Personal Finance

Flaherty considering measures to cool housing market

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  • Jan 9th, 2010 2:41 am
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Deal Expert
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Aug 18, 2005
21223 posts
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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.
- casual gastronomist -
Deal Addict
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Jan 7, 2003
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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.
Deal Fanatic
May 31, 2007
5018 posts
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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?
Deal Expert
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Nov 15, 2004
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Toronto
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?
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.
Deal Fanatic
Jul 4, 2004
9474 posts
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About freaking time. This overpriced market is effecting all of our property taxes and I don't mean in a positive way.
Deal Addict
Feb 20, 2006
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Vancouver
Frankie3s wrote: About freaking time. This overpriced market is effecting all of our property taxes and I don't mean in a positive way.
Property taxes are set in a relative way, so if house prices in increase you don't pay more unless you live your house increased more than the average.
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.
Deal Fanatic
Aug 27, 2004
7673 posts
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Toronto, ON
Jungle wrote: Are people really only buying houses because of low interest rates?
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?)
Deal Fanatic
Aug 27, 2004
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Toronto, ON
Piro21 wrote: 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.
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.
Deal Fanatic
Aug 27, 2004
7673 posts
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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?
Deal Addict
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Oct 30, 2001
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It will take months before they act. Lots of time time for people to load up on cheap mortgages.
Sr. Member
Oct 26, 2009
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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.
Deal Expert
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Dec 11, 2005
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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.
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
Sr. Member
Oct 26, 2009
620 posts
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brunes wrote: 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.
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.
Deal Fanatic
Aug 27, 2004
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Toronto, ON
brunes wrote: IE - government could just change CMHC requirements to need 10% or 15% down, and this alone would affect the market DRAMATICALLY.
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. :)
Deal Fanatic
Aug 27, 2004
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Toronto, ON
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.
Well, that's what makes political sense.

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...
Deal Expert
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Dec 11, 2005
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VivienM wrote: Why can't they focus on shrinking amortizations instead?

...
The problem is when 5% down payments are combined with long amortizations to fuel highly-leveraged speculat
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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