“This means that, for a non-owner occupied $1,000,000 property, HSBC is asking for 45% down.”

Even though the BOC rates have yet to rise, there is evidence of tightening from lenders. RBC recently increased terms on LOC loans (from prime +1% to prime +2% for many borrowers). This without a change in prime. Now comes news that may herald the beginning of hard times for speculators.

This from McLovin on robchipman.net 29 Nov 2009 12:29 pm -

“An interesting side-bar on “banks tightening up”… HSBC will [now] only finance 60% of the first $500K for a non-owner occupied [investment] (Rental unit), and 50% of the remainder. Even to a mega-bear like me that is excessive. Either they don’t really want to lend money, or they see bad things coming. This means that, for a non-owner occupied $1,000,000 property, HSBC is asking for 45% down.”

“Third offer on my place has fallen through. Reason was the same each time. Failure to get financing.”

Comments section at robchipman.net (26-28 Nov 2009) is liberally peppered with anecdotal observations of slowing RE markets in and around Vancouver. Perhaps it’s all attributable to the 25 days straight of heavy rain we’ve endured. This from Anonymous 28 Nov 2009 6:57 pm -

“Third offer on my place has fallen through. Reason was the same each time.  Failure to get financing. Banks may be tightening up.  I know my line of credit interest rate just went up. I’m dropping my price on Monday and will get out fast before this market turns sour on me.”

CAVEAT: Rob Chipman, in a posting at his blog (the source of this anecdote) 29 Nov 2009 10:04 am, expresses doubt regarding the veracity of this anecdote (based on IP address of a multiple-poster). Híppos Purrós in the same thread 29 Nov 2009 11:08 am also expressed doubt but, interestingly, added their own anecdote – “Both of [my] girlfriend’s recent YVR RE disposals have fallen through. Buyers’ financing was withdrawn at last moment by lenders concerned about pending special assessment”.

RBC report – “The near-frenzied tone to the market is occurring despite still historically poor, and now deteriorating, levels of affordability.”

The RBC has release its ‘Housing Trends and Affordability Report’ for November 2009.

Unsurprisingly, Vancouver leads the pack nationally, with an average Detached bungalow requiring 66.8% of the average household income to service a 25-year mortgage loan at a five-year fixed rate after a 25% down payment.

Here is an excerpt from the report -

“Vancouver — Heating up rapidly
The Vancouver housing market continues to roar back in a spectacular way and property prices are now heating up closer and closer to a boil.  Resale activity has surged since spring and the rebound has more than fully reversed the dramatic drop that occurred in 2008. The concomitant rise in the number of units available for sale has been more subdued, which has considerably tightened the market.  In fact, the ratio of sales to new listings has returned to levels last seen in 2005 and early 2006 when prices were rising at a double-digit annual pace. This near-frenzied tone to the market is occurring despite still historically poor, and now deteriorating, levels of affordability.  In the third quarter, RBC’s affordability measures for Vancouver worsened for the first time since early 2008, rising between 1.7 and 4.3 percentage points.  These increases were, in fact, the biggest among major cities in Canada.  Even though the affordability measures fell substantially during 2008 and early 2009, they remain well above long-term averages.”

“Rich [foreign] money is buying downtown Vancouver and the West side.”

What’s happening in the trenches of RE sales? This exchange at RE Talks, starting 25 Nov 2009 9:12 am, with a realtor responding to some questions about buyers -

MikeStewartRealtor – “I am very optimistic about Vancouver’s prospects and [that is] because of what I see on the frontlines.
Out of every 10 buyers you have dealt with, how many buyers get high ratio financing (5% down)? Less than 10% – Most put down at minimum 20% and are not highly leveraged.
How many buyers are first time buyers? 20-30%
How many are rich foreigners? 20-25%.
How many are poor foreigners (i.e. high ratio financing)? Zero
How many need dual income? 40%
Are you seeing foreigners buying with cash and using Vancouver as a vacation property? 15% of my business.
How many properties are bought as rentals? 20%.
The people I work with buy and hold because they see big potential for Vancouver.”

