Baby, we got a bubble!?

[cdr108]

taken from the comments section of the above article ... i've posted similar, but they've done it quite concisely:

=========

It has always been the ability to access more credit that has allowed house prices to grow like they have. And how have Canadians been able to access more credit? The good friends at CMHC, of course.

1954- CMHC introduced Mortgage Loan Insurance, taking on mortgage risks with a 25% down payment, making home ownership more accessible to Canadians.
1954-1990- Somewhere along this time, 10% became minimum down payment.
1990- 5% was introduced as a trial run, then officially accepted in 1999.
2001 – Genworth (GE Capital) enters the Canadian mortgage insurance market
2001 – CIBC offered below-prime mortgages.
Pre-2003 – CMHC: 5% down with price limit depending on area, 25 yr amortizations, no price limit if 10% or more down
Sep 2003 – CMHC: 5% down, 25 yr amortizations, removed all price ceiling limitations. Now any mortgage would be insured regardless of the cost.
Mar 2004 – CMHC: Flex-Down product allows 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured)
Mar 2006 – AIG enters the Canadian mortgage insurance market
Mar 2006 – CMHC: 0% down, 30 yr amortizations (Genworth announces 35 yr amortizations)
Jun 2006 – CMHC: 0% down, 35 yr amortizations, interest only payments allowed for 10 years
Nov 2006 – CMHC: 0% down, 40 yr amortizations, interest only payments allowed for 10 years
Oct 2008 – CMHC: 5% down, 35 yr amortizations, investors need 20% down.
April 2010- CMHC did some minor tightening of their guidelines.
Mar 2011- CMHC: 5% down, 30 yr amortizations

Mortgage credit growth averaged 9% from 2002 to 2009 whiles wages barely moved.

 

[interested]

Very concise and clear summary cdr.

I always laugh that Flaherty takes credit for the fact that Canada did not have a mortgage meltdown like in the US> The saving grace was that CMHC was encouraged to get business even if that meant 0% down and no principal repayment. The only saving grace for Canada was that the US imploded and the Finance minister clued into what would happen here. So we have issues but fortunately no where near as much as the US and for no where near as long. The other savings grace is that prices have increased significantly from 2006 to 2008 so those who have these mortgages now have enough equity that even if they can't manage the refinance, they have equity with which to sell what they have at a profit and buy something more within their means if there is a turn around.

However, this was the result of blind luck rather than brilliant "finance" on the part of the Harper government.

 

[redfirm]

I dont think rates are headed higher, I think we are going lower.

I think listings are down because of demand driven by end user, not investor and may not be happening in the core, I maybe wrong but track new listings in C01 everyday.

Most investors buy core, not burbs unless reno and flip. May numbers may be fueled by end user thats all I am saying.

Every major bank / economist is predicting interest rates going up later on this year and in the first half of next year. Most agree we are looking into series of 0.25 increases. BoC is giving signals ... Not sure why you think rates will go down (unless you're referring to recent change in some fixed rate mortgages after US employment #s came out)? Over the next 12 months it is almost given that BoC will start increasing rates.

Also, "end user driven" comment: our home ownership % is at record high (above 70%). That would be quite interesting to me if it is true that this % is getting even higher ... not sure what to think, but generally, I believe we, as a society, can't go much higher than 70%, given our average household income at $72K and average price of r/e at more than $400K.

I guess it will be interesting to review home ownership % later this year ...

 

[KA1]

http://www.theglobeandmail.com/repo...ed-for-housing-correction-bmo/article2050160/

Link to this article in The Globe and Mail should ring music in the ears of perinnial 'Bears'.

 

[Eug]

Eug,

I will be very curious as to what you think of Tip Top.

We had some friends who looked at it about a few years ago and were really not impressed. They were "older" as in downsizing in their 60's but they were very unimpressed. They actually picked up a place in Queen's Quay. There, the condo fees are close to a $1 which is really hefty. On the other hand, you are paying under 1 million for close to 2000 sq.ft. so about $500/sq.ft. They paid less because they bought in 2008 and got a West face. I believe there are 61 units; 2 at the desk most time, they get valet parking; they have shopping indoors and a beautiful view. So their condo fees are an additional $800/month to the comparable new, but that said, they have exclusivity, and their taxes are probably about $6000/year or $500/month less and they they don't tie up another $500K for new.

She bought the place at Tip Top, for ~$575 per square foot, southwest facing. Stainless steel appliances, granite countertops, gas fireplace, hardwood floors, 2 storey tall windows with motorized blinds, and a natural gas line on the balcony for a BBQ. Condo fees < $0.60 per square foot (including parking, which I didn't include in the square footage).

Tip Top isn't a super high end building by any means, but my personal opinion is that it's an entry level luxury building.

