“A friend from Kelowna phoned me wanting to borrow some serious money ($50K). It is time for them to refinance their mortgage; Kelowna prices have collapsed since they bought 4 years ago; they paid $450k a house which is now worth $370k; to refinance at these new rates the bank said they have to bring up their equity to positive status.”

Posted on 15 January 2012 | 125 Comments

“A friend from Kelowna just phoned me recently wanting to borrow some serious money ($50,000). Of course this friend didn’t expect me to supply all of it but would be grateful if I could chip in a good $10k and they would try scrounge around the rest from other friends and family. Obviously, they had to explain why they needed so much money urgently. According to the explanation:
It is time for them to refinance their mortgage (or is it renew the mortgage). Pardon me, I have never had a mortgage before. Unfortunately, Kelowna prices have collapsed since the time they bought (about 4 years ago). They paid $450k for this nice suburban house which is now worth around $370k. I even went onto MLS and verified the prices in their neighborhood. My friend tells me that in order to refinance at these new juicy rates the bank said they have to bring up their equity to positive status. That is where the $50k shortfall comes in. My friend is at his wits end now. Keep in my mind my friend was being very incoherent during the phone call – I guess a result of the panic and desperation. As a result I had to do my best to piece together the pieces of random information he was throwing at me. However, he did specifically mention regret about getting in at the peak instead of having just rented a place until the crash. Strange! coming from someone who claimed rent was throwing money down the drain when justifying the house purchase a few years back. Also, he is worried about the security of his job.
I sympathize with his situation but, unfortunately, can not lend him the money because I know there is no chance in hell of me getting back my $10k. Also, my $10k will not make any difference considering that it will be almost impossible for him to raise the other $40k. That means I will have to finance the whole 9 yards – now what are the chances of him paying back $50k. I am personally moving to Alberta next month and will be buying my first home and therefore will need all the cash I can get my hands on.
If this is where Vancouver is headed, then there is gonna be some serious misery in this town. Already, Victoria is headed that way. Refinance day will be judgment day (that is if you have not already been laid off before that date). Family and friends will not help you out of this one. Especially, local friends who will also be in the same predicament.”
– IamOuttaHere, sent via e-mail to VREAA, 14 Jan 2012 [Thanks, IAOHere! -ed.]

This entry was posted in 05. Where do Buyers get the money?, 08. Overextended Buyers, 11. Regrets about Investing in RE and tagged , , , , , , , , , . Bookmark the permalink.

125 responses to ““A friend from Kelowna phoned me wanting to borrow some serious money ($50K). It is time for them to refinance their mortgage; Kelowna prices have collapsed since they bought 4 years ago; they paid $450k a house which is now worth $370k; to refinance at these new rates the bank said they have to bring up their equity to positive status.””

  1. jesse | 15 January 2012 at 8:52 am | Reply

    Ruh-roh!

    I feel nothing. Is that bad?

    • vreaa | 15 January 2012 at 9:00 am | Reply

      No, but some will make you feel that it is.
      Much more to come in that regard.

      • jesse | 15 January 2012 at 9:41 am |

        The investor in me requires I feel nothing. It’s never personal. While it may be harsh, to do otherwise does a disservice to future generations.

      • chubster | 15 January 2012 at 10:51 am |

        life is about try and fail. most often, it’s what we do in response to failure that matters. our system believes in trying to prevent that from happening. ultimately it cannot and just sets up bigger failures.

    • chubster | 15 January 2012 at 9:46 am | Reply

      i can empathize. that’s how i felt when all my tech stocks blew up and i rode them half way down. have to recognize defeat and do the responsible thing by cutting losses now. life will go on but must first recognize the reality of the situation, come to jesus, whatever you want to call it. pressuring friends and family to bail you out just adds collateral damage. it’s shiva time, time to watch old country again … and you know what’s going to happen now. you should admit your situation. there would be more dignity in it.

    • Renters Revenge | 15 January 2012 at 10:03 am | Reply

      They only have $20k at risk here. They should threaten the bank with walking, that’s worse for the bank than it is for the couple.

    • 4SlicesofCheese | 15 January 2012 at 10:10 am | Reply

      Has anyone seen Margin Call.
      There was this great dialogue between two characters about whether they should feel bad about the general public over over-leveraged mortgages, I should try to dig up the transcript.

    • theragingranter | 15 January 2012 at 10:35 am | Reply

      I feel nothing either. Perhaps even a bit of spite for this person, considering he actually wants friends to bail him out. (See my comment below.) But we’ll all be paying to help these “friends” sooner or later. Underwater home owners are about to become a huge voting bloc; a bloc so large that no political party can afford to ignore them. It literally turns my stomach.

      • Renters Revenge | 15 January 2012 at 12:18 pm |

        I’ve been feeling sick about this since 2009 when I first dug into CMHC and the taxpayer exposure to private mortgage risk they have facilitated here in Canada. CMHC is a corporatist and criminal organization who has severely distorted the RE market and who will confiscate our wages, ruin our economy, and cripple our future to pay for their bankrupt and kleptocratic political objectives.
        Corporatism is tyranny.

      • Renters Revenge | 15 January 2012 at 12:35 pm |

        I don’t really have sympathy for the homeowner here but I do know what it’s like to sit across the table from a banker who tells you they can “easily” give you a million dollar mortgage with only a 5% downpayment. Awfully tempting, and judging by the banks reaction when I refused, I would guess there are very, very few of us who actually had enough wits to turn that kind of offer down.

      • theragingranter | 15 January 2012 at 5:02 pm |

        My brother went to renew his mortgage. The guy asked him, “Do you want open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.

        My girlfriend works in a bank. When a customer comes in and she opens his account, a flag often comes up in the system stating he is entitled to a new HELOC, or entitled to expand his existing HELOC. And she is obligated to tell them this and ask them if they’d like to do it. More often than not, they bite. Imagine, you don’t even need to apply for credit anymore. It just falls into your lap.

