Don't blame CMHC for sky high housing price

[unicas]

In its most recent annual report, CMHC indicates that only 5 per cent of all the loans it insures are for amounts over $550,000 (its highest bracket). The majority of loans it insures are in the range of $100,000 and $400,000, at 71 per cent. A high-ratio loan on a $1-million home would start at $800,000.

CMHC’s private sector competitor Genworth MI also notes that the average price of the homes it insures in Vancouver is $453,000 – well below the market average of $792,000.

And in Toronto, which Mr. Flaherty pointed to as one of the riskiest hot-spots, especially in the condo arena, only 5.7 per cent of the total homes sold in Toronto went for more than $1-million in the first five months of the year, according to the Toronto Real Estate Board.

Ross McCredie, founder and chief executive officer of Sotheby’s International Realty Canada, agrees the rule change is more of a symbolic statement. “We still think Canadians are incredibly conservative when it comes to real estate for the most part,” he said. But he does think it will cause consumers to think more carefully about the market. “What they’re doing will shake people’s confidence and make them say ‘oh jeeze, there’s a problem out there,’ ” he said.

Andrew Hasman, a realtor who specializes in single-family homes in Vancouver’s west side, said “in my market, the average price range is $1.5- to $1.75-million and very few will have CMHC financing. The impact at the higher end will be minimal.”

That’s because home buyers signing on the dotted line for property in the million-and-up range usually already have equity in the market, said Richmond, B.C.-based Gord Pipkey, a 30-year veteran of the industry and one of the country’s top residential brokers in mortgage volume. “On the large deals, when people are buying properties for $1-million, or $1.5-million depending on the metro area, they generally have 20-per-cent equity,” he said.

And the numbers back up his claims. purchasers buy either in ca[b]Even right in the sizzling Vancouver market, between 75 [b]and 80 per cent of all or with substantial down payments that do not put them in the high-leverage category. Mr. Pipkey refers to these buyers as “move-ups,” because he says most of them already have equity from a previous property.

But that’s not to say that the government’s new cap is completely without merit. It could actually lead to change in cities like Toronto and Vancouver if the price of homes keeps rising. “What we’re hearing is that the number of people putting less than 20 per cent down for $1-million-plus homes is not huge, but we know what the market has been doing – particularly in Toronto – the last little while,” said Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Many real estate experts say the $1-million cutoff only makes sense in Toronto and Vancouver because of these rising prices. If price points continue to climb, then the cap could take on a different meaning. “If you think about the average home already worth north of $700,000 in some places, it’s not that much of a leap before the average home starts to look close to that $1-million figure,” Mr. Ross said. “And so this change is mitigating future risk and sending the message that more prudence around is needed.”

[Taipan]

And your hoping, who, will believe that?

[tdma800]

Andrew Hasman, a realtor who specializes in single-family homes in Vancouver’s west side, said “in my market, the average price range is $1.5- to $1.75-million and very few will have CMHC financing. The impact at the higher end will be minimal.”
////
And the numbers back up his claims. purchasers buy either in ca[b]Even right in the sizzling Vancouver market, between 75 [b]and 80 per cent of all or with substantial down payments that do not put them in the high-leverage category. Mr. Pipkey refers to these buyers as “move-ups,” because he says most of them already have equity from a previous property.

They hit the nail on the head.

[Taipan]

Prices fall 50% in Vancouver and it will still be a very expensive city to live in because of property prices. To get back to normal prices on a world basis you would need them to fall 75%.

50% Extremely likely
60% Possible as the market overshoots
70% Very doubtful

[Warren12]

Prices fall 50% in Vancouver and it will still be a very expensive city to live in because of property prices. To get back to normal prices on a world basis you would need them to fall 75%.

50% Extremely likely
60% Possible as the market overshoots
70% Very doubtful

Can you clarify what decade this will occur?

[Taipan]

Prices fall 50% in Vancouver and it will still be a very expensive city to live in because of property prices. To get back to normal prices on a world basis you would need them to fall 75%.

50% Extremely likely
60% Possible as the market overshoots
70% Very doubtful

Can you clarify what decade this will occur?

You can do it like the Americans (5 years), you could do it slowly like the Japanese (20 years), but, and subject to a euro mealtdown which is coming, you might get it done within 3 years.

Lot of sudden pain for Vancouver!

USA hasnt hit bottom quite yet. GFC1 helped along the way.

Japanese just ignored the rest of the world and calamities and fell slowly and steadily for 20 years.

Canada and Canadians are currently losing confidence and any major external shock will spook them big time, and now with low interest rates but reduced terms, you have nowhere to go.

[jesse1]

But that’s not to say that the government’s new cap is completely without merit

Some horrible food for thought. Let's say, for argument's sake, that prices in the hoity-toity areas of Vancouver are in for a bout of mild correction. Say you purchased a property with a hefty downpayment of 30% but say prices come off 20%. (OK this is just in the hypothetical so save your guffaws.) It comes time to renew the mortgage but your lender has reviewed your state and decided that things look a bit shaky on the asset front. They suggest they need a decent hedge in place to carry the asset going forward. The problem is your house is worth $1.5MM and you cannot qualify for government-backed mortgage insurance. Rut roh. You either need to sell or find one of... them... to refinance your loan, albeit with a higher interest rate because of the unsecured liability if prices should fall further.

So yes this could be a big deal if prices in the higher-priced areas come off and some loans once considered "safe" all of a sudden are looking a bit dicey. It couldn't happen I know, but there it is, a hypothetical bag of burning poo on the doorstep. Good thing prices will never drop 20%.

[Warren12]

Can you clarify what decade this will occur?

You can do it like the Americans (5 years), you could do it slowly like the Japanese (20 years), but, and subject to a euro mealtdown which is coming, you might get it done within 3 years.

Lot of sudden pain for Vancouver!

USA hasnt hit bottom quite yet. GFC1 helped along the way.

Japanese just ignored the rest of the world and calamities and fell slowly and steadily for 20 years.

Canada and Canadians are currently losing confidence and any major external shock will spook them big time, and now with low interest rates but reduced terms, you have nowhere to go.

Thanks for answering my question. You could have just said "no, I can't".

[jesse1]

And Warren12 confuses trolling with expected values and distributional outcomes. They both are, I admit, close to JimSanity, but hey the world isn't black and white. The difference is rather nuanced.

[timber2012]

Andrew Hasman, a realtor who specializes in single-family homes in Vancouver’s west side, said “in my market, the average price range is $1.5- to $1.75-million and very few will have CMHC financing. The impact at the higher end will be minimal.”
////
And the numbers back up his claims. purchasers buy either in ca[b]Even right in the sizzling Vancouver market, between 75 [b]and 80 per cent of all or with substantial down payments that do not put them in the high-leverage category. Mr. Pipkey refers to these buyers as “move-ups,” because he says most of them already have equity from a previous property.

They hit the nail on the head.

Who cares about the higher end?

[jesse1]

Who cares about the higher end?

Trickle-downers

[registered]

Ross McCredie, founder and chief executive officer of Sotheby’s International Realty Canada, agrees the rule change is more of a symbolic statement. “We still think Canadians are incredibly conservative when it comes to real estate for the most part,”

A real estate industry rep believes one of the most unprecedentedly over- leveraged, indebted markets is conservative, suggesting they're okey-dokey to keep buying his product. Also coming up, darkness is expected overnight with a return to lighter skies early in the morning. More news at 11.

[jesse1]

We still think Canadians are incredibly conservative when it comes to real estate...

for the most part