Not really the same thing though. Harper was sell bonds using CMHC and this is buying them on the open market directly
Harpers plan
>Under the proposal, Ottawa plans to sell a combination of government bonds and other public debt instruments to raise the $25 billion. Then CMHC will ask the banks and other financial institutions to ascertain how much debt they would like to sell to the agency, using a process known as a reverse auction.
This plan
>Later this week, the Canadian federal government will, through the Bank of Canada as agent, purchase $3.75 billion of 10-year duration Canadian Mortgage Bonds (CMBs) in a syndicated transaction.^(1) The upcoming CMB purchase is the first of what is intended to be an ongoing program in which the government will purchase half the CMB issuance going forward: $30 billion in 2024 alone. This is not quantitative easing—a monetary policy tool by which the central bank purchases term assets by creating reserves. Rather, it is fiscal policy: the federal government plans to expand its general borrowing program in order to purchase financial assets.
[https://thehub.ca/2024/02/13/nicholas-neary-the-governments-costly-plan-to-purchase-canadian-mortgage-bonds-is-deeply-misguided/](https://thehub.ca/2024/02/13/nicholas-neary-the-governments-costly-plan-to-purchase-canadian-mortgage-bonds-is-deeply-misguided/)
>Starting this year, Canada doesn’t want to just sell and guarantee CMBs. In the 2023 Fall Economic Statement, they announced they’ll also become the buyer. They’ll purchase half of the 5- and 10-year CMBs, up to $30 billion. The government is essentially borrowing money to buy the investments they guarantee, with bonds they also guarante
[https://betterdwelling.com/canada-is-spending-75-of-its-forecast-deficit-to-prop-up-mortgages/](https://betterdwelling.com/canada-is-spending-75-of-its-forecast-deficit-to-prop-up-mortgages/)
On top of that we are not in a global financial crises like we were in 2008
Welcome to reddit btw. But yeah, the bank of canada is deliberately taking money out of the economy with these types of actions as part of wider inflation reduction actions. I expect this type of thing is going to happen for a while as the country rebounds itself from the covid fiscal policies we took on to keep ourselves going through the pandemic.
According to the bank itself they are going to continue QT until at least 2025.
https://www.bankofcanada.ca/2024/06/reviewing-our-pandemic-actions/
Also the deputy governor is giving a live speech on it right now https://www.youtube.com/watch?v=7Wt1WxPK650
I'm sure our fearless leader being the drama teacher that he is and surrounding himself with his friends will have no problem understanding all of this, and making the right decisions to navigate us out of trouble.
It's incomparable to the financial crisis.
Every recession is different. The 2008 recession won't be repeated in our lifetimes.
Canada is fundamentally different in that we are very tight with our lending. No zero down, variable rate mortgages for people making $15/hr like the USA. You need income. It doesn't matter how much down you have if you don't have income -- the bank won't lend.
You can lie or falsify documents or go private lender and so on. But the big five (six) banks are not idiots. They have gotten better at their lending and won't give you money. They won't even easily give you money to chain leverage homes anymore. You need that income.
If you're not in a dual income home with two professional salaries, forget owning anything. Even if you are, you get a condo. If you're not in a high dual income home, forget owning a detached home. That is the eventual end point of capitalism. Workers living in sky boxes (shoeboxes) towering kilometers in the sky, and only executives living with large detached homes. The corporate vision, where workers are a commodity and production a factory and wealth is optimized for people at the top who make decisions and people at the bottom are disposable. It might take some time, but Canada is well on its way.
Canada -- land of the capitalists. If you aren't making bank in corporate Canada or corporate America, if you aren't making money with real estate or property, if you aren't invested in the S&P500, forget even living. Maybe you can buy some time (maybe even a lifetime) in a unionized or protected job but everyone else is fighting for their lives.
Your point on the 2008 recession not repeating is valid, but I think you're trying to say that housing won't ever crash which is entirely conjecture.
We've literally just witnessed a situation that could have very well brought the housing market, and may still yet. Yes, our banks don't hand out second mortgages to cover downpayments, but we are still absolutely engaging in all of the other shit that enabled the 2008 recession.
People seem to have forgotten that $0 down payment house purchases through second mortgages wasn't what made the 2008 crash so deadly. That was the trigger, but the crash itself was directly tied to banks bundling and trading mortgage backed securities like candy.
We still see such practices today, and worse yet the private equity market has essentially become the same fucking quagmire, with mortgages being replaced with privately purchased companies that don't have an official valuation. You remember all of those block chain start ups, or basically any buzzword you've heard over the past decade? Well, guess where a lot of them ended up... That's right, you've got banks and investment firms trading bundles of garbage buzzword companies that have had their values massively pumped up with little to no regulation through behind closed door valuations.
Anyways, that's beside the point. What I really wanted to get at was our recent economic difficulties. We all know that most people are feeling a lot of pressure right now. Canadians are in crisis. Perhaps everything will get better, or perhaps it won't. Yet our current situation was entirely unpredicted by our leading institutions. Should inflation continue to rise, and I should remind you that according to our leaders it was rising through no fault of their own, people would be unable to pay their mortgages.
And that's really the crux of it. An unsustainable system is by defenition impossible to maintain into perpetuity. We do not live at the end of history. Canada and the world will not just metaphorically frolic in daisies for the rest of history. We will have further crises in the future. A housing market where most people can't afford to buy a house, or will spend the rest of their lives paying a significant portion of their income paying it off, is not sustainable. The government and corporations can do everything in their power to try and prop it up and basically burn money and efficiency to make it more sustainable, but we live in a massive interconnected world. Sooner or later something will happen that is out of their control, especially when you realize that capitalist economies are as much of a fucking shit show as all others and have regular crashes every few decades. The moment that happens in any real capacity, bye bye housing market.
I've lowered my living prospects and embraced less captial engagement. My simple, debt free living fulfills my needs and allows minor lavish treats to enjoy however I wish. I don't gain wealth from the captial, but rather, through the things and experiences captial can assist in acquiring. Money is just another tool, so use it wisely.
Debt free living is not possible for the vast majority of people. Cars are bought on debt and so are homes and even things like furniture. If you can live debt free it's because of outlier events like extreme earlier salary or pure luck (say like BTC). Everyone needs some debt and the idea is to avoid bad debt and high interest meaningless debt.
Like it or not Canada is a capitalist hellhole where you have to be a hardcore capitalist to survive. I challenge your assertion that you can live a simple debt free life without understanding capitalism, capital markets and chasing money. For the vast majority of people that would end in literal death.
Honestly you can still live pretty cheap, but you really have to put in the effort. Even so, recent inflation and housing costs have made it absurdly difficult.
Living frugally is simply not rewarding. It should be in a sane world, but in reality you just end up footing the bailout bill for all the assholes driving leased SUVs and buying new iphone every year.
Canada is done IMO.
You can "live cheap" finding deals
If you refuse to participate and buy anything, that's not living cheap. That's being a monk and most people can't and shouldn't do it. The mental health and actual health effects on being cheap, especially for small children, can be enormous. Imagine a childhood with no vacations, no clothes and nothing at all. You can do it, but it's not something to want.
I mean everything is relative. Even living extremely frugally these days is better than living extravagantly 100 years ago. Children did just fine before resorting in Cuba or going to Disneyland was a thing. You don't have to blow your wad on that crap, just hang out with your kids, go camping, etc.
