Why the housing market is not set to melt down

[Therion]

Just because the housing market will get weak, it doesn't mean that mortgages will start defaulting. Not to belabour this point but we simply didn't give mortgages to those who can't afford it. A recession, should it happen, is another matter, though, because it will put people out of jobs, meaning they can't pay their mortgage.

 

[Glen]

Just because the housing market will get weak, it doesn't mean that mortgages will start defaulting. Not to belabour this point but we simply didn't give mortgages to those who can't afford it. A recession, should it happen, is another matter, though, because it will put people out of jobs, meaning they can't pay their mortgage.

I would argue that those who purchase with 0% down and or with 40 amortizations cannot afford it. IMO 20% down payment with 25 year amortization should be the minimum.

 

[urbandreamer]

Vultur, are you in therapy?

 

[EverythingZen]

Just because the housing market will get weak, it doesn't mean that mortgages will start defaulting. Not to belabour this point but we simply didn't give mortgages to those who can't afford it. A recession, should it happen, is another matter, though, because it will put people out of jobs, meaning they can't pay their mortgage.

I respectfully disagree with you. Here is some evidence to backup my opinions.

http://www.cbc.ca/canada/edmonton/story/2008/09/28/mortgage-woes.html

Peace & Kindness

 

[Observer Walt]

I'll certainly acknowledge that point. CMHC gurantees mortgages that are, by definition, riskier than the "conventional" mortgages. If the economy goes all to hell, these will be the ones more likely to default.

They ventured briefly into 40 year amortizations and 100% loan-to-value ratios. Those have now been outlawed, a good move IMO.

 

[avatarreb]

However, CMHC guarantees many of these mortgages and thus the exposure is shifted off the bank's balance sheets to the government, in a somewhat similar manner to Fannie and Freddie although I believe that Fannie and Freddie actually bought mortgages as opposed to guaranteeing them.

So if the housing market starts to get weak the bad debt ends up in the hands of the government and ultimately the canadian taxpayer...

The tax payer would pick up the tab only if the losses went over a certain threshold. CMHC Insurance is funded by premiums payed by the lender. Like any insurance co, they are only in trouble when claims outway their premiums.

 

[ducati0000]

You must remember Ontario is not the only game in town,the oil provinces are STILL showing a strong increase in hiring,in fact they are actively recruiting in Quebec and Ontario,with the off shore oil off the east coast and the mining sector in the north Canada HAS the alternative job placements to continue a steady economy.The weak end is Ontario manufacturing but even they are still weathering the strong dollar and the USA recession.The really test is 2009,if Canada shows a stable growth the hardest end of the USA slowdown has past the markets will pick up in early 2010.

 

[cabbagetowner]

The tax payer would pick up the tab only if the losses went over a certain threshold. CMHC Insurance is funded by premiums payed by the lender. Like any insurance co, they are only in trouble when claims outway their premiums.

aren't premiums paid by the borrower

 

[cdr108]

aren't premiums paid by the borrower

yes they are ... anything over 80% LTV is subject to CMHC premiums.

 

[avatarreb]

aren't premiums paid by the borrower

Yes... I need to proof read better. But my point doesn't change, which is that tax payers aren't necessarily exposed.

 

[Mindset]

You must remember Ontario is not the only game in town,the oil provinces are STILL showing a strong increase in hiring,in fact they are actively recruiting in Quebec and Ontario,with the off shore oil off the east coast and the mining sector in the north Canada HAS the alternative job placements to continue a steady economy.The weak end is Ontario manufacturing but even they are still weathering the strong dollar and the USA recession.The really test is 2009,if Canada shows a stable growth the hardest end of the USA slowdown has past the markets will pick up in early 2010.

Doubt it. Once momentum changes housing prices will be the last thing to start creeping back up. Its gonna take 5 - 7 years to build a base before we start hitting new highs. Your gonna have to see the stock market recover, employment return, and real GDP growth. Then you'll see the housing market turn. Things take longer to unfold, and if we get out of this current credit crunch problem, you'd better hope we dont face a nasty inflation fight, with all the money that will be thrown around to fix this mess. If that happens and we will face higher interest rates and inflation, housing will stay down longer than you can imagine... Cash is King...

Its time to build that renter market again. Those 90+% mortgages are going to feel like a prison sentence. Hopefully too many people wont lose their jobs during this correction. "This time its different" <-- How many times you heard that. Play safe, know your limit...play within it.

 

[TrickyRicky]

Keep in mind that while mortgage default rates will certainly rise, not one mortgage need default and we could still theoretically see a collapse in prices throughout the country. Alberta, Newfoundland and Saskaboom where great hedges for the country but I think this is old news. Infact, I would not rule out that the commodity sector heavy provinces will actually fair just as badly and perhaps even worse with respect to real estate than the more diversified provinces as we move forward through 2009.

 

[salvius]

^ commodity prices are, and will fall, like a rock. No part of the country is going to be immune from this.

 

[gei]

Does anyone know anyone who is unable to pay their mortgage as a result of this "crisis"? Even a friend of a friend of a friend?

I sure don't....

And unlike the states we have mandatory mortgage insurance here. God only knows how many billons of dollars CMHC and genworth are sitting on.

I hate to break it to you people that love to spread fear... but we're pretty fine over here.

 

[condoboy]

Does anyone know anyone who is unable to pay their mortgage as a result of this "crisis"? Even a friend of a friend of a friend?

I sure don't....

And unlike the states we have mandatory mortgage insurance here. God only knows how many billons of dollars CMHC and genworth are sitting on.

I hate to break it to you people that love to spread fear... but we're pretty fine over here.

Our prices haven't even come close to crashing...when the prices drop significantly and existing mortgage holders go for renewal...that's when you will see problems. In the U.S. prices in certain areas have dropped 30, 40, 50% combined with a cut in salaries and job losses have created a situation where families couldn't re-finance or pay monthly mortgages.