# House prices dropping by even 10% would be bad: Liberal MP



## nathan79 (Feb 21, 2011)

What a clown this guy is...






TVO Today | Current Affairs Journalism, Documentaries and Podcasts







www.tvo.org





"We know that Canadians rely on homeownership to secure their place in the economy, and also for retirement... We have to be very careful that whatever steps we take protect the investments Canadians have made in their homes..."

That's right, he's more concerned about protecting the investments of the small percentage of people who bought at peak prices than he is about the other 95% of Canadians who either don't own a home, or bought years ago at much lower prices, as well as those owners who would like to move up the property ladder, but can't because of these ridiculous valuations. Because clearly, it's more important to protect people who FOMO'd into the market at what they should have known were risky valuations. That's okay, the government won't let you fail... keep bidding those prices higher. Housing will never go down even 10%, we guarantee it!

Seriously, **** this government.


----------



## sags (May 15, 2010)

Home prices in our city are up 149% in the past 5 years.


----------



## nathan79 (Feb 21, 2011)

What really blows my mind is that he spends half an hour blathering on about what he thinks are the solutions... he actually believes that they can somehow protect homeowner's equity while magically making housing affordable, and still have prices increase "modestly" (not quoting directly, but I believe that's the gist of what he said).

Man, wake up! You've totally failed, you're not about to stop failing just because you have these pie-in-the-sky ideas. Have you ever considered that perhaps government is the problem with housing, not the solution? I'm guessing not... you're a Liberal.

I used to think that the government could actually implement some sensible policies that would cool off the market, but I'm starting to think that we need to get the government completely out of the private housing market, because all they seem capable of doing is screwing things up. Get rid of the CMHC, and tell the banks they're on their own. No bailouts ever, no more "liquidity support" (another BS term for a bailout). Banks accept 100% of the risk and it's up to them how much of a down payment is required. No more programs for first-time homebuyers. No principal residence exemption. Get rid of all of these market distortions that are only doing the opposite of making housing affordable.

Do you think that banks would offer 1.5% mortgages if it wasn't completely risk free? Heck no... there's far better returns out there for a bit more risk. I predict that we'd quickly see mortgage rates go up, banks requiring higher down payments, and home prices coming down in response. People who actually put in the effort save up for a house would finally be rewarded, while people who FOMO'd in with 5% down would have to bear the consequences of their stupidity. But that will never happen.


----------



## diharv (Apr 19, 2011)

It is in the Liberal govt's best interest to keep this gasbag inflated and expanding into perpetuity because this is the only economy Canada has left. An economy based on selling houses to each other at ever inflating prices. It's a joke and likely the rest of the world is noticing the insanity. CMHC should be abolished.


----------



## Ukrainiandude (Aug 25, 2020)

That is right


----------



## prisoner24601 (May 27, 2018)

When I look at affordability data like the report here it seems very regional to me and in many parts of Canada affordability is much better than back in 2000 when we hopped on the ladder. For example, in 2000 it took about 34% of monthly gross income to buy a single family home in Ottawa. In 2021, it takes only 29% of median income to buy a single family house. This is less than the 32% lending guideline by banks. Other areas like Calgary are much better off today at about 26% now compared to 41% in the good old days. Of course it's all driven by interest rates and the supply squeeze resulting as people try to get in on the action. If rates stay low and listings go up affordability should remain reasonable in markets outside of Toronto and Vancouver. A bigger concern for me is what happens in 5 years if rates pop and so the stress test seems a prudent measure

P


----------



## doctrine (Sep 30, 2011)

prisoner24601 said:


> View attachment 21568
> 
> 
> When I look at affordability data like the report here it seems very regional to me and in many parts of Canada affordability is much better than back in 2000 when we hopped on the ladder. For example, in 2000 it took about 34% of monthly gross income to buy a single family home in Ottawa. In 2021, it takes only 29% of median income to buy a single family house. This is less than the 32% lending guideline by banks. Other areas like Calgary are much better off today at about 26% now compared to 41% in the good old days. Of course it's all driven by interest rates and the supply squeeze resulting as people try to get in on the action. If rates stay low and listings go up affordability should remain reasonable in markets outside of Toronto and Vancouver. A bigger concern for me is what happens in 5 years if rates pop and so the stress test seems a prudent measure
> ...


How many problems are there with that report? That report was for Q4 2020 when interest rates hit record lows. Interest rates have already moved up 25% or more, while housing prices have moved up another 20% and in many cases more than that, just in the last 5-6 months. That will destroy that housing affordability number basically everywhere. That is, if you can get a house at all, given that you are actively blind bidding against as many as 30-50 other people for a single house. Of course, this report also includes "representative homes" which includes condos, which no one wants anymore. 

20 years ago you may have been able to just afford an actual home. Today in those cities, you may be struggling just to afford a 600 square foot condo instead - but it's still "affordable"? This is the situation people are facing today.