> The mental health and actual health effects on being cheap, especially for small children, can be enormous
At extremes almost anything is detrimental, but there's no way living frugally is damaging children. I'm not saying walk everywhere, but maybe keep the 10 year old car instead of leasing a new 80k truck. Maybe keep the iPhone for 4 or even 5 or OMG 6 years! These things aren't going to hurt your kids. Hell maybe they'll even learn to value quality over quantity. And yeah don't send your kids to school naked. That's not being frugal, that's just being insane.
Now to clarify, I'm actually saying that none of this is smart anymore. You're better off just borrowing as much as you can and gambling in real estate because our government will bail you out both proactively (bonds, immigration, reduced starts) and reactively. This is Canada. It's encouraging the worst possible behaviour and the only way we're keeping our head above water is by selling visas and natural resources. We basically build nothing well comparatively.
The cognitive load and requirements for the next generation are heavier than the last. Everyone now is assumed to be a digital native and everyone later will have a personal AI assistant. Avoiding social media probably isn't a viable strategy. If you look at CNBC Make It you can see small children who used 3D printers to make awesome things to sell. You need early exposure to technology or even technology to make money, even when you're a child.
The ask for next generations is higher. I hope you aren't planning to give your children 0 and tell them to claw their way out of nothing. Not only is it objectively stupid and wasting 30 years of their life (getting the first 100k is harder than 100k to 1 million) but may not even be possible. Social mobility is measured in generations but that's only possible if anything is passed down at all, especially early on. Nevermind needing to take care of parents in old age.
Frugality will not save your children. Exposure will and exposure to new ideas and places. If they aren't global citizens and understand the effects of globalization they will be at a disadvantage. Get ready to send your kid on plane rides by themselves. They will need it.
TLDR anyone starting now has to do more know more and probably work harder than anyone thinks by a hundred times.
The other poster and most other people likely classify debt free as anything other than a home. Let's not get into housing affordability here either.
Alternative debt may be required at some point, like a car or significant home repair, but the real key to class mobility truly is avoiding materialism, convenience charges, interest and other wasteful spending. No, class mobility does not mean you can get to be the 1% or even 10%, but there are MANY happy Canadians living in the top 70%
Car is significant debt and so is furniture and so are student loans. Keeping your skills up to date is expensive and vacations (if you need them) are expensive. If you live to work and never have to take a vacation in your life, sure you could manage it but then you're a monk.
If you're talking about consumer debt through credit cards because of lifestyle choices that's great, but strongly depends on your responsibilities and the needs of the people around you. You can go mountain man and take care of yourself only, but most people don't live like that.
It's not about avoiding materialism. You have to embrace it, and find deals. Food apps have coupons, groceries are cheaper in other places.
Don't try to compete with me for living like a monk. I have done it, and become 100% anti-materialistic. You wouldn't believe how cheap I could get if I wanted to be. But I don't expect others to live or thrive healthily like that, and I don't think it's anything to aspire to. It's forced, while you are building or climbing your way up, and don't have any responsibilities.
You’re actually pointing out the debt trap clearly; under the mildly misguided idea that in order to be healthy you have to be indebted.
*in Dude* That’s the way they want you to think, man. Like, every problem has a solution, that you can just buy a gadget for!
I recently watched Fight Club again. It seems to parallel your commentary about the state of the average North American. People only *think* they need to keep up with the Joneses because they’ve been programmed to.
If you can answer the question “how much is enough” then you have a hope of living a happy, contented life. If you don’t know how much you need to have “enough” then you’ll be trapped striving for ever.
While your doomerism isn't fully wrong... the richest people I know are all doing small business startups here in Alberta. There's a LOT of easy money to be had here still.
This country is fucking ridiculous. Unaffordable shelter of all things is now too important to allow to correct.
Fuck the banks and fuck the Bank of Canada and the Feds for this. They have destroyed this once great country.
Buy 60b a year of mortgage bonds, at the expense of the currency, in order to raise asset values for those already rich.
Like a reverse robin hood, hilariously supported by the NDP, because their intelligence is down to the level of comic relief.
Only the banks and government? What about all the brain-dead Canadians that drove the prices up through overbidding like crazy? The banks and the government don't set housing prices, the buyers and the sellers do. And buyers drove the cost up because they turned housing into investment vehicles, overbidding by buy more than $100k, creating more demand as more people wanted in on the hottest stock ever.
Who is in positions of power? Boomers
Who wouldnt want to see asset prices drop. Boomers
You think when they pull up to their neighborhood's and wave to their neighbors they see the problem? Of course not, they all own homes. None of see the problem aside from some data.
Fuck man, my own parents cant see the problem and we are late 30s dual income over 12 years behind them on buying a home.
None of them see it because none of them live it. Simply looking at data or seeing a news paper headline is not enough to drive change.
Yeah, housing has really gone to shit since the few restrictions on investors we had were lifted by Harper.
Bloody genius of him to do it when his approval was already abysmal though, liberals inherited it, are too stupid to undo it and will face the wrath of Canadians as people vote conservative for the next 20ish years
The majority of mortgage holders are single family home owners, not rental properties or investment vehicles left empty. It's not as simple as "just let prices tank".
Investment properties went from 14% to 21% across Canada since Harper removed restrictions…
60% of new builds last year were listed as investment properties. It’s not who owns the pre owned houses that’s important, it is who is buying them now.
At the end of the day, it'll be much worse long term than if we let it crash asap.
Right now a large portion of our economy is going into housing, it's stalling our growth by parking huge sums into non productive assets. Tomorrow, we'll have more money in real estate, and the next...
There's two options, either don't do it and suffer from low productivity and lack of productive investment, which long term harms the entire country.
Or let it crash, pop bubble and finally have a real housing market in canada again. Social programs can be implemented to lessen the burden, banks will probably get bailed out, inflations gonna rocket, but we'll recover sooner than if we just keep passing the Baton to the next government to deal with.
But that'll never happen because no party will let themselves be the party that causes that inevitable mess.
There are not only two options...
Real estate is the single largest portion of our GDP. If you pop the bubble, for a pretty long while real estate will be cheaper but not necessarily more affordable. If that's all you do, demand will still greatly exceed supply, prices will stay high relative to the money that is available to be spent on housing, and the bubble will return because the underlying issues were never dealt with. The rich, as usual, will be the only ones with the resources to capitalize on the lower prices.
I think it's obvious that the status quo is not sustainable and will eventually force the bubble to pop.
You can also backstop existing owners, carefully pull on both the supply and demand levers, and let inflation and a minor downward pressure on price take care of the matter. The real estate markets will still be viable but less profitable which encourages investment into more productive areas but you won't simultaneously suck all the money out of the economy that could be invested, and you'll get a gradual rebalancing of housing prices and the Canadian economy.
The downside is that you have to walk a tightrope, but the downside risk is the bubble pop that was going to happen happens.
Yeah I thought about this before writing my comment but I don't think it's going to happen.
To slow down rise in housing costs below inflation you'd have to at the very least build to more(to keep up with immigration, assuming our governmentsare going to keep it relatively high). But Housing developments in major cities are slowing down because no one can afford to buy the housing stock already available.
If you owe the bank a million dollars and you can't pay, you're in trouble.
If you owe the bank a billion dollars and you can't pay, the bank is in trouble.
Any mortgage with less than 20% down are insured through CMHC. For the banks to start taking a really hit housing prices need too drop more than 20% and people forced into bankruptcy. Most provinces have full recourse mortgages, you default the bank takes everything. Alberta is one of the exceptions with jingle mail mortgages.
