells-for-90k-neighbours-arent-happy/wcm/57b602d6-7d16-4ab6-854a-79f35dff63cf
Stress Tests would not be needed
Stress Tests would not be needed and stress would be a lot lower if CMHC and the banks and regulators had simply worked together to put in a securitization system that allowed banks to offer 25 year fixed rate mortages at low rates like they do in the U.S.A. This would have required changes to rules around securitization of mortgages in Canada.
Someone could have been a national hero by putting this in place. Probably too late now.
at # 157 InvestorsFriend
Why should he buy HCG yet ?
You would wait until further revelations of fraud and the restrictions / oversight that will be placed upon them as a result of this fraud or further writedowns of their book.
Then Buffet comes forward,like he did at Salomon Bros in the 90’s after their Treasury Dealer scandal, and guarantees that things will be run properly under him(after he buys the next 19.99 %).
Buffet hasn’t even put a body on the Board of Directors nor done due diligence – that old alligator moves slowly and deliberately when he catches his prey.
The equity could go to zero, but Buffet will end up controlling it, maybe even take it private.
“These steps should have been taken 10 years ago by Harper.”. Can anyone name one elected government anywhere that has been proactive? I doubt it because every elected government is elected by electors being retroactive.
It would be nice to think that every few years Canadians sat down and decided which party had the most effective view of the path forward but we don’t. We always choose the party promising the most action to rectify the problems already on the books. So much for “Sunny days, sunny ways”.
I never liked our closet Reform PM because of his policies’ of status quo governance in a world of change.
Trump and North Korea
Trump’s reaction to North Korea’s nuclear tests is a serious problem. Trump could cause a war, possibly a nuclear war.
Why should North Korea give up its nuclear ambitions?
The Ukraine I believe gave up it nuclear weapons on the promise that NATO would defend the Ukraine. I think it is fair to say that NATO reneged on that deal. Lesson learned for every other country.
https://www.bloomberg.com/news/articles/2017-08-09/canada-july-housing-starts-at-annual-rate-of-222-324-units
Nope. No correction yet.
Housing starts are not the resale market. — Garth
World Government
World government is sometimes talked about on this blog. It is coming. We can’t have multiple nuclear nations.
In a world where one country can destroy the world or pollute it badly we can’t allow that to happen just because some terrible person gets in power. World government is needed.
Even to stop horrible human rights abuses, world government is needed.
Einstein said before Hitler came to power that Nationalism was juvenile. He was right. The notion of completely sovereign countries is a concept which is rapidly becoming obsolete.
Airbnb, the international private accommodation online booking service
https://www.therecord.com/news-story/7491412-sleepless-in-stouffville-airbnb-scam-brings-unwanted-guests-to-home/
…”three couples showed up in succession, two girls from France, a couple from Whitby, and, the capper, a couple from Pittsburgh at midnight, all saying they’d booked stays through Airbnb.
“It’s very unnerving, it makes me question how valid things are on the internet,” Christina said
Reality 1 on Buffett and Home Capital
#161 Reality 1 on 08.09.17 at 9:36 am responded to em:
at # 157 InvestorsFriend
Why should he buy HCG yet ?
You would wait until further revelations of fraud and the restrictions / oversight that will be placed upon them as a result of this fraud or further writedowns of their book.
Then Buffet comes forward,like he did at Salomon Bros in the 90’s after their Treasury Dealer scandal, and guarantees that things will be run properly under him(after he buys the next 19.99 %).
Buffet hasn’t even put a body on the Board of Directors nor done due diligence – that old alligator moves slowly and deliberately when he catches his prey.
The equity could go to zero, but Buffet will end up controlling it, maybe even take it private.
***************************************
Well, I liked your comment on real estate bargains at 153. Smart!
The reason to Buy Home capital if you can get it not too much above what Buffett values it at (he paid $9.55 and has offered $10.30 for the next block) is encapsulated in my Rule Number 1: “Always assume that Buffett is correct.”
We can buy Home Capital total at about $13.30. I have not bought but have considered it. I hesitate partly because I considered buying at about $7 and decided against it. So it hurts to pay $13 now. But at $7 pre-Buffett it was a bankruptcy risk. Today that risk is much more remote due to the Buffett rescue.
