[Eug]

I've been waiting for the Canadian bubble to pop too, but there are some caveats.

1) The 20ish% increase is after a 5-10% drop. ie. There was already a mini-correction when the world's economies imploded. Still, that increase is way more than I was expecting. I was expecting either a continued drop, or possibly an increase back to 2008 levels (and not an increase to well over 2008 levels).

2) Foreclosure rates are still under 0.4%.

3) Right now the minimum downpayment are 5% and maximum amortization period is 35 years. The government has been discussing changing that to maybe 10% and 30 years, or something like that. I suspect they'll do that if interest rate increases starting this year don't chill out the market enough.

4) Just like in the US, it's dependent upon region. Places like Alberta have already begun to drop. Vancouver is increasing too much (Olympics?).

BTW, my understanding is that one of the reasons that mortgages in Canada are less often securitized than in the US is because the usual term is only 5 years or less. Therefore, banks usually actually hang onto them until maturity instead of packaging them off as risky securities. Therefore it seems assessments for mortgages tend to be a bit more strict (although clearly sometimes not strict enough).

[Phileas]

Originally Posted by turtle777 

This possibly can't go wrong.

-t

Actually, it probably won't. If she is purchasing units as an investment and for rental purposes then the bank will want to see an extremely heft downpayment, typically in the 25-45% range. On top of this, only a percentage of the rental income can be declared as income assigned to service the mortgage, so a borrower has to be able to prove that there is income sufficient to pay back the loan.

You're making a ton of assumptions in your post, almost all of which are based on a mistaken belief that you can compare the US and the Canadian mortgage market when they are very different. Canadian banks are known for their conservatism, indeed have often been derided for it.

One of the largest straws that broke the camel's back in the US were sub-prime mortgages which were handed out like candy by unscrupulous lenders. And one of the many reasons why the Canadian market has escaped the downturn is that these didn't exist up here.

In addition, the 20% increase is limited both geographically and by type of building, typically to city centres where there is a limited amount of family friendly houses and a large number of people who want to purchase them. It's just pressure of the market, and for as long as our cities continue to grow I can't see this change. Go to the suburbs and into rural Canada and you'll find a market that's mostly stable.

[turtle777]

Originally Posted by Phileas 

Actually, it probably won't. If she is purchasing units as an investment and for rental purposes then the bank will want to see an extremely heft downpayment, typically in the 25-45% range. On top of this, only a percentage of the rental income can be declared as income assigned to service the mortgage, so a borrower has to be able to prove that there is income sufficient to pay back the loan.

Yeah, we don't know that.
We DO know that she needed to pay off her credit card debt first to qualify for another loans.

That doesn't sound like she's flush with cash to invest in down payments.

-t

[turtle777]

Originally Posted by Phileas 

You're making a ton of assumptions in your post, almost all of which are based on a mistaken belief that you can compare the US and the Canadian mortgage market when they are very different. Canadian banks are known for their conservatism, indeed have often been derided for it.

Sorry, but this is the first time you hear EVERY TIME someone defends a bubble.

"This is different", "You can't compare it", "You don't have all the facts".

I remember them saying exactly the same thing years ago in the US when the first people were starting to question the bubble.

-t

[Phileas]

Originally Posted by turtle777 

Yeah, we don't know that.
We DO know that she needed to pay off her credit card debt first to qualify for another loans.

That doesn't sound like she's flush with cash to invest in down payments.

-t

You might not know, but I do. I own income property myself, so am acutely aware of the requirements.

And don't forget, she lives in Red Deer - check out property prices there. You could probably put a house on your AMEX out there without raising an eyebrow. So, paying down a credit card before taking on another mortgage becomes reasonable, all of a sudden.

[Phileas]

Originally Posted by turtle777 

Sorry, but this is the first time you hear EVERY TIME someone defends a bubble.

"This is different", "You can't compare it", "You don't have all the facts".

I remember them saying exactly the same thing years ago in the US when the first people were starting to question the bubble.

-t

Dude. Nothing in your post shows me that you have even a rudimentary understanding of how the Canadian mortgage market works and how and where it is fundamentally different from the US.

As somebody who owns a share in a number of properties up here, I do. Simple as that. Were the shoe on the other foot I'd trust your judgement of the US market over my own.

