“I’m a Realtor, an elected official. I had lunch with a banker yesterday. The changes in mortgage qualifications appear benign but will actually have big effects in Vancouver.”

“I’m a Realtor, an elected official, and had lunch with a banker yesterday.

The changes in qualification and to line of credit ratios appear benign but will actually have a big effect in debt driven consumer markets such as Vancouver lower mainland.

Equity mortgages are basically dead. You must have income to support the mortgage and show where the income is originating via your tax form. Offshore investors slapping down 50% no questions asked are finished unless they show their declared income … not something they like to do.

Downsizing boomers, we are now in the first wave, who planned on cashing in the home, putting some money aside for income and taking out a little mortgage for new townhouse or condo are in trouble. Their retirement income will not qualify for a mortgage. I had three listings cancel last month, when these changes were announced, by boomers planning to downsize.

Small business is screwed because they now have to show their tax declared income, not their claimed income as was the practice here in BC.

Small builders, likewise. They can no longer get debt financing to start a new project based upon the equity in an existing build. They have to show income.

The rest of Canada may not understand that in BC, credit unions were giving out $350,000 mortgages for a pulse during the peak in 2006. Zero down, intent to pay based upon a claimed income.

The drug money now must show income. A big whack down is no longer sufficient.

Now throw in LOC ratio down from 80% to 65% and the BC practice of using your house equity as an auto teller is suddenly stifled.

Subtle changes but big impacts over the next year. My banker friends, as opposed to independent mortgage brokers, say a 10-15% correction is immediately conceivable.

A working family is looking at reduced prices and access to debt if they have jobs and income. The rules are returning to historical regulation. No income, no access to debt.”

L Rob, commenting on ‘Doors shutting on first-time buyers’, Globe and Mail, 6 Sep 2012 11:32am and 1:49pm [hat-tip jesse]

Screws are tightening, and the effects won’t be smooth and steady.
At certain thresholds, things that were happening gradually can suddenly happen quickly.
– vreaa

18 responses to ““I’m a Realtor, an elected official. I had lunch with a banker yesterday. The changes in mortgage qualifications appear benign but will actually have big effects in Vancouver.”

  1. 4SlicesofCheese

    Re: August 2012 REBGV Stats Mike Stewart

    Postby thinktom » Thu Sep 06, 2012 11:54 am
    “By the way, Fishguy, I forwarded your quote above to my mortgage broker, one of Invis’s top brokers over the last 25 yrs.. She says it’s ‘bang on’.”

  2. UBCghettodweller

    Small changes in initial conditions result in large changes in the output behaviour over time. Prediction is difficult. Chaos is fun.

    That sound? Shit hitting the fan.

    I’m gonna enjoy the last couple years of my PhD watching Vancouver undergo apoptosis. One of the other poster keeps on saying something about bringing the popcorn. Count me in for some nachos and cheap beer to keep the party going.

  3. OTOH China announced 2.3% of GDP infrastructure investment. I called for stimulus earlier this year and it’s coming. Soon.

    The question is how to get this money abroad and whether Vancouver real estate will once again be the benefactor. OTOH there are a ton of nonperforming loans in China that will be competing heavily for that stimulus spend.

    Coupled with the European recap announced yesterday you can now figure out what was talked about in Mexico in June that made Flaherty move so quickly on mortgage tightening.

    The ? for me is how long China can withstand continued imbalances. The abyss of rebalancing, apparently, looked too deep.

    • That’s one thing that didn’t quite jive for me with this comment — is the HAM buying as a leveraged investment or as a place to park capital abroad? If the latter, it’d be cash sales and who cares about mortgage tightening? Ah well, no need for consistency if the HAM contains multitudes.

      • Exactly, mortgage tightening will have only a marginal immediate impact on Vancouver RE prices but a large impact on sales volume and the general economy. The RE sales statistics show this to be the case as sales slow massively but prices continue to hold as HAM makes up a greater percentage of transactions.

        Vancouver RE is obviously an equity driven market (predominantly zero to negative cash flow returns; home prices that require average mortgages of nearly 100% average PRE-tax income; continued media reports of homes selling for $1M above list; long-time owners who can simply wait to sell their home to the inevitable cash foreign buyer, etc) so mortgage tightening will primarily impact the bottom of the market which simply exacerbates the broken property ladder trend that has dominated the Vancouver market over the past decade.

        This effect will, of course, feed back on the real economy in the region eventually pushing the spread between the higher and lower ends of the market wider and wider (just look at the trend in historical price data for SFHs and condos). This is the reality of an equity driven / glamour RE market – with the top end increasingly prone to bubble pricing. The eventual crash will occur when the hot money flows stop – ie. when China enters the inevitable recessionary part of the business cycle. The data is flashing all the danger signs for the Vancouver market but most people can’t see more than two feet in front of their faces.

      • ” If the latter, it’d be cash sales and who cares about mortgage tightening?”

        The concept of “HAM” is elusive and IMO misleading. There are more than enough channels of capital flows emanating from China that are not directly through foreign investment or immigration. An example of other sources of “HAM” that can make it into Vancouver:
        – Canadian-born moves to Asia (or wherever) and makes lots of money as non-resident, then returns to raise a family.
        – Naturalized Canadian becomes disillusioned with the Canadian rat-race and returns to homeland for employment/business, and makes $. Then returns with cash.

        Once a Canadian citizen there are options available for repatriating wealth, and to be frank few that can be easily stopped. This is part of the reason I’ve never been too hot on banning “foreign investors” or whatever, it’s too grey an area that won’t net much.

        Ralph yes that mortgages are a BFD speaks to where the $ is really coming from. The rates are low right now in real terms. Remember the comment Flaherty made about not caring about what banks do with their loans as long as they have enough capital? That’s disingenuous: he’s letting OSFI pit bulls loose into the banks. I think he said that just to troll bank executives.

  4. this post touches all bases…mortgage qualifying, HAM, downsizing boomers, drug money. This is simply a greatest hits in the renter camp. Who honestly believes this poster is a realtor, elected official or (ever) had lunch with a banker? Not me, my bullshit sense is tingling

    • Who believes that sales just dropped off a cliff?

    • Googling ‘L Rob’, cross referenced with ‘realtor’, and ‘Vancouver’, etc.. doesn’t add anything further. If ‘L Rob’ is reading this and can give any more info, please do so.

      That aside, why would anybody spend the time fabricating this comment at G&M? It’s not as though they could be sitting on large day-trade shorts leveraged to the Vancouver market. Wouldn’t the fabrication be more puzzling, and less likely, than this actually being somebody in the business?

      “I had three listings cancel last month, when these changes were announced, by boomers planning to downsize.” — perhaps this is simply the truth.

    • BTW, FWIIW, ‘L Rob’ has made prior comments, infrequently it seems, in the G&M, on political issues, and been highlighted by G&M staff on at least two occasions:
      13 Apr 2011 and 28 Apr 2011

    • 4SlicesofCheese

      f1 Look at the first comment on this thread.

    • UBCghettodweller

      “HAM, downsizing boomers, drug money. ”

      Or why Vancouver is in fact actually like Douglas Coupland describes it in his work. Farce is reality. Nobody does anything real here any more.

  5. “Zero down, intent to pay based upon a claimed income.”

    NINJA

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