Greenhorn (10:09 pm) – Anecdotal evidence I have from a small sample in that rich money is buying downtown Vancouver and the West side. Iranians, Mainland Chinese, Koreans and few buyers from the Middle East. Pretty interesting.

UPDATE: In response to a request for further info, Greenhorn (28 Nov 2009 1:23 pm) is kind enough to add the following -

“My stats come from realtor friends who are quite honest about the answers they give me regarding who is buying downtown and the westside. I also have friends who live in these areas who track every sale in their neighborhood and who know who their new neighbors are. Most purchasers are living in their properties and some are renting them out. It is by no means scientific, but there are underlying trends and patterns that are becoming noticeable. If you discount or ignore the rich foreign purchaser, you will never reconcile how prices in Vancouver can be so high, with record job losses and a weak economy. Of course the Vancouver local with a job can compete with rich foreigners in bidding up prices and getting caught up in the fervor, because interest rates are at record lows, and credit is easy. Everyone in Vancouver is rich now because they are either wealthy foreigners or can qualify for huge bank loans. Which group is dominating the market? The rich foreigner or the heavily financed local yokel? I have no idea, but I am hoping it is the former so that our real estate market stays orderly. If it is the latter, we are in for a world of pain. It sounds like there are a lot of foreigners with cash that are buying.”

Toronto Anecdote – “There hasn’t been a lot of time spent on discussing the human side of investing in a real estate bubble”

VREAA is a collection of anecdotes from Vancouver and its immediate surrounds. Occasionally, however, an anecdote from elsewhere in Canada speaks so powerfully of issues that are relevant to our market that they merit mention here. This anecdote from Garth Turner’s greaterfool.ca article 24 Nov 2009 crosses that threshold, so I post it here, with it’s out-of-province source (Toronto) clearly noted. It speaks to the financial and social risks of being a young FTB in a RE bubble market. A mortgage broker in Toronto describes their children’s friend’s travails -

“House purchase summer of 2008.   100% financing, 40 year amortization.  Husband a carpenter, wife at home with the new baby.  November 2008, husband laid off, wife goes back to work for minimum wage. Still not enough family income to pay the mortgage and buy groceries. Value of house has dropped 10%.  Payout of mortgage was higher than the purchase price the day they completed, by virtue of 100% financing and the CMHC fee.  Real Estate commission 7% on the first $100,000, 3.5% on the balance.  Shortfall would be $49,000.  Couples’ families want to help.  Daughter and baby move home with her parents.  Son moves home to his parents.  Duplex is rented out to cover the mortgage payment. This doesn’t work.  Husband moves in with wife and her parents.  This doesn’t work.  Couple rent cheap apartment. This doesn’t work.  Mother and child leave after 8 year relationship. There hasn’t been a lot of time spent on discussing the human side of this recession or investing in a real estate bubble but it is important to note the consequences are not [limited to] a loss of money or investment.”

“I think people have lost their minds. I know several people who are in their early 30s or even 40s who are running out and buying not just one, but 2 or 3 houses.”

This from Anonymous at fishyre.blogspot.com 19 Nov 2009 9:22 am -

“I think people have lost their minds. I know several people who are in their early 30s or even 40s who are running out and buying not just one, but 2 or 3 houses! All in the name of “investment” with huge, long term mortgages. If that isn’t the sign of a bubble, I don’t know what is.”

“My unsecured credit line is going up a full point in January to prime + 2%. Still ridiculously low, but a true sign of what is to come.”

This from RennieWhereRU? at vancouvercondo.info 23 Nov 2009 10:33 pm -

“Got a lovely letter today from RBC. My unsecured credit line is going up a full point in January [2010] to prime + 2%.  Still ridiculously low, but a true sign of what is to come. Why can’t CMHC insure my credit line, so I don’t have to get this increase in rate and go up to my tits in debt? Not fair.”

