The cull

Matthew has a question. “First, the obligatory grovel,” he says, ensuring that he gets a response. “Love your blog, been reading it for a few years now. (blah blah lol).” Hmm. A soupcon of disrespect is detected, but let’s carry on.

“My mortgage is eligible for early renewal with RBC. The [email protected] is offering 5 year fixed @ 3.39% or 5 year variable @ 2.72. I’m currently on a 3.14 fixed. This will be my first renewal on a 25 year mortgage.

“Is it better to go fixed or variable at this time in the current economy? I’ve gone fixed in the past as I thought rates were already as low as they’d go, but of course would have been much better off in hindsight. Now with rates trending up, I’m not sure if the lower rate is only temporary? Roast away Garth.”

The first thing to realize is that none of this matters. For Matt to lock in a rate for the next five years at a mere 0.25% than he has been paying is the cheapest insurance he’ll ever buy. But all he need do to effectively slash his long-term interest costs is to switch from a monthly-pay to a weekly-pay mortgage. Over the course of 12 months he’ll make the equivalent of one extra payment (no big deal) and it will end up shortening his amortization by years, saving more than a variable-rate loan ever would. He just needs to ensure he gets the right kind of weekly mortgage, since some of them are bank rip-offs.

So where are Canadian rates going? Market odds tell us there’s a four-in-ten chance of another increase this year, likely at 10 am on Wednesday, December 6th. Some people are quite convinced the Bank of Canada will pull the trigger, exactly one week in advance of the Fed doing the same thing on December 13th. As for the first quarter of 2018, the consensus is for central bank increases in both countries. After all, things are okay. The US economy is chugging along, corporate profits are robust, inflation is back, global GDP is on the rise, American taxes are coming down and Trump hasn’t nuked anybody yet.

Despite Sears, Morneau, fifty-buck oil, Vancouver condo prices and the war on small biz, the Canadian economy continues to grow with no signs of recession on the horizon. The two most hawkish central banks on the planet lately have been the Fed and the Bank of Canada. Both want rates normalized. It’s an ill-informed fantasy to believe your next mortgage renewal will be for the same, or less. Ain’t gonna happen.

So going variable now is probably a bad idea. Why gamble for the sake of a few basis points? Life has enough uncertainty.

Meanwhile, a few words are required about scuzzy mortgage brokers who well know what the coming B20 stress test will do to real estate values, but continue to lure borrowers, in a massive conflict of interest. Check out this advice from an Invis Mortgage rep in the Lower Mainland. First clients are given a false flag on the Bank of Canada’s widely-expected decision not to raise rates this week, then goaded into buying now – just before prices fall. Sheesh.

Bank of Canada holds benchmark rate
The Bank of Canada announced today that it is holding the overnight rate steady after raising it twice this past summer. …The Bank has deemed that “the current stance of monetary policy is appropriate.” Good news for homeowners with variable-rate mortgages and lines of credit.

IMPORTANT – New Mortgage Rules Effective January 1, 2018. Purchase before year end if you have 20% downpayment, otherwise you may have to buy 20% less home! If you need to pay off large amounts of credit card debt, are thinking of a large renovation, or want to buy an investment property, you should also act before year end. These new mortgage rules will reduce your purchasing power and affect your ability to access your home equity. Get in touch ASAP to understand the changes and review your options!

Okay, Invis, so why will people “have to buy 20% less home” after New Year’s? Right, because borrowers will qualify for 20% smaller mortgages, to ensure they can actually afford them (the benchmark will be the greater of 4.89% or 2% above the rate the bank offers you). If every single borrower in the land must now pass the same income test, and available credit overall will contract as a result (which is the goal), then for the same house to sell to the same universe of buyers, it must become 20% cheaper. Duh. So either the market freezes up with sellers refusing to discount even if they cannot find a buyer, or valuations drop. And it will not be the former. At least for long.

Realtors are rounding up sheep, too.

“I’m contacting all of my current buyers to make sure they understand,” Hamilton-area agent Joe McMahon told CBC this week. “Most of the public don’t realize how much this is going to affect them.”

To recap: house prices in Canada were nutso because mortgage rates dropped to the point where people could afford to carry vastly more debt. Add in speculation, a misunderstanding of risk, group think and a thick sauce of house lust, and we ended up in this unfortunate spot. Thanks to the bank regulator, mortgages in 2017 will travel from 2% to 5% – an unprecedented doubling in a single year. Price reductions in 2018? Pure logic.

But what’s that got to do with it? Or ethics?

157 comments ↓

#1 Victoria Real Estate Update on 10.26.17 at 6:17 pm

VICTORIA’S SPECULATIVE / LIAR LOAN HOUSING BOOM ENDS IN SPOOKTACULAR FASHION IN 2017

Detached sales in 2017 compared to the same month in 2016 (year-over-year):

January: – 18%
February: – 25%
March: – 25%
April: – 43%
May: – 27%
June: – 19%
July: – 20%
August: – 18%
September: – 23%

(source: Victoria’s R/E board)

DETACHED SALES FALL BELOW VICTORIA’S 10-YEAR AVERAGE IN SEPTEMBER

And that includes the record or near-record low sales years of 2011, 2012 and 2013 (without population adjustment).

September’s bloodcurdling sales total was also lower than Victoria’s 5-year average (by 9%).

SEPTEMBER: DETACHED SALES LOWER THAN IN 2015 FOR THE SIXTH MONTH IN A ROW

This time 18% lower.

SEPTEMBER: DETACHED SALES LOWER THAN AN AVERAGE YEAR FOR VICTORIA FOR THE SIXTH MONTH IN A ROW

2007 was an average year for detached sales in Victoria using a fair comparison.

THE DISAPPEARING ACT

Despite record-low rates, buyers suddenly disappeared in 2017. Victoria’s R/E board has offered excuses along the way – snow, a late spring, etc. – but the continuation of grim (year-over-year) monthly sales drops, month after month, has proven those excuses to be nothing more than lame attempts (by commission salespeople) to convince locals that the party wasn’t ending.

Clearly the party has ended. And the numbers don’t lie.

Even a lot of local speculators – whose participation in the market suddenly spiked immediately after the BoC lowered rates in early 2015 – have been scared off by price levels reached in late 2016 (price levels that were reached in large part due to their sudden and reckless participation in the market).

This group had, of course, used extreme leverage (and lied on their mortgage applications) to obtain financing for properties in 2015/16, pushing prices even further into bubble territory. But that was then.

Victoria had led Canada with the most 450% mortgages from 2013 through 2015 – indicating how extremely far out of reach house prices already were for the average local family by 2013.

Clearly Victoria’s (speculative / liar loan) price surge of 2015/16 has turned a really bad bubble situation into an unthinkably bad bubble situation that will inevitably be met with dire consequences.

(continued)

#2 Victoria Real Estate Update on 10.26.17 at 6:20 pm

MONSTROUS

To say that Victoria’s housing bubble is massive may be an understatement. When house prices more than triple in just over 15 years (and incomes barely move in comparison) you are left with a housing bubble of monstrous proportions.

HANDING OUT MORTGAGES LIKE HALLOWEEN CANDY

Victoria’s bubble didn’t magically appear in the last few years. Indeed it has been around for a lot longer than that.

But a number of things – record-low rates, Canada’s lax lending standards / poor enforcement of mortgage rules (allowing mortgage fraud / liar loans), etc. – have enabled local families to continue to use (reckless) financing to get into properties (legally or illegally) they can’t afford at ridiculously overvalued (bubble) prices.

FOR MORTGAGE HOLDERS, THE COMING MORTGAGE STRESS TEST WON’T EXACTLY TASTE LIKE PUMPKIN SPICE

The boom years are clearly in the rear view mirror for Victoria’s housing market. Sales of detached homes have crashed year-over-year in 2017 (and detached prices appear to have peaked) before the coming assortment of price-choking changes are put into effect or take effect – rising rates, the mortgage stress test, BC’s speculation tax, etc.

DOUBLE, DOUBLE TOIL AND (HOUSING BUBBLE) TROUBLE

No government in the history of the world, in any part of the world, at any time has predicted a hard landing for its (bubble) housing market.

Sound familiar?

Fact: no housing bubble in the history of the world, in any part of the world, at any time has had a soft landing.

If the facts are too gruesome for you to accept, contact a local realtor for assurances that the coming mortgage stress test won’t negatively impact the market and that Victoria will see higher house prices year after year.

Perhaps they’ll tell you that it hasn’t happened yet, so it won’t. Or maybe they’ll spew more lies about how wealthy buyers from Asia “suddenly discovered Victoria” (immediately after the BoC lowered rates in early 2015).

Either way you will feel better after your brainwashing top-up.

Unfortunately it will only make it harder for you after Mr. Market (who obviously has his sights set on Victoria’s market) does to Victoria’s bubble what he does to all housing bubbles.

His work during the bust years of a bubble is about natural consequences.

No spells or magic required.

#3 Under Pressure on 10.26.17 at 6:24 pm

Ah, but can prices ever really fall while wives are desperate to buy?

The relentless pressure to give up our super-affordable rental – to pull the trigger and commit financial suicide – is unbelievable!

#4 mitzerboy aka queencitykidd on 10.26.17 at 6:25 pm

i dont care if it rains then freezes
so long as i got my plastic jesus

cool hand luke

#5 FLHTK on 10.26.17 at 6:30 pm

Great blog. I’m in a similar boat.

#6 Penny Henny on 10.26.17 at 6:31 pm

“My mortgage is eligible for early renewal with RBC. The [email protected] is offering 5 year fixed @ 3.39% or 5 year variable @ 2.72. I’m currently on a 3.14 fixed. This will be my first renewal on a 25 year mortgage.-suck up poster

/////

go see mortgagebrokerron

he posts here and will get you a better rate

#7 LivinLarge on 10.26.17 at 6:31 pm

Nice precise summary of the mortgage options merry go round. All variables do not have the save impact.

Once you take the political opining out of the mix, Fearless Leader is still knowledgeable about financial minutiae and skillful at explaining same in print just as he was those decades ago in his journalist suit.

#8 None on 10.26.17 at 6:31 pm

You know what I think is funny about the fixed vs. Variable?? Basically — who the hell do you think you are? banks are the business to make money. Do you think they don’t charge a premium for taking on risk? Committing to a fixed rate mortgage adds risk to the bottom line of the loan. Therefore, at BEST a fixed rate mortgage is an equivalent product to a variable and at worst – the expected return on a variable rate plus a risk premium added.

The correct choice is ALWAYS take variable but have your payments equivalent to what they would be if you took the fixed rate at the same amortization schedule.

There you go Garth. That’s my free advice for you today.

#9 Midnights on 10.26.17 at 6:34 pm

Down she’s going…
https://beta.theglobeandmail.com/real-estate/toronto/early-sales-of-new-low-rises-in-toronto-take-steep-dive/article36739326/

#10 conan on 10.26.17 at 6:34 pm

Only Space cadets are buying real estate now. French Villa market still has some gas though.

https://www.youtube.com/watch?v=ASqdgcJxFAw

#11 IHCTD9 on 10.26.17 at 6:35 pm

Matthew, lock in, pay weekly, and slap a 2-300.00 lump sum down every month, all auto withdrawals.

