Baby, we got a bubble!?

[interested]

I would think this would affect speculators as opposed to investors. If you are buying more than 5 properties and getting CMHC insurance, I don't view that as investing. I view that as speculating based on prices ever increasing rather than "investing" unless you are planning on investing for the long term and being a landlord. However, I don't believe that was Flaherty's major concern..i.e., those who could hold on to 5 properties. I think he was worried about those who could not close in a downturn buying multiple units that they could not possibly close on if need be.

The question is how much of the total market would be these "investors" vs. how much are investors buying 1 or 2 units to rent out. I am not sure that this affects the high end more than the low end. Investors tend to buy the cheapest smaller units as these are most rentable and also provide the most capital appreciation since less money is put up and can go up more.

 

[Riverdale Rink Rat]

I'm not seriously looking at buying at the moment even if buying anything made any sense right now; however, I wanted to get some reaction or clarification on some of the new mortgage rules I've been hearing about that greatly influence the investor side. I don't, nor have any intention of, investing in condos but it would seem to me that these rules will have a substantial impact on this investor class that you guys primarily discuss. Some examples include:

-Maximum of 5 residential mortgages held per person regardless of financial position
-Maximum 2 million dollars in residental mortgages held per person regardless of financial position or price of property
-$250,000 refinance cap on residential proeprty or up to 65% of property worth if property is less than $384,000 regardless of equity position in property or personal financial position

etc.

These rules would also seem to particularly impact the high end of the market. If I'm mis-informed regarding the new rules let me know. The rules are government imposed on bank lenders. However, I think you can still circumvent these and other rules using credit unions or private money.

Could you provide more info on these new rules, or a link? Are they coming from OFSI?

 

[redfirm]

I'm not seriously looking at buying at the moment even if buying anything made any sense right now; however, I wanted to get some reaction or clarification on some of the new mortgage rules I've been hearing about that greatly influence the investor side. I don't, nor have any intention of, investing in condos but it would seem to me that these rules will have a substantial impact on this investor class that you guys primarily discuss. Some examples include:

-Maximum of 5 residential mortgages held per person regardless of financial position
-Maximum 2 million dollars in residental mortgages held per person regardless of financial position or price of property
-$250,000 refinance cap on residential proeprty or up to 65% of property worth if property is less than $384,000 regardless of equity position in property or personal financial position

etc.

These rules would also seem to particularly impact the high end of the market. If I'm mis-informed regarding the new rules let me know. The rules are government imposed on bank lenders. However, I think you can still circumvent these and other rules using credit unions or private money.

I've heard about some of these as well. Grapevine, no source. How they define "person" is crucial here. Individuals only? Corporations?

ISYM, if you read this: can you please answer my question from my previous post please (CHMC re-insured?)

 

[marsh]

here is a link to cmch website that provides some info on cmch insurance requirements: http://www.schl.ca/en/co/moloin/moloin_003.cfm

i

 

[Riverdale Rink Rat]

I've heard about some of these as well. Grapevine, no source. How they define "person" is crucial here. Individuals only? Corporations?

ISYM, if you read this: can you please answer my question from my previous post please (CHMC re-insured?)

Gentlemen: I don't need you to finger an individual, but 'the grapevine' is not helpful. Did you hear it from a drunk at the end of the bar, or a real estate agent, or a mortgage broker? IMHO, this is an almost unbelievably complex restriction to put into place except as a guide when a new mortgage application is being processed. So -- is it a government edict? One of the regulators (I'm assuming OSFI)? Or an individual bank that has tightened guidelines?

My brother is in real estate in Calgary. He currently has 3 or 4 buildings, plus an industrial site south of town. If he goes to a mortgage broker for a fifth mortgage, I'd be hard pressed to say they would even know (unless he discloses) about the other properties as each is its own corporation for investment purposes. This smells to me like a rumour with no foundation, no disrespect intended.

