Does Canada have a mortgage crisis or not?

[Topaz]

After reading the article I'm not quite sure what is going within Canada on mortgages and the insurance part of it. I thought Harper took care of that by throwing millions of dollars towards the insurance and said not one dollar was taxpayers money. The one comment at the bottom of the page thinks the government is up to no good. http://www.cbc.ca/news/business/story/2012/02/02/flaherty-mortgage-cmhc.html

[Moonlight Graham]

Right now, no. But we've had low interest rates for awhile now and when they inevitably increase, as the article eluded to, there could be problems in mortgage payments if they are indeed lending to too many not-so-prime homeowners. That would be similar to what helped cause the US mortgage crisis following the low borrowing rates after the tech bubble bust and the subsequent increase years later.

[fellowtraveller]

There are a number of odd things in this article, mostly with the missing information and misleading talk of 'lenders'.....

But no, there is no crisis. CMHC is by far the largest of the three mortgage insurers. The other two have always been more cautious than CMHC, and CMHC rules for qualification are strict and pretty much unwavering. In the past, the private insurers have actually been tougher still. I do not think the insurers are allowed to be sloppier.

The bakls- or lenders in general- are not the same as the insurers. The banks have their own rules, but can by law only lend up to 80% on residntial mortgages, which provides a built in cushion for their money. The insurer charges a very fat premium to insure the rest of the loan. With this, the insurer stays solvent, the bank stays solvent, people can raise enough cash for a down payment in a reasonable time. But everybody has to have the ability to repay, a sdown payment, a job ad a credit history. No exceptions for insured loans.

Perhaps Flaherty is concerned about the 2.99% mortgages? Hard to tell from this article.

[msj]

There are a number of odd things in this article, mostly with the missing information and misleading talk of 'lenders'.....

But no, there is no crisis. CMHC is by far the largest of the three mortgage insurers. The other two have always been more cautious than CMHC, and CMHC rules for qualification are strict and pretty much unwavering. In the past, the private insurers have actually been tougher still. I do not think the insurers are allowed to be sloppier.

The bakls- or lenders in general- are not the same as the insurers. The banks have their own rules, but can by law only lend up to 80% on residntial mortgages, which provides a built in cushion for their money. The insurer charges a very fat premium to insure the rest of the loan. With this, the insurer stays solvent, the bank stays solvent, people can raise enough cash for a down payment in a reasonable time. But everybody has to have the ability to repay, a sdown payment, a job ad a credit history. No exceptions for insured loans.

Perhaps Flaherty is concerned about the 2.99% mortgages? Hard to tell from this article.

Not sure where you're getting your numbers from.

That 80% may refer to buying a second property (an "investment" property) but many mortgages in the past several years have been offered with 5% or less down payment.

The banks have been advertising on their websites about "cash back" mortgages which effectively maintain the 0% down that the CPC brought in, and a couple of years later eliminated.

Remember 0% down and 40 year amortizations?

Then it went to 5% down and 35 year amortizations.

Now it's 5/30 and likely will be 5/25 by spring (well, if Flaherty has any sense it will be).

Is it a crisis?

With the typical Canadian having debt at 150+% of income and with the typical Vancouverite paying 70% of their income on mortgage payments it is something for many people.

All it will take to turn it into a crisis is a recession.

If unemployment rises to 9% or 9.5% then Canada will look very similar to what the US has been since 2007.

Never should have been allowed to get to this stage but that's what happens when everyone is addicted to debt.

[Smallc]

I have to take issue with the idea that Canada's crisis would look anything like what happened in the US. Most economists don't see that as even a remote possibility.

[msj]

I have to take issue with the idea that Canada's crisis would look anything like what happened in the US. Most economists don't see that as even a remote possibility.

Most economists didn't see what happened in the US coming either so balls to that.

[bjre]

Mortgage is one of the most important factors that makes critical problems in Canada.

Originally, mortgage was a good idea, it helped people with less money buy houses earlier. But as time went by, things changes.

Now, even when mortgage available, still too many people can not afford a house, all mortgage has done is make debt of everyone increased like a rocket. When bank provide mortgage with lower or zero cash reserve ratio, and make profit upon that, it actually become the most important reason that cause inflation. That is because when more and more money is pour into economy while not so many goods and services are actually available, it makes price of everything goes up. The value of money becomes less and less. That means even you don't buy a house, the bankers still can rob you. In this way, bankers take away everyone's money as much as possible. Most work of most people are actually for the bank bosses. The bankers can happily calculate how much money most people still have and change the interest rate to rob it. Most people nowadays are simply modern slaves.

Why this can happen, the laws make it possible.

