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American-style amortization periods stretching beyond 25 years were also relatively unknown in Canada.
Really?

Seems more to me like the Cdn bank profits saved them more than stingy lending. I know people with 0/40 mortgages in Canada

How do they think that the housing market will settle out in the spring when people start selling? As far as I know, when someone sells their home they BUY another one, no?
 

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Huh?

Really?

Seems more to me like the Cdn bank profits saved them more than stingy lending. I know people with 0/40 mortgages in Canada

How do they think that the housing market will settle out in the spring when people start selling? As far as I know, when someone sells their home they BUY another one, no?
Could you explain what you mean? "Cdn bank profits saved them more than stingy lending." Not really. Canadian Banks, unlike American banks, keep mortgages on their balance sheets, Therefore, Canadian banks are very interested in the quality of those mortgages. American banks tended to sell mortgages as mortgage-backed securities and absolved themselves of all responsibility once the MBS were sold. That practice has been blamed for at least part of the real estate crisis. Also, Canadian banks had higher capital requirements.

You may know people with zero-down, 40-year mortgages, but I'll bet you know very few. That mortgage is very rare in Canada, especially with the clamp down on loose mortgage lending.

I'm not sure what your point is when you say that people buy another home as they sell. So what? Buying another home as you sell doesn't guarantee that housing prices will remain firm. As interest rates rise, I believe housing prices will fall. Whether prices will crash remains to be seen. Economists with a good track record, like David Rosenberg, are stating that housing prices are excessive.
See www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/floating-high-on-a-delicate-housing-bubble/article1396658/
 

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10 years ago, I had only heard of 30 year mortgages in the US, and 25 years in Canada as being the longest amortization periods.

Now it does seem to be very common in both countries to have longer amortization periods.

The mentality now seems to be more about monthly carrying cost, rather than the purchase price, rate, terms etc.

In a rising RE market, yes people definitely buy another home when they sell. In a falling market (see the US currently) not so much.

high octane - And if you could explain what you mean? "Cdn bank profits saved them more than stingy lending." I didn't get that one either....
 

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There are a couple of interesting charts that compare the US and Canadian housing markets since 2000 at http://bubblemeter.blogspot.com/2009/12/housing-canada-vs-united-states.html

Seems to me that some have been calling the price increases in Toronto and Vancouver "bubbles" for decades.

It is normal for house prices to go up when interest rates for down and for house prices to go down when interest rates go up.The prices do not plummet as with bubbles in stocks unless the market is flooded by defaults though - and that is unlikely to happen in Canada given the differences in lending practices from the states.
 

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You may know people with zero-down, 40-year mortgages, but I'll bet you know very few. That mortgage is very rare in Canada, especially with the clamp down on loose mortgage lending.
Actually lots of my peers had $0 down because they believe buying a house is always smarter than renting even if you have no down payment. Based on their disposable income and the price of their houses, I can only assume most of them are more than 25 yrs

I'm not sure what your point is when you say that people buy another home as they sell. So what? Buying another home as you sell doesn't guarantee that housing prices will remain firm. As interest rates rise, I believe housing prices will fall. Whether prices will crash remains to be seen. Economists with a good track record, like David Rosenberg, are stating that housing prices are excessive.
See www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/floating-high-on-a-delicate-housing-bubble/article1396658/
I was commenting on the original article which predicted that housing prices will settle back down when it warms up and more people start selling.

So they are assuming more supply vs demand when summer comes and people put their houses on the market, and I'm pointing out that it's a moot point if they all buy another house, no?..
 

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Actually lots of my peers had $0 down because they believe buying a house is always smarter than renting even if you have no down payment. Based on their disposable income and the price of their houses, I can only assume most of them are more than 25 yrs
Lots of your peers have zero-down mortgages? I'll take your word for it. However, truly zero-down mortgages are unusual. Even under the old rules 5% was the minimum down payment. A former mortgage broker I know told me that "helpful" (less scrupulous?) brokers would arrange zero-down mortgages. Mortgagors would borrow the down payment from another source, so the entire amount was borrowed. However, especially with the new rules, this practice will likely be less common.

Your peers are mistaken if they think that buying is always better than renting.

I was commenting on the original article which predicted that housing prices will settle back down when it warms up and more people start selling.

So they are assuming more supply vs demand when summer comes and people put their houses on the market, and I'm pointing out that it's a moot point if they all buy another house, no?..
Housing moves in cycles. In Edmonton I've seen prices gyrate (up and down) even with lots of buyers and sellers.
 

