# crazy news re: cmhc limit



## kubatron (Jan 17, 2011)

The Canada Mortgage Housing Corporation is bumping its head up against the ceiling and may need to apply for renovations to its $600-billion mortgage insurance cap. The Financial Post reports this morning that the CMHC is cutting back on the number of mortgages it insures as the value of its portfolio swells towards the limit of its government-backed mandate. And by government-backed, I mean tax-payer backed, by which I mean you and me. With debate still not settled over whether the Canadian housing market is a bubble, a balloon, or merely a little bloated, Canadians will be talking about this story today and asking about the risks of a $600-billion portfolio going suddenly bad and what it would mean for them. Granted, mortgage defaults in Canada sit at a puny 1 percent so the risk to the portfolio is next to nothing, but what happens when the CMHC hits the $600-billion limit? Would the government say “no” to a request to increase it, running the risk of killing a booming housing market? Can the CMHC change its business a bit to stay under the cap, say stop insuring loans with more than 20 percent equity?


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## canadianbanks (Jun 5, 2009)

kubatron said:


> The Canada Mortgage Housing Corporation is bumping its head up against the ceiling and may need to apply for renovations to its $600-billion mortgage insurance cap. The Financial Post reports this morning that the CMHC is cutting back on the number of mortgages it insures as the value of its portfolio swells towards the limit of its government-backed mandate. And by government-backed, I mean tax-payer backed, by which I mean you and me. With debate still not settled over whether the Canadian housing market is a bubble, a balloon, or merely a little bloated, Canadians will be talking about this story today and asking about the risks of a $600-billion portfolio going suddenly bad and what it would mean for them. Granted, mortgage defaults in Canada sit at a puny 1 percent so the risk to the portfolio is next to nothing, but what happens when the CMHC hits the $600-billion limit? Would the government say “no” to a request to increase it, running the risk of killing a booming housing market? Can the CMHC change its business a bit to stay under the cap, say stop insuring loans with more than 20 percent equity?


I think they'll increase the limit to keep the bubble intact, but this alone will not save the RE market from falling.


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## the-royal-mail (Dec 11, 2009)

canadianbanks, it was not necessary to quote that entire block of text, esp since you replied to the only post in the thread and it was right above yours. You only added one line, that was hardly cause for such a large quote. Please be careful in the future and use the reply button instead.


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## Homerhomer (Oct 18, 2010)

They will extend the ceiling, it's not even up for debate.

At the same time they should make the mortgage rules more stringent, obviously the changes they made in the last couple of years have not produced desired results.

PS, I was so tempted to quote the entire text, but don't want to be guilthy of causing RM's heart attack


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## v_tofu (Apr 16, 2009)

Source for this crazy breaking news?


As a RE newbie, what does this mean to people like me who don't pay CMHC insurance? I had 25% down for 25 year mortgage. Does it effect me at all in any regard other than the possibility of a housing bubble causing me to be underwater?


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## v_tofu (Apr 16, 2009)

Homerhomer said:


> They will extend the ceiling, it's not even up for debate.
> 
> At the same time they should make the mortgage rules more stringent, obviously the changes they made in the last couple of years have not produced desired results.
> 
> PS, I was so tempted to quote the entire text, but don't want to be guilthy of causing RM's heart attack


I thought they made it more strigent by eliminating 40 year mortgages and what not?

I too was going to quote the whole text until i realize RM was the text quoting gestapo of CMF 





EDIT: Here's the article I think RM is talking about: http://www.winnipegfreepress.com/bu...ending-and-slow-housing-market-138425139.html


From the article, it seems that hitting the CMHC limit means it will be tougher Canadians to purchase homes. Is that correct? And if that is the case, and they raise the limit, along with the recent 2.99% 5 yr's being offered, does that mean we will see higher home prices due to more relaxed lending practices?


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## marina628 (Dec 14, 2010)

I would like them to require new homeowners pay a true 5% equity down rather than pay the 5% on purchase price then pile on thousands in closing costs.Down payment should be 5% of purchase price plus closing + CMHC Fees ,if they did it that way the can leave the 30 year amortization alone.


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## HaroldCrump (Jun 10, 2009)

The limit, just like the US debt ceiling, will be raised, and raised again.
The CMHC is the crux of the whole "bubble".
This is the hydrogen cylinder that's pumping the bubble.


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## Homerhomer (Oct 18, 2010)

v_tofu said:


> I thought they made it more strigent by eliminating 40 year mortgages and what not?
> 
> ?