We did and it was all over in 14 years without breaking a sweat.

#12 The Greater Cauliflower on 10.26.17 at 6:38 pm

Neau mor Bill got hit with a massive $200 fine from the ethics commissioner.

THAT WILL LEARN HIM !

#13 JSS on 10.26.17 at 6:39 pm

“He just needs to ensure he gets the right kind of weekly mortgage, since some of them are bank rip-offs.”

So, what is the ‘right kind’ of weekly mortgage?

#14 Penny Henny on 10.26.17 at 6:42 pm

For all the VREU haters out there , me included. You have to give credit for building in the Halloween theme by using words like
-SPOOKTACULAR
-bloodcurdling
-DISAPPEARING
-MONSTROUS

//////

oh boy oh boy.
I’m scared now, where is my safe space

#15 MSM-Free Zone on 10.26.17 at 6:47 pm

“…..Most of the public don’t realize how much this is going to affect them…..”
_________________________________

TRANSLATION: “…Most rEaLToR’s do realize how much this going to affect rEaLToR’s…”

(cue conflict of interest…)

#16 Ian on 10.26.17 at 6:47 pm

Defintely agree with not doing variable.

In addition to the factors G mentioned like BoC getting back on the raising train, don’t forget the new US Fed person in Feb. They’re going to keep raising rates, especially if it’s John Taylor.

BoC is going to follow, and they should anyway. Our economy is not going to fall apart overnight, especially with the central rate so low.

They have plenty of GDP growth and inflation to work with, and now our dollar is under pressure. No worries about exporting at this fx level. Raise it up BoC!

#17 crowdedelevatorfartz on 10.26.17 at 6:48 pm

“But what’s that got to do with it? Or ethics?”

+++++

Like waving a red flag in front of Happy Housing Crash Everyone

#18 Happy Housing Crash Everyone! on 10.26.17 at 6:51 pm

Mortgage SHYSTERS and SHYSTERS are scum of the earth liars who want to trick people into financial ruin. These terrible people should be arrested.

#19 The True Vic on 10.26.17 at 6:58 pm

Yawn….

Another VREU rant about collapsing sales for the 26th month in a row, all the while failing to acknowledge any movement on prices….

Prices went up 20% in 2017 in Victoria and all the surrounding communities while you spouted your diatribes about the forthcoming collapses in prices – for more than two years now.

So please VREU, stop misleading people with your hope inducing ramblings about the stages of a collapse or the collapsing Victoria sales when PRICES show you are out to lunch.

When you can tell us why prices are holding firm when sales are supposedly collapsing for 2 years now after prices went up 35% during that time, then come back to the discussion table.

#20 Dolce Vita on 10.26.17 at 7:02 pm

Garth, it is not cheap insurance.

$500K mortg., 25 yr. amortiz., mo. pmt., @ 3.39%, 5 yrs. of interest, 60th to 120th payments total interest paid: $65,856.44.

Same except @ 2.72%: $51,908.09.

Difference = $13,948.

$250K mortg., difference = $6,974.17.
$750K mortg., difference = $20,922.52.

Hard to say in the end if variable rates will exceed fixed rates sometime over the 5 year term enough to offset the above differences in interest paid.

#21 Grandpa Rick on 10.26.17 at 7:02 pm

We’ve gotta buy houses now, Morty. Infinite universes of houses, Morty. We’re gonna buy, and sell, and buy and buy, and Morty, they’ll be houses, Morty. Infinite houses, Morty! Prices will never go down, only up, Morty!

#22 Justin on 10.26.17 at 7:06 pm

Hey Garth – what is the weekly mortgage ripoff you speak of? I just switched my payments to weekly from monthly – is there some kind of catch that I missed?

#23 Soviet Capitalist on 10.26.17 at 7:09 pm

Why not variable? Even if BoC raises, it’s highly unlikely to be more than 0.25 again. 2.72 + 0.25 = 2.97, isn’t that still way below 3.39?

#24 Nonplused on 10.26.17 at 7:12 pm

I’m not sure what the point of these new stress tests are.

They are saying “you must qualify at 2% higher than current rates”. On the one hand this sounds like a good idea and seems to incorporate at least some understanding that rates may rise. Maybe it’s “virtue signalling”, the Bank of Canada admitting rates have been too low for too long and are likely to go up.

But it also raises a lot of questions. If people have been borrowing too much money, why didn’t rates rise earlier? Much has been raised about how many Canadians couldn’t afford a 1% rise in their mortgage costs. Why did they lend them so much money then? If Canadians now have to qualify as if interest rates were 2% higher, why don’t they just raise the rates? What other affect is this suppose to have on the economy?

Of course very quickly these questions lead to speculation because they aren’t saying what they are trying to do. On the surface of it they could be pretty sure that there is a real risk interest rates will be 2% higher in the next five years, which seems plausible. But the Fed sets rates world wide and the BoC just follows suit with a bit of an adjustment to control the value of the Canadian dollar, so they know with certainty what the rates will be and they can set them wherever they want. So there is a strong argument to be made that the plan is to set rates higher.

But then why not just raise them more quickly and obviously? The BoC rate is still only 1%, ridiculously low, and it’s been in that territory for a long time now. Who in their right mind would lend anybody money for 1% or less? The whole reason it’s called “interest” is because you have an interest in the money, but the lower the interest rate goes the less interest you have until finally you aren’t interested at all and put the cash under the mattress.

My theory is there is a second agenda afoot. They are creating a two-tier system where certain entities, corporations and government in particular, can borrow at one rate, but individuals have to qualify at another. This has always been the case, they call it risk premium, but now they are trying to distort that market. Why?

Well, one potential reason, and this is speculation, is that if you force individuals to qualify at 4% when they actually pay 2%, you free up a lot of money for discretionary spending. The problem with rising house prices and the so called equity it produces is that it doesn’t create money in the real world unless the house is sold or a loan is taken out against it. Whereas on the other hand if you force people to live within their means when they buy a house, the movie theater and car dealership will be a lot more busy. And you can tax that activity. Taxing rises in real estate prices has proven to be difficult. Even commercial properties can’t be taxed because the owners just refuse to sell and realize the gain. It’s all on paper, which is just where it will stay.

So here is my conspiracy theory. The reason they are raising the rate at which you must qualify is not because they are going to raise the rate, raising the rate would do that all by itself. They are trying to limit the amount of money spent on housing instead of other areas of the economy that can be more readily taxed, whilst continuing the incredibly low rates the government can borrow at. And why wouldn’t they?

Think about it. If the government can borrow at 1 or 2 % when inflation is 2-4% the money is free. Add the fact they charge taxes on the 1% you are making and the money is better than free.

Here is an example that will probably lose most of the readers but for those who would hear, lend an ear. If let’s say that on average gold follows inflation and rises by 2%/year, but you can borrow at 1%, what should you do? Well, borrow all you can and buy gold. I am using gold as a proxy for inflation. The point is when interest rates are below the rate of inflation, the sensible thing to do, even though it doesn’t seem right, is to borrow all you can and buy things, anything, because the price of those things is going up! There is no time value to money anymore and you are acting quite rationally when you get rid of it as fast as you can. Buy cans of beans for Dog’s sake! The beans won’t be cheaper tomorrow but your money will be. New car? Buy it now before they tack on an extra $15,000 to the price! Houses? Well, ya that’s what happened. As the money became worth less, the houses became worth more. Buy it now and don’t worry about the debt. The debt is going away because the interest is less than inflation.

#25 When the Whip Comes Down on 10.26.17 at 7:16 pm

I like the way the BCGEU treasurer put it in an opinion piece recently. Specifically referencing foreign influence in BC and lower mainland (and hey, anywhere really)
“While foreign investment acts as a catalyst by setting a high bar for real estate sales, it is financial institutions that drive up prices by approving larger mortgages than they would otherwise allow, spurring domestic buyers to chase property prices that would otherwise be regarded as high-end anomalies”
So yes-the foreign buyers will buy anyway, but its the locals who financially strain themselves to compete. Enter B20…..

#26 Wet Toast on 10.26.17 at 7:17 pm

@#3 Under Pressure: Here’s an example, my wife and currently have a mortgage approval for $1 mill, 2.69% 5yr term. Our rate is good till December, so I asked the broker to run the numbers to include what she thinks our “likely rate” will be at 2.94% with stress test and same down payment. Come January 1, we will qualify for a $782,000 mortgage. Doesn’t matter how much my wife wants to spend, that’s what we can get.

#27 I thinks I know something on 10.26.17 at 7:17 pm

“The two most hawkish central banks on the planet lately have been the Fed and the Bank of Canada. Both want rates normalized.” Garth

——————————————————–

That is an unsubstantiated rumour and you know it Garth. Five year fixed rate mortgage will never hit 6% again.

Normalization is already occurring. – Garth

#28 When the Whip Comes Down on 10.26.17 at 7:20 pm

#4 The True Vic – AKA Rates vs Capital – are you still making that argument? Why the handle change? Guess we’ll see how True Vic is in the near term.

#29 Dolce Vita on 10.26.17 at 7:20 pm

3.39%, $500K mortg. does not change total interest paid over 25 years by much with different payment frequencies:

Monthly = $240,222.88, 300 payments.
Weekly = $239,425.54, 1300 payments.
Daily = $239,220.60, 9125 payments.
About a $1K spread.

Numbers for a $250K mortgage:

Monthly = $120,111.44, 300 payments.
Weekly = $119,712.77, 1300 payments.
Daily = $119,610.30, 9125 payments.
About a $400 spread.

Numbers for a $750K mortgage:

Monthly = $360,334.31, 300 payments.
Weekly = $359,138.30 , 1300 payments.
Daily = $358,830.90, 9125 payments.
About a $1.2K spread.

Increasing payment frequency does not make much of a difference until you get to high mortgage values.

Instead, better an open mortgage where you can pay down the prinicipal without penalty.

#30 I thinks I know something on 10.26.17 at 7:21 pm

“– just before prices fall.” – Garth

——————————————————

Come on already. The prices have been just about to fall for years now. Yet, they haven’t. They are not about to fall and neither is the sky. So, my hard hat remains tucked away in the closet.

Prices down 12% in GTA and Hamilton, for example. – Garth

#31 les on 10.26.17 at 7:23 pm

CMHC report on overvaluation of Canadian housing

Is CMHC like Sleeping Beauty–just waking up from a long slumber and missed what was going on?

#32 Cdn expat on 10.26.17 at 7:26 pm

Garth, any insight from realtors into what’s been happening in the housing market sales and price wise in October? It’s been very quiet the past while, news article-wise on what’s going on. Thanks.

