“73% of homeowners can’t afford their own homes”; “Mark Carney admits to ‘droning on in public about the dangers of household debt'”; “They offered me close to a million last year (25 years old) just because I’m in Fort McMurray.”

“Canadians will learn an ugly lesson if they keep piling on debt the way they are at the moment.
The Bank of Montreal report that came out Monday and noted that almost three-quarters of homeowners would feel a significant squeeze from even a small rise in interest rates shows just how close Canadians are to falling over the edge of their finances. What it means, in essence, is that 73% of the people surveyed can’t afford their own homes. And a lot of them are already feeling the pinch.”


“This is at a time when interest rates are at historic lows, which means they can only go up from here. That they will rise, eventually, is inevitable. Yet 16% of the people in the survey said they might not be able to make their payments if rates rose by even a tenth.
You don’t have to think hard to imagine what the fallout would be from an event like that. You can picture the headlines — “Canadians driven from their homes by rise in interest rates” – and the panic in Ottawa. The papers – well, some of them, anyway – would be full of stories about innocent families who insist they had no idea they were getting into such a mess when they took out the mortgage on their “dream home.”


“Mark Carney, the Bank of Canada governor, has wagged his finger at big borrowers so often he seems almost sheepish about it.
“Me droning on in public about the dangers of household debt is a way of reminding households that: don’t assume that current levels and the current situation will be there forever,” he said on one recent address.


“As the housing market cools and home prices slip, a lot of people could find themselves making monthly payments they can barely cover for a house that isn’t worth what they thought it was. If you can’t cover the mortgage, you just have to pray the roof doesn’t start leaking or the furnace fail.
And borrowers won’t really have anyone to blame but themselves. The warnings are out there. The examples are rife: all anyone has to do is examine the experience of U.S. homeowners over the past few years. The dangers aren’t a secret, they’re just being ignored.
But people keep borrowing, because it makes them feel good to spend, because they’re too busy to think about it, because they figure they can cover the payments in the short term and will deal with the future when it comes. And because they can always blame it on someone else when the roof caves in.”


– from ‘Hard-pressed homeowners just close their eyes and borrow some more’, Kelly McParland, National Post, 24 Oct 2012

And from the comment section below that article:

“When I was shopping for a house in 2010, the bank told me I could afford $850k. I am a compulsive budgeter, with detailed spreadsheets, played with various amortizations, and incorporated all of my expensive, housing-related and otherwise, and the amount I concluded that I could afford was $500k. That’s a huge difference.” – Jc

“They offered me close to a million last year (25 years old) just because I’m in Fort McMurray. Didn’t go anywhere near that mark.” – doodles

“I was also offered a $750K loan 10 years ago, and only borrowed $500K upon my own analysis (based on property costs < 30% of gross income). The Scotia loan officer told me that I was smart, and that she feared for others that were borrowing all they could get." – cash0

“We wanted to move a year ago and decided we could afford about $400K. Bank offered us $750K. We spent $362K fully expecting to pay higher interest rates eventually.” – chmilz

No surprises; Lenders have allowed borrowers to overextend.
Headlined for the record.
– vreaa

29 responses to ““73% of homeowners can’t afford their own homes”; “Mark Carney admits to ‘droning on in public about the dangers of household debt'”; “They offered me close to a million last year (25 years old) just because I’m in Fort McMurray.”

  1. Why sell below market value…hmmm
    lets see….
    City property Tax’s from $4000.00 to $24,000.00 per year in 5 years, no “Improvements”. and then add alll the new transit tax’s, and what ever privatized function of Government they now attach, etc as a cost.
    So its easy…my mortgage payment doubled up is $1100 a month
    my property tax payment is now $2500.00 a month…at the current rate compounded at my current rate of increase of about 25-27% a year that’s about $250,000.00+ in another 12 -15 years….I’d be dead if I stay.
    I must make 2.5 time that to pay fed tax’s and replace the tax loss.

    My Real Equity… not Debt equity is being destroyed by the city tax’s 3 times faster than I can pay down the Fee Simple Property value.
    So sell and reap the profits and leave the city’s tax debt to someone else…a more adventurous type. Boomer math skills would help.
    I’m actually looking for a heavily indebted boomer to sell to. Full on Debt as maxed as possible … as payback to Vancouver Tax offices…
    This should end well…. kind of like the Greeks when they found there was no real money and lots of “Tax’s” due.
    …. and I could drop 150% of my asking price should I want to, and still reap a profit…. and reduce the property evaluations across the board should I so want to…
    People like me who have ASSesment’s well over what we paid…. by a lot……………in my case 3 times the purchase price…
    people like me who put 35% down and did not need CMHC Bonds to get a Loan in the first place…

    Thats… who can sell below market evaluated price,
    and the Tax ASSessment Board’s counterfeit and forged value’s and price’s.

    ….and in the current market my one sale can affect the assessment value myth… call it balancing the books………..
    And getting even….

    Silver

    • I don’t think w. faulkner could have written a more incomprehensible mass of words

      • Seriously.