Obviously not stringent enough.

I went house shopping in the last few weeks, few samples:

1) one house had 10 offers
2) one builder had opening day for sales, there was additional security directing the traffic on that street, one had to park good few hundred meters from the sales centre
3) the builders were asking about 20K more for the same house they had listed a week ago, that's for houses below 500k

They should reduce the max mortgage amortization rate to 25 years, or implement some other measures to slow down the insanity and help poeple save them from themselves. In the globe and mail article today credit councellor said he has some clients paying 70% of their net for mortgage and property tax. Insane.


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## Cal (Jun 17, 2009)

The ceiling will go up. No questions.

They will tweak a few other rules and regulations in the next few months too.


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## marina628 (Dec 14, 2010)

Three homes on my friend's street in Whitby have sold full price or higher in 48 hours of going on market these are $350,000 -$400,000 homes no more than 2000sq ft on standard 40x115 lots.


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## Saniokca (Sep 5, 2009)

the-royal-mail said:


> canadianbanks, it was not necessary to quote that entire block of text, esp since you replied to the only post in the thread and it was right above yours. You only added one line, that was hardly cause for such a large quote. Please be careful in the future and use the reply button instead.


TRM, can you please start sending PM's instead? There's hardly a cause for having the same message in every thread...


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## sags (May 15, 2010)

No income verification and cash back mortgages are subprime mortgages.

Canadian taxpayers guarantee mortgages for people who couldn't save a down payment, have high debt to income ratios, and are buying homes at the peak of their value.

That doesn't sound like a good idea to me.


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## sags (May 15, 2010)

*The Canada Mortgage and Housing Corp. said Tuesday it "has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance."*

This isn't homeowner applications. 

It is banks and other lenders seeking to offload their liability by insuring large portfolios of already existing mortgages. 

The banks have to pay for the insurance........so they must feel it necessary.


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## meddlesomemarmots (Feb 16, 2011)

v_tofu said:


> As a RE newbie, what does this mean to people like me who don't pay CMHC insurance? I had 25% down for 25 year mortgage. Does it effect me at all in any regard other than the possibility of a housing bubble causing me to be underwater?


It effects every taxpayer - as CMHC is backing the high risk mortgages that are being approved in Canada.

It means nothing for your mortgage, as you weren't one of the 5% down crowd that the CMHC are backing the mortgages of.

The ceiling with undoubtedly be raised - perhaps with a token reduction of mortgage limit of 25 from 30 years. The government can't afford to bring the real estate situation to a head too quickly. They'll continue to try and cool things, to avoid a messier, more abrupt end.


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## crazyjackcsa (Aug 8, 2010)

If we're going to extrapolate our local housing markets onto the whole of Canada, then the market is already in the tank! Houses around me are sitting for months, at almost all price points. The only level that seems to get any action is farm land and house in the 75-110k range.


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## Homerhomer (Oct 18, 2010)

crazyjackcsa said:


> If we're going to extrapolate our local housing markets onto the whole of Canada, then the market is already in the tank! Houses around me are sitting for months, at almost all price points. The only level that seems to get any action is farm land and house in the 75-110k range.


Motown effect I gather? Canada is a big country so no matter what not all markets will be the same, but it's obvious that how GTA, Vancouver, Calgary, Montreal etc go, so does the market as a whole.

GTA right now is scorching hot.

I don't earn that much money, our household income is in the $110-120K range, and I am guessing everyone else is making much more money than we do since at the moment decent houses in the suburbs under $500k are hard to find, let alone in TO. And I wouldn't even consider spending half a mill on my house given my income.


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## jamesbe (May 8, 2010)

$120K is like upper 10% of the population or something those people buying $500k homes aren't making much more.

Last house I bought I was worried as my mortgage was $250k and my lawyer said most deals he closes are much much higher.


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## Saniokca (Sep 5, 2009)

Homerhomer, that means you should sell your house doesn't it? I always think that if you wouldn't buy your house for what it's worth at the moment it means you should sell it...

does this logic make sense? I have to say that I don't own a house.


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## Homerhomer (Oct 18, 2010)

jamesbe said:


> $120K is like upper 10% of the population or something those people buying $500k homes aren't making much more.
> 
> .


I doubt $120K of family income is upper 10%, at least not around large metropolis like GTA, if my memory serves me correctly 70K is about average, which includes I think single earners and so on, so just over 100K is just about average.

I know many folks are making way more than that, however I also know that many are buying houses at prices they shouldn't even consider.


