# Impact of new mortgage insurance rules



## andrewf (Mar 1, 2010)

What are your guys thoughts on the impact of the mortgage insurance/qualification changes recently announced?

I think it is a sensible step. The government should not be subsidizing higher risk mortgages. I think clamping down on tax evasion is sensible as well.

http://www.ctvnews.ca/business/mortgage-rules-what-do-the-changes-mean-1.3102794


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## rookie (Mar 19, 2010)

Since fewer first time buyers will now qualify, it reduces the demand and hence puts a downward pressure on the semi/town homes. The new rules dont affect the home owners who have sufficient equity built up and are looking to upgrade to detached. So the demand for detached will remain strong and become more and more coveted. The gap between the semi/town and detached will worsen and hence the people wanting to upgrade to detached will end up taking on more debt.

Looks like the bottom line is they are moving the debt burden from high risk loans to medium risk loans.

The demand is genuine and that is what is pushing the prices up. The long term solution is to create more housing and better transit. With Trudeau govt planning to increase the immigration, makes sense to create new commercial centres and relieve the pressure from TO and Vancouver.


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## Market Lost (Jul 27, 2016)

I never understood the former government's fixation on down payments and terms when the issue was always property flippers, and usually those who were offshore. These measures will be far more effective as it takes away the incentives for those who are only in it for a fast buck, and allows the real buyers to have a chance.


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## sags (May 15, 2010)

It probably means a long, slow decline in home prices.

If prices drop significantly, the banks may not renew mortgages.

I read that one bank, was going through their mortgage portfolio to see if the mortgage to asset values were within their comfort zone.

It could also affect HELOCs, if the equity in the home becomes insufficient.

People who owe $20,000, $30,000 or more usually don't have the cash sitting around to pay it all back on demand.

I know a couple who own a home and a rental. Both properties have maxed out mortgages and they owe $20,000 on HELOC.

It won't take much of a housing price decline to put them a lot of money "under water."


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## mordko (Jan 23, 2016)

Another change on the cards would be for taxpayer to stop guaranteeing mortgages. That's an even better measure, makes no sense for banks to get lost the profit without any risk. Bad for shares though.


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## My Own Advisor (Sep 24, 2012)

This is a great move overall. If people are sweating about a 25 basis point increase in rates, they have seriously taken on too much debt. Folks need a reality check!


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## latebuyer (Nov 15, 2015)

I actually think the 39% ratio is low - I think it could go up as high as 50%. I know I have a pension so my savings rate can be low. I already have a mortgage but would just squeak through under new mortgage rules. I am looking at about 1/3 of my income. And what if my salary decreases? When I contacted my mortgage broker she wasn't clear how these rules affected people who already have a mortgage. Certainly if you renew with the same lender you are okay, but maybe not a new lender. That's why as you can see from another post I would like to move to a lender that has overall good rates instead of going with a mortgage broker.

People are fooling themselves if they think these rules don't affect them if they have a mortgage. I've read reports that suggest that banks will probably increase mortgage rates over all due to this change which I am not looking foward too.

Just a note that as a single person, I am probably considered a higher risk mortgage loan so I sympathize with people who are thought of in this category. I know when my single friend tried to get a mortgage 15 years ago she had trouble even getting one so things have definitely improved. Millenials who's salary are still low will have more trouble buying a home and I don't know that is in the best interest of society as a whole to disenfranchise that group and prevent them from buying a home if they want to start raising families etc. I also read that the use of shadow lenders is going to increase even more which hits certain groups hard.


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## My Own Advisor (Sep 24, 2012)

All of this stuff is a signal to me to get out of debt sooner than later.

If I have no mortgage, I won't care as much 

I do feel for Millennials who want a home, but home ownership is not a right - and it doesn't make sense for everyone. If folks do the math, more often, it costs more to own a home over time than rent - don't underestimate the maintenance costs of a home, including big capital expenses like fixing foundation cracks, new roofs, new furnace, etc.

Home owners can be home moaners.


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## latebuyer (Nov 15, 2015)

Actually i've been thinking about it and millenials very well could benefit if home prices drop. It is actually gen x ers and boomers who already own their own home who could lose out if prices drop.


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> This is a great move overall. If people are sweating about a 25 basis point increase in rates, they have seriously taken on too much debt. Folks need a reality check!


+1 Good the stress test will be done at >4% although I really don't know where 4.64% magically comes from. Few can foresee mortgage rates as high as that any time soon, but the world has a funny way of surprising.

My mortgages were typically in the 9-12% range in all the years I had a mortgage. A few might have been less but I don't remember (1974-1989 inclusive).


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## My Own Advisor (Sep 24, 2012)

I can't imagine the 9-12% range AR. I suspect that period is what made you a smart investor today. You were forced to be good with your money.


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> I can't imagine the 9-12% range AR. I suspect that period is what made you a smart investor today. You were forced to be good with your money.


