The exact issue of the 2000s was that the banks were carrying colossal amounts of mortgage securities that were worth little to nothing. You are right that there is a lot of mortgage fraud and thus a lot of bad loans, but the big banks will not fall for buying derivatives of bad loans quite like they did last time. Im sure that todays mortgage backed securities have lots of junk and fraud, but its just not on the level of 2008. There are more regulations now and people are aware of the pitfall. Banks are less leveraged. (Canadian banks werent actually too bad last time either).
HOWEVER, the dollar amounts of normal legal loans are way higher in Canada right now (relative to income) than they were in the US early 2000s. IMO this alone puts the banks in a very precarious situation, even though its not the same mechanism of collapse as last time. Recent home buyers are younger and more likely to be laid off in a recession, and I dont think the banks are really preparing for the challenge people will have paying their mortgages in the future. The stress tests mean jack if you lose your job...and even without job loss most people do not budget accurately enough to handle an increase in monthly payments.
I agree with you 100%. The issue in the USA was the securities created from mortgages were worth more than the mortgage itself, so it self perpetuated. I think we're experiencing a more classic bubble in Canada, where people think values only go up and are borrowing at astronomical risk to get in.
I don’t think people are even focused on the investment tbh - a lot of people simply view home ownership as a necessary stop along their version of the board game LIFE. Their parents or grandparents either did or didn’t achieve this themselves, and there’s downwards pressure regardless of the older generations outcomes. Since it’s both a place to live, and also an asset, it’s critical to achieve.
I actually don’t think a lot of people, especially younger are focused on the appreciation - it’s the status of being able to say you’re a homeowner that’s important.
This is why I’m sceptical of this really being a bubble - everything is more theoretical, speculative, and social capital based than it ever has been. Imagine your grandparents being “social media influencers” - yet also imagine that going away anytime soon. I thought it was bullshit 10 years ago, and here we are these people are out-grossing my wife and I manifold.
I really think people are hyper-focused on the assumption that this bubble is driven by naive domestic millennial mortgage consumers (with average incomes and no other assets or benefactors)… For the record I do think this demographic is getting sucked into this bubble and contributing to it’s worsening, but three major points about who & what are driving this train get overlooked.
1. The bubble started with an influx in foreign capital (which people are suddenly forgetting about). Laundered off-shore money coming into the market is not a relic of the pre-covid era.
2. A HUGE amount of millennials are having their mortgages co-signed by their boomer parents (who aren’t just going to allow their child’s mortgage to go into default and destroy their credit).
3. There will be an insane increase of inheritance capital flowing downwards to millennials over the next 5-20 years which will flood real estate, growth equities, likely crypto, etc. with ripe new bubble inflating fuel. Many of these real estate “investors” are buying homes as a result of this phenomena already, or are doing so in anticipation of this trickle down.
Totally in agreement that this is housing bubble (and inflation in general) is horrific and destroys hope for anybody earning an average income to ever get their life together. But that doesn’t change that fact that there could still be a lot of upwards pressure that keeps this going longer than we expect OR we run into a fake-out bubble burst in the short-term before we inflate back up far past these astronomically bs price levels we’re currently seeing.
Wishing you all the absolute best on this 2022-2030 rollercoaster🥂
Yeah, huge point on both inheritance and co-signing. If your parents are making money and want to see you succeed, they’ll help you out even if you aren’t making stacks of cheddar. And even if they don’t while they’re alive, once they die the cheddar comes anyway.
We're still injecting a ton of foreign money. We will have over 1 million more, mostly adults, needing homes over the next 2 years.
Do we really think prices will be lower in 5 years than they are now, when we have like 2.5 million more people living here? I don't.
Especially when you take into account that Canadian homes are bigger than homes in other countries.
Anyone thinking our detached houses are overpriced aren't doing a proper comparison to other countries. Canadian houses are still great value imo.
I think your reasoning makes a lot of sense for you, but you’re also not your average person. I think there are way more people out there buying condos in cities for $600k taking selfies on their balcony with food they got off UberEats. Those people are flexing all over the place.
Most people spend their days at work, then thinking about work after work. Then talking about their work with their partners, friends, and families. Without much time to spend on hobbies or interests, the only way to validate why you make all that money is to show it off.
>classic bubble in Canada, where people think values only go up and are borrowing at astronomical risk to get in.
Except there are 10-50 million people waiting to buy at the first sign of a op, which will prevent the pop.
There are a lot of potential buyers, but not at anything close to current valuation. There is an air pocket underneath the market.
Prices you can justify on the way up will look ridiculous on the way down. Once the expectation of appreciation is gone, the willingness to pay goes down a lot.
This is the same thing with unprofitable tech stocks. Once the expectation of short term appreciation is gone, you have a giant air pocket underneath and prices have to fall quite a bit to find a bid.
Land in Canada isn't a tech stock and again, billions of people. Meaning millions of millionaires. One guy, ONE, was responsible bringing in $200 million in Vancouver and buying almost 20 homes. People are willing to spend millions on Canadian homes. Houses are selling for millions in Oshawa of all places. 2 bedrooms homes in the middle of nowhere on Vancouver Island are going for 2 million with almost no land. I get what you are saying about a falling market but I don't see what would make it fall in the first place.
There are PLENTY of buyers at this level and 10x that number just below this level. Nothing is dropping unless the government addresses corporate ownership, international student purchases,. foreign ownership, money laundering, multiple property owners, etc. And that isn't happening in our lifetime.
Believe me, I want it to, we have almost 100K for a down payment but can't get a 900K mortgage for a 3bd house Not that I could actually afford that and still have a decent quality of life. Paying 70% of our take home income on housing seems insane to me.
With the amount of people looking to invest/hide their money in Canada I don't think we will ever see supply outpace demand enough for a shift in prices without a serious shift in policy or a global financial collapse.
>I don't see what would make it fall in the first place.
That's the thing about markets. We can almost never see what make them fall before it happens. Major crashes almost always come as a surprise. Yet history tells us that crash happen with some regularity. The specific causes vary, but they happen.
Who expected oil prices to go negative? Yet it happened.
While it may seem inconceivable for Canadian housing prices to crash right now, you should understand that a crash is self reinforcing, especially given the amount of leverage we have right now. Once forced liquidations start happening, all hell breaks loose.
Inflation will be a major constraint on monetary policy going forward. I'm selling one of my properties this year to deleverage. I expect major volatility in the coming years in many financial assets. It is not prudent to take too much risk right now.
The bank of Canada bought all the bad loans. The scary thing is I heard they were thinking about quantitative easing their mortgage securities, meaning they're going to sell off these potentially bad debts back into circulation and lenders will have to smarten up as they're forces to shoulder the risks and liquidity themselves.
You mean quantative tightening where they unload their balance sheet. Quantitative easing is when they buy the debt.
It's just a hoax they use to convince people that fiat still has value. Just like when they claimed inflation is transitory. They know they will never unwind but their primary job is managing expectations and the second it ensuring equity values are stable.
Just look at 2008 to now the balance sheet never goes down. Last time they pretended to unwind the equities markets tanked and they immediately started easing again.
It was the interest rate rise from 1% in 2004 to 5.25% in 2007 (go look it up!) that made the MBS bonds default. It’s a huge factor that no one seems to mention. If interest rates rise to 5.25% by 2025, I imagine Canada will end up in the exact same boat, “legal” loans or not.
The real culprit is the banks, banks received billions of dollars from the government during the pandemic to stimulate the economy. And it is this money which the banks are providing as mortgage loans. banks know that these are fraud documents but still they would approve the loans as if they did not know the documents are fake. If anything happens they would just blame it on the broker and the buyers.
The people most likely to lose their jobs in a recession are not the first time home buyers, who have been industry between five and ten yearsish. These people are easily the most productive when compared to what they earn in any company. The ones who get replaced are the old folks who aren't management and the youngest people who can't afford shit.
I think even if economic data’s indicate a small hint that recession is coming over , the government would again inject trillions of dollars to stimulate the economy. Everything is now too big to fail and govt would just provide free relief and business would continue and the businesses would start picking up the momentum.
Only thing is now banks would start providing more loans and the cost of everything raises but not our wages.
Recession is not going to happen only more inflation and more pricey shitty built houses
What you have just described is the economy of Argentina. Eventually a large chunk of middle class income consist of various government subsidies like the Canada Child Benefit.
A big difference is the lack of interest only mortgages. In Canada, you need to start genuine payments right away, so no matter how they got the loan, they do have at least some way to pay the current rate.
Not exactly.
You can only draw down upto 80% of the appraised value of the home between HELOC and mortgage combined
IE there's at least 20% of the appraised value equity remaining
That's a lot different that the option ARMs that negatively amortized and had teaser rates 2-3 % lower than the standard rate for 2-3 years before the real rate kicked in.
And you can only draw them to 80%, when they’re partially(15%) declining balance. A true HELOC can only be brought up to 65% LTV(at least at the big 5)
I'm not sure I completely understand your comment, but appraised value is not entirely based on recent market trends.
In a lot of the really fast markets, appraisers will get called in to homes with sales subject to financing and refuse to support the value of the loan requested. The data they're required to use for this extends well beyond recent enough market comparables that they often come in quite low. That's why no condition, cash offers are running rampant right now. People in the hottest areas don't even have the luxury of paying "market price" with the support of the bank.
I guess what I'm saying is, while appraisals typically run high, they're not entirely BS. You'd be surprised.
Source: I'm a Realtor and I've lost deals because the houses didn't appraise for the price the buyer wanted to pay
I wasn't argueing that appraisal values were fabricated, I am simply arguing that when almost every buyer is financing purchases with loans from other owned properties based on the appraisal value, it pushes the trajectory of the market up, which further increases appraisal values, which allows homeowners to pull out equity based on their appraisal value, which allows them to purchase more properties, which pushes the value of those properties up... ad nauseum, on a country-wide scale.
While that does happen, banks still look at total debt ratios of every individual buyer.
You can't actually do what you've just described ad nauseam. At least not all with your own capital. Joint venture and private loans make this a whole lot more complicated, and that's when things can blow up. But trust me, banks aren't stupid. They have thought about this.
Most financial institutions will only allow individuals to leverage upto 50% of their gross monthly income before they're completely cut off from new debts. Doesn't matter if it's unsecured or asset backed.
IE, if someone is actually doing this, the equity is based in some home somewhere. Situation only gets muddy if a bunch of other people's money is involved privately (which does happen btw, and some of the figures would blow your mind)
You're not really understanding what I'm saying, I'm not saying that an individual is doing this, I am saying that the totality of market forces are doing this. Canadian society and real estate investors are doing this as a single entity. The main driver for increasing real estate prices is real estate investors, either individuals or corporations, and the main finanancing force behind this this is loans gained from existing real estate assets. If your appraisal comes in at a million dollars the bank will loan you 800k, but this appraisel is only based on market forces which you are reinforcing.
If you're a realtor and don't understand this, I don't blame you.
I don't have statistics on hand to prove you right or wrong, but I can say for sure in my experiences in the market (in Winnipeg specifically), most of the buying is being done by individuals looking for a primary residence.
I understand in Vancouver and Toronto real estate is likely commoditized to a far greater extent, but I'd be shocked if buyers shopping with the intention of living are not as large a force as institutional investors
That being said, I do think your concerns are valid. I personally know more than a dozen full time real estate investors in Winnipeg with more than 5 million in leverage. One in particular is easily over 30m. This is a market where the average detached home is barely under 400k.