I have studied Buffett extensively.
He rarely puts anyone on the Board of companies he invests in. When he does it is because the company asked. He ONLY invests where he trusts the CEO and Board. In this case he trusted the Home Board to choose a good CEO.
Agreed that Buffett moves deliberately. But he does not move slowly. He is lightening quick and this has been a huge advantage of his for decades. He almost never changes his mind. Once he buys a major stake in a company it is almost for keeps. He reserves the right to sell anything but almost never does sell out when he takes a huge percentage of a company. When he buys an entire company especially from a founding family he basically promises it will never be sold.
He will shut down a company if it promises unending losses. This very rarely happens. I think he pretty much shut down Dexter Shoes in the 1990’s after he bought it although some of it was rolled into another shoe company he owned. Of course the Berkshire textile operation was shut down in the early 80’s.
The last controlled company that he sold may have been Hochschild, Kohn & Co (third rate department stores) bought in 1966 and sold 1969 according to 1989 letter. Before that Dempster Mills Manufacturing bought in 1961 and sold in 1963. This was before he starting promising owners that he would never sell. By the way, Dempster almost became his investment vehicle it could have become what Berkshire is had he not sold it. He had Dempster buying lots of stocks.
Buffett does not control Home Capital but with a 20% stake he is in pretty much for keeps. It will be interesting though if owners vote not to let him buy another 20% at $10.30
It is dilutive in a sense but will be worth it to ensure Buffett / Berkshire stays with the company. I think he may have already pretty much promised to stay. The second purchase should be approved out of sheer gratitude.
Looks like the risk is getting trowelled on thick and heavy in the GTA RE market. Some folks just have to learn the hard way, too bad this lesson will cause drowning homeowners to either bail out of the country, or pay for that lesson for the rest of their lives. Those fool lenders look like they’ve got plenty to worry about too.
Meanwhile, far outside the GTA and GVRD; things are getting interesting at the IHCTD9 compound. Pretty soon the usual summer outside work will be completed, and the focus will shift to preemptively offsetting major future tax increases that will come about as a result of decisions being made today by Wynne and Trudeau.
I’m going for the big ones: gasoline and heating fuel. Electricity was on the list too, but since Wynne recently lowered hydro bills (not to be confused with lowering hydro costs) by converting some of our bill into debt plus interest – I’ve put it on the back burner for now. Electricity supplementation will save me huge – but not till we have to pay back what Wynne has borrowed along with interest, probably 5-10 years from now.
#100 Mayor of Milton on 08.08.17 at 9:23 pm
I think I am starting to enjoy your posts more than Happy Housing Crash Everyone!
Smoking Man, you need to step up your game. This is how you entertain commentators without getting DELETED.
Hey NoName,
CPD down again today…just around where I break even of course.
/despair
MF
#21 David on 08.08.17 at 7:02 pm
We’re run by flakes and idiots, from coast to coast.
_____________________________________________________
LOL!
Like most of you, the articles and comments on this blog make for one of the (if not THE) most entertaining reads on the internet (thanks to our host for that), because of response’s like this.
A friendly reminder: The actor that plays Peter Schiff is the same individual that played/plays Pee Wee Herman. That’s how lost you are if you listen to Peter Schiff. – XD
#157 InvestorsFriend… A friendly reminder to you: Warren Buffet is a fake character played by an actor. The crime organization that this figurehead privately runs, is freaking out big time (due to these publicly displayed revelations that anyone can independently verify, and they are left taking on these pitiful deals like the HCG fiasco because there seem to be very little opportunities left to find real value in real businesses, so they go for these corrupt side bets with their family members in prominent positions (Bill Morono and JTruDough).
CMHC has been pumping the bubble with banks. Said analysts at CMHC “No fear of housing bubble”. Organized crime!!
Now they can scratch each other’s back.
No worries.
Buffett is sitting on 100 billion cash.
He’ll come to the rescue.
#155 brian on 08.09.17 at 8:14 am
Although this will be buried, it’s worth reminding people that the ROOT cause of this mess is the irresponsible behaviour of Harper and Flaherty. THEY are the ones who pushed 40 year amortizations and changed the rules to create this gas bag.
The current government inherited an untenable situation and are attempting to fix the mess that Harper made.