[turtle777]

You are right, I don't know how the Canadian property market works.

But I DO know economics and finances, and I know that a 80% increase in prices in 10 years is not sustainable, because people don't earn 80% more than 10 years ago.

It'll come down or flatten out over a longer period of time. That growth rate is not going to continue w/o a bust.

-t

[Phileas]

Spikes in prices like you mention are location and property type specific and have little to do with the property market in general and everything with localized pressures on the market in cities like Vancouver and Toronto. The oil boom in Alberta, and the accompanying real estate shortage in a traditionally very stable market, has added additional oddities to the mix.

Toronto's population, for example, is growing by 200.000+ residents per year, which explains the extremely limited availability of inner city housing stock, especially when it comes to larger and family friendly homes with a yard and a garage. Thus their value shoots up, there simply are not enough buildings to go around. We are not talking acres of suburbia here newly developed be speculators, these are established neighbourhoods and the shortage is very real. Condos for example have appreciated nowhere near as much, topping out at 35%, because condos are easy to build.

[Wiskedjak]

Between 2005 and day 1 of the econopocolypse, the value of my house in Alberta went up 77%. Currently, it's down 18% from it's high point, leaving me about 50% above my original investment, and values are rising. Alberta has most certainly been an odd place during this depression; massive layoffs due to the economy's dependence on the oil and gas markets, but only a little air let out of our housing bubble.

[Eug]

It would foolish not to acknowledge the possibility of a true Canadian RE crash (ignoring the 2008 mini-crash for the time being). I don't think we're quite there yet, but if things persist then at least a pullback will happen. What I am hoping for actually though is stagnation. With flat prices in the next few years, and some consumer price index inflation along with some pay raises during those years, the effective prices of homes will drop in real dollars without causing a major crash. However, I think that's also a bit of an optimistic view. What I'm actually predicting is a pullback (up to 10-15%), but not a full-blown crash (say >30%), especially if the Canadian government handles this well.

That said, it should be noted that it was only until 2007 that had real prices match those of 20 years ago (at the peak before the previous crash).





In fact, if you were to believe The Economist, house prices in 2008 were actually lower than in 1990, at least when compared to income. This is in stark contrast to the US and Britain.



It's also interesting to compare that starting from 2000 as well. The Canadian price increases were actually on par with the US, if you consider the US after the US's crash.



Note though that data only goes to 2008. Prices in Canada have increased significantly since 2008 in most areas.

Still, while the increase in Canada has been significant in terms of nominal dollars since 1990, when compared to other countries, it's not as crazy.



So, I do agree Canada is at risk of a pullback, and I myself have been predicting one. However, those who say it is a mirror image of the US, just delayed, are not considering all the facts. I'm not denying that possibility, since investors by nature are not rational and the possibility of an overshoot must always be considered, but I think if you consider the numbers objectively it would seem that a pullback in Canada would likely be less severe than in the US.

[mrtew]

I'm pretty sure that if everyone talks about how prices are going down soon and hard they will. I think they're about to shoot up again~

[Eug]

I've was relatively comfortable with increasing Canadian real estate prices until around 2003-2005. From 2005 to 2007 was I was starting to get uncomfortable. The mild drop in 2008-2009 was welcome: Not too harsh, but a nice reality check. The price increases again into 2010 are starting to make me squirm a bit again.

Again, here are some relative price indicators, based on repeat single family dwelling resales (with June 2005 being indexed to 100):

Vancouver June 2000: 68.9
Calgary June 2000: 73.7
Toronto June 2000: 73.6
Montreal June 2000: 62.1

Vancouver June 2005: 100
Calgary June 2005: 100
Toronto June 2005: 100
Montreal June 2005: 100

Vancouver June 2007: 136.9
Calgary June 2007: 169.1
Toronto June 2007: 108.4
Montreal June 2007: 114.8

Vancouver June 2008: 150.7
Calgary June 2008: 169.5
Toronto June 2008: 114.8
Montreal June 2008: 121.2

Vancouver Dec. 2008: 141.7
Calgary Dec. 2008: 158.9
Toronto Dec. 2008: 111.7
Montreal Dec. 2008: 121.9