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## Homerhomer (Oct 18, 2010)

Saniokca said:


> Homerhomer, that means you should sell your house doesn't it? I always think that if you wouldn't buy your house for what it's worth at the moment it means you should sell it...
> 
> does this logic make sense? I have to say that I don't own a house.


Yes, I would sell my house for way more than I would ever pay for it, however the houses I would want to buy and move into just aren't in the price range I am considering. In our case the mortgage would increase, so I am looking at it from the point of view of the dollar amount of mortgage increase, so far the difference seems too big so I am taking a pass ;-)


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## jamesbe (May 8, 2010)

http://www40.statcan.ca/l01/cst01/famil05a-eng.htm

People are buying doesn't mean they can afford it.


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## the-royal-mail (Dec 11, 2009)

Thanks for posting that stat link, jamesbe! Very interesting to see that the average salary is nowhere near able to reasonably pay off these absurd $640K houses people are buying.


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## Homerhomer (Oct 18, 2010)

jamesbe said:


> http://www40.statcan.ca/l01/cst01/famil05a-eng.htm
> 
> People are buying doesn't mean they can afford it.


Thanks for the link James, I agree that many are buying beyond what they can afford, the stats show the average income for two earners hoovers around $100K, which is what I was expecting.

Based on that the average mortgage shouldn't exceed 300K, (three times the earnings or around 35% of net), which is my limit.


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## Four Pillars (Apr 5, 2009)

I think you guys are forgetting that not all home buyers are first timers. 

It's not uncommon for someone to sell their house/condo and have quite a bit of equity to use on the new house.

In my opinion, you shouldn't be comparing average salaries to average housing costs, but rather compare average salaries to the average mortgage.


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## Homerhomer (Oct 18, 2010)

Four Pillars said:


> I think you guys are forgetting that not all home buyers are first timers.
> 
> It's not uncommon for someone to sell their house/condo and have quite a bit of equity to use on the new house.
> 
> In my opinion, you shouldn't be comparing average salaries to average housing costs, but rather compare average salaries to the average mortgage.


No, we are not forgetting this, nor the fact that some poeple can have large downpayment, inheritance and so on, the fact is many do qualify for max mortgages beyond reasonable (IMO) amounts, and some go right up to the limit of if.

I have compared salaries to mortgages in my previous post.


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## Four Pillars (Apr 5, 2009)

Homerhomer said:


> No, we are not forgetting this, nor the fact that some poeple can have large downpayment, inheritance and so on, the fact is many do qualify for max mortgages beyond reasonable (IMO) amounts, and some go right up to the limit of if.
> 
> I have compared salaries to mortgages in my previous post.


Yes, you did point out that a mortgage shouldn't be more than 3x salary, which sounds like a reasonable guide to me.

However, nobody has put forth any actual mortgage amount data in this thread. It seems to me that without this data, any assertions that people are borrowing too much for their homes are just guesses.

There's no question that some people borrow too much, in fact we've heard from a few of them here in these forums. What I'd be interested in knowing is more info about mortgage vs salary.

In particular - exactly how many home owners are above the mortgage limit you suggest (ie 3x salary)?


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## Homerhomer (Oct 18, 2010)

Agree Mike.

We are just guessing, if anyone has any hard data it would be nice to know to see if our guessing is off the mark.
I would guess the data may not be readily available since this problem would have gotten worse in the recent years as the RE prices increased much faster than wages.


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## Sampson (Apr 3, 2009)

Four Pillars said:


> However, nobody has put forth any actual mortgage amount data in this thread. It seems to me that without this data, any assertions that people are borrowing too much for their homes are just guesses.


Bingo.

For example, TRM above posts that about how people can afford $640k houses on the average salary. Well, that's not the average cost of a home. Nationwide, the average I believe is around $350k, so the average 2 income salary (according to the link is over $100k), very close to 3x annual salary.

We complain about the media, or biased financial institutions spinning stats, but we are as bad or worse here at times.

I think I allude to this in a different thread, unless we have real numbers regarding income to mortgage ratios, the absolute value is useless.

Yeah, a $640k house is expensive and unaffordable to most, but what about for a guy who earns $500k a year? Not so expensive anymore.