“Does it make sense to other people that the variable rate right now is a pretty high risk play with a slight chance of coming out ahead and pretty big chance of losing?”

A mortgage holder chews over whether to lock in or not. This from kramster at RE Talks 23 Nov 2009 9:29 am -

“I’ve been trying to do some research on historic interest rates to assist in determining whether or not I should lock in to a 5 year rate.  What I’m wondering is if the current difference between the BOC bank rate and the banks’ posted prime rate is typical. Currently I believe it’s a 1.75% difference (0.5 vs 2.25 prime). source http://www.bankofcanada.ca/en/rates/interest-look.html (bank rate monthly). Currently I can get prime -0.25%, for a closed variable rate of 2%. The best 5 year rate I can find is 3.99%. (I’m not with Sutton, so I can’t get their rate [3.69% - ed.]). If the spread is consistent, it would require the target bank rate to be about 2.5% or more for the fixed rate to beat a variable. According to the chart I downloaded from the BOC website, [apart from] December 2008 when the rate was dropped to 1.75%, there has never been a time in the last 10 years where the rate was better than 2.5%. I know you used to be able to get prime -1%, which would change things a little, but to get even prime -.25 requires a 3 year term. This leads me to believe that the likelihood of paying less than the current 5 year fixed rate, if I choose the variable rate, is slim to none averaged over the course of 5 years. Am I making sound assumptions here? Does it make sense to other people that the variable rate right now is a pretty high risk play with a slight chance of coming out ahead and pretty big chance of losing? The idea of going variable and locking in later is there, but will you get a chance to do this before it rises? And to me this is a little like trying to pick a bottom of a stock price. When do you jump in? There’s also the problem that the lender with best variable may not be the one with the best 5 year fixed, so if you want to change from variable to fixed you are already at a disadvantage.”

BeatBox adds, 23 Nov 10:18 -

“You can get variable at 2%. Fixed is 3.99%. A difference of 1.99%. Why would you not go variable? The spread is almost 2%. That would require the BOC raising rates significantly. Not likely to happen within the next year. A slight increase, maybe. Then you’re paying maybe 2.5% and still significantly below fixed. BTW: This doesn’t grant you the ability to max out your borrowing based on 2%. Doing that would be foolish. Maybe max out borrowing at the 3.99% allowance, and then go for the Variable. Apply the difference into your payments so that you are paying down your principle much quicker and when it comes time to renew you owe far less. I mean, the difference is about $100/month for every 100k borrowed. Over 12 months, that’s about 1% more of the principle paid down every year. That’s what I would do.”

“They didn’t have to come up with a down payment.”

Money is free and you don’t even need a downpayment. The only thing good about this is that it is almost impossible to make monetary policy any looser without some kind of obscene give away program that’d likely stir objections. This from casual observer at greaterfool.ca on 21 Nov 2009 at 4:40 pm -

“If you go into one of the big five banks, and take their posted rate on a mortgage, they will GIVE you the 5% down payment. CMHC is happy because the 5% DP has been paid, the bank is happy because they get a higher rate on the mortgage, and the buyers are happy because THEY DIDN’T HAVE TO COME UP WITH A DOWN PAYMENT. And it’s all legal and above board. CMHC just charges a premium for a “NON-STANDARD Down Payment”. Now if that’s not a zero down mortgage, I don’t know what is. I know people that have done this within the last couple of months, but none of the media seems to want to bring attention to this.”

Higher Down Payment, Higher Interest Rate? – “Don’t try to fight the government.”

