BC Government offering interest free loans for house down payments!

[Nine_Ender]

It looks like Canada is about to repeat the USA housing crisis of 2008. Loans for people who can't afford it! You gotta love idiots!

http://www.cbc.ca/news/canada/british-columbia/interest-free-home-loans-bc-1.3897832

You aren't understanding the Canadian housing market at all. BC already put a huge tax on foreign buyers so if anything they've over cooled their market with intervention. It's in their best interest to have more local buyers. There will be no crisis, the demand for housing in our best cities is massive and getting stronger as the US loses favor as a destination of choice for many people.

People have been predicting a housing crash in Canada on here for many years. It's based on idiotic logic, that anything that appreciates a lot must crash ( we see this logic on numerous themes here from deluded traders ). In reality, Canada's major cities are not expensive compared to other world class cities in the world, including some in the US. And the demand is still extremely strong far greater then the supply.

The USA housing market was about loaning risky people a lot of money to buy a home. Canada isn't like that at all, our banks are conservative in nature, so much so that many legit buyers are essentially shut out of the ability to buy a home.

 

[Nine_Ender]

Coming back full circle, B.C. in Canada is doing the same thing by giving interest free loans for five years to people that don't have the means to accumulate that money on their own, and it's usually because they don't make enough. Companies like Genworth and Home Capital are only too happy to oblige.

Anyone who looks at the real details of Canadian real estate, health care, or education wouldn't make absurd proclamations on here on a regular basis, but such is Elite Trader. I haven't looked at the BC details myself, but I bet the buyers all have regular meaningful income but can't come up with the huge down payments unless they have rich giving relatives.

There is no bubble in Canada's housing market; worst you could see is Vancouver in isolation corrects significantly because that one market was influenced by non-resident Asian buyers. The new 15%(?) tax though has already cooled that aspect. However, it is one of the nicest cities on the planet to live in, especially for rich immigrants from Asian countries. So who really knows.

 

[Jones75]

I haven't looked at the BC details myself

If your above statement is true, then why would you attempt such a feeble argument?

Am I to assume you no nothing about CD swaps?

As my earlier post indicated, HCG and MIC specialize in giving mortgages to people with shady credit, and low paying jobs. All B.C. did was throw fuel on the fire. If you read between the lines, this is sleazy politics at its finest… free money, just to get re-elected…worry about the consequences later.

How are these people going to pay when interest rates start to rise (and that's in 2017)?

If these loans were for $150,000 homes, fine, but they're for $750,000 homes. And even if they make the average CDN salary, $50,000 before taxes…it doesn't come close to covering it.

You're right on one part, builders in the U.S. did over build,…but… they were not the one's that gave the sub-prime mortgages, it was the sleazy banks trying to make a fast buck. If you re-read history, it backs up everything I'm say.

 

[ironchef]

Anyone who looks at the real details of Canadian real estate, health care, or education wouldn't make absurd proclamations on here on a regular basis, but such is Elite Trader. I haven't looked at the BC details myself, but I bet the buyers all have regular meaningful income but can't come up with the huge down payments unless they have rich giving relatives.

There is no bubble in Canada's housing market; worst you could see is Vancouver in isolation corrects significantly because that one market was influenced by non-resident Asian buyers. The new 15%(?) tax though has already cooled that aspect. However, it is one of the nicest cities on the planet to live in, especially for rich immigrants from Asian countries. So who really knows.

OK here are two charts for comparison. The first is inflation adjusted Toronto home price the second is US home price, unadjusted and adjusted for inflation. You tell me which one is more bubbly?

For the US, between 1970 to 2007, the inflation adjusted price went up 1.8x and the bubble popped. For Toronto, between 1970 to now, the inflation adjusted price went up 3.7x. I think Vancouver is even more and I am surprised the market still has not popped?

 

[jj90]

The market did pop in Vancouver, single family is off 20% from the peak. Is there more downside? Who knows.

Toronto won't come off because 2 words: Mainlander money.

That has to end before we go south. That or rates at 4% and a global recession.

1 thing you guys down south need to understand is Canada isn't the US. I don't mean housing isn't going to pop, but it'd likely look a lot different then what you saw.

 

[SimpleTrades]

You aren't understanding the Canadian housing market at all. BC already put a huge tax on foreign buyers so if anything they've over cooled their market with intervention. It's in their best interest to have more local buyers. There will be no crisis, the demand for housing in our best cities is massive and getting stronger as the US loses favor as a destination of choice for many people.

People have been predicting a housing crash in Canada on here for many years. It's based on idiotic logic, that anything that appreciates a lot must crash ( we see this logic on numerous themes here from deluded traders ). In reality, Canada's major cities are not expensive compared to other world class cities in the world, including some in the US. And the demand is still extremely strong far greater then the supply.

