When a reporter asked me this week what major cities housing refugees from Vancouver or Toronto should explore to find “a bargain”, the answer was simple. None. There are no bargains just before real estate values decline. Only wealth traps. Especially for first-time buyers who cannot afford losses.
The reason is simple and it’s called B-20. The forgettable name is “Residential Mortgage Insurance Underwriting Practices and Procedures” and it emanates from the banks’ regulator, OSFI. Freaked out at the size and growth in mortgage debt, along with what looks like a rapid decline in the quality of that debt, OSFI has proposed tough new borrowing guidelines which it says, “will be issued in autumn 2017, and will come into effect shortly thereafter.”
It sure looks like a game-changer, as this pathetic blog heroically explains. The main consequence will be a stress test every person taking out or renewing a mortgage must pass, proving they can afford payments at current rate +2%. If financial circumstances have eroded or house equity faded, it’ll be current rate +3%. If you want a home loan from one of the Big Six, that’s the rule sometime after Thanksgiving.
Why is this happening?
Because (a) interest rates will be upped by the Bank of Canada another four to six times over the coming years, (b) mortgage debt is out of control and a third of borrowers say last month’s single quarter-point hike is already hurting them, and (c) down payment money from the Bank of Mom has completed screwed things up. Parental cash has purposefully skirted rules designed to protect people from borrowing too much. It’s love gone awry.
For years now anyone with less than 20% down has had to buy mortgage insurance – protecting the lender from default. Knowing rates would rise, the feds brought in a stress test last year to ensure these insured borrowers could make payments if loans rose 2%.
Of course, large numbers of them couldn’t. The way around it was to get enough cash (somewhere, anywhere) to crawl over the 20% line. That way their loans would be uninsured. No test. No stress. As a result, CMHC-insured loans plunged more than 40%. The proportion of uninsured loans soared. Now the big banks have mortgage portfolios fat with the debts of first-time buyers whose borrowings should have been covered by CMHC, but are 100% the liability of the lenders, should spit hit the fan. This worries OSFI hugely.
As reported here, uninsured mortgage growth is 14% a year. Huge. Eight in 10 mortgages in the GTA or YVR – the most inflated markets in the galaxy – are uninsured (thanks, mom), and half have 30-year amortizations, suggesting the borrowers couldn’t handle payments on 25-year plans. Almost a third of all these uninsured borrowers have debt-to-income rations of 450% or more. Gulp.
Summary: Insured loans went down 41% at the same time real estate activity rose, the number of borrowers increased and overall mortgage debt swelled. This did not happen because incomes spiked, but because the rules were broken. The money flowed from other sources – family or subprime lenders, with the borrowers then lying to the banks about the source of it. That way they qualified for 80% first mortgages, avoided CMHC insurance and ended up with extreme leverage – all to buy assets at peak price.
The bundling of down payment loans with bank loans violates federal law. It puts the banks at greater risk. And in the GTA, where prices have fallen about 20%, thousands of these buyers have seen 100% of their equity evaporate and are now under water.
So everyone will soon face the stress test, regardless of how much you’re putting down, or what equity is in the home upon renewal. People will qualify to borrow less. The mortgage industry figures about 18% less. So it’s fair to assume that’s the next drop in prices – everywhere. From Halifax to London to Kelowna.
Yes, there will still be ways around it – such as borrowing from your local, crazed credit union where real estate exposure is extreme and regulations relaxed. At least for now. But because the Big Six dominate the residential mortgage market, the impact of B-20 changes cannot be understated.
Meanwhile the average down payment gift from parents to moisters in households making $100,000 or more is now over $40,000. Let’s hope Mom has a bunch more money to bail junior out when prices fall, rates rise and that first loan renewal comes round. Stress, baby.
174 comments ↓
Watching CSX.US as leading economic indicator for US.
…
Saw China is getting 400kmh bullet trains, soon.
Here in Kommunist Kanada we get…more bike lanes. And as I said we’ll not hear again on Syrian refugees. No the push will be Asylum seekers.
Watch the strain. Nothing left to chance.
Great pic!
Looks like a scene out of eastern Europe !
Hehe CNBC just flashed that chart and others. “Trouble in Transports?”.
We have both B channels on mute at work.
That old lady remind me of my G-ma (moms mom), we called her Babushka.
No word of the lie here.
All I can say is it’s about time
Disclaimer:
Never by gold, its a terrible investment.
I lost a fortune my self.
You make it sound like a new thing, my parents constantly offer to give me money for a down payment (i am not an idiot so i dont take it). But every time, they tell me how their parents gave them money for their first house, and my grandparents received money from my great grand parents for theirs as well. So its not a new thing, to have parents helping out their kids.
Clearly that cant be the cause of the current problem as it has been happening forever.
Rates are at an historic low (and rising) and prices at an historic high (and falling) with unprecedented household debt. The past is no guide. — Garth
“But I can always wait a year and flip it”
– Every idiot that bought this last year, probably.
http://globalnews.ca/news/3691046/bc-green-leader-calls-for-foreign-buyer-limits-on-agricultural-land/
There should be a cat in that pic
The perfect storm.
Excellent.
Too bad many Canadians did not learn their accounting lesson on loan interest principle and period of time to pay back loan/mortgage.
Too often people only look into the near future and are afraid to take into consideration the full future of the loan/mortgage pay back period.
I am amazed how many people I know who have no idea what will happen when their 5 year mortgage renewal date happens and the bank of mom is broke or non existent….especially with the historical high amount of the loan /mortgage.
A lot like those loyal Trump supporters who think only short term and like too many politicians…Trump is one of those snake oil con politicians/salespeople who like real estate agents that keeping pushing the mathematically deprived individuals to pay exorbitant housing prices based on just the first phase of mortgage payback ….how about the long term mortgage shackles….too many salespeople have low or no morals lacking honesty. Better know that many salespeople including mortgage lenders have no concern for others long term well being. ….and won’t be there when the tears flow and one is forced to sell the house….with a huge mortgage attached to it.
In the stupid land down under our banks have been issuing 50% of home loans as interest only! Not to mention the Lenders insurance has paid out most of the premiums it received as dividends to its shareholders so that when the collapse comes it will last about 13 seconds.
#217 Reality 1 on 08.23.17 at 4:52 pm
to # 193 Henny Penny
What is it with you guys ?
closed in 3 weeks
Proof ?
did you simultaneously close on another property ?
i.e. do 2 deals back to back in 3 weeks ?
and arrange to pay off one mortgage and obtain another also in that time ?
3 weeks is very fast, especially in a hot market where all real estate related transactional services slow right down.
and, what were the circumstances of your sale ?
cash buyer?
private sale?
did you try to close during peak holiday season?
was your lawyer a close relation?
did you have to discharge a mortgage?
did you use a real estate specialist lawyer or someone in general practice ?
did you pay a premium rate to expedite the sale ?
was it actually 21 days (3 weeks) from sale to close – check the dates.
and oh yeah, would you have a problem in posting your MLS listing, etc. to verify – cause Doug t. couldn’t even do that
Heck, even Smoking Man, as f’d up as he is half the time, managed to at least post his listing and details.
conversation over – unless either of you respond with some credible proof
#220 Reality 1 on 08.23.17 at 5:02 pm
to # 21 Leo Tollstoy
Ah, Leo
The master of the meaningless one liner.
Substantiate your difference of opinion or don’t bother commenting.
What were the circumstances of your ‘fast closing’ experiences.
Do tell.
/////////////////
Garth is it still a full moon.
You sure do attract a strange bunch.
Post your listing as proof. Ha, ha. I guess I could have but the house sold May 25th
Sorry Realty but the deal was done and cash recieved June 15th. 3 week closing, start to finish. Could have been done in two weeks easy but I didn’t want to move the date up as the buyer requested.
And if it makes you happy to hear there was no mortgages on either end of the deal.
And another thing, peak holiday season?
Sales are down 50-60 %, you think some real estate lawyers might have some extra time?
Frustrated much? Maybe you should meet with Smokie at one his rub and tug sessions and release some stress.
I hear he has a coupon from Groupon for a two for one with a happy ending
Good news for elitist Toronto and Vancouver Yuppies and Millennials.
I am tired of these Hipster Yuppies playing do-gooder SJW elitist socialist champagne liberals causing everything to increase in price in our communities.
Can you believe it? Toronto Yuppies are overbidding on housing at Steeles Ave West because of a bike lane.
Mark was right. Deflation will happen in Canada because once the cheap money runs out, ZAP! No more Starbucks, Designer stores and over-budgeted police departments to stop street harassment.
So what happens if the house is worth less than the mortgage in 2 years time and you’re up for a mortgage renewal?
Does the person have find cash for the difference? If so, what if they cannot?
You sell and hope to raise enough to cover the debt. Or walk. — Garth
The main consequence will be a stress test every person taking out or renewing a mortgage must pass, proving they can afford payments at current rate +2%. If financial circumstances have eroded or house equity faded, it’ll be current rate +3%.
————–
Wow.
First, the big six mortgage brokers were turning a blind eye to where the down payments for buyers were coming from. They didn’t care about the risk because prices were going up and everyone got caught up in the frenzy.
Second, doesn’t this mean you are stuck with your bank for the life of the mortgage? They can do anything to you, and you won’t be able to leave them to go to a lender offering a lower rate. Most first-time home buyers who bought in the last five years in the GTA and YVR can’t afford the current rate + 3%.
Last, what does that do to people who bought new homes that are under construction, do they automatically have to go to a credit union or private lender to get the rest of the financing?
The OSFI proposed – not a done deal – changes sound just like the 5 year new moister killing stress test brought in last October. That was going to wipe out 15-20% of the buyers and prices were to plunge. Instead, prices kept going up and up and spread to all parts of BC and Ontario.
Sorry, zero faith after a decade of failed cooling federal measures that this will have any impact.
And who is to say that there will not be a significant way around this new test just like the failed stress test brought in last year?
As an example, shadow banking is big in China – it could easily emerge here.
Or you could see a provincial stimulative measure counteract the new federal rules (IF they actually get approved and implemented).
To counter federal cooling measures, BC implemented the BC Home Buyers Program that gives people who should not buy up to 37.5k for a max 750k house. And guess what happened – condos, whose prices were dormant and the last bastion of affordability, went through the roof while this site posted the ‘collapse’ of the Vancouver market.
The reality is that someone will find a way around the OSFI changes – IF, and big IF, they get implemented, or a provincial government will do something to counter any declining market.
Remember, the Ontario provincial government could rescind the 16 point fair housing plan which has caused the TO collapse, and up go prices again. The GTA collapses preceded the rate hikes so its clear that the provincial measures are key levers.
Or the credit unions could be become bigger players or you could have another Home Capital Group bailout and infusion of liquidity to bolster their market presence.
I guess we will know in a few short months if low interest rates and domestic speculation is really the cause of this bubble.