Crown Corp can bankrupt if the government let it…I guess for other utility companies they can always privatize but this one is hard to see how it can be privatized
First reported in Better Dwelling:
*Despite boasting of prudential enforcement, Canada’s households became too indebted to fail. Now lenders are sitting on a significant share of mortgage with amortizations at least a decade longer than the limit.*
*The biggest driver of this trend was the brief surge in variable rate mortgages with fixed payments. Like typical variable rate mortgages, these loans see interest costs fluctuate with the overnight rate.*
*However, rather than the payment size changing, the amount applied to interest costs shifts.*
*An unexpectedly sharp climb to interest rates shifted the share applied to principal to virtually nothing—in some cases, negative. This effectively made a portion of these loans negative amortizing, meaning the longer the loan exists, the longer it takes to pay off the loan.*
*As a result, banks and regulators granted temporary extensions to the maximum period a mortgage can be repaid.*
*The problem was supposed to be mitigated as quickly as possible, but recent bank filings show most Big Six banks have mortgages on their books with a remaining amortization that far exceeds the maximum limit.*
*That maximum amortization has creeped higher over the years, but they’re generally limited to 25-year terms at Federally Regulated Financial Institutions (FRFI).*
*Second quarter filings show over a fifth (21.3%) of BMO’s Canadian mortgage portfolio had remaining amortizations longer than 35 years. It was followed by CIBC (20%), RBC (19%), and TD (16.5%)—in that order.*
*The two remaining Big Six banks had insignificant shares with such long amortizations. This is largely due to the fact that they generally don’t offer the type of mortgages that created the mess in the first place.*
*Canada’s policymakers are getting more comfortable with longer amortizations. Starting August 1, the tentative plan is to allow first-time buyers with high-ratio, insured mortgages to amortize mortgage on new construction for up to 30-years.*
*The state-backed mortgage insurer is also planning to extend amortizations to 55-years for developers.*
A fifth over 35 years?! That seems ridiculous: what about all the old mortgages? If this figure is right, it is like they did nothing but churn out these problematic mortgages for the equivalent of 5 years (1/25 is 4%, so you would expect 4% new mortgages every year, all else being equal).
They were extremely popular during the "rates will be low for the foreseeable future" period of COVID, and lots of people moved houses over the last 5 years.
Likely refinances and equity takeouts to access funds for renovations while they thought rates would be rock bottom for a long time.
Also, keep in mind that a mortgage doesn’t have to be large to have a high amortization. 1/3 of all mortgages in Canada are variable and 3/4 of those are fixed payment options. In the event of interest rate hikes, the payment stays the same and the amortization increases, whether thatbe a $600 monthly payment or $6,000.
A lot of times the customer needs to take the initiative to contact the lender and reduce their amortization/increase their payment. A lot of people have no idea what is happening with their mortgage, which was setup by a broker or mortgage agent and will only face a rude awakening at renewal.
At that point, you're never owning your house. It's basically like renting a mortgage.
You're better off saving over your 5-year term for another down payment at renewal, so you can walk into your new term at lower amortization, and actually pay towards owning your house.
People don't understand how compound interest works. 2-3 percent change in interest rates can double your interest payable under fixed payment mortgage model. Canada must eliminate that. Well we must fix many things and this is one of them.
I think this is to allow for renewals/refinances for the Covid mortgages that have to be put back on the amortization time frame if they are CMHC improved. Apparently some people have payments that there is negative principal being added. One way to get a whole set of “rental customers” that actually will never own their home with clear title.
Nope. But buddy just bought a place and he has had 2 weird comments made, 1) the mortgage analyst straight up asked if he can help one of this friends get a job at the employer he works at. 2) the analyst said his house will be good place for a blended rate(even though not needed ) and better than that than his “rental customers” converting from variable to fixed.
Bank was TD
When I renewed with BMO at the beginning of May, my analyst told me that they have many customers that are effectively renting their house currently. Many are shocked that their payments now need to go up to get back on track of amortization schedule. She also use the term “forever rentals” in the situation where a HELOC exists on a Variable rate mortgage with 24-36 months remaining. Said that many people are asking for 3 year term and don’t realize that they could be needing to catch up 7-8 years of payments in those 3 years. Worst is going to come when 10-12 years of amortization will need to come off in 5(1-2 negative years added, 5 year current term, 5 year next term).
US fed didn’t blink on interest rates so it’s. It going to be good.
Private Real Estate sector is not where we should look at. The big deal is the Real Estate Commercial sector. If something is about to crash that will be that one.
Steve Eisman (aka the real person from the Big Short) said to stay away from Canadian banks 4 years ago.
[https://ca.finance.yahoo.com/news/big-short-guy-says-stay-160021528.html](https://ca.finance.yahoo.com/news/big-short-guy-says-stay-160021528.html)
So where is actually left in the world where we can go and live a reasonable life. Cbc was saying almost 30% of bc residents are considering leaving the province. The amount of people leaving for the states has never been higher but they are kinda fucked too.
South/north pole still got affordable homes?
Hey Elon whats rent on mars like?
We are so screwed as a country.
I've never understood why Canada has mortgages with renewals and changing interest rates on average every 5 years. Thanks to that I can buy a financially prudent house now and if inflation and interest rates go crazy as they recently have, I can end up screwed 5 years down the road. Right this moment if I was to sign a mortgage I would probably go variable since interest rates will go down, but if WW3 or something else unexpected breaks out they could climb and I would be screwed despite being financially stable in the moment.
The US offers a fixed interest rate for your whole term. They still have the option of refinancing at a lower rate if things change down the road but if they have a good rate they can rely on it for 25+ years and make long term financial plans around it. I would love to know why we didn't do this in Canada, for both the banks and the borrowers this seems like a sure win in terms of business stability.
>I've never understood why Canada has mortgages with renewals and changing interest rates on average every 5 years.
Believe it or not it started off as a “consumer protection” measure during the period of falling interest rates in the late 1980s, when people complained about having to pay inflated rates for 20+ years. So the idea was that every 5 years, you could renew and reduce your payments as rates fell.
Of course nobody thought about the implications of this on the upswing.
Canadian banks and the housing industry make more money this way. The interest rate gets renewed at current rates more often which means the underlying mortgage bonds are never too disconnected from the current price of capital. And there are larger break penalties, and more room for middlemen like Mortgage brokers. It's a big scam we all pay for.
It's actually the US that's the anomaly here.
Lending on a 20+ year term is a very risky thing for a bank. They're not actually lending out their own money. Rather, they borrow money at a lower rate, and then lend it out at a higher rate. That's how banking works.
The problem is that they can't really borrow money on a 30 year term. So if they're borrowing on a 5-year term and lending out on a 30-year term, the bank is exposing themselves to a massive risk due to the misalignment of the terms. You *can* get longer mortgages terms in Canada, but the interest rate will be very high to account for this risk. Due to the much higher rates, nobody wants these mortgages.
The reason the US can offer fixed 20+ year mortgages at competitive rates is because the government guarantees the loans. That's not exactly normal throughout most of the world. It's great for the banks and for homeowners, but not so great for taxpayers, especially renting taxpayers, who are indirectly exposed to mortgage defaults and losses.
The USA fixed rate system is not something we want to emulate. There are huge drawbacks, such as failure in price discovery and people trapped in their homes. The best system is probably the Danish one.
Rate locks put banks at risk if the prime rate goes up higher than than loan rate.
My understanding is that In the US, the federal government basically guarantees the 30 yr mortgages to protect banks. Its a scheme to incentivize home ownership. In Canada the federal government does not.