Take a look at this chart http://www.ratehub.ca/5-year-fixed-mortgage-rate-history and see what us boomers had to deal with.... The first chart is the undiscounted rate and as Rate Hub says, subtract about 1.4% off that for perhaps a better average on what most people likely paid. How about 20% in the 81-82 period?

I was fortunate in that the circa 5 houses I owned (due to corporate transfers) during that 15 year period of 1974-1989 had assumable mortgages which for good fortune of timing, had lower than "rates of the day". I escaped paying anywhere near that terrible spike.


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## sags (May 15, 2010)

In 1983 we bought a nice home for $75,000

Today it would sell for $225,000.

With the interest rates, taxes and maintenance costs it would have been a poor "investment".

But there are other qualities to home ownership that make it very worthwhile. Pride of accomplishment and feeling of security among them.

Problem is it is difficult emotionally to give up the family home when a couple retire. Lots of memories in the home. 

I have seen people weep about it.


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## AltaRed (Jun 8, 2009)

Buillding on what Sags has posted, but going off-topic, there is often an irrational attachment to the family home. Many examples of elderly couples trying to sell their house to move to a retirement home but it sits on the market for a very long time. One, or both, of two things at play here: 1) they have it priced way above market and refuse to price it accrordingly because they think it is worth a lot more, and 2) it has not been updated in 30 years. When it has not been updated, they are forgetting that a potential buyer looks at the property and sees they will have to spend $100k to update it...and that has to be subtracted from the price.


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## My Own Advisor (Sep 24, 2012)

I have found this in my neighbourhood AR. People believe their house is worth much more than it is. I've always believed, rightly or wrongly, a house is a place to live. Sure, it's a financial decision - a huge one - but it doesn't guarantee you a financial windfall. Houses need to be maintained to keep their value. Someone that hasn't updated their bathroom or kitchen in 30 years is not going to get good (or more) money than those houses that have. 

I believe folks in Vancouver, Toronto, even Calgary before the oil crisis hit there - are brainwashed into believing the housing market can only go up. Hard not to blame them, prices have what, tripled in Vancouver over a decade or so? Nuts. 

Our house is likely worth close to $600k. The house across the street is likely worth $750k. But it's twice as big as ours and double the heat, hydro, water and maintenance bills. I'll take our house, on a decent lot, one of the smallest houses in our neighbourhood over a massive 3,500+ sq ft. McMansion any day.


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> I believe folks in Vancouver, Toronto, even Calgary before the oil crisis hit there - are brainwashed into believing the housing market can only go up. Hard not to blame them, prices have what, tripled in Vancouver over a decade or so? Nuts.


In areas with obscene price growth, the best thing going for an older home is lot size and location, and the dumpiest building on it too. That is because the buyer is buying for the lot and the less it costs to demolition the existing structure the better. 

In the Marda Loop (relatively inner city) area of Calgary where my spouse lived until 2013, there was a lot of buying up of old run-down neglected properties of 70-100 yrs old and replacing them with expensive side-by-sides. But those are market aberrations and not the typical resale.


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## sags (May 15, 2010)

I always recommend to young people who wish to buy a home.

1) Buy a home you can easily afford. There are other priorities in life besides buying a house...........like eating and kids.

2) Pick a home in a good neighborhood, even if it is the smallest home in the neighborhood.

3) Pick a home that has already been updated. Renovations are expensive unless you can do them yourself.

4) There is nothing wrong with a 1950s brick bungalow or small ranch that has been updated. Generations of families managed nicely in a 1000 square foot home and a finished basement. Around here they are for sale for around $250,000, which is affordable.

But.........that isn't what they want to hear. They invariable say........but the bank approved us for $450,000 so...........


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## Market Lost (Jul 27, 2016)

latebuyer said:


> Actually i've been thinking about it and millenials very well could benefit if home prices drop. It is actually gen x ers and boomers who already own their own home who could lose out if prices drop.


I think it will help more of us than you think. I'm looking at buying a larger house, so a price drop will actually help me, as it will mean those houses will come down more in price than mine will. I also have a lot of equity, so it's not much of an issue.


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## Mortgage u/w (Feb 6, 2014)

I'm not sure everyone truly understands the big picture of the changes. Although it seems minor to the average consumer, the impact behind the scene is tremendous. I'm sure most have heard about bulk insurance. If not, well this is how mono-line lenders are able to obtain financing. Mono-line lenders represent 20-30% of the mortgage industry. It seems like nothing but they provide competition and consumers with options by keeping their borrowing costs low and benefits high. 

Back to bulk insurance....the new mortgage rules apply to bulk insurance just as it does to regular insured products. This means the mono-line lenders will have a tough time selling conventional mortgages (since those are bulk insured). The banks are laughing because their conventional mortgages are not bulk insured and do not have to follow the same rules. Most people will say, "so what?". Well, if you lose the mono-lines' competitive edge, costs will rise and the banks will control the industry like a puppeteer. DOF knew they couldn't increase their rates - so they are indirectly forcing the banks to increase THEIR rates instead. 