Blaming the current government for this mess is remarkably partisan and frankly, foolish.
………………………………………………………………….
Government at all levels have been real estate pimps, and bear a direct responsibility for the mess now befalling us. — Garth
__________________________________________
The incoming government knew exactly where the housing situation was and know that they can only slow down the process. They won the election they now own it! They are however hoovering up taxes from us guppies at an alarming rate and spending that money in extremely foolish areas to prop up T2’s popularity in the world as the second coming of the messiah. He is out of his league in politics and understanding the economics of business in general. What would you expect from a spoiled rich kid who has never worked a day in his life like the other 99% anyway.
T2 (Selfie Boy) will simply be known as a failure for producing zero jobs in Canada, increasing our burden with an inordinate amount of non-contributing refugees and going after every single penny he can steal out of our pockets to keep the charade going.
Canadians:
OSC actions on HCG today with their pathetic fines and no disgorgement of profits on sales of shares while senior management lied to shareholders and leaving the current management in place (who aided and abetted this travesty) is all you need to know about housing and law in Canada.
You live in a banana republic – expect peanuts, not justice let alone the enforcement of the rule of law.
@#155 Brian, Zero & Forty mortgages were introduced in 2006, and eliminated in December 2008. What has happened to home prices since?
It’s time to stop blaming Zero & Forty mortgages for the mess we are in today. They were an exacerbating but temporary factor, long since removed and overtaken by more recent developments. Mortgage terms than haven’t been available for almost a decade cannot be blamed for today’s prices.
#162 Livin Large on 08.09.17 at 10:07 am
It would be nice to think that every few years Canadians sat down and decided which party had the most effective view of the path forward but we don’t.
__________________________________________
Wynne lowers hydro bills by creating a public Corporation specifically to take on new debt and pay OPG the shortage created by her price chop. This debt is to be paid back with interest after her mandate ends. Her popularity increases…
Trudeau makes all kinds of totally and obviously bogus promises, takes selfies, does photo-bombs – and voters totally eat it up actually believing that Trudeau is awesome, and give him a majority.
Tory raises business owners property taxes 100+%, but at least he’s not as embarrassing as that last guy.
Hate to say it, Canadians are stupid. Never used to be this way, but have to call it like it is.
That’s why I’m doing what I’m doing. The whole Country will eventually look like NL with 350+ new taxes and fees, big increases in existing taxes, special “deficit reduction” taxes that are “temporary” (right…). NL kept voting stupid, and now they’re reaping it big time.
At some point, it won’t matter how well the economy did last quarter because debt service costs are the number one most expensive budget line item.
My expectation is more of the same, and future politicians that make T2 look good. Only way it doesn’t happen is if a great fear grips the majority of Canadians for some reason or another.
Bill Buzenberg is the former Executive Director of the Center for Public Integrity, a Pulitzer Prize-winning investigative news organization in Washington, D.C. He was previously vice president of news for both National Public Radio and Minnesota Public Radio/American Public Media.
http://dashboard.securingdemocracy.org/
Publication
The Methodology of the Hamilton 68 Dashboard
Aug 7, 2017 | By J.M. Berger
Blog post
Hamilton 68: A New Tool to Track Russian Disinformation on Twitter
Aug 2, 2017 | By Laura Rosenberger, J.M. Berger
About GMF
The German Marshall Fund of the United States (GMF) strengthens transatlantic cooperation on regional, national, and global challenges and opportunities in the spirit of the Marshall Plan
http://www.gmfus.org/node/11742/archive
Reality 1
————————————-
Thank you for taking the time to share your thoughts today. Soothes the chaos in the head, reading your logic.
High Bank Credit Ratings are Baffling
I documented at number 40 that Royal bank has skinny common equity ratio of just 5.5%.
Banks are typically very highly leveraged like that. Despite the leverage they have some of the very highest credit ratings. Royal Banks senior debt credit rating double A minus from S&P.
Meanwhile monopoly distribution utilities have equity ratios around 40% and get high credit ratings of around single A minus. Lower than the banks. This is baffling and has been the case for decades.