Vancouver June 2009: 134.6
Calgary June 2009: 148.3
Toronto June 2009: 108.5
Montreal June 2009: 124.0

Vancouver Nov. 2009: 147.2
Calgary Nov. 2009: 156.5
Toronto Nov. 2009: 118.2
Montreal Nov. 2009: 126.6

I'm thus most worried about Vancouver and Calgary, although Calgary's price is very dependent upon oil prices, since Calgary is the centre of oil production in Canada. Even though Montreal is comparatively cheap, the price increases there have been faster than Toronto, so Montreal is not immune either. Strangely enough, Toronto is probably in the best shape of all these cities, except their prices were relatively high to begin with.

[Eug]

Originally Posted by Eug 

3) Right now the minimum downpayment are 5% and maximum amortization period is 35 years. The government has been discussing changing that to maybe 10% and 30 years, or something like that. I suspect they'll do that if interest rate increases starting this year don't chill out the market enough.

Stricter rules will be announced tomorrow.

[Eug]

Attacking mostly speculators:

Jim Flaherty tightens mortgage rules - The Globe and Mail

Under the new rules, all borrowers will need to meet standards for five-year fixed-rate mortgages regardless of whether they're seeking a loan with a lower rate and shorter term.

Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20 per cent down payment for government-backed mortgage insurance on “speculative” investment properties.

They kept the maximum amortization period at 35 years though. Overall I think this is reasonable. I've always felt that borrowers should qualify for at least a 5-year fixed, regardless of what rate they take. In fact, I think people should qualify for worse than 5-year fixed rates to be prudent.

Also, it's stupid for an "investor" to invest only 5% or 10% down. That way you can only make money in a real estate market with quickly increasing prices, and can basically never make real money in more traditional ways such as rentals, or long term holds, etc. A 20% down requirement brings investment properties into more reasonable territory.

[Phileas]

Yes, I agree. This is good for everybody.

We are just about to swap our mortgage for a line of credit, secured on the house. That way we can dump all of our income into the credit line and pay that down as fast as we can. And if we need access to cash to, for example, finance another purchase, it's ready and waiting.

[Eug]

Why though? Usually HELOCs have higher rates than variable mortgages.

eg. A good rate for a 5-year variable fixed is 2.15%. A good rate for a HELOC is 2.75%, although most are 3.25%.

You can get variable rate mortgages with excellent pre-payment options too. Also, having a variable rate mortgage does not preclude getting a HELOC.

[mrtew]

I'm from the US and am totally freaked out by my 5 year mortgage... is it possible to get a 20 or 30 year mortgage in Canada like a normal American. I always hear that that's not the way it's done here. So scary.

[Phileas]

Originally Posted by Eug 

Why though? Usually HELOCs have higher rates than variable mortgages.

eg. A good rate for a 5-year variable fixed is 2.15%. A good rate for a HELOC is 2.75%, although most are 3.25%.

You can get variable rate mortgages with excellent pre-payment options too. Also, having a variable rate mortgage does not preclude getting a HELOC.

Flexibility and cost. I can get a HELOC at a cheaper cost than a mortgage and I like the complete freedom I have about paying it down.

[Eug]

Originally Posted by mrtew 

I'm from the US and am totally freaked out by my 5 year mortgage... is it possible to get a 20 or 30 year mortgage in Canada like a normal American. I always hear that that's not the way it's done here. So scary.

I don't find it scary, but I always recommend people approach their mortgages conservatively, to account for potential interest rate increases.

Originally Posted by Phileas 

Flexibility and cost. I can get a HELOC at a cheaper cost than a mortgage and I like the complete freedom I have about paying it down.

A variable rate mortgage is basically always cheaper than a HELOC.

That is, if you're negotiating a new one, unless somehow you have some inside access at the bank to give you a killer rate for the HELOC. A 2.15% rate variable 5-year rate easy to get, and some have even been able to get variable rate mortgages below 2% (although the ones under 2% usually are pretty restrictive in terms of pre-payment options).

HELOCs are cheaper than 5-year fixed mortgages though.

[Phileas]

I've been offered a HELOC at 1.75%. By one of the big banks too.