      • Absinthe | 16 January 2012 at 11:01 am |

        We haven’t yet been offered a mortgage, but we’ve been offered credit cards and lines of credit to insane near-house-buying limits any time we’ve done anything at a bank more complicated than deposit or withdrawal. Credit really does fall in your lap if your rating is good, and I know that some of what they were offering is beyond our ability to pay off on our incomes. It’s bizarre to me that they don’t know that.

  2. ZRH2YVR | 15 January 2012 at 8:58 am | Reply

    I’m not a mortgage expert in any way. However – – I suppose their existing lender can continue on down the original amortization period and continue to provide a mortgage using some conventional type loan. However, at that point I suppose the bank “has” you and you have to continue on and you don’t get the same deals.

    • jesse | 15 January 2012 at 9:42 am | Reply

      If there is no equity the bank cannot do much. Regulations require mortgage insurance on high ratio loans and at least 5% down. If that’s not attainable there aren’t too many options available to either party.

      • AG Sage | 15 January 2012 at 9:53 am |

        Presumably they have mortgage insurance in force from the original writing. Actually, this is not enough information here to really get what is happening. I think ZR has it right, the banks will “refinance” come renewal time, but not at the best rate. It is deeply in the banks interest to do so, 1) they make more money off you after renewal knowing you have no other options, and 2) to fail to renew means taking an immediate write-down if they force you to sell instead, or sell it themselves.

      • Ben Rabidoux | 15 January 2012 at 12:03 pm |

        Jesse, is that verifiable? I’ve been told that unless homeowner has significant impairment in credit history during term of mortgage, most banks will refinance existing mortgages even at negative equity. The mandatory 5% equity you refer to, as I understand it, applied only to original loan.

        There is some precedent with this sort of stuff from the 90s when RE last busted. Any insights from commenters one way or the other. I think this is a KEY topic. If banks won’t refinance negative equity mortgages, it will exacerbate the bust. Which begs the question why they wouldnt do it if it was at all in their control.

      • ToL | 15 January 2012 at 2:30 pm |

        Ben Rabidoux | 15 January 2012 at 12:03 pm |
        ” I’ve been told that unless homeowner has significant impairment in credit history during term of mortgage, most banks will refinance existing mortgages even at negative equity. The mandatory 5% equity you refer to, as I understand it, applied only to original loan.

        There is some precedent with this sort of stuff from the 90s when RE last busted. Any insights from commenters one way or the other. I think this is a KEY topic. If banks won’t refinance negative equity mortgages, it will exacerbate the bust. Which begs the question why they wouldnt do it if it was at all in their control.”
        …………………….
        I just renewed a mortgage on a property purchased 5 years ago, and has a 10%-12% shortfall of current market value.

      • chubster | 15 January 2012 at 4:30 pm |

        @ben. vanRE bullish element seems subdued to me since asian RE markets went down. curious, how is gta sentiment lately? noticed at least one fairly rabid appraiser on your blog.

      • jesse | 16 January 2012 at 5:56 am |

        Ben we’re talking about capital requirements here. These loans cannot be securitized without verified equity otherwise they’re impaired and get kicked way out the credit curve. If the bank keeps them on the books their own capital requirements will take a hit. This snowballs until they cannot make new loans at low rates or tell shareholders why their balance sheets are deteriorating. The only way banks are saved is by CMHC or other mortgage insurers making exceptions and insuring with equity impairments. I’m talking about loans made with 20%+ down that are coming due without 5% equity buffer; if that happens en masse there is huge fallout (the banks selling umbrellas adage). I agree it isn’t a big problem with regionally contained impairments but we do know that areas like Kelowna are already pretty much devoid of secondary lenders.

    • chubster | 15 January 2012 at 9:51 am | Reply

      i imagine when cmhc starts to blow up, there will be principal reduction programs and similar, anything to keep people paying, prevent outright defaults and mortgage paper from having to be marked down

      • Renters Revenge | 15 January 2012 at 10:05 am |

        Free houses!

      • theragingranter | 15 January 2012 at 10:31 am |

        Not free houses. Just free rent for those who are already underwater in their houses. The rest of us will pay for this profligacy. We’re just ‘toopid renters after all. Not their fault we didn’t “invest in ourselves by buying a house.”

      • AG Sage | 15 January 2012 at 11:31 am |

        Putting too little money down when buying a house just makes you a renter. And banks are pretty sucky landlords. You know they never fix anything…

      • jesse | 16 January 2012 at 6:02 am |

        Turn south to see all the tricks used to try to relieve underwater loans and the effect on the overall economy. We don’t need to imagine anything, the playbook’s been written already.

  3. theragingranter | 15 January 2012 at 9:12 am | Reply

    My indignant and self-righteous response would be something like this:

    “Buddy, you made a stupid mistake. Remember when you were ragging on me for renting? Telling me I was just throwing money away? You’ve got some nerve asking me to bail your pathetic ass out now. And don’t give me this crap about wanting to live up to your obligations to your creditors. You’re just trying to transfer the risk of your inevitable default from the bank’s books onto friends and family. Well, the bank took a risk on you. I didn’t. They, along with you, need to accept the consequences. Now man up to your mistakes and start fixing the problem. If that means selling at a loss and declaring bankruptcy, so be it. But do it now, and stop trying to drag a bunch of friends and family down with you. That is absolutely classless. Do not call me again.”

    That may sound a little harsh, but it is so transparent what’s going on here. This self-absorbed loser is trying to sucker his friends and family into financing his continued unsustainable lifestyle. He knows the bank won’t let him off the hook. But he also knows it is much less likely that friends and family will take legal action to collect on unofficial loans, especially if he borrows it in chunks from several people, some of whom don’t know each other. Such “friends” are a liability. Cut him loose.

    • bubbly | 15 January 2012 at 12:23 pm | Reply

      Yeah!