I am willing to bet that come January, after 3 months of the new rules, the market will be similar to the one now. And no, not a realtor’s take – a take from someone that has closely watched 8 years of failed federal measures to curb the market, starting with the elimination of the 40 year mortgage in 2008…
So, whose interests does OSFI protect?
Seems like it’s not the populace’s.
The banks, of course. — Garth
Sir Garth:
Am I first again?
That’s probably not an isolated data point. The slow down is palpable everywhere including Europe.
Eventually even the lowest rates and best financing conditions are not able to afford the sky high valuations.
Markets are stalling and when rates rise the price melt starts. Speculators trying to get out before they get caught with their pants down. Builders shutting down projects when they can’t find financing. Trades not finding work because there are fewer projects offering contract work.
It’s a vicious cycle and when it starts, there is little that governments can do to turn it around. Flooding the global economy with yet more money is not the answer this time. Prepare for a construction recession at best and a depression at worst.
Markets may be regional but housing lust was contagious across the country. With some luck, the T2 gang will fast track long overdue infrastructure spending in this country.
Those damn Boomer Mothers……loaning money to their GenX or Millenial brats…….
Its all the Boomers fault……again……
With this stress test, I picture everyone sitting in the electric chair with dire expressions. And sounds like a lot of people are angry with the whole situation, don’t blame them. Have our leaders from all levels forgotten how to run a community, province, nation?
Sounds like Andrew Weaver of the Green Party is speaking up for the agriculture land. Anybody else speaking for the people in their area? Anyone that has a leader for their area?
As for #74 IM in C…about “Her Majesty (God Bless Her) owns every square inch of land in Canada…” Yeah, was taught all that but could not understand why was that since the First Nation people were here before the British. The British had designed paperwork to claim it was their property. Always thought that was arrogant and wrong.
Stress, baby. -Garth.
………………………………………………..
Yes, I was on my own at 17 with nothing. No big deal. I learned how to live independently, and fast.
By the time I was 20, people 20 looked like kids to me.
I have been Blessed to live a wonderful life ever since.
I like cash, cash flow, income streams, liquidity, balance, diversified assets, and, of course, no debt.
Also, I live by my own Golden Rule values, which enable me to be stay free of either- the indifferent, the bad, or the good opinions others have of me. I must. As I am a man.
#1
Freedom First
Master of Freedomonics
Its my life
Why the Stress Tests Are Needed
The main consequence will be a stress test every person taking out or renewing a mortgage must pass, proving they can afford payments at current rate +2%. If financial circumstances have eroded or house equity faded, it’ll be current rate +3%. If you want a home loan from one of the Big Six, that’s the rule sometime after Thanksgiving.
Why is this happening?
**************************************
It’s happening in good part because OSFI and CMHC and the powers that be failed to introduce a system where buyers could lock in a low rate for 25 years and yet still have open repayable mortgages like they have in the United States. At least this might have been an alternative worth exploring.
In a world of five year mortgages, given at record lows, it simply makes sense to have some kind of stress test around higher rates at renewal.
Tuscan style Villa di Fonti on the market for 28 Mill.
In Surrey, of all places.
God, sometimes I just wish I’d wake up and realize that the last 15 years of RE in Vancouver were just a frigging nightmare.
Re: Picture
News flash:
Bonnie and Clyde come out of retirement and are robbing banks to help their offsprings by a house in Vancouver.
#10 Trexx on 08.23.17 at 5:24 pm
There should be a cat in that pic
—————————————–
What do you think the axe is for?
I have a friend in the GTA with one of those McMansions who has told me 1000 times that “real estate always goes up in value” … his retirement is contingent on an increase in the equity of his home … and he has a mortgage with a subprime lender which has to be renewed sometime soon … he never believed that interest rates would ever again increase because cheap money drove our economy … he has borrowed against the equity of his home for vacations and things … and he hasn’t worked for years because his McMansion kept increasing in value … it is a tragedy of Shakespearian proportions and I expect there are thousands (or millions) of others in a similar situation.
Wet coasters should be reminded that they live in the most seismically-active part of Canada.
And all it’s going to take is a slight shake of the table to bring down a house of cards – or a Jenga tower, for that matter.
Beat the race to the exits, sell out and move to Calgary now! Tell your friends, a six+ is coming!
New Home Prices in Metro Vancouver Reaches 7 Year High….
And you wonder why no one thinks Vancouver of Metro Vancouver prices are going down…if they actually are.
http://www.cbc.ca/news/canada/british-columbia/increase-in-new-home-prices-reaches-7-year-high-in-metro-vancouver-1.4244437
This is a good thing. Wynne and Trudeau need to be brought back to fiscal reality and so does the general public.
The Liberals keep winning because cheap money has enabled them to borrow to cover up their mismanagement of the country.
Our entire economy has been completely mismanaged. This will be evident once rates go up and our economy shifts from borrow and spend to produce and pay off debt. A really painful change most will have trouble accepting and will vote for any clown who promises to make the pain stop.
I can see some really nasty trade wars and currency wars starting if Trump scraps NAFTA. Governments will be desperate to prop up their ailing economies, and will really have a fire lit under them because of the massive amount of leverage rolling over.
Deflation threats remain ….. demographics (ageing populace) point to slower growth and lower returns.
Investors are bidding high for cash flow.
Maybe hang on to your rental properties …
If the banks were not being covered why did they lend amounts several times people’s income?
They deserve the potential losses
I never understood why we do not have tiered interest rates for mortgages based on credit score and how much the borrower is borrowing. I guess that’s socialism for ya!
….and Go Trump! He was on amazing last night.
If 80% of new mortgages are uninsured by CMHC and downpayment funded by mom and dad, does that mean mom and dad co-signed the mortgage so the kids could buy a house?
If so then it is great news to me. When rates rise and values crash the bank will foreclose on both homes owned by the kids and the parents.
That would almost make the last 10 years worth while, paying rent to a billionaire to live in a concrete box.
The thought of thousands of boomers kicked out of their homes is a very delightful thought indeed.
Regarding the avoidance of the 20% rule – surely those making the loans (banks, credit unions, other) are fully aware that some of the people taking out the loan are possibly lying about how they raised the cash. So my question is – IF those folks then default, what additional recourse would the bank have besides taking over the asset? My thought being that if (for instance) it is found you did not fully disclose the facts when applying for insurance (health or property) that policy is null & void – no payout to you should the insurer discover you did not tell the truth, the whole truth & nothing but the truth. While the two products are not the same – the insurer promises to cover a loss should your health or asset be damaged or lost whereas the bank is loaning you funds to purchase an asset that the bank then uses to secure the loan in case of default – surely a mortgage is a contract, so what recourse if it is discovered you lied when making that contract?
the reality is interest rates are changing very slowly and there’s no guarantee that rates will increase more than 2-3 times in the next couple of years. I predict they will hold off on further rate increases just to prevent the negative impact on consumer sentiment. Garth also doesn’t mention that most people have locked in their rates and wont see an impact for a few years.
meanwhile, for those in Vancouver the situation’s getting worse. I sold in March (with a decent profit) and wanted to rent a “detached with a yard” for my son to play in but couldn’t find anything below $3K. I was lucky to find a decent size condo for $2200 in rent. In just a couple of months the rents for condos of this size have jumped to $2500-$2600. Not only is the rental stock very low these days bidding is still happening on properties below $900K.
I believe housing prices will not reduce meaningfully in Vancouver for a long long time.
Beautiful post Garth! So much detail. Love it. You’re crushing it lately.
Happy Stress Test everyone!!!
Oh and yesterday, I know you didn’t recommend Russell 2000. I only raised as a) more signs of scaaary market valuation, and b) small companies that are supposed to be the growth engine of the economy losing money can’t be good.
Because, if it was covered, it would have been worthless paper…
to # 14 Henny Penny
So, no proof.
Garth certainly does attract a strange bunch alright – someone like you for instance.
You make statements you can’t substantiate and then make pervy , vulgar and sexual suggestions to try and deflect from the issue.
Making such personal and offensive remarks are more indicative of your frustration one might think.
Keep your low brow vulgarities to yourself in future please.
I like Garth’s blog but one thing he’s pulling out of his butt is his knowledge about credit unions. Look at the numbers Garth, the default rate on credit union loans is lower than the Banks. They’re way more conservative with their lending portfolios. Why you make stuff up?
Over 60% of total credit union loans are residential mortgages and some (Vancity, Meridien) far exceed that. Annual growth in mortgage loans (at 9%) is almost double that of the banks. Exposure to an inflated housing market is historic. — Garth
“I like cash, cash flow, income streams, liquidity, balance, diversified assets, …”
OK, but what actually underpins the “cash flow” and so called “diversified assets”? Usually it’s equities (now trading at many times earnings which you better hope will be there), or debt (bonds), or REITs. Yes, very diversified.
@bob dog #36:
Having mom or dad hand over cash for a down payment is one thing. Co-signing a mortgage is quite another.
In the first the parents are on the hook for the ‘gift’ alone, and maybe they have to work to pay off the loan for which they used their own property as collateral. The bank would only foreclose if the parents’ mortgage and /or loan were in arrears. This kind of family is one generation of stupid.
In the second scenario, the bank could act on the parents’ home if the child defaulted on the payments and the parents could not keep the children’s loan current. This kind of family is multi-generations of stupid.
#29 Fran Deck Jr. on 08.23.17 at 6:23 pm
I have a friend in the GTA with one of those McMansions who has told me 1000 times that “real estate always goes up in value” … his retirement is contingent on an increase in the equity of his home … and he has a mortgage with a subprime lender which has to be renewed sometime soon … he never believed that interest rates would ever again increase because cheap money drove our economy … he has borrowed against the equity of his home for vacations and things … and he hasn’t worked for years because his McMansion kept increasing in value … it is a tragedy of Shakespearian proportions and I expect there are thousands (or millions) of others in a similar situation.
———————-
Indeed, this scenario is playing out in a large % of households across the GTA and beyond… I know many in this situation.
The BoC recently revealed the magnitude of the problem here:
https://www.youtube.com/watch?v=0VwsAT82zqA
Alas, the over-leveraged will be crushed once the free/cheap $ spigot is shut off and inflated asset prices, particularly RE, inevitably correct – the beginnings of which, are just now coming into view.
It will be a bloodbath of epic proportions once the effects of falling RE prices really start to take hold across the country. And mom won’t be able to help, as she too will be devastated because literally all of her eggs – her entire retirement – rely on EVER INCREASING RE PRICES!!! LOL
https://media.tenor.com/images/54451401d52c0dd2fe9ee5752857d53c/tenor.gif
Garth, can you interview some people who went through the 21% era and lost their house. How did they recover from that ugly time?
to # 18 failed
Perhaps you didn’t realize that;
FOMO motivation is gone.
Credit has been restricted for ALL buyers now.
Sales volumes are down about 50% from peak levels just months ago.
Prices are down 20 % in 3 / 4 months – the fastest price erosion in any RE market that anyone can recall.
Doubtful that all will be cool in January – except the weather and the housing market that is.