#33 Cdn expat on 10.26.17 at 7:30 pm

Even John Pasalis and Hilliard MacBeth have been quiet on Twitter

#34 T on 10.26.17 at 7:33 pm

#8 None on 10.26.17 at 6:31 pm
You know what I think is funny about the fixed vs. Variable?? Basically — who the hell do you think you are? banks are the business to make money. Do you think they don’t charge a premium for taking on risk? Committing to a fixed rate mortgage adds risk to the bottom line of the loan. Therefore, at BEST a fixed rate mortgage is an equivalent product to a variable and at worst – the expected return on a variable rate plus a risk premium added.

The correct choice is ALWAYS take variable but have your payments equivalent to what they would be if you took the fixed rate at the same amortization schedule.

There you go Garth. That’s my free advice for you today.

—-

Some very terrible advice in a rising rate environment.

#35 Lost....but not leased on 10.26.17 at 7:42 pm

Desperate times….

My nephew has bought 1/3 of a detached home in the greater Victoria area.
….1/3 bought by a single dude,
… the other 1/3 bought by a couple.

Had a lawyer draw up the documents.
House has a suite aka mortgage helper.

It’s one of those moments that you feign congratulations, yet deep down you cringe…..what could possibly go worroonggg???

PS I wonder how much of this goes on?

#36 Chelsea on 10.26.17 at 7:42 pm

The RE in B.C. upon my observation is pretty dead …. maybe a sale here or there, but, haven’t seen an onslaught of sales anywhere. After January 1st, 2018 when the stress test is in effect, the RE realtors will have to eat crow, and start realizing home prices have been absurd and begin recalculating back to more affordable prices. Come on now, people… wake up and smell the corruption!

#37 gfd on 10.26.17 at 7:42 pm

Some mortgage brokers and some real estate agents. Same protocol. I wouldn’t be surprised if they genuinely believe what they say. Dumb and dumber.

#38 gfd on 10.26.17 at 7:44 pm

New Zealand ban on foreign home ownership gains attention in B.C.
https://globalnews.ca/news/3823410/new-zealand-ban-on-foreign-home-ownership-gains-attention-in-b-c/

#39 Dolce Vita on 10.26.17 at 7:46 pm

I agree with your Cdn. Economy Pros but there are a lot of headwinds as well:

-Oil @ $50 means no large capital projects in the tar sands.
-Exports still decreasing.
-NAFTA auto demands means a smallrt pie for Canada. 50% made in America and 85% N. American content leaves 35% between Mexico and Canada, and they have much cheaper labor.

Trumps demands thus far on NAFTA I believe signal he wants to tear up the deal and if he doesn’t he gets everything he needs, either bad news for Canada.

Look, industry can turn on a dime nowadays. If America takes away parts etc. manuf. from Canada and makes it local, they will do it and probably in recored time.

They have already added tariffs to softwood lumber, they have forced Bombardier to use the Airbus US plant to avoid tariffs, hand over the plane in essence to them in a few years and the tariff amount is still up in the air as to what will happen.

Trump and his tariff happy ways add a lot of uncertainty to our future GDP.

Then there is the expected cooling of RE sales when B20 comes into play and that will affect Realtor jobs/net income, finance, and new home retail sales (ovens, refrigerators, etc.)

I see a lot of uncertainty and economic headwinds along with the postivies you point out Garth.

Flip a coin as to what will happen. Recession, who knows? High growth as in the 1st half of the year in 2018, I doubt it.

#40 BobC on 10.26.17 at 7:48 pm

#27 I thinks I know something

“That is an unsubstantiated rumour and you know it Garth. Five year fixed rate mortgage will never hit 6% again.”

At 68 y/o I have learned to never say never.

#41 Long-Time Lurker on 10.26.17 at 8:05 pm

#169 Ronaldo on 10.26.17 at 4:16 pm
#148 Long Time Lurker

I read your message, Ronaldo. Thanks for caring. Whatever SCM is, SCM is definitely a loser and doesn’t have to be. He might be worth one more message.

Someone asked about sovereign bonds a while ago. Around the start of the week there was a “Bond King” Gundlach article floating around. Basically, Gundlach said that bonds suck because rates are going to go up.

#24 Nonplused on 10.26.17 at 7:12 pm
I’m not sure what the point of these new stress tests are.

That was a well-thought-out and rational explanation.

#42 millmech on 10.26.17 at 8:12 pm

#3 Under Pressure
You are right it is financial suicide and its happening on an epic scale and it is not just wives. Whenever I am out with friends it is like I am the leper of the group now that everyone owns something. I keep getting told how much money that has been lost by renting and that it would have gone into building up my equity.
One of friends bought a brand new Jeep Rubicon lifted and ‘done to the nines’ without consulting with the wife, the only way he could keep the truck is if she got a new Dodge Challenger which she did of course, all on home equity.
People seem mentally stunned with finances lately, reminds me of when a relative won the lottery and blew through a couple of million in five years, was stunned that there was an end to the money, lost everything and had to go back to work.

#43 jess on 10.26.17 at 8:13 pm

from the other day

2 Lost….but not leased on 10.26.17 at 5:10 pm

#171 Jess

Leaves one wondering what happens to the wealthy if someone “hacked” and subsequently stole their funds etc. from these tax havens like Bermuda.

Would Bermuda have these deposits insured….aka who would be left holding the bag after the “robbery” ?
==========================
well i am remined by :”…To complete his capture of the island’s economy and government, Stanford antiquan gov….

often overlooked point: The practice of offshore finance often damages the countries where these people stash their fortunes as well. The locals who bear the brunt of the damage are rarely heard from in international discourse.”
https://www.theatlantic.com/business/archive/2016/07/tax-haven-curse/491411/

Tax havens have no economic justification, say top economists

Thomas Piketty and Jeffrey Sachs among signatories of letter urging world leaders at UK anti-corruption summit to lift secrecy
https://www.theguardian.com/world/2016/may/09/tax-havens-have-no-economic-justification-say-top-economists

https://www.thestar.com/news/world/2016/06/18/canada-willingly-makes-tax-deals-with-tax-havens.html

#44 jlaw on 10.26.17 at 8:14 pm

I sincerely hope B20 impacts the Vancouver market but am worried it will only make a small dent, if that. We sold last month, cashed out, accepting an all cash offer. Most sales I’ve heard about in the last year have been all cash offers. So how will B20 impact Vancouver if the winning bidder (often developers) aren’t relying on mortgages and making all cash offers?

#45 For those about to flop... on 10.26.17 at 8:17 pm

pm
@Flopper:

Regarding the listings on Inverness and Sherbrooke:

I spend a fair bit of time in this neighbourhood, (sorry, not a RE agent) and I know that there is a LOT of ‘onshore’ money leveraged to speculate on properties here.

These are not globally wealthy, money-laundering ‘foreigners’. These are long-term Canadian families pooling HELOC money to purchase ‘investment properties’.

I suspect these sellers are taking big cuts because the HELOCs involved are starting to get a little shaky.

////////////////////////

Hey Smartie,yes the last time we talked I think we roughly worked out there is about 30 blocks in between our residences so we feel the same breeze.

I have written posts on here before stating the I have seen no foreign investment in my hood,it could be happening but I just haven’t seen it or heard any talk of such.

My work life on the Westside is a different matter.
I have worked on jobs where the developers have bought minibuses/ limousines full of well to do foreigners to view the properties at the same time to get the competitive juices flowing.

We are talking properties going for north of 10 million.

As far as people having trouble getting money out of China,this has only been a problem for me professionally on one site.

It was a long term build 4/5 years and I worked there for 6 months of this time and never seen the owner as he was in China,which only affected me by way of waiting to make decisions on finishes.

Twice the job slowed down / stopped and the reason given to me be the developer was that he was waiting for the client to send some more money from China.

I was paid in full for my work on that house but when you have a custom build like that with 15 guys on site it can rack up pretty quickly,not to mention high end materials.

Never did see that house finished though.

I work for Canadian developers,Euro-Canadian developers and Chinese- Canadian developers.

They all have different ways of doing stuff but at the end of the day they all want to make shed loads of money and will do whatever it takes to achieve this target including taking massive risks.

The have been well rewarded the last decade or so but it think some of them are starting to drive with the park brake on…

M43BC

#46 On the fence on 10.26.17 at 8:18 pm

Will the new rules have less impact price wise, specifically Kelowna (Am aware of the price accelerations) compared to Vancouver DT/ Lower Mainland?.

On the fence to pull the trigger on a detached excellent location close to beach/downtown, plan to stay min 5 years. Not overstretched but by a slim margin would fail new stress test without putting more down. Thx

#47 Tbone on 10.26.17 at 8:25 pm

I can tell you what’s happening on a property a senior is selling.
Normal activity in number of showings over the last month.
After the news of the stress test , activity has picked up and one low ball offer. Property may be listed a tad high as renovations are desired by most , but I think more offers will come now , after price reduced 3 %.
If no offers … another price reduction !
As we all know, the market sets the price.

The realtor suggested the price they may end up at to move this property.
Guess he knows more than them. Who knew ?
Lol , he wasn’t a shyster after all.

3%. Wow. — Garth

#48 Smoking Man on 10.26.17 at 8:26 pm

Working with an agent in the Falls. So I get about 20 new emails a day. Price reduction heading in 60% of the up dated listings. The low end of the market is selling. Higher end not so much.

Be crazy to buy right now. My son has had enough of me and mom stealing his room. So another road trip is due.

Florida or Southern California is what I’m thinking. Made enough lot trading forex these last two weeks to pay for a joint, burbon and smokes for two years and that bullish USDCAD Bet has a long way to go. Trump got his tax cuts.

CAD is dead man walking.

#49 common sense on 10.26.17 at 8:34 pm

Rates rising….for the 102394893 time, it ain’t gonna happen again this year. Impossible.

2018? Possibly depending who the FED chair is…

Janet wants to leave as quietly as possible and when this blows will be half a world away playing cards with the other 2 idiots Greenspan and Benji…

Rates rising? Please.

The Bank of Canada rate has doubled this year. More to come. — Garth

#50 conan on 10.26.17 at 8:36 pm

#24 Nonplused on 10.26.17 at 7:12 pm

“But it also raises a lot of questions. If people have been borrowing too much money, why didn’t rates rise earlier?”

The short answer:

Ten years ago, the banking PTB almost ruined the Planet’s financials. The bigger then the bank’s PTB had to give a very large amount of money to the banking industry, or society would go Mad Max, within months.

So the banks received big $ at almost zero % with strict instructions to lend it out at maximum rates. This meant, lines of credit and credit cards to almost everyone with a pulse. The banks survived on this spread, and then they used this same spread, to pay back this Elite PTB.

I am guessing this debt is almost paid, hence attempts to normalize interest rates. It was such a severe error by a system that is supposed to look after us, one has to wonder what is going on.

Big picture = The biggest can ever, was kicked down the smallest ally ever, and things could go poo, or not.

#51 common sense on 10.26.17 at 8:38 pm

The only reason Canada raised rates as it was their turn to raise .25% in the coordinated effort of central banks worldwide to put out something to make things “seem normal”..who’s next ? The EU with negative rates?