As I've said, for us it makes sense. I own my own business, so for the way I earn my money flexibility is important. I keep my monthly income at a level that just keeps me in a low tax bracket, then at the end of the year we pay out a dividend which gets taxed at a lower level and can go straight towards our debts. Should we ever find ourselves in a position of a reduced income - my wife will take a year off after our baby is born in May - we can reduce monthly payments on the HELOC to just interest (if we want to) without having to make arrangements with the bank.

[Eug]

That's an excellent rate. Yes that makes sense. Business one? It's basically impossible to get that rate otherwise.

[E's Lil Theorem]

Whoa! I just read this thread over and what a trip down memory lane that was. Hindsight is 20/20.

Some of the points made in this thread do remind me of this video: YouTube - A Recent History of the US Economy (hopefully it's not too political for the lounge).

[Eug]

Originally Posted by Eug 

I've was relatively comfortable with increasing Canadian real estate prices until around 2003-2005. From 2005 to 2007 was I was starting to get uncomfortable. The mild drop in 2008-2009 was welcome: Not too harsh, but a nice reality check. The price increases again into 2010 are starting to make me squirm a bit again.

Again, here are some relative price indicators, based on repeat single family dwelling resales (with June 2005 being indexed to 100):

Vancouver June 2000: 68.9
Calgary June 2000: 73.7
Toronto June 2000: 73.6
Montreal June 2000: 62.1

Vancouver June 2005: 100
Calgary June 2005: 100
Toronto June 2005: 100
Montreal June 2005: 100

Vancouver June 2007: 136.9
Calgary June 2007: 169.1
Toronto June 2007: 108.4
Montreal June 2007: 114.8

Vancouver June 2008: 150.7
Calgary June 2008: 169.5
Toronto June 2008: 114.8
Montreal June 2008: 121.2

Vancouver Dec. 2008: 141.7
Calgary Dec. 2008: 158.9
Toronto Dec. 2008: 111.7
Montreal Dec. 2008: 121.9

Vancouver June 2009: 134.6
Calgary June 2009: 148.3
Toronto June 2009: 108.5
Montreal June 2009: 124.0

Vancouver Nov. 2009: 147.2
Calgary Nov. 2009: 156.5
Toronto Nov. 2009: 118.2
Montreal Nov. 2009: 126.6

I'm thus most worried about Vancouver and Calgary, although Calgary's price is very dependent upon oil prices, since Calgary is the centre of oil production in Canada. Even though Montreal is comparatively cheap, the price increases there have been faster than Toronto, so Montreal is not immune either. Strangely enough, Toronto is probably in the best shape of all these cities, except their prices were relatively high to begin with.

According to TREB:

Average price in Toronto in February was $431509 (+19% yoy).
Median price in Toronto in February was $366300 (+17% yoy).


According to Teranet:

The housing price index in Toronto for December 2009 is 119.65, if June 2005 is considered 100. Interestingly, this is the lowest increase of all the cities they report (Vancouver, Calgary, Toronto, Ottawa, Montreal, Halifax). National average is 132.15.

A 19.65% increase over 4.5 years averages out to only 4.1% per year.

[Phileas]

This depends entirely on what neighbourhoods you're looking at.

We bought a house in Brockton VIllage in 2006, renovated it and sold it two years later for nearly double what we paid for it. The inner circle around downtown - bordered by High Park in the West, The Beaches to the east, St. Clair to the north - is becoming rapidly unaffordable to anybody who hasn't got at least 1/2 a million to spend - starter condos excepted of course.

If you're looking at the burbs, prices have hardly moved.

[Eug]

Originally Posted by Phileas 

This depends entirely on what neighbourhoods you're looking at.

We bought a house in Brockton VIllage in 2006, renovated it and sold it two years later for nearly double what we paid for it. The inner circle around downtown - bordered by High Park in the West, The Beaches to the east, St. Clair to the north - is becoming rapidly unaffordable to anybody who hasn't got at least 1/2 a million to spend - starter condos excepted of course.

If you're looking at the burbs, prices have hardly moved.

Incorrect.

While prices in the core have jumped more than in the 905, it's not by as much as you might think.

Prices have jumped by 18.4% yoy in the 905.
In the 416, the price jump is 21.0% yoy.