But, you are certainly correct in saying that we shall see.
#33 young & foolish on 08.23.17 at 6:41 pm
Deflation threats remain ….. demographics (ageing populace) point to slower growth and lower returns.
Investors are bidding high for cash flow.
Maybe hang on to your rental properties …
————————–
“Investors” won’t buy your crappy NEGATIVE cashflow properties, those would be “speculators”, and they are currently exiting stage left.
Sell while RE is still way overvalued. Buy back in later at a lower price.
what jumps out to me from all this is enforcement.
when u talk to people coming from other jurisdictions to do business in this country the first things that jumps out to them is how easy it is to skirt the law…
bring in all the shiny new regulations and laws u want. doesn’t mean a thing because everybody knows the talent, resources, and will doesn’t exist to enforce them. whether it’s real estate (rampant double ending and more that will never be effectively dealt with) shady mortgage practices, banks enabling laundering, tax dodging, government waste and pocket lining (awarding contracts and jobs to all my buddy buds)
it’s just the way it is.
So if I’m renewing a mortgage in let’s say three years and there is significant equity in the home you’ll still need to qualify for the payments. If you don’t, then what? I thought that as long as your renewing with he same institution there’s no application required. Hoping someone can clarify.
Thanks!
If OSFI gets its way, there soon will be a requirement to pass the stress test in order to renew. It will not be automatic. If you cannot pass that test (a) you must pony up enough cash to reduce the mortgage principal to within the guidelines, (b) find another lender willing to take you on and pay out the first loan, (c) sell and hope for enough to retire the debt and buy beer or (d) walk, and face a legal nightmare. — Garth
#8 the ryguy on 08.23.17 at 5:22 pm
“But I can always wait a year and flip it”
– Every idiot that bought this last year, probably.
Lololol…yup.
Seriously looking at selling our place in the Tdot and moving to Markham where rents are cheap and houses are shiny and new, big and plentiful. And see where this market goes from here. I’ll get more house for my money, and I’ll be able to afford a new car from the sale proceeds. Suburbia, here I come!
to # 37 Linda
Good question.
Perhaps it would make the mortgage due and payable on short notice (with substantial interest penalties, fees, etc.) as the lender relied on the borrower’s representations to enter into the contract and advance funds.
Then you’d have to renegotiate, find a new lender, find the total sum or sell.
You’d have to check the mortgage document’s reps and warranties I’d imagine.
Also, don’t forget that many of these are “collateral” mortgages, so they can pursue your other assets, I believe, should you come up short.
to #42 – re default rates:
Why does everyone go on and on about how everything is just fine because the default rates are at record lows?
How can people like #42 not get that default rates are so low because in a market that has been going up like a rocket for years, you have to be incredibly incompetent to get to the point of defaulting on your mortgage! Anyone in this kind of trouble has had an easy out – by selling if things get really bad.
Watch for default rates to soar in the coming years – all the fools who are mortgaged/HELOC’d to the hilt will be first to default in a downturn, and take the bankruptcy option to avoid taking responsibility for their own greed and entitlement. All those expensive houses, expensive toys & cars, and expensive vacations will be paid for by their creditors, and ultimately by the rest of us who pay our bills on time and don’t live beyond our means.
Don’t feel badly though, as even CMHC and BoC people have mentioned the low default rates like it’s a sign of a healthy market.
Sigh.
to # 18 failed
Perhaps you didn’t realize that;
FOMO motivation is gone.
Credit has been restricted for ALL buyers now.
Sales volumes are down about 50% from peak levels just months ago.
Prices are down 20 % in 3 / 4 months – the fastest price erosion in any RE market that anyone can recall.
Doubtful that all will be cool in January – except the weather and the housing market that is.
But, you are certainly correct in saying that we shall see.
——-
Perhaps you failed to realize that the only market showing signs of weakness is the GTA market.
Meanwhile, Metro Vancouver new home prices reach new highs; condo prices up 20% in a year in Vancouver; priced out Vancouverites fleeing to the Fraser Valley, the Island and Interior, driving prices up up 15-20%; foreign buyer activity increasing; and zero commentary by the media on any correction.
Just because the GTA had their little blip of rapid price increases and is now witnessing just as rapid price declines, Metro Vancouver has been immersed in a bubble for over 8 years with 60% price increases alone in the last 3 years.
Metro Vancouver has been, and remains the epicentre of the housing crisis – with no substantive changes to date despite new federal cooling measures, recessionary growth,
Sorry, FOMO and easy credit for all remain very much a part of the Metro Vancouver landscape.
You have a fresh bag of popcorn and are watching the GTA correction unravel with lightening speed – BC’ers have a 8 year old bag of stale popcorn waiting for the darn movie to start as the price of admission goes up by double digits every year….
GT’s posts are mostly logical and written with a nice dose of common sense. This post is no difference.
However, from my point of view, as someone who has casually been following both this blog and the real estate situation in Vancouver and Toronto for the last 15 years, there is an air of futility around Garth’s writing regarding real estate…
As I see it, for a large majority of Canadians (including lawmakers), the real estate has become the main source of wealth. I would say 80% of Canadian middle-class has almost all of their wealth in their real estate.
Here in BC, take the example of two guys:
1. A dude with a well-paying job (say, $200,000 gross annually), and
2. A guy with a lousy job (e.g. $40,000 gross annually)
Assume that both of them heavily borrowed (with parents help perhaps) and bought a Vancouver West-side house 15 years ago for about $300,000. Their respective houses today are both worth 10 times that, meaning that even the dude with a lousy job feels very wealthy and is not much different in his total worth than the guy making 5 times more. This illustrates that the real-estate in Canada has been the great wealth-equalizer since the beginning of this century, and majority of common folks see it that way (either through personal experiences, or through their friends/family).
Thus, while GT’s arguments are generally rational and point out to the borderline crazy and unsustainable direction of Canadian real estate, especially in the major markets, it is hard to believe that anything substantial will ever happen to reduce the prices to even remotely affordable levels. In Vancouver, you would need to be making about half a million annually to afford a normal house – and how many Vancouverites earn that kind of dough. Less than 1%!
So why would lawmakers, provincial and federal governments, etc… change rules and cause real estate crash (yes, only the big crash would allow normal folks to buy) wen they themselves belong to this 80% of Canadian middle-class that has all their wealth tied in their real estate.
I don’t see it happening, as it hasn’t happened in the last 15 years or so, despite GT and blog dogs predicting it every single year… There is always something and prices bounce back up and keep going even higher. Just take a look at the last 20 years in Vancouver, for instance!
While I agreed with majority of GT’s thoughts and rationalizations over the last decade, it seems that house prices kept going up and borrowing interest rates kept going down, despite any logic.
That’s why I feel the air of futility around this blog, and I felt it for quite some time…
to # 42
Default rates are a lagging indicator.
By the time the default rates indicate bad conditions, the decline is well entrenched.
Check the default rates in the USA, Spain, Ireland etc. before their respective real estate melt downs.
Reading today’s blog I am reminded of that great movie from whatever decade with Demi Moore and Michael Douglas (Disclosure) where the message of ‘solve the problem’ gets repeated over and over to aid the protagonist (Douglas).
I am really hoping someone from OSFI reads this blog, because what they (OSFI people) have to realize is that the stress test based on a higher interest rate means jack sh_t if people applying for homes they cannot afford make mincemeat out of lenient policies at the big five plus.
This is a reference to non employment income used to show affordability. For example rental income income.
Follow the money..follow the rental income money, OSFI. If you really give a sh_t and want to be true regulators then zero in on extra income factored into the equation to meet the stress tests and how it is verified to be legitimate income. Maybe get locked in a cosy closet with some CRA representative who might know what was actually declared on someone’s tax return versus what airy fairy paperwork might have been used to beat that stress test. If you still don’t understand how the system is manipulated on an everyday basis by participants who hear no evil, see no evil, etc., maybe rent Godfather I and II. The best one was Godfather II.
The credit union does well because they are not greedy pigs! Had mortgages for 18 yrs. with C. U’s . The big greedy 6 always had higher rates. Smart people know how to shop around
to # 49 Genbizx
I don’t believe there is a “work around” for higher interest rates and mandatory stress tests – especially in a falling market.
It is troubling how many comments I see from people hoping that fellow humans suffer financial ruin and embarrassment. I will do my best to help anyone I can who runs into trouble. I think that is what Garth has been trying to do all along. We need to focus on what T2 and wild Bill are doing to this country and come up with good strategies to make this country great again. Point your anger in that direction and don’t get distracted by all the Trump nonsense either .
#42 Haha on 08.23.17 at 7:11 pm
I like Garth’s blog but one thing he’s pulling out of his butt is his knowledge about credit unions. Look at the numbers Garth, the default rate on credit union loans is lower than the Banks. They’re way more conservative with their lending portfolios. Why you make stuff up?
Over 60% of total credit union loans are residential mortgages and some (Vancity, Meridien) far exceed that. Annual growth in mortgage loans (at 9%) is almost double that of the banks. Exposure to an inflated housing market is historic. — Garth
——————
Completely agree with Garth.
Worked for a major Lower Mainland CU for over 30 Years.
Vancity feel it’s their moral and social duty to put everyone in a house.
Scary stuff when ideology dictates business decisions.
The few hundred bucks in paint to spruce up our rental house in Kanata is starting to look like a good investment.
Certainly not motivating me at open houses to buy the same thing down the street so I can start on the neglected maintenance and pay more for the privilege.
#46 Keith on 08.23.17 at 7:26 pm
Garth, can you interview some people who went through the 21% era and lost their house. How did they recover from that ugly time?
+++++++++++++++++++++++++++++++
It happened to a good friend of mine. He and his wife did the jingle mail thing, took the spanking and moved into the basement of his brother’s condo. Slowly they built there way back. Fortunately he’s a very smart and talented guy and he made a lot of $$$ and retired wealthy.
His advantage was that he was in his late twenties when things cratered, so lots of time to recover. If he was in his forties when that happened he would have been screwed.
Time is your buddy when you’re young and your enemy when you’re old.
well i guess if shtf you can all move back to mom’s. you grew up there, you know where everything is, i remember as a kid going to my grandmothers and my older brother said dont eat anything, you dont know how old it is.
old people dont know time,
why dont we intergenerationally live like in india or europe. maybe its a western thing, people getting their own place, paying top dollar for cheap wood , like really cheap wood, a cement foundation and some drywall sheets. what do you want for 700 grand. in europe its a stone house, only an earthquake will take it down.
i think its all bs. games people play, i was thinking of moving back to live with mom in her last few years, why do i care if my crackershack is worth a mil, my mom is too, if it drops to 200k which is probably what you can get it in most places in the world if transplanted their.
life is about family, this pursuit of money is truely a cancer that will kill you in the end.
OSFI? The Sumerian swindle needs lots of smoke and mirrors.
to # 54 Failed Measures
umm…
It’s not just the “GTA”, but an area of 9 million people in the “Golden Horseshoe” – about twice B.C’s population and home to 1 in 4 Canadians that is being affected.