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There are a couple of interesting charts that compare the US and Canadian housing markets since 2000 at http://bubblemeter.blogspot.com/2009/12/housing-canada-vs-united-states.html

Seems to me that some have been calling the price increases in Toronto and Vancouver "bubbles" for decades.

It is normal for house prices to go up when interest rates for down and for house prices to go down when interest rates go up.The prices do not plummet as with bubbles in stocks unless the market is flooded by defaults though - and that is unlikely to happen in Canada given the differences in lending practices from the states.
So bubbles in real estate can't happen in Canada? It may more difficult, but it can definitely happen. In Alberta there have been several real estate booms and busts over the past few decades.

In Vancouver see http://housing-analysis.blogspot.com/2009/06/greater-vancouver-inflation-adjusted.html

Year-over-year changes in Vancouver can be drastic. Most people would consider a 20-30% drop to be steep. Housing prices have far outpaced income in Vancouver. I suspect we'll see more than a normal drop with rising interest rates.

Also, see www.vancouversun.com/story_print.html?id=2482683&sponsor=
 

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Yeah, I sure hope that the bubble will burst in Vancouver. It's getting really quite ridiculous. I don't know how on earth these people are affording the 1.6 million dollar homes that is the average price in Vancouver West (I assume home equity and people who don't actually work in Vancouver).

Our income isn't keeping up with the housing costs. Most people are putting away 40%+ of their pretax income for shelter, when the recommendations are <32%.

Hopefully with the new mortgage rules, there will be some sort of correction in prices.
 

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So bubbles in real estate can't happen in Canada? It may more difficult, but it can definitely happen. In Alberta there have been several real estate booms and busts over the past few decades.
I did not say the can't happen. I said that prices don't plummet drastically unless there are lots of mortgage defaults - which is what is happening in the US. Given our lending practices a flood of defaults is not on the horizon.

Alberta has had boom and bust in the past which has caused a bubble-like drop on prices. Calgary in the 1980's comes to mind. There were lots of defaults made worse by the fact that in Alberta a homeowner can walk away from their obligation essentially without penalty. That is what they did - threw the keys on the counter and left just, as they are doing in the US now.

As far as mortgages go, Alberta has more in common with the the US than other provinces do. You can't do that in the rest of Canada.

Prices in Vancouver will drop when interest rates rise but are unlikely to suffer a major Alberta style correction unless there are a flood of foreclosures and that is not on the horizon unless the world economy totally melts down.
 

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First of all in Toronto and Vancouver there are boom and bust cycles on a regular basis.

The biggest problem in the States is not that people can walk away from their house without penalty actually in many States that is not the case. Much of the problem now is due to the way banks and lenders dispose of defaulted property. In a time when credit and mortgages were difficult to get lenders flooded the market with defaulted property bringing the prices down. It still is like a yard sale for houses.

Here in Canada the lender has a fiduciary duty to get the best price for the property and it is put on the regular house market with an agent on the MLS. The lender can be sued by the old owner of the house if there is any funky business.

Now there is the problem that many people are underwater on their houses which will make it impossible to renew their mortgage why struggle for years to pay a high payment when you know that you will not be able to get a mortgage even if you make your payments?

What will catch up to us here in Canada is that houses are becoming unaffordable. For years we have increased the number of buyers my decreasing the requirements. Inititally you had to have 25% down to buy a house then 20% all the way to 0% down each reduction in downpayment increased the number of people who could buy. More buyers means more competition and higher prices.

Now requirements have been increased.... which reduces the amount of buyers. If there comes a point where there are less buyers than sellers we will see a price adjustment.

Todays' housing market is all about affordability. If you can get people to buy houses with 0% down and 40 year mortgages the banks profit and house prices go up.

Now i'm not sure when but with the gap between the average price of a house in Toronto and the average salary I can't see anything but a correction in the future. But there is no way that it will be a country wide collapse like in the States mostly because our legislation is protective of the banks, and buyers, and sellers. Our laws are not skewed in favour of big business and our government takes an intermediary role between business and consumers.
 

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The rules changed as far as I know everyone needs 5% down and everyone needs to qualify for a 5 year mortgage at fixed rates even if they get a variable rate mortgage.

As I have said before... I know a lot of investors and none of them get CMHC financing on single family home, they just don't want to pay the fees. These are landlords who have multiple properties. Further it is almost impossible to buy a place that has positive cash flow in Toronto and most of them just aren't buying right now. I had an investor who was looking to buy a few months ago and the bank wanted 35% down on a second property.
 