      I bet this loser was one of those smug and proud “owners” spreading the “wisdom” of owning vs renting and making fun of the “stupid” renters.

  4. Renters Revenge | 15 January 2012 at 9:55 am | Reply

    To get their equity above water they need to come up with $50k? So that means they have a mortgage balance of approximately $430k? On a house they bought for $450k, four years ago? It looks like they only put 5% down and haven’t been paying anything other than the just the interest for the last 48 months. And NOW the bank wants more collateral?
    Brain dead bankers is the real problem here.

    • theragingranter | 15 January 2012 at 10:21 am | Reply

      Brain dead banker meets brain dead consumer debtor. Multiply this one transaction by many millions across the country. The result? Impending economic doom for all of us.

      I hold out hope quantum physicists will figure out how to turn back the clock, and we can go back to 1995 or so, and do over the last 17 years, minus the financial idiocy. Does that make me insane?

  5. formula1 | 15 January 2012 at 10:05 am | Reply

    “My friend tells me that in order to refinance at these new juicy rates the bank said they have to bring up their equity to positive status”.

    I guess they’ll just have to keep paying their old rate and rolling it over and over until the mortgage is paid.
    Doesn’t sound like owner is at their “wits end”

    • chubster | 15 January 2012 at 10:23 am | Reply

      it’s ofuc factor. the realization prices are going down, that what happened everywhere else is now here, that they’ve leveraged most or all their money into a bad situation and there’s no way out intact.

    • vreaa | 15 January 2012 at 10:31 am | Reply

      Yeah, and that they “could be paying less” for what they have.
      Painful.
      .
      Those who argue that many owners won’t be bothered by price drops forget how potent these regrets can be: “I could have paid less for this”; “I could have a lot more home for the same outlay”.

    • jesse | 15 January 2012 at 10:39 am | Reply

      And a bank is going to roll over a mortgage with negative equity? O…kay…

      • formula1 | 15 January 2012 at 10:31 pm |

        the bank continues to make money negative equity or not. There is no motivation NOT to keep rolling the mortgage over.
        Bank send the renewal papers, owners signs, another term begins. You can’t be this naive. Or have you never owned property?

    • jesse | 15 January 2012 at 10:49 am | Reply

      Owner: I would like to renegotiate my mortgage which is coming due.
      Bank: Ok let’s just see (tap tap tap tap)… computer says no.
      Owner: But, I have lots of equity, I’ve paid down over 5% of the mortgage
      Bank: Let me try again (tap tap tap tap)… computer says no.
      Owner: How can that be? I had 20% down, I didn’t need mortgage insurance. I WAS A PRUDENT BORROWER!
      Bank: (tap tap tap tap) computer says no… (COUGH)

    • AG Sage | 15 January 2012 at 11:31 am | Reply

      I suspect they got pulled in by someone promising a lower-interest refinance, showed them how much lower their monthly payment would be, and now they can’t let go of those $ signs. I would surprised if there regular bank, come regular renewal time, put them in this position.

  6. vanni | 15 January 2012 at 10:43 am | Reply

    I find it hard to believe it. provide us with listings of 6mths ago and now.

    What Are Kelowna Real Estate Prices Like?
    Posted by stoneteam on November 23, 2011 |
    “Did you know that:
    There have been 83 properties sell in the Central Okanagan this year (Peachland to Oyama) with a sale price above one million dollars ($1,000,000). There were 92 during the same time frame last year (January 1, 2010 to November 22, 2010).”

  7. MM | 15 January 2012 at 10:48 am | Reply

    MSM needs to pick up on a story like this, make the risks/consequences of over reaching more tangible.

    • Renters Revenge | 15 January 2012 at 12:24 pm | Reply

      They won’t because, frankly, the consequences are too negative and dire for the sensibilities of their paying customers. Bloggers are the only ones who will tell it like it is.

  8. Airedales | 15 January 2012 at 12:14 pm | Reply

    A drop in value of just over 15% is not a crash, it’s a correction – and the banks better get ready for another 15% drop in values over the next year and the wave of ultimate foreclosures.!

    • rp1 | 15 January 2012 at 5:35 pm | Reply

      You’re correct, if the market can’t handle -15% then it’s unstable. That’s why 20% down was such a good idea.

      • Airedales | 16 January 2012 at 4:49 pm |

        In fact, my mortgage broker required that I put 25% down on each of three properties I purchased in the early 2000’s. For good reason, as I’ve now experienced three different 20 – 30% real estate “corrections” just as my broker had 10 years ago. There’s a time to buy and a time to sell RE – just like any other asset class. Anything less than 20% down near the top of the cycle is just plain stupidity.

  9. IamOuttaHere | 15 January 2012 at 12:20 pm | Reply

    Thought I would shed more light on the situation. When they initially purchased the placed 4 and half years ago they barely afforded it. They were saved by a low interest rate of around 3.5% . Even then, they did not have enough for closing fees. Yes, the good buddy came to the rescue and lent them some money. The only reason they can afford the house is because of low interest rates.

    Yes, they will still be able to refinance but definitely not at this new 2.99% or the 3.5% they were previously on. I am no expert in this mortgage game but can safely guess that their new rate might be in the 4.5% region. A 1% increase in interest will push you to consider pulling the kids out of music lessons or little league soccer. We do not know for how long prices will be depressed in that city, or they might even drop further. They still have to do another refinance in a few years time.

    Reading about some post crash stories from the states did move me somewhat. However, nothing compares to knowing a personal friend in such a predicament.

    • IamOuttaHere | 15 January 2012 at 12:23 pm | Reply

      Also, a nasty consequence of such real estate bubbles that gets ignored by the statistics is how relations get strained. Friends and family think you are some unreasonable sociopath when you refuse to bail them out.

      • Michael | 15 January 2012 at 1:19 pm |

        Yes, money is the #1 reason why divorces happen and also the end of friendships. Luckily enough I learned that early on in life and have always kept money and friends / family separate.