Therefore, the GTA market would be considered the epicenter by it’s sheer size and economic metrics.
Perhaps Flop is just kidding us, but his contributions to this blog seem to indicate an unhealthy market in B.C.
@#46 keith
“Garth, can you interview some people who went through the 21% era and lost their house. How did they recover from that ugly time?”
++++++
A co-worker of mine lost his house and then his first wife……he never recovered financially……….
But, but you said Canadians always pay their mortgages and rarely default unlike the USA.
So what’s the problem?
@#36 Bob Dog
“The thought of thousands of boomers kicked out of their homes is a very delightful thought indeed.”
******
careful whatcha wish for, all those boomers will be penniless, homeless and in true Boomerati style…..shameless.
They’ll show up after their Round the World Cruise totally broke and needin’ a place to staaaaay.
Millenial. Can ya spare me a dime? Or a room?
Thanks buddy. I knew I could count on you rich Millenials to bail me out…..!
I know of a mid 20s couple bought a $1.9Ker last year with $600K from mompop. There is a LOT more stash cash for this market!
B.C. Greens push to end ‘speculative’ sales of farmland to foreign buyers
http://www.bnn.ca/b-c-greens-push-to-end-sales-of-farmland-to-foreign-buyers-1.837390
VICTORIA — The leader of the Green party in British Columbia wants to see the government ban foreigners from buying farmland in a bid to cool the province’s real estate market.
Housing prices in Metro Vancouver dipped temporarily after the previous Liberal government implemented a 15 per cent tax on foreign buyers last summer.
But Green Leader Andrew Weaver said buyers quickly started looking elsewhere for investment properties, including farmland, where the levy doesn’t apply.
Many non-residents are buying land zoned for agricultural use but instead of farming, they’re building large homes and selling the property for inflated prices, he said.
I can’t imagine this is going to end well. They’ve left correcting the lending imbalances too late in the game. 5 or more years of go this would have stopped people over leveraging themselves, but now it’s just going to exacerbate the correction. People not being able to renew mortgage is not going to help stabilize prices.
If the changes come at renewal time, this will lead to the greatest real estate crash in Canada. New mortgages are one thing. But applying this rule to people renewing will be apocalypse. If the customer is making mortgage payments, and even if property values erode, they would simply be foreclosing on properties they didn’t need to at the time. Not allowing time for conditions recover ( if they do) would be disastrous. Why dismiss the agreemtent if the payments are made? If they don’t have someone making mortgage payments for many months how will that help them? Oh wait, we had someone making payments, but we decided to foreclose because he couldn’t afford a 3 % increase in rates. Crap, now the property is sitting vacant for 9 months while we attempt to sell. All the while it’s losing value. Foreclosing on properties that people never missed a payment on and could qualify with current rates (Not +3%) would be crush them. Not to mention all the bankruptcies. I can’t see this happening on renewals. How can that possibly end well for any party? Its safe to put such a policy in place on new mortgages, but just imagine the chaos on renewals.But what do I know, I’m a small business owner about to be nuked by incoming tax changes. The powers that be can change the rules at will. Who we vote for can change as well.
And we are not even considering the fall out from NAFTA termination.. Trump will take T2’s lunch money.
#33 young & foolish on 08.23.17 at 6:41 pm
Bingo. A lot of boomers, flush with cash from previous home sales/huge increases in equity are buying condos for cash flow.
Don’t believe me? Go have a conversation with a group of boomers about real estate. See what they say.
#64 crossbordershopper on 08.23.17 at 8:22 pm
First solid post from you. Time and friendships/family above all.
#38 Nik on 08.23.17 at 7:07 pm
Bingo. Rents are rising too. If someone is paying an equivalent amount in rent (or even more) than they would by owning the property then 99% of would rather pay a mortgage. Most people think renting is crap (me included).
MF
““Investors” won’t buy your crappy NEGATIVE cashflow properties, those would be “speculators”, and they are currently exiting stage left.
Sell while RE is still way overvalued. Buy back in later at a lower price.”
That’s like market timing! From what I understand, RE investment is a looooong term proposition. Oh, and it’s never a good thing to buy negative cash flow.
#29 Fran Deck Jr. on 08.23.17 at 6:23 pm
Yeah but millions of those people have seen their equity rise like crazy too.
The last 15 years of rising house prices is greater than 2 months of “declines” from 1.3 to 1.2 million.
Those people are probably multi millionaires already. If they sold today, they wouldn’t get as much as April, but they would still reap great profits and be miles ahead of us “prudent” renters.
MF
Some heavy measures to drag the euphoria closer to reality. You can’t have that much artificial joy without some eventual real world pain. It’s necessary and perfect. They kicked the can down the road as far as they could and are finally trying to fix it. They over underestimated the stupidity of the average Canadian with a million $ of borrowing power. They have to protect people from themselves. Did you really think this could go on forever? Come on …… you can’t be that stupid.
Reality 1 on 08.23.17 at 8:30 pm
Perhaps Flop is just kidding us, but his contributions to this blog seem to indicate an unhealthy market in B.C.
///////////////////////////////////////
With the goings on of the last couple of days now is as good as time as any to do a recap of my findings of the last six months.
People seem to have forgotten that I had 12 screws and plate put in my foot and hardly left the house for six months ,which I chose to undertake this project to give back to this blog and I noticed it also help my brain from turning to mush.
The media tells us that condos are on fire.
My findings, yes in certain areas in certain price ranges this is true but it has not stopped people people from taking losses in the so-called affordable range of 500/600k
One building in Richmond alone I have 5 CONFIRMED PINK SNOW cases where they took a loss instead of waiting for the market to catch up.
Some of these condos that have taken losses were even bought way back in 2014/15 and still couldn’t turn a profit.
I have a slew of CONFIRMED PINK DRAWS ,where for whatever their reasons the owner decided to sell, going halves inexpenses to get the deal done ,padding mainly the realtors pockets in the process. Ptt payments are no doubt a boon for the coffers as well.
A lot of people on here said only the little guy at the bottom of the ladder would get stomped on and we have people taking losses on luxury condominiums ( 3million range)
People also seemed to think that certain parts of the city would be spared like the Westside of Vancouver and the North Shore but because of the dollar amounts involved and only a certain percentage of the population being able to afford these places, these exact places has seen the biggest dollar losses so far and also the potential for the most financial pain.
For someone to buy a house for 5 million and sell it roughly a year later for 4.4 ,which roughly translates into a 850k loss after expenses tell you that these people simply got carried away and bought too much house and weren’t balanced enough.
I am expecting someone to take a million dollar hit at some stage in the next six months,maybe 750k less and expenses to get across the line.
I think the new builds will still do alright for a while but some of my cases in the 6-9 million price range with a knockdown house on it are the most susceptible to taking the big loss.
I have 20/30 cases in these areas ,where they are on the hook for north of five million and seemed simply trapped.
The highest speculation I have on my books is for 15 million.
The lowest price bracket loss I can remember off the top of my head was an old condo that despite being under 300k they still took a hit.
I have a flip gone wrong a few blocks away from where live that I occasionally walk by that has been for sale for over a year and it is a reminder as to how long this is possibly going to take to play out.
Please be patient with me ,I do not fabricate anything and supply all the proof of my findings as I go,if I suddenly stop finding people in trouble I will stop doing my Pink Posts but from what I have seen coming down the pipeline you guys had better get used to me because I could be doing this for a while.
Lastly thanks for all the support in the last little while and also as I wrote the other day if you are not interested in what’s really going on then simply scroll on by my posts,I’m not offended.
I will keep doing it for the curious 20 or 30 people on here that seem interested…
M43BC
Also, don’t forget that many of these are “collateral” mortgages, so they can pursue your other assets, I believe, should you come up short.
This is wrong.
For anyone who cares re: collateral mortgage
https://www.thestar.com/business/2015/02/17/a-collateral-mortgage-can-trap-you-roseman.html
TD and Scotia only sell collateral mortgages.
RBC and CIBC offer conventional and collateral mortgages.
Don’t like 120% ratio? Open your mouth and negotiate it down to 100%
Life is hard
#37 in response to your question:
Most mortgage schedules have undertakings wherein the debtor essentially certifies that there statements concerning sources of funds for down payments and other representations are factual and true.
these clauses are usually buried in the fine print
in the case of a default in a CMHC insured mortgage the chmc will as essentially a insurance company require the debtor to provide reasonable documented evidence in support of his/her previously certified statements.
if you are not able to produce the documents or prof they will not approve a claim from the bank for cause
and essentially tell the bank they are on there own
up until recently most defaults have been handled by way of side arrangements allowing the debtor to sell and at least recover the banks interest in a given property.
now we are starting to see situations where there will be significant shortfalls after a power of sale process and in cases where the mortgage is insured by chmc, they are doing there due diligence before even considering covering any loss, quite successively in the
last couple of files.
so in response to your question if the CHMC can reasonably substantiate that the debtor made false or misleading statements in there application for the mortgage or the insurance on the mortgage the insurance becomes null and void,the debtor is legally liable for any damages (loss) and of course all costs related thereto.
Garth,
You did a great article on Duca a few months back. Could you take a look at Vancity? And what’s been happening with Duca now that its core lending markets are burning down?
#77 MF on 08.23.17 at 9:16 pm
Paper gains can vanish like 20-30% of those gains vanished since April. Its not possible for everyone to cash out rich. Think .com millionaires who went from rages to riches and back to rages again. Easy come , easy go.
Have a Happy Housing Crash Everyone! :-)
The Globe is cancelling its print edition in Atlantic Canada. This could have a huge impact on the next federal election. The Globe is JTs biggest cheerleader.
#73 Andrew
I guess you are considered with all those fraudulent mortgages trying to renew only for the bank to say how did you ever qualify in the first place? You must be a worried mortgage broker knowing tens of thousands of fraudulent mortgages are out there and everyone in the industry knows it’s true.
And in true politician fashion T2 can
blame the failure of NAFTA as the reason
for fiscal failure.
I’m a poet and didn’t know it.
https://www.youtube.com/watch?v=zfU3ObwugtY
@#53 JCH on 08.23.17 at 7:46 pm
BAM! The coming BOOM! that isn’t here until suddenly it is.
@Flop
Keep those stats coming, thanks for the inside perspective.
@#69 crowdedelevatorfartz
The inverse…Boomers living in Millennial basements.
Was wondering how the govs were gonna deal with the impending retirement crisis. A real estate driven lottery propelled forward by cheap money, FOMO, etc etc.
@#57 the Jaguar
Nice!
@MF
Calm before the storm. Things always get worse before they get better. We are talking about irrational human behavior and human sentiment can change overnight. T
@Blacksheep
Sell! Take your gain and split. In the meantime try a scoobie snack.
@Reality 1
Keep on keeping on!
@blogdogs
Is our friend ‘Happy Housing Crash’ more like Jim Carey, George Carlin or Robin Williams?
@Happy
Take it away!
