|
|
|
Baby, we got a bubble!?
- Thread starter simuls
- Start date
Eug
Senior Member
Lots and lots and lots of Canadian mortgage numbers here:
http://www.canadianmortgagetrends.c...12/06/caamps-spring-mortgage-report-2012.html
One tidbit: 40% of mortgages from 2011 had amortizations greater than 25 years.
http://www.canadianmortgagetrends.c...12/06/caamps-spring-mortgage-report-2012.html
One tidbit: 40% of mortgages from 2011 had amortizations greater than 25 years.
interested
Senior Member
"Homeowners with less than 10% equity: 5%
(Among homeowners with mortgages, the number is 9%. This can change quickly, of course, depending on home price movements.)"
This is the most worrisome stat I though. 5% of the market has less than 10% equity. A greater than 10% adjustment happened briefly in Toronto in 2008-2009 though it recovered. Now there are worrisome signs again...stock market, Europe, US job data, China slowdown etc. If we repeat and this time Canadians are less well prepared to weather the storm, a 10% drop would not be a large drop by most of our standards. However, if it lasted a while, we assume an average 5 year mortgage term, approximately 1% of the entire market/year would come up/year assuming the 5 year mortgages matured equally. I think this could be handled.
However, when combining this with the following statement from the article:
"Among mortgage holders who purchased their homes recently (2007 to the present), if it had it been mandatory to put 10% down to secure a mortgage:
40% said they would have been able to make their purchase
45% stated they would be unable to make the purchase
14% were unsure".
Assuming the same holds in 2012, in the above scenario, since at least 1/2 could not purchase now of would be buyers assuming this still holds, the numbers get a little more concerning. If it were to drag on for a few years, I think we could enter a downward spiral.
cdr108
Senior Member
homeowners with mortgages with less than 10% equity: 9%. that's very scary to me.
for those buyers who weren't able to come up with 10%, they should never have purchased in the first place.
property ownership is a privilege, not a right.
if anything, IMO those buyers just contributed to the over-inflating of prices, and they will be the marginalized ones that first begin to fail and bring about the decline of valuations.
interested
Senior Member
^^^
Absolutely agree cdr.
The concern is if there is a 10% drop, how many "loose" their homes at refinancing time and does it start the unenviable snowball rolling down the hill getting larger and larger and faster and faster as it goes down.
Absolutely agree cdr.
The concern is if there is a 10% drop, how many "loose" their homes at refinancing time and does it start the unenviable snowball rolling down the hill getting larger and larger and faster and faster as it goes down.
James
Senior Member
Thanks for the link. Very interesting statistics indeed.
One of the numerous items that caught my eye:
I've mentioned it before that I would support minimum 25% down payments. Instead, we are promoting 5% down payments as a means to "increase jobs, increase house prices, increase consumer spending and keep rent low." All of these are significant factors contributing to the "bubbly" market we see today.
interested
Senior Member
James, previously I would have agreed with you but I believe this is being spoken by those of us already in the market who have equity positions. The last 10 years prices have more or less doubled. Salaries are up 20%. That means that a 25 % down payment 10 years ago is a 45% down payment from 10 years ago. This is simply too much of a hardship on new entrants in the market.
That said, I concur that 5% is way too low. I think 10% with properly vetted candidates...those with good jobs, reasonably secure may be reasonable with CMHC insurance. Banks resuming responsibility for their loan book instead of securitizing them so they act responsibly would also be a must. Otherwise, I think the 20% for a conventional mortgage is reasonable.
One final note, the shinanigans where the mortgage is 95% and you get 5% back which can be used as your downpayment and the like must stop entirely and the penalties for such actions should be severe.
Then I think we build a reasonably safe mortgage market while allowing new entrants still the possibility to eventually participate at least in major cities. It is clearly a lesser problem in smaller cities and towns.
James
Senior Member
You have good reasons and I can accept that rationale. I don't deny that 25% will put home ownership beyond many people but what is the true consequence of that? One of the key points mentioned in the article Eug linked was:
83% of Canadians have at least 25% equity in their home. The average amount of equity is estimated at $214,000.