----------



## birdman (Feb 12, 2013)

In the early Jan 1980 the average Vancouver home sold for $86,000. and one year later the average was up 110% to 177,000. Inflation was rampant but was short lived as the Bank of Canada increased its rate to a high of 21% and by the summer of 1982 the average price dropped to $110,000. Problem solved and for the most part it was the speculators and greedy who got hammered. 
Also, just checked out the price of a 2 x 4 and it was $8.20! It seems that I recall them being only around $2.00 a few years ago. These high lumber costs plus the labour shortage are also no doubt contributing to the high costs.
Higher interest rates would create less demand would also help solve this issue. Who knows but maybe higher rates are in the offing.


----------



## sags (May 15, 2010)

A frugal couple diligently saved $1,000 a month towards a down payment on a home.

Meanwhile, the price of homes rose $32,000 a month in Toronto.


----------



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

The government has little control on housing prices - demand and supply control that. 
CMHC was created to allow "affordable housing" where purchasing with 5% down is possible. Eliminating CMHC will only create havoc and kill the housing market overnight. When the economy risks crashing, the government has the flexibility to step in to keep things afloat through CMHC - without them, the banks would fail miserably. Just look at the risks the US banks face. How safe would you feel storing your money with a private bank?

Whatever your political views are, it is in everyone's interest to protect the equity in a home. With time, everything will normalize itself.


----------



## Ukrainiandude (Aug 25, 2020)

Mortgage u/w said:


> The government has little control on housing prices - demand and supply control that.


 I disagree. By raising/slashing interest rates the government has control over housing prices.


----------



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

Ukrainiandude said:


> I disagree. By raising/slashing interest rates the government has control over housing prices.


Not sure you're following but interest rates have risen easily 60bps since the beginning of the year and there is no sign of a slow-down. 

Qualification rate will be going up in June too......I am willing to bet that it will not cause a slow-down either.

You can't just look at interest rates and juggle them as you please in the hopes of slowing down the housing prices.


----------



## Ukrainiandude (Aug 25, 2020)

Mortgage u/w said:


> Not sure you're following but interest rates have risen easily 60bps since the beginning of the year and there is no sign of a slow-down.
> 
> Qualification rate will be going up in June too......I am willing to bet that it will not cause a slow-down either.
> 
> You can't just look at interest rates and juggle them as you please in the hopes of slowing down the housing prices.


BofC rate was/is 0.25% since March 2020. Make it 4% and then we shall see if the prices of real estate will climb further up.


----------



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

Ukrainiandude said:


> BofC rate was/is 0.25% since March 2020. Make it 4% and then we shall see if the prices of real estate will climb further up.


That’s not the only rate you should be looking at.
But hey, if a rate hike scares you, don’t buy. There are plenty of people that will think otherwise.

I’d just like to add that you don’t control housing prices with interest rates. Lending rates follow bond rates. The government can’t just make up a rate. The overall strength of the economy decides that.


----------



## doctrine (Sep 30, 2011)

Maybe the government can't influence bond rates, but the central bank could make a concerted enough effort to push up 5 year bonds rates if they wanted. They are in heavy all-out active quantitative easing right now after all, buying every bond they can including those 5 years government bonds and driving yields crazy low. If they started actively dumping these bonds onto the market, mortgage rates could easily jump above 3%, after some time of course, and there would be cooling down. If nothing else, it would help break the psychology of the market. That is really everything. Record low interest rates have absolutely been fuel to the fire, which has enabled the extreme FOMO. 

That being said, the central bank is unlikely to do this, so I think interest rates are just likely to drift back up slowly.


----------



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

doctrine said:


> Maybe the government can't influence bond rates, but the central bank could make a concerted enough effort to push up 5 year bonds rates if they wanted. They are in heavy all-out active quantitative easing right now after all, buying every bond they can including those 5 years government bonds and driving yields crazy low. If they started actively dumping these bonds onto the market, mortgage rates could easily jump above 3%, after some time of course, and there would be cooling down. If nothing else, it would help break the psychology of the market. That is really everything. Record low interest rates have absolutely been fuel to the fire, which has enabled the extreme FOMO.
> 
> That being said, the central bank is unlikely to do this, so I think interest rates are just likely to drift back up slowly.


if that happens, everyone will pull out of the equity market and buy bonds. Then what?


----------



## nathan79 (Feb 21, 2011)

The government and the BoC used QE to purchase mortgage-backed securities and create a housing-fuelled "economic recovery". The primary purpose of QE is to lower interest rates and increase lending, thereby inflating asset values. Those with the most wealth hold the most assets, and they saw those assets skyrocket in value. They were also best positioned to take advantage of this cheap credit. Meanwhile, the poor and everyone else got completely screwed -- especially savers who saw their down payments lose value compared to the gains in house prices. The fact that the government knew exactly what they were doing is why a lot of people are so furious about this.

Instead of buying all of these bonds, they should have let the banks tighten credit like is supposed to happen during a recession. I also think that 5% down is far too little considering the price of homes today. That may have made sense when the average mortgage was 200K or something, but mortgages are much larger now. Someone who puts 5% down on a 1 million dollar house can end up 100K underwater with only a 15% drop in the value of their house.