Hahahahahahahhah.

#52 Weekly Interest on 10.26.17 at 8:39 pm

Talking about interest…
Could someone help me figure this out:

I pay my interest weekly on my mortgage, which is 2.79%

If I take 2.79% of my balance, and divide it by 52 weeks, I get a slightly higher interest payment than the bank charges me.

How do weekly interest calculations work?

Divide the monthly by four. That equals 13 monthlies. It’s magic. — Garth

#53 the Jaguar on 10.26.17 at 8:41 pm

The Jaguar heard a story about a person who took a variable rate mortgage over a longer term. The payment was fixed at the time it was taken out based on the prevailing rate at the time. But as time went on interest rates rose, meaning the actual rate being charged on the principal was higher. But the payment stayed the same. So less of the fixed payment was going to reduce principal based on the amortization. In fact the amortization was increasing. The life of the mortgage was increasing. Imagine that in the days of 480 month amortizations before whip crackers like OSFI showed up on the scene. Of course annual statements were issued detailing this state of affairs, but people have to read them, don’t they? Oh crap! That annoying thing about being responsible always surfaces, doesn’t it? Wonder if anyone also told them that the compounding for variables is monthly versus semi annually, so the effective rate is a little higher than advertised. Less you read the fine print.
On a brighter note read that Amazon is bringing 750 new jobs to Calgary, the most american city in all of Canada. Maybe nothing or maybe a small test drive.
Official motto of this city? ‘Onward’. Guess we’ll see when the short list comes out. I love you Bandit.

#54 Ian on 10.26.17 at 8:43 pm

All you housing bulls, and decline doubters: just wait until Q1 2018 is done and let’s review the stats.

Happy Stress Test Everyone!!!

#55 Smoking Man on 10.26.17 at 8:44 pm

Love to be a fly on the wall when lefty loons happen onto my periscope feeds book selling feeds. No way Smokey makes the kind of loot he says he does trading forex.

Well my wife’s forex canadian account pays the bills and her addiction to slot machines. My account, that fictitious one in the islands. Well all I can say is I’m certified crazy living in my son’s apartment . Or am I. Shit load of Smoking Man hatters out there with a bat phone to CRA.

Think of it as staging a property before you meet the judge.

Seriously my market calls. No economist even comes close.they really should teach Herdonomics in university.

How can they? The professors are to ride up to ANTIFA causes trying to bang a worshiping young dumb hottie.

Hollywood is going down. Next up professor slime bag.

#56 Gramos on 10.26.17 at 8:49 pm

So for the sellers among us; drop your price 10-15% now before you have to drop it 20%…

#57 Smoking Man on 10.26.17 at 9:03 pm

#56 Gramos on 10.26.17 at 8:49 pm
So for the sellers among us; drop your price 10-15% now before you have to drop it 20%…

……

They got till Feb 2018 to get the hell out of Canadian Real Estate. After that. They better learn to trade forex, there are those that do and those that teach.

I’m hate teachers.

#58 crowdedelevatorfartz on 10.26.17 at 9:21 pm

@#27 I thinks I knows nuthin
“Five year fixed rate mortgage will never hit 6% again.”
+++++

Never. Wow. Pretty sure of yourself.

People would have killed for a 6% mortgage 10 years ago……..

Give it 5 years.

#59 SimplyPut7 on 10.26.17 at 9:24 pm

More listings seem to have been added in the GTA over the past week. It looks like the soon to be retired, speculators, and flippers who don’t want to wait until B-20 lowers their selling prices are looking to cash out.

Asking prices are even lower. Seems to good to be true.

#60 Smoking Man on 10.26.17 at 9:25 pm

Don’t need a gun or sord to thrash evil and stupidity. Two drunken thumbs is all that’s required to pump logic into souls that have been taken from kindergarten.

It’s a battle that’s worth fighting no matter how much they try and make you feel like shit. And make sure no gigs for you. Stupid Globalists is all I’m thinking.

I’m Smoking Man
Only one on earth with a PhD in Herdonomics.
Old and tired. But still have some fight left.

Beware of the thumbs idiots.

#61 Ace Goodheart on 10.26.17 at 9:33 pm

” If every single borrower in the land must now pass the same income test, and available credit overall will contract as a result (which is the goal), then for the same house to sell to the same universe of buyers, it must become 20% cheaper. ”

For those of us sitting on million dollar cash piles, this is like Christmas (and it actually will be very close to Christmas).

More house, less money.

Why pay more?

#62 akashic record on 10.26.17 at 9:33 pm

#20 Dolce Vita on 10.26.17 at 7:02 pm

Garth, it is not cheap insurance.

$500K mortg., 25 yr. amortiz., mo. pmt., @ 3.39%, 5 yrs. of interest, 60th to 120th payments total interest paid: $65,856.44.

Same except @ 2.72%: $51,908.09.

Difference = $13,948.

$250K mortg., difference = $6,974.17.
$750K mortg., difference = $20,922.52.

Hard to say in the end if variable rates will exceed fixed rates sometime over the 5 year term enough to offset the above differences in interest paid.

When you guys exhausted the hard math of variable vs fixed mortgage payments, take a break to excite your calcified pineal gland, if you can count 1 to 100.

https://www.youtube.com/watch?v=zcqZHYo7ONs

#63 I thinks I know something on 10.26.17 at 9:39 pm

#58 crowdedelevatorfartz on 10.26.17 at 9:21 pm

Never. Wow. Pretty sure of yourself.
People would have killed for a 6% mortgage 10 years ago……..
Give it 5 years.

————————————————————

I’ll give it ten years. Isn’t going to happen. Not unless the powers that be want to totally blow up this debt laden economy. Debt is the only thing that’s keeping this party going. We’re massively drunk on debt. Of course, things will eventually blow up of their own accord, but it won’t be from the government willfully doing it.

#64 gfd on 10.26.17 at 9:52 pm

Smokie, try Haleakala ……experience you will never forget. 6:00 am on the top of the world with sun rising 10,000 feet below your knees.

#65 For those about to flop... on 10.26.17 at 9:53 pm

This post is something I do this time once a month to see how the bottom end of the market is doing.

Houses for sale under 1.3m in Vancouver proper …42

Number of these houses that have reduced their price during current contract…13

30% of the cheapest houses in Vancouver have had yo lower their prices to try and get some action.

Still no light bulb moment for some of you guys…

M43BC

Vancouver detached under 1.3

https://www.zolo.ca/index.php?sarea=Vancouver&ptype_house=1&max_price=1300000&min_price=800000&filter=1

#66 Al on 10.26.17 at 9:55 pm

Neither the variable or fixed rate is “better”per say, the risk, the probabilities of rate changes and by how much and if and when have already been baked into both rates. Unless you think you know better than the team of experts at the bank, youre not gonna “beat” either rate consistently over the long term. That being said, only you know your financial ability to weather possible rate changes in the near term by going variable.

The best way to reduce long term interest cost would be to pay as much as possible as soon as you can (with mortgage payment rules that are accommodating). Weekly payments is only better if you get paid weekly. If you get paid bi-weekly, you’d be better off paying the maximum you can every two weeks , rather than paying half when you get paid, and saving the other half for the following weeks weekly payment and accruing interest on that amount for another week (it wouldnt be exactly half ofcourse as the bi-weekly pay would need to cover slightly over two (weekly) mortgage payments on average, just for simplicity).

#67 PastThePeak on 10.26.17 at 10:01 pm

It really is pretty simple. How can house prizes rise at much higher % than wages for a long period of time?

#68 Weekly Interest on 10.26.17 at 10:02 pm

#52
Divide the monthly by four. That equals 13 monthlies. It’s magic. — Garth

I have no monthly. I have a weekly.
And an annual 2.79%.
So I divide by 52, not by 4, not by 12.

#69 aa3 on 10.26.17 at 10:03 pm

For the first time in most Cdns adult lives, there is actual real jobs and opportunities open. That is the power of printing money and fiscal stimulus.

Aka the much hated and derided Social Credit ideology.

#70 People watching people on 10.26.17 at 10:06 pm

#39 Dolce Vita on 10.26.17 at 7:46 pm
I agree with your Cdn. Economy Pros but there are a lot of headwinds as well:

-Oil @ $50 means no large capital projects in the tar sands.
-Exports still decreasing.
-NAFTA auto demands means a smallrt pie for Canada. 50% made in America and 85% N. American content leaves 35% between Mexico and Canada, and they have much cheaper labor.

———————

NAFTA, as it pertains to autos is a non-issue. IF Trump gets his way, nothing changes. The “penalty” for violating NAFTA is 2.5% (the US’s WTO Most Favoured Nation tarriff rate -Can and Mex are both MFN to US), which will just be passed on to the consumer. To have 50% US content would mean manufacturers would have to spend $1 Billion to create engine plants in the US. Easier to pass on the penalty. So no change on how cars are made, in fact more production will continue to go to Mexico, NAFTA or no NAFTA. The US would have to leave the WTO to make a difference.

#71 Bobby on 10.26.17 at 10:09 pm

The stupid comments from Invis are of little or no surprise. These companies rely on sales for commissions so will say whatever they think will keep the market moving. Their saving grace is the financial illiteracy of sadly a significant number of Canadians.
Recall the VREB statement a few years back from the board here in Victoria. Higher interest rates meant higher home prices so it was important to get in now.
Where do they get these people?

#72 Paul on 10.26.17 at 10:14 pm

Sold a house in the spring to close in July the buyer walked away. Relisted less than the original sale price seven weeks ago two showings. Things have changed !

#73 Bob Loblaw on 10.26.17 at 10:16 pm

A young co-worker came to me for advice last week…said that he and his new wife put down a deposit on a new build just outside of calgary. The problem he was facing was that his future house was fully framed, but construction had halted because the home builder was facing bankruptcy.

He was told he had a few options. One was to get his deposit back under provincial law, and another was to wait to see if the home builder would be sold to a competitor, who would finish construction, but agreed that could take a while. A long while.

I advised he should get his deposit back ASAP. He’s currently living in a nice rental with accommodating landlords, and could continue to rent indefinitely.

He wasn’t aware of the stress test. Said it shouldn’t matter becasue he’d still be paying the same monthly mortgage payment either way. Price drop? No concern about that at all.

On top of this, he opted out of the optional matching pension plan program so he would have more cash each month to put towards the mortgage. Just baffling..

#74 Lost...but not leased on 10.26.17 at 10:35 pm

#45 for those about to flop

When the SHTF, I think the sad thing will be all the Tradesman that will be unemployed.

The way I look at it…normal future demand has been co-opted by this speculation frenzy..and when the music stops a glut of Real Estate will need to be absorbed via normal market forces = new construction will literally come to a standstill.

