“The Conservative government has repeatedly reduced the mortgage-amortization period, dropping it from 40 years to 35 years to 30 years, and finally, to 25 years.
Many potential first-time buyers, in particular, have trouble affording a home in Greater Vancouver when they have to repay their loans within 25 years.
Senior bankers have been cheering on Finance Minister Jim Flaherty, supposedly because they are worried about a housing bubble.
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate.
That’s because the investment side of the financial-services business generates fatter profits—most of the time—than boring retail banking and those unglamourous mortgages.
In addition, chartered banks are not competing with credit unions to nearly the same degree on the investment side in comparison to the mortgage market.
So by shortening the amortization period to 25 years, Flaherty is, in effect, shifting financial resources away from real estate and into paper assets.
If the housing slowdown continues, don’t be surprised if we start hearing about financial troubles in the credit-union sector.
That’s not Flaherty’s concern because credit unions are regulated by the provinces. …
I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
- from ‘Stephen Harper is playing a dangerous game by declaring war on the Vancouver housing sector’, Charlie Smith, Georgia Straight, 3 Aug 2012
A crash follows a speculative mania in the same way that night follows day.
The exact flavour of the descent may be influenced by government policy, but the crash itself will occur one way or another regardless of policy.
People who see politicians expertly manipulating markets are overestimating their power (often because the alternative is more scary – that we only have very limited control over market cycles).
Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa
#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
- thinkandact, commenting at the Globe and Mail, 2 Aug 2012
#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
- Charlie Smith, Georgia Straight, 3 Aug 2012