I'd also argue that allowing 5% down doesn't actually create lasting affordability. All it really does is allow prices to get bid up until they are unaffordable again. Then you're literally back at square one. It would be better to require a higher downpayment, which would force people to take the time to save up. This would be deflationary as it would lower demand.


----------



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

Its a careful balancing act. The government and BoC have extensive data and expertise to come up with a reasonable solution to ensure the market stays afloat. I have a hard time believing that our government is doing something to purposely impact the economy negatively. Lending rates are low for a reason and its not to simply stimulate the economy.

Lending criteria is a different argument. That's where OSFI comes in and somewhat regulates the criteria. Although I would agree that 5% down is very low, the argument is that its necessary in order to create affordable housing. The consequence is an increase in rents if people cannot get into the housing market. Lets not forget, 5% only gets you a property valued max $500k - any amount over that you'll need 10% and CMHC will not assist if a property is valued over $1M at which point 20% is required. Like any business, Banks want to make money so they will lend the most they can. No one can control the level of debt an individual is willing to take on.

I am looking at this from a lenders perspective. I see how far consumers are willing to go to get a mortgage and I can tell you, they go far. All they care about is the monthly payment and couldn't care less about affordability. 

Supply is at an all-time low - listings are down by more than 50% compared to last year, sales are up. Demand has always been there - people need a place to live. With a short supply, housing becomes a valuable commodity to those in need. So even with interest rates rising - which they did substantially, the argument that raising interest rates will slow down the housing market is false.


----------



## nathan79 (Feb 21, 2011)

Thanks for the correction regarding the CMHC insurance... 5% down on the first 500K and 10% down on the rest. But that's still only a 7.5% down payment on a $999,999.99 home. Not quite as bad as 5%, but still not a lot of wiggle room. The fact that it's often first time buyers taking these gigantic mortgages is also pretty scary.

I disagree that banks naturally want to lend as much as they can. Banks want to balance risk and reward, but currently they see very little risk in the market. The government and BoC has made it clear that they will do whatever it takes to support banks, by providing liquidity (purchasing bonds), up to and including a full-on bailout if things went sideways like in 2008.

I've actually seen several banks recently calling for the government to take measures to cool down the housing market. But no single bank is going to tighten on its own because they have shareholders to report to. Any bank that decides to tighten lending is simply going to lose that business to their competitors.

Rising rates are a recent phenomena and haven't really impacted variable rate mortgages yet. I also don't think you can rely on the B20 stress test as a proxy for real interest rates. People might believe they can handle a certain monthly payment, but actually paying it is another story. If they get used to paying 1.5%, they're going to structure their lifestyle around that number... when real rates double, suddenly they're faced with having to make some serious choices. Maybe they can't afford that new luxury SUV or tropical vacation twice a year. No one wants to give up their lifestyle, so they might start to look more critically at the massive mortgage payment.


----------



## doctrine (Sep 30, 2011)

Mortgage u/w said:


> if that happens, everyone will pull out of the equity market and buy bonds. Then what?


It's not all or nothing. Even a small move up in 5 year bonds could cool things. Probably if BoC just slows their purchases, rates will rise. I believe they own nearly 50% of all government bonds in Canada - that's quite incredible and a real market distortion.


----------



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

Agree, no bank will tighten up their criteria for obvious reasons. The calls that the banks are making to cool housing is not what we would expect.....they want measures and resources made available to consumers while maintaining their spread. Its almost trivial.

Variable mortgages have not been impacted and yet, most consumers keep favoring fixed rate mortgages which are much higher.

The stress test is a joke in my opinion. Its very easy to bypass that qualification. Just like buying luxury cars.....most can't afford them but once they discover 8 year financing is possible, it quickly becomes affordable. Want an inground pool with your new home? Retail lenders will take that project on a 25 year term. Heck, add an extra $30k LOC for emergencies so you can still squeeze in that vacation you can't miss.

The problem is not necessarily mortgage debt.....consumer debt is the real problem. I have argued for years that debt ratio limits need to decrease and be properly applied to all forms of borrowing. That will slow down consumers tremendously but can also affect profitability on the other end of things. 

Sorry, I may have treaded off the subject.


----------



## off.by.10 (Mar 16, 2014)

nathan79 said:


> I'd also argue that allowing 5% down doesn't actually create lasting affordability. All it really does is allow prices to get bid up until they are unaffordable again. Then you're literally back at square one. It would be better to require a higher downpayment, which would force people to take the time to save up. This would be deflationary as it would lower demand.


In theory, bidding prices up eventually leads to more construction, which fixes the supply problem. But this takes a while and there are other roadblocks to new construction.

People need a place to live. If you make it more difficult to own through rates, downpayment, etc, they don't just magically vanish. The demand will shift to rentals and you'll get shortages and price increases there.


----------



## hfp75 (Mar 15, 2018)

nathan79 said:


> Have you ever considered that perhaps government is the problem ... , not the solution? I'm guessing not... you're a Liberal.


thought I’d fix that for ya... Haha


----------