#75 Debtslavecreator on 10.26.17 at 10:37 pm

Where I work most branches have seen a stunning drop in new mortgage and refi applications over the last 4-5 weeks
I am hearing from some contacts at the big 5 in the GTA its the same
It feels very similar to early 2098
6 months from now I think we will be in economic free fall and BofC talking about dropping the overnight
CAD under .70 by end of Q3 2018
I really hope I’m wrong but the signs are there the luck has run out
I do think the market will likely bottom in nominal terms by late Q3 2018

#76 Smoking Man on 10.26.17 at 10:39 pm

My destiny I’m cool with it.

https://youtu.be/mTwjUE60HG4

#77 Tom on 10.26.17 at 10:55 pm

Ugh. I hate these magic money saving weekly payment schedules
They compare totally different payment terms
No kidding? My mortgage will be paid off faster if I pay an extra 1000 per year for 20 years? No shit.

Why not compare equal terms

What’s the difference between paying

500 per week or
2167 per month?

#78 Really! on 10.26.17 at 10:56 pm

Mathew…take the 5 yr variable, negotiate the lowest rate…. Reduce your amortization to less than 20 yrs, take a biweekly accelerated payment and start to make double up payments whenever you can !!!! Get that sucker paid OFF ASAP , meanwhile max out your RSP annually! Yes it might mean you skip the annual vacation, the kids hockey fund or soccer, the restaurant meals or the granite counter top, BUT it’s worth it!

#79 Paul on 10.26.17 at 11:14 pm

Well Trudeau just gave away 32 million to three people abused in Syria. If Trudeau keeps this up he better start taxing the sheeple more.

#80 prairie person on 10.26.17 at 11:19 pm

Interesting comments re mortgages and rates. Years ago when I took out my first mortgage, I was able to get an open mortgage from the local Credit Union. Normal payments came out of my paycheck but I also took a lot of weekend jobs and every cent from them went onto the mortgage. A thousand dollars paid off the principle at the front end of the mortgage saves a lot of money. Hard work but most people pay their mortgage for years before they see any diminishment in their principle. With an open mortgage, put down an extra fifty dollars and that’s fifty dollars you aren’t going to pay interest on. Put down five hundred and you aren’t going to pay interest on that five hundred for the next twenty or thirty years. However, I don’t know if any company offers open mortgages anymore.

#81 morrey on 10.26.17 at 11:26 pm

Todays Reality: Most attendees were shocked by what Ferreira described as “the new normal.” He told of instant sellouts of new projects, double-digit price increases, government uncertainty, grossly insufficient supply and a lot of disappointed and increasingly frustrated would-be buyers.

http://www.vancourier.com/opinion/development-community-shocked-by-new-normal-1.23074903#sthash.zcyDPWIF.uxfs

#82 Smoking Man on 10.26.17 at 11:32 pm

DM I love you but.
https://youtu.be/vx2u5uUu3DE

#83 Weekly on 10.26.17 at 11:34 pm

This old (I mean we’re talking 2003) webpage is a gem:
http://amortization.com/weekly_payments_revisited.htm

o obtain the non accelerated weekly payment multiply the monthly payment by 12 and divide by 52. The accelerated weekly payment is arrived at by multiplying the monthly payment by 13 and dividing the result by 52. The accelerated and non accelerated weekly payments were arbitrarily selected in 1984 by a major Canadian lender and have since become the defacto standard that Canadian Banks adopted. To simplify the mathematics follow these steps. Calculate the “normal” monthly payment first, or ask your lender what the normal monthly payment would be for your conditions. Take that monthly payment and divide it by 4.333 to calculate the non accelerated weekly payment or divide it by 4.0 for the accelerated weekly payment.

But honestly, the best are the examples. $150k mortgage at 7%. Running the calculation at a higher rate of 14%! Jesus, people would pass out now.

The kicker is this line:
He suggested, doubling up on the monthly payments. Sure, just cut out the extra Blockbuster movie rentals each month and increase your monthly mortgage payments from $1000 to $2000 per month.

Blockbuster… there is an example of why single stock portfolios are a bad idea.

#84 Nonplused on 10.26.17 at 11:36 pm

#50 conan

You might be right but that is even more crazy than my theories.

Then again, physicists are now admitting they can’t even explain why the universe exists. Maybe nothing can be explained.

My favorite topic lately is where did all the bugs go. It worries me. Are the bees just giving up on life? After so many millions of years of hard work did they just decide to give up?

#85 herestoyou on 10.26.17 at 11:36 pm

I was looking at a new MLS Listing #432430 and the second sentence of the home description stated “Act now before new mortgage rules take effect in January”. I’m pretty sure that with encouragement like this coming from Realtors there will likely be a rush of sales between now and January.

#86 Vancoolio on 10.26.17 at 11:36 pm

@Weekly Interest

2.79% / 52 = 0.05365%, but this is not how it is calculated.

Compound Interest Formula:
I = P(1 + r)^n – P

Solving for r (rate), removing P (principal) since we are not interested in that, and using 52 for n (number of interest periods)

r = (1+i)^(1/n)-1

r = (1+0.0279)^(1/52)-1

r = 0.05293% / week

#87 Smoking Man on 10.26.17 at 11:37 pm

When you piss off the machine.

https://youtu.be/SRvCvsRp5ho

#88 Ponzius Pilatus on 10.26.17 at 11:47 pm

#39 Dolce Vita on 10.26.17 at 7:46 pm
I agree with your Cdn. Economy Pros but there are a lot of headwinds as well:

-Oil @ $50 means no large capital projects in the tar sands.
-Exports still decreasing.
-NAFTA auto demands means a smallrt pie for Canada. 50% made in America and 85% N. American content leaves 35% between Mexico and Canada, and they have much cheaper labor.

Trumps demands thus far on NAFTA I believe signal he wants to tear up the deal and if he doesn’t he gets everything he needs, either bad news for Canada.

Look, industry can turn on a dime nowadays. If America takes away parts etc. manuf. from Canada and makes it local, they will do it and probably in recored time.

They have already added tariffs to softwood lumber, they have forced Bombardier to use the Airbus US plant to avoid tariffs, hand over the plane in essence to them in a few years and the tariff amount is still up in the air as to what will happen.

Trump and his tariff happy ways add a lot of uncertainty to our future GDP.

Then there is the expected cooling of RE sales when B20 comes into play and that will affect Realtor jobs/net income, finance, and new home retail sales (ovens, refrigerators, etc.)

I see a lot of uncertainty and economic headwinds along with the postivies you point out Garth.

Flip a coin as to what will happen. Recession, who knows? High growth as in the 1st half of the year in 2018, I doubt it..
————-
What happened , dolce vita.
I thought you were in Italy living the “Dolce fa niente”.
trolling?

#89 Tony on 10.26.17 at 11:51 pm

Stephen Poloz’s wait and see approach mean you won’t have to wait long to see mortgage rates fall in Canada. Go variable rate and don’t even consider locking in at a fixed rate. Interest rates will start to fall around mid-year in America next year and Canadian rates have already started to fall. Canadian rates already have seen normalization at 1.00 percent Bank of Canada rate.

#90 PawPatroller on 10.27.17 at 12:05 am

I’ll be giving it at least 6 months to see the effects of OSFI on the lower mainland prices. Prepared to rent even 2 years more if need be. Sure, we plan to live in our home long-term once we buy but we believe concretely that the time we ENTER the market will be very critical. The other day my dad said to me “you guys have been waiting so patiently, and the tidal wave is approaching, just make sure you don’t end up staring at it, that you get out of the way.”

#91 Smoking Man on 10.27.17 at 12:08 am

To the wife

https://youtu.be/EYyarcp5LtU

#92 PawPatroller on 10.27.17 at 12:18 am

I hope this helps many of you keeping an eye on Lower mainland prices…
here’s how i plan to keep an eye on the data moving forward to make an informed decision re: buying in the future.

1) When I see a listing I’m going to compare it against neighbouring sold properties,
you’ll find comparable homes and what they sold for.
(https://evaluebc.bcassessment.ca/)

2) Going to monitor the price drops that are being recorded on http://www.myrealtycheck.ca/. And one cool feature there is you can see MULTIPLE price drops. I noticed on Zolo for instance that a listing would be removed, then re-added with a reduction but you can’t see ALL the reductions. On MyRealtyCheck can actually see a bit of history of the drops here and percentage total dropped.

3) Zolo has a feature called “Market Stats” just next to “listings” and you can get a general feel of how sales are comparing to inventory, price adjustments and so on.

Get more informed and therefore make a smarter choice. What you don’t want to do is rely on realtor-based articles/opinions on what they think is happening in the market. it’s like asking a car salesman if you think it’s a good idea to buy a car through them. What do you think their answer will be?
if you’re a millennial renter, time and patience is going to work in your favour right now. There is NO train that’s leaving the station.

#93 Disgruntled Condo Owner on 10.27.17 at 12:33 am

“Thanks to the bank regulator, mortgages in 2017 will travel from 2% to 5% – an unprecedented doubling in a single year. Price reductions in 2018? Pure logic.”

Except that mortgages are NOT going up from 2 to 5%. That would mean payments on VRMs are changing a massive amount, which would indeed bring down the market a la 2008 US style crash. OSFI is make-believe, no one’s payments are increasing, and chicken little will never raise actual rates hence VRMs are SAFE.
Finally, house-desperate people will find a way to borrow money as they always have. Without a real increase in actual interest rates (not make believe) nothing has changed.
And no, BoC will NOT raise substantially. They might be dragged kicking and screaming another 0.5 by end of 2018, but I doubt it (I see 0.25 by end of 2018 with Fed +0.5).

#94 Pete on 10.27.17 at 12:34 am

#24 Nonplused

That’s a good theory. The real economy is dying. But People have been borrowing and while they borrowed the max to buy a house they have been spending the “equity” via HELOCs from their homes to buy cars and watch movies etc. All in all it was an interesting read.i think they had to stop the house of cards. Also why would banks want to loan people money and get paid back with money that’s worth even less?

#95 Bob Dog on 10.27.17 at 1:02 am

I for one, wishh… , I lived in a legitimate country, instead of a.. product for sale!

No more foreign ownership of New Zealand.

http://www.bbc.com/news/business-41745129

#96 BailinginBC on 10.27.17 at 1:02 am

#44 jlaw

Remember that the developers buying with cash are not the end users. They are building condos the purchasers of which ARE relying on mortgages. When the mortgage money drys up, watch the developers take their ball and go home.

#97 BailinginBC on 10.27.17 at 1:03 am

#44 jlaw

Remember that the developers buying with cash are not the end users. They are building condos the purchasers of which ARE relying on mortgages. When the mortgage money drys up, watch the developers take their ball and go home.

#98 No Tricks Just Treats on 10.27.17 at 1:49 am

Many in Victoria are struggling to pay their bills and afford housing be it an owner occupied or rented dwelling. The dismantling of the real estate pyramid scheme will bring back the hope of affordability. Soon a SFD will cost no more than 3X the annual average income. So, rather than $1.2M more like $300K or less. Do you agree?