    • theragingranter | 15 January 2012 at 12:40 pm | Reply

      Imouttahere, I still think any sympathy you have for your friend is misplaced. He is now trying to drag you into the same mess he’s currently drowning in. Sounds like he’s already dragged some friends and family into it by letting them pay his closing costs. That’s not a friend. Yes, tough economic times take their toll on relationships. They even cause suicides. They also cause increases in domestic violence, alcoholism, drug abuse, and other behaviours. Very sad. But this fellow made his own bed. Let him sleep in it. There’s enough people deserving of sympathy without wasting it on those who don’t.

    • vanni | 15 January 2012 at 12:52 pm | Reply

      They should be able to get a low rate if they go for an open variable rate.

      Prices only drop if you are selling. They are not selling. they live in their house. My advice, is hang-on.

      • bullwhip29 | 16 January 2012 at 12:07 pm |

        Nope, those smokin’ hot deals on a 5 yr VRM open don’t exist anymore.

        The best advice for these folks is to batten down the hatches and make due with what they’ve got. If they’re having trouble paying the mortgage, the solution isn’t to reduce the mortgage payment (using whatever means possible). Instead, they should axe some things off the monthly shopping list. Come on, how hard would it be to trim $200 worth of fat off the monthly shopping list?

      • jesse | 16 January 2012 at 12:16 pm |

        “My advice, is hang-on.”

        Great advice for those who are able to hang on. For those who aren’t able to hang on, the advice is mmm…not so great.

  10. bubbly | 15 January 2012 at 12:27 pm | Reply

    Feeling nothing? No way! How can you feel nothing when you finally see the blowback from bad karma built up over the past decade? This is what keeps the crash going. We need more!

    The only thing I don’t feel is sympathy.

  11. Yank | 15 January 2012 at 1:11 pm | Reply

    I’ve wondered since moving to Canada about these mortgage renewals. One reason I’m cautious about buying here. A 25 or 30 year fixed interest is standard in the States. (no renewal.) The current American economic downtown would have been a much larger economic disaster if the banks insisted on renewing interest rates every few years.

    Fixed interest rates are a good deal for consumers. While this guy clearly was economically unwise, I do have a great amount of sympathy for his situation. The banks don’t have any skin in the game, and, quite frankly, they are screwing Canadian buyers by refusing to fix interest rates and insisting on mortgage penalties. (off topic comment: Mortgage Penalties for paying off your mortgage early? Three words: WTF?)

    As for people who advise him to threaten to walk away from the house. The banks don’t care. They are just fine taking the house to resell. Meanwhile, if this couple looses their house or big $$$, they have less $$$ to spend in the economy. That all contributes to a lack of demand, which hurts the local economy. Ok if it happens to a few people.

    If it happens to masses of people? A bad scene. The economy slows, unemployment rises, cuts in private investment, jobs cuts in private companies, job cuts in the public sphere, cuts to public funding.

  12. Rachelle | 15 January 2012 at 1:44 pm | Reply

    Last year a friend of mine who used one of these mortgage companies from the States (HomeTrust?) was sent a letter that his mortgage would not be renewed. He forged a bunch of documents and got a new mortgage through a broker who “helped him”. He had to get a second mortgage at 12% to make up the difference. Also through his mortgage broker “friend.”

    I tried to set him up with some straight mortgage guys but they wouldn’t touch him.

    Another group of people who will be freaking out is those who buy preconstruction. On the REIN forum one day there was a specuvestor who was looking desperately for an out for a calgary condo worth 80K less than he paid for it. He would have to fork over a whack of cash to close because the no bank on earth would give him an underwater mortgage. If you have nothing and you fail to close, the developer is unlikely to hunt you down but…if you have assets then the developer will go after you if you fail to close on the deal.

    I do feel bad for people, it hurts not having the money and losing your home. I wouldn’t ever want to be in that position and wouldn’t wish it on anyone. Unfortunately your friend may be much better ripping off the band aid fast than slow.

    • AG Sage | 15 January 2012 at 5:27 pm | Reply

      So, what you are saying is the best specuvestor is one who is already dead broke. Good to know. 😉

    • 604x | 15 January 2012 at 9:36 pm | Reply

      Developers will pursue for the difference between original price and new lower market price they re-sell it for. So those pre-sale buyers shouldn’t lose the full purchase price, only the delta between old price and new lower price.

      Developers have made their purchase agreements bullet proof on this issue after the 2008 melt-down and howls of pre-sale buyers that time. This generation have no easy exit – and deserve no easy exit since they didn’t learn from 2008/09.

    • Absinthe | 16 January 2012 at 11:18 am | Reply

      Rachelle, I’m with you in feeling bad for people. I agree that the bandaid is better ripped off quickly, but of course it hurts.

      If this were my friend I’d say: “I know this is your home, but I really believe that $50K is throwing good money after bad. Instead, let me help you find a good rental and I’ll buy the pizza on moving day.”

      The friend in question may react to such an offer with anger, anyway – I’m not sure it’s any more friendship preserving – but most of the people I know aren’t saints and make all sorts of mistakes, and overspending during a bubble doesn’t strike me as the worst of them.

      That said, and there were definitely times during this bubble where I was quite angry at the system or individuals in it. Mainly at the destabilization of the rental market, as all my renter friends were evicted for flips or renovations: then again later, as friends began to leave, because they didn’t feel like Vancouver was a place for them anymore. But I know that that destabilization caused some to cling harder and buy; they just pushed the misery off, some.

      When I’ll get angry is when the government bails out the banks and then tries to cut social services.

  13. Basement Suite | 15 January 2012 at 2:41 pm | Reply

    I am quite happy to read about stories like this, because it portends at least some sort of correction elsewhere in BC. I don’t recall asking my friends to lend me money in 2008 when my stock portfolio was down tens of percetnage points, or asking my bank to just return my original investment thank you and I would just “walk away”. So sympathy I do not have! But despite the glimmer of hope stories like this offer, to get the real, great correction we really need (at least 50%), the BOC’s 1.00% interest target would have to rise big time, and sadly that will not happen for a very long time because the Bank of Canada’s daddy the US Fed said so.