If less mortgages are being securitized through asset back paper, then there is less investing from large institutions, less profits, less money, less options etc etc.

So you see, the impact is much greater than just a simple stress test or what the government is willing to insure or not, its the blow behind the scene that will hurt. I strongly believe these changes will actually CAUSE the market to crash, instead of preventing it. They just made it harder to qualify, more expensive to borrow and wiped out a multitude of options that consumers had - all in one shot. AND, lets not forget about the fiscal impact this will have on non-bank lenders out there.

I would have agreed to the changes if the playing field was even. As is, it could become disastrous.


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## AltaRed (Jun 8, 2009)

Well, if we can get the excesses out of the market and cause Toronto and Vancouver house prices to fall back into line, even it it means 20% drops from current values. The housing market is for housing people and families, not for speculators, flippers and outright greed. If that means a 20% setback now versus a 40% setback a few years from now, so much the better.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> I do feel for Millennials who want a home, but home ownership is not a right - and it doesn't make sense for everyone.


I'm a millennial and I'm OK not owning a home for now. Once the credit bubble bursts, homes will become affordable again.


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## new dog (Jun 21, 2016)

James the government is trying to make it harder on you by tapping the brakes. The best way to affordability is to let people mortgage as far out as possible and find creative ways to make the down payment. Also allowing for the lowest rates possible so you can get as many people as possible to qualify.


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## My Own Advisor (Sep 24, 2012)

AltaRed said:


> Well, if we can get the excesses out of the market and cause Toronto and Vancouver house prices to fall back into line, even it it means 20% drops from current values. The housing market is for housing people and families, not for speculators, flippers and outright greed. If that means a 20% setback now versus a 40% setback a few years from now, so much the better.


Exactly. TO and Vancouver should likely have a 30%+ reduction in home prices. It's simply not sustainable.


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## mordko (Jan 23, 2016)

Having just sold my house in GTA, I would love to see a 30 percent pullback in spring or summer, except that the that the overall economy will likely be in a recession if that happens.


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## FI40 (Apr 6, 2015)

new dog said:


> Also allowing for the lowest rates possible so you can get as many people as possible to qualify.


Totally disagree. That kind of thing was happening in the US in the early/mid 00's and look how it turned out for them. Ever heard of lending standards?! Different borrowers should get different rates based on their creditworthiness. It's madness to believe otherwise. Having a system like we do where millenials with low incomes and borrowed down payments get the same rate as their parents with high paying good jobs and huge down payments is insane.

I think affordability in a lot of cities in Canada is very good, because rates are so low and mortgages so easy to get. But in certain cities prices are high enough to not just cancel out those accommodative policies, but blow them away completely so that housing is very unaffordable. It really does seem like a bubble/mania based on the public perception that housing is a great investment in those particular cities.

Regardless of the impact on millenials, I think it's important to fix the problems inherent in the system, which is that lenders aren't taking on enough risk, CMHC insurance is far too easy and cheap to obtain, etc. which is what the government appears to be doing. So good on them, and if these measures make the inevitable crash in some markets happen sooner, we're better off than having them happen later on when they would do more damage. If houses are still less affordable afterwards, so be it, but I think there's a good chance they'll be more affordable (in certain cities anyway).

FWIW, I'm a millenial (I think, maybe slightly older) who is renting.


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## AltaRed (Jun 8, 2009)

I agree with you. Lending standards have been way too low for too long. I believe in 20% down payments, no more than 25 yr amortization and stress testing for ANY mortgage closer to historical rates (still would like to understand the gov'ts current 4.64% reference point). If that means a lot of renters are shut out of the market, so be it. Eventually that will cause overall house prices to soften simply because those moving up have no one to sell their entry level home too. And land developers won't be able to extort vast amounts of money from builders for their land. The market of recent times has done nothing but line the pockets of land developers, builders, speculators, flippers and realtors. Time to bring it back.


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## new dog (Jun 21, 2016)

FI40 said:


> Totally disagree. That kind of thing was happening in the US in the early/mid 00's and look how it turned out for them. Ever heard of lending standards?! Different borrowers should get different rates based on their creditworthiness. It's madness to believe otherwise. Having a system like we do where millenials with low incomes and borrowed down payments get the same rate as their parents with high paying good jobs and huge down payments is insane.
> 
> I think affordability in a lot of cities in Canada is very good, because rates are so low and mortgages so easy to get. But in certain cities prices are high enough to not just cancel out those accommodative policies, but blow them away completely so that housing is very unaffordable. It really does seem like a bubble/mania based on the public perception that housing is a great investment in those particular cities.
> 
> ...



Exactly, the idea is to get in as many people as possible who can least afford it and then let the market crash. This gets prices down very quickly and makes it affordable like the US today. The Canadian government is tapping the brakes as I said so prices may not crash and opportunity doesn't knock.


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## new dog (Jun 21, 2016)

I bought my house when interest rates were 11 percent and that was great. The higher the rate the lower the home price, great for buyers. Most buyers can't see this but I consider myself lucky interest rates were so high when I bought.


