“I see so many tear downs in progress; so many idiots paying interest only mortgages; I can barely stand it. God forbid, I work, I save and refuse to buy at 13 times average family income. I’m alone amongst my friends and colleagues.
There are a few of us in Van who managed to avoid the pot smoking, no money down, million dollar crack shack addiction (well.. the last 2 maybe).”
- Hovering at greaterfool.ca 11 Aug 11 11:25pm
Most Recent Comments:
- ling on ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- Toby on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Nemesis on ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- Raspberry ketone on Commit Crime To Buy A House
- Nemesis on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- You're sore, not hurt. on ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- Ralph Cramdown on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Farmer on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- kabloona on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Brian on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Nemesis on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Burnabonian on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
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Latest Anecdotes:
- ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- “Let’s remember how we got here” – Looser and Looser CMHC Limits
- Don’t Worry, I’m Sure Somebody Will Sort This All Out – “Policymakers now know better and will be a lot more proactive in preventing a collapse.”
- “Things have changed, we are not doing that type of mortgage. We are not interested at all.”
- “We are noticing our target type of housing in price decline, albeit slow, as our money increases in value, slowly as well but outpacing housing.”
- Renter Buys In West Van – “For a few hundred more per month, you could own the place. Which is what I will be doing as my offer for a place down the street has been accepted. There is some value in staying in one place.”
- A Bed in the Bathroom, Why Not? [Let Us Count The Reasons...]
- “My husband and kids are pretty happy in our rental house within cycling distance of work that we could never have afforded otherwise. We’re doin’ pretty dang well, thank you, for median income earners in this expensive city.”
- “I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops
- “We asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!”
- “My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”
- Chat Thread
- Taking A Break
- “My best guess: this property is now an ‘investment hold’ and will be built ‘when prices recover’. Good luck on that!”
- Man Loses $745,000 Vancouver Condo Deposit
- Graphic – Degrees of Housing Overvaluation in Canada
- The Rare Individual With A Negative Ownership Premium
- Advice Regarding Renting In Vancouver, Please – “Unfortunately, the Vancouver rental stock is absolutely atrocious. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income.”
- “I just visited Manhattan for a week, and happened to snap some real estate ads on both the Upper West and Upper East sides of the island. Compare to Vancouver. It simply doesn’t compute.”
- Ben Rabidoux In Vancouver Next Week
- “The mortgage company told me they were calling in my 40-year, 0-down mortgage. I have paid nearly sixty thousand dollars towards it, but, nearly five years in, I have yet to touch the principal.”
- ‘Vancouver City Hall: Housing Report Card 2012′; Plus Revised Version
- “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”
- “Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”
- “They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”
- Greater Vancouver Home Builders’ Association Annual First-Time Buyer Seminar Attendance Plummets
- Mom and Pop Get It Wrong In All Markets, Time And Again
- The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.
- “He’s sold all his properties except his current one, which is now for sale. He explained that the market’s currently in crash mode, worst that he’s ever seen.”
- “One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized after debt paid off $185K.”
- “I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”
- Sturdy, With Views – “Calling Froogle Scott!… Is Dr. Scott ‘In The House’?” [Not In This One, Certainly]
- “She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”
- Kits Notes – “I’m pretty sure that this is the first 3+ bedroom property of any type that I’ve seen in the 5 years I’ve lived here that is priced below $700K.”
- “A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”
- “Two family members of hers are trapped, underwater, in condos on the East Side.”
- “Interprovincial migration is not saying good things about BC’s economy.”
- Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”
- More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”
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Do you have interest only mortages in Canada?
If so, Vancouver is so screwed. I thought this kind of stupidity was only something the USA allowed. I’ve been wondering if Canada will have a soft landing RE real estate because the banks are more prudent.
What makes you think that the banks are more prudent??
A vast proportion of Canadians will say things to feel better about themselves by comparing themselves to Americans. Not surprising that most Americans could not care less about the frozen north. Small neighbor syndrome.
