The Elusive Canadian Housing Bubble

[GRG55]

Re: The Elusive Canadian Housing Bubble

But ... but ... that doesn't create more debt.

The times have sure changed. When I was a kid my Mom used to lose sleep over the fact my parents had a mortgage. They put more than 50% down when they bought the place. But that was eons ago.

Just today Mrs. GRG55 dropped by the local branch of the bank to deposit a cheque (remember those?). TNL@TB (Garth Turner's "the nice lady at the bank) points at her all knowing computer screen and announces: "Did you know you've been pre-approved for an unsecured personal line of credit?". The rest of the conversation apparently went something like this:

Yes, I got a letter in the mail but I threw it away because it asked for the name of my employer, and I am not employed.
Oh, well I see you have a business account with us. You can write in "self-employed".
Yes, I am an owner but not an employee of that business and therefore cannot claim to have a regular income.
Oh. Well let me check with our credit manager. I am sure if you have a business account you should still qualify.
blah, blah, blah.
Apparently, no amount of protesting about the lack of necessity or desire for such credit was going to deter TNL@TB from seeing it through.

I only found out because this evening I got home before Mrs. G and picked up a voice mail from TNL@TB informing her that all the forms were filled out and ready, just requiring her to pop by tomorrow for a signature. And, by the way, a "no monthly fee" pre-approved overdraft on our chequeing account has also kindly been arranged (without our asking) as well. Seems the only thing missing is a HELOC to fund an extended South Sea cruise. I think the banks refer to all of these things as "relationship products"

By way of explanation when she was confronted on her arrival home to the bunker, Mrs. G says they told her she is such a good customer they would loooove to lend her money. Yikes!!

[don]

Re: The Elusive Canadian Housing Bubble

The other option is for the average Aussie to save for a deposit!

But ... but ... that doesn't create more debt.

[gorinv]

Re: The Elusive Canadian Housing Bubble

Going Under Down Under

105% Home Loans Being able now to borrow up to 105% of the purchased property value with no genuine savings required has made it owning the Australian dream home possible & within reach for 1st home buyers. Allowing you to use the extra 5% to pay for associated purchase costs! To find out more, please complete our 1st Home Buyer Online application form or contact us on (02) 8704 5770

The other option is for the average Aussie to save for a deposit! Once the kids are off their hands!

[don]

Re: The Elusive Canadian Housing Bubble

Going Under Down Under

105% Home Loans Being able now to borrow up to 105% of the purchased property value with no genuine savings required has made it owning the Australian dream home possible & within reach for 1st home buyers. Allowing you to use the extra 5% to pay for associated purchase costs! To find out more, please complete our 1st Home Buyer Online application form or contact us on (02) 8704 5770

[santafe2]

Re: The Elusive Canadian Housing Bubble

"...Borrowing to finance your daily life is normal now. House, cars, education, trips and renos all involve borrowing. The weapon of choice is rapidly becoming the HELOC – the secured home credit line – allowing people to access the bulk of the equity that’s magically appeared in their inflated real estate. Up to 65% can be taken as a variable-rate LOC with interest-only payments, and another 15% as an amortized loan.

I had to refer to the Urban Dictionary, (Canadian version) for renos...home renovations. As for HELOCs, no one can overdue anything like Americans. We allowed up to 125% of the home's value during the peak...what could possibly go wrong with that!

[GRG55]

Re: The Elusive Canadian Housing Bubble

An excerpt from the always entertaining Garth Turner's Greater Fool blog:

Built to fail

April 2nd, 2015

There were a few more dents on the housing market fuselage this week. Condos are taking a hit, for example. Major property insurers, like Aviva, have made it known they’re pulling out of the business of covering these concrete sky boxes – and for reasons that should moderately terrify any recent buyers.

Lackluster building techniques and walls built out of windows which are pretty much guaranteed to fail in a decade or so are the stuff that keep insurance guys up at night. Aviva says most condo corps don’t have enough reserve funds on hand to deal with major issues, and now that we’ve got endless buildings full of marginal hipsters who bought with 5% down, how can owners afford fat special assessments?