Banks, at least in the U.S. occasionally go bust. Monopoly distribution utilities almost never go broke. (I think the one in New Orleans almost but not quite did after the Katrina hurricane)
Most monopoly distribution utilities in Canada cover large territories and it is almost inconceivable that they could go bust. Yet with an equity ratio four to eight times higher than banks they get a lower credit rating.
Could the credit rating agencies simply be wrong? For that answer see “cause of 2008 financial crisis”.
Home Capital Management?
#177 Reality 1 on 08.09.17 at 11:47 am
Canadians:
OSC actions on HCG today with their pathetic fines and no disgorgement of profits on sales of shares while senior management lied to shareholders and leaving the current management in place (who aided and abetted this travesty) is all you need to know about housing and law in Canada.
You live in a banana republic – expect peanuts, not justice let alone the enforcement of the rule of law.
***************************************
Actually almost the whole Board (or at least a majority) has been replaced and there is a new CEO.
Reality 1:
The big (41 % drop) in CMHC insured mortgages means that funds were borrowed elsewhere (3rd party) to be “bundled” with the buyer’s less than 20 % downpayment (usually the buyers only have 5 to 10 % themselves) to make it up to the 20% requirement.
These buyers are then getting 80 % first mortgages, telling the lender they have the 20% downpayment.
This scheme avoids the CMHC insurance premium and falsely declares that the buyer is stronger financially than he is. This also means they are far more leveraged as they owe part of that downpayment to the 3rd party lender (who only gave them the money for 1 to 3 years typically and at much higher interest rates).
It also means that they are uninsured, which puts more risk on the lender without the recourse to CMHC if the mortgage goes bad.
This “bundling” violates OSFI rules and OSFI knew it was going on as HCG , Equitable and others disclosed this .
OSFI said 3 or 4 months ago that they are “studying this”.
Think about that – knowingly underwriting conventional mortgages (20 % downpayment and uninsured !!!) that really only have 5 to 10 % of the borrowers money on the line.
And these financings were done at peak valuations which went up as much as 30 % from last year alone !
And yes, the risk is on the lender that lent the 80% mortgage and, of course the 3rd party lender who will take the first hit if the mortgage goes bad.
Of course it will not end well – if you bought before April / May 2017 the “bundled” downpayment equity is already wiped out ! (with GTA prices reportedly down 19 % from the March 2017 peak).
So these buyers are under enormous stress. I’m thinking that they might pull the plug. So neither the bank nor the 3rd party get their cheque. All hell breaks loose – the bank and the 3rd party know the situation. The bank shows up at the door with a letter. The 3rd party shows up without one. I’m guessing the bank needs to prove that the down payment is fraudulent so it requisitions the buyer’s financial records. I’m guessing. Anybody know?
145 devore on 08.09.17 at 5:54 am
http://www.taxresearch.org.uk/Blog/2017/07/02/the-uk-national-debt-is-not-89-of-gdp-its-only-67-of-gdp-and-its-time-the-government-and-media-stopped-lying-about-this/
=======
Michael Anson, who works in the central bank’s archive, along with Norma Cohen, Alastair Owens and Daniel Todman from Queen Mary University of London, lay out in a Bank Underground blog just published, the loan was in fact a spectacular failure, with only some creative accounting from the BOE preventing a financial, and a propaganda, disaster.
under”other” on the ledgers
As part of a project looking at the financing of World War I, the ledgers of investors who purchased the 3½% War Loan have been analysed for the first time. These reveal the startling truth about the failure of the first bond issue of the Great War and the extraordinary role of the Bank of England in covering and then concealing the shortfall in funds…
https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/#more-3230
Next up: passing new laws that make it much harder to discharge debts in bankruptcy.
#155 brian on 08.09.17 at 8:14 am
Although this will be buried, it’s worth reminding people that the ROOT cause of this mess is the irresponsible behaviour of Harper and Flaherty. THEY are the ones who pushed 40 year amortizations and changed the rules to create this gas bag.
The current government inherited an untenable situation and are attempting to fix the mess that Harper made.
Blamingthe current government for this mess is remarkably partisan and frankly, foolish.
_____________________________________
Harper goosed the RE market in what seemed like a good idea at the time all things considered. Risky? Why yes. But you would have us believe H+F knew that Canadians would hit the pipe and go absolutely nuts buying up multiple houses for millions each?