In terms of hard numbers:

905: $340122 --> $402553
416: $392919 --> $475579

Yes, the average price in the 905 is actually over $400000 now.

Granted, the "416" does include some areas, like Scarborough and Etobicoke, which are outside your definition of the core, but nonetheless the numbers illustrate that the 905 is in fact seeing huge gains as well.

BTW, as an aside, I'm glad you mentioned The Beach in this context... cuz I've always said the nicest part of The Beach (or The Beaches, as it were) is Fallingbrook with the streets immediately around it... except that Fallingbrook isn't actually officially in The Beach. It's in Birch Cliff, which is a part of Scarborough, but just about all real Beach estate agents market it as being part of The Beach, probably because it's geographically linked to The Beach, and it's so much more pleasant there than most other places in the The Beach.

[Eug]

24% of US mortgage holders have negative equity

So far the number in Canada is only 1%, but that's because the price pullback hasn't happened here... yet.

[Phileas]

The US and Canadian housing market are very different beasts. You really can't come to conclusions about one by observing the other.

[Eug]

Very true. However, a lot of people in Canada have their blinders on and think that because the US and Canada are different, there won't be a significant pullback in Canada.

I'm not sure either way, but a 20% increase in Canadian cities over two years definitely raises alarm bells, esp. when ratios of gross income required to service those mortgages are at record levels. Furthermore, interest rates are going up. The Bank of Canada has indicated it will send up rates in the 3rd quarter which will push variable rate mortgages higher, and bond yields are starting to go up to which will push fixed rates higher too.

That's part of the reason I'm refinancing my mortgage now, along with the fact that one of the banks has a killer deal: Relatively reasonable rates but with a big 3% cash back lump sum on top to steal mortgages from their competition. I thought about locking in for another 5 years (at 3.99%), but in the end chose to lock in for 3 years (at 3.3%), as the rate difference is 0.7%. Even if 2-year rates jump to 5.5%-ish by 2013, overall I'd come out even because of the savings between 2010-3.

[turtle777]

No, There's No Bubble In Canada Real Estate





More to be found here: http://crackshackormansion.com/

-t

[Eug]

I looked through a few more pix there. Ouch. I do believe that in Canada, Vancouver is at high risk for a significant pullback. Calgary too.

Vancouver has gone up 50% since summer 2005. Calgary has gone up 58% since summer 2005. In contrast, Toronto has gone up 20%. I see Toronto pulling back too, but not as much as Vancouver.

Note though the crack shack is worthless. It's the land that costs $$$$. For example, hypothetically if the crack shack were in Shaughnessey, then you'd expect high pricing, since it's a rich area.

In Toronto, in the nice areas in the core of the city, similar bungalows go for over $700000, and then they get immediately torn down after purchase. 5000-6000 square foot lots in the core of the city are what people in this price class want, and they carry a premium.

So, what are your predictions for pull backs? My predictions:

Toronto: If it's lucky 0-5%. If not so lucky 15-20%.
Vancouver: If it's lucky, 10-15%. If not so lucky 25-30%.

[Phileas]

Originally Posted by Eug 

So, what are your predictions for pull backs? My predictions:

Toronto: If it's lucky 0-5%. If not so lucky 15-20%.
Vancouver: If it's lucky, 10-15%. If not so lucky 25-30%.

I don't know about Vancouver but for Toronto not in a million years.

The single family home market in central Toronto, basically the home everybody wants, is extremely undersupplied. There are more buyers than homes and that situation is not about to change.

The continuing flight from the suburbs for many young families coupled with a rapidly growing population from other sources means that Toronto developers have started building family friendly condos, an unprecedented step.

This has nothing to do with a bubble. This is a city that attracts many tens of thousands of new Torontonians each and every year and they have to live somewhere. If anything, I'd look at home prices in Boston and NYC for comparison.

[turtle777]

Originally Posted by Phileas 

The continuing flight from the suburbs for many young families coupled with a rapidly growing population from other sources means that Toronto developers have started building family friendly condos, an unprecedented step.

This has nothing to do with a bubble. This is a city that attracts many tens of thousands of new Torontonians each and every year and they have to live somewhere. If anything, I'd look at home prices in Boston and NYC for comparison.

