# Hidden problem........over valued homes



## sags (May 15, 2010)

This looks like it could be a huge problem.

Homes that are overvalued for the purpose of mortgage lending........because lenders have relied on appraisals by a software program.

According to the article.............some of the recent mortgage changes may be a response to this problem, although they were never spelled out that way publicly.

I would expect "appraisals" in the future may very well involve someone actually examining the specific home in detail...........and home values may be less than expected.

http://www.theglobeandmail.com/repo...et-canadian-home-prices-wrong/article6673774/


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## emperor (Jul 24, 2011)

Most people think they are over valued, problem is what option do you have? I've been waiting 10 years for them to get back to reality but the goverment and banks have made sure they stay high. So what do you do? 
Average wage in Canada is $46,085 , average home price is $361,516.

So that means your mortgage over 20 years in $2017.00 a month. Your after tax average wage is $37,800.00 or $3150.00 a month

Once you factor in the $900.00-$1200.00 a month for the additional price of your house you are spending an average around $3000.0 a month for an average house.

Now lets say you have two people making the average wage thats $6,150.00 Your bills are $3000.00 for an average home. Thats nearly 50% of your income, the rule of thumb is your only supposed to spend 30% on your housing. That means the average wage needs to go up or the averge homes needs to go down.


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## kcowan (Jul 1, 2010)

The thing I worry about it realtors putting in multiple prices for $50 each then listing a property for sale higher because it passes.

The whole yes/no approach versus an actual value leaves me shaking my head.


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## lonewolf (Jun 12, 2012)

From my understanding the following happened in the U.S

The banks wanted to lend out more money so they would have homes appraised more then they were worth. If the highest price a home will sell for is $100,000 but it is appraised for $1,000,000. If a buyer buys it for $100,000 & only puts $500 dollars down the bank was viewing it as only $99,500 dollars left on a mortgage on a property that was worth $1,000,000. (making it look low risk)

Credit unions help to make the country strong financialy because they are owned by the members & it is in thier best interest to make sure when they lend money out the risk is reasonable. The backing of the banks by the tax payers makes the country weak financialy. Why not go for risk if the banks win more profit, if they lose tax payers bail out. When the goverment backs the banks the masses feel more confident to lend money to the banks which gives them an edge to not be as prudent with the investment risk. 

Many of the worlds top wealth protection experts think one of the safest places to keep money is in Swiss Annuities yet these are not backed by goverment. The market helps to keep them honest in regards to risk. @ some point the goverment will not be able to pay all it bills


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## sags (May 15, 2010)

kcowan said:


> The thing I worry about it realtors putting in multiple prices for $50 each then listing a property for sale higher because it passes.
> 
> _The whole yes/no approach versus an actual value leaves me shaking my head._


You have to think the bankers were shaking their heads too, unless they are morons, but probably thought.......what the heck, pass the debt on to CMHC and it will be their problem.


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## HaroldCrump (Jun 10, 2009)

sags said:


> probably thought.......what the heck, pass the debt on to CMHC and it will be their problem.


You are exactly right.
Do you know that a large majority of appraisals are performed by the banks using CMHC's GVS system?
This is a system where the lender can click a few buttons on a computer screen and out pops the maximum loan guarantee.

CMHC issues both primary and secondary guarantees (for mortgage loans re-packaged by the banks).
Interest rates have been kept artificially low at these levels to ensure the borrowers in these over-valued homes are able to make their payments.
A 1% rise in variable lending rates will start to make many folks under-water; a 2% rise is likely to create a mini-correction.

There is another, much larger, problem with these over-valued homes that folks have been buying at 10x times their _gross_ salaries.
Mortgages with low downpayments and long amortizations (40, 35, even 30).
Folks buying homes in their 30s or 40s will be working to pay these mortgages well into their 60s.


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## marina628 (Dec 14, 2010)

Not sure where you guys bank at but the last 5 mortgages/credit lines I have done TD Bank has always sent out an appraisal person and we always put down 20-35% on each home.Even a year ago when we did our credit line ,bank knew we put $212,000 down when we bought in April 2010 but they had an appraisal done.We estimated the house to be $600,000 just to avoid appraisal but TD insisted on appraisal which came up to $650,000 anyway.Maybe it is because we are self employed and have multiple investment properties the pick on us ?


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## Dmoney (Apr 28, 2011)

I think the rules for a primary residence are much more lax than for second/third + properties. 

Place I bought was not appraised. Also, a house is worth what someone is willing to pay for it. An appraiser won't be able to tell you anything useful unless they themselves buy the thing.


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## Sampson (Apr 3, 2009)

HaroldCrump said:


> Folks buying homes in their 30s or 40s will be working to pay these mortgages well into their 60s.


It'll be much longer than that.

If the boomer generation started buying houses when they were in their 20's (presumably 20% down, 25 year mortgages) and now, continue to carry that debt in their 60's (probably by continuously extending their amortizations during renewal, or keeping the same 25 yr amortization), then those in their 30s and 40s will have to wait until they are 80 before they are mortgage free.


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## sags (May 15, 2010)

Good article by Garth Turner............

It seems the government very quietly expanded their guarantee to private mortgage insurer Genworth, another 50 Billion.

Canada now guarantees that company's 250 Billion in debt, along with the CMHC's 600 Billion.

Lord help us if the housing bubble collapses, instead of the "soft landing" Flaherty is counting on.

http://www.greaterfool.ca/2012/12/26/the-soft-landing/

I am reminded of the old saying........or song.........they are dancing as fast as they can.


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## underemployedactor (Oct 22, 2011)

sags said:


> I am reminded of the old saying........or song.........they are dancing as fast as they can.


It's actually a book, "I'm dancing as fast as I can" by Barbara Gordon in the 70's later made into a film. I make the correction not to be school marmish but to point out an interesting parallel. Gordon's book was about her addiction to legal prescription drug, whereby doctors and govt approval bodies all colluded in allowing and maintaining her addiction. Lending companies and govt approval bodies are also culpable in people's addiction to another perfectly legal but also damaging fiscal drug ie easy credit for cheap money.


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## sags (May 15, 2010)

Interesting comparison.............


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