Possibly a dumb question here, from Down Under (where we have a similar property bubble), but please, please someone explain to me how we can have prices falling 20% on this blog, while prices in Metro Vancouver soar 6.2% to record highs – http://www.cbc.ca/news/canada/british-columbia/increase-in-new-home-prices-reaches-7-year-high-in-metro-vancouver-1.4244437 ???
#85 Happy Housing Crash Everyone! on 08.23.17 at 10:19 pm
#77 MF on 08.23.17 at 9:16 pm
Paper gains can vanish like 20-30% of those gains vanished since April. Its not possible for everyone to cash out rich. Think .com millionaires who went from rages to riches and back to rages again. Easy come , easy go.
Have a Happy Housing Crash Everyone! :-)
**************
I made money fast in the dotcom era and also lost money as well…fast…faster than I thought possible. Momentum is great when it pushes you up a steep hill with ease but turns into stress filled anxiety, sleepless nights on the way down. Wait a little longer. Enjoy the rest of the summer, a cold winter is around the corner. Get out of the city in the fall and enjoy the off season!
Couple points to add to the comments
RE: low delinquency rates
I follow Scott Terrio (@CooperTrustee) on twitter. He’s an insolvency trustee, he gives out a lot of interesting tidbits. One being that people ALWAYS pay the mortgage first. He says he’s seen people load up on CC’s just to keep up the mortgage pmts. Also a ton of people are using HELOC’s to bridge any gaps, essentially kicking the can down the road. He also says some banks won’t even report a missed mortgage payment. IDK about that one, but they may just be trying to get every last drop of blood from a soon to be stone. Point being, low delinquency rates doesn’t necessarily mean all is well.
RE: stress test on renewals
I would think the banks would have ‘some’ leeway here. For the morons that have 5 negative cash flow properties (ill rent it for a year or two and flip it..duh) they will likely get turned down and be up the creek with no paddle. However for those that have 4 years of perfect payment history and are maybe a little over the recommended ratios, the banks aren’t going to boot them. That would be apocalyptic.
RE: People that bought 10-15 years ago will be fine
I highly doubt it. Maybe there are 5% of this group that haven’t traded up, or tapped into that sweet honeypot of equity (You’re richer than you think!). OFSI wouldn’t be doing this if there wasn’t a problem, don’t fool yourself, there is. You are correct that they may be more insulated than others and they likely won’t be getting foreclosed, but they will be tightening the grip on their wallets.
RE: nafta
This will be the nail in the coffin. Our socialists in charge for decades have doled out to every open hand, and passed on the cost to business’s. Our saving grace was a) natural resources (hows that been doing?) and b) that our neighbour is the biggest consumer on the planet. We would be Venezuela without the USA. Scary times ahead.
I have mortgages with just about everyone. You name ’em I have a mortgage with them. Each one of them told me that the renewal process isn’t much of a process. They just look to see if you’ve made all your payments and about 2 months before the maturity date they’ll just send you something in the mail and you can choose to agree or disagree. First renewal is in March. I’ll owe only about 10-15% of what the property is worth in today’s numbers.
Not concerned.
Have a happy you should have bought property in Hamilton prior to 2013 :)
Drop in GTA home prices prompts new warning: seller beware
https://www.thestar.com/business/2017/08/23/drop-in-gta-home-prices-prompts-new-warning-seller-beware.html
Jasmin Sheba had already sold her furniture in anticipation of moving this week when she learned the buyer of her house wanted $20,000 off the selling price to close the deal.
He threatened to sue for the $10,000 deposit if he didn’t get the reduction, she said.
But the stay-at-home mother was defiant.
“I have a 2-year-old and, after all the house showings, the craziness, you’re going to try to back out? That’s not happening,” said Sheba.
The real estate world is awash in buyer-beware warnings. But some homeowners and realtors are making a case for stronger seller protections — specifically, who gets to keep the deposit when a buyer backs out of an agreement.
First? As this is a Boomer music blog kinda…the best Canadian anthem he never plays anymore.
Sir Bryan Adams.: Diana:
https://www.youtube.com/watch?v=6oqTD6av4h8
It was 1997 I remember where I was.
She was in a drive-by-wire Mercedes car…(OBD II)
M41ON
#9…BC halt to sell farmland
I sure hope they also call for a halt to all the good orchard land being purchased for vanity wineries. Canadian fruit orchards need to be protected or Canadian fruit will become a thing of the past.
I know where I am taking my dog for vacation.
CRIKVENICA, Croatia, Aug 20 (Reuters) – Specially brewed beer made of chicken and vegetables and ice cream made from bananas, peanuts, yogurt and soy milk are top items on the menu in Croatia’s only beach bar for dogs.
https://www.aol.com/article/lifestyle/2017/08/22/specially-brewed-beer-for-dogs-on-menu-in-croatias-only-beach-bar-for-dogs/23157867/
#76 young & foolish on 08.23.17 at 9:15 pm
““Investors” won’t buy your crappy NEGATIVE cashflow properties, those would be “speculators”, and they are currently exiting stage left.
Sell while RE is still way overvalued. Buy back in later at a lower price.”
That’s like market timing! From what I understand, RE investment is a looooong term proposition. Oh, and it’s never a good thing to buy negative cash flow.
———————-
Yeah, it is “market timing”, as in, now is a terrible time to buy investment properties in the GTA because they are all negative cashflow!
Investing and speculating are 2 different animals when it comes to RE… Care to show me some positive cashflow rental properties currently for sale in the GTA? I’ll buy them right now and give you a finder’s fee… But you won’t, because you can’t.
That’s the point.
#72 Capt. Serious on 08.23.17 at 9:00 pm
I can’t imagine this is going to end well. They’ve left correcting the lending imbalances too late in the game. 5 or more years of go this would have stopped people over leveraging themselves, but now it’s just going to exacerbate the correction. People not being able to renew mortgage is not going to help stabilize prices.
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
Actually Captain, as I've explained before and Garth has done a better job outlining, OSFI isn't in the business of correcting people's borrowing habits or managing the housing market, for that matter.
The only reason that they are introducing this new legislation is to protect the financial system (banks).
Garth outlined the kind of exposure that OSFI won't tolerate because when things go south, a hell of a lot bigger problems would come our way if one or more of the big banks failed.
This is why this legislation is coming and quite frankly, as long as they can minimize the banks exposure they aren't or can't be bothered by the enormous crash that is coming.
Oh, by the way, 2 major credit unions have applied for federal jurisdiction and that will place them squarely in OSFI's headlights.
There is no end around this legislation. Over leveraged home owners are simply collateral damage. Plan accordingly.
Oh, for those that might think that OSFI legislation will be delayed or shelved, dream on.
Delaying or shelving these new rules would simply ensure greater bank exposure to the ongoing correction/crash in Toronto.
Yes, it will also crash Vancouver hard, but small sacrifices for the greater good.
As long as CMHC was insuring loans OSFI was somewhat blasé about the housing bubble.
Unfortunately, the most integral part of a country’s stability is it’s financial system. It is well protected. You, not so much so.
So just wondering about the following scenario…
– this B-20 is passed and mortgage stress tests exist
– interest rates go up a notch or two
– you are underwater in your mortgage
you go to renew your mortgage… do you need to immediately need to cough up the difference? Can you renegotiate your mortgage for a new amount (say by increasing the term)? Can we expect people to sell off luxury items to cover underwater differences? Or is there a big possibility for an increase in bankruptcies?
YVR RE Cult people, stop believing Realtor press releases relayed by lazy MSM like CBC and do some research.
It is a mixed bag of data; however, it is a cooling market where measures have significantly affected units sold and this has begun to show up in price drops…still, ridiculously over priced.
Zolo.ca. Mar-Apr-May 2017 vs. Jun-Jul-Aug 2017 for Vancouver & year over year (as of Aug 24, 2017) for the different properties:
Condo
Unit Sales -31.3% (616 to 469)
Avg. Price -1.1% ($834 K to $825 K), +18% y/y
Town
Unit Sales -46.3% (117 to 80)
Avg. Price +7.1% ($1.3 MM to $1.4 MM), was 0% 2 d ago, +13% y/y
Detached
Unit Sales -124.6% (274 to 122)
Avg. Price -16.7% ($2.8 MM to $2.4 MM), -7% y/y
Total Condo, Town & Det. Units Sold -50.1% (1,007 to 122)
Avg. Property Price -20.6% ($1.423 MM to $1.18 MM)
Total $ Sales -44.8% ($1.433 Billion to $792 Million)
TransUnion a couple of days ago on new mortgages in Vancouver:
Q1 2016 = 9,162
Q1 2017 = 6,226 (-32%)
“It is slowing, for sure,” said Matt Fabian, research director for the credit-monitoring firm.
My Realty Check
List Price changes have been negative, for every month, since at least Oct. 2016. For example today:
Up 405
Down 1,115
2.75 : 1 down ratio
Avg. List Price change this month = -2.37%
_____________________________
It is a mixed bag of data, some + (y/y), some – (last Qtr.); however, the 2017 Vancouver RE market data above is less than encouraging esp. for Detached home owners which I expect are having a Near Death Experience and add to the NDE, Realtors, whose commission base has shrunk by $641 MM in the past 3 months alone (-44.8%).
Rate increases will only exacerbate the above numbers, lowering the number of buyers further.
OSFI will take out more buyers from the market.
Fewer buyers…well, you can debate the effect of that on prices on your own.
Still, ridiculously over priced, y/y still up but how long can that last with the above numbers?
Who knows.
So wait: a bank that takes out a collateral mortgage for 100% (or 120%) of a house, and only lends 80% to the mortgagee?
Even if they hold that other 20% as a hedge, what happens if the value of the home drops, so that it’s under water by the 20% the bank is holding?
Does the bank liquidate the 20% it holds to get the LTV correct, or is the home owner on the hook anyway?
About this Bank of Ma lending money to Moisters, I am not so sure that it is that widespread.
Lefty Broadbent Institute in Feb. 2016 released these numbers for Boomers nearing retirement:
-50% of Canadian couples between 55 and 64 have no employer pension between them (i.e., CPP, OAS and GAI will be their main source of income).
-50% have only enough savings to last for 1 year.
-CPP, OAS and GAI combined plans fall below $20,000/yr for an individual.
-Even with Gov. spending $700 MM for the guaranteed income supplement, it will still leave 634,000 seniors living below the poverty line…that number will grow dramatically in the coming years.
It must be the other 50%, doing all the lending to Junior?
Because it can not be the above Boomer group for certain unless, they are mortgaging/borrowing against “new found wealth” in their home equity.
But that would be reckless, correct?
https://beta.theglobeandmail.com/globe-investor/retirement/retire-planning/many-canadians-entering-retirement-with-inadequate-savings-study-says/article28761394/?ref=http://www.theglobeandmail.com&
Prior post typo:
Total Condo, Town & Det. Units Sold -50.1% (1,007 to 122).
671 total units and NOT 122.