I tend to look at it from a different angle:

It really doesn't matter that there is that much demand; there is always infinite demand for any stuff.
The question is: can people afford it. And here is where I see the issues.

All those new Torontians might *want* homes, but their salaries are not rising in accordance with the cost of housing. Therefore, the homes become more and more unaffordable. People commit to homes way over their budget, buy the homes with much leverage and at any point when the economy goes south, they get out of dodge and create a downward spiral like in the US.
It's a folly to believe this can't happen in Canada as well.

-t

[Eug]

Lots of articles in the Canadian press about this in the last week, but this is getting some coverage in the American press too these days.

Originally Posted by Phileas 

I don't know about Vancouver but for Toronto not in a million years.

The single family home market in central Toronto, basically the home everybody wants, is extremely undersupplied. There are more buyers than homes and that situation is not about to change.

Wall Street Journal: GETTING PERSONAL CANADA: Still A Seller's Market, For Now

TORONTO (Dow Jones)--It's still a seller's market in Canada, despite the record surge in residential home listings seen this spring.

Even with an eye-popping 97,663 homes put on the market in March -- a 20% jump over the previous high in March 2008 -- there has been no slowdown in the bidding wars and frenzied buying that have characterized the real-estate market in some parts of the country.

David Papernick, a broker with Re/Max Realty in Toronto, says activity in some popular neighborhoods is "still crazy," with properties selling for as much as C$50,000-C$100,000 over asking. And Colin Byrne, another Re/Max agent in the Toronto suburb of Scarborough, says he's rarely seen it so strong since he began selling houses in 1988.

The spectre of rising interest rates, and the onset of the Harmonized Sales Tax in Ontario and British Columbia in July, which is expected to add significantly to the cost of buying a home, has spurred homebuyers to decide on their dream home sooner, rather than later.

But observers say the trend is slowly moving towards a greater balance of demand and supply, and they widely expect the market to cool off significantly by the end of the year. "Rates are starting to rise, we'll have to see what kind of an impact that has," says Jim Murphy, president of the Canadian Association of Accredited Mortgage Brokers.

The dramatic increase in house prices during 2009 has encouraged more homeowners than ever to put their properties on the market for the key spring buying season.

The number of residential properties listed for sale on the Multiple Listing Service, or MLS, since the start of the year stood at 233,402, the most ever for a first-quarter period, according to the Canadian Real Estate Association.

And there are growing signs that demand, while still strong, just isn't keeping up.

[Phileas]

Originally Posted by turtle777 

All those new Torontians might *want* homes, but their salaries are not rising in accordance with the cost of housing. Therefore, the homes become more and more unaffordable. People commit to homes way over their budget, buy the homes with much leverage and at any point when the economy goes south, they get out of dodge and create a downward spiral like in the US.
It's a folly to believe this can't happen in Canada as well.

-t

If you compare Toronto to cities of similar stature you'll see that the housing market here is significantly lower. There is still a ways to go before it'll max out.

[turtle777]

Originally Posted by Phileas 

If you compare Toronto to cities of similar stature you'll see that the housing market here is significantly lower. There is still a ways to go before it'll max out.

Well, they have certainly never said that about the Florida market (having the Californian market in mind as "cities of similar status").

-t

[Eug]

Average prices of detached homes in Vancouver reached over $1 million last month.

Vancouver's super-hot real estate market has hit an expensive milestone, with the average price of a home reaching $1 million for the first time.

More than 1,300 single detached homes were sold in greater Vancouver last month, for a whopping total of $1.35 billion.

The $1-million average includes high-end homes. But the average price for a single, standard detached home in the city reached $800,341, the Real Estate Board of Greater Vancouver said Tuesday. That's up from $650,000 a year ago.

[Phileas]

Originally Posted by turtle777 

Well, they have certainly never said that about the Florida market (having the Californian market in mind as "cities of similar status").

-t

Please. Apples and Oranges, on a monumental scale.

[Eug]

Yeah, even though I think Toronto may drop, and Vancouver will drop, I don't think they're really comparable to most of Florida or California.