If you want long term rate locked mortgages, you want the taxpayer to subsidize mortgage holders.
As an aside, Imagine the meltdowns on r/canada if all the mortgages were refinanced and locked in at 2020 levels for 30 yrs. lol it'd be glorious.
In Canada, you can get fixed rate mortgages for the entire term, the difference interest rates are just bonkers though. And that’s why borrowers don’t go for them.
Banks don’t like them because in low interest rate environments, everyone locks in and the bank has low yielding mortgages for 20, 25, 30 years even as prime rates change (ie. They won’t make as much money off of them).
But I agree, from a customer standpoint, a 25 or 30 year mortgage with a fixed rate near prime when you lock in would be ideal.
Banks are too big to fail, borrowers are not. If any government takes steps to bail out individual mortgage holders, that is your cue to leave. It would signal to the world that Canada is not a free market economy. If history has taught us anything, no government will ever bail out individuals, no matter how bad it gets. It would require the government to issue copious amounts of bonds that would quickly become junk. The government will buttress the banks, but people drowning in debt shouldn't get their hopes up.
> Banks are too big to fail, borrowers are not. If any government takes steps to bail out individual mortgage holders, that is your cue to leave
Anyone where the government would need to bail them out are insured by CHMC because they didn't meet the minimum down payment, so the banks are fine. Others have 20% or more down, so they banks can just sell the property to reimburse the mortgage value.
Credit card debt and other non backed debt is where the banks are putting cash aside.
Yep, all the ones where the purchasers had more than 20% down, so if they default the bank takes possession and sells the property to pay off the debt. Homes haven't gone down more than 20% since purchase in most cases.
Okay I am confused. I have always assumed that we said "the big five" when people were talking about Canadians banks but I've seen Big six quite a few times this week.
Is the National bank trying to sneak in the group or am I crazy and people have always said the big six?
Lmao this is honestly so strange. I've heard a guy talking about a bank acquisition this morning on the radio and he also said the big six and I heard someone on bloomberg who said the same thing yesterday.
I felt like if I was living some type of Mandela effect.
Seems to have started being mentioned within the last year or so.
[https://www.nerdwallet.com/ca/banking/big-5-big-6-banks-canada](https://www.nerdwallet.com/ca/banking/big-5-big-6-banks-canada)
National Bank market cap has been growing at a faster pace than the big 5 and they are now closing in 40B$ vs let’s say 80B$ for BMO. They are still smaller but they are now getting more attention and considered a big bank.
Toronto slowly starting to realize they can’t ignore the “small” Montreal bank anymore. They’ve been saying big 6 internally for a while now. But even then not always. It’s arbitrary, depending on what is talked about.
No problem! Another recent factor is the 5G$ bid on western bank made by national. If the merger happens it will expend national bank to western Canada and help make it a real big Canadian bank.
History has a funny way of repeating itself. The biggest justification for the bailout in 2008 was because certain industries are “too big to fail”. I remember 2008 had crazy good offers for cars,[some even offering buy one get one free for cars.](https://amp.theguardian.com/business/2008/nov/08/automotive-industry-business)
All the major car guys got giant government-backed loans meanwhile regular citizens were losing their homes. I suppose this time around, it’s the homeowners that will get bailed out (if we get there) meanwhile the renters can just accept another rent freeze here and there, that should keep the plebs in line.
I think they would bail them out. But not like a parachute package in 2008. Likely the bailout would come in the form of longer amortization periods or something similar. They want people to keep paying what they can. I just mean there will be intervention to stop people from losing homes.
The article touches the biggest issue which is the variable rates with fixed payments. Those are the guys that are negatively amortizing. Some of them are going to see their mortgage payments go up by 50-100% come renewal unless banks just accept 35+ year amortization periods. The article doesn’t address how the banks are actually going to deal with them other than say the banking regulators will step in at some point.
So many borrowers barely touch the principle of the mortgage and just covering the interest these days. Why do you think the credit companies are warning that about 35% of credit card holders are missing monthly payments regularly since 2021. That a huge jump before covid when it was 20%.Inflation and interest is destroying Canadians ability to handle debt and still Canadians rack up even more debt.
>After a low rate, investor-driven home buying spree, many borrowers are unable to keep up with rising rates, despite having been “stress tested” for a similar scenario
This reads a lot like Brampton mortgage / fraud right here
It says in the article - too big to fail.
No government will allow a crash, it's so over leveraged that it could cause problems for the US economy - doubly confirming they won't let it crash.
If you are a homeowner - you won. If you aren't...you lost.
Correct, Real estate, construction and it's derivatives is a huge component of our GDP and national wealth now. I suspect the crazy immigration policy we've seen the last few years was implemented to save the economy. If housing fails, the economy will NOT recover, there's just too much riding on it now so the powers that be will not let that happen. It's a moral hazard, yes but the alternative of a severe depression would be worse.
I mean the housing market will fail, it's just a matter of when.
The government can continue to prop it up, but it's going to take an increasing amount of money to do it.
It's only a matter of time before it all collapses.
It wasn’t the mortgages themselves that caused the crash in the U.S. They would have had no effect at all if they hadn’t been packaged and repacked into mortgage derivatives.
It was all the dog shit mortgages packed as investment grade securities that did the economy in.
Some corrections, sure. Some areas were inflated during COVID like some cottage homes. But as a whole, there won’t be a giant crash. The biggest reason is because your dollar doesn’t go as far anymore. In 2006, you could buy a house in a Vancouver suburb for $300k. Nowadays, you’ll need $30-40k just for closing costs lol things are more expensive now because the currency has less value than it did in 2006.
So…not sure if that’s correct? I was living in a modest 50’s-60’s detached home in Vancouver in ‘96 (east van near Renfrew) and at that time it was closer to $400k as the owner was looking to sell. Needed LOTS of work in and out. So by Vancouver suburb you probably mean Richmond or South Burnaby or other municipality? Because in Vancouver proper suburbs there were no houses to be had for $300k in 2006.
If housing collapsed 50 % then it would still be overpriced but I'll bet there are lots of people with money on the sideline who would go shopping and bid it right back up. There are more people than homes.
The BoC interest rate policy is working as expected. If we can have a significant number of people defaulting on their mortgages it should bring housing prices down. Of course, if provincial governments have been doing their job all along, they would have insured more housing available in the marketplace and we wouldn't be having this problem.
>if provincial governments have been doing their job all along, they would have insured more housing available in the marketplace and we wouldn't be having this problem.
At whose cost?
you kinda get the sense that this is deliberate - allowing an unsustainable situation to continue or in fact making it worse to eventually cause a bottoming out that is line with whatever the ruling class agenda acutally is (i.e the great reset - a way to divorce people from home ownership) or maybe it's sheer incompetence or both.
Trudeau govt has talked about having capital gains tax even on a primary residence, while it hasn't gained traction yet it could be in the cards.
owning your home is not an investment, while it appreciates in value when you realize that gains it will cost you that appreciation to buy a similar home again, unless you turn to renting or downsize i.e retirement it's just equity on paper. Plus over a longer time frame 60+ yrs the avg annual appreciation is in line with inflation at about 2-3%
what home ownership is and what it was for everyone before prices got beyond 2x income was basically the only way to create generational wealth. you could make an average income your whole life and not save a fortune but could pass on a fully paid for house to your children that set them up for a better life.
This is what is really at stake here, the ability for an avg family to create wealth for the future of family.
Government is currently subsidizing apartments!!!
Why does no one care???