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## Prospector (Jul 25, 2014)

We just bought our first rental. we had 20% down and the new rules likely would not have had a big impact onus, but now I am concerned about how they will affect resale prices. 

We bought outside the GTA in order to ensure some insulation from the bubble when it collapses. And we bought at a low enough price that we could have put the entire property on a HELOC at 3.5%. If strange things happen we should have enough escape routes to get away with minimal damage.

Could we have afforded this if property inflation on our GTA home was not as high as it is now? Likely not. Does that mean we are building on a sand foundation? Possibly. If the GTA market crashes, the loss in value on our primary house will mean we lose room in the HELOC. Will our house drop by enough in value that we lose 80% of our room in the HELOC? Not likely. 

Now we face the uncertainties of rental renos and we need to define the role of the property. This is fodder for another post though. 

My big gamble is that losing - say 30% on our $550,000 home will be more manageable if we have income on the $175,000 house to offset it, with only a 10% loss in the value of the rental property.


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## twa2w (Mar 5, 2016)

rookie said:


> Since fewer first time buyers will now qualify, it reduces the demand and hence puts a downward pressure on the semi/town homes. The new rules dont affect the home owners who have sufficient equity built up and are looking to upgrade to detached. So the demand for detached will remain strong and become more and more coveted. The gap between the semi/town and detached will worsen and hence the people wanting to upgrade to detached will end up taking on more debt.
> 
> .


Well there is another way of looking at this.
Yes the new rules don't affect those existing home owners who want to move up but if they currently own the lower end homes ie townhomes semi's etc, they have to be able to sell their homes in order to move up. If demand is low, since, as you say, first time buyers are reduced, the move up buyers then have to reduce prices on the sale of their houses in order to sell to be able to move up. This affects how much they can pay on the new house and so on. 
So eliminating or reducing the first time buyers affects the market all the way up.


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## twa2w (Mar 5, 2016)

Mortgage u/w said:


> I'm not sure everyone truly understands the big picture of the changes. Although it seems minor to the average consumer, the impact behind the scene is tremendous. I'm sure most have heard about bulk insurance. If not, well this is how mono-line lenders are able to obtain financing. Mono-line lenders represent 20-30% of the mortgage industry. It seems like nothing but they provide competition and consumers with options by keeping their borrowing costs low and benefits high.
> 
> Back to bulk insurance....the new mortgage rules apply to bulk insurance just as it does to regular insured products. This means the mono-line lenders will have a tough time selling conventional mortgages (since those are bulk insured). The banks are laughing because their conventional mortgages are not bulk insured and do not have to follow the same rules. Most people will say, "so what?". Well, if you lose the mono-lines' competitive edge, costs will rise and the banks will control the industry like a puppeteer. DOF knew they couldn't increase their rates - so they are indirectly forcing the banks to increase THEIR rates instead.
> 
> ...


Not sure where you get your information from, but the banks do bulk insure their conventional mortgages. They also bulk package these mortgages and sell them to investors both private and through mutual funds.
Banks do this to be able to lend more as well due to capital ratios. Also investors want the additional risk mitigation.
About 3/4 of cmhc insured loans are low ratio. 
The gov and cmhc actually started trying to restricting bulk insuring back in 2012.

I do agree that the new rules will likely be more challenging for the monolines. What happens with mortgages, rates, and home prices will be interesting and may not play out the way the government hopes.


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## justanick (Oct 11, 2016)

Prospector said:


> My big gamble is that losing - say 30% on our $550,000 home will be more manageable if we have income on the $175,000 house to offset it, with only a 10% loss in the value of the rental property.


If possible, can you share where is your first rental property? How much would you have as income of this property after renovation?


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## FI40 (Apr 6, 2015)

new dog said:


> Exactly, the idea is to get in as many people as possible who can least afford it and then let the market crash. This gets prices down very quickly and makes it affordable like the US today. The Canadian government is tapping the brakes as I said so prices may not crash and opportunity doesn't knock.


Oh, I see, I thought you were making a different point. Yeah, that's one way to look at it. I still support the govt's move though, just because I'd be worried what a severe crash would do to people I care about and to the economy in general. I guess we actually agree on the idea that the govt's move should lessen the severity of the resulting price drop.


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## protomok (Jul 9, 2012)

I generally agree with the changes, particularity stress testing high ratio mortgages at a higher rate, better enforcement of the principle residence exemption, and the warning to banks regarding much needed lender risk sharing.

That said there is a very real possibility the changes could trigger a real estate crash. First National has already suspended mortgages for rental properties and limited mortgages for self employed individuals. For sure we'll see mortgage rate increases but also increased rental prices, many first time home buyers can no longer buy a home. Not to mention our fragile economy.

Time will tell...

