Migos
Active Member
http://urbantoronto.ca/forum/threads/baby-we-got-a-bubble.10523/page-605
Just one example, not to pick on interested.
Just one example, not to pick on interested.
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James
Senior Member
Just more of the usual...
Frantic homebuyers set new October sales record
Mostly double-digit price increases fuel the best October ever for sales
http://www.thestar.com/business/2015/11/05/frantic-homebuyers-set-new-october-sales-record.html
Some talking points:
Frantic homebuyers set new October sales record
Mostly double-digit price increases fuel the best October ever for sales
http://www.thestar.com/business/2015/11/05/frantic-homebuyers-set-new-october-sales-record.html
Some talking points:
- The unrelenting demand for lowrise homes, in the face of listings that have remained unusually low since the 2008 recession, continued to be the major driver of high-price growth in Toronto, as it has been in Vancouver. The two Canadian markets show no signs of slowing down as prices catapult further out of reach of the average buyer.
- The impact of the shortage of houses for sale can be seen in the October numbers. Sales of detached homes were down 9.7 per cent in the City of Toronto, year over year, and prices were up 12.5 per cent, to an average of $1.0714 million.
- Townhouses, which have become the new go-to form of lowrise housing as even semi-detached homes continue to soar out of reach, also saw declines in the city as demand continues to outstrip supply. Townhouse sales were down 3.6 per cent in the City of Toronto, but up 9.1 per cent in the relatively well-supplied suburbs.
interested
Senior Member
I stand by my statements Migos. I never said there was no mortgage fraud here. However, the scale I believe is very different between what was going on in the US and what has happened here.
I agree there is some. However, the Home Capital example and the small group of brokers is hardly comparable to an industry signing up people to 2 year 2% interest only loans which then went to 6% or similar amounts and further giving 105% of the value of the home as a loan. Many would barely qualify for 2% interest and in some cases lied to even get that and for sure be unable within 2 years to meet the obligations. Here a small group of brokers (perhaps more) gamed the system or Home Capital and possibly other lenders. In the US, the banks, investment banks, brokers, realtors, mortgage advisors were all in there pushing to get more business with little or no regard to the client. I do not believe that our banks and investment banks here are doing the same thing or to the same degree. Some realtors, mortgage advisors and brokers may be but here at least of late the buyer must qualify for the fixed 5 year mortgage rate so I think it is unfair to suggest that the Canadian situation is the same as the US. Now, if more data comes out showing much more fraud, then perhaps I will be more willing to accept there are more similarities.
nrb
Active Member
... And in the united states the standard mortgage is 25 year or 30 year fixed rates, not refinancing after 5 years.
The Canadian market is potentially much more exposed to rate increases than the american market ever was. No fraud necessary.
The Canadian market is potentially much more exposed to rate increases than the american market ever was. No fraud necessary.
interested
Senior Member
nrb: I agree: But the following has to happen.
Interest rates can only rapidly rise if there is inflation.
This is unlikely unless the economy improves significantly. So look for more time at very low interest rates or very slight/gradual increases. With the exception of the US, pretty much the whole world seems to be in a race to the bottom in devaluing their currency. And I don't think the US will be able to go up much. Today alone the USD has increased 1% against the CAD and other currencies just because they are now going to probably go up assuming the November job report is equally strong and no other bad data happens in December a whole 1/4 of a percent. How much can the US really go up when everyone else is devaluing? How strong can the US afford its USD to get before it becomes uncompetitive again?
The one big exception would be stagflation...no growth and with a significant depreciating dollar (CAD), if imports are not curtailed, something would have to be done or we will see again our standard of living drop signficantly( as happened in the 70's and early 80's). People would feel poorer and house prices would decline.