Risk is being abnormally underpriced in the Canadian mortgage market. Despite the Bank of Canada’s call for prudence, there remains an apparent open invitation for buyers to overextend themselves. This from German Guy at robchipman.net 19 Nov 2009 at 12:44 pm

“I hear a lot of talk about how CHMC is the Canadian version of American sub-prime so, since I don’t have much to do in this never ending rainy place, I decided to go and apply for a mortgage to find out what is it all about.
I asked for a 5 /35 year fixed rate with minimum 5% down payment and 5/35 with 300k down as well as a VMR and wanted to know how much money I would qualify for. Here are the figures I gave the banker (the figures are imaginary and have no relation to my real revenue):
Gross annual income: 95k, estimated purchase price 800k
Expenses estimated by banker: Monthly heating costs $67; annual taxes $2500, loan/credit card monthly: $360

In the case of 5/35 with 40k down he qualified me for loan of $538,842, with $2,404 monthly payment and 4.20% interest rate. In the case of 5/35 with 300k down he qualified me for a loan of $798,842 with $2,534 monthly payment and 4.20% interest rates.

I asked to get a lower interest rate in the second case where I put a bigger down payment since the bank was not taking as much risk as with the first one.
Answer: We take more risk when you put a bigger down payment because your loan does not have to be insured by CMHC, so if anything your interest rate could be higher because the bank is taking more risk. We are not in the business of foreclosing homes and selling to get paid, we prefer when you have a CHMC insurance as our risk is much lower than when you have a pig [that's 'big' -ed.] down payment above 20% of purchase price.

I asked for a VMR then, he quoted me a 2.25% interest rate for 35 years and qualified for $665,000 loan with 5% down payment.
I asked could put a bigger down payment ?
Answer: No. We will not give you a VMR loan if it is not CHMC insured!

I pointed out the absurdity of the situation in his reasoning, with taxpayer taking all the risk and the banks making risk free profit. All he said was don’t try to fight the government.”

“I haven’t really been paying attention to fixed rates with variables so low.”

Are current buyers following the recent BOC guidance to be ‘prudent’? This admission from Vancouver Realtor MikeStewartRealtor at RE Talks 18 Nov 2009 10:21 pm, in response to a poster’s question about ‘best 5 year and variable rates’ currently available -

“The best variable I’ve seen is prime -0.1%. Haven’t really been paying attention to fixed rates with variables so low. I’d use a mortgage broker. Talk to a few to see who can get you exactly what you want.”

“My dreams of buying cheap real estate are over. I don’t need to own, and current buyers are far crazier than I would have *ever* expected.”

This from rp at vancouvercondo.info 17th Nov 2009 10:31 am -

“My dreams of buying cheap real estate are over. I don’t need to own, and current buyers are far crazier than I would have *ever* expected. We just witnessed a worldwide financial crisis – the biggest in 80 years – and they are lining up to mortgage their lives away for a dream. Casting themselves onto the rocks is more like how I see it, because I don’t see how this could possibly be over. I save enough money to provide decent financial security for my family and will continue to do so. I’m 30 years old. It would feel good to settle down, but instead I’m going to remain flexible about where I live and what job I take.”

“A guy just bought a house with a mortgage and was checking with his friends if the bank would lend him another $6K for CHMC insurance”

This from Anonymous at vancouvercondo.info 15 Nov 2009 10:13 pm -

“I was at the Daiso $2 shop to buy toilet brushes and brooms. And I overhead a conversation. A guy just bought a house with a mortgage and was checking with his friends if the bank would lend him another $6K for CHMC insurance.”

“The [Mortgage Broker] course was useless, boring and easy. Seriously, it’s a joke.”

A newly minted Mortgage Broker, Marco911, describes the course and the exam over a series of posts at RE Talks, starting on Mon Nov 02, 2009 10:09 pm -

“I just finished my [Mortgage Broker] course a few days ago. Three weeks of my life I will never get back. … There is only one official mortgage broker course, [in order] to become licensed, offered through UBC. It is very similar to the Real Estate course that Sauder offers. The requirements to write the exam, and the course itself, was beyond easy. This means the mortgage industry is not concerned about saturation, which makes me wonder what duty they serve to the existing mortgage broker community (the answer is inherent). … The course was useless, boring and easy. You need a 65 and I managed to get 98. Seriously, it’s a joke. … I am not going to do anything special with the course for a while. Once my house is finished and I’ve settled a few issues with some investments I’m going to start a business plan so that in 2 years I can run my own brokerage. We’ll see what happens.”