Flaherty considering measures to cool housing market
- Last Updated:
- Jan 9th, 2010 2:41 am
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- SCORE
- mecassa [OP]
- Member
- Dec 8, 2008
- 434 posts
- 104 upvotes
342 replies
- bilibulu
- Sr. Member
- Sep 15, 2007
- 662 posts
- 2 upvotes
- YYZ
don't think so!
- Jucius Maximus
- Deal Expert
- Aug 18, 2005
- 21223 posts
- 5939 upvotes
- Burlington-Hamilton
IMO this is good news because people who cannot afford a mortgage should not have a mortgage.
This is part of what caused the big US crisis.
This is part of what caused the big US crisis.
- casual gastronomist -
- dux
- Deal Addict
- Jan 7, 2003
- 3055 posts
- 1185 upvotes
- Ottawa
Best news from Flaherty since TFSA...
People are locking themselves in 35 years mortgages with low interest rate now days... but once the interest rate start to spike, those people are going to suffer... and suffer bad.
People are locking themselves in 35 years mortgages with low interest rate now days... but once the interest rate start to spike, those people are going to suffer... and suffer bad.
- Jungle
- Deal Fanatic
- May 31, 2007
- 5018 posts
- 2175 upvotes
Hmmm alarm bells are going off..
On Dec. 8, the agency said the average price for a home in Canada's major markets was $368,665 as of October -- an 18 per cent jump compared to a year earlier. Quebec and Ontario saw record home sales during that month.
Are people really only buying houses because of low interest rates?
On Dec. 8, the agency said the average price for a home in Canada's major markets was $368,665 as of October -- an 18 per cent jump compared to a year earlier. Quebec and Ontario saw record home sales during that month.
Are people really only buying houses because of low interest rates?
- Piro21
- Deal Expert
- Nov 15, 2004
- 21786 posts
- 4903 upvotes
- Toronto
Yep. They're taking out mortgages they can barely afford to buy rental properties so they can get rich. Or that's the mentality anyways. When interest rates go back up and their mortgages skyrocket these idiots are going to cause an economic collapse like in the US and bring us all down with them.Jungle wrote: ↑Hmmm alarm bells are going off..
On Dec. 8, the agency said the average price for a home in Canada's major markets was $368,665 as of October -- an 18 per cent jump compared to a year earlier. Quebec and Ontario saw record home sales during that month.
Are people really only buying houses because of low interest rates?
- Frankie3s
- Deal Fanatic
- Jul 4, 2004
- 9474 posts
- 2650 upvotes
About freaking time. This overpriced market is effecting all of our property taxes and I don't mean in a positive way.
- Sanchez
- Deal Addict
- Feb 20, 2006
- 1186 posts
- 48 upvotes
- Vancouver
- PMREdmonton
- Member
- Nov 9, 2007
- 267 posts
- 1 upvote
- Edmonton
Finally someone is waking up about the dangers of the current bubbles: gold and real estate.
We can't raise rates right now because it will strengthen the currency and create too much pressure on middle-Ontario manufacturing base.. For home ownership, I think the rule should be a 10% downpayment and 25-year amortization.
I also think people who want to use variable rate mortgages have to prove that their income stream is very secure and their debt ratios are much less than current industry standards. I would also like to see more focus on income streams. If you don't expect the ratio of your mortgage over your house should be less than 3. Furthermore, if you can't save up the 10% down you probably aren't stable enough to go through home ownershsip.
All these folks rushing out to buy houses are going to be upset in a couple of years when the price falls 10-25% and then doesn't advance much for the next 10-15 years while we wait for the incomes to catch up to the price of the houses.
We can't raise rates right now because it will strengthen the currency and create too much pressure on middle-Ontario manufacturing base.. For home ownership, I think the rule should be a 10% downpayment and 25-year amortization.
I also think people who want to use variable rate mortgages have to prove that their income stream is very secure and their debt ratios are much less than current industry standards. I would also like to see more focus on income streams. If you don't expect the ratio of your mortgage over your house should be less than 3. Furthermore, if you can't save up the 10% down you probably aren't stable enough to go through home ownershsip.
All these folks rushing out to buy houses are going to be upset in a couple of years when the price falls 10-25% and then doesn't advance much for the next 10-15 years while we wait for the incomes to catch up to the price of the houses.
- VivienM
- Deal Fanatic
- Aug 27, 2004
- 7673 posts
- 1131 upvotes
- Toronto, ON
Yes. People seem to have NO IDEA that low interest rates are reflected in the (high) prices they're paying.
If you had a choice between paying $150K at 8%, or $150K at 4%, of course it's a great idea to buy when the rate is 4%. But PLENTY of people don't seem to realize that in fact, that property is now $300K at 4%, which works out to the same monthly payment, but way more risk, way more debt, way less ability to pay it off early, etc. as the $150K @ 8%.