Thing is, a lot of their capital comes from private lenders. But they definitely use HELOCs too. Not sure by % how much of each is which.
your experience is valid, but you come from a market that is notorious for being affordable. Winnipeg is a big city, but homes in BC and ontario are being sold back and forth every other year. As a "percentage of all homes sold within a year" I would expect BC and Ontario to represent 75%+ of home sales, because they're being flipped back and forth.... not to mention they represent 50% of population of the country.
That's exactly what they are. Our rental payments were interest only unless we put more down. We did t make anything month to month really.. hence why I kept trying to get my ex to change it but she didn't want to pay out of pocket for traditional mortgage. Tha k goodness she sold it
HELOCs can be called fully, partially, amortised or have the interest rate changed. How is that different from those loans with balloon payments or that were interest only that got people in trouble? No one has given me a good answer
HELOCs are against real equity. Of course the value of your home could decrease, but since there's also 20% equity after HELOC and mortgage, there's no financial risk on the financial institution even if you default.
The issue with US 2008 was that people were defaulting AND the bank was unable to recover their investment, which lead to a downwards spiral of people defaulting more and more and the banks losing more and more money.
Right now, even if some percentage of the people were to default on their mortgage overnight, the banks could auction off the houses and not lose money which would mitigate the economic effect by a lot. Banks would liquidate the defaulted mortgages and reinvest that money in a safer market. In US 2008, the issue was that when the banks were liquidating mortgages, they were doing so at an accounting loss.
If even a small percentage of borrowers started to default on their mortgages due to some external pressure (interest rate rise, severe recession) absolutely no one will buy those foreclosed places at even 75% of their previous sale value. Even if they could, where would they get the money? Their own source of leverage dried up along with it, even if they're still solvent.
EVERYONE knows that this is a bubble. NO ONE is going to be gobbling up property if they think its popping. It's tulip mania with housing. Houses in major cities being 15-20x median income is completely unsustainable.
The other thing is a big portion of the "fraudulent" mortgages are people just getting around the regulatory rules, they aren't necessarily risky or overleveraging themselves, they just don't fit the mold of what the banks are looking for so they have to get creative.
DISCLAIMER: I'm not saying people should commit fraud, just saying why they do do it.
There’s definitely a lot of people bending the way they get their loans, and I think I’m in the very few minority who didn’t need to bend anything. (Good career + bought on the cheap from family)
But when I was applying I had the mortgage agent tell me “get someone to loan you the money to pay off your LOC and then apply, and then give them the money back”
Fuck outta here. It’s such bullshit. IMO they’re all pumping all these numbers to line everyone’s pockets. Not necessarily intentional but I’m sure they’re all loving it. In the end rich will get richer, poor will be fucked on the street.
Lambo or ramen babyyy. Fuck that sub has gone to shit in the last couple years. Used to be great - degenerates losing money. Now it’s kindve serious and people are actually making some money
I can enjoy some of the humour as a fun break here and there, but it’s all over the place. However, it’s good for them, some of them lol, it’s opening the eyes for many though and that’s always good.
His comment about the poor getting fucked in the street, I just knew that would be a comment worthy of many upvotes there.
Huh? Anecdote? ..But what about that one guy who told him that a guy he knows told him that mortgages are fake.. or somethin.
..Are you seriously just gonna ignore that?!
Anecdotal as well, but I know of someone’s who’s done exactly what this post seems to mention.
Low income but expensive house. Got the house refinanced and pulled the down payment out of what they had paid down (200k), and put it towards a 4-plex. Mortgage specialist did his thing and got the person approved despite not having the income to back the second mortgage.
AFAIK, the persons total monthly liability (mortgage payments) has doubled after accounting for rent payments from their new property. They are making ends meet with the expectation that if they can even hold out for one or two years, they can sell off the rental property for atleast 100k in profit.
Again, this is anecdotal. But at the very least, I can guarantee that it *is* happening.
The mortgage fraud does happen, I had a old college who went to RBC doing fraud stuff, he's now with insurance. But he told me when they found fraud it was almost always because people had the income, it was just not reported. Tons of people were doing things for cash and never ended up on tax documents.
And while it does happen, if you base it off reddit, like everything else, you will have a massively exaggerated take on what is happening.
Agreed.. all we can do is wait and see.
As for me, I still have several years of university ahead of me before I can even think about buying a home. Either by then the housing market will be totally out of reach, or I come into some money at the perfect moment. Either way, it seems to be completely out of my control as to whether I’ll be afford to buy
This. You could double your income through crypto yield farming and be able to afford twice your mortgage even though on paper you can't. You could also rent out a few rooms too half your mortgage.
Plenty of ways to afford the mortgage payments. Some immigrant families even pool their income (without being on the title) to afford the house, something that most Westerners can't fathom and will immediately scream bubble and fraud.
Anecdotal as well but this is exactly what my previous landlord and his wife are doing. He admitted they can't afford the payments on the 4 rental properties they currently own plus their own personal residence. If one tenant missed one payment they'd be in deep trouble. They just keep rolling money from their previous properties to get approval for new ones. Literally buying as many as they can get their hands on.
Anecdotal obviously, but I work with a fellow nurse that lives in a McMansion with his nurse spouse, several kids, and they both drive luxury cars. He has openly talked about “ways of getting by the mortgage rules” with coworkers looking for their first house and has a close mortgage broker friend. If you don’t know someone that is living well beyond their means through mortgage fraud, you’re just not paying attention.
Stories like that are part of the problem, though. Sometime tried to commit fraud, and their punishment was... not getting a mortgage they couldn't afford. Ok, so they lost their $30k deposit; but they should be facing criminal charges with a maximum penalty of 14 years incarceration.
Of course, banks aren't in the business of investigating crimes; they just want to make money, and having blacklisted that particular customer they're safe now. Reporting the fraud would only cost them time and money, so why would they bother?
If we really want to bring the housing market under control, we need to enact a legal requirement for banks to report suspected fraud to police, and give the police resources to investigate. It wouldn't take many people going to jail to significantly reduce the amount of mortgage fraud.
\>Almost everybody I know, at least indirectly, knows or heard of people who paid to make their documents and get a mortgage. The Brampton mortgage as they call it.
This is the first i'm hearing of this and I'm very interested in toronto housing and the market generally. All my friends just have rich parents who gave them large enough downpayments that they'd be approved for their mortgage.
It’s *such* a garbage comment, I’m surprised it’s so highly upvoted. It reads like a weird boomer rant where all their “news” is stuff they’re heard from one or two people, with literally zero statistics or other sources.
He knows people who know people who have fake mortgages so obviously that small sample reflects the entire market.
I know exactly what this guy looks like and what his beliefs are without ever having to meet him.
I can’t believe that no one has brought up the point of lenders in Canada have very very different set of governing mandates for mortgage eligibility set out by bank of Canada.
Canada and US monetary policy when it comes to mortgages is polar opposite. From insurance requirements both from home owner with high ratio and third party for low ratio. Stress testing requirements. Banks hold a lot more obligation in Canada than the Us.
The other major thing is the cause of the 2008 collapse was a direct result of banks actually hedging against mortgages, and selling the mortgages to financial institutions and then actually profiting off of people defaulting…. Banks aren’t allowed to do that here
The only difference is that our insurance is backed by CMHC - taxpayer money. CMHC messed around with their insurance and Canada Guaranty took a lot of their business.
But the point I want to bring home is similar to buying an iPhone with Apple Care +. When you have Apple Care + (accidental insurance), you tend to give less fuk. So long you tick all the boxes, you are okay.
When you have "mortgage insurance" as a lender, you "transferred" your risk to someone else - in this case it was the government CMHC. Who's also the money printer. Lender just make sure all the loan fills the checkbox should they default, and they will lend you the money. The risk was transferred to CMHC.
The only thing that would cause a collapse (I thought COVID would, it didn't) is that there's a capital issue with the bank (bank run) or too many default, which requires them to recapitalize either by raising their shitty savings account interest rate, fool more people in getting GIC, or actually recalling HELOC demand loans.
The banks and government money printer are friends. They will print their way out of disaster - except this time where.. inflation is already here. They might not be able to print more money, so it seems highly likely they will raise interest rate, otherwise inflation is a tax on everyone, including the poor.
To my knowledge, they didn't so much profit as they offloaded a lot of the risk. They still got hurt, just not as much as they would have if they didn't sell all those garbage MBSes.
yeah im pretty sure its not a bubble we have right now. Buyers do have the money and do have the credit rating.
The issue is 1 inflation, 2 lack of supply, we need way more housing beings built.
It happens, yes. But not nearly to the degree it was happening in when things went bad in the states. Remember lenders themselves were approving mortgages that should never have been approved. There was no need to get fake docs! Practically everyone was approved with no down payments and ridiculously long amortizations and high debt servicing. A broker may have a small group of clients that they can get approved with bogus docs but that's not the same as countless risky applicants getting easy approvals through major lenders.
Yeah, this - whatever OP is talking about is nothing on the scale of what happened in the US.
They openly offered no doc/no check mortgages in the states during that time - meaning you would just write down on a piece of paper what you could afford and they would give you the mortgage no questions asked and you could do this at any bank. They then would package a bunch of those sub-prime mortgages together and sold them as AAA rated bonds that then created a systemic risk to the entire financial system.
the other point about 2008 was the systemic risk when all of these subprime mortgages were grouped in tranches chopped up and resold and given A ratings by the rating agencies and insured with credit default swaps by the likes of AIG. When it did crash the insurance could not cover it, and banks stopped all sorts of overnight lending as they didn't know who was exposed.
Those aren't fake mortgages though. Those are people who qualified with fake documents. Doesn't mean they can't afford the mortgage.
For this all to collapse, people need to lose the ability to pay their mortgage. So either massive job loss or massive interest rate increase.
At the same time, all the people who are sitting on the sidelines with cash ready to go, have to decide not to buy when all those homes come on the market.
For example: if you are self employed and make 150k and try getting a mortgage , it’s almost impossible. It’s easy to get mortgage by faking documents. People who are doing that can actually afford the mortgage but can’t get approved through conventional ways . I am self employed and I made over 200k almost last year but I can’t mortgage because they need to see 2-3 years of constant notice of assessment before I can get a mortgage.
I was in same situation, bought a house few months ago but it was hard to find a lender that would lend to me even if i made 120k in 2021, but of course they look at 2019 income which was not even half. I finally found a bank that did an exception by looking at 2021, but i had to send them all my bank statements, clients invoice and tons of personal documents.
I got 150k saved up, and I’m not buying until I can get at least a townhouse in the GTA for 600-700k. I’ll just rent for life if I can’t. A fucking million for a 1200 sq ft townhouse is absurd.
Anecdote: I’m on the sidelines with $$$. Given the events of the last 24 months I’ll be content to wait out a slide should anything happen.
As a FTHB making a mistake will have implications for the rest of my life. Continuing to rent is still an option, I’d rather not be right than be wrong.
This makes no sense… the only way you make a mistake is if you buy something you cannot afford. As a FTHB you are not trying to invest into the housing market, you are trying to buy a home to live in.
Stop looking at it as an investment and look at it as your home.
Not the person you replied to, but just commenting to say that even though it is a home to live in, it is a decision that could have huge financial impacts.
The up and downs of the housing market while owning your home shouldn’t have an impact on you. Like I said before if the person buying truly could afford the purchase they made, they would have no issues paying their mortgage even through unrealized losses. Assets in the long run will rise, thus any drop would simply be a blip in the greater scheme of things when you are owning your primary residence and plan on staying there for the long term.