    • chubster | 15 January 2012 at 3:36 pm | Reply

      rates are not the only factor affecting credit issuance. us rates are still low, yet housing tanked and is not coming back. if the ponzi character is true, it needs continued positive, ever greater net influx – or else.

      • Basement Suite | 15 January 2012 at 4:32 pm |

        I agree not the only factor, but it’s a big one. Hope the ponzi thing is correct and it all falls apart anyway, I would love to be proven wrong on this one.

  14. rp1 | 15 January 2012 at 2:51 pm | Reply

    Sounds like the best thing you could do for your friend is to sit down with him, calmly work through the numbers, and help him make a cold hard business decision. Stick the lenders if that’s in the best interest of his family, or give the bank an ultimatum (better terms or he defaults). You never know without the numbers, but it sounds like “riding it out” is a terrible option.

    • AG Sage | 15 January 2012 at 5:31 pm | Reply

      Unfortunately the default threat is low given CHMC will cover the bank if he walks. Now, if there was some funny business in the issuance of the mortgage that the bank was complicit in, he could threaten to report that CMHC which would invalidate the insurance then he might be able to negotiate. (But, dealing with banks at this level feels like dealing with the mob.)

      • rp1 | 15 January 2012 at 5:42 pm |

        It’s a hassle for the bank and it gets the friend out. If it’s not your first choice, I’d at least see what it gets you.

        You need to think of it from the bank officer’s perspective. Would you rather tweak one little number and cut a deal, or deal with foreclosure and selling a house? Which has less paperwork? I’m sorry but people do think this way.

  15. kc | 15 January 2012 at 2:56 pm | Reply

    What is that old saying “good money after bad”… Sounds like the SS Kelowna has sprung a huge hole.

  16. chubster | 15 January 2012 at 3:06 pm | Reply

    ahem. japan no longer on deck, now getting up to bat
    http://tinyurl.com/79jxx6r
    rule noted there is $7T of sovereign paper ww that needs to roll this year

  18. 604x | 15 January 2012 at 9:56 pm | Reply

    Imagine the humiliation of the guy having to call friends and family to scrounge $10k from each. What a dead beat.

    We have a new letter writing campaign for Vesta and anyone else who can spare the time: These deadbeat borrowers should not get special treatment from CMHC. They knew the risks and crowed about how smart they were for years. Worst of all, CMHC concessions to such borrowers would penalize those that did not take these foolish risks – most readers of this blog. Hold borrowers accountable!

    • chubster | 15 January 2012 at 10:20 pm | Reply

      that won’t solve the real issue, that cmhc is insuring a systemic crisis (oxymoronic), doing it with public funds and without the public’s explicit consent. makes no sense to sell car insurance if half the cars on the road have no brakes (a highly predictable and likely system-wide failure). only a public enterprise could be so simultaneously widespread and obtuse. cmhc needs to be cut loose, privatized, or its boc/taxpayer backstop removed.

    • Fred | 15 January 2012 at 10:37 pm | Reply

      you guys have too much time in your hands. do something more constructive. like chmc would give a sh*t about your letters and a handful readers of this blog.

  19. Vesta | 15 January 2012 at 11:36 pm | Reply

    On a previous thread, I posted about a $2.88 million dollar house for sale not far from where I’m renting. 2,986 sf, 33 x 125 foot lot, cheap materials, ugly, trite architecture, etc. The listing realtor pressed me about what I thought of it (I stopped at the Open House out of curiosity) and when I was blunt (“not worth it” and more), he took offense. I don’t know him at all and don’t want to presume, but when I went to his website I was disturbed enough by what I found there to want to post it here. The tone of moral opprobrium attached to renting vs. owning is really quite marked, and some of the claims for owning over renting I think many readers of this blog would agree could be dangerously misleading:

    “So what are the benefits of owning your own place? There are so many benefits to mention so here is a concise list that contains some of the highlights:
    0. Having your own independence (I can do what I like when I like!)
    0. More control over your future and less uncertainty (I feel more secure about my situation)
    0. No more Landlord issues and rent money disappearing down a black hole (my hard earned cash is staying with me and I don’t have to wait weeks for the toilet to get fixed)
    0. Providing a roof over your head that also acts as a savings policy and growing investment that can do wonders for your credit rating and future financial security (this is my place, my savings plan and people take me more seriously)
    The freedom to renovate and decorate to your taste (that controversial color scheme I always wanted!@)

    “Are you ready for commitment? Well it all depends on how you want to live your life. If you are still undecided about your future or just generally restless, drifting from one place to the next, love living at home or don’t mind handing your money over every month to a landlord, then maybe this is not for you. However if you are one of those people that have clearly demonstrated in the past that you are capable of commitment by exercising the capacity to complete and accomplish tasks, challenges and requisite standards, feel ready to settle down, want to make your money work for you, then it is a no brainer really. Buying a home doesn’t mean giving up living and you can even rent your place out if you fancy travelling or just in need of a break.

    “You may be a home owner before you know it!”

    • jesse | 16 January 2012 at 6:00 am | Reply

      Just buy. Your spouse will stop nagging you. How much is that worth? LOL

      PS the nagging doesn’t stop. It never stops. Never. 😉

    • Raging Ranter | 16 January 2012 at 9:46 am | Reply

      Typical realtor. Selling the mythology of the 1980s and 1990s as though it still applies at the top of the bubble. If it ever really did apply, which I doubt. Most telling, renting is throwing money down a “black hole”, but a mortgage and associated ownership costs, which could be double or triple (more if you renovate)? Well, that’d be an “investment”.