To put it another way, although sub-prime foreclosure rates in Canada have increased over the last few years, it's interesting to see that Canadian sub-prime mortgages have done as well as US prime mortgages in the early 2000s. And in the last few years, Canadian sub-prime mortgages have done way better than US prime mortgages, despite the increases in prices. And then Canadian prime mortgages are in a completely different league, while US sub-prime mortgages have done shockingly bad.



Part of the reason is the fundamentally different approach to mortgages. For one thing, Canadian mortgages are actually usually held by the lenders themselves and not securitized, with terms that max out at 5 years. (7 and 10 year terms exist, but nobody gets them.) For this reason there is incentive for the lenders to actually do their due diligence for mortgages. Furthermore, the sub-prime market in Canada is much, much smaller. I think it's something like a few percent of mortgages in Canada, where it was more like a quarter of all mortgages in the US.

So, while real estate crashes can most definitely occur in Canada (esp. in Vancouver), one cannot assume that the US example is a good one as a model for the Canadian market.

In the meantime, as of now, all Canadian high-ratio mortgages must be qualified at higher rates. A high-ratio mortgage is anything less than 20% downpayment. So, if you want to say put down only 10%, not only do you have to get it insured, you also have to qualify at higher rate than you'd be paying, to add some cushion. For example, right now variable rate mortages are available at prime minus 0.6%, for an effective rate of 1.65%. However, to get the mortgage, you actually have to qualify at the posted 5-year fixed rate, which is 6.1%. (That's higher than the real discounted 5-year fixed rate of say 4.5% that everyone with good credit can get.) That added requirement acts as a cushion. Even if variable rates increase, their assessed finances will be able to handle it. What's interesting is that the big banks (which control most of the market in Canada - oligopoly) have also been requiring clients to qualify at those higher rates even if they have more than 20% as a downpayment. Like I said, they hold these loans themselves, so they want the loans to be safe.

[turtle777]

Originally Posted by Phileas 

Please. Apples and Oranges, on a monumental scale.

Sure, if you say so. You must be right, since you are completely unbiased.

Good luck with your "investment" in Toronto.

-t

[Phileas]

Originally Posted by turtle777 

Sure, if you say so. You must be right, since you are completely unbiased.

Good luck with your "investment" in Toronto.

-t

You've already admitted in the past that you know next to nothing about the Canadian mortgage market, nor are you familiar with the Toronto real estate market. So please excuse me if I am taking your opinions with a huge grain of salt.

[turtle777]

Originally Posted by Phileas 

You've already admitted in the past that you know next to nothing about the Canadian mortgage market, nor are you familiar with the Toronto real estate market. So please excuse me if I am taking your opinions with a huge grain of salt.

Yes, but I know something about sound economics. The math is not working in favor of those real estate markets.

-t

[Eug]

Originally Posted by Phileas 

The single family home market in central Toronto, basically the home everybody wants, is extremely undersupplied. There are more buyers than homes and that situation is not about to change.

Greater Toronto REALTORS® report Mid-April Resale Market Figures

“The fact that annual growth in new listings outstripped growth in sales suggests that the GTA existing home market is becoming better supplied,” said Toronto Real Estate Board President Tom Lebour.

Note that the mid April average was $430271, up 12% from last year, but it's actually down slightly from last month's $434696.

BTW, the average cost of a detached home in the GTA is now about $532000 (or about $674000 in the Toronto 416 core). That means the average price for a detached house in Greater Vancouver is almost twice that of Greater Toronto.

The Globe and Mail (Canada's national newspaper, for those of you who don't know) has now published an editorial warning about the increases in Canadian household debt. The gist of it is that while current finances in Canada in general are OK, they may not be in the near future if borrowing trends continue, esp. in areas such as Vancouver where the proportion of disposable income used to service mortgages and housing expenses is now sky high (68%).

And after yesterday's editorial, there is today's article, Diffusing the debt bomb.

While many economies around the world are staggering under huge public and private debt burdens, Canadians are likely feeling sanguine. Our governments' net debt burdens remain well below international norms, and we have not experienced anything like the housing meltdown in the United States, which has put more than one-third of that country's mortgages “under water” – a scenario in which the amount owed exceeds the market value of a home.

Still, rapidly rising household debt amounts to a “Canadian debt bomb” that has been ticking more loudly. Canadians will have to slow their debt accumulation or it will explode. Moreover, many Canadians will need to save more to achieve their desired standard of living in retirement.