The other issue is the "bond market" is telling everyone (correctly or incorrectly) that interest rates are going to stay low for many years to come. In Europe they are talking about -ve government bond interest for the region for 5 years (the normal term of a mortgage here). That means people in Europe are buying bonds promising not to even return them 100 Euros on the 100 Euros they invest today in 5 years. Italy...not doing well floated 2 year bonds at negative interest rates. What can you get on a 5 year bond today in Canada...almost nothing( 5 year government of Canada bonds are around 1%)...so until something changes around the world drastically....no one can get out of this low interest rate environment and hence I have to admit while I never thought we would 7 years later be talking in terms of these types of interest rates, I don't think we are going to have a much different converstion 3-5 years from now. It is a wealth transfer occuring by overendebted governments from the Baby Boom and seniors generation who have wealth who want to preserve their capital driving down the interest rates to simply have their capital returned in favour of younger people who can borrow at interest rates that reward risky behaviour and people bidding up real assets to diversity and get a return on their investment. It is also the hope that the younger people will invest and thereby stimulate the economy. Houses get dragged along.
Interest rates can only rapidly rise if there is inflation.
This is unlikely unless the economy improves significantly. So look for more time at very low interest rates or very slight/gradual increases. With the exception of the US, pretty much the whole world seems to be in a race to the bottom in devaluing their currency. And I don't think the US will be able to go up much. Today alone the USD has increased 1% against the CAD and other currencies just because they are now going to probably go up assuming the November job report is equally strong and no other bad data happens in December a whole 1/4 of a percent. How much can the US really go up when everyone else is devaluing? How strong can the US afford its USD to get before it becomes uncompetitive again?
The one big exception would be stagflation...no growth and with a significant depreciating dollar (CAD), if imports are not curtailed, something would have to be done or we will see again our standard of living drop signficantly( as happened in the 70's and early 80's). People would feel poorer and house prices would decline.
The other issue is the "bond market" is telling everyone (correctly or incorrectly) that interest rates are going to stay low for many years to come. In Europe they are talking about -ve government bond interest for the region for 5 years (the normal term of a mortgage here). That means people in Europe are buying bonds promising not to even return them 100 Euros on the 100 Euros they invest today in 5 years. Italy...not doing well floated 2 year bonds at negative interest rates. What can you get on a 5 year bond today in Canada...almost nothing( 5 year government of Canada bonds are around 1%)...so until something changes around the world drastically....no one can get out of this low interest rate environment and hence I have to admit while I never thought we would 7 years later be talking in terms of these types of interest rates, I don't think we are going to have a much different converstion 3-5 years from now. It is a wealth transfer occuring by overendebted governments from the Baby Boom and seniors generation who have wealth who want to preserve their capital driving down the interest rates to simply have their capital returned in favour of younger people who can borrow at interest rates that reward risky behaviour and people bidding up real assets to diversity and get a return on their investment. It is also the hope that the younger people will invest and thereby stimulate the economy. Houses get dragged along.
Migos
Active Member
Nobody knew the scale of the fraud in the U.S. at the time just as they don't know the scale of the fraud in Canada.
The fraud is the exact same as in the U.S. It's liar loans. People are submitting mortgage applications with fraudelent income verification and other documentation. Even if we had the most stringent mortgage standards in the world it doesn't make the system any stronger if people are breaking those standards by lying about income. Some companies have cited numbers like 1 in 10 mortgages have an element of fraud in them. In a market like housing where the marginal buyer is determining price, 10% of the market is hugely significant.
My question to you: who is buying homes in Toronto and especially Vancouver? The median and average incomes can't afford houses in these markets. It's either foreign money or people lying on their mortgage applications. There is no other way for the fundmentals to get so out of whack (i.e. price to income).
Migos
Active Member
Oh, I forgot to mention this chilling statistic:
For Home Capital Group, the value of the mortgages originated by the suspended brokers represents 60% of their insured mortgage business. That is hardly a "small group of brokers" as you described.
http://www.theglobeandmail.com/repo...-fraud-bigger-than-estimated/article27110594/
For Home Capital Group, the value of the mortgages originated by the suspended brokers represents 60% of their insured mortgage business. That is hardly a "small group of brokers" as you described.
http://www.theglobeandmail.com/repo...-fraud-bigger-than-estimated/article27110594/
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interested
Senior Member
I did not realize it was this much. In response to this and your previous post I still think it is a stretch to say the extent of the fraud is the same as in the U.S. I don't believe it is but simply do not have data to come up with that conclusion. If you have, then provide it please.