Canada’s housing market ‘highly vulnerable,’ CMHC warns – Business – CBC News

http://www.cbc.ca/news/business/cmhc-housing-outlook-1.4373251

#99 steerage steward on 10.27.17 at 1:53 am

Got to hand to you Garth, you know how to talk, but perhaps you can get your point across with less words

https://m.youtube.com/watch?v=DB4z492z2hg

#100 Reality 1 on 10.27.17 at 3:46 am

to # 24 Nonplussed

The “Stress Test” is intended to SELECTIVELY TARGET MORTGAGE CREDIT while not affecting the general economy by raising the cost of money for everything else in the economy.

As the single biggest component of credit demand (and thereby credit risk) , they are effectively throttling it back significantly while maintaining the base (stimulative) rates on which all other forms of credit are priced.

This “stress testing” should have been implemented years ago concurrently with the slashing of interest rates to multi generational lows due to the GFC in 2008.

Failure to do so resulted in too much credit at too cheap a rate ( too much demand) which overwhelmed supply in the housing market.

This supply had been constricted (in Ontario) by the restrictive policies of the (ironically named) “Places to Grow” legislation of 2005 just prior to the said slashing of interest rates, which created massive demand just as supply was being choked off.

Result was the housing “bubble”.

#101 Reality 1 on 10.27.17 at 3:58 am

to # 75 Debtslavecreator

2098 ? , obviously a typo, but did you mean 1998 or what year?

Were you in the lending business back then?
If so, could you please draw comparisons to that era for us from what you recall?

Also, could you give quantify somewhat more accurately this drop off in activity? Is it down, say 20 % or 50% or ???

Would be very informative if you could.

TIA (thanks in advance)

Reality 1

#102 Reality 1 on 10.27.17 at 4:05 am

to # 70 Bobby

Never mind the duplicity / ignorance of the mortgage broker devils – think of the idiots (most buyers) that can’t even critically think out the fallacy of these representations and even worse, trust these charlatans.

If, (and that’s a big if), the buying public ever wises up, these brokers will become pariahs and the buyers will be financially crippled – s will be the economy.

#103 under the radar on 10.27.17 at 5:39 am

No question GTA is seeing a chill. Mania is gone , correction mode is in play. Big hat no cattle crowd will suffer. Fear is making the rounds and prices could easily dip 20% . Need big shoulders in times like these. Writing was on the wall for years. Soon, desperate sellers will appear and some would be buyers may actually score. But be careful , debt is largely evil. You use it ,and then rid yourself of it as quickly as possible.

#104 maxx on 10.27.17 at 6:42 am

#16 Ian on 10.26.17 at 6:47 pm

“Defintely agree with not doing variable.

In addition to the factors G mentioned like BoC getting back on the raising train, don’t forget the new US Fed person in Feb. They’re going to keep raising rates, especially if it’s John Taylor.

BoC is going to follow, and they should anyway. Our economy is not going to fall apart overnight, especially with the central rate so low.

They have plenty of GDP growth and inflation to work with, and now our dollar is under pressure. No worries about exporting at this fx level. Raise it up BoC!”

Completely agree. If ever there was a golden opportunity to creep towards rate normalization, this is it.

Over-indebted whiners will need to forego the catering packs of croissants and other junk from big box discount outlets.

Note to all innumerate fools (and that includes a very large swathe of government at all levels) who cry and complain about “not being able to make their payments” if rates go up, building real wealth and economic strength is about prioritizing and internalizing that government won’t protect you (even though that and protection of property are the main mandates), banks are not, repeat, not your friend and retail exists to fleece you to the max. Layer a heap of advertising on top and you have one he// of a tug of war.

Only the willful with vision who run their own game get rich.

#105 maxx on 10.27.17 at 6:45 am

#16 Ian on 10.26.17 at 6:47 pm

“Defintely agree with not doing variable.

In addition to the factors G mentioned like BoC getting back on the raising train, don’t forget the new US Fed person in Feb. They’re going to keep raising rates, especially if it’s John Taylor.

BoC is going to follow, and they should anyway. Our economy is not going to fall apart overnight, especially with the central rate so low.

They have plenty of GDP growth and inflation to work with, and now our dollar is under pressure. No worries about exporting at this fx level. Raise it up BoC!”

Completely agree. If ever there was a golden opportunity to creep towards rate normalization, this is it.

Over-indebted whiners will need to forego the catering packs of croissants and other junk from big box discount outlets.

Note to all innumerate fools (and that includes a very large swathe of government at all levels) who cry and complain about “not being able to make their payments” if rates go up, building real wealth and economic strength is about prioritizing and internalizing that government won’t protect you (even though that and protection of property are the main mandates), banks are not, repeat, not your friend and retail exists to fleece you to the max. Layer a heap of advertising on top and you have one he// of a tug of war.

Only the willful with vision who run their own game get rich.

#106 maxx on 10.27.17 at 6:58 am

#31 les on 10.26.17 at 7:23 pm

“CMHC report on overvaluation of Canadian housing

Is CMHC like Sleeping Beauty–just waking up from a long slumber and missed what was going on?”

They knew exactly what was going on and fanned the flames in concert with lenders.

#107 I’m stupid on 10.27.17 at 7:01 am

#44 Jlaw

Aren’t all deals cash offers? Just because buyers don’t have financing clauses in their offer doesn’t mean they’re not getting financing. It might just mean they got a pre approval.

#108 Cottingham a bargain on 10.27.17 at 7:24 am

Anyone have any ideas why condo prices continue to make new price highs in Toronto despite increased inventory, pending osfi rules and so called “ over pricing “ which has been the meme of this blog for an extended period of time ?

Seems the market continues to speak loud and clear for those who aren’t trapped by their misplaced point of view or looking for confirmation of their biases.

I know deleted .

#109 fancy_pants on 10.27.17 at 8:08 am

so here we are captain. rates get pushed up even a little and the ship (economy) starts taking on more water. we are barely afloat but people continue to scramble for the best deck chairs (RE).

when bread costs $12 a loaf and/or rates are up 3% and RE is half its value you know we have for all intent and purposes capsized.

#110 crowdedelevatorfartz on 10.27.17 at 8:14 am

@#79 Paul
“Well Trudeau just gave away 32 million to three people abused in Syria….”
+++++

No No. They paid out the settlement in March but kept it quiet because they knew they would be paying another 14 mil to Gitmo Guy.
Optics.
Either way you cant really blame Trudeau for the mess.
The RCMP couldnt get anything on these guys( possibly because they were innocent?) so they threw these guys to the wolves to be imprisoned, tortured, etc.
Then Harper refused to pay out knowing full well that the Libs would be stuck with it.
And no one from the RCMP or CSIS gets a letter of reprimand, suspended, fired………..
Try screwing up at YOUR workplace to the tune of $30 million and see how long you’re employed.

#111 crowdedelevatorfartz on 10.27.17 at 8:34 am

@#63 I thinks I knows something.
“I’ll give it ten years. Isn’t going to happen. Not unless the powers that be want to totally blow up this debt laden economy. Debt is the only thing that’s keeping this party going. We’re massively drunk on debt. Of course, things will eventually blow up of their own accord, but it won’t be from the government willfully doing it……”
++++++

Canada avoided the mess of the 2008 by following the US in dropping interest rates. Stimulate their way out of the financial morass we were stuck in.
Eventually reaching their lowest levels in HISTORY.

The govt doesnt have any ‘wiggle room” left unless they raise rates……so they can drop them again when the economy starts heading down.
Unfortunately the govt, either due to Real Estate Cartel political contributions OR to a looming election….. didnt want to start raising rates 2-3 years ago to put the brakes on what was obviously an out of control housing/mortgage market.
Either way rates are going up in lockstep with the US OR we can watch our dollar go the way of the Peso.
Just because we havent seen 6% rates for a decade doesnt mean they’re never going to happen.
I’m sure there are people out there in mortage land with crappy financial histories that will be renegotiating their mortgage at 6% in the very near future will any lender willing to risk the “high risk” loan in a dropping housing market………

#112 maxx on 10.27.17 at 8:41 am

#64 gfd on 10.26.17 at 9:52 pm

“Smokie, try Haleakala ……experience you will never forget. 6:00 am on the top of the world with sun rising 10,000 feet below your knees.”

Or Moorea- my favourite place on the entire planet. Same time of day, same sunrise, having my morning java in an over-water restaurant, watching multi-coloured fish swim just below the railing. Nirvana.

#113 Smoking Man on 10.27.17 at 8:48 am

USDCAD the gift that keeps on giving.The wife’s account just made 30k for CRA 1.29 today.

#114 Dharma Bum on 10.27.17 at 8:48 am

If anyone is worried about a few basis points one way or the other, they shouldn’t own a house.

When you decide to buy a house, you need to figure in a lot of wiggle room for contingencies.

I guess the general public is too stupid to realize this, so now the nanny state must do it for them, hence, the “stress test”.

It’s a sorry state of affairs.

#115 Alex on 10.27.17 at 9:14 am

Market odds tell us there’s a four-in-ten chance of another increase this year, likely at 10 am on Wednesday, December 6th.
———————————–
Those odds been ~80% just few weeks ago and dropped significantly. As all we know, 40% is rather NO than Yes.
Nobody said “recession” yet, but rosy summer picture of 4% GDP vanished in cold October air…

will people “have to buy 20% less home” after New Year’s? Right, because borrowers will qualify for 20% smaller mortgages,
——————–
Wrong. Everyone handy with calculator could verify that available MORTGAGE _could_ drop 20% (for those with EXACTLY 80% LTV, same GDS numbers and amortization, just to note this). BUT available _price_ in THIS case would drop 15%. However changes in GDS used by lender and/or increasing amortization could reduce this drop or quite eliminate it (e.g. going from GDS 32% to 39% increase mortgage by 20%)

#116 IHCTD9 on 10.27.17 at 9:19 am

#108 Cottingham a bargain on 10.27.17 at 7:24 am

…who aren’t trapped by their misplaced point of view or looking for confirmation of their biases.
_________

Speaking of which…

#117 Kim Jon Un's Hair on 10.27.17 at 9:20 am

Garth, for those of us still holding some medium term bond ETFs that already had losses (I’m talking VAB), would it be wise to pare that down and move into preferred shares instead? Or suck it up and hold?

Hold for more losses? — Garth

#118 Stan Brooks on 10.27.17 at 10:12 am

IMHO we have already hit the wall. We just don’t know it yet. But TSX valuations are indicative for the problems.

It is now becoming increasingly clear that the CAD rate hike ‘cycle’ is pretty much over.

I give it a 20 % chance of a meaningful rate hike in the next 2-3 years. Max.

In my opinion what we saw as ‘huge GDP boost’ in the last few months/quarter is the aftershock of the last phase of the credit expansion.

These actions (credit expansion, tightening) have latency so I expect that ‘growth’ to be fully reversed in the next few quarters.

Poloz decided to hike on weakness in my opinion simply to have some room to cut rates again in the future.
I put the chance of future rate cuts at 70 %.
We might see some unexpected rate hike short term but it will only be with an intend to provide more room for rate cuts in the future.