If I were the PM, the first thing I want to do is the set cash reserve ratio to 100%. Any one has the equal right to lend money to others as mortgage, not just the privileges of banks. That would stop banks from law protected robbing the wealth from everybody immediately .

[bjre]

Most economists didn't see what happened in the US coming either so balls to that.

Where most economists take their salaries? banks?

[Topaz]

Let me remind the forum of this article which was in 2008 right after the election. http://www.globalresearch.ca/index.php?context=va&aid=12007

[fellowtraveller]

Not sure where you're getting your numbers from.

That 80% may refer to buying a second property (an "investment" property) but many mortgages in the past several years have been offered with 5% or less down payment.

I get my numbers from the Bank Act, which has been around from about the 1870s.

It prevents banks from lending more than 80%. The rest must be insured, and the insurers(mainly CMHC) have very strict rules about qualification. The private inasurers like GE/Genworth have even strciter rules and often take only the best risks.

This fact alone is what has kept Canada from haing anything like a subprime crisis in the US, which has little or no regulkation of lenders can do.

Note that every borrower at 5% had to jump through hoops. Note also that for the brief period that 0% downs werr permitted, the borrowers had to have impeccable credit etc, higher standards than required for people at 5%.

It is true that there are more foreclosures now than there were during boom times, but there are far less than in the USA and not nearly enough to put a scare into our own market. There are always foreclosures to some level, even in the very strongest economic times.

[bjre]

I get my numbers from the Bank Act, which has been around from about the 1870s.

It prevents banks from lending more than 80%. The rest must be insured, and the insurers(mainly CMHC) have very strict rules about qualification. The private inasurers like GE/Genworth have even strciter rules and often take only the best risks.

This fact alone is what has kept Canada from haing anything like a subprime crisis in the US, which has little or no regulkation of lenders can do.

Note that every borrower at 5% had to jump through hoops. Note also that for the brief period that 0% downs werr permitted, the borrowers had to have impeccable credit etc, higher standards than required for people at 5%.

It is true that there are more foreclosures now than there were during boom times, but there are far less than in the USA and not nearly enough to put a scare into our own market. There are always foreclosures to some level, even in the very strongest economic times.

The meaning of the borrowers had to have higher standards of impeccable credit means only the bankers has accurately calculated if the borrowers can work hard to make enough money for bankers to rob. It did not reflect the total extra-money more than goods and services that injected into economy, that is the part of the money (and with the interest) is the amount that bank claimed, and cause the inflation. So it makes workers give more of their work to bankers, so that the labor force price becomes high (because workers need give more to others), eventually makes Canadian job opportunities go abroad where labor price is cheaper. That will make even more people in Canada become poor people. So that less tax will be available, and tax rate will increase, and people become even poor. and so on.

Edited February 3, 2012 by bjre

[fellowtraveller]

The meaning of the borrowers had to have higher standards of impeccable credit means only the bankers has accurately calculated if the borrowers can work hard to make enough money for bankers to rob. It did not reflect the total extra-money more than goods and services that injected into economy, that is the part of the money (and with the interest) is the amount that bank claimed, and cause the inflation. So it makes workers give more of their work to bankers, so that the labor force price becomes high (because workers need give more to others), eventually makes Canadian job opportunities go abroad where labor price is cheaper. That will make even more people in Canada become poor people. So that less tax will be available, and tax rate will increase, and people become even poor. and so on.

blahblahblah

The Bank Act and the creation of CMHC insured loans mean this to generations of working Canadians: they can afford to buy their own homes, and avoiding having a rampaging capitalist as their landlord. This generation has a higher rate of ownership than the last. which was better than the one before and so on.

There is far, far more disposable income and general personal wealth right now than at any time in human history. Inflation is low, interst rates are low, people are so overfed that obesity levles are very high. Calories= prosperity, so save the dogma.

[bjre]

blahblahblah

The Bank Act and the creation of CMHC insured loans mean this to generations of working Canadians: they can afford to buy their own homes, and avoiding having a rampaging capitalist as their landlord. This generation has a higher rate of ownership than the last. which was better than the one before and so on.

There is far, far more disposable income and general personal wealth right now than at any time in human history. Inflation is low, interst rates are low, people are so overfed that obesity levles are very high. Calories= prosperity, so save the dogma.

The twisted statistics helps nothing but misleading. Why?

Because the meaning of house "ownership" has changed so much.

Now, ownership does not means you can escape from rampaging capitalist, but just robbed by some other more greedy capitalists. So, ownership can cost more than rent. "Ownership" now becomes means that you does not actually "own" the house, you need to buy it again and again every a number of years. What is the difference with this kind of "ownership" and rent? See this example:

http://www.thestar.com/business/article/972359

Dragica Donia bought her downtown Toronto row house more than two decades ago, figuring that it would suit her well during her retirement years.