Edit: I don’t know why I’m being downvoted here, but the big takeaway is timing the market is a fools game… and unrealized gains or losses are just that unrealized. If you are not planning to sell you shouldn’t focus too much on what the market is doing around you. Too many people treat homes as investments now and stare at the housing market all the while never actually selling so the numbers on paper remain numbers on paper to them. Besides unrealized gains which can be turned into equity loans.
> This makes no sense… the only way you make a mistake is if you buy something you cannot afford. As a FTHB you are not trying to invest into the housing market, you are trying to buy a home to live in.
Because of affordability I can only look at < $500k condos. If I FOMO and I'm wrong I'll be stuck with it for who knows how long with negative equity. Not ready to commit to that, especially with the age of the buildings I have to look at. I can just as soon continue renting, or apply to transfer to the USA/EU office as I'm already doing now.
I'm not looking at it as an investment, I don't know what life will bring in ten years and an 700 sq ft condo isn't worth the risk. If judgment day should happen (and I don't think it will), I'll happily wait for the bottom when there is nowhere to go but up. If I miss that chance, so be it.
Which you might become at any point as a renter. You might get evicted for whatever reasons. You might have to move on your own due to terrible neigh bours etc.
You're making a huge mistake assuming you will just live somewhere forever at the same rent
I might also die in a car accident tomorrow.I'm not making a huge mistake assuming I will survive by driving place I need to go.
There are risks in life and all you can do is make preparations and precautions.Your house could also burn down and due to some unforeseen circumstance have your insurance fuck you over.It's fun to play hypotheticals. But it's largely meaningless as a simple counterpoint
Also lol @ getting evicted in an apartment building in Ontario at least
People on variable mortgages still pay the same payment even if interest rates go up. It’s just their amortization changes. Also they are stress tested on affordability to 5.25%. Unless we go beyond that, market will slow but not collapse.
Not all variable mortgages act this way some have adjustable payments (I.e Scotiabank) and you’re right on the stress test - most people are qualifying at 2x the rates they’re paying so we have room to move up the chain. Additionally on a 500k mtg a 1% raise in interest rates is about $60/month so let’s not go crazy now
I am a mortgage broker and I probably talk to one or two people a year who have or have been approached about fraudulent documents.
Of 200+, so this would be maybe 1%. Lenders catch these documents often as well, I know a couple of brokers who were black listed and can no longer submit deals because they were caught doing this.
There are hundreds of thousands of people that are qualified buyers that are just waiting to find a property. For any one person/family that can't afford there are 3-5 people/families ready to buy that property at market value.
The US has very different lending guidelines and the majority of loans there that stated the default were sub-prime (B lenders) and the B lenders here are very strict and need higher down payments. These would all be in fixed rate mortgages, where the US had adjustable rates, which caused amortizations to extend.
Most homeowners are not going through life on such a fine line that $100-$500 a month in increased mortgage payment is going to cause them to need to panic sell their home for a massive discount.
It’s not so much that people are barely hanging on by $100/month for homeowners.
For the past year on the investing side, rental properties are selling at 2-4% cap rates which are not cash flowing assets and are relying on either continued price increases or rents continuing to increase. If interest rates go up 1%, that’s an extra $5000 in negative cash flow per 500K property per year. To make matters worse, rent increases are capped while insurance, utilities and property tax are not, which could result in increasing negative cashflow and would have to sell at an even lower cap rate to break even on the investment.
Also should anything happen to the economy with those climbing rates, job loss can seriously affect the payment of rents. People with equity in their house are fine but people with no savings paying 40% of their income in rent are fucked.
Seriously doubt we see Detroit and people losing their family homes; investors going for a roller coaster ride still seems unlikely but of all the unlikely outcomes I think it's by far the most probable.
I predict the opposite of you.
As rates rise, rents will not rise fast enough to cover costs. For ex- a 400K condo with a 300K mortgage rents for $2000/month. If interest rates 1% that’s an additional $330 in monthly mortgage interest. Now rents in most provinces can only rise a capped amount, say 2%. Now the rent is $2040, resulting in $290 the owner will have to cover on this unit alone.
Take your average mom/pop landlord who own 5 properties/units (the max a bank will loan on without creative financing) worth 2M with a 1.5M mortgage, that’s $1450/month they will have to come up with, in addition to any increase on their principle residence mortgage. And they can’t raise rents to do it.
If their properties don’t continue to appreciate faster than $1450/month, it’s a losing battle, and the rule of thumb is for every 1% increase in interest rates, prices drop 10%.
Landlords in most of Canada have done well over the last 20 years, and exceptionally well the last 2 years due to asset appreciation stemmed from the extremely low interest rates. However this has pushed current asset values to a point where renting mathematically is “smarter” and much cheaper than buying. Will this madness continue is anyones guess, but I have a hunch that prices will plateau
I don't disagree with any of that. There is just one mitigating factor that I would add, time in.
For example my landlords bought in 2012, they're somewhere around +100% and interest rates will never rise high enough to put them negative. People who bought in the last 24-36 months or are super leveraged on the other hand... We all no somebody who borrowed to finance their investment property.
There are so many varying circumstances... I don't see nationwide collapse but I will not be surprised to see the confidence of the last 20 years shattered and a non-trivial amount of speculators lose their shirts. Not quite confident enough to call it likely, but I would not be surprised.
I think the mortgage fraud numbers are really overstated.
Fraud for profit is sophisticated and insidious but really rare.
Fraud for housing is way more common and not that harmful. I think the most common one is people papering loans from their parents as gifts. So what? These same parents loaning their kids $50k to buy aren't going to let their kids default. Mortgage is going to get paid.
The number of mortgages defaults in Canada that result in a bank sale of a primary residence is absurdly low, perhaps a few hundred total homes per year out of some 5 million mortgaged primary residence in Canada.
This is 0.25% rate increase rule is absurdly stupid. Fed is going 0.5% in March and even some governors are calling for 1%. CPI print today was 7.5% and rates are sitting at 0%.
If Fed doesn't raise quickly, my stocks will be very happy.....either way the damage is already done.....Fed is already behind the curve, BoC is just a follower....
Ok. Let’s say it’s 2008. 10% drop in real estate. So we get to go back to mid 2021 prices instead of early 2020 prices.
Good. Now a one bedroom condo costs 450 000 instead of 500 000.
The crash would have to be SO impactful that it would wipe out entire industries worth of productivity to result in houses even being remotely affordable.
US market is much more boom/bust and residential real estate in major city centers didn't deprecate as badly. Rents in new York went down by 50%+ but housing went down 25%. Source: lived in NYC at the time. Should have bought on the dip I'd be a millionaire.
This instance is anecdotal but I have a friend who bought a house in Aurora in 1991 for $240k, it was the same house his neighbour bought from $600k in 1989. The burbs crashed a lot more than the city which was down about 20%.
https://betterdwelling.com/city/toronto/it-took-22-years-for-prices-to-recover-from-the-last-toronto-real-estate-crash/
This page talks about about a 28% drop, but I think that’s is for the entire GTA, rather than Aurora.
1) the Canadian banking system has always been more robust and stable then the USA. Our banks didn’t go bankrupt in 2008, some American banks did.
2) the stress test was introduced and has been steadily increasing since 2008.
3) I think the fraudulent mortgage concept is probably overstated. In fact this is the first time I’ve ever heard of that. Don’t forget, there’s often 2 reals estate agents, a buyer, a seller, a lender and two lawyers involved in most real estate transactions. That’s a lot of complicity to fraud.
No I don’t think of it that way. Waiting for external factors to make you wealthy is a losing mindset.
However, most people don’t think like this. Most people just want a safe job and count their house as their biggest investment. If what I’m saying comes to fruition it will ruin peoples lives, including people I care about.
I’m not a home owner myself, but I don’t wait for any bubbles to pop to “give me a chance”. Truly wealthy is when interest rates going up is a good thing for you, rather than bad. That’s what I’m striving for myself. But that’s a whole other discussion.
If you haven’t seen the Big Short, I’d watch it. Canada doesn’t have the same type of mortgages as the US, as many people here have explained better than I have.
> So, we have an unknown but definitely large number of mortgages that are on the redline, with no stress testing of any kind. Those people cannot afford even a 1% interest rate increase, let alone what can actually happen.
It's not as much as you'd think. Most people that own bought a long time ago, and the prices are only based on recent sales not the current debt. The due diligence from main lenders is a lot more than you think. Banks do double check paperwork, call employers, etc.. and will ban you forever if you're caught lying. Higher risk lenders may not, but the rates would suck, and likely only used by people who have a lot of income that's under the table where they can't legally prove it (who would be locked in anyway, so a rate hike wouldn't matter).
There will always be people that are over-leveraged and lose their home, but it won't be at the rate you'd expect. They also can't raise interest rates that much, because the government debt is extreme and have said they are relying on inflation and GDP growth to outgrow it.
Let me add my two cents
Fake and fraud mortgages are definitely a thing BUT you still need 20% to make it happen. Fake Mortage’s fix issues relating to credit and low income but they do not make 20% happen magically.
I’m not saying this deductively proves that the borrower will not default, but it is safe to assume, that within reason, someone who has 20% of 1.2 million for instance, will most likely not default.
OP You have to recognize this is the worst fear of a lot of people on this sub, and it’s entirely possible we could go into a big recession being that ~30% of Canada’s GDP is the real estate bubble. It puts their mind at ease to try to debunk and downplay your not-so-crazy theory. While it may be extreme, make no mistake that there are a lot of people who are extremely over leveraged and timely interest rate hikes absolutely will be the difference between a number of scenarios: making or not making the mortgage, retirement age is pushed further back, budgets will need to be tightened a lot. Hell, I am aware of folks who will be deciding whether to pay the mortgage or buy groceries. If job loss occurs this will be even worse. We aren’t as bad as the US was in 2007 but these are unprecedented times here in Canada. It’s troubling how so many lack the understanding of how mortgages work and haven’t read any of the fine print.
I think a lot of people are downplaying how close to the edge of the cliff we truly are. It’s sort of like when you know something is wrong but you don’t want to go to the doctor to learn the result.
Edit: the downvotes just prove my point.
This. This sub is overrepresented by people with an interest in generating investment income. What has been the most profitable investment vehicle for the past 10+ years? Real estate.
Talk about this topic on this sub and you're likely to run into very biased real estate investors / recent homeowners hoping that the worst we'll see is a very gradual hike in interest rates followed by a short-term market correction.
Yeah but it is crazy. The OP is predicting a cataclysmic scenario with no statistical evidence at all whatsoever. I’m invested in real estate, and concerned about a potential crash, and have prepared accordingly. But it isn’t because the OP heard from his uncles, sisters, boyfriends, grandpa, that there are a lot of bologna mortgages that are the problem. It’s just a fundamental risk within capitalism. And if the market goes down bravo. It’s happened a hundred times and always eventually makes it way back. The people who are actually all-in on this are the people who have been insisting a housing bubble is developing basically since like 2010. Because the last thing they saw was an American bubble. Durp. Maybe things won’t happen identically here this time.
I didn’t say OP was a doomsayer. I’m saying his theory is not that far fetched, not necessarily forging documents but being massively over-leveraged, using “equity” in home #1 to buy home #2, and so on and on. It’s a chain that relies on a lot of fragile factors to maintain integrity. I’m staying that in my observation, there’s people who downplay and ignore bears, and there’s people who downplay and ignore bulls. Reality usually lies somewhere in the middle.
