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Baby, we got a bubble!?

EXgeMMy said:
found it on globe advisor

http://www.globeadvisor.com/servlet/ArticleNews/story/gam/20100211/RCARRICK11ART1902
Click to expand...

It's indeed the BORROWERS~!! Coz they are smart

You know what, I would go for the 5% down + 35 years too even though I have the cash...with such low interest rate who would not want to free up some cash and wait for the "bubble burst" to scoop some deals?

The question is not how many people went for low + long...the question is what these people can really afford?

When interest rate goes up to 6,7%...those 5% down + 35 yrs people will shrink their other investment and rush for lump sum payments.
 
EXgeMMy said:
Well it's quite obvious the emergency interest rates is what pushed buyers back into the market. We're actually more in a V shape right. the low being early of 2009 and the high being right now. A V shape recovery in any business tends not to be healthy.

As others have stated. 19% increase in 1 year, yet salaraies have remained flat and unemployment has gone up, that's what worries me.
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The fact that salaries have remained flat and unemployment has gone up leads me to question anyone who thinks that there'll be a huge spike in interest rates anytime soon.
Maybe 2 or 3 years down the road, once all this economic mess has passed us by, but right now I can't see interest rates rising much more than a 100 basis points in the next 12 months.

The government will likely pass new mortgage insurance eligibility rules, like being able to pass a 5% interest rate threshhold.

I'm curious, would this same mortgage eligibility requirement be applied to those who put 20% down, and therefore don't require CMHC insurance?
 
I like this idea. Banks have already been doing this to a certain extent apparently, but standardization alone might just be enough.

Ottawa weighs stricter mortgage rules

Mr. Flaherty and officials within the Finance Department and Canada Mortgage and Housing Corp. have been meeting with various players in the mortgage industry to consider options.

But Ottawa does not believe that there is a housing bubble at the moment and, having done some analysis to determine the impact that higher down payments and shorter amortizations would have, the Finance Minister believes that such moves would take too much heat out of the market and damage the economic recovery, according to sources.

Other options that have been suggested include measures that would apply only to people with bad credit scores, or to people who are buying investment properties that they don't intend to live in. But some banks argue that such rules would be difficult to enforce.

Instead, the idea now gaining traction is creating new rules that would govern how the banks evaluate mortgage borrowers. For example, Ottawa could say that – in order to qualify for federally backed mortgage insurance, which most new mortgages require – a borrower seeking a three-year variable-rate mortgage must be evaluated as if they are applying for a five-year fixed-rate mortgage.

If the three-year variable rate is 3 per cent and the five-year fixed rate is 5.5 per cent, such a rule would help ensure that the customer could lock in their rate and still afford their monthly payments when the Bank of Canada pulls the trigger on interest rate increases.

While some banks are already doing this behind the scenes, there is no standardization. Each bank has its own underwriting criteria and some are tougher than others. For instance, some banks ensure that their customers can afford their monthly mortgage payments if they were 100 basis points or 200 basis points higher. What Ottawa is considering doing is imposing standard minimum rules that banks would use to determine whether customers can service their mortgage debt. It's not clear how stringent the rules would be, or whether they would only apply to variable-rate mortgages. This would be a much easier move, politically, for Ottawa than increasing down payments – an idea prospective buyers are more likely to react negatively to.
 
Only the facts. The Chinese are tightening up their lending rates as I type. Western banks/federal reserve/BoC can't quite do that yet because the fraud is still fresh in the borrowers minds to tighten lending up yet over here. Squeezing the consumer now would cause a revolt and the greed that knows no bounds, the powerful, know this. It should be interesting to see the lenders being regulated back to the 10% down with insured mortgages and, 25 year amortizing.....prior to 2006, prior to the "sharp" right turn here in Canada.
 
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I heard David Dodge on the radio this am. His comments indicated that the Big 6 are essentially petrified that increased borrowing costs will divert all discretionary spending towards higher mortgage payments and cause big problems for other credit products that they offer- credit cards, personal loans, car loans etc. The indy mortgage brokers without these lines of business are less concerned obviously because they are just in and out to CMHC's books.

It's all but an direct acknowledgment by the biggest lenders in the country that the housing market is over-extended and headed nowhere but down. How far down and how fast remains to be seen.
 
CN Tower said:
I heard David Dodge on the radio this am. His comments indicated that the Big 6 are essentially petrified that increased borrowing costs will divert all discretionary spending towards higher mortgage payments and cause big problems for other credit products that they offer- credit cards, personal loans, car loans etc. The indy mortgage brokers without these lines of business are less concerned obviously because they are just in and out to CMHC's books.

