New Mortgage Rules: Amortization reduced

[themortgageguy]

well of course the realtor thinks its time to cash out. he wants to sell your house. He seems to be talking about Vancouver as well, where it may already be too late to avoid a drop in price.

[ashedfc]

He seems to be talking about Vancouver as well, where it may already be too late to avoid a drop in price.

You got the point.. as of now its in Vancouver..
Its just a matter of time, before this phenomenon reaches Toronto. & as it spreads across Canada.

[themortgageguy]

You are likely right. I would expect to see some drop in home prices but that's fairly normal in an open market. It wouldn't be the first time people would be upside down in their mortgages however.

[MortgageQueen]

I think the issue is. . .will these new rules push the market too far. It seems to me Flaharty is pushing too much, too fast. It could make the real estate take a nose dive rather then an "adjustment"

[ashedfc]

I think the issue is. . .will these new rules push the market too far. It seems to me Flaharty is pushing too much, too fast. It could make the real estate take a nose dive rather then an "adjustment"

Common "M-Queen" this nose-dive was coming, we all knew........ its the same like what's going on in Spain now. Greece is already done with the nose dive.
Canadians turn is coming end of 2012 & 2013 will be very tough for those on the edge. We just have to see how worse it can get.

Imagine if you are an engineer (one of the 5000 recently laid off at RIM, Waterloo), this city hasn't got the potential to replace those kind of jobs, so what happens to your budgeting if you are a home owner with a big mortgage & a hefty car payment in Waterloo... ... its the same all over Canada.

[brunt]

I actually disagree on a lot of points.

Overall, I don't see this as a rich versus poor problem. It is really more of a "government stomping on a free market" problem.

And there in lies the problem. I'm no expert but it seems that if only those who can afford the most traditional of mortgages purchased homes (at the way the prices are in some of the bigger Canadian cities these days) you would see increased disparity between low-mid and high income people.

The average person/family wouldn't be able to afford purchasing a home so they rent....but who are they renting from? Those that CAN afford to purchase additional properties and the more renters there are, the more investors gain and the more they gain? The more they can outbid those trying to get out of renting. I think it just becomes an uphill battle where the richer person wins again and again.

Implicit in your argument here is the idea that renting is bad. It is not inherently bad, it is merely a choice. Right now, in many (I would hazard a guess of most) areas, renting is cheaper than buying.

I could buy right now, but I choose to rent. My current rent is well under one half of the total carrying costs of the house. My action of renting is not harming me, it is actually improving my financial position. The owner of the house is losing money each month, and will continue to do so for a while.

The "rich" do not automatically win under the current scenario. In fact, home owners are pretty well guaranteed to lose a fair chunk of money in the next couple of years.

House prices have increased since government has 1) set interest rates artificially low despite having a high inflationary environment (using the classical definition of inflation meaning an increase in the money supply), and 2) are using taxpayer money to provide mortgage insurance to protect the banks.

The last point is a bit of a surprise to many people. Mortgage insurance does not protect home owners, it protects the banks. The owner pays the premium, the premiums are set aside to pay the bank in case of default, and if the premiums are all paid out, taxpayers get to pay the banks instead.

Read that paragraph again - at no time does the bank take on any risk, not one iota. They make the decision as to wheter to grant the loan or not, make the profit when things go well, and are entirely protected if things go poorly. This is the "privatization of profits and socialization of losses" sort of thing that inevitably happens when the government mucks about in a market. It is a really bad thing since banks profit, and taxpayers lose at both ends.

And no, I am not some sort of tinfoil hat wearing wacko who rails against the banks. While I have no great love for the banks, they do offer a highly needed service that benefits taxpayers. They just shouldn't have the ability to slough the risk onto taxpayers due to government programs.

This may not be the case all across Canada but certainly in places like Toronto and Vancouver/

Houses are overpriced in most Canadian cities.

I have to emphasize that I'm not saying people should take on more debt than they can pay BACK but I think 5% down, mortgage insurance, alternative lending, etc. can equalize the playing field somewhat.

I respectfully must disagree. A 5% downpayment is a really, really bad idea. A zero (or less) downpayment was far worse.

Personally, and again I'm no expert, it seems that there needs to even heavier regulation on investment property, foreign purchases, bidding wars, etc. - not to make it impossible but to make it just that little bit more difficult so as to allow primary residence and/or first time home buyers a chance to play, too.

I personally believe that you are approaching this from the wrong direction. It is not that Canadians need access to cheaper financing - the answer to the problem of Canadians having too much debt is NOT more debt.

First time home buyers are buying homes that are more luxurious than their parents' last home. And they are "affording" it by having a unique combination of low interest rates, low downpayments, lower standards on lending practices (despite what the housing industry is saying), along with an emotionally backed bubble in housing. All of these are temporary situations.

First time buyers used to "play" when they demonstrated a reasonable amount of financial self discipline having saved up a 20% deposit. And that's real money, not money that the bank loaned with one hand and gave a mortgage with the other. They started small, and bought bigger AS THEY COULD AFFORD IT. People have become incredibly spoiled with respect to house sizes.