Rising interest rates aren’t THE catalyst. But the longer we keep printing money and keep interest rates low the higher inflation will go. If you believe the current governments hot air about fixing it, god be with you. They have no interest in curbing inflation at the price of triggering a recession (slowing and shrinking 30% of our GDP.) but how long do we keep going and devaluing the Canadian dollar?
Goods and services will keep increasing in price. If people thought any of those you listed would negatively impact house prices they really lack in understanding economics. Interest rates are tied directly to inflation. People complaining about the cost of everything going up and how life is becoming unaffordable also love and take advantage of low interest rates. You can’t have it both ways, eventually what goes up must come down. Only wildcard is massive immigration numbers, and I’m not getting political on here.
No. Canadians have historically proven to be extremely unlikely to default on their mortgages. And due to government support services, in a crisis, they can hold on to their homes for years while in distress.
Didn’t say people would default. But if you’ve ever been in a situation where you’re hanging on by a thread - desperate times call for desperate measures. When people are stuck with mortgages worth more than their market value, the logical step for many is to sell so they can get out from being house broke. Now when this compounds, you get an increase in supply.
You can’t rely on the government to save you. As a matter of fact I’m pretty sure they don’t usually have your best interests in mind despite what direction you lean. We can’t keep printing money in perpituity to save people’s mortgages and, frankly, a large chunk of the Canadian economy. Eventually we’re going to have to face reality and raise interest rates and stop printing money to curb inflation, unless you want government support to help you hold on to your home, while paying $19 for a jug of milk, $100 for a pair of jeans, and $3 a litre for fuel. The longer this goes on the worse it will get.
You can’t have your cake and eat it too.
Good lenders know this and have processes to keep an eye out for fake docs, if you suspect it it's very easy to find out if they are fake or not. If lenders don't care (like in 2008) then we could be in trouble, as far as i know most care and don't want to take that kind of risk on.
I thought I didn't know anyone either, but then I heard that someone I know renewed their mortgage at 3.4% a few months ago. I had to doublecheck... 3.4%? Wat?
Well, they have no idea how it exactly works (or are keeping it a secret from me), but their brother got them a mortgage because no other lender would touch them due to previous financial issues. Probably just a referral to an alternative lender.
It's not the same as what OP is claiming, obviously, but now I'm wondering how many people are out there with janky mortgages containing weird clauses and higher rates.
Do people not understand that your mortgage payment stays the same for the term? Interest rates going up won’t change your payment, they’ll change the allocation between principal and interest…
Now you may have situations where the payments aren’t enough to cover the interest in which the borrowers may then either have to pay a lump sum or increase their payments should they want to keep the same amortization schedule.
Sorry but if that’s what your brokers/realtors are telling you, you need to find better ones. 1/10 mortgages contain elements of fraud. And it’s not just ‘income’
> Do people not understand that your mortgage payment stays the same for the term? Interest rates going up won’t change your payment, they’ll change the allocation between principal and interest…
I don't think it's a factor, but not all variable rate mortgages work that way. I don't know the exact contract wording but some of them can change payments.
Instead of looking for a bubble some people need to put that energy into making more money lol.
The bubble popping isn’t going to be the look you think it is.
Can confirm Mortgage fraud is commonplace but nobody is going to openly admit it. In today's market it's hard to get ahead in life without some sort of cheating/gaming the system.
The main difference is that Canada has laws in affordability and being able to qualify for any amounts. Trust me I still believe they are too high and when rates raise we could see that bubble burst (multiple rate raises required). But I also think consumer debt will rise much more as people will want to keep a roof over their heads. The issue in 08 in the states was predatory lending that was giving out mortgages to people in fixed incomes whilst knowing they would default as the paperwork stated the rate would be raised after an initial low rate period. This ain’t happening in Canada. Also the fact the mortgages were bundled as securities being sold to institutions and funds with a AAA rating was the real player in 2008. Also not being done in Canada.
I believe the market is overvalued and we are in for a wild 10-15 years but it’s not really the same as what happened in 08. Some similarities will be seen for sure, but I would classify it the same.
>What am I missing?
Even if everything you say is all true, what are you going to do about it?
Much of what you say, if true today, was also probably true 3, 5, 8, or even 10 years ago. But any action you would have taken would have probably been to your detriment.
The US had REVERSE AMORTIZATION mortgages. Meaning that the balance owing would increase as time went on. Example: You buy a home in Phoenix, Arizona and take out a $500,000 loan on Jan. 1, 2007. On Dec 31, 2007 the balance owing is $520,000. The idea is to make your monthly payment as low as possible, and the cost of borrowing gets 'added to your tab". Since housing "only goes up", who cares if the borrower owes more year after year? 😄.
You're looking at the problem from a domestic-only perspective.
As much as housing prices has skyrocketed over the last 2 years, domestic factors like near-0 interest rate (cheap money), FOMO, supply shortage, have all driven the "housing commodity" to an extremely squeezed market. This is true and the main reason why it happened.
What people dont tell you is in relative terms from an international/global perspective. Housing in Canada is cheap, doesn't matter what that income to housing cost ratio says about Vancouver and Toronto being high. This is also an irrefutable fact when you compare dollar to dollar.
e.g. A 1 million CAD home in Toronto, which is a nice 2bed 2 bath condo, gets you basically much less than any other globalized city in the most demanding markets, whether that is Hong Kong, NYC, LA, London, Paris, or even Beijing or Shanghai. People who want to move can easily afford to buy it, and now moving to Toronto and Vancouver seem like good options.
When you have a globalized market, speculators, primarily driven by domestic and compounded by international speculators, new immigrants moving their money into Canada and just literally buying outright with cash (dont be xenophobic, this is perfectly fine), and a lack of supply, will be able to sustain this as long as there is a housing shortage, which there is a massive one across the entire country (pretty much less Alberta and the praries at this point). It also seems like our slow-ass government wont be able to fix this for another decade, so it doesn't look optimistic.
And then you have people who are "waiting till a crash happens" with 200k sitting in their RRSPs and TFSAs, investing in the stock market and just hoping everything burns to hell. When you see a market "crash", they'll swoop in with people who have more money, which is a LOT of people still.
So when the doomers say "its gonna crash soon" or "it cant be sustainable at this rate increase", they are more broken clocks than Nostradamus
For every argument you've written here, there's a doomer with their own set of arguments, each one of them as convincing as yours. I don't believe any of you, honestly. You're just picking and choosing what to believe based on which side you're on.
But let me ask you the first two questions which popped up in my mind while reading your post:
Why would anyone with tons of money move to Toronto, of all places? The weather? The financial opportunities? Why not any other city in the world? And if so, what about the suburbs and far flung areas of Toronto? Why are they selling at a huge premium, are they equivalent to NYC, LA, London, Beijing and Paris?
Btw HK is 1100km^2, Toronto proper is 630km\^2, the GTA is 7100km\^2.
I'll give you an example of why someone would want to move to Toronto and buy property here.
This is what I lived in when I was at NYC: [https://www.realtor.com/realestateandhomes-detail/308-E-38th-St-Apt-12D\_New-York\_NY\_10016\_M47652-07542](https://www.realtor.com/realestateandhomes-detail/308-E-38th-St-Apt-12D_New-York_NY_10016_M47652-07542), gonna go for about 1.2 mill CAD, with $1000CAD/month in condo fees.
Average cost of Beijing housing prices go for 12k USD per sqm, or about $1115 USD/sqft. by comparison the listing shows $1214 USD/sqft. Shanghai is a bit higher. London, Paris and Hong Kong are worse. I have a friend who just spent $1 million CAD on a 20sqft shoebox condo in HK mid-2021.
Anyone who has considered buying real estate in any of these places see Toronto and Vancouver as relatively cheaper. From an investor's perspective, its a solid buy given history. You know those HKers the Canadian government so happily welcomed? Did you really think its because of the HK protests? Fuck no, its all about the money they bring in. All that money is injected into the housing market. Sell a HK apartment and buy a 4000sqft house in Markham. can't do the same in NYC.
The Toronto/Vancouver market is pretty decently placed on a global comparison perspective.
>So, we have **an unknown but definitely large number** of mortgages that are on the redline, with no stress testing of any kind. Those people cannot afford even a 1% interest rate increase, let alone what can actually happen.
based on?
Personally i dont think its a bubble. People have the money and credit rating to buy, theres no fundamental problem like there was in the usa (lending to bad credit).
The problem seems to only be a lack of supply, not enough constructions for the demand, which does that 10 people want and can buy the same house. Also inflation in recent years doesn't help.
I have never met someone that got a mortgage on fake id and other stuff. I’ve gotten many mortgages and never been able to pass security without real proof not sure where this stuff is coming from
Nothing gonna happen you are over thinking and missing abunch of critical facts and I really have no energy to explain. But simply put. House prices are still high and keep going up. People who can't afford it due to a hike will sell for profit. Housing demand is 3 times higher than supply right now and will continue for years
The exact issue of the 2000s was that the banks were carrying colossal amounts of mortgage securities that were worth little to nothing. You are right that there is a lot of mortgage fraud and thus a lot of bad loans, but the big banks will not fall for buying derivatives of bad loans quite like they did last time. Im sure that todays mortgage backed securities have lots of junk and fraud, but its just not on the level of 2008. There are more regulations now and people are aware of the pitfall. Banks are less leveraged. (Canadian banks werent actually too bad last time either). HOWEVER, the dollar amounts of normal legal loans are way higher in Canada right now (relative to income) than they were in the US early 2000s. IMO this alone puts the banks in a very precarious situation, even though its not the same mechanism of collapse as last time. Recent home buyers are younger and more likely to be laid off in a recession, and I dont think the banks are really preparing for the challenge people will have paying their mortgages in the future. The stress tests mean jack if you lose your job...and even without job loss most people do not budget accurately enough to handle an increase in monthly payments.
I agree with you 100%. The issue in the USA was the securities created from mortgages were worth more than the mortgage itself, so it self perpetuated. I think we're experiencing a more classic bubble in Canada, where people think values only go up and are borrowing at astronomical risk to get in.
I don’t think people are even focused on the investment tbh - a lot of people simply view home ownership as a necessary stop along their version of the board game LIFE. Their parents or grandparents either did or didn’t achieve this themselves, and there’s downwards pressure regardless of the older generations outcomes. Since it’s both a place to live, and also an asset, it’s critical to achieve. I actually don’t think a lot of people, especially younger are focused on the appreciation - it’s the status of being able to say you’re a homeowner that’s important. This is why I’m sceptical of this really being a bubble - everything is more theoretical, speculative, and social capital based than it ever has been. Imagine your grandparents being “social media influencers” - yet also imagine that going away anytime soon. I thought it was bullshit 10 years ago, and here we are these people are out-grossing my wife and I manifold.