The problem is what it is for the exact same reason that we now have a photo-bombing Kardashian wannabe douchebag birdbrain for a PM: Stupid Canadians.
No Canadian Politician ever put a gun to someone’s head to make them buy Real Estate
#169 SimplyPut7 on 08.09.17 at 11:01 am
#100 Mayor of Milton on 08.08.17 at 9:23 pm
I think I am starting to enjoy your posts more than Happy Housing Crash Everyone!
Smoking Man, you need to step up your game. This is how you entertain commentators without getting DELETED
________________________________________
H’re, h’re, mr may’r, i believeth yond thou art a most wondrous ‘rat’r and can convey thoughts of wisdom in an articulate fashion.
@#68 Jess, that Richard Murphy is a kook. The idea that government services (current spending) can be financed by debt, and that any consequent inflation can be controlled via taxation, is economic sorcery. Worse, it leaves the government in control of the entire economy, though one suspects that is his ultimate objective.
Assuming the economy really worked that way (it doesn’t) growth would no longer depend on risk taking, on innovation, on investment, on business formation. Growth would be 100% mandated by how much money the government wanted to print, minus the amount it taxed away to repay the debt. How likely does that sound? If that were even remotely true, the last ten years should have made us all tremendously rich!
Alas, we know that real increases in living standards cannot be had from a printing press. Economic growth is not simply an arithmetic by-product of money supply expansion. Ask Zimbabwe.
Ontario Securities Action on Home Capital
Penalties against the individual executives should be the focus.
Innocent long-time share owners are penalized when a company has to pay a fine or settle class actions. I would fine and penalize only the individual executives who did wrong.
The OSC should also examine its own huge role in causing a panic and run on the bank at Home Capital. The impact of that dwarfs the harm from the original late disclosure of the frauds by some mortgage brokers. frauds. They nearly sent the shares to zero when they are supposed to be trying to protect investors. Some shares need to go to zero and the sooner the better. That was never the case with Home Capital.
#170 Mf on 08.09.17 at 11:03 am
Hey NoName,
CPD down again today…just around where I break even of course.
/despair
MF
—
Just checked my cpd is positive, plus distributions, I ok there. But what scares me is
https://i.ytimg.com/vi/6pjql6r8s0o/maxresdefault.jpg
Joe buys house at the peak for 1.5 Mil @ 2.4%. 5 years later when it’s time to renew, house is worth 1.1 Mil, Mortgage principal is at 1.3 Mil, and rates are 5.0%. He’s euchred right there.
Original payment on 1.5M @2.4 was $8724.00
Stress test on 1.3M @ 7.0% is $9105.00, and at 8.0% is $9922.00
Plus the bank will ask for 200 grand cash to fix his negative equity problem on top of having to pass for a 5% higher payment.
I wonder how many Joe’s are out there?
Trump and North Korea
Trump’s reaction to North Korea’s nuclear tests is a serious problem. Trump could cause a war, possibly a nuclear war.
163 InvestorsFriend
Why should North Korea give up its nuclear ambitions?
The Ukraine I believe gave up it nuclear weapons on the promise that NATO would defend the Ukraine. I think it is fair to say that NATO reneged on that deal. Lesson learned for every other country.
———————————————–
NATO didn’t promise anything. The Budapest memorandum, signed by Russia and some NATO countries said they would respect Ukraine’s territorial integrity if they gave up their nuclear weapons.
#191 NoName on 08.09.17 at 2:00 pm
…But what scares me is
https://i.ytimg.com/vi/6pjql6r8s0o/maxresdefault.jpg
____
Nothing to fear. K.J.U. can’t be that stupid. Lobbing a nuke at the USA? NOBODY’s that dumb. NK’s Nuke would maybe have a 10% chance of making it to US air space. Meanwhile all 10 ICBMs the US launches in retaliation will land dead on target. Then there’d be one less communist country in the world, not that anyone could live anywhere near NK for a couple centuries after that. I’d imagine anyone living on China’s Northeast coast, everyone in South Korea, most of Japan, and even a bunch of Russians would also have major issues with KJU launching Nukes at the US.
#163 InvestorsFriend on 08.09.17 at 10:16 am
…Why should North Korea give up its nuclear ambitions?