        “…. and I could drop 150% of my asking price should I want to, and still reap a profit…. ”

        I have seen some pretty fuzzy math when it comes to housing, but I don’t think even the most clever accountant could convince me of this.

      • @bitcoinz: I agree with you. At first I tried to make sense of Silver’s comment, but then it dawned on me that it just wasn’t comprehensible.

    • …sorry pain killer fuzz. Shitty back.
      I could take a 50-65% drop below current assessment value.
      purchased at $315,000.00.
      assessed then at $317,000.00

      currently assessed at $947,000.00.

      Real Estate Agents tell me the properties worth north of a mill.
      …. so tell me how far I can drop my price below an offer and the assessment … and still get out ahead.

      I guess adding paint and new windows really does add value. $630,000.00 in new tax base.

      My property tax has gone from about $4,000.00 a year for my live work warehouse (No Granite counter tops) to $24,000.00 a year since 2007.
      My mortgage payment is $600.00 per month, or about $7,200.00 a year.
      I currently pay 3 times more in property tax’s… than I pay off on my mortgage . This is producing a Negative Equity position. Debt.
      And the rate is increasing….

      Each dollar of tax increase means that I have to make
      … 1 dollar to pay the tax,
      … 1 dollar to replace the lost profit,
      and some 40-50 cents to pay the government and others.
      that is $2.4-$2.5 dollars of new revenue needed to replace every tax dollar increase I receive.

      An increase in the assessed base of some $630,000.00 for the city property tax department … to grab an increased tax revenue from. And to artificially back the alleged value of cities muni-bond offerings.

      The property tax on one side has gone from $19,000.00 to $75,000.00 and on the other side, from$16,000.00 to $60,000.00 a year. That building has not been rented in 4 years…

      All three of us are now looking at dumping our properties… taking the cash and quitting vancouver.
      does that help?

      Silver

  2. Worthy of discussion is how low interest rates do not guarantee banks will lend. Low loan spreads to risk-free are predicated on the availability of the house and its land as collateral. If that collateral is suspect or ephemeral, banks won’t lend, period. I think Carney knows this, and is trying to kick the mortgage market out of a metastable state.

    • Renters Revenge

      “While the failure of fiscal policy is widely recognized, monetary policy still enjoys credibility. Yet monetary policy is like shooting in a dark room. Monetary policy suffers from a profound pretense of knowledge. When central banks are not able to fulfill their claim and promote economic growth, employment and price stability, the question comes up what their real mission is. The Federal Reserve System was founded in with the intention to safeguard the big players of the financial system. Now we are fully back at this paradigm. The main purpose of quantitative easing is not to promote prosperity in the first place but to help the banking sector to stay afloat.”

      http://www.financialsense.com/contributors/antony-mueller/quantitative-easing-folly-or-method

  3. Interest tidbit in this ZH article – 75% of foreign purchases in Miami is done by Canadians…wonder how those people feel about HCM that comes in buy up their town and leaving the houses empty for most of the year, and don’t contribute anything to the local economy. Hmm…just like people here complaining about HAM.

    http://www.zerohedge.com/contributed/2012-10-26/modern-day-feudal-system-real-estate

    • And guess where the down-payments are coming from…

    • The phenomenon, Space889… is sadly and, needless to say, by no means restricted to Miami… and neither are the ‘externalties’, to put it mildly…. Ergo, here’s your regrettably “not so funny” FridayAfternoon Quote ‘O TheDay [#déjà-vu …much, DearReaders?]…

      “Some of the villages are now 50 per cent holiday homes… An average price for a three-bedroom house would be around £250,000. That’s out of the reach of many local people. Combined with a poor job situation because of the recession, local people have to move away. Some of the larger villages can be ghost towns in the winter.” – John Wyn Williams, Gwynedd CouncilMember for PublicHousing

      [UK Independent] – Staycation, staycation, staycation: Why Britain’s holiday homes cast a dark cloud over our coastal resorts – More than a million of us now own at least one extra house. But where are all these second properties – and what are they doing to the communities around them?

      …”Walking her children to school through the village of Llanbedrog in Gwynedd, west Wales, Susan Pritchard passes by six empty houses. They are perfectly fit to live in. In fact, they are some of the best houses in the village. They are holiday homes, owned by people who live a long way from Llanbedrog. For the first half of this year, Mrs Pritchard and her two daughters had to live in a single room in her mother’s house.

      She was the victim of a chronic shortage of affordable housing in Gwynedd – a situation created, local housing authorities say, by the exceptionally high number of holiday homes in the area.”…

      http://tinyurl.com/8wo5msu

      [NoteToDearReaders: On the BrighterSide… OhBoy! do IllustriousEd and ‘Nem’ have a treat in store for you… In the DigitalIntermediate CompositingPipeLine, so to speak… DistributionPrints & TheatricalRelease this WeekEnd{?}… BlastRadius™ is back… with a VENGEANCE!]