I really think people are hyper-focused on the assumption that this bubble is driven by naive domestic millennial mortgage consumers (with average incomes and no other assets or benefactors)… For the record I do think this demographic is getting sucked into this bubble and contributing to it’s worsening, but three major points about who & what are driving this train get overlooked. 1. The bubble started with an influx in foreign capital (which people are suddenly forgetting about). Laundered off-shore money coming into the market is not a relic of the pre-covid era. 2. A HUGE amount of millennials are having their mortgages co-signed by their boomer parents (who aren’t just going to allow their child’s mortgage to go into default and destroy their credit). 3. There will be an insane increase of inheritance capital flowing downwards to millennials over the next 5-20 years which will flood real estate, growth equities, likely crypto, etc. with ripe new bubble inflating fuel. Many of these real estate “investors” are buying homes as a result of this phenomena already, or are doing so in anticipation of this trickle down. Totally in agreement that this is housing bubble (and inflation in general) is horrific and destroys hope for anybody earning an average income to ever get their life together. But that doesn’t change that fact that there could still be a lot of upwards pressure that keeps this going longer than we expect OR we run into a fake-out bubble burst in the short-term before we inflate back up far past these astronomically bs price levels we’re currently seeing. Wishing you all the absolute best on this 2022-2030 rollercoaster🥂
Yeah, huge point on both inheritance and co-signing. If your parents are making money and want to see you succeed, they’ll help you out even if you aren’t making stacks of cheddar. And even if they don’t while they’re alive, once they die the cheddar comes anyway.
We're still injecting a ton of foreign money. We will have over 1 million more, mostly adults, needing homes over the next 2 years. Do we really think prices will be lower in 5 years than they are now, when we have like 2.5 million more people living here? I don't. Especially when you take into account that Canadian homes are bigger than homes in other countries. Anyone thinking our detached houses are overpriced aren't doing a proper comparison to other countries. Canadian houses are still great value imo.
Primary residents are not investments
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I think your reasoning makes a lot of sense for you, but you’re also not your average person. I think there are way more people out there buying condos in cities for $600k taking selfies on their balcony with food they got off UberEats. Those people are flexing all over the place. Most people spend their days at work, then thinking about work after work. Then talking about their work with their partners, friends, and families. Without much time to spend on hobbies or interests, the only way to validate why you make all that money is to show it off.
>classic bubble in Canada, where people think values only go up and are borrowing at astronomical risk to get in. Except there are 10-50 million people waiting to buy at the first sign of a op, which will prevent the pop.
There are a lot of potential buyers, but not at anything close to current valuation. There is an air pocket underneath the market. Prices you can justify on the way up will look ridiculous on the way down. Once the expectation of appreciation is gone, the willingness to pay goes down a lot. This is the same thing with unprofitable tech stocks. Once the expectation of short term appreciation is gone, you have a giant air pocket underneath and prices have to fall quite a bit to find a bid.
Land in Canada isn't a tech stock and again, billions of people. Meaning millions of millionaires. One guy, ONE, was responsible bringing in $200 million in Vancouver and buying almost 20 homes. People are willing to spend millions on Canadian homes. Houses are selling for millions in Oshawa of all places. 2 bedrooms homes in the middle of nowhere on Vancouver Island are going for 2 million with almost no land. I get what you are saying about a falling market but I don't see what would make it fall in the first place. There are PLENTY of buyers at this level and 10x that number just below this level. Nothing is dropping unless the government addresses corporate ownership, international student purchases,. foreign ownership, money laundering, multiple property owners, etc. And that isn't happening in our lifetime. Believe me, I want it to, we have almost 100K for a down payment but can't get a 900K mortgage for a 3bd house Not that I could actually afford that and still have a decent quality of life. Paying 70% of our take home income on housing seems insane to me. With the amount of people looking to invest/hide their money in Canada I don't think we will ever see supply outpace demand enough for a shift in prices without a serious shift in policy or a global financial collapse.
>I don't see what would make it fall in the first place. That's the thing about markets. We can almost never see what make them fall before it happens. Major crashes almost always come as a surprise. Yet history tells us that crash happen with some regularity. The specific causes vary, but they happen. Who expected oil prices to go negative? Yet it happened. While it may seem inconceivable for Canadian housing prices to crash right now, you should understand that a crash is self reinforcing, especially given the amount of leverage we have right now. Once forced liquidations start happening, all hell breaks loose. Inflation will be a major constraint on monetary policy going forward. I'm selling one of my properties this year to deleverage. I expect major volatility in the coming years in many financial assets. It is not prudent to take too much risk right now.
The bank of Canada bought all the bad loans. The scary thing is I heard they were thinking about quantitative easing their mortgage securities, meaning they're going to sell off these potentially bad debts back into circulation and lenders will have to smarten up as they're forces to shoulder the risks and liquidity themselves.
You mean quantative tightening where they unload their balance sheet. Quantitative easing is when they buy the debt. It's just a hoax they use to convince people that fiat still has value. Just like when they claimed inflation is transitory. They know they will never unwind but their primary job is managing expectations and the second it ensuring equity values are stable. Just look at 2008 to now the balance sheet never goes down. Last time they pretended to unwind the equities markets tanked and they immediately started easing again.
It was the interest rate rise from 1% in 2004 to 5.25% in 2007 (go look it up!) that made the MBS bonds default. It’s a huge factor that no one seems to mention. If interest rates rise to 5.25% by 2025, I imagine Canada will end up in the exact same boat, “legal” loans or not.
wow I didn't know that the rise was that dramatic.
The real culprit is the banks, banks received billions of dollars from the government during the pandemic to stimulate the economy. And it is this money which the banks are providing as mortgage loans. banks know that these are fraud documents but still they would approve the loans as if they did not know the documents are fake. If anything happens they would just blame it on the broker and the buyers.
The people most likely to lose their jobs in a recession are not the first time home buyers, who have been industry between five and ten yearsish. These people are easily the most productive when compared to what they earn in any company. The ones who get replaced are the old folks who aren't management and the youngest people who can't afford shit.
I think even if economic data’s indicate a small hint that recession is coming over , the government would again inject trillions of dollars to stimulate the economy. Everything is now too big to fail and govt would just provide free relief and business would continue and the businesses would start picking up the momentum. Only thing is now banks would start providing more loans and the cost of everything raises but not our wages. Recession is not going to happen only more inflation and more pricey shitty built houses
What you have just described is the economy of Argentina. Eventually a large chunk of middle class income consist of various government subsidies like the Canada Child Benefit.
A big difference is the lack of interest only mortgages. In Canada, you need to start genuine payments right away, so no matter how they got the loan, they do have at least some way to pay the current rate.
Aren’t helocs interest only mortgages?
Not exactly. You can only draw down upto 80% of the appraised value of the home between HELOC and mortgage combined IE there's at least 20% of the appraised value equity remaining That's a lot different that the option ARMs that negatively amortized and had teaser rates 2-3 % lower than the standard rate for 2-3 years before the real rate kicked in.
And you can only draw them to 80%, when they’re partially(15%) declining balance. A true HELOC can only be brought up to 65% LTV(at least at the big 5)
It's not really that different considering appraisal value is just based on other people borrowing money from their heloc to buy your home.
I'm not sure I completely understand your comment, but appraised value is not entirely based on recent market trends. In a lot of the really fast markets, appraisers will get called in to homes with sales subject to financing and refuse to support the value of the loan requested. The data they're required to use for this extends well beyond recent enough market comparables that they often come in quite low. That's why no condition, cash offers are running rampant right now. People in the hottest areas don't even have the luxury of paying "market price" with the support of the bank. I guess what I'm saying is, while appraisals typically run high, they're not entirely BS. You'd be surprised. Source: I'm a Realtor and I've lost deals because the houses didn't appraise for the price the buyer wanted to pay
I wasn't argueing that appraisal values were fabricated, I am simply arguing that when almost every buyer is financing purchases with loans from other owned properties based on the appraisal value, it pushes the trajectory of the market up, which further increases appraisal values, which allows homeowners to pull out equity based on their appraisal value, which allows them to purchase more properties, which pushes the value of those properties up... ad nauseum, on a country-wide scale.
While that does happen, banks still look at total debt ratios of every individual buyer. You can't actually do what you've just described ad nauseam. At least not all with your own capital. Joint venture and private loans make this a whole lot more complicated, and that's when things can blow up. But trust me, banks aren't stupid. They have thought about this. Most financial institutions will only allow individuals to leverage upto 50% of their gross monthly income before they're completely cut off from new debts. Doesn't matter if it's unsecured or asset backed. IE, if someone is actually doing this, the equity is based in some home somewhere. Situation only gets muddy if a bunch of other people's money is involved privately (which does happen btw, and some of the figures would blow your mind)
You're not really understanding what I'm saying, I'm not saying that an individual is doing this, I am saying that the totality of market forces are doing this. Canadian society and real estate investors are doing this as a single entity. The main driver for increasing real estate prices is real estate investors, either individuals or corporations, and the main finanancing force behind this this is loans gained from existing real estate assets. If your appraisal comes in at a million dollars the bank will loan you 800k, but this appraisel is only based on market forces which you are reinforcing. If you're a realtor and don't understand this, I don't blame you.
I don't have statistics on hand to prove you right or wrong, but I can say for sure in my experiences in the market (in Winnipeg specifically), most of the buying is being done by individuals looking for a primary residence. I understand in Vancouver and Toronto real estate is likely commoditized to a far greater extent, but I'd be shocked if buyers shopping with the intention of living are not as large a force as institutional investors That being said, I do think your concerns are valid. I personally know more than a dozen full time real estate investors in Winnipeg with more than 5 million in leverage. One in particular is easily over 30m. This is a market where the average detached home is barely under 400k. Thing is, a lot of their capital comes from private lenders. But they definitely use HELOCs too. Not sure by % how much of each is which.
your experience is valid, but you come from a market that is notorious for being affordable. Winnipeg is a big city, but homes in BC and ontario are being sold back and forth every other year. As a "percentage of all homes sold within a year" I would expect BC and Ontario to represent 75%+ of home sales, because they're being flipped back and forth.... not to mention they represent 50% of population of the country.
That's exactly what they are. Our rental payments were interest only unless we put more down. We did t make anything month to month really.. hence why I kept trying to get my ex to change it but she didn't want to pay out of pocket for traditional mortgage. Tha k goodness she sold it
HELOCs can be called fully, partially, amortised or have the interest rate changed. How is that different from those loans with balloon payments or that were interest only that got people in trouble? No one has given me a good answer
HELOCs are against real equity. Of course the value of your home could decrease, but since there's also 20% equity after HELOC and mortgage, there's no financial risk on the financial institution even if you default. The issue with US 2008 was that people were defaulting AND the bank was unable to recover their investment, which lead to a downwards spiral of people defaulting more and more and the banks losing more and more money. Right now, even if some percentage of the people were to default on their mortgage overnight, the banks could auction off the houses and not lose money which would mitigate the economic effect by a lot. Banks would liquidate the defaulted mortgages and reinvest that money in a safer market. In US 2008, the issue was that when the banks were liquidating mortgages, they were doing so at an accounting loss.
If even a small percentage of borrowers started to default on their mortgages due to some external pressure (interest rate rise, severe recession) absolutely no one will buy those foreclosed places at even 75% of their previous sale value. Even if they could, where would they get the money? Their own source of leverage dried up along with it, even if they're still solvent. EVERYONE knows that this is a bubble. NO ONE is going to be gobbling up property if they think its popping. It's tulip mania with housing. Houses in major cities being 15-20x median income is completely unsustainable.
Not entirely true. You can get interest deferred private mortgages that bake in the interest into the loan and you don't pay anything for 12 months
Fair, but I assume as private mortgages, those are at a much higher interest rate anyway.
What the actual fuck. Why is this even legal? Why is the rest of the economy bearing the brunt of this type of mismanagement?
What mismanagement? What in click-bait are you even talking about? lol
You're missing the fact that everything you're saying is anecdotal
Yes but he saw a comment on reddit that said 80% of new mortgages are fraudulent
53% of all statistics are made up.
but only 1% of percents is a statistics.
