[paperchopper]

Wow. Delusions. Save this thread for a couple months from now, ROFL

"It is however here less likely that it is not a NINJA loan, falsified paperwork, mortgage teaser rate for 2 years and then ARM kicks in."

Your logic didn't make sense there, I'm taking you're trying to argue that we didn't do NINJAs, Falsified Paperwork, Mortgage Teasers, etc?

False, false and false.

We have NINJAs here, Xcreed Mortgage Offered them, as did some other subprime lenders (actually, nearly 9% of Canadian mortgages are subprime). But it's hush hush. So shhh. Tons of private investors also offer private mortgages at ridiculous interest rates (we're talking 15-30% or higher), knowing that the mortgagee will default and they can take the house (ever seen one of those Why rent when you can own? ads?). And all the big banks work with mortgagees to pump up their loan amount as much as possible, ie adding a basement suite at an inflated price, factoring in condo fees and so forth at obscure multiples, blah blah blah. Point is, he got a freaking $400K mortgage on a 55K/year salary. He said he'd have two roommates, who'd each pay $800, he understated his condo fees, yadda yadda yadda...

Scotia has a liar loan (self-employed) mortgage. You state your income. They don't check. (NINJA!)

We have 0% (ALL banks offer 0% mortgages still-- they lend you the $ through a LOC). Virtually all new mortgages are 35 years (much like the states at the time). In fact CIBC offers 102% mortgages, TD offers 125%, etc etc etc.

Canadian mortgages are by default ARMs-- they reset after a fixed interval. American mortgages are typically 30-year mortgages-- the interest rate never changes, it's locked in for 30 years. In fact, ARM's are just Canadian mortgages, where as in the states its 2/28's, in Canada it's 1/24's, 5/20's, 10/15's, etc.

And, ughmmm, Canada does have variable rate mortgages, or teasers, which offer hilariously low interest rates as 1.75% or 2.15%, which are clearly not sustainable.

So yes, we do have teaser rates, ARM's (we invented them), subprime, NINJAs, liar loans, etc. It's out of control.



Anyways, here's something most of you probably don't understand or want to understand too well, but it's macroeconomics and the prime rate. Carney has set prime at rock bottom, historically unprecedented 50-year lows-- 0.25%. He's already cranked it up 3 times in quick succession as a warning. He's warned COUNTLESS F*CKING times that CANADIAN CONSUMERS HAVE TO BE CAREFUL ABOUT TAKING ON UNMANAGEABLE AMOUNTS OF DEBT BECAUSE LOW INTEREST RATES WILL NOT LAST! Like seriously, he's said that at LEAST 10 times in the last few months. How many times have you heard Carney bitching and moaning about our debt-to-income levels, exceeding the Americans during the height of their bubble?

Inflation was 0.6% last month in Ontario. That's 0.6%-- in one month. That annualizes to nearly 8%-- third world level inflation. Another month and Carney will have no choice to but to drastically up prime, you could easily see him jacking it up in a bunch of double takes (+0.5%).


Anyways, since most of you are brainwashed and closed to anything that doesn't conform to your viewpoint, let me explain one thing: You do not generate wealth by buying a concrete tomb in some tower, placing a few ads on Craigslist, cashing a few cheques, and then making a profit of $125K in a year. That's how a Ponzi scheme works, yes, but eventually the last fool gets shafted.

Food for thought sheeple.

 

[simuls]

Paperchopper, for the most part, on these bubble boards, you're preaching to the choir. We don't expect a POP but we do expect a total drop from peak (May 2010) of between 20-25% over the course of the next year or so.

 

[ponyboy]

this bubble will probably take several years to deflate (5 years). Some people will have to sell, but those who can hold out will because they will be (at first) psychologically resistant to selling for less than they paid.

 

[interested]

http://by127w.bay127.mail.live.com/default.aspx?wa=wsignin1.0

Interesting article. The thing is I don't know if Remax is selecting units that support their case but this newsletter always takes monthly a different building and compares apples to apples as it were.

I would like to address a few of your points Paperchopper.

What I meant with my comment about ARM's, Ninja loans etc. was that it was nowhere near as rampant here or as blatant. As I have posted elsewhere and in the past, no thanks to Mr. Flaherty or our P.M. who approved Zero down , 40 year mortgages. The saving grace was this happened 2 years later here and hence learning from the experience down South, they have nicked it somewhat in the bud.

Yes, I get that we have lowest interest rates on mortgages in years, and yes I realize that before forcing people to qualify for the 5 year rate, even if the 5 year rate is at historic lows, this is not the same thing as saying: 2 years 1%, then the next 23 years of a 25 year mortgage at 6% but don't worry because you will sell before it adjusts. Huge numbers of people did not qualify ever for the 6% and wouldn't have qualified for even the 3.5% now but made it for the 1%. And add that the bank would pay the closing costs and give you 110% mortgage, you could actually take out money for buying property in the US.