This cannot possibly end well. And it will end particularly poorly for those who bought with low downpayments, with long amortization periods, and who took these things because they "had to". They did NOT have to, they could have bought a smaller house, or have rented.

In short, a situation where the average family cannot afford to buy the average house cannot and will not be maintained.

The problem of affordability will fix itself as long as the government does not distort the market further. Unfortunately, a large number of buyers are going to lose a lot of their net worth in the mean time.

[Brad]

I agree with you. I'm currently paying 1250/month to rent my condo. Identical condos in this area sell for 300-320k. The mortgage, maintenance fees, and taxes on a 300k condo would be WAY higher than 1250. With my credit and income I could easily get a mortgage for well over 300k but choose to continue renting because it just wouldn't make any financial sense to buy right now. Of course the key thing is to save the difference. If you don't have the discipline to do that then you're probably better off owning with a huge mortgage.

[MortgageQueen]

I will say and agree with brunt that today's young person has waaaaaay higher expectations in life and what they should be able to buy. What ever happened to getting used furniture from your relatives and having a tinyhouse for your 1st home?? The only "new" thing I had in my first 5 years of marraige was the bedroom suite my inlaws bought us. Electronics?ha!! We had crap! In the days of 18 percent interest, we didn't think we'd ever be able to buy a home. . .ever.
If someone had told us we could put 5 percent down at 3.2 percent interest. . .we would have peed out pants . hahhaaa
As it turned out, I was in my 30's before we got our 1st house. Ever since then, new furniture is still a rarity.
Home-ownership requires a whole lot of self-sacrifice to the "majority". People need to know that and they also have to realize it's a privelege and a life-style change in spending habits. Time to toss the credit cards in a drawer!

Rant officially over.

[ashedfc]

This is the real reason why the housing market has gone crazy worldwide... & we are reaching the end of this epic boom in the housing..

Mortgage's are financed from the Bond market. And US Treasury is the largest bond market in the world, so its rates kind of decides the cost of financing.. Higher the rate, higher the cost of financing & similarly Lower the rate, lower the cost of financing..

Here's - The 10-Year US Treasury Note Yield Since 1790.... we are at a 220year low.


this low rate has made everyone crazy..
Now the question is from this low "how more low it can go?"..
because once it starts moving upwards we can expect some drastic fall in housing markets........ its already happening one at a time, first US, then Iceland, then Greece, then Ireland, then Portugal, & now Spain is having a housing crash. recent reports are Melbourne, Australia has seen a exceptionally large number of housed listed for sale (this is a recipe of lower housing prices)..

How long can Canada's housing defy gravity (we all will see).

Housing isn't a very liquid market, & selling at a loss isn't possible when a homeowner is loaded with negative equity mortgage..
Its still time to get cautious, or atleast not go crazy with buying too many houses..

[brunt]

I will say and agree with brunt that today's young person has waaaaaay higher expectations in life and what they should be able to buy. What ever happened to getting used furniture from your relatives and having a tinyhouse for your 1st home?? The only "new" thing I had in my first 5 years of marraige was the bedroom suite my inlaws bought us. Electronics?ha!! We had crap! In the days of 18 percent interest, we didn't think we'd ever be able to buy a home. . .ever.
If someone had told us we could put 5 percent down at 3.2 percent interest. . .we would have peed out pants . hahhaaa
As it turned out, I was in my 30's before we got our 1st house. Ever since then, new furniture is still a rarity.
Home-ownership requires a whole lot of self-sacrifice to the "majority". People need to know that and they also have to realize it's a privelege and a life-style change in spending habits. Time to toss the credit cards in a drawer!

Rant officially over.

MortgageQueen,

My rant was of course not directed at you. Your response didn't come across that you thought so.

At the risk of sounding like one of the four Welshmen (http://www.youtube.com/watch?v=Xe1a1wHxTyo), I was self-employed when we bought our first house, and needed a cosigner to even get a mortgage. After a couple of years, I was able to get my own mortgage with three years of tax returns, and had to pay 12.625% interest rate. This was down from the over 20% a few years before.

For anyone considering buying a house right now, I would very strongly recommend reading Kindleberger's Manias, Panics and Crashes: A History of Financial Crises (http://www.amazon.ca/Manias-Panics-C...1843615&sr=8-1). I make a study of bubbles and manias, and I have no doubt that the Canadian housing bubble is a doozie.

Studying bubbles, there are a number of common themes - something goes up in price due to some unique set of circumstances (uniqueness for tulip bulbs in the Netherlands, discovery of the New World for The Mississippi Bubble, and a combination of demographics, cheap oil, and low interest rates for the current bubble). Once a bubble is started, people take notice and dive in, and they make money. Prices increase more - well beyond what is reasonable, and in response to the naysayers, the bubble participants use the "reasoning" that it is different this time, and that trees really do grow to the sky. It always ends predictably - in tears for those who jumped in and didn't get out before the bottom fell out.