However, another part of the article you just quoted:
"Despite comprising a larger share of Home Capital’s mortgage business than initially expected, the questionable loans have been performing well, the company said. It said it is one quarter of the way through reviewing the suspect loans, a process that is expected to continue until the end of next year.
But of those mortgages it has reviewed, the company said more than 90 per cent would be eligible for renewal."
NOTE: This can simply mean the other 10% who would not qualify are possibly self employed with unverifiable income, would not meet the 5 year fixed mortgage criteria, etc. In other words, it may be as worrisome as you suggest or it may be that the criteria in Canada are more strict than what existed at the time in the US and if the same criteria were applied in the US perhaps instead of 10% it would have been 50% ineligible for renewal.
I really do not know.
With regard to this statement in your post:
"Even if we had the most stringent mortgage standards in the world it doesn't make the system any stronger if people are breaking those standards by lying about income. Some companies have cited numbers like 1 in 10 mortgages have an element of fraud in them. In a market like housing where the marginal buyer is determining price, 10% of the market is hugely significant."
I agree given the marginal buyer determining price is an issue, it is hugely significant. However, what is your solution to the first part...no mortgages as even the most stringent mortgage standards does not make the system stronger if people are breaking the rules? Somehow the system has managed to survive a very long time (with the exception of the major implosion in the US in 2006 and parts of Europe of course etc)
However, another part of the article you just quoted:
"Despite comprising a larger share of Home Capital’s mortgage business than initially expected, the questionable loans have been performing well, the company said. It said it is one quarter of the way through reviewing the suspect loans, a process that is expected to continue until the end of next year.
But of those mortgages it has reviewed, the company said more than 90 per cent would be eligible for renewal."
NOTE: This can simply mean the other 10% who would not qualify are possibly self employed with unverifiable income, would not meet the 5 year fixed mortgage criteria, etc. In other words, it may be as worrisome as you suggest or it may be that the criteria in Canada are more strict than what existed at the time in the US and if the same criteria were applied in the US perhaps instead of 10% it would have been 50% ineligible for renewal.
I really do not know.
With regard to this statement in your post:
"Even if we had the most stringent mortgage standards in the world it doesn't make the system any stronger if people are breaking those standards by lying about income. Some companies have cited numbers like 1 in 10 mortgages have an element of fraud in them. In a market like housing where the marginal buyer is determining price, 10% of the market is hugely significant."
I agree given the marginal buyer determining price is an issue, it is hugely significant. However, what is your solution to the first part...no mortgages as even the most stringent mortgage standards does not make the system stronger if people are breaking the rules? Somehow the system has managed to survive a very long time (with the exception of the major implosion in the US in 2006 and parts of Europe of course etc)
Migos
Active Member
Solutions to mortgage fraud would be actually prosecuting people for it. These guys are forging documents and not a single criminal charge or even a civil case? Lenders also need to get more sophisticated in verifying documents. Ultimately most lenders not interested in rooting out fraud becasue they are under pressure to grow the business. Nobody is worried right now because as long as houses are appreciating and there isn't an economic shock, everybody is making money. Heck, most of the lenders aren't even holding onto the risk of the mortgages as they're insured by CMHC and/or sold to investors. It's the exact same environment that existed in the U.S. before the dominoes started to fall.
There seems to be a cultural acceptance of fraud as just a normal course of business, particularly among certain ethnic groups (because fraud is a part of daily life in some countries). Canada needs to adapt to this new reality.
There seems to be a cultural acceptance of fraud as just a normal course of business, particularly among certain ethnic groups (because fraud is a part of daily life in some countries). Canada needs to adapt to this new reality.