      Interestingly, I’m renting a beautiful 3BR townhome in Orleans (suburb on eastern edge of Ottawa). We just had two brand new toilets installed. It’s true, we did have to wait several weeks, but that’s because the landlords couldn’t find a plumber willing to take on such a piddling job (that’s what it’s like in the midst of a housing boom – every tradesperson is either too busy working or charges extortionist prices for small jobs), and eventually just did it themselves.

      How would this have been any different if I’d have owned the place? Well, it would have cost me at least $400 and I’d have spent a Saturday installing toilets. But I’m just a stupid renter flushing money down the black hole I guess – flushing it right down my new toilets.

  20. Zedsded | 16 January 2012 at 7:05 am | Reply

    “I don’t have to wait weeks for the toilet to get fixed”

    What? Toilets of home owners never break?

    Maybe home owners get a magical toilet fairy who fixes it immediately and for free?

    Or is he saying you can only fix your toilet as home owner? Then you should be able to fix your toilet as a tenant. Buying a place doesn’t suddenly improve your plumbing skills.

    • jesse | 16 January 2012 at 9:19 am | Reply

      But driving to Home Depot, buying the part, and installing it all cost money, something the renter is paying for but is ostensibly included in the rental agreement. Try invoicing the landlord and see what happens.

    • Vesta | 16 January 2012 at 9:59 am | Reply

      “A magical toilet fairy” — thank you for making me laugh this morning!

      I think the realtor should replace his slogan, “You may be a homeowner before you know it!”, with “You may be bankrupt before you know it!”

  21. pbrasseur | 16 January 2012 at 8:07 am | Reply

    Why won’t the bank refinance if the loan is CMHC insured?

  22. vanni | 16 January 2012 at 8:41 am | Reply

    There is no such fictitious person. stop your wailing and get to back to work. This particular person’s woes are only related here to make some people feel good and to gloat over a so called “dead-beat” ….

    • Airedales | 16 January 2012 at 5:09 pm | Reply

      You are obviously too young to have experience and understand that corrections in the real estate market are much more financially devastating than stock market corrections. You don’t understand the effects of leverage nor do you understand that buying RE makes sense when the cost to do so is not significantly different than renting.

      • vanni | 17 January 2012 at 8:46 am |

        Wrong little Terrier! 66! and I saw the corrections when interest rates hit 18% in the early ’80s. A few lost their homes, but not as many as you would have thought. Many were able to ride out the storm. I personally knew a few of those that did. plenty of belt tightening. heavy cut-backs in spending. some rented out their homes. SACRIFICES!

        Again i don’t believe half the postings herein. woof woof

      • blammo | 17 January 2012 at 9:46 am |

        Reminds me of a story a family friend told me over the holidays. He was financing a condo development on the West side when the builder got into trouble and he ended up taking over the entire project. This was in the ’90’s.

        Anyhow, he related to me how happy he was at the time when he sold the last unit in ’94(?) just before the ‘crash.’ He’s retired now but if had hung on to that building and say, rented it out, his kids would be retired now as well.

      • Airedales | 17 January 2012 at 10:05 pm |

        Look vanilla – you are being duped by the 30 year run in bonds. It’s over – mathematically impossible to be bailed out by time and the bid for bonds. It’s called the zero floor. Mortgage rates have hit their lows all over the world and there’s no such thing as a risk-free rate anymore. Futures rates are about credit quality and this can only further deteriorate. Take a look at Europe and watch what will happen when Japan is downgraded again. You can’t use the past and the drop in interest rates from 18% as your guide for navigating the future because the world of finance has drastically changed over the past 4 years.

      • vanni | 17 January 2012 at 10:23 pm |

        Mortgage rates will remain historically low for in all likelihood another 5 years,,.

      • vreaa | 17 January 2012 at 11:05 pm |

        It appears rate of change of mortgage rates has been as important as the mortgage rates themselves in keeping the bubble inflated.
        Can’t keep dropping forever.

      • Raging Ranter | 18 January 2012 at 12:28 pm |

        Vanni, homeowners paying 18% interest in the early 1980s did not pay anything close to today’s valuations for their homes relative to income. Debt levels were nowhere close to 153% of income. And minimum down was 10% back then, not 5%. At these valuations and these debt levels, belt-tightening won’t be enough. See the US experience from 2006 to 2012 for a trailer on what we can expect.

      • vanni | 18 January 2012 at 12:40 pm |

        Yes. But it was still the case that those who had enough of a down payment in the first place were perfectly able to ride out the storm. It’s all relative me lad.

        It all comes down to DEBT load and what can you afford to carry. And there are ways to handle various situations without resorting to “borrow” more. I still maintain that the person in question in this thread is a made-up person meant to make others feel good by gloating.

        The fact is that in ANY market condition with any kinds of interest ANYONE can find themselves over their head due to DEBT load versus cash flow.

  23. T | 17 January 2012 at 12:25 pm | Reply

    “plenty of belt tightening. heavy cut-backs in spending. some rented out their homes. SACRIFICES!”

    Anyone at this forum who actually believes “Generation Now” (as in…I want it now!) will be capable of cutting back and denying themselves is either an idiot or a troll.

    These buyers are people who have been coddled all their lives. They will pass on any financial losses to anyone they can…friends, family, banks, taxpayers. They only care about themselves and getting what the y want, when they want it.

  24. vanni | 18 January 2012 at 9:10 am | Reply

    “Can’t keep dropping forever.”

    Nope. no one has claimed that. BUT common wisdom predicts they will remain LOW LOW for many years.

    • Raging Ranter | 18 January 2012 at 12:21 pm | Reply

      Until now, each new drop in rates has been used to pull in more buyers. Even if rates stay low for ten years, the bullish effects of “yet another drop” won’t be there. And that means current prices will not be maintained.

      • vanni | 18 January 2012 at 12:34 pm |

        Agreed. People should not be buying with only 5% down. at any interest rate level. I always arise to have minimum 10-15%. Adjust expectations.
        I and many others ( banking folks) do not think we have a bubble in Canadian RE market. This is not to say that we won’t have a correction in the 25% range. But that will be healthy.