But now, at 76, she’s worried everything will have to change. High property taxes mean she might not be able to continue living in her modest residence near the popular Little Italy neighbourhood.

“This is a very real concern to me,” said the 76-year-old senior, a retired administrative assistant. “I am going to have to sell my home and rent if taxes keep going up.

According to property assessment data obtained by the Star's Catherine Farley, the value of homes in Donia’s area has increased overall by 18 per cent since 2008. That means she may be in for a higher assessment in the future.

[dre]

blahblahblah

The Bank Act and the creation of CMHC insured loans mean this to generations of working Canadians: they can afford to buy their own homes, and avoiding having a rampaging capitalist as their landlord. This generation has a higher rate of ownership than the last. which was better than the one before and so on.

There is far, far more disposable income and general personal wealth right now than at any time in human history. Inflation is low, interst rates are low, people are so overfed that obesity levles are very high. Calories= prosperity, so save the dogma.

That entirely depends on what you buy. Your average Canadian could afford to buy more house, more college tuition, more gas, more oil, and more food 10 years ago than they can now. As for inflation, that entirely depends on how you calculate it, and what you spend money on.

[dre]

I have to take issue with the idea that Canada's crisis would look anything like what happened in the US. Most economists don't see that as even a remote possibility.

Canada has the same underlying problem that the US had... we have a big realestate bubble and rampant over-valuation. Every penny of that fake wealth is going to evaporate.

canadian%20real%20estate%20price%20to%20rent%20ratio%20ScotiaBank%20report.png

Theres no real reason for a home to cost any more now than it did in the 90's + a few percent for inflation. Theres lots of inventory, and wages and disposable income are not growing. Inflation adjusted housing prices will return to where they were in the 1990's, and for a lot of people that is going to be a crisis.

[Smallc]

Canada has the same underlying problem that the US had... we have a big realestate bubble and rampant over-valuation.

The problem isn't at all identical, and most analysts who look at it only see a bubble in a couple of markets (Vancouver, Victoria, and Toronto). To say that the same problems exist here isn't really true. There are different rules and a different probable outcome.

[August1991]

Most economists didn't see what happened in the US coming either so balls to that.

Let's apply a little common sense.

If your neighbour's house burns down, I'll bet you'll check your own wiring or gas connections. And, you'll likely tell your kids to be more careful with the stove and iron. You'll put the cigarette butts from ashtrays in the toilet instead of the garbage.

IOW, if a neighbour's house just burned down, you'll understandably worry inordinately about house fires.

----

From tulips to canals to railways to tech-stocks to housing, market bubbles are a fact of life. At present, I just wouldn't worry inordinately about house fires, or housing bubbles in Canada.

Edited February 4, 2012 by August1991

[dre]

The problem isn't at all identical, and most analysts who look at it only see a bubble in a couple of markets (Vancouver, Victoria, and Toronto). To say that the same problems exist here isn't really true. There are different rules and a different probable outcome.

Yeah those are the same analysts that said the US realestate market was healthy.

This isnt just a few markets, to spot a realestate bubble you have to look at the difference in cost between renting, and owning, and you need to look at wages. And when you look at these indicators its clear that realestate is way over valued. AT LEAST 25%, probably more like 30%.

That doesnt mean that the outcome will be the same... youre right about that.

[Smallc]

I'm not sure if your determination of value is really the ony valid one. There is high demand in most Canadian markets. That drives prices.

[dre]

I'm not sure if your determination of value is really the ony valid one. There is high demand in most Canadian markets. That drives prices.

Thats why you look at rent... if the price is driven by real demand for housing then both home costs, and rent will go up. Right now rents as a percentage of home costs are at a historic low.

http://pacificapartners.com/blog/wp-content/uploads/2011/10/Canadian-Real-Rent-Index-cumulative-return-from-first-quarter.png

The divergence between rents and prices is driven by speculation... speculators raise housing prices without raising rents for obvious reasons... They create demand for homes as an asset but they dont increase real demand for housing. Only families in need of shelter can do that and when theres lots of those around rents go up.

The question isnt whether or not theres an asset bubble, its what is going to happen. A correction in housing prices wont necessarily decimate the economy. The most trouble thing though is our extremely low personal savings rates.

Based on the latest Statistics Canada data, the debt burden of Canadian households is at troubling levels, which could be a shock for some when interest rates inevitably rise. That's because consumers are taking on more debt, but not bringing in much more pay, a worrisome development amid projections of slower economic growth and high unemployment.