(To those who seem to think my numbers are nonsense. In 1996, at ~8% mortgage rates, 25 year amortizations, one builder in Ottawa sold a given floorplan townhouse for ~$145K. In 2009, they are selling the same floorplan, in a different location, for ~$290K, but at ~4%, 35 year amortization. Monthly payments are within 5-10% of the 1996 payments. Funny how that works, no?)
- VivienM
- Deal Fanatic
- Aug 27, 2004
- 7673 posts
- 1131 upvotes
- Toronto, ON
The thing is, if they could break even and make a profit renting the place out, that wouldn't be too too bad (except, of course, that vacancy rates for rental housing are up because everybody is buying a house/condo for themselves).
The bigger problem is that it's near-impossible to break even buying a property at today's jacked up prices, with a 5%/35 year speculator's wet dream mortgage, and renting it out at today's rents.
Which means that the ONLY way you make money from this venture is if you sell it in a few years for a big capital gain. Whoooops.
As I like to say in all those threads, you'll only make money if you can find a sucker willing to pay more than you paid. That sucker will happily do so, if he believes another sucker will pay more than he paid. And so on. But at some point, the world runs out of suckers.
- VivienM
- Deal Fanatic
- Aug 27, 2004
- 7673 posts
- 1131 upvotes
- Toronto, ON
Memo to Flaherty: why did you not think about this SIX MONTHS AGO?
When the "buyer's market" went up in SMOKE a month after every realtor in the country was saying it was the best buyer's market in a decade, couldn't you have acted then?
Did it really take another 15-20% increase in house prices, and a giant number of people getting into the market (it's amazing how many people I know who know people who MUST BUY NOW WHILE THE RATES ARE LOW!) at those prices, before Mr. Flaherty saw the problem?
- warrexa
- Member
- Jul 18, 2006
- 200 posts
- 26 upvotes
Horse ... Barn door ...
- voodoo401
- Deal Addict
- Oct 30, 2001
- 1125 posts
- 20 upvotes
It will take months before they act. Lots of time time for people to load up on cheap mortgages.
- muchacho_007
- Sr. Member
- Oct 26, 2009
- 620 posts
- 24 upvotes
IT would be great if they took measure to increase the down payment amount and to decrease the amortization period in order to put this bubble under control.
Unfortunately, I have the feeling they Flaherty will take steps only such that his policies will result in putting the bubble under control BUT current house prices will not decrease.
Unfortunately, I have the feeling they Flaherty will take steps only such that his policies will result in putting the bubble under control BUT current house prices will not decrease.
- brunes
- Deal Expert
- Dec 11, 2005
- 20136 posts
- 2964 upvotes
Government should not intervene in the market too much.... IMO anything beyond making CMHC requirements more strict should be avoided.
IE - government could just change CMHC requirements to need 10% or 15% down, and this alone would affect the market DRAMATICALLY.
IE - government could just change CMHC requirements to need 10% or 15% down, and this alone would affect the market DRAMATICALLY.
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
- muchacho_007
- Sr. Member
- Oct 26, 2009
- 620 posts
- 24 upvotes
Yes, but I have a feeling that they are going to pick a number like 7%, and the result will be that they will have only moderate affect on the market. Deflate the bubble a little and not reduce home values.
- VivienM
- Deal Fanatic
- Aug 27, 2004
- 7673 posts
- 1131 upvotes
- Toronto, ON
Why can't they focus on shrinking amortizations instead?
I see NOTHING wrong with 5% down payments for young couples eager to start a family in a house where they'll stay for 25+ years.
The problem is when 5% down payments are combined with long amortizations to fuel highly-leveraged speculating.
Maybe they should go back to the old rule - 5% for first time homebuyers, 10% for other owner-occupied properties. Combine that with a return to 25 year amortizations, and the insanity would probably crash.
- VivienM
- Deal Fanatic
- Aug 27, 2004
- 7673 posts
- 1131 upvotes
- Toronto, ON
Well, that's what makes political sense.muchacho_007 wrote: ↑Yes, but I have a feeling that they are going to pick a number like 7%, and the result will be that they will have only moderate affect on the market. Deflate the bubble a little and not reduce home values.
If they trigger a 20-30% crash, there'll be a LOT of angry people screaming to their MPs about how the government destroyed their "safe" investments...
- brunes
- Deal Expert
- Dec 11, 2005
- 20136 posts
- 2964 upvotes
Because, the government and CMHC has nothing to do with amortisations, and never has. This is totally up to the banks.
This is exactly what I am talking about. If government wants to tweak the CMHC rules, that is fine. But they should not have to make new laws and regulations, they already have plenty of tools at their disposal to regulate the banks.
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
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