  25. loomis | 18 January 2012 at 1:26 pm | Reply

    “Nope. no one has claimed that. BUT common wisdom predicts they will remain LOW LOW for many years.”

    You forget that common wisdom espoused by Fed Chairman Ben Bernanke in 2005 that the U.S. housing market was not due for a crash because it had never happened before and the U.S. would “continue on it’s full employment path.”

    Common wisdom leads to the herd making some very common mistakes based on false assumptions. No one knows where interest rates will be in 5 years. We just know they can’t get any lower and we’re courting high or hyperinflation as a result.

  26. vanni | 18 January 2012 at 1:43 pm | Reply

    That the US is the culprit in the Toxic Debt syndrome there is no question. That Canadian Banks are _NO WHERE_ as exposed to mortgage debt is also un-disputed. Canadian Banks and the Head of the Bank of Canada has also stated that Canada’s banks have a relative low exposure to hosting sector.

    “We have a strong and stable housing sector, and that’s quite different from the situation here in the United States, and there are reasons for that.

    First of all, we don’t have mortgage interest deductibility. As Finance Minister, I don’t believe in using tax policy to increase risk in the housing market.

    Secondly, we have recourse mortgages in Canada. This helps instill, in our view, a sense of responsibility and discipline among homebuyers.

    Thirdly, we have very prudent lending standards, reflecting both solid management practices and strong supervision.

    We also have originators, primarily the banks and some of the credit unions, who for the most part hold the mortgages they originate.

    And finally, we monitor the housing market very carefully.”

    http://www.fin.gc.ca/n11/11-095_1-eng.asp

    Of course a Meteor could slam into earth on Saturday and make all this a mute point. But most reasonable people have not predicted a US style bubble burst in the housing market.

    “Lastly, a long period of low interest rates globally may fuel excessive risk-taking. The “search for yield” could cause risk to be underpriced or lead investors to take on exposures that they may not be able to manage if conditions become less benign. Since December, there has been mounting evidence of this search-for-yield dynamic in the global financial system, although the risk that it could lead to financial instability in Canada remains moderate.”

    http://www.bankofcanada.ca/2011/06/speeches/financial-risks-and-global-reforms/

    As for low rates. the FRIGGIN world needs to spur growth.. .they ain’t about to start raising rates for at least the next five years! Bet on it!

    BUT the bank of Canada will keep in Check and Monitor the money credits flows. AS THEY HAVE IN THE PAST

  27. IamOuttaHere | 18 January 2012 at 1:54 pm | Reply

    The million dollar question is why Kelowna housing is so expensive. What are the economic drivers in that town? Even though the houses dropped from the $450k range to like $350k range, they are still overpriced for a third rate city (or is it town). These are regular 2000sqf homes. Nothing to write home about.

    In cities like Dallas (Plano) you can get a newish 3 car garage McMansion for around $200k. Are you telling me that Kelowna has a better economy than Dallas and Texas. Actually, I had never heard of Kelowna until I moved to BC. I thought the only big employer out there was Western Star, which shut down its plant in like 2003. So, shouldnt we also be expecting Detroit prices in Kelowna?

    • IamOuttaHere | 18 January 2012 at 1:55 pm | Reply

      Oops! Meant Dallas and Houston.

    • vanni | 18 January 2012 at 2:04 pm | Reply

      Not familiar with the Texas cities you mentioned. But I would say that Kelowna is a fairly desirable place to be. It has Universities, high-tech firms, Tourism, Wine industry, and other employers, and lots of $$ retiring there from Alberta and Vancouver city. There are many 1million PLUS homes in that area. But in spite of this the housing market could easily slow down and there could be a correction underway. Short-lived but none the less real.

      • Makaya | 18 January 2012 at 2:46 pm |

        “But in spite of this the housing market could easily slow down and there could be a correction underway. Short-lived but none the less real.”

        If you look at the numbers, the market has already cooled down quite significantly and there is no fundamental reason to believe that the decline in house prices here will slow down or be short-lived. The entire Okanagan is cooked and the mad prices seen there will not come back for years to come. Kelowna could turn out to be the Canadian Phoenix… Time will tell.

      • vanni | 18 January 2012 at 3:13 pm |

        I see no proof that the Okanagan area is “cooked”. You provide no proof. And the demographic data indicates that the area is still increasing. Furthermore with the Baby-Boomer now hitting 65 many i nBC Alberta and elsewhere will be cashing out and moving to that area.

      • Makaya | 18 January 2012 at 4:03 pm |

        “I see no proof that the Okanagan area is “cooked”.”

        Here they are… The #s are a bit old (Sept 2011) but I doubt they got better since then.

        Central OKANAGAN: MOI=14
        North OKANAGAN: MOI=21
        Shuswap/ Revelstoke: MOI = 20

        That’s called a bear market… and it is cooked!
        Source: http://fishyre.blogspot.com/2011/10/quick-ok-raw-data.html

        And you can find lots of anecdotal evidence here as well (thanks to Nem)

        https://vreaa.wordpress.com/category/19-blastradiuspostcards/

        “Furthermore with the Baby-Boomer now hitting 65 many i nBC Alberta and elsewhere will be cashing out and moving to that area.”

        Proof, data? This is highly hypothetical and doesn’t mean RE prices will hold. And why wouldn’t they retire in the US where they could get a bigger, nicer house in a nicer area for a fraction of the cost?

      • vanni | 18 January 2012 at 4:17 pm |

        The pattern is there for Kelowna in terms of aging population moving there. And al lyon show isa 255 correction which is what we expect and NEED. . . Boomers are NOT going to go to the US and BUY houses there. HEALTH COSTS! … What are you smoking BC bud?