James
Senior Member
Speaking of mortgages, Toronto Life has an interesting story about private lenders and some of the individuals who resort to them as a last resort. I have to say, if you don't qualify for a "regular" prime mortgage from a large regulated mortgagee, it's probably a sign that buying a house may not be the most financially sound decision to make at the current time.
Mortgages For All
How over-leveraged homeowners are turning to private lenders and threatening the economy
http://torontolife.com/how-private-...ing-torontos-real-estate-market-to-the-brink/
Mortgages For All
How over-leveraged homeowners are turning to private lenders and threatening the economy
http://torontolife.com/how-private-...ing-torontos-real-estate-market-to-the-brink/
Migos
Active Member
From the article James posted:
Also, reading about the Miller's make it hard to feel sorry for anybody in their situation. There is nobody to blame but themselves for the situation they are in. They ignored every possible warning sign and felt that they "deserved" to own a home, despite the fact they couldn't afford it.
Also, reading about the Miller's make it hard to feel sorry for anybody in their situation. There is nobody to blame but themselves for the situation they are in. They ignored every possible warning sign and felt that they "deserved" to own a home, despite the fact they couldn't afford it.
James
Senior Member
Although I am a supporter for tighter lending rules, which would include higher minimum down payments, this will inevitably eliminate a large number of people from the pool of candidates who are qualified to buy a house in the city.
The people pushing back would argue that, as such, home ownership in the city would only be applicable to the wealthy. Unfortunately, for too many people, borrowing money when everyone else also has access to cheap money does not, in fact, make them any richer.
The people pushing back would argue that, as such, home ownership in the city would only be applicable to the wealthy. Unfortunately, for too many people, borrowing money when everyone else also has access to cheap money does not, in fact, make them any richer.
James
Senior Member
There just so happens to be an article in the Globe and Mail today on this subject.
Housing price drop would sink young homeowners, study finds
Full article: http://www.theglobeandmail.com/repo...adian-homeowners-study-finds/article27169891/
Housing price drop would sink young homeowners, study finds
Full article: http://www.theglobeandmail.com/repo...adian-homeowners-study-finds/article27169891/
Ex-Montreal Girl
Active Member
Here's a story from CBC, drawing from the same study called "The Young and the Leveraged":
http://www.cbc.ca/news/business/ccpa-housing-correction-1.3310401
"Young Canadian homeowners are disproportionately vulnerable to a housing correction, and more than 1 in 10 would owe more than they owned in the event of a modest or larger pullback in the market, according to a report.
"The report, by the Canadian Centre for Policy Alternatives, was released Monday. The left-leaning think-tank urges governments to implement policies aimed at bringing down debt loads before its too late.
"Policymakers have been warning for years about the dangers of high house prices and the debt loads they tend to generate. But the CCPA report is among the first to quantify how those debt loads are skewing disproportionately towards younger people, who often have no other assets than the house they borrowed so much to buy."
http://www.cbc.ca/news/business/ccpa-housing-correction-1.3310401
"Young Canadian homeowners are disproportionately vulnerable to a housing correction, and more than 1 in 10 would owe more than they owned in the event of a modest or larger pullback in the market, according to a report.
"The report, by the Canadian Centre for Policy Alternatives, was released Monday. The left-leaning think-tank urges governments to implement policies aimed at bringing down debt loads before its too late.
"Policymakers have been warning for years about the dangers of high house prices and the debt loads they tend to generate. But the CCPA report is among the first to quantify how those debt loads are skewing disproportionately towards younger people, who often have no other assets than the house they borrowed so much to buy."
Migos
Active Member
It's the same argument that people make for government-subsidized student loans: "We need to allow everybody the opportunity to go to post-secondary!" So now universities and colleges raise their prices because students can borrow more money. Student loans don't make school more affordable. They do the exact opposite by driving up price and requiring students to take on more and more debt.
It's the same situation with residential mortgages except we're talking about hundreds of thousands in debt instead of tens of thousands.