Now, I've talked a lot about Vancouver, as I think the situation out there right now is totally out of whack. However, a lot of things about Toronto's real estate market do concern me too.

Albeit admittedly biased, CanadaBubble.com does show some interesting... and sobering... numbers. For Toronto it should be noted the real inflation adjusted pricing of homes in 2009 was the highest on record, and even higher than the peak of the 80/90s. And, it's even higher now in 2010.

Note the interactive graphs are Flash-based, so they won't work on the iPhone or iPad.

[Eug]

Today, the new rules for qualification for mortgages takes effect in Canada.

As of today, borrowers taking advantage of 1-4 year fixed rates or variable rates, must qualify for the mortgage at the posted 5-year fixed rate. The posted rate is way higher than the actual fixed rates, and even more of a difference from the variable rate.

New Mortgage Rules Start Today

QUALIFICATION RATE

The biggest rule change affects borrowers who put down less than 20% and want a variable or 1- to 4-year fixed term.

Yesterday you might have qualified for a high-ratio $250,000 variable-rate mortgage with a 3.84% qualifying rate (give or take).

Today, lenders will demand you qualify with a 5.85% rate (soon to be 6.10% on Wednesday).

That means your income needs to be roughly 25% higher today than it did yesterday to be approved for the same variable or 1- to 4-year fixed mortgage!

From what we can tell, most of the big banks are applying the new posted qualifying rate to all variable and 1- to 4-year fixed terms, regardless of LTV! Many smaller lender’s are only using it on high-ratio mortgages. That’s a distinct advantage for them, as we mentioned Friday.

By the way, if you’re interested in a 5- to 10-year mortgage, nothing changes. The qualification rate will still be based on the rate you’re quoted.

[turtle777]

Very good. Let me predict that the growth in house prices will slow down now.

-t

[Eug]

Craziness still entrenched in New York.

$60 million* Manhattan apartment

* $59.95 million CAD

[Eug]

http://www.nytimes.com/reuters/2010/..._r=1&src=busln

(Reuters) - Fannie Mae reported a net loss $13.1 billion on Monday and forecast weakness in the housing and mortgage markets to continue throughout 2010.

Fannie Mae expects the level of multifamily defaults and serious delinquencies to increase further during 2010. The company also said there is uncertainty regarding future of business after conservatorship terminated and expect this uncertainty to continue.

---

BMO sues over massive mortgage fraud

Bank of Montreal is suing a group of lawyers, brokers and a handful of its own employees in what is reportedly one of the biggest mortgage frauds in Canadian history, CBC News is reporting.

According to a story on the CBC website, Canada's fourth biggest bank was hit by losses of as much as $30-million as the result of a complex scam that took place in Western Canada and involved perpetrators securing mortgages worth significantly more than the homes they were used to buy.

The alleged masterminds reportedly pocketed the difference, transferring much of the money overseas.

[turtle777]

Looks like the Canadian Housing Market is in for a softer landing than in the US.

http://www.zerohedge.com/sites/defau...%20Musings.pdf

-t

[olePigeon]

My pre-approval just went through for my FHA loan. Interest on a 30-year fixed is blow 4% now. Waiting for response from lender. My friend's parents are real estate agents, and my other friend's sister is a direct lender.

Homes that were $700k to $800 here in the Bay Area are only $350k to $450k. They're unbelievably cheap now. I'm crazy excited, I'll get to own a house in my home town. Never thought that'd ever happen.

It's weird. Never thought a sh*tty economy would be the best thing that happened to me.

[ghporter]

Somehow "$350k to $450k" doesn't sound particularly cheap to me. Maybe if we knew about details like floor space and such, that might make sense. But half of "incredibly, ridiculously high prices" is still incredibly, ridiculously high.

[olePigeon]

Originally Posted by ghporter 

Somehow "$350k to $450k" doesn't sound particularly cheap to me. Maybe if we knew about details like floor space and such, that might make sense. But half of "incredibly, ridiculously high prices" is still incredibly, ridiculously high.

It's the Bay Area, California. Trust me, that's cheap. I work in Los Altos, and median price home for this area is about to $1.36 million.