      • Makaya | 18 January 2012 at 4:24 pm |

        Vanni, you sound like you’re a Kelowna’s realtor or desperate home owner. You can prey as much as you want, nothing will prevent the crash of the over-valued real estate market in Kelowna and the Okanagan. The evidence are right before your eyes. You can choose to ignore them, there’s nothing I can do for you.

        By the way, baby boomers are house rich and cash poor. Do you really expect a flood of them going to Kelowna? Good luck with that.

      • vanni | 18 January 2012 at 4:35 pm |

        I believe you are HOPING for the CRASH, but what i am telling you is that there will be at most A CORRECTION. Don’t believe me. Believe the banks and the bank of canada!

        “Vanni, you sound like you’re a Kelowna’s realtor or desperate home owner.”

        I am neither. A home owner AND not desperate in the least!

        And as for preying… forget about it! The fear mongers are doing the preying!

        “By the way, baby boomers are house rich and cash poor. Do you really expect a flood of them going to Kelowna? Good luck with that.”

        Yep!! And some are selling their million plus homes and moving to Kelowna, Sunshine Coast, etc. I know this for a fact! 😉 And as I said the boomer wave is just starting this year and goes forward for ten years.

        The correct his tempory. bet o nit

      • Makaya | 18 January 2012 at 5:15 pm |

        “And some are selling their million plus homes and moving to Kelowna, Sunshine Coast”

        Funny enough, the market in Sunshine Coast is dead right now… kinda like Kelowna 😉 Where are all the retired boomers?

        “the boomer wave is just starting this year and goes forward for ten years.”

        Vanni, just a simple question. Who are the boomers going to sell their million plus dollar homes to in the next ten years? I was under the impression that Canadians are already maxed out in debt…

        It’s different here, it’s different this time… I’ve heard it already 🙂

      • vanni | 18 January 2012 at 9:38 pm |

        @Makaya I suspect that you are not a home owner and your wail on this thread forecasting doom and gloom. But it ain’t gonna happen.

        There are buyers. They are coming from all over the world.

        There are new people coming to Vancouver in a steady stream. I have just come back from Powell River and Pender Harbour. There is big $$ retiring and buying there. You are so are so wet behind the ears.

        BC is fairing very well and people are scrambling to come to our fair lands.
        http://www.gov.bc.ca/keyinitiatives/economic_indicators.html

        While you flail about others are coming here and will eat your lunch.

        OVER and OUT

      • formula1 | 18 January 2012 at 10:54 pm |

        “Who are the boomers going to sell their million plus dollar homes to in the next ten years?”

        the same people boomers have been selling to for the past 10 years…immigrants.

      • Airedales | 19 January 2012 at 5:33 pm |

        Sorry but the flow of Alberta money west to BC stopped after Lehman. The flow south is steady and strong now though with both equity and RE looking much more attractive than Canada.

        Kelown is a nice summer resort town. Good skiing in the area too but nothing like the Rockies.

  28. vanni | 18 January 2012 at 4:22 pm | Reply

    The pattern is there for Kelowna in terms of aging population moving there. And all you show is a 25% correction which is what we expect and NEED. . . Boomers are NOT going to go to the US and BUY houses there. HEALTH COSTS! … What are you smoking BC bud?

    • Airedales | 19 January 2012 at 5:36 pm | Reply

      Sorry but don’t think you are tied in to what’s really going on in terms of Western Canadian’s buying in the US. It’s pretty significant. “Health costs” are not an issue as insurance is excellent and very cheap. I know well.

  29. IamOuttaHere | 18 January 2012 at 7:19 pm | Reply

    This boomer retirement story is beginning to sound cliche. The most ardent defenders of the Victoria market could never conceptualize their market headed where it is today – their favourite excuse was that Victoria is a prime destination.

    I thought retirees would want lower house prices and lower property taxes since they are now on a fixed income. Why would they need a 4 bedroom SFH?

    Boomers can retire to any of the other beautiful communities on the island such as Nanaimo, Tofino, Duncan e.t.c and these places will cost them a fraction of Victoria or Kelowna prices. Since they do not need to look for employment, a place like Duncan will be fine.

    As for Kelowna, my friend used to give the excuse that Albertans really fancied Kelowna properties as summer homes and therefore prices would remain strong. Albertans where like the HAM of the Okanagan. During the summer I admit to seeing SUVs with the wild rose license plate towing a Bayliner to the lake. How big of an effect they had – I do not know. Anyway, the Albertans realized how cheap Phoenix and Vegas were. Besides a pad in the US sunbelt could be occupied all year round unlike the Kelowna summer home.

    @Vanni. What hitech sector from Kelowna is worth mentioning. I have spent some summer weekends there visiting friends and at one time Sprint’s new call centre was actually the biggest employer in town. The American cities I was refering to have headoffices for Fortune 500 companies. Houston has at least 14 fortune 500 company head offices, major league sports teams. Kelowna tourism is a joke. Places like Banff and Whistler do not have prices as whack is Kelowna’s. I have been to a few of their wineries but even Napa Valley does not demand such ridiculous prices.

      • vreaa | 18 January 2012 at 9:52 pm |

        Hey!
        At 9:38pm you said ‘OVER and OUT’.

      • chubster | 18 January 2012 at 10:32 pm |

        v-dude. cover or credibility – you pick’em – was blown when you said tech in kelowna. pure koolaid. there isn’t even really tech in vcr. go get checked out – you’ve been infected and are now a carrier.

    • Airedales | 19 January 2012 at 5:47 pm | Reply

      I could have just read your comments Outtahere thus conserving my time. Bang on according to my experience. Kelowna and the rest of the Okanogan was definitely a spec trade for many Albertans. There’s still old Alberta money there but no new money for the past 4 years.

      I might add that Banff is special animal as it’s in the national park which has had a development moratorium for years. Canmore (just outside the park gates) has some very ridiculous real estate prices but these are just recreational homes for Calgary’s millionaires and they are mostly bought with cash.

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