 

[CN Tower]

Drop in Toronto Median Price

http://tinyurl.com/4542r8s

This is the first drop in Toronto Median Price from April to May since 2006. Yet it goes unreported.

Cracks in the foundation emerge guys.

 

[Eug]

Meh. Median price drops are quite common in the summer.

Personally, I think April is more of an anomaly than May.

 

[interested]

She bought the place at Tip Top, for ~$575 per square foot, southwest facing. Stainless steel appliances, granite countertops, gas fireplace, hardwood floors, 2 storey tall windows with motorized blinds, and a natural gas line on the balcony for a BBQ. Condo fees < $0.60 per square foot (including parking, which I didn't include in the square footage).

Tip Top isn't a super high end building by any means, but my personal opinion is that it's an entry level luxury building.

Thanks Eug for the info. It definately sounds like a more than average and hence I would agree with "entry level luxury" or upscale building. It is probably one of the best lofts in the city from view and history of building.
Congratulations on your sister's purchase.

 

[interested]

http://tinyurl.com/4542r8s

This is the first drop in Toronto Median Price from April to May since 2006. Yet it goes unreported.

Cracks in the foundation emerge guys.

I would agree with Eug: 1 month does not make a trend. It may prove so but I would wait a few months to see how it continues. Note May to June often is flat or drops so the fact that it occurred potentially 1 month early is hardly cause for concern. If it continues down, in hindsite you will have correctly pointed to the crack in the foundation but I think it is too early to draw this conclusion.

 

[redfirm]

http://www.theglobeandmail.com/repo...ed-for-housing-correction-bmo/article2050160/

Link to this article in The Globe and Mail should ring music in the ears of perinnial 'Bears'.

Hey KA1, link for another bearish article from you? Did you change sides? Or just can't find anything bullish lately?

 

[Eug]

Thanks Eug for the info. It definately sounds like a more than average and hence I would agree with "entry level luxury" or upscale building. It is probably one of the best lofts in the city from view and history of building.
Congratulations on your sister's purchase.

Thanks. She's pretty psyched. I originally had guessed she'd get the place for a higher price than she did. However, after some back-and-forth contract offers, she picked a number and was prepared to walk away if the sellers didn't accept. She ended up getting the place for almost 9% under asking. I thought (based on nothing more than just my gut... and an arbitrary $600 per square foot selling price) that the asking price was about 5% too high, so 9% under asking ($576 per square foot) is quite a decent deal, esp. in a spring sellers' market.

 

[KA1]

Hey KA1, link for another bearish article from you? Did you change sides? Or just can't find anything bullish lately?

No. I did not change sides. It is just that I wanted to give 'doom and gloom' sayers some company. I still believe, as said in the 2nd last para of the article, that prices will stablise in T.O. or go down slightly for a short while only -- not go down by 25% as you have said in the past. As I said before, I hope to be around in 18 months to thumb your nose and tell you that you were wrong.

There is a big difference between a seasoned bean counter and a green one.

Proof is in the brisk sale of condos in 'Pace'.

 

[Eug]

Fixed rates have dropped several times this month, including again today This should provide some continued strength to this RE sales rally, at least temporarily. People have gotten mortgages in the 3.5% range for a 5-year fixed, with decent payment options (not no frills).

Considering people can lock into low rates for 3-4 months, this will at least cover the summer and probably the fall too since fixed rates will only increase gradually, if they increase at all in the next few months.

It could even be 2012 before prices really begin their drop, assuming that happens... and if that happens in 2012, it will have been 5 years since I bought my house... in a so-called overpriced market. How time flies.

You can actually get a no frills 4-year fixed mortgage now for 3.2%. Wow.

P.S. With regards to mortgage arrears, they follow unemployment numbers, and are aren't so well correlated with interest rates:

Sure, if rates went up 4% that'd lead to a lot of arrears, but if rates went up say 2% but the job market is strong, mortgage arrears would still likely remain reasonably low.

 

[rbt]

http://tinyurl.com/4542r8s

This is the first drop in Toronto Median Price from April to May since 2006. Yet it goes unreported.

After the strongest gain from March to April ever (if you believe that chart). Take April 2011 out of the chart and it looks pretty standard to me.

 

[redfirm]

No. I did not change sides. It is just that I wanted to give 'doom and gloom' sayers some company. I still believe, as said in the 2nd last para of the article, that prices will stablise in T.O. or go down slightly for a short while only -- not go down by 25% as you have said in the past. As I said before, I hope to be around in 18 months to thumb your nose and tell you that you were wrong.

There is a big difference between a seasoned bean counter and a green one.

Proof is in the brisk sale of condos in 'Pace'.

Relax, take a deep breath (sounds familiar, hahaha?) ... I was just joking ... 18 months it is ....