June 21st, 2012 —
It’s taken less than a day for everything to change. Are you ready?
As this blog told you would happen, the feds have decided to shiv the housing bubble with a regulatory blade because they couldn’t prick it with higher mortgage rates. Given that we’re closer to deflation than inflation tonight, jumping the Bank of Canada rate to stop the mindless borrowing was not an option. It would hammer businesses now coping with lower commodity values, falling confidence, slowing global markets and a collapse in gold and oil.
The past 24 hours may have brought the end of real estate as you know it.
The changes are as I forecast over the past months. The 30-year mortgage is dead, which has the same impact on borrowers as a rate increase of almost a full 1%. Home equity loans are curtailed again. CMHC reforms – no insurance for mortgages on houses selling for more than $1 million – massively impacting Vancouver (2,500 listings are over that limit).
You were also told that OSFI, the bank regulator, would enact new guidelines. That happened as part of a 1-2-3 series of punches yesterday. Home equity lines are tightened even further – right down to 65% of a home’s value (from 80%).
If you want to go higher, then banks will be forced to give you an amortized mortgage on top of the line. Cash-back mortgages are kaput. So property virgins can no longer get 100% financing for that new condo, and the banks who gave out these bribes are forced into responsibility.
No more stated-income mortgages (called ‘liar loans’ in the States) because now entrepreneurs and commissioned salespeople will have to haul in their tax returns to verify earnings. And tougher hurdles for first-time borrowers looking for a cheap VRM, who now have to qualify for the Bank of Canada benchmark 5-year rate (currently 5.44%).
F’s mortgage changes come into effect in two weeks (July 9th). The OSFI rules become law for the banks at the end of October, but expect them to be adopted almost immediately.
So, see why F and Carney have been amping their way across the country telling people in Toronto and Vancouver they’d better be careful? It’s a likely disaster for big-city condo markets, where most sales have been either to idiot amateur speculators or moist young couples too horny for a unit to think straight. In one day condos have been rendered less affordable (and valuable) as amortizations shrink (remember 40% of mortgages now have 30-year ams, and nine of ten originations in the last two years went this route). Buyers have been denied free down payments, and many will no longer qualify for loans.
We knew condos in the GTA and Van would melt anyway. But this turns up the heat and rips months from the calendar. With 53,000 new units coming to market in Toronto alone, speckers and flippers will be desperate to assign their deals. But good luck finding greater fools.
In Vancouver there’s also the smell of napalm over places like Richmond and North Van, where thousands of properties now languish north of the million-dollar mark. Without the possibility of CMHC insurance, buyers will have to cough up a minimum 20% plus closing costs – at least $250,000 – narrowing the universe of potential purchasers.
In a market grotesquely over-valued and already skidding into sales and price decline, this is realtor Rocky Horror.
Meanwhile the world slows. More layoffs. Oil at $78. Volatility on Bay Street. Not the news they want in Sherwood Park or Lawrence Park. Despite that, Mark Carney made it clear in a speech on Thursday interest rates in Canada will not be going down, or the war on debt abandoned. Suddenly all that yapping about ‘get ready for an economic shock’ has a context and a timetable.
I hope some of the many people who come here prepared as I suggested you do. This is not the time to own a piece of real estate with big debt and little equity. It’s not when the bulk of your net worth should be in any one asset, especially one with an address. Smart Boomers will have cashed out at epic highs. Shrewd kids will have stayed renters. The best possible defence? No debt, lots of liquidity.
Of course, this is the start. Not the end.
So I may be back.
(Unretouched photo above: Courtesy Canadian Watchdog)
Again, the ” jaws of the vise ” inch ever closer.
As is quite clear, and as I have noted in many previous posts, Garth Turner basically quit Federal politics because he saw this coming years ago.
One should duly note the ass -covering the Feds are doing. Rather than “up front” blunt force trauma….they would rather try the side or “behind the back” ambush. They are at minimum ONE degree of separation from the dirty deed, knowing that their actions will have the same end result as being up front. Political Cowards.
Now that their political hides are covered, the whole Ponzi Scheme they create is about to unravel.
It is every person for themselves.
They followed the pattern all over the world, they have literally fooled and “fiscally Aborted/Euthanized ” a whole generation of buyers. Those caught up in this financial mess will feel they are in a literal HELL
Cover your ass , fasten your seatbelts and P-R-A-Y.