Hey has anyone checked out the new 2018 Harley softail line up? Wow. The fat boy looks incredable…better cash in that equity now!
#19 Just to clarify on 08.23.17 at 5:45 pm
The Canadian taxpayers who pick up the tab for all the mortgage defaults. This is the reason for the OSFI rules so the chances of it happening are actually good. They’re in the interest of the Canadian taxpayers.
#75 MF on 08.23.17 at 9:11 pm
“Most people think renting is crap (me included).”
Since you disagree with everything Garth writes about, why do you read this blog? Are you trying to change Garth’s mind, or convince the readers that you know best?
Why don’t you put your money where your mouth is, and buy an overpriced teardown? Go talk to your millionaire parents, and get the money for the down payment. Let us all know when you’ve bought the property, so we can all point and laugh at you when its value plummets! Jeez! I bet you already asked them for the money, and they turned you down!
The biggest threat to my financial wellbeing is “fugality exhaustion”. It is the point where you no longer say no to treats. There is nothing wrong about treating yourself – some days, you need a reason to get up in the morning (or get off your butt) and do it again. There are a lot of people who don’t have to account for where their dollars go but I am not one of them. I will say no to a new leased Audi when a good used pickup will do what I need and has more functionality.
I don’t know what is going on with RE prices in BC or Ontario but they strike me as absurd, much like Bitcoin. I grew up in the Vancouver area – real estate prices were always stiff and pretentious. I have lived in Calgary for the last 35 years and can see recent RE prices slowly deflate. No sudden housing crash here thanks to spendthrift Albertan public servants and political leaders. Sadly, Alberta can afford to run a false economy for a few more years while waiting for the tooth fairy. The glorious big oil days appear to be gone for my remaining Albertan lifetime. We have built public infrastructures that the base private sector taxpayers cannot sustain without resource income. The city owned utility company (Enmax) makes me cranky when I review their monthly bill – just a hidden tax.
These numbers are puny compared to the debt and future pension obligations that Alberta is currently racking up.
http://www.zerohedge.com/news/2017-08-23/hartford-bankruptcy-looms-ct-gov-admits-we-spent-money-wrong-things
Notice the college basketball championships. Since I moved to Alberta, we have had 6 Stanley Cup championships – BC and Ontario, zero.
#89 Smoking Man on 08.23.17 at 10:37 pm
“I’m a poet and didn’t know it.”
But your feet show it: they’re Longfellows!
#106 Dolce Vita on 08.24.17 at 2:13 am
What is this GAI. Where can I get some?
For those about to flop… on 08.23.17 at 9:36 pm
I will keep doing it for the curious 20 or 30 people on here that seem interested…
*****
I am sure there are many more than you give yourself credit for. Thanks for posting all the time.
#91 Perth Down Under Question
Because they, Cdn. MSM, are quoting benchmark pricing. Google benchmark pricing, come back here and explain the math to the rest of us and of course, consider your source (CBC et. al.).
Rather, go to realtor sites with some near real time data like Zolo.ca etc. and do some number crunching as I have done.
Then you will determine just how lazy and challenged the MSM is – messengers for the Realty community and probably, RE Cult members themselves using their fiduciary responsibility to pump the RE market.
Will Rogers, 1920s US Cowboy Philosopher Comedian:
“All I know is what I read in the papers and that’s an alibi for my ignorance.”
The data is out there, just go look for it.
I have my mortgage agent license (though it has expired) and I’ve always wanted to work in the finance industry, particularly with mortgages. I’m not in the GTA. Is it a terrible time to get into this sector as a part time hustle to supplement my current income?
#36 Bob Dog on 08.23.17 at 6:51 pm
If 80% of new mortgages are uninsured by CMHC and downpayment funded by mom and dad, does that mean mom and dad co-signed the mortgage so the kids could buy a house?
If so then it is great news to me. When rates rise and values crash the bank will foreclose on both homes owned by the kids and the parents.
That would almost make the last 10 years worth while, paying rent to a billionaire to live in a concrete box.
The thought of thousands of boomers kicked out of their homes is a very delightful thought indeed.
+++++++++++++++++++++++++++++++++++
Home prices in the GTA really weren’t out of line until 2009 and didn’t get bubbly until 2013.
So mom and dad help their children buy their first house. Do you honestly think if things go so bad as this blog states that the parents (boomers) won’t help their kids again. Either the Boomer parents worked dam hard or got the money from their parents. They are not greedy. They learned to work and live through hard times. Why leave money to this government. Give it to your kids. Set up RESP’s for the little ones. No kids. Give to animal shelters. I’m tired of listening to the have nots.
RE: stress test on renewals
I would think the banks would have ‘some’ leeway here. The ryguy: “For the morons that have 5 negative cash flow properties (ill rent it for a year or two and flip it..duh) they will likely get turned down and be up the creek with no paddle. However for those that have 4 years of perfect payment history and are maybe a little over the recommended ratios, the banks aren’t going to boot them. That would be apocalyptic.”
You’ve made some good points Ryguy, but you’re going down the same path as everyone else on the OSFI legislation. The banks are not going to be given the option to be selective and they will be just fine with that encumbrance. “Sorry, it’s not our call”.
Look at this the same way as the most recent tax legislation. The government wanted to curtail the cheaters but the doctors,dentists,lawyers, etc. were collateral damage.
OSFI is fine with a housing apocalypse because quite frankly, their risk management assessments probably doesn’t show an apocalyptic outcome. They only show Toronto and Vancouver as the high risk areas. The smaller cities will be collateral damage.
If your mortgage is being renewed the only option you’ll have is to bring the LTV into line with more money or sell. That is also in the OSFI legislation. Not quite so blunt, lol, but the LTV rates are a highlighted concern so there will not be any other options offered.
The banks will never take underwater homes away from people that can make the payments. Anyone that thinks otherwise is a fool. So lets stop pretending that the stress test on renewed mortages is going to force panic sales. Further, 4/5 mortages are uninsured and Canadians have record amounts of equity. Almost no one is under water today. You know why the bank of mom and dad is so active? Because that bank is insanely well funded. At some point this blog will be right on real estate, thankfully by that time lots of us will have their properties paid off. The only way re takes a big time nose dive is a serious recession or a return to 7 percent interest rates. As long as homeowners can make their payments expect re to remain steady. Banks have no interest in owning homes.
Banks never ‘take over’ homes or end up ‘owning’ portfolios of them. Power of sale actions liquidate real estate quickly and efficiently. Renewers who are financially stressed will not get their loans refreshed automatically. They have several options to deal with that. — Garth
#208 John on 08.23.17 at 4:08 pm
IHCTD9 You know what else Mike the CON Harris played a significant role in 22 years ago will result in screwing people over for the next 80 years? It’s called the 407. That means kids born today who use the 407 will have to pay because of something mike harras did 20+ years ago. It’s so easy to make CON look brain dead. LMFAO at YOU!
__________
Kidding right? I’ve never used the 407, so I’ve never paid a cent. Our kids can choose if they want to pay to drive on it, or they have the option to drive on toll free highways if they can’t afford or don’t want to pay for the 407.
We don’t have that option for hydro, our kids will be paying out the whazoo, and that’s a fact.
When Harris leased out the 407 – he did every would be 407 user a favour. If McGuinty and Wynne were running it, it would constantly be under construction, years behind schedule, billions in debt, cost 10.00/km to use it, and have no customers.
To # 81
How so ?
Please expand upon your statement because your own posting at # 82 seems to refute your own posting at # 81.
Did you even fully read the link you provided at posting # 82 ?
TD and Scotia, according to you, offer only collateral mortgages.
Last time I checked, they are 2 of the biggest mortgage lenders in Canada = many mortgages are collateral mortgages as I correctly stated.
If you are unable to meet your mortgage obligation – which is the condition precedent in my original comment – then they can come after other assets to satisfy the shortfall.
I get the impression that you are simply obtuse.
To what end, one can only guess.
#206 John on 08.23.17 at 3:56 pm
You are IHCTD9 . You are an idiot. Mike the CONservative Harras DEREGULATED Hydro. If you don’t understand History then you are an IDIOT!
_____________________________________
Wynne is selling off the entire distribution grid that we Ontarians paid for to the private sector. Which is worse? Are we all getting our money back?
The Libs gave us time of use billing and said we could save money by doing our laundry at 2:00 in the morning. Did anyone save any money?
The Libs paid private sector power producers almost 700% more per KWH for solar power than they were selling it to us for. Doesn’t that sound just plain stupid?
Wynne sold Ontario youth down the river by borrowing and paying interest on that debt to give us all a lower bill. That’s the most dumbass plan I’ve ever heard of, this woman makes Trump look like a genius.
Our Ontario, and now Federal Liberals; are some of the dumbest airhead dunce cap wearing blockhead birdbrained dingaling Politicians in the world today.
Now, you best head over to the LCBO for some remedy before your head explodes.
Sorry to say, but it’ll be a cold day in hell before any rule comes in that requires renewals to re-qualify. #Justsaying #moistersstaymoist
to # 81 and # 82 Leo Trollstoy
I and many others post here to further the knowledge of all readers if we feel we have something to add to the discussion or to help others (and ourselves) understand the dynamics of our real estate market or to foster discussion.
I get the impression that you are simply a troll who does not want to really add to the knowledge of people on this blog, but rather just to see your postings in print on a blog and to counter others’ viewpoints just for the sake of it.
Please correct ME if I am wrong on this – perhaps it is just my impression.
In any event, if you are going to try to correct a perceived inaccuracy, do so and show / explain why you hold that opinion.
Simply making statements without credible proof is not really constructive and frankly, immature.
My motivation is to the betterment of the useful content here.
What might be yours?
“The banks are not going to be given the option to be selective and they will be just fine with that encumbrance. “Sorry, it’s not our call”.”
_________________________________________
You could very well be right and I would be totally fine with the consequences. I see it like a pendulum, and the B-20 has it swinging all the way to one side this fall. That alone will knock off some of the speculators and those planning a quick flip. Then in 2-3 years as some of the renewals are due I could see the banks doing a tiered system as the pendulum comes back a little bit. Im not saying everyone will get to renew, but I don’t see them having a complete renewal shutdown either; After all they are still a business and need customers.
Then again, this is total speculation on my part, and I’ve heard you can get shot around here for that :)
to # 124 MortgageMark
Better get a warm coat then beause I think Garth and others here are correct on this issue.
to # 124 MortgageMark
forgot to add;
You do know that Garth, the host of this blog, is a former Minister of Finance for Canada, don’t you?
Most find his advice is well reasoned, factually correct and based on accurate research.
Could you say the same about your opinion?
If so, perhaps you can give us the basis / rationale for your statements?
@ #123 IHCTD9 on 08.24.17 at 9:56 am
************************************
Epic response..
I can’t wait to see if people are really stupid enough to vote Wynne in Again.
If she gets in again I might need to retire early and claim I have $0 Income and live off cash in the bank and get as much FREE stuff as I can for 4 years.