__________
Yikes! (part deux)
#192
Lots unfortunately,at my work an engineer I work with is carrying $900,000 mortgage at just over 2%,he is already is panicking,looking for weekend/evening work to lower the mortgage.
He said he never expected rates to rise this fast,figured that they would stay low forever as govt couldn’t afford to raise rates and screw over the Canadian homeowner.
The new stress test is obviously working as this guy is really stressed!
Investor’s Friend #158:
So what you’re saying is that the Banking and Trust company arms of HCG are regulated, but the mortgage lending arm, not so much?
#192 IHCTD9 on 08.09.17 at 2:42 pm
Not sure how many Joes out there that will be underwater but I do know a few Richie Richs that still believe money is to be made in RE.
One particular Richie Rich is a CFO with a combined family income of +200K. Has a house in Oakville that he paid $800K for a few years back. Moved out of Mississauga because too many “immigrants” were moving on his street. Irony is, he is a 2nd gen immigrant. Drives a Tesla model X. Anyways, his latest “investment” is putting a deposit down on a $850K condo in the upcoming Nubu building scheduled to be finish in 2020.
When I asked why? The answer was at $850/sq ft for a 2 bedroom, it is a bargain. I go, what if prices go down by 2020? Response was, no problem, will list condo on AirBnB!
Can’t make this stuff up!
Never pay more than you can afford to lose.
#194 IHCTD9 on 08.09.17 at 3:24 pm
#191 NoName on 08.09.17 at 2:00 pm
…But what scares me is
https://i.ytimg.com/vi/6pjql6r8s0o/maxresdefault.jpg
____
Nothing to fear. K.J.U. can’t be that stupid. Lobbing a nuke at the USA? NOBODY’s that dumb. NK’s Nuke would maybe have a 10% chance of making it to US air space. Meanwhile all 10 ICBMs the US launches in retaliation will land dead on target. Then there’d be one less communist country in the world, not that anyone could live anywhere near NK for a couple centuries after that. I’d imagine anyone living on China’s Northeast coast, everyone in South Korea, most of Japan, and even a bunch of Russians would also have major issues with KJU launching Nukes at the US.
—
Russ and Chi are just sitting on side lines and laufin…
Ok we are safe i understand that part, but how about regular working stiff in NK and SK… It is unfortunate for them that they live there, but as a species we should strive to extent human life not to shorten it. Keep in mind i am no pacifist my self.
http://nypost.com/2017/08/03/why-china-wants-north-korea-to-be-a-nuclear-threat/
#198 n1tro on 08.09.17 at 4:38 pm
I know a few people in that same situation, bought a condo or two, because they were tired of hearing about everyone getting rich from real estate.
Many of the developers in the GTA are trying their best to finish projects early, to transfer ownership to buyers to get them to pay in full for the home, before they realize the party is over and bail on the developer. One person I know, who has a condo unit that is being built faster than they expected, is now worried about the closing costs of $8,000 – are they serious? They bought a condo downtown Toronto for $300,000 or more but $8,000 is going to put a squeeze on their finances?
It’s a millennial of course, didn’t know that owning property was going to make them house rich and cash poor. So I asked what they want to do, they are going to try to sell the unit because they don’t want high housing costs affecting their vacations and spending habits.
#66 the Jaguar on 08.08.17 at 8:15 pm
Totally agree. Like wtf do they think they’re doing.
It seems I have touched a nerve.
The gist of my comment is buy real estate and hold on to it. Don’t buy more than you can handle. Don’t try to make real estate a substitute for a job. I know this is not very exciting, but it will keep you solvent. The days of Real Estate Glamour are over. Don’t buy the TV Realtor Kool-Aid.
“This boom is dead. It is no more. It has gone on to meet its maker. It has expired, This is an X boom.” *
Please be careful, and don’t BTFD.
* Credit Monty Python skit.
Kim Jong-un is an example of what happens when a Lefty gets too much power.
It’s written “tout de suite”, not “tout suite”.
“It’s written ‘tout de suite’, not ‘tout suite’.”
You just gave me an idea for a new product: a candy you can play like a fife. We could call it “toot sweets”.
What do you think? Too pedantic? :)
Too late. Send your royalty cheques to the estate of Dick Van Dyke.