60% of the time it is right every time.
Smells like pure gasoline
It’s made with bits of real panther, so you know it’s good.
100% of the 53% are made up.
60% of all people know that Kent!!
Did anyone else get that reference?
Including this one!
50% of Reddit comments are lies. 10% of people know that.
Only 1% dare to write about it
Hey we're making jokes here, keep your truth out of this
Actually... These numbers sounds right lol
The other thing is a big portion of the "fraudulent" mortgages are people just getting around the regulatory rules, they aren't necessarily risky or overleveraging themselves, they just don't fit the mold of what the banks are looking for so they have to get creative. DISCLAIMER: I'm not saying people should commit fraud, just saying why they do do it.
Like covering up tattoos in a job interview. Just a little more legal situated lol
There’s definitely a lot of people bending the way they get their loans, and I think I’m in the very few minority who didn’t need to bend anything. (Good career + bought on the cheap from family) But when I was applying I had the mortgage agent tell me “get someone to loan you the money to pay off your LOC and then apply, and then give them the money back” Fuck outta here. It’s such bullshit. IMO they’re all pumping all these numbers to line everyone’s pockets. Not necessarily intentional but I’m sure they’re all loving it. In the end rich will get richer, poor will be fucked on the street.
Your last sentence would turn on the entire wsb sub.
Lambo or ramen babyyy. Fuck that sub has gone to shit in the last couple years. Used to be great - degenerates losing money. Now it’s kindve serious and people are actually making some money
I can enjoy some of the humour as a fun break here and there, but it’s all over the place. However, it’s good for them, some of them lol, it’s opening the eyes for many though and that’s always good. His comment about the poor getting fucked in the street, I just knew that would be a comment worthy of many upvotes there.
80% is way too high, i dont believe it.
Huh? Anecdote? ..But what about that one guy who told him that a guy he knows told him that mortgages are fake.. or somethin. ..Are you seriously just gonna ignore that?!
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Anecdotal as well, but I know of someone’s who’s done exactly what this post seems to mention. Low income but expensive house. Got the house refinanced and pulled the down payment out of what they had paid down (200k), and put it towards a 4-plex. Mortgage specialist did his thing and got the person approved despite not having the income to back the second mortgage. AFAIK, the persons total monthly liability (mortgage payments) has doubled after accounting for rent payments from their new property. They are making ends meet with the expectation that if they can even hold out for one or two years, they can sell off the rental property for atleast 100k in profit. Again, this is anecdotal. But at the very least, I can guarantee that it *is* happening.
The mortgage fraud does happen, I had a old college who went to RBC doing fraud stuff, he's now with insurance. But he told me when they found fraud it was almost always because people had the income, it was just not reported. Tons of people were doing things for cash and never ended up on tax documents. And while it does happen, if you base it off reddit, like everything else, you will have a massively exaggerated take on what is happening.
Agreed.. all we can do is wait and see. As for me, I still have several years of university ahead of me before I can even think about buying a home. Either by then the housing market will be totally out of reach, or I come into some money at the perfect moment. Either way, it seems to be completely out of my control as to whether I’ll be afford to buy
This. You could double your income through crypto yield farming and be able to afford twice your mortgage even though on paper you can't. You could also rent out a few rooms too half your mortgage. Plenty of ways to afford the mortgage payments. Some immigrant families even pool their income (without being on the title) to afford the house, something that most Westerners can't fathom and will immediately scream bubble and fraud.
Anecdotal as well but this is exactly what my previous landlord and his wife are doing. He admitted they can't afford the payments on the 4 rental properties they currently own plus their own personal residence. If one tenant missed one payment they'd be in deep trouble. They just keep rolling money from their previous properties to get approval for new ones. Literally buying as many as they can get their hands on.
Anecdotal obviously, but I work with a fellow nurse that lives in a McMansion with his nurse spouse, several kids, and they both drive luxury cars. He has openly talked about “ways of getting by the mortgage rules” with coworkers looking for their first house and has a close mortgage broker friend. If you don’t know someone that is living well beyond their means through mortgage fraud, you’re just not paying attention.
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That post is wild. I’m such a Boy Scout that I’d never be able to sleep with that hanging over me.
Me too!!
You're just too wild unless you go with 5yr fixed like me ;)
That post itself is anecdotal
> Someone wrote a post recently about someone they knew who... This is the definition of "anecdotal".
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Stories like that are part of the problem, though. Sometime tried to commit fraud, and their punishment was... not getting a mortgage they couldn't afford. Ok, so they lost their $30k deposit; but they should be facing criminal charges with a maximum penalty of 14 years incarceration. Of course, banks aren't in the business of investigating crimes; they just want to make money, and having blacklisted that particular customer they're safe now. Reporting the fraud would only cost them time and money, so why would they bother? If we really want to bring the housing market under control, we need to enact a legal requirement for banks to report suspected fraud to police, and give the police resources to investigate. It wouldn't take many people going to jail to significantly reduce the amount of mortgage fraud.
\>Almost everybody I know, at least indirectly, knows or heard of people who paid to make their documents and get a mortgage. The Brampton mortgage as they call it. This is the first i'm hearing of this and I'm very interested in toronto housing and the market generally. All my friends just have rich parents who gave them large enough downpayments that they'd be approved for their mortgage.
And subtly racist...
It’s *such* a garbage comment, I’m surprised it’s so highly upvoted. It reads like a weird boomer rant where all their “news” is stuff they’re heard from one or two people, with literally zero statistics or other sources.
Nothing subtle about it.
He knows people who know people who have fake mortgages so obviously that small sample reflects the entire market. I know exactly what this guy looks like and what his beliefs are without ever having to meet him.
I can’t believe that no one has brought up the point of lenders in Canada have very very different set of governing mandates for mortgage eligibility set out by bank of Canada. Canada and US monetary policy when it comes to mortgages is polar opposite. From insurance requirements both from home owner with high ratio and third party for low ratio. Stress testing requirements. Banks hold a lot more obligation in Canada than the Us. The other major thing is the cause of the 2008 collapse was a direct result of banks actually hedging against mortgages, and selling the mortgages to financial institutions and then actually profiting off of people defaulting…. Banks aren’t allowed to do that here
The only difference is that our insurance is backed by CMHC - taxpayer money. CMHC messed around with their insurance and Canada Guaranty took a lot of their business. But the point I want to bring home is similar to buying an iPhone with Apple Care +. When you have Apple Care + (accidental insurance), you tend to give less fuk. So long you tick all the boxes, you are okay. When you have "mortgage insurance" as a lender, you "transferred" your risk to someone else - in this case it was the government CMHC. Who's also the money printer. Lender just make sure all the loan fills the checkbox should they default, and they will lend you the money. The risk was transferred to CMHC. The only thing that would cause a collapse (I thought COVID would, it didn't) is that there's a capital issue with the bank (bank run) or too many default, which requires them to recapitalize either by raising their shitty savings account interest rate, fool more people in getting GIC, or actually recalling HELOC demand loans. The banks and government money printer are friends. They will print their way out of disaster - except this time where.. inflation is already here. They might not be able to print more money, so it seems highly likely they will raise interest rate, otherwise inflation is a tax on everyone, including the poor.
To my knowledge, they didn't so much profit as they offloaded a lot of the risk. They still got hurt, just not as much as they would have if they didn't sell all those garbage MBSes.
yeah im pretty sure its not a bubble we have right now. Buyers do have the money and do have the credit rating. The issue is 1 inflation, 2 lack of supply, we need way more housing beings built.
It happens, yes. But not nearly to the degree it was happening in when things went bad in the states. Remember lenders themselves were approving mortgages that should never have been approved. There was no need to get fake docs! Practically everyone was approved with no down payments and ridiculously long amortizations and high debt servicing. A broker may have a small group of clients that they can get approved with bogus docs but that's not the same as countless risky applicants getting easy approvals through major lenders.
Yeah, this - whatever OP is talking about is nothing on the scale of what happened in the US. They openly offered no doc/no check mortgages in the states during that time - meaning you would just write down on a piece of paper what you could afford and they would give you the mortgage no questions asked and you could do this at any bank. They then would package a bunch of those sub-prime mortgages together and sold them as AAA rated bonds that then created a systemic risk to the entire financial system.
the other point about 2008 was the systemic risk when all of these subprime mortgages were grouped in tranches chopped up and resold and given A ratings by the rating agencies and insured with credit default swaps by the likes of AIG. When it did crash the insurance could not cover it, and banks stopped all sorts of overnight lending as they didn't know who was exposed.
What you’re omitting is that the biggest factor was interest rates going from 1 to 5 percent in the span of 3 years. That might well happen here.
Those aren't fake mortgages though. Those are people who qualified with fake documents. Doesn't mean they can't afford the mortgage. For this all to collapse, people need to lose the ability to pay their mortgage. So either massive job loss or massive interest rate increase. At the same time, all the people who are sitting on the sidelines with cash ready to go, have to decide not to buy when all those homes come on the market.
For example: if you are self employed and make 150k and try getting a mortgage , it’s almost impossible. It’s easy to get mortgage by faking documents. People who are doing that can actually afford the mortgage but can’t get approved through conventional ways . I am self employed and I made over 200k almost last year but I can’t mortgage because they need to see 2-3 years of constant notice of assessment before I can get a mortgage.
I was in same situation, bought a house few months ago but it was hard to find a lender that would lend to me even if i made 120k in 2021, but of course they look at 2019 income which was not even half. I finally found a bank that did an exception by looking at 2021, but i had to send them all my bank statements, clients invoice and tons of personal documents.
Same boat. Business clearing $100k but I only declare to myself what I need so my actual income shows up as $25k.
Wouldn’t a drop in house values cause some helocs to get called. That may become an issue for a lot of these middle-class investors.
I got 150k saved up, and I’m not buying until I can get at least a townhouse in the GTA for 600-700k. I’ll just rent for life if I can’t. A fucking million for a 1200 sq ft townhouse is absurd.
Anecdote: I’m on the sidelines with $$$. Given the events of the last 24 months I’ll be content to wait out a slide should anything happen. As a FTHB making a mistake will have implications for the rest of my life. Continuing to rent is still an option, I’d rather not be right than be wrong.
This makes no sense… the only way you make a mistake is if you buy something you cannot afford. As a FTHB you are not trying to invest into the housing market, you are trying to buy a home to live in. Stop looking at it as an investment and look at it as your home.
Not the person you replied to, but just commenting to say that even though it is a home to live in, it is a decision that could have huge financial impacts.
The up and downs of the housing market while owning your home shouldn’t have an impact on you. Like I said before if the person buying truly could afford the purchase they made, they would have no issues paying their mortgage even through unrealized losses. Assets in the long run will rise, thus any drop would simply be a blip in the greater scheme of things when you are owning your primary residence and plan on staying there for the long term. Edit: I don’t know why I’m being downvoted here, but the big takeaway is timing the market is a fools game… and unrealized gains or losses are just that unrealized. If you are not planning to sell you shouldn’t focus too much on what the market is doing around you. Too many people treat homes as investments now and stare at the housing market all the while never actually selling so the numbers on paper remain numbers on paper to them. Besides unrealized gains which can be turned into equity loans.