 

[CN Tower]

Gentlemen: I don't need you to finger an individual, but 'the grapevine' is not helpful. Did you hear it from a drunk at the end of the bar, or a real estate agent, or a mortgage broker? IMHO, this is an almost unbelievably complex restriction to put into place except as a guide when a new mortgage application is being processed. So -- is it a government edict? One of the regulators (I'm assuming OSFI)? Or an individual bank that has tightened guidelines?

My brother is in real estate in Calgary. He currently has 3 or 4 buildings, plus an industrial site south of town. If he goes to a mortgage broker for a fifth mortgage, I'd be hard pressed to say they would even know (unless he discloses) about the other properties as each is its own corporation for investment purposes. This smells to me like a rumour with no foundation, no disrespect intended.

CMHC doesn't insure industrial properties. Only residential & multi-residential.

 

[Dilla]

is this saying to quote the Barenaked Ladies: Is it "the end of the world as we know it because I feel fine".

Point of nerd, that was REM, not BNL.

 

[Riverdale Rink Rat]

CMHC doesn't insure industrial properties. Only residential & multi-residential.

They don't insure much in the way of multi-res, either. My point was that this 'rumour' from the 'grapevine' was NOT about CMHC insurance rules, from my read of TrickyRicky. It sounds like a credit committee or OSFI. I'd like some clarification of what exactly is being suggested -- is this a deliberate credit contraction? Should I be selling bank shares as profits are about to nose dive?

 

[TrickyRicky]

Rink Rat, I'm not sure either and I'm seeking clarification myself. I have no background in finance or banking so I don't know what a credit committee or OSFI are. Sources are local Bank branch (although they didn't seem to understand the rules well either) and verification by independent mortgage broker.

I think if true or permenant these kinds of changes will have a significant and far-reaching impact beyond the "speculator" set interested speaks of. As it relates to this thread price declines in certain asset classes I believe would follow. It wouldn't impact Joe public directly but the people who are currently sitting on piles of cash will be inclined to lock-up and stock-pile even more cash with broader negative economic impact.

 

[js97]

Rink Rat, I'm not sure either and I'm seeking clarification myself. I have no background in finance or banking so I don't know what a credit committee or OSFI are. Sources are local Bank branch (although they didn't seem to understand the rules well either) and verification by independent mortgage broker.

I think if true or permenant these kinds of changes will have a significant and far-reaching impact beyond the "speculator" set interested speaks of. As it relates to this thread price declines in certain asset classes I believe would follow. It wouldn't impact Joe public directly but the people who are currently sitting on piles of cash will be inclined to lock-up and stock-pile even more cash with broader negative economic impact.

I would want to speculate that the rules only apply for CMHC insurance policies, and not actual uninsured mortgages? You would essentially shut down the retail mortgage business for small/medium investors, and have all investments go through as commercial loans? I don't see how that reduces the risk, but simply shifts it to the commercial loans side.

 

[TrickyRicky]

js97, I have never dealt with CMHC insured lending and would never seek to do so. So sadly the latter half of your comment is more likely the present scenerio.

 

[interested]

Point of nerd, that was REM, not BNL.

Sorry...I apologize. I stand corrected.

 

[interested]

From the Globe and Mail today:


Canadian household debt hits new high Add to ...

Julian Beltrame

Ottawa — The Globe and Mail

Published Thursday, Dec. 13 2012, 2:48 PM EST

Last updated Thursday, Dec. 13 2012, 2:54 PM ES

Canadians are more in hock today than ever before, Statistics Canada said Thursday in releasing fresh data on household debt.

The new report shows household debt to annual disposable income reached a new high at 164.6 per cent, from 163.3 per cent the previous quarter.

Of course there is lots of room for houses to climb higher....at what point does reality set in. I appreciate this is an average figure and may be distorted but shows a lot of people are exposed if there is a downturn.

 

[daveto]

Saw this blog post:

http://urbanationinc.blogspot.ca/2012/12/where-is-false-and-twisted-info-coming_7.html?spref=tw
Where is the False and Twisted Info Coming From? - Part 2
This post is a follow-up to yesterday's on some of the false and twisted info that appeared in articles published in the Post and Globe yesterday.