    • Feudal system? I just spat cold coffee all over my keyboard. Here I thought this was a zerohedge-free zone.

  4. I was offered 1.5M by the bank. WIth my downpayment of about 350K, I could’ve afforded a 1.85M dollar home as my “first home”. Didn’t go anywhere near that.

    Still I got a call from CIBC yesterday (another bank with whom I only have credit card), asking me if I wanted to borrow MORE money with my excellent credit history as rates are so low. I told them that I’m already stretched. They then asked me how much I currently owe on my mortgage; I said under 700K, and they said, you can invest in more homes, and make rental income. I told them that the market is tanking now; they said not to worry as rates were low. Took a while to get them off the phone.

    • They’re phoning you? My oh my! Also read this from TD:

      http://www.vancouversun.com/Ignore+market+focus+home+affordability/7453997/story.html

      Ignore the market, focus on home affordability

      Mortgage adviser says first-time buyers should move when they can afford to, rather than worry about trends
      First-time homebuyers should ignore market fluctuations and focus on what they can afford over the long term regardless of the purchase price, says Farhaneh Haque, director of mortgage advice at TD Canada Trust.

      It’s never a good idea to try to time your home-buying decision based on what the market is doing, Haque said. What really matters is when you’re ready to buy and if you can afford the payments on your mortgage, she said.

      “You really want to be looking at your life stage, your affordability, your down payment and your cash flow to make that buying decision,” Haque said, adding that it really doesn’t matter what happens to the value of your home in the next year, but rather over the long-term.

      “Home ownership is a long-term plan, not a short-term investment. You want to have a long-term view,” Haque said.

      She said when people are considering making the leap into home ownership, the first thing they should consider is their affordability. “What are you paying in rent today?”

      Blood-sucking vampire squids are getting on the horn and hitting the pavement.

      • Thanks for posting that commentary YVR. If those words are indicative of the banking perspective and the message they are giving to potential customers then it is pretty clear who should bear some of the burden of losses later on. Please highlight Vreaa. This is some of the worst advice I have seen to date. It is clear evidence of the lack of care the banks are showing for their customers and suggests they are less concerned about the impacts on the economy than they are about their corporate bottom line. We should all be worried for the repercussions to the wider economy. This is highly unprofessional and irresponsible in my opinion as it ignores well known principles of debt risk in a period of over-inflated housing prices and is a set-up for heartache and loss down the road. This is particularly so in our current environment and with regard to the advent of bursting housing bubbles all over the globe.Only a fool in the business of issuing credit is unaware of the serious headwinds we are facing now. To give this kind of advice to the uninitiated is an invitation for a lawsuit down the road as far as I am concerned. Was it not the banks themselves that were crying to the Finance Minister not so long ago to tighten lending regulations?

    • Similar experience here, with RBC.
      Offered a mortgage of 1.4 mil, plus increase in credit card limit to 30K.

      Vancouver is not the place for the fiscally conservative.

  5. :( :| :) :D … “Most of them don’t realize how much work it is, but they’re well aware that the payoff is tremendous, in part because they see it on TV,” he says. “It’s the only business where you can make so much money this quick.” … http://tinyurl.com/9c7xsn6:D :) :| :(

  6. Great posts in the past couple of days, VREAA. I’ve been too busy with other stuff in the past few weeks to join in the discussion, but I’m definitely still reading.

    • Hi Gord, good to hear you’re out there.
      I think there is an ebb and flow to all of our interest levels in the market.
      Certainly is that way for me.
      It does look like the market has crested. It’ll be interesting to see how the winter/spring plays out. Not to get too far ahead of ourselves here, but I think some of us bears may find, paradoxically, that our attention wanes somewhat as the long predicted unwinding proceeds.

  7. 4SlicesofCheese

    Just saw the ticker on CBC news saying possible Moodys downgrade for Canadas 5 big banks.

    • Big surprise there. Earnings have peaked as mortgage business has exhausted the potential supply. The banks are a good short.

  8. “The interest rates have nowhere to go but up” – I keep hearing that over and over coming, of all places, from the Canadian banks and mortgage brokers. Another scare tactic designed not to curb lending, but to force buyers into the market, thinking hikes were imminent.

    To that I say: “Wait till Japan raises their rates, measure 20 years from that point and mark it on your calendar”. That is in reference to Japan’s 20+ year zero rate policy.

    We, in the West, move the interest rates in quarter point increments (0.25%). Japan tweaks their by moving the decimal point away from zero. When are their rates gonna go up? You tell me.

    When the Titanic hit the ocean’s floor it had nowhere to go but up. Yet somehow it didn’t. It still sits exactly where we left it. waiting for a fresh batch of passengers.

    • chart rates for greece, spain, italy, … not imminent but gradual, and then sudden – when the CB price fix loses control … sample process: how much warning did you get that lehman was going to blow up? where did its bonds trade the week before? … ps. japan is a special situation which means the final adjustment will be similarly special

  9. Regardless, low rates have hardly helped Japanese real estate which has also been steadily falling since 1990.

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