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## Saniokca (Sep 5, 2009)

Homerhomer said:


> In our case the mortgage would increase, so I am looking at it from the point of view of the dollar amount of mortgage increase, so far the difference seems too big so I am taking a pass ;-)


But you can rent


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## Berubeland (Sep 6, 2009)

the-royal-mail said:


> canadianbanks, it was not necessary to quote that entire block of text, esp since you replied to the only post in the thread and it was right above yours. You only added one line, that was hardly cause for such a large quote. Please be careful in the future and use the reply button instead.


Royal mail who appointed you the "too much Quote" guardian of CMF? Stop yourself man! Seriously...


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## Berubeland (Sep 6, 2009)

My recommendations to CMHC 

No insuring cash back mortgages (0 Down)

No houses over $400K get insurance

25 year amortization

The original idea behind CMHC was to help first time buyers. Buy all the million dollar homes you want with 25% down buy why on earth should canadian taxpayers secure the mortgages of people who want to buy houses they can't afford? Save your money and then buy a house. Or buy a cheap house and build equity then buy a million dollar McMansion.


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## emperor (Jul 24, 2011)

CMHC is whats inflating house prices.

Have a 250K cap on CMHC insurance, if the bank wants to lend more then they should take the risk not the tax payer.


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## meddlesomemarmots (Feb 16, 2011)

emperor said:


> Have a 250K cap on CMHC insurance


I don't think you'll get reelected with a platform like that 

The govt. are going to try and as calmly cool the housing market as possible - first with the clampdown on CMHC insurable terms - and the BoC will help out with some minor increases in the interest rates.

Whether they've let it go too far or not is the question.


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## Pigzfly (Dec 2, 2010)

On a quick search, this was the best I could do:
http://www40.statcan.ca/l01/cst01/famil110-eng.htm

The bottom half has median mortgage debt, in 2005 dollars.
It's $90,000 for a principle residence, with 34% of economic households holding mortgage debt (principle residence). The bigger change is in the value of non-primary housing mortgage debt. 

That doesn't paint much of a picture, ie there are many non-mortgage holders at the bottom, however it's something. 

I'm in the bottom half of this mortgage average, FWIW.


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## Cal (Jun 17, 2009)

Anyone know around what month CMHC should hit the current debt ceiling?


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## NotMe (Jan 10, 2011)

Berubeland said:


> My recommendations to CMHC
> 
> No insuring cash back mortgages (0 Down)
> 
> ...


Agree with your points except for the somewhat arbritrary $400,000 cap. Trust me when I tell you that houses in my neighbourhood are not mcmansions and go for over $600,000. A 1200 sq.ft house is not a mcmansion; often it's just because it means a 30 minute commute instead of 90 minutes. I'd actually prefer there not to be a cap in price but a cap in affordability - ie can't be more than a multiple of say 5x income. A lot of people (like my wife and I) earn a very good salary but don't necessarily have a lot of cash savings ($20,000 in after-tax daycare bills kills us) but we have no problems servicing our loans (meaning interest+principal, not interest only or anything sneaky).


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## emperor (Jul 24, 2011)

If no one can get a loan for 600K then the price of houses won't be 600K. Unless you live in a area with lots of very rich people.


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## Brenner (Jan 17, 2012)

Could easily have the arbitrary cap based on local market median house price or something.


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## arie (Mar 13, 2011)

this entire bubble could have been avoided if the government had not changed the housing rules 3-4 years ago 

first the conservatives ( remember they are the ones who are supposed to be astute managers ) raised the amortization period from 25 years to 40 years --- someone must have thought it was a great idea !!!!! then they went further and were for a short time offering 0 down payment mortgages ( this only stopped because the american real estate market tanked just about the time the 0 mortgages were coming to Canada compliments of our fearless government) 

so now they have been backtracking to 35 year amortization and now 30 years --- it should be back to 25 years and there should be no mortgages without at least 10% down --- forget 5% down mortgages --- toronto is crazy with multiple offers and all of this will end in tears and a market that will be destroyed for at least 5-10 years ---- if the government had left the old rules in place a lot of this would not have happened ---


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## HaroldCrump (Jun 10, 2009)

> if the government had left the old rules in place a lot of this would not have happened


You are missing the point.
The whole idea was to _inflate_ the bubble.
Still is.
What makes you think the govt. wants to deflate the bubble?
Every since action is aimed that keeping the bubble inflated.