Should be a buttload of credits and handouts + my kids might even get free University/College out of the deal.
Being low-income in Ontariowe seems like the best deal going.
#102
Yes, it will also crash Vancouver hard, but small sacrifices for the greater good.
And the Reform part part Deux is born
Lots of discussion on the B-20 Legislation and Changes:
1) Banks are required to follow and meet requirements
set out by the OFSI period .
2) The legal community rumor mill figures that this bill
B-20 is a done deal with a soft roll-out in October
and full formal implementation commencing Nov 1
2017.
3) When this change comes into effect, borrowers
regardless of past history will be required to meet
standards set out and Banks are legally required to
apply the minimum requirements with out exception
when granting a Mortgage.
4) I figure that this measure will have the greatest
effect in slowing the stupidity down and although
tough medicine in the short term, will likely lesson
the impact of the cratering of the great Canadian
real estate ponzi scheme in the long term.
#106 Dolce Vita on 08.24.17 at 2:13 am
About this Bank of Ma lending money to Moisters, I am not so sure that it is that widespread.
============
A survey by the Canadian Association of Accredited Mortgage Professionals further found that over the past two years borrowed money represented more than a quarter of the $18.8 billion used toward the down payment of a home. It found family members provided a gift or a loan 18 per cent of the time to first-time homebuyers.
http://www.canadianlawyermag.com/5908/Even-the-family-needs-protection.html
Rub tummy.
Dividend increases on common shares from RBC, and CIBC.
You’re richer than you think! <- Scotia probably up next for a div increase…
Hey my friend ::
” #80 For those about to flop… on 08.23.17 at 9:36 pm
I will keep doing it for the curious 20 or 30 people on here that seem interested…. M43BC ”
Make that 31 people. And your posts Flopper are just another reason why I visit the blog, that the Honourable Garth Turner (and amazing Amazons) provide us daily.
Thanks; a bit of a stabalizing force among a crazy society.
#75
I disagree….renting is not crap…. if you are the landlord .
Young italian guy buys rental properties , hangs on to them for a couple
Of decades, turns his down payment of said properties into millions.
Meanwhile renter is still renting when they got turfed last year so now the old italian guy can cash in at the peak of market. ( closed last sept 2017 )
Ryguy: “Then in 2-3 years as some of the renewals are due I could see the banks doing a tiered system as the pendulum comes back a little bit.”
<<<<<<<<<<<<<<<<<<<<<
Ryguy, I have had some past experience with OSFI and reasonableness was never an adjective used. Lol.
There are a significant amount of mortgage renewals each year so we will be able to evaluate the OSFI legislation by the end of this year.
A lot of "bulls" have their head in the sand if they think that the housing market will go on as it has.
They are also in the enviable position of knowing why the market died overnight and they might me able to take advantage of this fact.
Good luck.
# 133
Old italian guy buys dividend paying bank stocks with a portion of proceeds from rental sales …. lol
I am with you , love those canadian banks
Better than being a landlord .
Home Capital says new mortgage rules could hurt business
https://ca.reuters.com/article/businessNews/idCAKBN1AJ1Y7-OCABS
“We believe that if B20 is implemented as proposed it could well have a material impact on our business strategy going forward,” interim Chief Financial Officer Bob Blowes told analysts on a conference call, a day after the company reported second-quarter losses that were greater than expected.
Regulators are looking to rein in risky lending, amid fears of housing bubbles in the cities of Toronto and Vancouver, and are concerned that loans enabling homebuyers to borrow up to 90 percent of a property’s value will turn toxic if prices begin to retreat.
What kind of idiots are we that, having witnessed the fallout of bad quality housing debt in other countries, we let the same thing happen in Canada?
Just for fun, what would happen if people started taking your advice en masse and sold their properties to cash out, or cut losses, in anticipation of the coming crash, and rented? What would stop real estate from being next to worthless given very few buyers? Would we have mass defaults and bank failures as the banks would be stuck with worthless properties? Would people just buy again when it’s dirt cheap and no longer pays to rent? Or is it time to panic, pull funds out of the bank, buy gold, supplies and a gun and become a survivalist?
But they won’t. — Garth
Well there goes my dream of climbing the corporate ladder to reap the benefits of being an elite.
https://finance.yahoo.com/news/seoul-court-rule-samsung-scion-150310667.html
Is nothing sacred anymore?!
I wonder what the value of the 407 has increased to vs what it was sold for.
In comparison NS Power is up about 11 fold plus, since the fire sale, in the same era.
Ryguy, I have had some past experience with OSFI and reasonableness was never an adjective used. Lol.
———————————————
I honestly hope you’re correct. I’d love to see it crumble and never have to talk about f*in real estate again.
And just to be clear, Im not a hater. However I am beyond annoyed with people that have no concept of fundamental math or finance that just parrot “RE always goes up”.
One couple I know that is renting a really nice place for $2400/month just about signed papers to build a new place for $650k.The logic…”well our monthly payments would actually go down”. I was so annoyed I made a very basic spreadsheet that included all the known and some future unknown costs. Then I showed them what the payments would be if a 1..2..3..% increase happened.
“Holy shit, we couldn’t afford that”. Yeah no kidding.
Multiply this conversation by thousands, maybe millions of people across Canada. I don’t get it.
What really ticks me off is the gov’t is going to increase my taxes to help pay for this mess. Ive been a prudent saver, ignored the FOMO that his hit my generation and I am (if I wanted too) in a position to get my ‘forever home’.
Lol, maybe I am a bit of a hater.
So a move like this would be expected to drive a lot of people who can already barely afford their mortgages into the arms of subprime lenders? Or see a lot of homes for sale, I guess?
Also, don’t forget that many of these are “collateral” mortgages, so they can pursue your other assets, I believe, should you come up short.
this belief is irrelevant to the name “collateral”
life is hard
Banks never ‘take over’ homes or end up ‘owning’ portfolios of them. Power of sale actions liquidate real estate quickly and efficiently. Renewers who are financially stressed will not get their loans refreshed automatically. They have several options to deal with that. — Garth
Distinction without a difference. Power of sale auctions are a loser for the bank. No bank is going to force the sale of a property and mortage that is current. Now most homeowners might know that, and may did a deeper hole by turning to alt lenders, never underestimate stupid.
Point remains, gov’t will do everything they can to protect homeowners and banks don’t like to lose. Zero chance that homeowners that can make their payments get pushed out of their homes. Gov will change the rules – or more accurately the proposed, might happen rules – if joe and betty homeowner can make payments and the big bad bank is taking their home.
OSFI’s mandate to regulate the banks and force them to reduce risk, not to protect people who borrowed excessively to spend unwisely. If you don’t believe this, just wait. — Garth
The US filed a $400 billion Libor claim on behalf of 39 banks rescued during the financial crisis (17 Aug 2017)
GTA sellers face a refresher course in economics
https://www.theglobeandmail.com/real-estate/toronto/gta-sellers-face-a-refresher-course-in-economics/article36064943/
Douglas Porter, chief economist at Bank of Montreal, points out that the GTA is on the verge of dropping into full-on buyer’s terrain.
Mr. Porter says the sales-to-new-listings ratio is hovering around 40 per cent on a seasonally adjusted basis, which is about as low as the ratio can go before the landscape is deemed to be a buyer’s market.
His research shows that home sales in the two regions – Metro Vancouver and Ontario’s Golden Horseshoe – affected by a tax on speculative purchases by non-resident buyers have dropped nearly 28 per cent compared with the same time last year. Sales across the rest of the country are essentially flat, he adds.
Mr. Porter says the Ontario government’s suite of measures aimed at cooling the market have had an impact since they were introduced in April, even though people within the real estate industry disagree about how much sway foreign buyers hold.
“Regardless of the precise level of non-resident buying, the new taxes have clearly completely changed the market’s bubble psychology, just as they were so intended,” he said.
Thanks, Garth, for helping us stay on the straight and narrow!
#120 Mattl
At some point this blog will be right on real estate, thankfully by that time lots of us will have their properties paid off.
————————————–
If this blog is proven ‘right’ as you predict, it means the value of residential real estate will have fallen rather than risen indefinitely.
What is so ‘thankful’ about having paid off an asset that has diminished in value? Would it not be more worthy of thanks to have liquidated sooner?
120
There will be people qualifying at 7% next year with the new regulations,keep adding a one percent increase every year and in five years you could see 12% mortgage rates!
#129 Gonkman on 08.24.17 at 10:32 am
Should be a buttload of credits and handouts + my kids might even get free University/College out of the deal.
Being low-income in Ontariowe seems like the best deal going.
_________________________________________
You got that right. I gave up on common sense and giving the benefit of the doubt to Ontario voters when Wynne won a majority. From here on in, my plan is to vote swan dive, and be prepared for the fallout.
It’s hard to name a democracy that got itself into deep financial trouble where its electorate realized where they were headed, and then accepted the pain required to fix it. Just about every time you can name, selfishness prevailed right to the bitter end. We see some of this today in the EU and in the US with certain States.
I don’t pretend that I can talk common sense to someone making 6 figures working for the government, but I can refuse to voluntarily/blindly financially support said someone.
I’ve mentioned my general M.O. on here several times, cap that with a few years of low income, and an early retirement – and you’ve done all a guy can reasonably do.
Sounds like you are understanding well, and are heading down the right track…
https://ca.finance.yahoo.com/news/canadians-spending-taxes-basic-needs-study-154951176.html
On average, Canadian families paid 42.5 per cent of their income on taxes, compared to 22.1 per cent of their income on housing in 2016. With an annual average income of $83,105, that means $35,283 went to taxes, versus $31,069 to housing (rent or mortgage), food and clothing.
In 1961, the report states, the average Canadian only spent 33.5 per cent on taxes versus 56.5 per cent on food, clothing and housing.
————————-
And Bill M wants to tax us more?
Show him the finger.
Just curious how many of these ‘down-payments’ from the bank of Mom and Pop are actually coming from HELOC on principle residences. Just curious.
Any stats on HELOC growth please?
What pleases me most is that CMHC insured mortgages are down by 40%, shifting the risk back to the banks, where it should be.
I would like to know what the consequences will be to the taxpayer in the case of a market collapse where the household can service only part of their credit which includes a CMHC mortgage plus other debt such as HELOC, auto loans etc. What I am most concerned about is the bank getting paid back their loans, while taxpayers get stuck with backstopping the mortgage. Any comments?
#82 Leo Trollstoy on 08.23.17 at 9:49 pm
For anyone who cares re: collateral mortgage
https://www.thestar.com/business/2015/02/17/a-collateral-mortgage-can-trap-you-roseman.html
TD and Scotia only sell collateral mortgages.
RBC and CIBC offer conventional and collateral mortgages.