[August1991]

Yeah those are the same analysts that said the US realestate market was healthy.

Americans just suffered the collapse of a housing bubble.

Understandably, (English) Canadians are ultra-sensitive to house prices, and the housing market.

Edited February 4, 2012 by August1991

[dre]

Americans just suffered the collapse of a housing bubble.

Understandably, (English) Canadians are ultra-sensitive to house prices, and the housing market.

That has nothing to do with it. Canadians are worried because we have a fairly large asset bubble and realestate overvalued by about 25%, and very low rates of personal savings, and a large ammount of speculation creating fake demand.

[msj]

I get my numbers from the Bank Act, which has been around from about the 1870s.

It prevents banks from lending more than 80%. The rest must be insured, and the insurers(mainly CMHC) have very strict rules about qualification. The private inasurers like GE/Genworth have even strciter rules and often take only the best risks.

This fact alone is what has kept Canada from haing anything like a subprime crisis in the US, which has little or no regulkation of lenders can do.

Note that every borrower at 5% had to jump through hoops. Note also that for the brief period that 0% downs werr permitted, the borrowers had to have impeccable credit etc, higher standards than required for people at 5%.

It is true that there are more foreclosures now than there were during boom times, but there are far less than in the USA and not nearly enough to put a scare into our own market. There are always foreclosures to some level, even in the very strongest economic times.

You talk about strict rules but I don't know what you are talking about.

When the rules changed to 0% down and 40 year amortization the rules weren't stricter. Anyone was getting a mortgage and a line of credit at the same time.

True, Canada is not nearly as bad as the US for "subprime" like lending. I have seen stats claiming 5% for us versus their 30%.

However, I don't know the extent that this takes into account lines of credit. It has been very easy to get LOC's in the past several years. So easy, in fact, that one can still get a LOC to provide the 5% "downpayment" to provide the "equity" portion to get the 30 year amortization rate.

The only way to know for sure how sound our banks and CMHC really are would be to ask them to do a stress test (and do it properly) considering 9, 9.5, and 10% unemployment rates.

Well, I suppose the other way would be to see how sound our banks are if our unemployment rate went to 9, 9.5 or 10% but I wouldn't want to go through that.

I remember a few years ago having an argument on this forum about if the US was in a recession and then how bad the recession was going to be and when the recover would take place.

Most people were slow to admit to the recession, slower to admit how bad it would end up turning, and slower still to realize the "recovery" is still happening to this day.

So I don't much stock in the MSM and the usual talking heads saying it can't happen here. These same idiots said it couldn't happen in the US, or Ireland, or the UK etc....

[msj]

Thats why you look at rent... if the price is driven by real demand for housing then both home costs, and rent will go up. Right now rents as a percentage of home costs are at a historic low.

http://pacificapartners.com/blog/wp-content/uploads/2011/10/Canadian-Real-Rent-Index-cumulative-return-from-first-quarter.png

The divergence between rents and prices is driven by speculation... speculators raise housing prices without raising rents for obvious reasons... They create demand for homes as an asset but they dont increase real demand for housing. Only families in need of shelter can do that and when theres lots of those around rents go up.

The question isnt whether or not theres an asset bubble, its what is going to happen. A correction in housing prices wont necessarily decimate the economy. The most trouble thing though is our extremely low personal savings rates.

Yes, in BC we have had negative savings rates for years, supply of housing has more than kept up with demand in the big centers, real rents have been negative or flat (as you have already shown yourself) and the typical Vancouverite pays something like 60 to 70% of income on mortgage/utilities/strata payments.

The typical Canadian has debt that is 151% of income which is extraordinarily and historically high (and high compared to Americans).

Yet, somehow it's different here.

Our debt is supported by assets that are fairly valued therefore there can be no crisis. Or so the usual argument goes. The same was said of the US in 2006, 2007 and even 2008. By 2009 these people knew better.

Of course, all it takes is for a 15% decline (which would likely be a 30% decline in Vancouver, 20% in Victoria, 15% in Toronto and about flat to -5% in the ROC) for far too many people to find out that high debt values can stay the same while that asset value has plummeted and put one underwater.

That can be a real drag on the economy even if the US finally finds its way out of their recession.

Edited February 4, 2012 by msj

[greyman]

It's a misnomer to call what's happening here a "mortgage crisis". We have a wealth crisis, i.e. we're not generating enough real wealth as a general rule across Canada.

The problem with housing is a function of our rising cost of living. The cost is rising because we've shifted too far toward a service-based economy, and away from production where real wealth is generated.

The problem with mortgages, and housing is just one aspect of a larger systemic problem. And anyone who thinks housing or any other sector of our economy is sustainable is going to be steam-rolled by history.