In Vancouver, meanwhile, some condo owners are being forced to accept deductibles as high as $100,000 because of the looming potential for leaks. In Quebec more than half of all condo owners have changed insurers trying to escape rising premiums and in Toronto the cost of insuring a one-bedder in a glass tower has soared.

No wonder. They’re built to fail.

...

Another excerpt from today:

"...Borrowing to finance your daily life is normal now. House, cars, education, trips and renos all involve borrowing. The weapon of choice is rapidly becoming the HELOC – the secured home credit line – allowing people to access the bulk of the equity that’s magically appeared in their inflated real estate. Up to 65% can be taken as a variable-rate LOC with interest-only payments, and another 15% as an amortized loan.

Unfortunately, house values fluctuate, and are likely to do so a lot more in the future. Debt does not. So with job growth spotty, incomes flaccid and the economy in an oil funk, it’s going to be a long, long time before debt levels decline. Maybe never. After all, new debt’s still being added on at a record pace.

Some people argue that this is why house prices will never fall. Impossible, they say, or all these families will take it in the neck. With so many mortgages and swelling lines of credit – every one hinged to the property market – people simply won’t ever sell for a loss. How could they? The middle class would be crushed. The government wouldn’t allow it.

The Americans proved otherwise. The strongest country on the planet spent trillions to reverse the housing collapse, and was unable. Only seven years later, with prices still 17% below their 2005 peak, is that nation emerging into growth. Millions of average families will never recover. They were crazy enough to borrow against the illusory equity gains in their houses, in order to finance their daily lives. You know. Cars, college, trips, renos.

By the way, housing starts in Calgary collapsed by more than half last month. That’s a lot of construction work evaporating. The federal agency doing the counting says it’s because of a weaker economy and so many people with resale homes who can’t find buyers.

Funny, isn’t it, how you never see trouble coming?"

[GRG55]

Re: The Elusive Canadian Housing Bubble

April data. Yee Haw! Even oiltowns Calgary and Edmonton aren't showing overt signs of stress. In the second chart below the divergence between single family detached dwellings and townhomes/apartment condos seems more than a short term statistical anomaly; now well established.

The second chart below is one that VancouverGoingUp would enjoy
(just as an aside, my impression of my home town on my infrequent visits is that it has evolved into a city full of Starbucks baristas driving clapped out Subarus with $6000 bicycles strapped to the carrier racks)

[Fiat Currency]

Re: The Elusive Canadian Housing Bubble

Lots of people waiting to see if the Alberta housing market crashes & by how much, with the current price & supply of oil.

However, not everybody's crying - Beef prices are hitting an all-time-high (up 23% this year alone) and cattle farmers are swimming in record profits.

There are actually more cattle (>5M) in Alberta than there are human beings (~4.1M)

You can walk away from your mortgage (if you live in Alberta), but should you?

BloombergHanding over the keys to the house and walking away from your mortgage, called "jingle mail," was a defining act of the American housing crisis. The problem is it can happen here, namely in Saskatchewan and Alberta.


Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago.

“At the time it seemed cheaper. I didn’t want to spend money on rent. But now I think I can find something cheaper to rent,” says Francis, who asked that his last name not be used.

He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000.

“This town is mostly about mines and now the gold price is down. The town is dead,” he said, frustrated about his situation. He’s also out of luck, if he wants to walk away, because his loan is backed by Canada Mortgage and Housing Corp., the Crown corporation that controls a majority of the mortgage default insurance market.
Since the loan is “under water,” his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.

Handing over the keys to the house and walking away from your mortgage, called “jingle mail,” was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin.

It can’t happen here, we’re told. So-called non-recourse mortgages are the rule in at least 10 U.S. states where consumers jumped at the opportunity to escape a mortgage that was more than the actual value of their house once the market started to fall.

