Real Estate

What happens when credit tightens?

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  • Feb 26th, 2018 1:12 pm
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Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes

What happens when credit tightens?

What happens when credit tightens?

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Last edited by Luckyinfil on Feb 25th, 2018 5:34 pm, edited 1 time in total.
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20 replies
Deal Guru
Feb 9, 2009
12381 posts
11307 upvotes
Luckyinfil wrote: What happens when credit tightens?

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Astroid hits us and we all die... so wont matter.
Deal Expert
Feb 29, 2008
21738 posts
21353 upvotes
Tarrana & The Ri…
OP's obsession runs deep.
Deal Addict
Jul 7, 2013
1514 posts
1401 upvotes
Digital Gulag
Gee I can't wait to buy detached houses for 200k! Renting ftw!
Banned
Aug 28, 2017
301 posts
366 upvotes
We are all going to buy detached homes for 300k in the GTA!!! All of us!!

The crash is close..very close...i feel it...just keep holding on for another few decades people!
Deal Expert
Feb 22, 2011
16518 posts
21855 upvotes
Toronto
What happens when credit tightens? Houses struggle for a bit and condos hit an all time high in prices. Then when condos hit that long run median price ratio houses start going up again as people upgrade.
Sr. Member
Jun 19, 2017
582 posts
923 upvotes
The OP raises a good point and everybody turns on him with sarcastic rhetoric about how detached houses will be 200k. So if you don't believe that our household debt is an issue then why, how will we deleverage while maintaining RE prices and sustaining the economy.

Won't deleveraging will occur? My concern is suffering the consequences brought on by reckless borrowers.
Deal Addict
Jan 17, 2006
2496 posts
2740 upvotes
Toronto
Qrewpt wrote: The OP raises a good point and everybody turns on him with sarcastic rhetoric about how detached houses will be 200k. So if you don't believe that our household debt is an issue then why, how will we deleverage while maintaining RE prices and sustaining the economy.

Won't deleveraging will occur? My concern is suffering the consequences brought on by reckless borrowers.
I am pretty sure your concern is same as your buddy's OP, how to get prices on level of 10 years back. Unfortunately even if all 4 full-time dedicated bears will keep creating new threads here it is not going to happen, you have to move on and accept reality.
Sr. Member
Jun 19, 2017
582 posts
923 upvotes
ilim wrote: I am pretty sure your concern is same as your buddy's OP, how to get prices on level of 10 years back. Unfortunately even if all 4 full-time dedicated bears will keep creating new threads here it is not going to happen, you have to move on and accept reality.
This is just more rhetoric instead of answering the questions raised in the post directly.

"Just move on and accept reality"....sounds like a would be argument made by a reckless borrower.
Deal Addict
May 9, 2017
1261 posts
1393 upvotes
Qrewpt wrote: The OP raises a good point and everybody turns on him with sarcastic rhetoric about how detached houses will be 200k. So if you don't believe that our household debt is an issue then why, how will we deleverage while maintaining RE prices and sustaining the economy.

Won't deleveraging will occur? My concern is suffering the consequences brought on by reckless borrowers.
But the OP, as usual, offers no context to the graph and is just trying to be provocative to stir the pot.

I eyeball the chart and estimate that credit has grown by 5-6% per year over the past 10 years.

Is that a lot? How has net worth increased over the same period?

Of course deleveraging is a concern but this poster deserves sarcastic rhetoric based on previous posting history.
Deal Addict
Sep 13, 2016
3606 posts
2409 upvotes
Mississauga
Qrewpt wrote: The OP raises a good point and everybody turns on him with sarcastic rhetoric about how detached houses will be 200k. So if you don't believe that our household debt is an issue then why, how will we deleverage while maintaining RE prices and sustaining the economy.

Won't deleveraging will occur? My concern is suffering the consequences brought on by reckless borrowers.
What OP and many find difficult to understand that the relationship of household debt and home prices is not as simple as they think. There is certainly a relation, but it is not linear, but much more complex and multidimensional.
So is reckless spending a concern - definitely.
Are people buying much more than they can afford - certainly, but not all.

What everyone should realize is that there is no scarcity of people who can easily afford a million Dollar home in GTA. And as long as we have rich people in decent supply, current prices will find enough buyers. You don't need the entire 6 million population of GTA to have 200K plus household salaries.

Interestingly, if the prices indeed crash and a detached could be bought for 200K, I could easily buy one more while easily affording my current mortgage as well. And I am not even upper middle class financially.
Deal Expert
Feb 22, 2011
16518 posts
21855 upvotes
Toronto
IndyBeak wrote: What OP and many find difficult to understand that the relationship of household debt and home prices is not as simple as they think. There is certainly a relation, but it is not linear, but much more complex and multidimensional.
So is reckless spending a concern - definitely.
Are people buying much more than they can afford - certainly, but not all.