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The rules changed as far as I know everyone needs 5% down and everyone needs to qualify for a 5 year mortgage at fixed rates even if they get a variable rate mortgage.

As I have said before... I know a lot of investors and none of them get CMHC financing on single family home, they just don't want to pay the fees. These are landlords who have multiple properties. Further it is almost impossible to buy a place that has positive cash flow in Toronto and most of them just aren't buying right now. I had an investor who was looking to buy a few months ago and the bank wanted 35% down on a second property.
Yes you need 5% down, but that can come from 5% cash back from the lender, effectively giving you 100% financing. Depending on a person's financial situation it is not actually a bad deal right now.

I am going to take a look at the difference between putting 5% down and using a cash back program. I will let you know what the difference actually is.

***Update*** Taking all things into account, using a cash back mortgage costs a person $92.72 a month on a $300K property above what putting 5% down would cost. I am going to spell out the calculations and the methodology in my blog later in the week.
 

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CMHC loophole, for 5 year terms or longer, posted on greaterfool.ca today:


'Says the corp (CMHC):

* For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate, and the contract interest rate.

OK, that’s consistent. CMHC even makes a point of defining the ‘benchmark rate’ as “the Chartered Bank – Conventional Mortgage 5-year rate.” That, as I said, is currently about 5.3%.

But, dig the next sentence:

* For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.

That’s called a loophole. And this one is big enough to fit a housing bubble through.

It simply means if a lender grants a 5-year mortgage, the new rules do not apply. No benchmark rate. No posted rate. No making sure the borrower is protected if interest rates zoom higher. No 5.3% used as the standard. The rate can be pretty much whatever the lender can live with. For example, today you can get a 5-year fixed home loan for 3.6% – which means a first-time homebuyer qualifying at that level could be nicely creamed when he or she faces renewal in 2015 at twice the cost.

It also means this: If you borrow on a term of three years, you have to qualify at 5.3%. But if you borrow on a term of five years – when mortgage rates are destined to be higher – you can get the same sized loan with significantly less income.'


So if you get a term of 5 years or longer, you can qualify for less than the posted 5 year rate. Hopefully rates won't be too much higher in 5 years.
 

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I'm not saying there won't be some people who make imprudent mortgage choices of use loopholes to get around the intent of the changes.

There will be people affected when house prices correct but we will not see 25% of houses underwater in Canada.

By and large Canada is in a very difficult situation, our major trading partner the US is in major financial trouble, I think Flaherty is right to take any changes to our housing policy slowly. An over correction of the housing bubble may well spiral us into a severe recession.

And in fact we are not talking about all of Canada we are mostly talking about Toronto and Vancouver. What impact will this have on the rest of Canada if draconian measures are taken to clamp down on the housing bubble in major cities?
 

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CMHC loophole, for 5 year terms or longer, posted on greaterfool.ca today:
Canadian Mortgage Trends does a good job of covering this topic. See March 8 post "Five Year Funnel".

Also related is another thread on this forum titled "Will the new Mortgage Rules Affect You?"
 

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While we may be in for a correction or perhaps a period of stagnant price increases, I don't think you could characterize most Canadian real estate as a bubble and I don't believe that the situation is at all similar to what has been happening in the US. Perhaps Vancouver and Toronto could be in for greater corrections but as was mentioned, boom and busts are typical in those markets. In Ottawa much of the price increase seems to be due to a shortage of supply -- for whatever reason homeowners are not listing to the same extent as is usual.

When you read about some of the practices that had been going on in the US which often involved:

- giving mortgages to anyone with a pulse
- cold-calling to convince already over indebted homeowners to take on additional debt at an extremely low initial rate with most not reading the fine print stating that the rate would significantly increase at a future date
- then repackaging and selling those mortgages for a profit while collecting a bonus for the business (which provided little incentive to care about the quality of the debt).

It was obviously only a matter of time before the house of cards fell down. I've never heard of any of these practices happening in Canada.
 

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Canadian Mortgage Trends does a good job of covering this topic. See March 8 post "Five Year Funnel".

Also related is another thread on this forum titled "Will the new Mortgage Rules Affect You?"
Actually on the other thread, I didn't even get 'it' the first read through. I thought the GT article explained the 'five year funnel' clearer.

And yes Canadian Mortgage Treads does a good job on this topic too. Thx.
 

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Actually on the other thread, I didn't even get 'it' the first read through. I thought the GT article explained the 'five year funnel' clearer.

And yes Canadian Mortgage Treads does a good job on this topic too. Thx.
Yep. The other thread is full of misinformation and corrections, so it is a confusing read.
 
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