Yes, you can argue we have ARM's in Canada with 5 year mortgage terms but the reality is I would not think that you would suggest that 3.5% fixed 5 year will be 20% in 5 years, the proportionate increase in the ARM's in the US. Even if it goes to 7% a doubling, that will be huge. Governments I bet will intervene to lower the rates and keep them low, especially having witnessed the debacle in the US. I know, maybe they won't be successful but to suggest it is the same here is a little bit too much of a stretch in my opinion.
I agree we have problems but I am sure you will have to agree it is nowhere near the scale of what was happening in the US.

As well, the worst hit markets Pricechopper went up three fold (eg. Florida) in 6 years. This was similar to Toronto which trebled in 1985-1989 and this ended up very badly. Also interest rates were around 13% back then amplifying the downdraft. Even then, prices came down but "only" 40% from peak. I realize that is huge. Now, we have gone up 100% or doubled in 10 years roughly (vs. the trebling in shorter time frame), interest rates are 3.5%-5% depending on what you wish to quote for a 5 year fixed approximately vs. 13%. So yes, an adjustment as Simuls said, you are preaching to the converted. We vary in our estimates: 10% to 30% with most seamingly calling for 20% from the present allowing for the 5% approximate decline from May 2010.

However, I believe perhaps naively as you point out that barring a major event (seizing of credit again), failure of the financial system, epocolyptic event etc., we will see a downward slow correction: a Hissing sound rather than a pop. This may well stabilize better than you think, descending but allowing for accommodation.

At least that's what I am naively hoping for.

One final point: Inflation is on the rise and it is far higher than is reported. We all know that. If I could stop driving and eating, then inflation would be fine. They conveniently leave these things out of the Core CPI because it would be too shocking to reveal it. That said, however, inflation last November went up 0.5% month on month approximately from Oct. So even if it goes up again 0.5% this Nov from Oct, the inflation (at least as measured/reported) will stay at 2.4%. I doubt you will see 0.5%/month inflation as you are suggesting. If it happens, and the economy doesn't recover, then we are in Stagflation like what happened approximately 30-40 years ago. That is a huge problem. Not just for R/E but most other asset classes.

If inflation goes up by 0.5% and no stagflation, it means pricing pressure can be passed on to the consumers who would have to be making the money and the economy churning to do so. In that scenario, real assets: eg. Real Estate generally goes up, not down.

Anyhow, in summary, while I agree with you in general, I personally feel that some of the comparisons to the US and conclusions are overstated.

 

[interested]

this bubble will probably take several years to deflate (5 years). Some people will have to sell, but those who can hold out will because they will be (at first) psychologically resistant to selling for less than they paid.

True: we see people always slow to adjust psychologically to a downturn on the hope of recouping their investment. On the way up, they adjust very quickly.

I agree with several years to deflate because all the excess liquidity and Wall Streets pillaring of the US (legalized Bank Robbery only in this case the Bank was the people of the World and the US in particular) that liquidity will have to to be wrung out of the system. The deleveraging and mass money printing will have to be removed from the system and the people/taxpayers will suffer. Meanwhile, Wall Street, over the past 10-15 years made 50-100 years of income by leveraging the real assets being sold up to 10 fold. Their commissions were 10 fold even though the real assets never existed. Hence the financial industry became 20% of the whole US economy. Now the problem is that to reign it back means the rest of the US economy has to pick up the slack. Where is that going to happen? Hence, continue to prop up the Banks and the Financial industry.

Therefore, Ben Bernacke's blatent attempts at holding off the inevitable by printing money was to stop , especially with the economy already on the ropes, would mean Japanese style deflation or worse. In spite of my disgust for what I see happening, the reason you don't hear an "exit plan" is because I believe there is none. They are all just winging it, hoping time will help solve the issues.

 

[CN Tower]

Anyways, since most of you are brainwashed and closed to anything that doesn't conform to your viewpoint, let me explain one thing: You do not generate wealth by buying a concrete tomb in some tower, placing a few ads on Craigslist, cashing a few cheques, and then making a profit of $125K in a year. That's how a Ponzi scheme works, yes, but eventually the last fool gets shafted.

Food for thought sheeple.

My sense is these buyers aren't looking to generate wealth but to park it and accept a 2% return. Those hoping for capital appreciation are delusional zombies.

Personal advice friend. Direct your anger towards productive pursuits. You cannot alter the prevailing zeitgeist. Accept it and alter your decisions.