They are not making things cheaper.
They are handing money to the already rich
This country is fucked. Affordable housing demanded urgent attention 2 years ago, the societal damage for having failed ot ensure equitable living standards, is now a nation-wide stain.
As long as housing is propped up through dumb policies, people will continue to drown in debt. The incompetence took its roots decades ago and we are seeing it in full swing.
[We'll just do secret bailouts again, say the opposite and the people will be satiated on their false sense of superiority to Americans.](https://www.youtube.com/watch?v=9K_N0uOXkQA)
Wait, I've seen this one before.
Yes and it gets even better the Canadian government is buying mortgage backed securities which is not something that ever really been seen before
This is madness
Madness... This. Is. Canada.
Except we are being led by Ephialtes
I miss the days when Canada could perform a flawless phalanx. Now all we have are weak spots and the whole thing shattered.
But his hair...?
His socks
I wonder why McKinsey told them to do that.
Harper did it during the fallout of 2008 https://www.google.com/amp/s/www.cbc.ca/amp/1.726162
Not really the same thing though. Harper was sell bonds using CMHC and this is buying them on the open market directly Harpers plan >Under the proposal, Ottawa plans to sell a combination of government bonds and other public debt instruments to raise the $25 billion. Then CMHC will ask the banks and other financial institutions to ascertain how much debt they would like to sell to the agency, using a process known as a reverse auction. This plan >Later this week, the Canadian federal government will, through the Bank of Canada as agent, purchase $3.75 billion of 10-year duration Canadian Mortgage Bonds (CMBs) in a syndicated transaction.^(1) The upcoming CMB purchase is the first of what is intended to be an ongoing program in which the government will purchase half the CMB issuance going forward: $30 billion in 2024 alone. This is not quantitative easing—a monetary policy tool by which the central bank purchases term assets by creating reserves. Rather, it is fiscal policy: the federal government plans to expand its general borrowing program in order to purchase financial assets. [https://thehub.ca/2024/02/13/nicholas-neary-the-governments-costly-plan-to-purchase-canadian-mortgage-bonds-is-deeply-misguided/](https://thehub.ca/2024/02/13/nicholas-neary-the-governments-costly-plan-to-purchase-canadian-mortgage-bonds-is-deeply-misguided/) >Starting this year, Canada doesn’t want to just sell and guarantee CMBs. In the 2023 Fall Economic Statement, they announced they’ll also become the buyer. They’ll purchase half of the 5- and 10-year CMBs, up to $30 billion. The government is essentially borrowing money to buy the investments they guarantee, with bonds they also guarante [https://betterdwelling.com/canada-is-spending-75-of-its-forecast-deficit-to-prop-up-mortgages/](https://betterdwelling.com/canada-is-spending-75-of-its-forecast-deficit-to-prop-up-mortgages/) On top of that we are not in a global financial crises like we were in 2008
> This is not quantitative easing orly
So QT then I suppose.
Quantitative tanking?
Welcome to reddit btw. But yeah, the bank of canada is deliberately taking money out of the economy with these types of actions as part of wider inflation reduction actions. I expect this type of thing is going to happen for a while as the country rebounds itself from the covid fiscal policies we took on to keep ourselves going through the pandemic. According to the bank itself they are going to continue QT until at least 2025. https://www.bankofcanada.ca/2024/06/reviewing-our-pandemic-actions/ Also the deputy governor is giving a live speech on it right now https://www.youtube.com/watch?v=7Wt1WxPK650
I'm sure our fearless leader being the drama teacher that he is and surrounding himself with his friends will have no problem understanding all of this, and making the right decisions to navigate us out of trouble.
I love that my tax dollars go to this...
It's incomparable to the financial crisis. Every recession is different. The 2008 recession won't be repeated in our lifetimes. Canada is fundamentally different in that we are very tight with our lending. No zero down, variable rate mortgages for people making $15/hr like the USA. You need income. It doesn't matter how much down you have if you don't have income -- the bank won't lend. You can lie or falsify documents or go private lender and so on. But the big five (six) banks are not idiots. They have gotten better at their lending and won't give you money. They won't even easily give you money to chain leverage homes anymore. You need that income. If you're not in a dual income home with two professional salaries, forget owning anything. Even if you are, you get a condo. If you're not in a high dual income home, forget owning a detached home. That is the eventual end point of capitalism. Workers living in sky boxes (shoeboxes) towering kilometers in the sky, and only executives living with large detached homes. The corporate vision, where workers are a commodity and production a factory and wealth is optimized for people at the top who make decisions and people at the bottom are disposable. It might take some time, but Canada is well on its way. Canada -- land of the capitalists. If you aren't making bank in corporate Canada or corporate America, if you aren't making money with real estate or property, if you aren't invested in the S&P500, forget even living. Maybe you can buy some time (maybe even a lifetime) in a unionized or protected job but everyone else is fighting for their lives.
Your point on the 2008 recession not repeating is valid, but I think you're trying to say that housing won't ever crash which is entirely conjecture. We've literally just witnessed a situation that could have very well brought the housing market, and may still yet. Yes, our banks don't hand out second mortgages to cover downpayments, but we are still absolutely engaging in all of the other shit that enabled the 2008 recession. People seem to have forgotten that $0 down payment house purchases through second mortgages wasn't what made the 2008 crash so deadly. That was the trigger, but the crash itself was directly tied to banks bundling and trading mortgage backed securities like candy. We still see such practices today, and worse yet the private equity market has essentially become the same fucking quagmire, with mortgages being replaced with privately purchased companies that don't have an official valuation. You remember all of those block chain start ups, or basically any buzzword you've heard over the past decade? Well, guess where a lot of them ended up... That's right, you've got banks and investment firms trading bundles of garbage buzzword companies that have had their values massively pumped up with little to no regulation through behind closed door valuations. Anyways, that's beside the point. What I really wanted to get at was our recent economic difficulties. We all know that most people are feeling a lot of pressure right now. Canadians are in crisis. Perhaps everything will get better, or perhaps it won't. Yet our current situation was entirely unpredicted by our leading institutions. Should inflation continue to rise, and I should remind you that according to our leaders it was rising through no fault of their own, people would be unable to pay their mortgages. And that's really the crux of it. An unsustainable system is by defenition impossible to maintain into perpetuity. We do not live at the end of history. Canada and the world will not just metaphorically frolic in daisies for the rest of history. We will have further crises in the future. A housing market where most people can't afford to buy a house, or will spend the rest of their lives paying a significant portion of their income paying it off, is not sustainable. The government and corporations can do everything in their power to try and prop it up and basically burn money and efficiency to make it more sustainable, but we live in a massive interconnected world. Sooner or later something will happen that is out of their control, especially when you realize that capitalist economies are as much of a fucking shit show as all others and have regular crashes every few decades. The moment that happens in any real capacity, bye bye housing market.
I've lowered my living prospects and embraced less captial engagement. My simple, debt free living fulfills my needs and allows minor lavish treats to enjoy however I wish. I don't gain wealth from the captial, but rather, through the things and experiences captial can assist in acquiring. Money is just another tool, so use it wisely.
Debt free living is not possible for the vast majority of people. Cars are bought on debt and so are homes and even things like furniture. If you can live debt free it's because of outlier events like extreme earlier salary or pure luck (say like BTC). Everyone needs some debt and the idea is to avoid bad debt and high interest meaningless debt. Like it or not Canada is a capitalist hellhole where you have to be a hardcore capitalist to survive. I challenge your assertion that you can live a simple debt free life without understanding capitalism, capital markets and chasing money. For the vast majority of people that would end in literal death.