The USA housing market was about loaning risky people a lot of money to buy a home. Canada isn't like that at all, our banks are conservative in nature, so much so that many legit buyers are essentially shut out of the ability to buy a home.

You are not understanding the issue.

When interest rates are at an all time low, assuming a debt which is the maximum that you can afford, is a disaster begging to happen. Why? If interest rates rise, increasing demand on your income, unless your income also rises enough to compensate, you are suddenly in financial trouble and unable to service your debt.

If a person is unable to save for their downpayment, they are demonstrating that they lifestyle is maxing out their available income. They are already demonstrating the tendency to place themselves in a position where a small increase in demand on their income, will push them underwater.

Anybody who believes that their expenses will reduce if they shift from renting to owning a house, is really fooling themselves. It is much more likely that the demand on your income will increase. However, because you have already shown that you can't save the downpayment, you don't have the capacity to handle that increased demand on your income.

But wait a minute, now not only do you have your mortgage payment, you also have a loan payment to make.

My issue here is a repeating history. I am not suggesting that Canada's future housing crash will look anything like the USA in 2008. I AM suggesting that we are repeating the approach of qualifying people for debt they can't really afford.

Edit:

For those of you who've saved a sufficient downpayment in your RRSP, you should very definitely exploit this loan rather than using the first-time homebuyers plan in your RRSP.

 

[Sig]

You are not understanding the issue.

When interest rates are at an all time low, assuming a debt which is the maximum that you can afford, is a disaster begging to happen. Why? If interest rates rise, increasing demand on your income, unless your income also rises enough to compensate, you are suddenly in financial trouble and unable to service your debt.

If a person is unable to save for their downpayment, they are demonstrating that they lifestyle is maxing out their available income. They are already demonstrating the tendency to place themselves in a position where a small increase in demand on their income, will push them underwater.

Anybody who believes that their expenses will reduce if they shift from renting to owning a house, is really fooling themselves. It is much more likely that the demand on your income will increase. However, because you have already shown that you can't save the downpayment, you don't have the capacity to handle that increased demand on your income.

But wait a minute, now not only do you have your mortgage payment, you also have a loan payment to make.

My issue here is a repeating history. I am not suggesting that Canada's future housing crash will look anything like the USA in 2008. I AM suggesting that we are repeating the approach of qualifying people for debt they can't really afford.

Are fixed rate mortgages not widely available in Canada? I only ask because you all are acting as if rising interest rates will impact mortgage holders where it would actually be the opposite if they were in a fixed rate mortgage. As a renter, you're fully exposed to rising interest rates and the increase in housing prices, plus you give away your rent every month and build no equity. It's the people who have a relatively fixed (i.e. no big upside) but lower income who you want to own houses the most, they're the one's who are screwed the most by having to rent and who benefit the most from owning a house under a low rate 30 year mortgage.

 

[SimpleTrades]

Are fixed rate mortgages not widely available in Canada? I only ask because you all are acting as if rising interest rates will impact mortgage holders where it would actually be the opposite if they were in a fixed rate mortgage. As a renter, you're fully exposed to rising interest rates and the increase in housing prices, plus you give away your rent every month and build no equity. It's the people who have a relatively fixed (i.e. no big upside) but lower income who you want to own houses the most, they're the one's who are screwed the most by having to rent and who benefit the most from owning a house under a low rate 30 year mortgage.

Yes, we do have the fixed rate mortgage. In fact, new rules in Canada require you to satisfy that you can afford the current (is it 5 year fixed at 4.8%?? - something like that). Most financially savvy people still choose the variable since its consistently lower than the fixed.

My issue however with the person who needs this new downpayment loan is that they've already demonstrated that they must use all their income for their lifestyle. So, despite qualifying at 4.8% and selecting the current 2+% variable rate, they will spend the difference rather than saving it.

 

[ironchef]

Are fixed rate mortgages not widely available in Canada? I only ask because you all are acting as if rising interest rates will impact mortgage holders where it would actually be the opposite if they were in a fixed rate mortgage. As a renter, you're fully exposed to rising interest rates and the increase in housing prices, plus you give away your rent every month and build no equity. It's the people who have a relatively fixed (i.e. no big upside) but lower income who you want to own houses the most, they're the one's who are screwed the most by having to rent and who benefit the most from owning a house under a low rate 30 year mortgage.

Not when I owned a house in Toronto a few years back. Then, they had what we called a 5/1 arrangement, rate was fixed for 5 years. Maybe now it is different.

 

[SimpleTrades]

Not when I owned a house in Toronto a few years back. Then, they had what we called a 5/1 arrangement, rate was fixed for 5 years. Maybe now it is different.

Its pretty common. Not sure why you didn't see it 5 years ago.

https://www.ratehub.ca/best-mortgage-rates