The problem is it can happen here, namely in Saskatchewan and Alberta – the only two provinces that have similar rules. Considering how much listings have spiked in Alberta as people test the market, there is clearly concern among homeowners about whether the value of their property will hold.

And guess what? Albertans did take advantage of the rule in 1983 and 1984 when home prices fell more than 30 per cent and mortgage delinquency rates rose sharply. Mark Pinsonneault, senior economist with National Bank, said there is little question some Albertans engaged in strategic defaults at the time.

“It really depends on how much equity you have put in. The price is going to have to drop at least 20 per cent or more for it to make sense,” said Pinsonneault. “We are very far from seeing this in Alberta, so far.”

The only eligible people are those with a loan without mortgage default insurance backed by the government. And anybody with less than a 20 per cent downpayment must get that insurance in Canada. In Saskatchewan the rule is limited further to and doesn’t allow people with renewed mortgages, as well as no government backing, to walk away.

Before you call your bank, there is the thorny issue of your credit rating. Regina Malina, senior director of decision insights at ratings agency Equifax Canada, said getting another mortgage would likely be more difficult. “It really would depend on how you walked away from your mortgage,” she said. “Frankly, it should impact your credit score.”

But the scenario still could prove tempting for some consumers if Alberta or Saskatchewan prices start to plunge quickly.

“In the lending industry they call Alberta the wild, wild west because of that,” said Dan Heon, a mortgage broker and the owner of Canadian Mortgage Team Alberta, referring to the non-recourse rules. He says banks tightened standards when the economy buckled in 2008 and some lenders have created structures that force borrowers to give personal guarantees on mortgage loans.

Heon says Alberta created non-recourse loans because the market gyrates so much due to factors like oil prices, making consumers more leery of taking on loans.
Ray Leclair, vice-president of public affairs with the Lawyers’ Professional Indemnity Company, said at least part of the reason non-recourse loans are part of Canada’s landscape is our agricultural heritage. “They didn’t people want to lose all of the farming [assets] because of some crisis,” he said.

Leclair said he’s seen non-recourse loans in provinces like Ontario but it requires the mortgage to be drafted differently, including an agreement by the bank they only have recourse against the property.

Francis is in the same boat as residents outside his province. Because of the conditions on his mortgage, he can’t walk away from it.

So, since any Canadian who walks away from their home will likely be sued, the only real way out would be to declare bankruptcy.

Andy Fisher, a trustee in bankruptcy with A. Farber and Partners in Toronto, said in Ontario the mortgage holder can go after any of your assets, although some provinces protect funds in your RRSP account. But the banks usually want to keep you in your home and paying off that mortgage.

“I can tell you, if you want to keep your house in bankruptcy, and can afford [the mortgage], it’s usually no problem,” said Fisher, noting most financial institutions will come up with a payment plan to keep you in your home.

“I actually see more people with a home that is underwater and they want to keep making the payments and struggle through.”

[lektrode]

Re: The Elusive Canadian Housing Bubble

Love it! Islanders are so well trained in the art of scaring mainlanders away.

But, as they say, to get back to our main point here...the Canadian housing bubble,....

isnt training, santa = more like instinct (since i wasnt born there)
that and 25years of experience...

sorry for the distraction, but wanted to help put some perspective on 'bubble pricing'

[santafe2]

Re: The Elusive Canadian Housing Bubble

agreed - but waimea (kamuela)? 250-350? for a condo maybe - and be prepared for.. a.. fight... uhhh.. i mean.. bidding war for anything in that range, far as a detached/SF with no HOA fees - IF ya can find ANY in that price range
(and if ya can, better get a close look at yer future neighbors, cuz they WILL be lookin at YOU, brah...)

hilo is a diff story tho - course the ole golden rule of 'ya gets what ya pays for' very much applies
esp since most anything less than 300 is going to be somewhat old and termite eaten
and if its 'in town' you'll be looking at maybe 1000-1200sqft on a 1/10th of an acre, otherwise yer in the 'executive section'
and ya better like yer weather... ummm.... wet.. to want to be on that side (taint kona, by any stretch)

and have an occupation that allows one to work via the wire - or bring plenty kala - $$ - with ya, so ya dont have to bother with earning a living - since the price of everything else - sides the house - would make most mainlanders gasp...

either that, or be a .edu or .gov admin type - docs n nurses are in demand too (since they dont typically stay there long if they not local - oh and be prepared to fly upto HNL if ya need anything more than yer temp and bloodpresha checked)

and a final comment - gawd help ya if you cant afford private school for the kiddos...