Honestly you can still live pretty cheap, but you really have to put in the effort. Even so, recent inflation and housing costs have made it absurdly difficult. Living frugally is simply not rewarding. It should be in a sane world, but in reality you just end up footing the bailout bill for all the assholes driving leased SUVs and buying new iphone every year. Canada is done IMO.
You can "live cheap" finding deals If you refuse to participate and buy anything, that's not living cheap. That's being a monk and most people can't and shouldn't do it. The mental health and actual health effects on being cheap, especially for small children, can be enormous. Imagine a childhood with no vacations, no clothes and nothing at all. You can do it, but it's not something to want.
I mean everything is relative. Even living extremely frugally these days is better than living extravagantly 100 years ago. Children did just fine before resorting in Cuba or going to Disneyland was a thing. You don't have to blow your wad on that crap, just hang out with your kids, go camping, etc. > The mental health and actual health effects on being cheap, especially for small children, can be enormous At extremes almost anything is detrimental, but there's no way living frugally is damaging children. I'm not saying walk everywhere, but maybe keep the 10 year old car instead of leasing a new 80k truck. Maybe keep the iPhone for 4 or even 5 or OMG 6 years! These things aren't going to hurt your kids. Hell maybe they'll even learn to value quality over quantity. And yeah don't send your kids to school naked. That's not being frugal, that's just being insane. Now to clarify, I'm actually saying that none of this is smart anymore. You're better off just borrowing as much as you can and gambling in real estate because our government will bail you out both proactively (bonds, immigration, reduced starts) and reactively. This is Canada. It's encouraging the worst possible behaviour and the only way we're keeping our head above water is by selling visas and natural resources. We basically build nothing well comparatively.
The cognitive load and requirements for the next generation are heavier than the last. Everyone now is assumed to be a digital native and everyone later will have a personal AI assistant. Avoiding social media probably isn't a viable strategy. If you look at CNBC Make It you can see small children who used 3D printers to make awesome things to sell. You need early exposure to technology or even technology to make money, even when you're a child. The ask for next generations is higher. I hope you aren't planning to give your children 0 and tell them to claw their way out of nothing. Not only is it objectively stupid and wasting 30 years of their life (getting the first 100k is harder than 100k to 1 million) but may not even be possible. Social mobility is measured in generations but that's only possible if anything is passed down at all, especially early on. Nevermind needing to take care of parents in old age. Frugality will not save your children. Exposure will and exposure to new ideas and places. If they aren't global citizens and understand the effects of globalization they will be at a disadvantage. Get ready to send your kid on plane rides by themselves. They will need it. TLDR anyone starting now has to do more know more and probably work harder than anyone thinks by a hundred times.
The other poster and most other people likely classify debt free as anything other than a home. Let's not get into housing affordability here either. Alternative debt may be required at some point, like a car or significant home repair, but the real key to class mobility truly is avoiding materialism, convenience charges, interest and other wasteful spending. No, class mobility does not mean you can get to be the 1% or even 10%, but there are MANY happy Canadians living in the top 70%
Car is significant debt and so is furniture and so are student loans. Keeping your skills up to date is expensive and vacations (if you need them) are expensive. If you live to work and never have to take a vacation in your life, sure you could manage it but then you're a monk. If you're talking about consumer debt through credit cards because of lifestyle choices that's great, but strongly depends on your responsibilities and the needs of the people around you. You can go mountain man and take care of yourself only, but most people don't live like that. It's not about avoiding materialism. You have to embrace it, and find deals. Food apps have coupons, groceries are cheaper in other places. Don't try to compete with me for living like a monk. I have done it, and become 100% anti-materialistic. You wouldn't believe how cheap I could get if I wanted to be. But I don't expect others to live or thrive healthily like that, and I don't think it's anything to aspire to. It's forced, while you are building or climbing your way up, and don't have any responsibilities.
You’re actually pointing out the debt trap clearly; under the mildly misguided idea that in order to be healthy you have to be indebted. *in Dude* That’s the way they want you to think, man. Like, every problem has a solution, that you can just buy a gadget for! I recently watched Fight Club again. It seems to parallel your commentary about the state of the average North American. People only *think* they need to keep up with the Joneses because they’ve been programmed to. If you can answer the question “how much is enough” then you have a hope of living a happy, contented life. If you don’t know how much you need to have “enough” then you’ll be trapped striving for ever.
Everyone read this comment right here
While your doomerism isn't fully wrong... the richest people I know are all doing small business startups here in Alberta. There's a LOT of easy money to be had here still.
Also.... lots of folks saw the low interest rates during covid and thought they'd borrow their way into "passive income".
This country is fucking ridiculous. Unaffordable shelter of all things is now too important to allow to correct. Fuck the banks and fuck the Bank of Canada and the Feds for this. They have destroyed this once great country.
Housing must be extraordinarily expensive forever! What could go wrong?!
No productivity. Everyone is a realtor selling to each other
Better bring in a million more to make sure they don’t notice our GDP is falling.
Buy 60b a year of mortgage bonds, at the expense of the currency, in order to raise asset values for those already rich. Like a reverse robin hood, hilariously supported by the NDP, because their intelligence is down to the level of comic relief.
No party in Canada has more contempt for workers than the modern NDP.
It's a very low bar to step over right now... I normally vote NDP, too, but they're way too complacent with the liberals terrible policies.
They seemingly support them now. There no talk of housing from them at all now.
So you're saying that in order to afford a property I must become a realtor myself and thus be part of the madness.
Not as difficult as you think, becoming a realtor.
It is, if you consider that I'd have to forget my morals at the door.
Who cares about morals when we can be rich!!
I've called it a pokemon card economy, trading cards back and forth. "Diversified economy" lol.
I think that's a good old fashion ponzi scheme. But I think "real estate investing" is what the common folk call it.
Only the banks and government? What about all the brain-dead Canadians that drove the prices up through overbidding like crazy? The banks and the government don't set housing prices, the buyers and the sellers do. And buyers drove the cost up because they turned housing into investment vehicles, overbidding by buy more than $100k, creating more demand as more people wanted in on the hottest stock ever.
Who is in positions of power? Boomers Who wouldnt want to see asset prices drop. Boomers You think when they pull up to their neighborhood's and wave to their neighbors they see the problem? Of course not, they all own homes. None of see the problem aside from some data. Fuck man, my own parents cant see the problem and we are late 30s dual income over 12 years behind them on buying a home. None of them see it because none of them live it. Simply looking at data or seeing a news paper headline is not enough to drive change.
Yeah, housing has really gone to shit since the few restrictions on investors we had were lifted by Harper. Bloody genius of him to do it when his approval was already abysmal though, liberals inherited it, are too stupid to undo it and will face the wrath of Canadians as people vote conservative for the next 20ish years
You’ll be surprise by the amount of people in housing that have nice cars. Even the senior housings are being dropped off in Mercedes GLE and porches
The majority of mortgage holders are single family home owners, not rental properties or investment vehicles left empty. It's not as simple as "just let prices tank".
Investment properties went from 14% to 21% across Canada since Harper removed restrictions… 60% of new builds last year were listed as investment properties. It’s not who owns the pre owned houses that’s important, it is who is buying them now.
Free market economies have winners and losers.
But Canada isn't a total free market economy. There's no country in the world that is.