For reference the full details of the changes can be found here: http://www.fin.gc.ca/n16/data/16-117_2-eng.asp


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## Mortgage u/w (Feb 6, 2014)

twa2w said:


> Not sure where you get your information from, but the banks do bulk insure their conventional mortgages. They also bulk package these mortgages and sell them to investors both private and through mutual funds.
> Banks do this to be able to lend more as well due to capital ratios. Also investors want the additional risk mitigation.
> About 3/4 of cmhc insured loans are low ratio.
> The gov and cmhc actually started trying to restricting bulk insuring back in 2012.
> ...


Banks bulk-insure very little when compared to the mono-lines. The point is that they have the upper hand when it comes to conventional lending, whereas the mono-lines rely heavily on bulk-insurance. They now have to look for alternative avenues to fund their conventional business.


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## dougbos (Jun 4, 2012)

AltaRed said:


> +1 Good the stress test will be done at >4% although I really don't know where 4.64% magically comes from. Few can foresee mortgage rates as high as that any time soon, but the world has a funny way of surprising.
> 
> My mortgages were typically in the 9-12% range in all the years I had a mortgage. A few might have been less but I don't remember (1974-1989 inclusive).


The 4.64% is the Government of Canada benchmark rate. It is the average of the weekly 5 year posted rate of the 5 big banks.


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## mark0f0 (Oct 1, 2016)

The Canadian housing market (including Vancouver/Toronto) peaked in 2013 with the CMHC subprime mortgage insurance changes introduced by Flaherty in Budget 2013. What's been seen since has just been a shifting sales mix. Basically only higher-end or new build units are moving -- everything else makes up an increasingly smaller portion of the mix. Prices on identical properties are mostly unchanged since 2013.

These changes are likely to mean a significant leg down. In cities where the mix changes caused dramatic 'increases', the decreases probably will be exaggerated. But a lot of that is just the mix coming out of the statistics, rather than prices falling as much as implied.


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## andrewf (Mar 1, 2010)

Not sure that jives with the Teranet index, which is driven by increases in value for the same property. Toronto went from an index value of ~140 up to ~200 since 2013.


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## mark0f0 (Oct 1, 2016)

andrewf said:


> Not sure that jives with the Teranet index, which is driven by increases in value for the same property. Toronto went from an index value of ~140 up to ~200 since 2013.


Teranet's index lags severely due to its methodology, so really isn't too useful unless you're studying decade over decade price changes or similar. Its kind of like looking at baby pictures of a potential adult girl/boyfriend to determine if they're good looking.


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## mordko (Jan 23, 2016)

mark0f0 said:


> The Canadian housing market (including Vancouver/Toronto) peaked in 2013 with the CMHC subprime mortgage insurance changes introduced by Flaherty in Budget 2013. What's been seen since has just been a shifting sales mix. Basically only higher-end or new build units are moving -- everything else makes up an increasingly smaller portion of the mix. Prices on identical properties are mostly unchanged since 2013.
> 
> These changes are likely to mean a significant leg down. In cities where the mix changes caused dramatic 'increases', the decreases probably will be exaggerated. But a lot of that is just the mix coming out of the statistics, rather than prices falling as much as implied.


That's a true statement if we classify all GTA and Vancouver properties as "high end".


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## mark0f0 (Oct 1, 2016)

mordko said:


> That's a true statement if we classify all GTA and Vancouver properties as "high end".


Of course not all GTA and GVR properties are high end. Some are low end in their respective markets and within their respective categories (ie: there are luxury SFH's and there are dumpy SFH's, luxury condos downtown and ghetto condos downtown!). But on account of the CMHC rule changes in 2013 limiting subprime mortgage insurance to $600B (+ 90% reinsurance of their partners Genworth and Canada Guarantee) and tightening up other rules, the lower half percentiles of the market dramatically diminished their presence in the overall transactional volume. With only the highest 2 quartiles transacting, of course 'average' prices rose, but the median went up dramatically faster reflecting a shifting mix.

Whenever you have a median that rises much faster than the mean percentage-wise, you can almost 100% be assured that a change to the mix is responsible for much of the change to the mean. And this is precisely what happened in Vancouver/Toronto. Realtors and newspapers like to quote means as they impart a sense of health to the market, but if you took a given property in either city in 2013, and tried to sell that exact same property, no improvements other than routine upkeep, you wouldn't get anything more for it today. This is also part of why 'inventory' is apparently low despite the building frenzy -- people are in disbelief when they go to list, that their Realtors are instructing them, with comps, to list at prices dramatically less than they 'feel' things are worth given the newspaper 'headline' numbers.


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## FI40 (Apr 6, 2015)

dougbos said:


> The 4.64% is the Government of Canada benchmark rate. It is the average of the weekly 5 year posted rate of the 5 big banks.


It's not the average, it's actually the mode.



> The Bank of Canada’s conventional five-year fixed posted mortgage rate is the mode (i.e., the most common occurring number) of the conventional five-year fixed mortgage rates advertised by Canada’s six largest banks.


http://www.fin.gc.ca/n16/data/16-117_2-eng.asp


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## FI40 (Apr 6, 2015)

FI40 said:


> It's not the average, it's actually the mode.
> 
> 
> 
> http://www.fin.gc.ca/n16/data/16-117_2-eng.asp


Although now I'm curious what they do when the distribution is multimodal. Anyone?