Our economy clearly can not sustain any further meaningful rate increases.

So what we will see is the long expected significant decline of the loonie against the Euro and the USD which was only temporary interrupted due to the unexpected hikes by Poloz, again a hick-up in order to provide room for future cuts.

It is very likely that in order to mitigate the economy crashing into the wall with deflationary depression we will see some fancy BOC actions including real QE and purchase of securities and bonds in order to provide liquidity which most likely will result in inflationary depression.

Do not leverage short the CAD (due to Poloz’s unpredictability), I am shorting it though in long run.

The chances of NAFTA disappearing are not small.
If that happens we are pretty much doomed.

Loonie at .45-.55 range will not be a surprise to me.
As for the ‘Juicy’ Ca preferreds I will skip that, in my opinions returns from it will not outperform the real inflation. US preferreds are another story.

#119 common sense on 10.27.17 at 10:15 am

Too funny…Poloz 2nd rate bump considered a mistake, Janet won’t raise in December and now Donnie leaning towards a new “Dovish” Fed chair.

Interest rates rising ANYWHERE? NO WAY IN HELL

NO WAY, We are cooked, screwed and the final fatal melt up is well underway and gaining steam…..

#120 Stan Brooks on 10.27.17 at 10:15 am

Also IMHO the real economy does not justify higher house prices in Toronto and Vancouver than let’s say Minneapolis, a city with real Businesses.

3-4 times decline in real terms (real currencies, productive capital – stocks) for the house markets in GTA and Vancouver from here is a given in my opinion.

#121 common sense on 10.27.17 at 10:17 am

Dear Smokie:

$1.29 USD/CDN where? Hope you sold.

Your buddy down south is full of surprises and is bought and paid for by Goldman Sachs AND ALL of the establishment. ALL OF THEM.

#122 LivinLarge on 10.27.17 at 10:20 am

“However changes in GDS used by lender and/or increasing amortization could reduce this drop or quite eliminate it (e.g. going from GDS 32% to 39% increase mortgage by 20%)” well, yes this is mathematically correct BUT increasing the ammortization to massage the debt service ratio is a recipe for a pain sandwich. That is a common practice in consumer credit because the amms are so much less in consumer lending.

One of the simplest and least painless strategies to paying off a mortgage faster is to shorten your amm at each renewal to maintain your original GDSR. Presuming that the borrower isn’t a finacial fool and their disposable income has even marginally increased by the time of renewal, this will cut the amm and total interest paid significantly and if rates dropped in the interim it is even easier to do (like the last 15 years). If rates are increasing then this requires the borrower to massage their spending habits (like the next 15 years are threatening).

You can play with payment frequency if you wish but “time” has the greatest impact on the total interest eventually paid so increasing amm comes with a nasty increase in interest every time.

#123 Stan Brooks on 10.27.17 at 10:22 am

#119 common sense on 10.27.17 at 10:15 am
Too funny…Poloz 2nd rate bump considered a mistake, Janet won’t raise in December and now Donnie leaning towards a new “Dovish” Fed chair.

Interest rates rising ANYWHERE? NO WAY IN HELL

NO WAY, We are cooked, screwed and the final fatal melt up is well underway and gaining steam…..
—————————-

Pretty much,

A house, even paid off in a country with no economy will not save you, unless you can grow potatoes and tomatoes in your back yard.

Automation will simply accelerate that.

Take a picture of these exchange rates and prices at the grocery stores as you won’t see them again in our lifetime.

#124 IHCTD9 on 10.27.17 at 10:35 am

I sit outside the GTA and peer in with amusement. The congestion, the stink, the cost. I guess this is the end game of huge immigrant influxes, and no one wanting to get their hands dirty working for a living anymore. Folks that complain about the price of housing and rent in sinkholes like the GTA are as entertaining as those who think they’re getting rich by buying in.

Here’s a little math for those Urban dwellers who may still retain some scraps of rational, individual thought:

A rural couple making the new Ontario minimum wage flipping burgers will net close to 52,000.00 after taxes. They can buy a nice house for 250K, and at 3.2% that’s a 1200.00 month payment, leaving $3133.00 in the bank every Month

An Urban Couple making 80K/ea will net about 120,000 after taxes. They can buy a nice house similar to the rural minimum wagers, but it will cost 1,300,000.00. Their payment at 3.2% would be 6300.00 per month leaving $3700.00 in the bank every month.

These University educated white collar GTA Urbanites are barely edging out the burger flippers outside the GTA.

Now consider that the above example compares the worst case earnings scenario for the Rurals, against an Urbanite couple earning more than DOUBLE the GTA median household income. (Median GTA income earners will never own a house and are renters for life)

Now consider that the Burger flippers started working at 18 with no school debt. Realize that their wages will not stagnate and regularly go up with time. They’re also collecting the maximum on every government handout they qualify for (probably most all of them).

IMHO, all in; the burger flippers win. They’ll pay off their house in their early 40’s, they’ll be able to put a few hundred per month into investments – and do it starting at 18. The Urbanites have to complete 4-6 years of post secondary, and will take near 10 years to pay off OSAP (the average is 9.5 years) – they’ll still have a mortgage in their 60’s and would struggle to save and invest anything at all.

Now imagine that one of the burger flippers got into a trade and now makes 60K per year…

#125 Raj on 10.27.17 at 10:36 am

I heard this … The Federal Court of Appeal has advised counsel that its Judgment and Reasons for Judgment in the appeal by the Toronto Real Estate Board respecting the Competition Tribunal’s findings of anti-competitive activity is expected to be released on Friday, November 3, 2017.

#126 Lee on 10.27.17 at 10:51 am

#142 IHCTD9,

You’re not the only one who has figured this out. Pretty much every University graduate who is not a surgeon has figured this out. Doctors always win by the way. I am aware of quite a few tradespeople (both soft and licensed trades) who began working at 16 who are pretty much retired at 50. And quite comfortably I might add. When I tell my tradespeople friends who are sitting on $1M in cash at 50 years old about a balanced portfolio and the preferential tax treatment of dividends its like they have finally seen God.

#127 MediOgre on 10.27.17 at 10:51 am

Obligatory suck up for first post = Love your blog. I thinks I owe you some money now. Re: stress test. If you need to buy a home and you’re like me…mediocre young family with a couple of penny’s to rub together, you’re making at least (I hope) a ten year plan or more ~ twenty five years if you got stuck. SO – if you wait until J 1 to buy, you will be a bit surprised to see that prices have not immediately gone down 20%.. How long will it take ~ for those people with the necessary cash flow to keep the properties they have ~ to part with the free equity they’ve gained…I think they could hold a while. Now you’re on the sidelines…prices are flat lining now… the most recently gained froth is removed and rates are gurgling upward. The moral of the story – your monthly mortgage payment will not change all that much and the amount of house you can truly afford does not change overnight. I think if you want to buy, sign up for a monthly you can handle and plan for the long run and you’ll be ok. Oh and the Okanagan real estate market appears quite strong still. All the ants from the coast and cowboys from Albertastan seem to be looking for the Canexican life style and cashing in their big winnings.

#128 Smoking Man on 10.27.17 at 10:53 am

Great piece on Poloz and Canadian economy.

https://www.themacrotourist.com/posts/2017/10/26/poloz/

#129 TnT on 10.27.17 at 11:10 am

#124 IHCTD9 on 10.27.17 at 10:35 am

Good write up…

Getting into trades is ideal for burger flippers.

Burger flipping robot has its first day at work.

https://www.engadget.com/2017/03/08/burger-flipping-robot-flippy/

#130 Mike in Edmonton on 10.27.17 at 11:20 am

Wow the OSFI announcement appears to have had a large affect on the Saskatoon RE market. Norm Fisher’s blog has some really excellent graphs and stats. Google Team Fisher Blog

#131 ben on 10.27.17 at 11:37 am

> To recap: house prices in Canada were nutso because mortgage rates dropped to the point where people could afford to carry vastly more debt.

Christ, finally Turner gets it. So prices are set by available credit. If the government limit banks to lending against 1 salary instead of 2 prices will nearly halve. If the govt limit lending to 3 times income prices will fall.

But they don’t because the corrupt bankers have their lobbying/bribes.

Plus there are a whole host of greedy people who are happy to play the game to “build equity” by “investing”.

Let’s hope all the bankers, all the real-estate speculators and all the corrupt politicians get what’s coming to them.

Ever thought about becoming a georgist Garth?

#132 IHCTD9 on 10.27.17 at 11:38 am

#126 Lee on 10.27.17 at 10:51 am
#142 IHCTD9,

You’re not the only one who has figured this out. Pretty much every University graduate who is not a surgeon has figured this out.
__________________________________________

The trick is understanding the Math before you blow 100G’s on a degree and 1.3 Million on a house!

If the burger flippers could stuff 500.00/month into an RRSP/TFSA, and religiously reinvested the proceeds and tax return, they’d be well over a million @ 4.5% by 65 if they started at 16.

I think that’s totally realistic – even EASY. Make it a 500.00/month auto withdrawal and lifestyle will naturally meld around the funds available in a relatively painless fashion. Make toys and trips the reward for producing the required funds in some manner apart from your burger flipping career job.

The real question is of values. Is your life about doing a particular task for a living? Or is it living comfortably doing whatever occupation gets you to the finish line? Does your ego or your insecurities require something “better” than flipping burgs? Or do you find your self worth outside of your job?

Do you think one person is better than someone else because of what they do for a living? Or do you respect someone who has built themselves a lengthy, and well funded retirement (even if they did it by flipping burgers)?

#133 YVR Update on 10.27.17 at 11:50 am

#1 Victoria Real Estate Update on 10.26.17 at 6:17 pm

All that writing and not a mention of benchmark prices. Could it be that prices of detached are unaffordable for the masses thus less sales. ;)

#134 YVR Update on 10.27.17 at 11:55 am

#54 Ian on 10.26.17 at 8:43 pm
All you housing bulls, and decline doubters: just wait until Q1 2018 is done and let’s review the stats.

Happy Stress Test Everyone!!!

———————

Good Grief!

If i had to buy, I would just take a longer amortization of 30 yrs instead of 25. Most people would. nothing going to change.

#135 Ace Goodheart on 10.27.17 at 12:02 pm

Re: #117:

Before you go dumping your bond ETFs have a look at how the fund holds, sells and purchases its bonds. Also look at the methods by which the ETF keeps its price point in line with the price of its holdings (hint – the fund price is not set by the market value of the holdings).

An bond ETF is a complex creature that is not remotely the same as an individual bond. The price of the bond ETF is not the only thing you look at. It also is not even the most important thing.

The bond ETF is a funded mechanism for a third party to buy, sell and hold bonds, in order to create a situation which as much as possible mirrors a basket of similar bonds in a particular market niche.

Because there is no actual bond market and no real set price for a bond, the bond fund has to use third party backing to artificially set its market price. This is done by having the third party buy and sell bond fund units to create or dampen demand.