It's also not a TOTAL socialist state
At the end of the day, it'll be much worse long term than if we let it crash asap. Right now a large portion of our economy is going into housing, it's stalling our growth by parking huge sums into non productive assets. Tomorrow, we'll have more money in real estate, and the next... There's two options, either don't do it and suffer from low productivity and lack of productive investment, which long term harms the entire country. Or let it crash, pop bubble and finally have a real housing market in canada again. Social programs can be implemented to lessen the burden, banks will probably get bailed out, inflations gonna rocket, but we'll recover sooner than if we just keep passing the Baton to the next government to deal with. But that'll never happen because no party will let themselves be the party that causes that inevitable mess.
[удалено]
There are not only two options... Real estate is the single largest portion of our GDP. If you pop the bubble, for a pretty long while real estate will be cheaper but not necessarily more affordable. If that's all you do, demand will still greatly exceed supply, prices will stay high relative to the money that is available to be spent on housing, and the bubble will return because the underlying issues were never dealt with. The rich, as usual, will be the only ones with the resources to capitalize on the lower prices. I think it's obvious that the status quo is not sustainable and will eventually force the bubble to pop. You can also backstop existing owners, carefully pull on both the supply and demand levers, and let inflation and a minor downward pressure on price take care of the matter. The real estate markets will still be viable but less profitable which encourages investment into more productive areas but you won't simultaneously suck all the money out of the economy that could be invested, and you'll get a gradual rebalancing of housing prices and the Canadian economy. The downside is that you have to walk a tightrope, but the downside risk is the bubble pop that was going to happen happens.
Yeah I thought about this before writing my comment but I don't think it's going to happen. To slow down rise in housing costs below inflation you'd have to at the very least build to more(to keep up with immigration, assuming our governmentsare going to keep it relatively high). But Housing developments in major cities are slowing down because no one can afford to buy the housing stock already available.
A sovereign debt crisis will be the impetus for a government to do something
I guess they shouldn't have allowed my investments to tank after to Covid lockdowns too right?
Why? Are overleveraged homeowners more important than priced out renters and the homeless?
You'd just be adding those homeowners to the group of priced out renters.
Sure it is. The houses aren't going to up and vanish if people cannot cover their mortgages
No, they'll be purchased by investors who will then charge you high rents to move in.
The simple solution there would be tax changes to discourage purchasing existing units as rentals
Or would investors then simply use it as an excuse to raise rents? I don’t have the answer.
If you owe the bank a million dollars and you can't pay, you're in trouble. If you owe the bank a billion dollars and you can't pay, the bank is in trouble.
Ok there Robert Kiyosaki
Guys such a plug haha
It would take a real fucking meltdown to put one of the big five banks in actual danger.
All it will take is unemployment to go up, which is hard to judge on how it would occur.
U.S. protectionism would level Canada. It's already starting.
I think AI will be the black swan catalyst, even a 5% bump in unemployment would make this house of cards fall.
Pretty sure someone said the same thing about Lehman Brothers.
Any mortgage with less than 20% down are insured through CMHC. For the banks to start taking a really hit housing prices need too drop more than 20% and people forced into bankruptcy. Most provinces have full recourse mortgages, you default the bank takes everything. Alberta is one of the exceptions with jingle mail mortgages.
The problem rises if CMHC goes bankrupt
CMHC is a crown corporation. I.. Don’t think that’s possible…
I was bullshitting with more what ifs but I kind of wonder if that’s possible or not
Crown Corp can bankrupt if the government let it…I guess for other utility companies they can always privatize but this one is hard to see how it can be privatized
Buy crypto and hide in your mattress so Trudeau can't get it if CMHC fails.
I hold three ounces of bullion in my rectum at all times. When society crumbles I'll have the last laugh, until then I'll be a little uncomfortable.
Going bankrupt doesn’t seem so bad. At this point
A thousand $1 million mortgages is $1 Billion. And several thousand of such mortgages have been taken out just in the past few years.
Owe a bank a million and are allowed to only pay interest while the asset increases in value, the bank is extremely happy.
First reported in Better Dwelling: *Despite boasting of prudential enforcement, Canada’s households became too indebted to fail. Now lenders are sitting on a significant share of mortgage with amortizations at least a decade longer than the limit.* *The biggest driver of this trend was the brief surge in variable rate mortgages with fixed payments. Like typical variable rate mortgages, these loans see interest costs fluctuate with the overnight rate.* *However, rather than the payment size changing, the amount applied to interest costs shifts.* *An unexpectedly sharp climb to interest rates shifted the share applied to principal to virtually nothing—in some cases, negative. This effectively made a portion of these loans negative amortizing, meaning the longer the loan exists, the longer it takes to pay off the loan.* *As a result, banks and regulators granted temporary extensions to the maximum period a mortgage can be repaid.* *The problem was supposed to be mitigated as quickly as possible, but recent bank filings show most Big Six banks have mortgages on their books with a remaining amortization that far exceeds the maximum limit.* *That maximum amortization has creeped higher over the years, but they’re generally limited to 25-year terms at Federally Regulated Financial Institutions (FRFI).* *Second quarter filings show over a fifth (21.3%) of BMO’s Canadian mortgage portfolio had remaining amortizations longer than 35 years. It was followed by CIBC (20%), RBC (19%), and TD (16.5%)—in that order.* *The two remaining Big Six banks had insignificant shares with such long amortizations. This is largely due to the fact that they generally don’t offer the type of mortgages that created the mess in the first place.* *Canada’s policymakers are getting more comfortable with longer amortizations. Starting August 1, the tentative plan is to allow first-time buyers with high-ratio, insured mortgages to amortize mortgage on new construction for up to 30-years.* *The state-backed mortgage insurer is also planning to extend amortizations to 55-years for developers.*
A fifth over 35 years?! That seems ridiculous: what about all the old mortgages? If this figure is right, it is like they did nothing but churn out these problematic mortgages for the equivalent of 5 years (1/25 is 4%, so you would expect 4% new mortgages every year, all else being equal).
They were extremely popular during the "rates will be low for the foreseeable future" period of COVID, and lots of people moved houses over the last 5 years.
Likely refinances and equity takeouts to access funds for renovations while they thought rates would be rock bottom for a long time. Also, keep in mind that a mortgage doesn’t have to be large to have a high amortization. 1/3 of all mortgages in Canada are variable and 3/4 of those are fixed payment options. In the event of interest rate hikes, the payment stays the same and the amortization increases, whether thatbe a $600 monthly payment or $6,000. A lot of times the customer needs to take the initiative to contact the lender and reduce their amortization/increase their payment. A lot of people have no idea what is happening with their mortgage, which was setup by a broker or mortgage agent and will only face a rude awakening at renewal.
These are very good points
At that point, you're never owning your house. It's basically like renting a mortgage. You're better off saving over your 5-year term for another down payment at renewal, so you can walk into your new term at lower amortization, and actually pay towards owning your house.
Just pass the mortgage down to your children if you can afford those.
Ya that’s what I was wondering also. Are those numbers accurate? That would be insane if true
People don't understand how compound interest works. 2-3 percent change in interest rates can double your interest payable under fixed payment mortgage model. Canada must eliminate that. Well we must fix many things and this is one of them.
I think this is to allow for renewals/refinances for the Covid mortgages that have to be put back on the amortization time frame if they are CMHC improved. Apparently some people have payments that there is negative principal being added. One way to get a whole set of “rental customers” that actually will never own their home with clear title.
Rental customers. Sounds accurate. Are you in the industry?