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## mordko (Jan 23, 2016)

mark0f0 said:


> Of course not all GTA and GVR properties are high end. Some are low end in their respective markets and within their respective categories (ie: there are luxury SFH's and there are dumpy SFH's, luxury condos downtown and ghetto condos downtown!). But on account of the CMHC rule changes in 2013 limiting subprime mortgage insurance to $600B (+ 90% reinsurance of their partners Genworth and Canada Guarantee) and tightening up other rules, the lower half percentiles of the market dramatically diminished their presence in the overall transactional volume. With only the highest 2 quartiles transacting, of course 'average' prices rose, but the median went up dramatically faster reflecting a shifting mix.
> 
> Whenever you have a median that rises much faster than the mean percentage-wise, you can almost 100% be assured that a change to the mix is responsible for much of the change to the mean. And this is precisely what happened in Vancouver/Toronto. Realtors and newspapers like to quote means as they impart a sense of health to the market, but if you took a given property in either city in 2013, and tried to sell that exact same property, no improvements other than routine upkeep, you wouldn't get anything more for it today. This is also part of why 'inventory' is apparently low despite the building frenzy -- people are in disbelief when they go to list, that their Realtors are instructing them, with comps, to list at prices dramatically less than they 'feel' things are worth given the newspaper 'headline' numbers.


Seriously man, you have no idea what you are talking about. I know for a fact that the price on my GTA property has soared since 2013. We are talking almost doubling. No improvements. and no, we are not alone. No Realtor would be crazy enough to offer to list at 2013 prices. Not one of them, and I know a few, including one in my household.


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## mordko (Jan 23, 2016)

Just wondering what could be the basis for an assertion that house prices in GTA and Vancouver didn't go up since 2013... if you were to look at Northern Ontario then yeah... Prices haven't moved much. And I am not sure about the condo market inToronto but any detached property in GTA is far, far more expensive today than 12 months ago.


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## mark0f0 (Oct 1, 2016)

mordko said:


> Seriously man, you have no idea what you are talking about. I know for a fact that the price on my GTA property has soared since 2013. We are talking almost doubling. No improvements. and no, we are not alone. No Realtor would be crazy enough to offer to list at 2013 prices. Not one of them, and I know a few, including one in my household.


I'd suggest that you've gotten caught up in the hype and are completely disconnected from reality in terms of the GTA/GVR. Real Estate in those cities has flatlined. Flaherty's Budget 2013 was the high water mark for appreciation. And prices are now declining on an individual property basis. Comps are showing no appreciation. Remember that individuals sell an individual house (or two), not the ever-changing 'average' house.


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## mordko (Jan 23, 2016)

mark0f0 said:


> I'd suggest that you've gotten caught up in the hype and are completely disconnected from reality in terms of the GTA/GVR. Real Estate in those cities has flatlined. Flaherty's Budget 2013 was the high water mark for appreciation. And prices are now declining on an individual property basis. Comps are showing no appreciation. Remember that individuals sell an individual house (or two), not the ever-changing 'average' house.


What I am trying to tell you is that my wife is a realtor. We live in the GTA. We track house prices. Ours went up by 50% in the last 12 months alone. It varies between locations, but they all went up by double digits. And she estimates accurately because we sold the house a few weeks ago for the exact price she put on it. We also know what they sell around us and in the neighboring towns. Less accurately - downtown, but still... If anyone is disconnected between the two of us, it's not me. And Toronto has been hot as well. Condo market - I do not know; different story. After the latest measures that have just kicked in - I do not know. Other than that the market has been crazy hot over the last 12 months. It grew between 2013 and 2015 as well but not by as much.


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## mark0f0 (Oct 1, 2016)

mordko said:


> What I am trying to tell you is that my wife is a realtor. We live in the GTA. We track house prices. Ours went up by 50% in the last 12 months alone.


Highly doubtful. You can't just extrapolate the Realtors' 'averages' (which are only up because the Realtors have shifted most of their transactions to the high end) to your specific house. 50% has no credibility whatsoever. Zero. As I said, more realistic is Toronto/Vancouver housing being flat for the past 3 years or so as subprime credit peaked. Now prices are declining as credit is tightening.


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## mordko (Jan 23, 2016)

There has to be a psychological reason why you are working so hard to deceive yourself. Whatever, I am not your doctor.


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## mordko (Jan 23, 2016)

And here is CBC. Clearly lying through their teeth. http://www.cbc.ca/news/canada/toronto/toronto-home-prices-1.3802232


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## Mortgage u/w (Feb 6, 2014)

Just jumping in the conversation here. I would have to say you are both correct because depending where you are from and what you are seeing, there can be a large disparity from one sector to another. Its hard to use statistics because they never capture the whole picture. CMHC only tracks insured loans. MLS only tracks registered sales. There is going to be gap in either stat. 