It's all but an direct acknowledgment by the biggest lenders in the country that the housing market is over-extended and headed nowhere but down. How far down and how fast remains to be seen.
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I agree with David Dodge. The only ones who do not want to acknowledge this are the mortgage brokers, real estate agents, and people desperately trying to hold on to the ability to purchase with 5% down and 35 year mortgages. That said, I suspect Mr. Flaherty will pass rules (which the banks are already doing themselves: I was told by 1 banker that people asking for 3 year variable mortgages are being qualified only if they meet the 3 year fixed rate to allow for rate increases). I expect in the budget he will formalize the rules to include prequalification at 5 year fixed rates. He can that way save those "who are determined to shoot themselves in the foot with minimum payments and no ability to accommodate shock, and still not be seen to bringing the market to a halt. He might also decrease amortization to 30 years. I think he will leave the 5% down to allow those who do qualify to be first home buyers but with tighter rules.
In addition, Jarislowsky, one of Canada's best investors and richest men today is also quoted as saying there is a bubble or at least that Canadian prices are too high. Will there be a big pop? I don't know but I am hoping for a slow slight fizzle (10-15% from peak with stability or even better, just minimal decrease/flat for a few years to allow prices to catch up to eventual inflation over time.
 
azureray said:
Unless you purchase compulsory mortgage insurance.

CMHC mortgage insurance chart here:

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

For a 5% down, 35 years amortization , you need to pay:

2.75% + 0.40% = 3.15% premium.

If a standard 5 yr mortgage is at 4% fixed rate...then to get 5% down, 35 years amortization, your actually mortgage will cost you 7.15%.
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Not so. The 3.15% is a one time lump sum $ amount that is added to the mortgage principle borrowed. It doesn't change your mortgage rate.
 
Another bigshot Canadian real estate dude thinks we're in a bubble:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=az32TIe7q_NM

"

By Greg Quinn

Feb. 12 (Bloomberg) -- Stephen Jarislowsky, chairman of Montreal-based investment adviser Jarislowsky Fraser Ltd., said he is “convinced” there’s a bubble in Canada’s housing market, fueled by government measures that encouraged consumers to take on debt.

“They have basically encouraged people to buy houses based on cheap mortgages,” Jarislowsky, 84, said in a telephone interview from Montreal. “That has created the opposite effect of what was desirable.” "

Mind you, he is 84--is he hip to the bubble or just an old pop? :p

Why I think we're in a bubble? Number 1 Bloor has just relaunched.:D
 
Eug, I also would like to know what percentage of the current market is represented by first-time buyers. I guess it also depends on what property type we are referring to. For some homes and condos first-time buyers would be expected to dominate the market, while for others they would not have as big an impact. However, first-time buyers are probably the most important segment. If prices come off high-end homes the impact is largely contained within this sector. However, when the first-time buyer market evaporates it has a cascade effect because move-up buyers and those higher up the food chain start to get starved of capital.

The language being used by lenders and the central bank seem to indicate that people are not taking "innovative" lending products because it is easy money on the table. They are using them because they have no other choice if they want to buy. Here in the Toronto re-sale family home market at least, it is a war of attrition where the buyer willing to sacrifice the most and take on the most risk gets her pyrrhic prize. Personally I now own about 45% of my home 3 years into my mortgage and pay less than 2% interest. I am totally comfortable and prepared with the prospect of interest rates rising and housing prices declining, however, I do not wish this scenerio on my friends and family who are certain to be caught struggling if that is how conditions unfold. Although financial matters are still taboo in 2010 as sex was is 1910, I am quite certain that almost all my peers required <10% down 30+ year amortization mortgages to buy and that they probably needed help from their parents to even come up with the 5-10%. These are educated people, some professionals from middle-class and upper middle-class families.
 
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As everyone on here knows, I've gone from being "pro-condo" for several years to "we're in a bubble that'll pop starting in the 2nd half of 2010" for a thousand reasons, so, although this is completely anecdotal evidence and perhaps means little, I have noticed that the impossible to find for the past 6 months Condo Guide is now sitting in all racks I've seen, even at the end of its 2 week run. Could something as small as reader interest in new condo magazines be an indicator of buyers already backing off?
 
simuls said:
As everyone on here knows, I've gone from being "pro-condo" for several years to "we're in a bubble that'll pop starting in the 2nd half of 2010" for a thousand reasons, so, although this is completely anecdotal evidence and perhaps means little, I have noticed that the impossible to find for the past 6 months Condo Guide is now sitting in all racks I've seen, even at the end of its 2 week run. Could something as small as reader interest in new condo magazines be an indicator of buyers already backing off?
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Or perhaps the publisher has increased the print run?

Personally, I feel that the real estate market has, at minimum, gotten ahead of itself. Whether a true bubble, with the attendant retrenchment, or in the best case, a slowdown, with stabilization or a mild drop in prices, remains to be seen.

AHK
 
I was wondering about that as well, but there's only so much room in each box - unless they're restocking it regularly - which is, of course, completely possible. Although it would be odd that in the middle of winter - a typically slow real estate season, they would increase their run.
 
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