Love it! Islanders are so well trained in the art of scaring mainlanders away.

But, as they say, to get back to our main point here...the Canadian housing bubble, I had just posted this chart on another thread and thought folks here might find it interesting. Yeah, housing might just be a little over valued in Canada.

[lektrode]

Re: The Elusive Canadian Housing Bubble

Lots of houses to choose from on the Big Island in the $250k-$350k range. Waimea or Hilo are nice and there are plenty of other examples scattered around one of the most amazing geologic wonders on earth.

agreed - but waimea (kamuela)? 250-350? for a condo maybe - and be prepared for.. a.. fight... uhhh.. i mean.. bidding war for anything in that range, far as a detached/SF with no HOA fees - IF ya can find ANY in that price range
(and if ya can, better get a close look at yer future neighbors, cuz they WILL be lookin at YOU, brah...)

hilo is a diff story tho - course the ole golden rule of 'ya gets what ya pays for' very much applies
esp since most anything less than 300 is going to be somewhat old and termite eaten
and if its 'in town' you'll be looking at maybe 1000-1200sqft on a 1/10th of an acre, otherwise yer in the 'executive section'
and ya better like yer weather... ummm.... wet.. to want to be on that side (taint kona, by any stretch)

and have an occupation that allows one to work via the wire - or bring plenty kala - $$ - with ya, so ya dont have to bother with earning a living - since the price of everything else - sides the house - would make most mainlanders gasp...

either that, or be a .edu or .gov admin type - docs n nurses are in demand too (since they dont typically stay there long if they not local - oh and be prepared to fly upto HNL if ya need anything more than yer temp and bloodpresha checked)

and a final comment - gawd help ya if you cant afford private school for the kiddos...

[santafe2]

Re: The Elusive Canadian Housing Bubble

define 'reasonable' ?
(and would you like... or... need a job - or 3 - with that?)

Lots of houses to choose from on the Big Island in the $250k-$350k range. Waimea or Hilo are nice and there are plenty of other examples scattered around one of the most amazing geologic wonders on earth.

[GRG55]

Re: The Elusive Canadian Housing Bubble

No mystery in my wife's family. Her siblings have been looting the family savings to the point of extinction. I believe their justification is, "I need it!"

Exact same situation here. Even more hilarious, the mother-in-law is also absolutely certain they must need it. Unlike the one daughter that has never asked for any, and instead has been helping some of the sibling's children, who do need it. I watch from the sidelines (safer to stay off the field of play); seems a bit of an Atlas Shrugged case study from that vantage.

[lektrode]

Re: The Elusive Canadian Housing Bubble

Surrey, British Columbia ain't Hawaii. Believe me, it ain't!

but.. but.. i thot that was the Canadian Riviera? (or was that hollywood FL ;)

PS, San Francisco is a city and Hawaii is a state with several islands. Compare Honolulu to San Francisco. There are many places to live in Hawaii at very reasonable prices. And, not to create a religious debate here but as we speak, "God" is creating more land on the Big Island.

define 'reasonable' ?
(and would you like... or... need a job - or 3 - with that?)

[don]

Re: The Elusive Canadian Housing Bubble

Ya gotta wonder how many on the receiving end of this familial welfare rationalize it as "receiving their inheritance early".

No mystery in my wife's family. Her siblings have been looting the family savings to the point of extinction. I believe their justification is, "I need it!"