Also, prices don't change overnight. The price trend has maintained an upward swing so far. The volume trend may have flat-lined a little, but again, depends the area. All in all, its too hard to tell right now. We can only speculate - as many are doing right now.

Bottom line, the changes that will be put in place Nov 30 will have an impact on certain people - but not the majority. Just like the past changes, consumers and lenders found ways to work around them. The new change is not all that bad and easy to overcome. The dust has already settled and its business as usual.

Remember, if we keep reporting and talking in a negative manner, then the outcome will be negative. Look for and report the positive, then the outcome will be positive. My house shouldn't sell at a decline just because "the word on the street" says so.


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## mordko (Jan 23, 2016)

Mortgage,

I am sorry, but we can't both be correct. One of us is saying that house prices in and around Toronto and Vancouver have not changed since 2013. The other is saying that while there are pockets and variations, it is impossible to find a detached house in Toronto and suburbs for the same price as in 2013.


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## Canuck (Mar 13, 2012)

mordko said:


> Mortgage,
> 
> I am sorry, but we can't both be correct. One of us is saying that house prices in and around Toronto and Vancouver have not changed since 2013. The other is saying that while there are pockets and variations, it is impossible to find a detached house in Toronto and suburbs for the same price as in 2013.


this - "it is impossible to find a detached house in Toronto and suburbs for the same price as in 2013."


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## mark0f0 (Oct 1, 2016)

Canuck said:


> this - "it is impossible to find a detached house in Toronto and suburbs for the same price as in 2013."


No its very common. Prices on individual identical units have not risen since 2013. The 'headline' numbers have gone up, but that's because the proportion of the transactions in the mix are higher end as the entry-level buyer has largely been vanquished due to tighter financing requirements.


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## twa2w (Mar 5, 2016)

mark0f0 said:


> No its very common. Prices on individual identical units have not risen since 2013. The 'headline' numbers have gone up, but that's because the proportion of the transactions in the mix are higher end as the entry-level buyer has largely been vanquished due to tighter financing requirements.


If you believe this, give us an example or two. Otherwise no one will believe you.


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## mark0f0 (Oct 1, 2016)

twa2w said:


> If you believe this, give us an example or two. Otherwise no one will believe you.


Consumer behavior verifies no increases. The housing stock of Toronto is worth, say, 1.6 million families * $400k/household = ~$650B. Some claim that prices have risen 30% without adjusting the sales mix. If you apply 30% to $640B, that's a nearly $200B injection of home equity that's being alleged. Given that inflation is non-existent despite a 20-25% currency devalution since 2011, its pretty easy to conclude that there was no increase in home equity, no wealth effect, and definitely no increase in prices. If anything, consumers have retrenched significantly, due to stagnant, if not slightly falling prices and stagnant home equity.

Ross Kay uses micro-stats to also verify the same with respect to Vancouver (don't know if he has done the same with Toronto, but the results are likely to be similar). The 'gains' you see quoted in the newspapers are aggregated *transactional* averages against a rapidly changing (ie: increasingly up-market) sales mix. Not appreciation on individual units.

Bank behavior also verifies weakening equity valuations and weakening prices, as risk premia has grown significantly since 2011 on consumer loans, particularly those backed with RE as collateral. Even though absolute interest rates have not increased due to decreases in the BoC policy target and across the short-term GoC curve, retail rates have not fallen anywhere nearly as much. Again, reflecting stagnant housing prices.


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## andrewf (Mar 1, 2010)

Yes. If true, mark should be able to provide a plethora of examples of properties transacting for similar prices today vs 2013.


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## mark0f0 (Oct 1, 2016)

andrewf said:


> Yes. If true, mark should be able to provide a plethora of examples of properties transacting for similar prices today vs 2013.


You won't find many good examples as the MLS data is polluted with non-arms-length transactions. You have to resort to broader statistical measures of the overall sales mix 2013 vs. today, and then remove the effect of those mix changes in current figures. When you go through this exercise, there have been no increases. Consumer and lender behavior provides additional corroboration. 

Ross Kay's approach, in Vancouver, was to do the same with respect to individual transactions, and he came to similar conclusions. There are more ways than one to skin a cat. Canada is caught in an almost deflationary, accelerating into a deflationary funk as home equity falls along with prices. Home equity is a powerful predictor of consumer behavior (and likewise, consumer behavior is usually a pretty good indication of home equity!). Very tight correlation.


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## andrewf (Mar 1, 2010)

Even if there are that many non-arms length transactions (what % are you asserting here?), there must be many more transactions showing no price appreciation over the past few years. 

You can't just assert that the conventional interpretation is wrong without providing some evidence.


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## mark0f0 (Oct 1, 2016)

andrewf said:


> Even if there are that many non-arms length transactions (what % are you asserting here?), there must be many more transactions showing no price appreciation over the past few years.
> 
> You can't just assert that the conventional interpretation is wrong without providing some evidence.


