Canadian Money Forum banner

1 - 20 of 23 Posts

·
Registered
Joined
·
89 Posts
I'll be visiting Toronto for the first time in a couple of weeks. It'll be interesting to check out the city and see what the average price of $382,921 can buy.

August stats for Greater Vancouver are also out. The average price in Vancouver is $539,600.
Breakdown:
Apartment=$369,263
Townhouse=$459,159
House=$732,656
 

·
Registered
Joined
·
201 Posts
I have an Uncle in North York who used to joke about his $100,000 dollar house sitting on his $500,000 piece of property... and that was 15 years ago!
 

·
Registered
Joined
·
2,054 Posts
I found this article about foreclosures. It seems to be just as relevant as the one Cal posted

http://www.theonion.com/content/news/thousands_of_abandoned_foreclosed

In case someone wants the facts the website of the CMHC is

http://www.cmhc-schl.gc.ca

The truth is that CMHC is fundamentally different from Fannie and Freddie.

CMHC is and insurance company they do not own any mortgages themselves. They are a part of the Government and they follow guidelines. Currently to get a mortgage you need a credit score of 680 a 5% down payment or more and your payment must equal no more than 30% of your income. You must have been at your current employ for more than a year. Revenues made by CMHC go to our government. It there was a collapse and CMHC needed money from the government that would be fair because when times were good our government collected the money

Fannie and Freddie were originally owned by the US government but was sold and was a private company. Under the mandate of the us government they performed the same duties as our CMHC and they also issued and owned mortgages. As a for profit company their duty to stabilize the mortgage industry fell by the wayside in their quest to maximize shareholder profits which is the only legal mandate for a publicly traded company.

And there is nothing wrong with mortgage backed securities if the underlying mortgages are sound. Which ours are because our banks have never issued predatory lending products like ARM's, balloon payment mortgages, NINJA (No Income No Job or Assets) mortgages and many more products.

Just because someone writes an article does not make it factual. These people are fear mongering. I am concerned about the prices of houses in Toronto and Vancover and think that it is unsustainable but I don't need to make things up and publish them.
 

·
Registered
Joined
·
2,892 Posts
berubeland...I agree with you I do have a concern about RE valuations...I just don't want to be on the hook when/if CMHC needs a bailout...you do know where the gov't gets their money from right...us. And I have never received a tax refund when the gov't has collected a surplus in CMHC premiums.

I wasn't trying to fear monger by any means. And I think you know that too. Just trying to enlighten some out there that RE is not by any means a one way investment.

Unfortunately too many people think it is too easy to make money in RE. Just trying to give them a word of caution.
 

·
Registered
Joined
·
2,054 Posts
Cal you won't get any argument from me about the state of Real Estate and how hard it is right now to find good investments in the GTA. It will be absolutely horrible when the whole mess does a nose dive.

But CMHC is a good thing well capitalized and doing a good job over all. They are nothing like Fannie and Freddie. CMHC's job is to protect the stability and liquidity of the canadian mortgage market and they are doing ok.

Financial Post did a story about the CMHC.

If CMHC were a private operation, regulators and politicians would be all over the place in search of dubious business practices. Exorbitant fees and operating margins, monopoly cross- subsidies, anti-competitive behaviour and financial reporting that make it difficult to know exactly what's going on within the $100-billion-asset operation.

What we do know is that CMHC is a cash cow built around the mortgage insurance business. From top to bottom, the CMHC mortgage insurance operation is a great expensive rip-off of Canadian homeowners.

We start with its legislated support structure as the supplier of a government-mandated service. Under the Bank Act, every mortgage from a bank or other federally regulated institution with a down payment of less than 25% must carry mortgage insurance. Whether Canadians need such insurance, they must get it and pay for it.

It's the law, and the law last year cost Canadians $1.2-billion in premiums paid to CMHC. The net claims against CMHC for mortgage default totaled $117-million, for a premium-claim ratio of 10 to 1. Total revenue from insurance, including interest on investment, topped $1.6-billion, while operating expenses and claims totaled $256-million. Total net profit before tax payments to the federal government: $1.4-billion. It pays no provincial taxes. Not bad for a business that generates $1.2-billion in premium revenue. Nothing else CMHC does makes any real money; the operation is all subsidies, cross-subsidies, and appropriations from Parliament.

CMHC gets about 70% of this nationally mandated mortgage insurance business. Thanks to the opening of the market to some competition in 1995, Genworth Financial Canada, a subsidiary of GE, holds the other 30% and presumably makes the same profit margins. The government plans to increase competition, although it hardly rates as a market. On top of mandating the insurance, Ottawa also provides a government guarantee to companies providing mortgage insurance. One good sign is that competition recently helped promote a small price cut in premiums.

Read more: http://www.financialpost.com/scripts/story.html?id=6078fceb-d492-4e44-8929-32276e4e3ee1&k=43673#ixzz0V0qBoFQX
 

·
Banned
Joined
·
701 Posts
Discussion Starter #16 (Edited)
It will be absolutely horrible when the whole mess does a nose dive.
I think it will be awesome!

With regards to the CMHC balance sheet, it indicates $8.17 billion in equity to support $203.5 billion in assets (ie 4% equity). That ratio is fine when times are good, but if times ever get rough, that equity will be gone faster than you can say 'power of sale'.
 

·
Registered
Joined
·
2,054 Posts
Well there will be a lot of deals out there that's for sure. Unfortunately most fiscal conservatives will be unwilling to take the dive when prices are best. They will sit on the fence until prices go up.

With regards to the CMHC balance sheet, it indicates $8.17 billion in equity to support $203.5 billion in assets (ie 4% equity). That ratio is fine when times are good, but if times ever get rough, that equity will be gone faster than you can say 'power of sale'.

You are correct about that Rickson however.... the Canadian Government has been getting all their excess cash for years. When/if they require capitalization from the Canadian Government it will be far less than the Canadian Government has received over the years. I bet that people will forget that and there will be a giant hue and cry.
 

·
Registered
Joined
·
245 Posts
You are correct about that Rickson however.... the Canadian Government has been getting all their excess cash for years. When/if they require capitalization from the Canadian Government it will be far less than the Canadian Government has received over the years. I bet that people will forget that and there will be a giant hue and cry.
The flaw in your argument is that the Canadian government doesn't have the excess cash now (ever heard of record deficits?) so if CMHC needs bailout it will be financed with increased deficit/money printing. This will simply add burden to all tax payers.

However as Rickson pointed out this is going to be fun, as property values will crash and investors who are ready will be richly rewarded.
 

·
Registered
Joined
·
2,054 Posts
The flaw in your argument is that the Canadian government doesn't have the excess cash now (ever heard of record deficits?) so if CMHC needs bailout it will be financed with increased deficit/money printing. This will simply add burden to all tax payers.

Right just like every other company that can go through rough spots after generating billions in income that was used by the Canadian government relieving the tax burden of Canadians for years. I don't see what the problem is for the Canadian Government to have to "bailout" CMHC after using the revenues for years and years and years.

I compare this to my business which generates income for me. I get to use that money and if all goes well the company keeps generating income. If however after 20 years of the company supporting me I don't want to invest in it that really doesn't make sense to me.
 

·
Registered
Joined
·
2,892 Posts
I think thats great if your company supports you and provides income for you for 20 years.

I just think it sucks if I have to pay more in taxes to bail out your company when they are in tough times. Thats all.

Unfortunately we don't have the option of not paying taxes...or choosing who is or is not bailed out.

On that note...I heard that GMAC (the financing arm of GM) is asking for their 3rd bailout.
 
1 - 20 of 23 Posts
Top