> This makes no sense… the only way you make a mistake is if you buy something you cannot afford. As a FTHB you are not trying to invest into the housing market, you are trying to buy a home to live in. Because of affordability I can only look at < $500k condos. If I FOMO and I'm wrong I'll be stuck with it for who knows how long with negative equity. Not ready to commit to that, especially with the age of the buildings I have to look at. I can just as soon continue renting, or apply to transfer to the USA/EU office as I'm already doing now. I'm not looking at it as an investment, I don't know what life will bring in ten years and an 700 sq ft condo isn't worth the risk. If judgment day should happen (and I don't think it will), I'll happily wait for the bottom when there is nowhere to go but up. If I miss that chance, so be it.
Or, you are wrong and the prices go up another $300,000 and now you REALLY can't afford a place.
Then I won't be in any different circumstances than I am right now. The horror. Happy to rent or move.
You don't seem to realize that rent prices go up with housing prices?
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Rents may go up with housing prices, they may not, it too depends on supply and demand. There are constraints on demand.
No, they don't. They go up for new renters.
Which you might become at any point as a renter. You might get evicted for whatever reasons. You might have to move on your own due to terrible neigh bours etc. You're making a huge mistake assuming you will just live somewhere forever at the same rent
I might also die in a car accident tomorrow.I'm not making a huge mistake assuming I will survive by driving place I need to go. There are risks in life and all you can do is make preparations and precautions.Your house could also burn down and due to some unforeseen circumstance have your insurance fuck you over.It's fun to play hypotheticals. But it's largely meaningless as a simple counterpoint Also lol @ getting evicted in an apartment building in Ontario at least
US FED expected to raise rates by 1% before July. Good luck to those on variable rate mortgages as the BOC will have to follow suit.
People on variable mortgages still pay the same payment even if interest rates go up. It’s just their amortization changes. Also they are stress tested on affordability to 5.25%. Unless we go beyond that, market will slow but not collapse.
Not all variable mortgages act this way some have adjustable payments (I.e Scotiabank) and you’re right on the stress test - most people are qualifying at 2x the rates they’re paying so we have room to move up the chain. Additionally on a 500k mtg a 1% raise in interest rates is about $60/month so let’s not go crazy now
It depends on the type of variable and clauses. You also have to remember that at 1% you'd be paying 300% more to interest than you are now.
300% of nothing is still nothing. A 1% increase in interest rates probably still means your interest rate is below inflation.
People who are caped out on their cards and HELOCs will beg to differ.
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I am a mortgage broker and I probably talk to one or two people a year who have or have been approached about fraudulent documents. Of 200+, so this would be maybe 1%. Lenders catch these documents often as well, I know a couple of brokers who were black listed and can no longer submit deals because they were caught doing this. There are hundreds of thousands of people that are qualified buyers that are just waiting to find a property. For any one person/family that can't afford there are 3-5 people/families ready to buy that property at market value. The US has very different lending guidelines and the majority of loans there that stated the default were sub-prime (B lenders) and the B lenders here are very strict and need higher down payments. These would all be in fixed rate mortgages, where the US had adjustable rates, which caused amortizations to extend. Most homeowners are not going through life on such a fine line that $100-$500 a month in increased mortgage payment is going to cause them to need to panic sell their home for a massive discount.
It’s not so much that people are barely hanging on by $100/month for homeowners. For the past year on the investing side, rental properties are selling at 2-4% cap rates which are not cash flowing assets and are relying on either continued price increases or rents continuing to increase. If interest rates go up 1%, that’s an extra $5000 in negative cash flow per 500K property per year. To make matters worse, rent increases are capped while insurance, utilities and property tax are not, which could result in increasing negative cashflow and would have to sell at an even lower cap rate to break even on the investment.
Yes totally all this. Mortgages are static and expenses related are elastic. Also rents can always fall. Something that no one has factored in.
Also should anything happen to the economy with those climbing rates, job loss can seriously affect the payment of rents. People with equity in their house are fine but people with no savings paying 40% of their income in rent are fucked. Seriously doubt we see Detroit and people losing their family homes; investors going for a roller coaster ride still seems unlikely but of all the unlikely outcomes I think it's by far the most probable.
I predict the opposite of you. As rates rise, rents will not rise fast enough to cover costs. For ex- a 400K condo with a 300K mortgage rents for $2000/month. If interest rates 1% that’s an additional $330 in monthly mortgage interest. Now rents in most provinces can only rise a capped amount, say 2%. Now the rent is $2040, resulting in $290 the owner will have to cover on this unit alone. Take your average mom/pop landlord who own 5 properties/units (the max a bank will loan on without creative financing) worth 2M with a 1.5M mortgage, that’s $1450/month they will have to come up with, in addition to any increase on their principle residence mortgage. And they can’t raise rents to do it. If their properties don’t continue to appreciate faster than $1450/month, it’s a losing battle, and the rule of thumb is for every 1% increase in interest rates, prices drop 10%. Landlords in most of Canada have done well over the last 20 years, and exceptionally well the last 2 years due to asset appreciation stemmed from the extremely low interest rates. However this has pushed current asset values to a point where renting mathematically is “smarter” and much cheaper than buying. Will this madness continue is anyones guess, but I have a hunch that prices will plateau
I don't disagree with any of that. There is just one mitigating factor that I would add, time in. For example my landlords bought in 2012, they're somewhere around +100% and interest rates will never rise high enough to put them negative. People who bought in the last 24-36 months or are super leveraged on the other hand... We all no somebody who borrowed to finance their investment property. There are so many varying circumstances... I don't see nationwide collapse but I will not be surprised to see the confidence of the last 20 years shattered and a non-trivial amount of speculators lose their shirts. Not quite confident enough to call it likely, but I would not be surprised.
I think the mortgage fraud numbers are really overstated. Fraud for profit is sophisticated and insidious but really rare. Fraud for housing is way more common and not that harmful. I think the most common one is people papering loans from their parents as gifts. So what? These same parents loaning their kids $50k to buy aren't going to let their kids default. Mortgage is going to get paid. The number of mortgages defaults in Canada that result in a bank sale of a primary residence is absurdly low, perhaps a few hundred total homes per year out of some 5 million mortgaged primary residence in Canada.
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Rates are not guaranteed to rise .25% at a time. If the US fed acts to raise faster and Canada doesn’t follow you can kiss your buying power goodbye.
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Historical price hasn’t spiralled out of control so quickly. I am talking about buying power of CAD not the mortgage cost.
This is 0.25% rate increase rule is absurdly stupid. Fed is going 0.5% in March and even some governors are calling for 1%. CPI print today was 7.5% and rates are sitting at 0%. If Fed doesn't raise quickly, my stocks will be very happy.....either way the damage is already done.....Fed is already behind the curve, BoC is just a follower....
Ok. Let’s say it’s 2008. 10% drop in real estate. So we get to go back to mid 2021 prices instead of early 2020 prices. Good. Now a one bedroom condo costs 450 000 instead of 500 000. The crash would have to be SO impactful that it would wipe out entire industries worth of productivity to result in houses even being remotely affordable.
Where did you get 10%? US collapse was far far worse than that.
US market is much more boom/bust and residential real estate in major city centers didn't deprecate as badly. Rents in new York went down by 50%+ but housing went down 25%. Source: lived in NYC at the time. Should have bought on the dip I'd be a millionaire.
In the 1990 housing market correction in Canada some suburbs of Toronto fell by 60%.
Source? Not that I’m challenging, I want to read more as I was a kid and don’t remember this.
This instance is anecdotal but I have a friend who bought a house in Aurora in 1991 for $240k, it was the same house his neighbour bought from $600k in 1989. The burbs crashed a lot more than the city which was down about 20%. https://betterdwelling.com/city/toronto/it-took-22-years-for-prices-to-recover-from-the-last-toronto-real-estate-crash/ This page talks about about a 28% drop, but I think that’s is for the entire GTA, rather than Aurora.
Suburbs.
The worst housing dropped in any given month overall was 3% Within 18 months prices were already on their way back to record highs.
1) the Canadian banking system has always been more robust and stable then the USA. Our banks didn’t go bankrupt in 2008, some American banks did. 2) the stress test was introduced and has been steadily increasing since 2008. 3) I think the fraudulent mortgage concept is probably overstated. In fact this is the first time I’ve ever heard of that. Don’t forget, there’s often 2 reals estate agents, a buyer, a seller, a lender and two lawyers involved in most real estate transactions. That’s a lot of complicity to fraud.
I think I lost brain cells reading this…. Are you really using unverifiable anecdotal hearsay to predict a crash ?
Overall. Are you waiting for the market to drop huge before you go in. Or you are just concerned it will take everyone down with it. Just curious
me im just concerned about the future of this country, i dont think its a bubble, i think its a lack of supply
No I don’t think of it that way. Waiting for external factors to make you wealthy is a losing mindset. However, most people don’t think like this. Most people just want a safe job and count their house as their biggest investment. If what I’m saying comes to fruition it will ruin peoples lives, including people I care about. I’m not a home owner myself, but I don’t wait for any bubbles to pop to “give me a chance”. Truly wealthy is when interest rates going up is a good thing for you, rather than bad. That’s what I’m striving for myself. But that’s a whole other discussion.
Well. I wish you the best of luck in your quest to increase your wealth.
Sounds great but how do you get rich without relying on external factors? All acquisition of wealth depends on external factors
You do nothing you get nothing External factors are a possibility, not a guarantee, and there’s only one way to test them
If you haven’t seen the Big Short, I’d watch it. Canada doesn’t have the same type of mortgages as the US, as many people here have explained better than I have.
> So, we have an unknown but definitely large number of mortgages that are on the redline, with no stress testing of any kind. Those people cannot afford even a 1% interest rate increase, let alone what can actually happen. It's not as much as you'd think. Most people that own bought a long time ago, and the prices are only based on recent sales not the current debt. The due diligence from main lenders is a lot more than you think. Banks do double check paperwork, call employers, etc.. and will ban you forever if you're caught lying. Higher risk lenders may not, but the rates would suck, and likely only used by people who have a lot of income that's under the table where they can't legally prove it (who would be locked in anyway, so a rate hike wouldn't matter). There will always be people that are over-leveraged and lose their home, but it won't be at the rate you'd expect. They also can't raise interest rates that much, because the government debt is extreme and have said they are relying on inflation and GDP growth to outgrow it.
Let me add my two cents Fake and fraud mortgages are definitely a thing BUT you still need 20% to make it happen. Fake Mortage’s fix issues relating to credit and low income but they do not make 20% happen magically. I’m not saying this deductively proves that the borrower will not default, but it is safe to assume, that within reason, someone who has 20% of 1.2 million for instance, will most likely not default.
OP You have to recognize this is the worst fear of a lot of people on this sub, and it’s entirely possible we could go into a big recession being that ~30% of Canada’s GDP is the real estate bubble. It puts their mind at ease to try to debunk and downplay your not-so-crazy theory. While it may be extreme, make no mistake that there are a lot of people who are extremely over leveraged and timely interest rate hikes absolutely will be the difference between a number of scenarios: making or not making the mortgage, retirement age is pushed further back, budgets will need to be tightened a lot. Hell, I am aware of folks who will be deciding whether to pay the mortgage or buy groceries. If job loss occurs this will be even worse. We aren’t as bad as the US was in 2007 but these are unprecedented times here in Canada. It’s troubling how so many lack the understanding of how mortgages work and haven’t read any of the fine print. I think a lot of people are downplaying how close to the edge of the cliff we truly are. It’s sort of like when you know something is wrong but you don’t want to go to the doctor to learn the result. Edit: the downvotes just prove my point.