So the price you are paying is the price they are are setting.

You want to look at the holdings of the fund and figure out the rate spread on the different baskets of holdings. Then find out what effect an interest rate hike will have on the spread.

You will often find that the effect is neglible and that you are dumping a perfectly good fund.

#136 unhappy landlords on 10.27.17 at 12:28 pm

http://www.ctvnews.ca/business/b-c-moves-to-stop-landlords-from-flipping-tenants-hiking-rent-between-leases-1.3651101

#137 Howard on 10.27.17 at 12:40 pm

#124 IHCTD9 on 10.27.17 at 10:35 am

I see you’re still peddling this ridiculous idea that 3 million Torontonians should move to Moosonnee and live off the land (or flip burgers apparently).

What Canada needs is to develop its mid-sized cities so that ambitious people don’t feel like they all have to pack into two specks on the map.

#138 Victor V on 10.27.17 at 12:41 pm

TSX hits new record intraday high

http://www.bnn.ca/tsx-hits-new-record-intraday-high-1.896669

Canada’s main stock index hit a record high on Friday as overall higher energy stocks offset a batch of quarterly results that largely fell short of expectations.

At 11:27 a.m. ET, the composite index marched toward its seventh straight week of gains, rising 57.74 points, or 0.36 per cent, to a record high of 15,949.37.

#139 Victor V on 10.27.17 at 12:44 pm

One last gasp for the Canadian residential market as rule changes cloud 2018 outlook

http://business.financialpost.com/personal-finance/mortgages-real-estate/one-last-gasp-for-the-canadian-residential-market-as-rule-changes-cloud-2018-outlook

The question for the real estate industry in 2018 might be: Who will be left to buy homes?

“The only people unaffected are people who don’t need mortgage financing, because now you have captured the entire market,” said Gregory Klump, chief economist at the Canadian Real Estate Association.

In other words, people buying with “cash,” as realtors like to describe no debt transactions, are the only ones unscathed.

CREA’s next forecast is due out in December and Klump won’t say what it will predict, but there is little doubt what direction he thinks the market is pointed in now.

“I’d be very surprised if 2018 is not materially lowered,” he said, referring to the forecast for housing prices and sales.

#140 Pete on 10.27.17 at 12:52 pm

Clicking on Smoking Man is a hack into your phone? clicked on his name and it goes straight to my email. WTF?

#141 Pete on 10.27.17 at 12:53 pm

All I wanted to do was see if he had any stock picks on his blog.

#142 IHCTD9 on 10.27.17 at 12:55 pm

#42 millmech on 10.26.17 at 8:12 pm

One of friends bought a brand new Jeep Rubicon lifted and ‘done to the nines’ without consulting with the wife, the only way he could keep the truck is if she got a new Dodge Challenger which she did of course, all on home equity.
People seem mentally stunned with finances lately, reminds me of when a relative won the lottery and blew through a couple of million in five years, was stunned that there was an end to the money, lost everything and had to go back to work.
__________________________________________

There is some kind of “wealth effect” that ties in with these kinds of actions. I’ve seen similar displays of spending after a mortgage gets paid off. One guy I work with paid off his house and right off the bat there are plans for a new garage, a new ATV was bought, and a new Truck now parked in the driveway.

I also know a guy who won a big chunk of cash (not millions, but almost 1 million), started a business, and it was all gone in 4 years. He’s an employee again today.

One more similar anecdote, I bought a good used 2014 Grizzly 700 in 2016 at the local Yamaha dealership. I looked at two machines – the 2014 I ended up buying, and also a brand spanking new, not a speck of dirt on it, 2016 Kodiak 700 Camo with 75 km on it. Sales guy explained that some dude came in and bought it without discussing it with his wife. He came back two weeks later and put it up on consignment. That’s my kind of Woman lol! Too bad your bud’s wife is the same as him..

#143 tueri centrum on 10.27.17 at 1:03 pm

“…then for the same house to sell to the same universe of buyers, it must become 20% cheaper.”

And, this may be an understatement. An alternative approach: if I buy a house today, the pool of greater fools available after January 1 will shrink by 20%, but probably even greater because it is likely a leveraged effect.

#144 PastThePeak on 10.27.17 at 1:05 pm

#111 crowdedelevatorfartz

The govt doesnt have any ‘wiggle room” left unless they raise rates……so they can drop them again when the economy starts heading down.
Unfortunately the govt, either due to Real Estate Cartel political contributions OR to a looming election….. didnt want to start raising rates 2-3 years ago to put the brakes on what was obviously an out of control housing/mortgage market.

+++++++++++++++++++++++++++++++++++
Really, there was no need (in Canada or US) to drop the rates so far back then. Yes, obviously a need to drop rates (it became a big recession), but the gov’t action of stabilizing the banks (and GM) was what prevented a total panic melt down and freeze of the financial system. It wasn’t 0% Fed funds rate. But once they got down there, they didn’t want to move up. No Fed banker or politician (same in Canada) wanted to be seen doing anything that might hurt the economy. I think if they had of stopped the cutting at 2% it would not have made any difference – except the asset bubbles would not have grown as large/fast.

Now they are stuck. Rates are not normalized and in next down turn there won’t be as much room to cut to provide that stimulus. Too much debt already, still accumulating, and that is without recession. People bash Harper for the huge deficits back in the last recession – what is it going to be like in the next one (answer: massive debt accumulation).

BTW, I think that Poloz is the worst BoC Governor in recent times. Guy doesn’t seem to have a clue.

#145 Leo Trollstoy on 10.27.17 at 1:10 pm

Your buddy down south is full of surprises and is bought and paid for by Goldman Sachs AND ALL of the establishment. ALL OF THEM.

So… basically business as usual

Lol

#146 aa3 on 10.27.17 at 1:23 pm

Here in BC Mr. Market is shouting in peoples faces that we need more manual labourers and less office workers. Yet still most everyone wants to get that low level bureaucratic office job. Even if it makes half what a roofer makes.

Even if a roofer made $200k a year and a lowly office worker $20k a year – I still don’t think it would change peoples decisions as whether British, Chinese, East Indian, etc.. in ancestry the families here see manual labour as a low class job that would bring shame to their family.

#147 Leo Trollstoy on 10.27.17 at 1:23 pm

US economy BOOOOMING!

http://www.businessinsider.com/us-gdp-q3-advance-estimate-2017-10

#148 fancy_pants on 10.27.17 at 3:03 pm

now we choose which poison we want to swallow. the red pill blue pill or portions of both.

red pill – swallowing this pill will keep rates low to ensure the global debt bomb doesn’t explode and make 2008 look like a children’s party. The red pill results in runaway inflation for CPI items as artificial ZIRP rates will hammer the dollar.

blue pill – swallowing this will force rates up to control inflation. Anyone holding debt may be required to hold their breath for extended periods or drown as the asset bubbles will collapse. RE and stock market. This will also make 2008 look like a cakewalk.

either way, tough times are coming

#149 IHCTD9 on 10.27.17 at 3:16 pm

#137 Howard on 10.27.17 at 12:40 pm
#124 IHCTD9 on 10.27.17 at 10:35 am

I see you’re still peddling this ridiculous idea that 3 million Torontonians should move to Moosonnee and live off the land (or flip burgers apparently).
________________________________________

Nope, am not and never have. That’s your personal version of reality.

I’m just helping the brokeass Urbanites with some math.

It all goes back to the folks pissing and moaning about the high costs while doing absolutely jack to improve their situation.

The old guys would say “put up, or shut up”.

But by all means, if dying broke 2 years after paying off your GTA mortgage sounds like a good plan to you – go ahead and fill your boots.

#150 Ian on 10.27.17 at 3:19 pm

In Elliot Lake for the weekend, and eating lunch I noticed an ad for this local brokerage:

http://oakrealty.ca/

Looking through the listings, all this stuff in the GTA would be 10-15x more. Absolutely amazing.

This is a cool town by the way. Going to uranium history museum tomorrow!

#151 Paul on 10.27.17 at 3:46 pm

Every time there has been a tremor in the force, it’s only ever made things worse for lowly bottom feeding serfs like myself who are unwilling/unable to shop in the $500K+ range for houses. So sure, a $750K home may eventually someday kinda sorta lose up to 20% of its value but that only means more people shopping in my price range which means increased values in that range. Do I have that right?

#152 jess on 10.27.17 at 4:38 pm

plebs lend me your ears

Josef Stadler,(UBS) ….”now two years into the peak of the second Gilded Age.”…world’s wealth concentration — just eight men now own as much wealth as half of the global population

https://www.commondreams.org/news/2017/01/16/just-eight-men-own-same-wealth-half-humanity-report

http://www.truth-out.org/news/item/42399-new-gilded-age-reaches-new-heights-with-world-s-billionaires-owning-staggering-6-trillion

https://apnews.com/5d9e1e86a28e4e62bda79ddea71c20be/stark-inequality-oxfam-says-8-men-rich-half-world

#153 Gravy Train on 10.27.17 at 5:10 pm

#117 Kim Jon Un’s Hair on 10.27.17 at 9:20 am
“Garth, for those of us still holding some medium term bond ETFs that already had losses (I’m talking VAB), would it be wise to pare that down and move into preferred shares instead? Or suck it up and hold?”

Hold for more losses? — Garth

Here’s the latest fact sheet for VAB (the fund you refer to):
https://www.vanguardcanada.ca/individual/mvc/loadImage?country=can&docId=247

On the second page you’ll see that the average duration is 7.5 years. That means that the value of the fund will drop 7.5% for every one percent rise in the market interest rate.
http://www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio

#135 Ace Goodheart on 10.27.17 at 12:02 pm
For any and all readers seeking competent advice on bond funds, please disregard anything that the above poster writes.

Too churlish, Flopster? :)

#154 Tony on 10.27.17 at 5:42 pm

Re: #151 Paul on 10.27.17 at 3:46 pm

You’ve got it right and the housing stock will completely deplete before and just after the B20 OSFI rules comes in. If you want to buy something you’ll have to go well outside of the GTA due to lack of listings.

#155 Md on 10.27.17 at 5:43 pm

Great post. Love the realators trying to scare people into buying now or buy never!

#156 TnT on 10.27.17 at 5:59 pm

#152 jess on 10.27.17 at 4:38 pm

Well 3.6 billion vs. 8 old people

I think we can take them….

#157 Arne on 10.28.17 at 6:46 am

“…approved mortgages will be significantly smaller, buyers will afford less, and the entire market will have to reprice. ”

That’s incorrect.

The bottom doesn’t have to re-price because everyone can afford that end. The middle doesn’t have to re-price because there are still lots of buyers in that space plus some of those who were formerly buying at the top. And it’s arguable if even the top has to re-price because there still will be buyers at the top who qualify, just not as many of them.

So what needs to reprice then? Not the entire market by a long shot, only the stuff that was idiotically overpriced to begin with. Those properties will now have to have more realistic pricing now when they set/modify their price.

That’s a far cry from the entire market re-pricing.