Truth is, it is not different here, just as it has not been different in any other country where real estate has climbed and then crashed. Canada is not immune, it is just last. A global falling real estate market will not skip here due to our inherent moral superiority, despite what the real estate agents tell you on the evening news.

People who have borrowed heavily to buy real estate will be in trouble. The government knows this (they helped borrowers borrow well beyond what was historically considered to be good practices of 20% down payment, and a mortgage no larger than three times your take home pay), and has started changing the rules back to something a little more sane.

It has been only a small step in the right direction, but at least it is a start. Add a 2-3% increase in mortgage rates (which would still leave rates well below historical norms) and people who loaded up on debt to buy too much house will really be hurting.

I do not look forward to the fallout, but that does not mean that it will not be coming.

[tjthemanto]

You got the point.. as of now its in Vancouver..
Its just a matter of time, before this phenomenon reaches Toronto. & as it spreads across Canada.

Its reached Toronto , but mostly for the condo market so far. There is a glut of condos in this city now and no takers unless the price comes down significantly.

http://www.moneyville.ca/article/122...-driver-s-seat

I see it reaching the house market ( not just condos ) also next year in Toronto.



By Susan Pigg | Sun Jul 08 2012

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As far as realtor Andrew la Fleur is concerned, June was a happy turning point for downtown Toronto’s cooling condo market — buyers started edging back into the driver’s seat.
It’s the first time in six years, other than a brief few months when the condo market stalled during the Great Recession of 2008/09, that it hasn’t been a seller’s market, says la Fleur after analyzing Toronto Real Estate Board sales and listings statistics released this week.
“Buyers: Time to Smile,” la Fleur told clients in his blog Friday. “With listings growing and sales falling, the deals will be out there if you know where to find them.”
“Sellers: Time to Get Serious,” he warned. “Gone are the days where anything will sell at any price.”
Related: Condo’s now city’s tallest buildings
But for how long?
Housing experts are being cautious about TREB’s June numbers which show condos sales dipped 20 per cent in the 905 regions last month compared to June, 2011, and 18 per cent in the City of Toronto.
The more telling statistic, says la Fleur, is the sales to listings ratio — basically, the absorption rate — which is lower than last year and has been trending towards buyer’s territory since March.
He anticipates prices should start to decline — although not too dramatically — come the fall.
“There are still bidding wars, but there are also a lot of listings that aren’t selling,” adds realtor Brian Persaud. “But last year was a crazy year, so I think we’re just going back to a more traditional market where things slow down in summer.”
While the year started out unusually strong for new condo sales, things have fizzled considerably since March and at least three developers have put projects on hold. It’s still unclear how big a damper tighter mortgage lending rules will add, especially for first-time buyers, when they kick in July 9.
The biggest barometer of the market could turn out to be Tridel’s 75-storey Ten York project, slated for Toronto’s waterfront area. The launch of the tower, which could house up to 795 units, has been delayed until late September, but only because of design and approval issues, says Tridel vice president Jim Ritchie.
Related: Condo surge masks looming slowdown
“We’re still on,” says Ritchie, who stresses he’s not seeing a softening of prices, just what may be a return to a more normal levels of new condo sales — some 15,000 to 17,000 units per year, rather than last year’s stratospheric 28,000 new condo sales.
“There’s unbelievable speculation going on. Everyone’s looking under a microscope like they’ve never really done before. But of course everything is going to pale in comparison to last year.”

[tjthemanto]

Common "M-Queen" this nose-dive was coming, we all knew........ its the same like what's going on in Spain now. Greece is already done with the nose dive.
Canadians turn is coming end of 2012 & 2013 will be very tough for those on the edge. We just have to see how worse it can get.

Imagine if you are an engineer (one of the 5000 recently laid off at RIM, Waterloo), this city hasn't got the potential to replace those kind of jobs, so what happens to your budgeting if you are a home owner with a big mortgage & a hefty car payment in Waterloo... ... its the same all over Canada.

Its not just the 5000 laid off people, there are 2-3 other jobs tied to those positions , so its a domino effect. That's what happened to Oshawa, for every GM worker who was laid of there were 2-3 other jobs down the supply chain with companies who were doing contract work for GM who got laid off as well.

Lot of people in Celestica ( Toronto ) were also laid off when RIM announced its job cuts, as they were doing contract work for RIM.

5000 pople laid off in Waterloo means 5000 less people and their families eating out in restaurants, coffee shops, watching movies , shopping etc in Waterloo , as people cut down on their miscellaneous spending big time when they lose their job, so the eating places like bars, restaurants etc and shopping places like retail also get less business and start laying off people or start reducing their hours. So a big chain of events takes place due to 1 lost jobs.

[ashedfc]

True, this is exactly what happens, when the economy is inherently weak...... & is surviving on life support. Here the life support being exceptionally low interest rate.

The speculative money which was active in the R/E market (specially condo market), is drying up by the day..