Nearly all assignment flipping is non-arms-length (no rational arms-length individual would fork out $$$ for a house and not receive clear title!). And what do you mean by 'conventional interpretation'? Who is saying that Toronto house prices are going up? The Realtors', in their numbers, claim that their members are selling more expensive houses. That doesn't necessarily equate to the broader housing market appreciating. Its a matter of understanding just what they're claiming when they make such claims, rather than generalizing such to mean that individual houses have appreciated. 

Anyways, there are plenty of behavioural measures that indicate no appreciation. I don't have the datasets to do what Ross Kay did in the GVR, but the logic and the numbers with respect to Toronto and no appreciation since 2013 are pretty hard to refute.


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## andrewf (Mar 1, 2010)

Do you have an example of a property (just one would be a good start) that sold for the same price in 2013 and 2016?


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## mordko (Jan 23, 2016)

This is SO detached from the real world, there has to be some kind of psychological reason for it. It's another proof that people can make themselves believe absolutely anything if they really, really want to. Suppose I should be thankful Mark isn't claiming that house prices haven't changed since the 1960s. Then again, I haven't asked so who knows? 

To be fair, in our neighborhood house prices were going up between 2013 and 2015 but slowly. Then there was a huge jump in the last 12 months.


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## mark0f0 (Oct 1, 2016)

mordko, its certainly possible that you don't live in a statistically representative neighborhood which might explain the discrepancy. Its also possible that the units which have been listed and you're observing have seen extensive value-add renovations prior to their listing, which would similarly skew the numbers. Not due to appreciation, but due to the re-investment.

Also, even if you look at transactions, nicer houses tend to transact more often than not-so-nice houses. Some of this has to do with the socioeconomic groups that buy updated versus un-updated housing. But some of it is simply due to older houses being home to much longer-term owners. These units are rarely observed in serial observations as they transact only once every 20-30 years, sometimes longer. But still must be considered in the overall realm of 'house prices' nonetheless.

Anecdotal experiences of industry outsiders tend to be clouded by confirmation bias, and "coffee row bragging". Its human nature to brag of successes, but not many people brag of failures in achieving a certain outcome. So no, I'm not going to throw sand in your eyes, not going to call you a liar or a potential inmate of the funny ward. I will simply state that prices have not been rising and there are reasons why the industry might want you to 'feel' otherwise.


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## mordko (Jan 23, 2016)

That's a lot of words, 100% divorced from the real world. Not one actual data point, not one reference... You are making stuff up out of thin air to justify whatever wishful thinking you are engaging in. 

Here is what is actually happening: http://www.cbc.ca/news/canada/toronto/toronto-home-prices-1.3802232. Toronto prices have gone up. Suburbs have gone up quite dramatically.


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## mordko (Jan 23, 2016)

In the last 12 months our house in a suburb has gone up by half; 46% to be precise. A year ago we priced it vs comparables; also looked at various options like refurbishing or rebuilding before sale. There wasn't much benefit in doing a refurb; rebuild was too much pain and high risk + we would be putting it in a bracket were it's harder to sell. 

Interestingly, the value of land was 90% of the final sale price. We know because a similar property across the road got sold to be knocked down and rebuilt for 10% less (they didn't do a particularly good job of selling the property). Ours was purchased to live in. So, most of the jump in price over the last 12 months is due to the appreciation of land. It's less dramatic if you count in USD rather than CAD. In our area the pricing is heavily impacted by Chinese buyers; only 2 of the 20 viewings were non-Chinese. 

There were no improvements since we purchased it in 2004, altogether the price went up by 124% (not counting inflation). 

Yes, our location was a special case; on the whole GTA suburbs didn't go up by quite as much. Still, all detached properties in the GTA and the suburbs have gone up.


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## sags (May 15, 2010)

I saw a large billboard sign in front of a blg mortgage brokerage today.

It said mortgage rules have changed and invited people to come in and get "re-approved".

I would take that as an indication that previous approvals are no longer valid, and people may not qualify for the same amount.


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## My Own Advisor (Sep 24, 2012)

Agreed sags, for Millennials or other would-be home buyers you need to be pre-approved at new rates; the stress test is higher.


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## latebuyer (Nov 15, 2015)

I feel like i'm going to be punished with higher mortgage rates because of peoples greedy decision to buy more home then they can afford. I was careful to buy what i could afford. There can be no doubt these changes are negative to lenders and rates will go up. You can already see that TD has raised their rates. People should be responsible for the decisions they've made.


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## Canuck (Mar 13, 2012)

Just give us one example of a house selling for the same price it did 3 years ago, that's all we ask.

Any realtor with access to stats could give thousands of examples of the exact same house selling for more than it did 3 years ago. 

Markets slipping now though....finally


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## Marty Gordon (Nov 5, 2016)

I often buy real estate in Guelph Ontario and it's gotten out of control in the last 6 months with bidding wars. Many beginner investors coming from out of town buying any old bungalow at any price hoping to flip it. I certainly expect things to settle back down again after the new rules.


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