The Bank of Canada and the media have consistently pointed out that there is overbuilding in the Toronto Condominium Market. I wanted to put some statistics and forecasts out there to test that hypothesis.

According to the Statistics Canada, the Population in the Toronto CMA increased by 94,000 persons per year between 2006 and 2011, the previous three Census periods were 86,000, 84,000 and 73,000 people per year. The number of private dwellings in the CMA has increased by 37,000 units per year between 2006 and 2011. By comparison 45,000 units per year, and 35,000 units were added on average per year in the previous two Census periods.

This 2011 population in the CMA increased 9.2% over 2006 according to the Census, with 9.2%, 9.8% and 9.4% increases in the previous three Census periods.

Based on those figures, the average household size has decreased from 2.85, to 2.80, to 2.70, to 2.68 or about 2% on average per Census period (ignoring vacancies and second homes).

So let's make some conservative assumptions, the 2016 population will be 9% greater in 2016 than in 2011 (below each of the increases listed above), an increase of 100,500 people annually. Let's assume that the household size decreases only slightly by 0.6% (the last period was 0.5%, therefore we went with a lower estimate than the 2% average listed in the above paragraph). So with the 2.67 average household size, the 100,500 population per year would require 40,000 new households per year.

Based on Data from CMHC, there were 33,800 housing completions in the Toronto CMA in 2011, and based off their October 2012 figures, there will be approximately 31,500 by year-end in 2012. That's significantly lower than 40,000.

A further breakdown shows that 53% of completions in 2011 were condominium apartments and approximately 40% in 2012. However, based on sales in market over the past couple of years, the share of high-rise condominium will increase to above 60% of total completions.

In 2013, there is the possibility of over 25,000-28,000 condominium apartments completing, however, it is more likely that the absolute maximum would be 20,000 to 22,000 unit occupancies (keeping in mind the most condominium completions the CMA has ever delivered in one year was 16,000 in 2010). Based on data from CMHC under construction info, up to 17,000 'other' housing completions could occur in 2013 (single-detached, semi-detached, row & rental apartment). Guess what, that's still below 40,000!

If the construction industry in Toronto is some how able to deliver 25,000 condominium units in a single year (which many experts in the industry do not believe is possible in the next five years), that's 63% of 40,000, so yes there is a remote possibility that more than 40,000 units could be completed in one year, but that is expected given that other years will be under 40,000 and our 2011 to 2016 estimates are based on the AVERAGE annual growth in total units.

The way that these articles and reports are written seen to indicate that the overbuilding is a foregone conclusion, that we will be WAY over on what is needed, and from the data we presented, that certainly doesn't seem to be the case.

***

I was surprised to see the figures quoted and did some checking.

The articles quoted (Post/Globe) are discussing the 416 Condo market, whereas the author is refuting them with stats from the Toronto CMA all dwellings. (note that the Toronto CMA is not the same as the GTA - the population of the former is about 10% smaller than the latter)

Looking at the City of Toronto market, Stats Canada shows a 14.5% increase in private dwellings 2001-2011. In contrast, population has increased 5.4% during that same time. ie construction has outpaced population growth by nearly 3-to-1.

These stats don't provide a split of condo vs non-condo. However given that striking ratio (14.5% new dwellings vs 5.4% population), it would seem that the Post/Globe articles about overbuilding in Toronto are grounded in fact. (my guess is that a disproportion number of the new dwellings were condos)

 

[daveto]

StatsCan Stats 2001-2011
Toronto CMA Population Increase 19%
Toronto CMA Dwelling Increase 24%

City of Toronto Population Increase 5%
City of Toronto Dwelling Increase 14%

Toronto CMA(non City of TO) Population Increase 33%
Toronto CMA(non City of TO) Dwelling Increase 33%

ps. Toronto CMA is a subset of GTA (approx 90%)