“What makes you think that the banks are more prudent??”
Well, to be honest, Canadian banks are more prudent because they are not doing things that could blow up world economic systems. US banks and mortgage institutions wrapped crap housing mortgages into tranches and sold them as AAA investments. These pieces of sh*t investments went all over the world. When the tranches began to fail, the insurance agencies didn’t have enough money to cover the sh*t tranches. It shook world markets and, overall, was a pretty impressive mess.
But if Canadian banks are doing stuff like allowing interest only mortgages, while it won’t bring down world markets, it could hurt Canadians and the domestic economy.
I think that the rest of Canada will probably recoup,
But Vancouver defies all logic and fundamental, (it actually is laughable to see the smugness and the false sense of self-importance. “World class city”, really, then why do you have to keep repeating it?)
It would not happen unless there was a huge flaw in the process, be it sub prime lending, liar loans etc.
And history is a witness that “it’s different here” is a defunct argument. Refuge of the fearful and greedy.
I agree. This does not end well.
Hi Yank, I have friends here who followed this path to riches in the Vancouver housing market…
1) Buy presale condo.
2) Eventually the builder completed the condo, and they moved in.
3) Condo went up in value!
4) 2-3 years after moving in, they got a HELOC against their condo’s rise in value, used it as a downpayment on a house, and the bank lent them the rest of the money to buy the house, as a HELOC on the house itself.
5) They took possession of the house, then did a mega-renovation (~$200-300K?), funded by more HELOC money secured against the house.
6) Relative moved into the condo (still there).
7) Couldn’t afford an amortizing mortgage, so they just made interest payments on the HELOCs.
8) Couldn’t really afford the interest payments, so they committed tax fraud (deducted the HELOC interest from their income, trying to treat the house as an “investment”). Primary residences in Canada are not eligible for such tax treatment.
9) Bought a new car! (interest rates are low, it’s like free money!)
10) Realized the depth of the hole they’d dug, one parent divested most of their investment portfolio to give them their inheritance early. The path to riches!
11) They now have affordable payments on a very nice house, and have a proper, amortizing mortgage.
They bought the house at a peak in 2008– if they sold now, they’d probably recover 100% of what they put into the house, maybe even eke out a slight profit. But with the family money invested in their house, they’ve got to duke it out there for the long haul. At least their payments are reasonable…
I just wonder how many other people in the city have done the same thing, but without the benefit of an “early inheritance” to bail them out?
M-
Thanks for the post, will headline (just had a different but remarkably similarly themed story told by another reader, via e-mail).
There doesn’t seem to be any way of really quantifying how common this approach has been.
“When the tide goes out…”, as the saying goes.
1 out of 10 mortgages taken out in Australia since 2008 are interest only. They certainly exist in countries with “prudent” banking sectors.
I thought HELOCs were interest only. Canada is different. It got high prices without subprime. Different path, similar destination, for some cities anyways.
Subprime mortgages are overhyped in terms of the role it played in the US housing dissaster. (Except for the fact that subprime were packaged as AAA packages.)
Qualified, credit-worthy, middle-class buyers getting overleveraged was a much bigger problem. The subprime purchasers weren’t buying the higher end houses. I suspect similar dynamics are at work in Canada.
Calculated Risk would have some good archives that talk about how this played out in the US.
Exactly right! I used to tell people that there is any real differences between lending small amounts of money to people with poor credit history and income at high interest rate (eg. say $100K @ 12%) versus lending way a LOT of money to middle income couple with good credit history and income (eg. $700K @ 4.5%) because in the end if you can’t pay, you can’t pay, doesn’t matter how much money you make. In fact the $100K @ 10% interest loan might actually have lower losses than the $700K @ 4.5% interest.
However most people find that comparison to be a pile of garbage and utter stupidity.
I meant to say there ISN’T much difference