Don’t like 120% ratio? Open your mouth and negotiate it down to 100%
Life is hard
____________________________________________
Even on conventional mortgages the banks can go for a “power of sale” instead of “foreclosure.” In a “power of sale” the home owner is forced to sell the house to cover the mortgage/s. If the proceeds from the sale of the house aren’t enough to cover the mortgage/s, then the bank/s can sue for the remainder. This typically happens when there are multiple mortgages on the same property, as the proceeds can’t cover the total debt. The company that holds the second/third/fourth mortgage can force the company with the first mortgage out of proceeding with a “foreclosure” and into a “power of sale.” If you have multiple mortgages on your property, then missing one payment to one of them can set all this in motion and you would have little control.(Disclaimer: If this information is pertinent to your current financial situation then I would highly recommend seeking a lawyer for advice.)
#149 Stan Brock
Sorry I don’t remember where I saw it and thus no link..but I read that as of either 15 or 16 that Helocs accounted for 12% of GDP. Of course thats not all for kiddies down payment, but that is a terrifying number for anyone that wants to avoid a decade long depression.
OSFI’s mandate to regulate the banks and force them to reduce risk, not to protect people who borrowed excessively to spend unwisely. If you don’t believe this, just wait. — Garth
So the same regulator that oversaw this gigantic gasbag is now going to come in and do the right thing. Time will tell but I have full confidence that the gov will back off the minute Canadians get pushed out of homes
to # 132 Victor V
Those numbers only include those that DISCLOSED that they were accepting assistance from family.
From what I understand, many do not disclose the “help” as they are representing to the lender that their down payment amount is “theirs”.
So, there could very well be a greater percentage than 18 %, potentially much more.
Your info is another piece of the puzzle of where all this buying power has been coming from.
We’ll probably have to wait until this real estate market fully implodes (if it does) before the entire story comes to light – bit by bit.
Rising RE prices have hidden a lot of malfeasance on the way up.
As Buffet famously said ‘we’ll see who is swimming naked when the tide goes out’ (paraphrasing here).
So far, it seems that the water is still deep enough to conceal the financing games that have been played.
That may change.
FOR IMMEDIATE RELEASE
Tuesday, August 22, 2017
Top Executives At Long Island Mortgage Lender Arrested For Engaging In $8.9 Million Fraud
Defendants Misused Money Ostensibly Obtained To Fund Mortgage Loans
…”senior executives at Long Island mortgage lender Vanguard Funding, LLC (Vanguard), with conspiracy to commit wire and bank fraud in connection with their obtaining more than $8.9 million of warehouse loans for Vanguard to fund mortgages. The defendants allegedly misused the loans to pay personal expenses and compensation, as well as to repay earlier fraudulently obtained loans. Bohm, Sypher and Voss were arrested this morning, and their initial appearances are scheduled for this afternoon before United States Magistrate Judge Arlene R. Lindsay….”
https://www.justice.gov/usao-edny/pr/top-executives-long-island-mortgage-lender-arrested-engaging-89-million-fraud
=========
CFPB Report Warns That Taking Out a Reverse Mortgage Loan Can Be an Expensive Way to Maximize Social Security Benefits
“The Consumer Financial Protection Bureau issued a warning to seniors this week, cautioning them that taking out a reverse mortgage in order to delay claiming Social Security benefits could be a financially harmful decision.
According to the CFPB, some number of “financial professionals” are “increasingly promoting” a strategy involving seniors taking out a reverse mortgage as a way to bridge the financial gap until they are able to claim their full Social Security benefits.
http://files.consumerfinance.gov/f/documents/201708_cfpb_costs-and-risks-of-using-reverse-mortgage-to-delay-collecting-ss.pdf
========
Feds target luxury real estate wire transfers in money laundering investigation Nearly one-third of cash sales tied to “illicit activity”
August 23, 2017
Ben Lane
https://www.housingwire.com/articles/41070-feds-target-luxury-real-estate-wire-transfers-in-money-laundering-investigation
@#158 Mattl
You must be young. The government stood by and did nothing last correction, why would they do anything now? Because speculators, house horny couples, Millennials, etc are “special”? And let’s say the government did start bailing over indebted people out, given their record of intervening, by the time they did, how much blood would have already been split on the street?
IHCTD9… Good response to John. But I don’t think you have the whole story on the 407 deal. Essentially, it was a scam on the taxpayer (sort of like the CMHC). Many older Conservatives I have talked to, do not use it on principle. Harris himself indirectly admitted to the media that it was an insider deal, like the Pearson airport Terminal 3 fiasco that benefited mainly the Seagram family empire.
Anyways, never mind the foolish partisan politics… I’m looking for more posts from you on how to avoid paying taxes…
OSFI protects the banks and not the people. So, who protects the people, Garth? Anarchy seems like a better choice at this point. Maybe that’s what we actually have, with these political puppets controlling local factions within this grand anarchy which we might call the Banana Republic of Canada.
This one is for Smoking Man. Is our schooling system out of control given the idiocy of its members?
http://www.cbc.ca/news/canada/toronto/john-macdonald-school-1.4259643
What’s next? A new $10 bill because it may offend a few people??
#162 Eks dee Sipal on 08.24.17 at 2:16 pm
IHCTD9… Good response to John. But I don’t think you have the whole story on the 407 deal. Essentially, it was a scam on the taxpayer (sort of like the CMHC). Many older Conservatives I have talked to, do not use it on principle. Harris himself indirectly admitted to the media that it was an insider deal, like the Pearson airport Terminal 3 fiasco that benefited mainly the Seagram family empire.
Anyways, never mind the foolish partisan politics… I’m looking for more posts from you on how to avoid paying taxes…
________________________________
Could be, SNC Lavalin is involved in the ownership, so not hard to believe that some buddy buddy stuff was afoot. My biggest issue is how the Province enforces 407 Toll payments via license suspension like they do with late fines. They better be charging a good fee for that…
As far as taxes go, I’m probably sounding like a broken record by now, but hey…
#104 Dolce Vita
That’s the $64,000 dollar question, isn’t it. Why haven’t Vancouver house prices dropped significantly when sales activity has slowed so much? I follow the Main Street neighbourhood and the prices are still ridiculous. $1.5 million for the drabbest home that would have been $500k ten years ago. How can sellers just be content to sit on a property and wait to fetch Foreign Buyer Prices?
Victor #71
Correct! Orchards are being bought by foreigners in the Okanagan. Of course the real estate industry is doing some “promoting” behind the scenes.
Someone wrote great movie: Micheal Douglas and Demi Moore. There does not exist such an animal.
How Fake Cops Got $1.2 Million in Real Weapons
“The GAO created a fictitious law enforcement agency — complete with a fake website and a bogus address that traced back to an empty lot — and applied for military-grade equipment from the Department of Defense…”
https://www.themarshallproject.org/2017/07/21/how-fake-cops-got-1-2-million-in-real-weapons#.tZYi1meKF
#158 Mattl
Yes Mattl , its the way things are and have always been. I witnessed it
with a co-worker personally . He came up for mortgage renewal the bank said your house is now only worth X and we will only lend you X .To bad that you borrowed X + 100K to buy the place . Go find the extra 100K somewhere else. He couldn`t get another loan and declared bankruptcy soon after. Ask the next homeless boomer beggar you see if he was once a homeowner.
https://www.youtube.com/watch?v=AtgfzzwoyK4
‘Painful no matter what happens’: economists worried by B.C.’s financial reliance on real estate
UBC prof. says it’s bad policy to base a budget around real estate industry
http://www.cbc.ca/news/canada/british-columbia/real-estate-economy-1.4260288
Yikes!
#104 Dolce Vita on 08.24.17 at 1:46 am
#166 AGuyInVancouver on 08.24.17 at 3:40 pm
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re: RE prices not dropping significantly in Vancouver
The price run-up was 10 years plus. Price drop may take just as long. Its only been a few months since prices have stopped the fast rise. I could be wrong, but factors in slow price drop could be many different things;
1. Sellers don’t want to accept anything less than peak price
2. Realtors ” ” (same thing)
3. A single .25 rise in interest rates is not enough, may take another hike or two, or three, or four before the over leveraged feel the pinch – we’re all wealthy out here on the west coast you know!
4. Cool down measures introduced by our stupid governments were not well conceived and don’t work like they’re supposed to (surprise surprise)
5. Everyone thinks price drop is temporary and things will bounce back in a few months – they always have, and they always will (wink wink!)
6. Etc. etc.
My wife and I regularly attend open houses in Surrey and Langley. There have been dozens of houses and townhomes where small price drops have occured a couple weeks after open house and property remains unsold. After dropping price once and property remains unsold, is usually removed from the market due to #1 above. Don’t forget that the YVR crowd is not used to dropping their price. For the past 10 years, its been one increase after another, after another, after another. Dropping your selling price is an unheard of concept here in La La Land! May take some time before they figure that buyers are not buying at ridiculous price points any more.
There may be lots of people who bought within their means and can afford to wait things out. My guess is that there are ten times as many who bought properties they couldn’t afford AND speccers who’re sitting on multiple properties they can’t afford. Let them sit on these gargantuan debts for a year or so, let a few interest hikes settle in, let them sit and wait for RE to bounce back (don’t think its going to this time).
Wait for a drop that suits your pay-cheque and finances…..and even THEN, don’t buy, don’t offer, nothing…….just sit back, watch, and enjoy your popcorn. It will play out the way it plays out.
makes one wonder how many pumpers are bots…
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“Angee Dixson joined Twitter on Aug. 8 and immediately began posting furiously — about 90 times a day. A self-described American Christian conservative, Dixson defended President Donald Trump’s response to the unrest in Charlottesville, criticized the removal of Confederate monuments and posted pictures purporting to show violence by left-wing counterprotesters.
https://www.propublica.org/article/pro-russian-bots-take-up-the-right-wing-cause-after-charlottesville
Madness!
Garth’s insight is spot on regarding the Bank of Mom/Dad. A lot of parents forget part of their responsibility is to help the offspring learn the skills needed for surviving in the world such as financial management and delayed gratification.
Found out earlier in the year that my 23-year old moister niece — who for the last few years kept moaning for someone, anyone to buy her a house because she doesn’t like the lifestyle restrictions of renting and wants to do her own thing — bought a house.
What?!! Where did a 23-year old get enough money to buy a house? With only two part-time retail jobs and spending the money on tattoos and piercings? No response — from anyone.
A recent family discussion revealed younger brother’s high level of anxiety about his financial situation. Very worried because he and his wife are in debt. I’m perplexed. How are they in debt with a combined six-figure income?
Inadvertently revealed debt is for a loan to give money to daughter for down payment on house. Daughter is supposed to get some roommates to help with monthly mortgage payments.
I understand parental love wanting to protect and help your kids but going into debt to give your 23-year old a house?
Brother just encountered job loss. Still trying to pay down his own mortgage. OFSI changes going into effect. This is not going to end well.
Point remains, gov’t will do everything they can to protect homeowners and banks don’t like to lose. Zero chance that homeowners that can make their payments get pushed out of their homes. Gov will change the rules – or more accurately the proposed, might happen rules – if joe and betty homeowner can make payments and the big bad bank is taking their home
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spot on