What's the likely scenario if they fail then? Would the owners of the properties they hold the mortgages for be forced to pay everything back immediately? They were able to secure their lone from HOOPP using the mortgages they own as collateral. That would seem to indicated that they hold some value. I'd have thought that those mortgages would be sold off to other institutions instead of forcing foreclosure. Maybe some disruption to the market results but I'm still having trouble understanding why a full on market crash might happen.
Agreed. The bottom line is, people still need places to live. Toronto is not going to turn into Smolensk c. 1962 with multiple families occupying run-down apartments.
Even if there is a sudden dump -- not wholesale but significant -- of housing on the market, there are so many buyers lining up to get into bidding wars now, you can bet they'll be there when this happens. It's not like they're gonna vapourize, Leftovers-style. (I love that show.)
So little changes, or there's a minor correction. Even if prices dip, say, 20% then they pretty much go just where they were a year or so ago and that's after most people now in houses bought in, no? Condos in our building are up Y-O-Y about 20%, and that's an average which doesn't account for size, extent of renovation, views etc. There's nothing available right now and agents are driving us crazy. The last suite that went up for sale launched a mob scene in our lobby and went for 26 per cent above asking -- although we all think it was under priced to provoke a bidding war. (And no, no empty suites except for two where the owners passed away without wills and no direct heirs, i.e. children.)
The issue of cheap money and subprime mortgages is something else entirely.
Incidentally, my investment guy sent me this yesterday FWIW. (I could be horribly wrong but I don't think it's worth the non-paper it's written on.) It's dated June 2016.
<You may not know who Marc Cohodes is, but the 55 year old retiree is a Wall Street legend. So when the man the New York Times once called “the highest-profile short-seller on Wall Street” decided to come out of retirement, we were dying to get in contact with him to see what he was betting against – turns out it’s the Canadian housing market.>
SNIP
<Home Capital Group (HCG) is where Marc is betting the implosion of this industry will begin. Despite not being a household name, HCG has built a mortgage portfolio that’s around 1/5th the size of BMO, impressive considering BMO had a 160 year head start. Shortly after Marc began shorting HCG, an anonymous letter to the board of directors explained irregularities in their numbers, which forced the board to launch an investigation. The board revealed around $1 billion in fraudulent loans, that they traced back to 45 brokers. They stopped doing business with the brokers, and that $1 billion was quietly adjusted to $1.9B.
“Home Capital Group has admitted to $1.9B in fraudulently underwritten mortgages last year alone,” he explained. “FSCO, who regulates the brokers, hasn’t punished the brokers. The problem is when there’s criminal behaviour going on—and originating fraudulent mortgages is criminal behaviour… you’re allowing one class of individual to benefit another. If you allow it to go on, what’s the deterrent?”