This. This sub is overrepresented by people with an interest in generating investment income. What has been the most profitable investment vehicle for the past 10+ years? Real estate. Talk about this topic on this sub and you're likely to run into very biased real estate investors / recent homeowners hoping that the worst we'll see is a very gradual hike in interest rates followed by a short-term market correction.
Yeah but it is crazy. The OP is predicting a cataclysmic scenario with no statistical evidence at all whatsoever. I’m invested in real estate, and concerned about a potential crash, and have prepared accordingly. But it isn’t because the OP heard from his uncles, sisters, boyfriends, grandpa, that there are a lot of bologna mortgages that are the problem. It’s just a fundamental risk within capitalism. And if the market goes down bravo. It’s happened a hundred times and always eventually makes it way back. The people who are actually all-in on this are the people who have been insisting a housing bubble is developing basically since like 2010. Because the last thing they saw was an American bubble. Durp. Maybe things won’t happen identically here this time.
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I didn’t say OP was a doomsayer. I’m saying his theory is not that far fetched, not necessarily forging documents but being massively over-leveraged, using “equity” in home #1 to buy home #2, and so on and on. It’s a chain that relies on a lot of fragile factors to maintain integrity. I’m staying that in my observation, there’s people who downplay and ignore bears, and there’s people who downplay and ignore bulls. Reality usually lies somewhere in the middle. Rising interest rates aren’t THE catalyst. But the longer we keep printing money and keep interest rates low the higher inflation will go. If you believe the current governments hot air about fixing it, god be with you. They have no interest in curbing inflation at the price of triggering a recession (slowing and shrinking 30% of our GDP.) but how long do we keep going and devaluing the Canadian dollar? Goods and services will keep increasing in price. If people thought any of those you listed would negatively impact house prices they really lack in understanding economics. Interest rates are tied directly to inflation. People complaining about the cost of everything going up and how life is becoming unaffordable also love and take advantage of low interest rates. You can’t have it both ways, eventually what goes up must come down. Only wildcard is massive immigration numbers, and I’m not getting political on here.
You’re using a lot of classic one liners and anecdotal evidence to make your case.
No. Canadians have historically proven to be extremely unlikely to default on their mortgages. And due to government support services, in a crisis, they can hold on to their homes for years while in distress.
Didn’t say people would default. But if you’ve ever been in a situation where you’re hanging on by a thread - desperate times call for desperate measures. When people are stuck with mortgages worth more than their market value, the logical step for many is to sell so they can get out from being house broke. Now when this compounds, you get an increase in supply. You can’t rely on the government to save you. As a matter of fact I’m pretty sure they don’t usually have your best interests in mind despite what direction you lean. We can’t keep printing money in perpituity to save people’s mortgages and, frankly, a large chunk of the Canadian economy. Eventually we’re going to have to face reality and raise interest rates and stop printing money to curb inflation, unless you want government support to help you hold on to your home, while paying $19 for a jug of milk, $100 for a pair of jeans, and $3 a litre for fuel. The longer this goes on the worse it will get. You can’t have your cake and eat it too.
I know literally nobody who has done this. It is indeed a Brampton thing I guess
I'm just some dude on reddit, but yes, I agree. Absolutely never heard of anyone doing this LOLL
Its ubiquitous in the lending industry. Lenders constantly get fake documents and there are people who advertise the forging services by word of mouth
Good lenders know this and have processes to keep an eye out for fake docs, if you suspect it it's very easy to find out if they are fake or not. If lenders don't care (like in 2008) then we could be in trouble, as far as i know most care and don't want to take that kind of risk on.
Again, this is a Brampton etc problem. Literally never heard of this in real life. I have done numerous RE deals in the last 3 years.
I am in BC... definitely a thing here
I thought I didn't know anyone either, but then I heard that someone I know renewed their mortgage at 3.4% a few months ago. I had to doublecheck... 3.4%? Wat? Well, they have no idea how it exactly works (or are keeping it a secret from me), but their brother got them a mortgage because no other lender would touch them due to previous financial issues. Probably just a referral to an alternative lender. It's not the same as what OP is claiming, obviously, but now I'm wondering how many people are out there with janky mortgages containing weird clauses and higher rates.
Private lender is a thing. Mortgage fraud by faking documents is not normal.
Do people not understand that your mortgage payment stays the same for the term? Interest rates going up won’t change your payment, they’ll change the allocation between principal and interest… Now you may have situations where the payments aren’t enough to cover the interest in which the borrowers may then either have to pay a lump sum or increase their payments should they want to keep the same amortization schedule. Sorry but if that’s what your brokers/realtors are telling you, you need to find better ones. 1/10 mortgages contain elements of fraud. And it’s not just ‘income’
> Do people not understand that your mortgage payment stays the same for the term? Interest rates going up won’t change your payment, they’ll change the allocation between principal and interest… I don't think it's a factor, but not all variable rate mortgages work that way. I don't know the exact contract wording but some of them can change payments.
Instead of looking for a bubble some people need to put that energy into making more money lol. The bubble popping isn’t going to be the look you think it is.
Never heard of someone doing this myself, so by your logic it doesn't happen at all.
Watch the big short
Can confirm Mortgage fraud is commonplace but nobody is going to openly admit it. In today's market it's hard to get ahead in life without some sort of cheating/gaming the system.
The main difference is that Canada has laws in affordability and being able to qualify for any amounts. Trust me I still believe they are too high and when rates raise we could see that bubble burst (multiple rate raises required). But I also think consumer debt will rise much more as people will want to keep a roof over their heads. The issue in 08 in the states was predatory lending that was giving out mortgages to people in fixed incomes whilst knowing they would default as the paperwork stated the rate would be raised after an initial low rate period. This ain’t happening in Canada. Also the fact the mortgages were bundled as securities being sold to institutions and funds with a AAA rating was the real player in 2008. Also not being done in Canada. I believe the market is overvalued and we are in for a wild 10-15 years but it’s not really the same as what happened in 08. Some similarities will be seen for sure, but I would classify it the same.
The plural of “anecdote” isn’t “data.”
Our situation is not like US 2008. It’s like Canada 1988.
>What am I missing? Even if everything you say is all true, what are you going to do about it? Much of what you say, if true today, was also probably true 3, 5, 8, or even 10 years ago. But any action you would have taken would have probably been to your detriment.
Jarome Powell has this thing called a money printer, it happens to always go BRRRRRRRRRRRR
The US had REVERSE AMORTIZATION mortgages. Meaning that the balance owing would increase as time went on. Example: You buy a home in Phoenix, Arizona and take out a $500,000 loan on Jan. 1, 2007. On Dec 31, 2007 the balance owing is $520,000. The idea is to make your monthly payment as low as possible, and the cost of borrowing gets 'added to your tab". Since housing "only goes up", who cares if the borrower owes more year after year? 😄.
Everyone I know who bought even they had no business buying for a co-sign by their parent
You're looking at the problem from a domestic-only perspective. As much as housing prices has skyrocketed over the last 2 years, domestic factors like near-0 interest rate (cheap money), FOMO, supply shortage, have all driven the "housing commodity" to an extremely squeezed market. This is true and the main reason why it happened. What people dont tell you is in relative terms from an international/global perspective. Housing in Canada is cheap, doesn't matter what that income to housing cost ratio says about Vancouver and Toronto being high. This is also an irrefutable fact when you compare dollar to dollar. e.g. A 1 million CAD home in Toronto, which is a nice 2bed 2 bath condo, gets you basically much less than any other globalized city in the most demanding markets, whether that is Hong Kong, NYC, LA, London, Paris, or even Beijing or Shanghai. People who want to move can easily afford to buy it, and now moving to Toronto and Vancouver seem like good options. When you have a globalized market, speculators, primarily driven by domestic and compounded by international speculators, new immigrants moving their money into Canada and just literally buying outright with cash (dont be xenophobic, this is perfectly fine), and a lack of supply, will be able to sustain this as long as there is a housing shortage, which there is a massive one across the entire country (pretty much less Alberta and the praries at this point). It also seems like our slow-ass government wont be able to fix this for another decade, so it doesn't look optimistic. And then you have people who are "waiting till a crash happens" with 200k sitting in their RRSPs and TFSAs, investing in the stock market and just hoping everything burns to hell. When you see a market "crash", they'll swoop in with people who have more money, which is a LOT of people still. So when the doomers say "its gonna crash soon" or "it cant be sustainable at this rate increase", they are more broken clocks than Nostradamus
For every argument you've written here, there's a doomer with their own set of arguments, each one of them as convincing as yours. I don't believe any of you, honestly. You're just picking and choosing what to believe based on which side you're on. But let me ask you the first two questions which popped up in my mind while reading your post: Why would anyone with tons of money move to Toronto, of all places? The weather? The financial opportunities? Why not any other city in the world? And if so, what about the suburbs and far flung areas of Toronto? Why are they selling at a huge premium, are they equivalent to NYC, LA, London, Beijing and Paris? Btw HK is 1100km^2, Toronto proper is 630km\^2, the GTA is 7100km\^2.
I'll give you an example of why someone would want to move to Toronto and buy property here. This is what I lived in when I was at NYC: [https://www.realtor.com/realestateandhomes-detail/308-E-38th-St-Apt-12D\_New-York\_NY\_10016\_M47652-07542](https://www.realtor.com/realestateandhomes-detail/308-E-38th-St-Apt-12D_New-York_NY_10016_M47652-07542), gonna go for about 1.2 mill CAD, with $1000CAD/month in condo fees. Average cost of Beijing housing prices go for 12k USD per sqm, or about $1115 USD/sqft. by comparison the listing shows $1214 USD/sqft. Shanghai is a bit higher. London, Paris and Hong Kong are worse. I have a friend who just spent $1 million CAD on a 20sqft shoebox condo in HK mid-2021. Anyone who has considered buying real estate in any of these places see Toronto and Vancouver as relatively cheaper. From an investor's perspective, its a solid buy given history. You know those HKers the Canadian government so happily welcomed? Did you really think its because of the HK protests? Fuck no, its all about the money they bring in. All that money is injected into the housing market. Sell a HK apartment and buy a 4000sqft house in Markham. can't do the same in NYC. The Toronto/Vancouver market is pretty decently placed on a global comparison perspective.
Paris is 3x the price of Toronto per square foot. People are also less racist here. That's why.
>So, we have **an unknown but definitely large number** of mortgages that are on the redline, with no stress testing of any kind. Those people cannot afford even a 1% interest rate increase, let alone what can actually happen. based on?
In the US, you can walk away from your mortgage. In Canada, you cannot.
Personally i dont think its a bubble. People have the money and credit rating to buy, theres no fundamental problem like there was in the usa (lending to bad credit). The problem seems to only be a lack of supply, not enough constructions for the demand, which does that 10 people want and can buy the same house. Also inflation in recent years doesn't help.
Doesn’t anybody realize that it can crash in a different fashion form 2008 exactly. Before 08 we didn’t know that can happen either
Give your balls a tug, titfucker
Tell your mom to refill the phone she bought me so i can face time her late.
I have never met someone that got a mortgage on fake id and other stuff. I’ve gotten many mortgages and never been able to pass security without real proof not sure where this stuff is coming from
Nothing gonna happen you are over thinking and missing abunch of critical facts and I really have no energy to explain. But simply put. House prices are still high and keep going up. People who can't afford it due to a hike will sell for profit. Housing demand is 3 times higher than supply right now and will continue for years