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## Mall Guy (Sep 14, 2011)

Couple of articles from the other CMHC thread. Not many over there think the Gov't will raise the limit as there would be no point in changing the oversight of CMHC to the OSFI . . . check out the chart at the bottom of the Maclean's article . . .

http://www2.macleans.ca/2012/04/23/t...ousing-bubble/
http://business.financialpost.com/20...flaherty-says/

Other thread:

http://canadianmoneyforum.com/showt...rp-under-the-oversight-of-a-federal-regulator


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## Brenner (Jan 17, 2012)

arie said:


> this entire bubble could have been avoided if the government had not changed the housing rules 3-4 years ago
> 
> first the conservatives ( remember they are the ones who are supposed to be astute managers ) raised the amortization period from 25 years to 40 years --- someone must have thought it was a great idea !!!!! then they went further and were for a short time offering 0 down payment mortgages ( this only stopped because the american real estate market tanked just about the time the 0 mortgages were coming to Canada compliments of our fearless government)
> 
> so now they have been backtracking to 35 year amortization and now 30 years --- it should be back to 25 years and there should be no mortgages without at least 10% down --- forget 5% down mortgages --- toronto is crazy with multiple offers and all of this will end in tears and a market that will be destroyed for at least 5-10 years ---- if the government had left the old rules in place a lot of this would not have happened ---


I do find it funny that they portray their backtracking as proactive moves to prevent a crisis... you see this in a lot of articles these days where Flaherty claims he has already twice made moves to tighten mortgage rules and now its up to the banks! They just happen to leave out the fact they they are just undoing their own actions to loosen them. 

Kinda telling about the state of journalism. I don't mind too much the ones that are clearly just pushing the news content, reporting the spin as its said. It's the so called opinion pieces that are bothersome. Its like they just take the new pieces, re-write it to make it appear as an opinion piece "analysis" and call it a day. No additional background checking, no actual thought. /end CBC rant.


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## donaldmc (Feb 27, 2012)

I'm glad to know this news, it's very insightful so thanks a lot for sharing it. I hope to get more details and info here.


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## donald (Apr 18, 2011)

This is such great news.lol


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## 44545 (Feb 14, 2012)

emperor said:


> If no one can get a loan for 600K then the price of houses won't be 600K. Unless you live in a area with lots of very rich people.


The only people who should be buying $600,000 homes _are_ rich people.


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## andrewf (Mar 1, 2010)

I was not happy when Flaherty/Harper was loosening lending standards, but I won't give him too much of a hard time when he starts moving back in the right direction. You have to reward politicians for doing the right thing, even if it's only after they've exhausted all the alternatives. There are plenty of other things to criticize them for other than fixing their previous mistakes.


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## blin10 (Jun 27, 2011)

canadianbanks said:


> I think they'll increase the limit to keep the bubble intact, but this alone will not save the RE market from falling.


that line been said for the past 7 years lol... people just bitter how they missed the run up.. 
let's say a 400k house 7 years ago is now worth 800k, and RE market falls right now and takes off 100-200k so the house is worth 600-700k, it will still be up... now whoever bought the house at the high 700-800k might feel some pain but no one knows what will happen


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## andrewf (Mar 1, 2010)

An average decrease of 25% will probably hit the bubbliest markets hardest. I wouldn't be surprised to see parts of Vancouver drop 50% peak to trough.


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## marina628 (Dec 14, 2010)

My friend works in mortgages and she said most of the deals she is seeing have sold $20,000 -$30,000 over list price and rarely do the banks ask for an appraisal .If banks got the appraisals done many of the home owners would need to come up with more cash.My brother in law bought a condo in Alberta last month and the appraisal came in lower than his offer ,he had to get seller to drop price by $30,000 or he was walking .


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## HaroldCrump (Jun 10, 2009)

marina628 said:


> If banks got the appraisals done many of the home owners would need to come up with more cash.


I seriously doubt this.
Appraisers are no more wiser than the rest of the lot.
Many of the CMHC secured mortgages are "appraised" through CMHC's automated system integrated with the bank's computer systems.
The fox is running the chicken coop.

As for the non automated appraisals, majority of them are "drive by" appraisals.
The only thing that ensures is whether there is an actual standing structure or just a barren plot of land.
The appraiser has no way of ascertaining whether the bid is $20K above or below true value.

As for the so-called "full appraisal" conducted by outfits like NAS, I am intimately familiar with how that racket works.
They are all in the game - the banks, CMHC, the appraisers (NAS), the mortgage brokers, etc.


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## Lucy (Mar 10, 2012)

I have been selling RE in the GTA for 26 years. On the last correction the upper end and condos came down 50%. I believe this is very possible once again.


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## kcowan (Jul 1, 2010)

The 50% correction took 7 years...


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