My initial thought upon reading that line item was that $214,000 equity does not seem like much at all, however, that would allow one to sell their house and turn it into a 25% down payment for a $750,000 home. Now keep in mind these are Canadian average figures and not indicative of the Toronto market. I don't think a 25% minimum down payment would be too detrimental in smaller Canadian cities but because Toronto prices have escalated in such a short and sharp manner the 25% down payment would certainly be more difficult for more individuals. That said, a minimum 25% down requirement would've eradicated the crazy condo market and the associated presence of those speculator/investors in the first place.
cdr108
Senior Member
but isn't that 'the chicken and the egg' argument?
are prices high because of ease of entry (+ cheap credit); or must we provide easier entry because prices are high?
i'm of the former camp ... cheap credit, ease of entry with 0-5% down payment with CMHC insurance, cash-back mortgages, up to 40 year amortizations, buy now or be priced out forever propoganda, etc all fueled this bubbly market
interested
Senior Member
cdr: you are of course correct but the reality is one has to be pragmatic, at least in major cities.
If we went to 25% down payment in Toronto overnight, I am quite certain that that will kill the market with a rapid jolt to the system and all the negative consequences that we fear.
If you want to pop the balloon with devasting effects, one raises to 25% immediately downpayments.
If you want to deflate it, you gently increase the down payment...say to 10% but ensure those individuals are well capitalized.
You incorporate all the suggestions I made in my post.
I fear if we did the immediate 25% down payment, we would be waging effective war on all our young people making it impossible for them to buy, devastating the R/E market, talking about TO anyhow, and wiping out much of the equity people have. I am sure you would agree we do not wish an adjustment starting to challenge the magnitude of that which occurred in the US and other locations.
I do believe as well that we should probably qualify people for 5 year mortgages based on historic interest rates, not the present ones. So I would like to ensure people could afford a say 7% 5 year mortgage rate and eliminate any longer amortization than 25 years and ensure the banks act responsibly.
Last edited:
cdr108
Senior Member
sorry for the confusion.
i didn't mean that 25% down payment should be implemented overnight.
i meant if the gov't, BofC and CMHC didn't interfere with the terms that had worked for several decades, our r/e markets wouldn't be as bubbly as they are now.
over the past 15+ years since the mid-1990's all the following - cheap credit, ease of entry with 0-5% down payment with CMHC insurance, cash-back mortgages, up to 40 year amortizations, have contributed to the rebound and now frothiness of the r/e market.
now instead of helping ppl enter the market, it's priced them out by loosening the initial policies/standards.
as you said, if we gradually return to shorter amortizations, higher down payments, etc it will be better in the longterm for all.
there may be some collateral damage on the way, but less than the boom/bust cycles that we've experienced.
James
Senior Member
Agreed on the points above. While I support a 25% minimum down payment requirement, I don't believe it would be feasible to implement it instantaneously. That said, my concern for a phasing in of increasing minimum down payments is that it would likely create a short-term surge of buyers, trying to beat the deadlines. Long-term I truly do believe it will level off both house prices and the rental market.
interested
Senior Member
I thought of that too. However, it is in reality a practical matter. Yes, there might be a short term surge of buyers. But if they had to qualify on reasonable terms, that should not put the market at risk. If they can't, and are only buying to "beat the deadline", then we save them from themselves if the market goes South, and they lose out if the market goes North. However, I think most of us believe at least in TO that the market does not have much higher to go and more likely will flat line soon or start dropping.
I guess this would be some of the collateral damage that cdr referred to. That said, policy makers should be doing what is in the interest of the country and the majority, not for a few people who might be trying to game the system as it were.
marsh
Active Member
Lead article in the latest edition of Toronto Life is the Toronto condo market and shoddy development. It lists a number of high profile "new" condos that are in lawsuits with the developers. Unfortunately can't find an online version to post.
interested
Senior Member
Marsh, I and I am sure others would be curious to get some details. Could you maybe scan the article in your computer and post it.
Alternatively, can you at least mention which "new" condos were mentioned and perhaps provide some of the details.
Thank you.