What everyone should realize is that there is no scarcity of people who can easily afford a million Dollar home in GTA. And as long as we have rich people in decent supply, current prices will find enough buyers. You don't need the entire 6 million population of GTA to have 200K plus household salaries.

Interestingly, if the prices indeed crash and a detached could be bought for 200K, I could easily buy one more while easily affording my current mortgage as well. And I am not even upper middle class financially.
Yea there are 900k individuals making over $100k in Ontario. Last year was a record setting year in terms of house sales and in the city it was still only 9000 houses. It's not terribly hard to see that the upper echelon of income earners can fulfill these sales. Banks will definitely tighten up a bit but I don't they they are worried about a dual income couple pulling in a quarter million a year.

http://www.statcan.gc.ca/tables-tableau ... 5g-eng.htm
Member
Feb 13, 2018
495 posts
539 upvotes
OP asked a legit question but I don't think it is an easy one to answer. Credits can get tighten during good times and bad times. And the results can vary from bad to disaster for the over leveraged folks. I personally don't want to see the worst case for my worst enemies.

I hope we can get some more intelligent discussions here. There are economists that believe QE is the best way to allow people to de-leverage, but there are economists that believe QE will compound the issue as people tend to load up more debt as credit become too easy to get, Eventually that causes asset bubble and stagflation. Ie. high inflation with slow growth.

We can only tell for sure after the fact. Otherwise, we won't be posting here. Cheers and hope we all learn something here.
Deal Expert
Feb 22, 2011
16518 posts
21855 upvotes
Toronto
This is what happens when credit tightens. Entry level properties like condos have a disproportionate increase in demand as people move down the RE ladder and people who weren't in the RE market will now have a much harder time getting in. You can celebrate those $1-$2m houses are selling slower and less than peak but you probably weren't goin to be able to start with those anyway;

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Sr. Member
Sep 13, 2007
758 posts
341 upvotes
Toronto
i think those holding onto cash, will have a better chance getting in...that's what's happening.
Deal Addict
Dec 27, 2006
1985 posts
978 upvotes
This happens..

S&P sees more mortgage fraud

Standard & Poor's is warning it expects more mortgage fraud in Canada amid "high and steadily increasing" consumer debt and house prices.

The warning from the big U.S. credit rating agency is yet another threat to add to the angst over certain frothy housing markets that policy makers and politicians alike are grappling with.

"Recent years have witnessed accumulating reports of fraudulent information corrupting the inputs used in the underwriting process for Canadian RM originators," S&P said, the RM meaning "residential mortgage."

Citing some earlier examples, S&P said it believes that "high house prices and household debt relative to household disposable income increase incentives to fraudulent activity, such as overstating the borrower's income in order to meet a lender's qualifying criteria."

"In addition, data compiled by Canada Mortgage and Housing Corp. (CMHC) estimated the broker share of first-time-buyer home purchases involving RM financing at 55 per cent in 2017, up from 48 per cent in 2012, and the broker share of repeat-buyer purchases involving RM financing at 44 per cent in 2017, up from 32 per cent in 2012," the agency added.

"As brokers do not bear credit risk for the RMs they initiate, and are generally compensated primarily on the quantity (not quality) of RM applications they process, we believe brokers have less incentive than a lender's own staff to prevent fraud."

Thus, "we expect more evidence of fraud in Canadian RMs could emerge."

It cited some recent examples, though it changed no ratings.

https://www.theglobeandmail.com/report- ... e38110155/
Member
Dec 20, 2006
242 posts
151 upvotes
Mississauga
Luckyinfil wrote: What happens when credit tightens?

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Well, considering that graph only includes debt and not assets or net worth, it doesn't say very much. I have enough cash on hand to pay off my mortgage, but why would I when my savings account pays more in interest than my mortgage rate? So according to that graph, I have debt but positive net worth. Pretty pointless in a low interest environment.
Deal Addict
Jan 20, 2016
2028 posts
1013 upvotes
Houston, TX
Motoss wrote: This happens..

S&P sees more mortgage fraud

Standard & Poor's is warning it expects more mortgage fraud in Canada amid "high and steadily increasing" consumer debt and house prices.
Finporn in it's best...Click-bait title saying it's HAPPENED, while the agency saying it COULD happened (double caution on the way - warn it expect...)

p.s. is it the same S&P who just sleep out the whole sub-prime crisis in USA, lol?
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