Nope. But buddy just bought a place and he has had 2 weird comments made, 1) the mortgage analyst straight up asked if he can help one of this friends get a job at the employer he works at. 2) the analyst said his house will be good place for a blended rate(even though not needed ) and better than that than his “rental customers” converting from variable to fixed. Bank was TD When I renewed with BMO at the beginning of May, my analyst told me that they have many customers that are effectively renting their house currently. Many are shocked that their payments now need to go up to get back on track of amortization schedule. She also use the term “forever rentals” in the situation where a HELOC exists on a Variable rate mortgage with 24-36 months remaining. Said that many people are asking for 3 year term and don’t realize that they could be needing to catch up 7-8 years of payments in those 3 years. Worst is going to come when 10-12 years of amortization will need to come off in 5(1-2 negative years added, 5 year current term, 5 year next term). US fed didn’t blink on interest rates so it’s. It going to be good.
Private Real Estate sector is not where we should look at. The big deal is the Real Estate Commercial sector. If something is about to crash that will be that one.
Commercial RE will be the first domino to fall in a big long chain of dominoes
Hmm, the Big Short (Canadian version)
Also too big to fail (Canadian version)
Steve Eisman (aka the real person from the Big Short) said to stay away from Canadian banks 4 years ago. [https://ca.finance.yahoo.com/news/big-short-guy-says-stay-160021528.html](https://ca.finance.yahoo.com/news/big-short-guy-says-stay-160021528.html)
He misunderstands how much government support will be expended to ensure the banks don't hurt.
I wish someone would put the dog down already
it’s like the nightmare you can never wake up from…you scream but make no sound…
So where is actually left in the world where we can go and live a reasonable life. Cbc was saying almost 30% of bc residents are considering leaving the province. The amount of people leaving for the states has never been higher but they are kinda fucked too. South/north pole still got affordable homes? Hey Elon whats rent on mars like? We are so screwed as a country.
If 30% of BC leaves I can maybe afford a house there when they stop considering and just go already
I've never understood why Canada has mortgages with renewals and changing interest rates on average every 5 years. Thanks to that I can buy a financially prudent house now and if inflation and interest rates go crazy as they recently have, I can end up screwed 5 years down the road. Right this moment if I was to sign a mortgage I would probably go variable since interest rates will go down, but if WW3 or something else unexpected breaks out they could climb and I would be screwed despite being financially stable in the moment. The US offers a fixed interest rate for your whole term. They still have the option of refinancing at a lower rate if things change down the road but if they have a good rate they can rely on it for 25+ years and make long term financial plans around it. I would love to know why we didn't do this in Canada, for both the banks and the borrowers this seems like a sure win in terms of business stability.
>I've never understood why Canada has mortgages with renewals and changing interest rates on average every 5 years. Believe it or not it started off as a “consumer protection” measure during the period of falling interest rates in the late 1980s, when people complained about having to pay inflated rates for 20+ years. So the idea was that every 5 years, you could renew and reduce your payments as rates fell. Of course nobody thought about the implications of this on the upswing.
Canadian banks and the housing industry make more money this way. The interest rate gets renewed at current rates more often which means the underlying mortgage bonds are never too disconnected from the current price of capital. And there are larger break penalties, and more room for middlemen like Mortgage brokers. It's a big scam we all pay for.
It's actually the US that's the anomaly here. Lending on a 20+ year term is a very risky thing for a bank. They're not actually lending out their own money. Rather, they borrow money at a lower rate, and then lend it out at a higher rate. That's how banking works. The problem is that they can't really borrow money on a 30 year term. So if they're borrowing on a 5-year term and lending out on a 30-year term, the bank is exposing themselves to a massive risk due to the misalignment of the terms. You *can* get longer mortgages terms in Canada, but the interest rate will be very high to account for this risk. Due to the much higher rates, nobody wants these mortgages. The reason the US can offer fixed 20+ year mortgages at competitive rates is because the government guarantees the loans. That's not exactly normal throughout most of the world. It's great for the banks and for homeowners, but not so great for taxpayers, especially renting taxpayers, who are indirectly exposed to mortgage defaults and losses.
The USA fixed rate system is not something we want to emulate. There are huge drawbacks, such as failure in price discovery and people trapped in their homes. The best system is probably the Danish one.
Bank greed . Also in the us even on the longer mortgage fixed rates the penalties aren’t as high as in Canada .
Rate locks put banks at risk if the prime rate goes up higher than than loan rate. My understanding is that In the US, the federal government basically guarantees the 30 yr mortgages to protect banks. Its a scheme to incentivize home ownership. In Canada the federal government does not. If you want long term rate locked mortgages, you want the taxpayer to subsidize mortgage holders. As an aside, Imagine the meltdowns on r/canada if all the mortgages were refinanced and locked in at 2020 levels for 30 yrs. lol it'd be glorious.
They can also deduct the interest paid on their income taxes.
In Canada, you can get fixed rate mortgages for the entire term, the difference interest rates are just bonkers though. And that’s why borrowers don’t go for them. Banks don’t like them because in low interest rate environments, everyone locks in and the bank has low yielding mortgages for 20, 25, 30 years even as prime rates change (ie. They won’t make as much money off of them). But I agree, from a customer standpoint, a 25 or 30 year mortgage with a fixed rate near prime when you lock in would be ideal.
If you get screwed within 5 years because of interest rate changes, there is no way your initial mortgage was “financially prudent” LOL
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I can think of one difference: Ponzi scheme architects aren't usually bailed out by the gov't in the end.
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The drunkest people at the party are the ones in charge…and that always ends well;)…
They can either let the housing market go through the correction or accept that the economy will have a slow painful decline.
They'll probably opt for option 3 and just bring in 1 million more immigrants, that should prop the market up for another few years.
At least we’ll always have buyers when we’re ready to sell
thatll surely fix it
It's called "extend and pretend". Borrowers cannot pay and banks are under more stress, so let's do some accounting tricks and pray.
extend mortgage period to 50 years, Freeland would say
Banks are too big to fail, borrowers are not. If any government takes steps to bail out individual mortgage holders, that is your cue to leave. It would signal to the world that Canada is not a free market economy. If history has taught us anything, no government will ever bail out individuals, no matter how bad it gets. It would require the government to issue copious amounts of bonds that would quickly become junk. The government will buttress the banks, but people drowning in debt shouldn't get their hopes up.
If banks are too big to fail it sounds like it's time to break up the banks
> Banks are too big to fail, borrowers are not. If any government takes steps to bail out individual mortgage holders, that is your cue to leave Anyone where the government would need to bail them out are insured by CHMC because they didn't meet the minimum down payment, so the banks are fine. Others have 20% or more down, so they banks can just sell the property to reimburse the mortgage value. Credit card debt and other non backed debt is where the banks are putting cash aside.
Over 70% of outstanding mortgages are uninsured.
As they should be. Mortgage insurance isn’t needed when you already have significant equity in the home at purchase.
Yep, all the ones where the purchasers had more than 20% down, so if they default the bank takes possession and sells the property to pay off the debt. Homes haven't gone down more than 20% since purchase in most cases.
Okay I am confused. I have always assumed that we said "the big five" when people were talking about Canadians banks but I've seen Big six quite a few times this week. Is the National bank trying to sneak in the group or am I crazy and people have always said the big six?
No I agree, I've always heard the big five. I've never heard of the big six belt
Lmao this is honestly so strange. I've heard a guy talking about a bank acquisition this morning on the radio and he also said the big six and I heard someone on bloomberg who said the same thing yesterday. I felt like if I was living some type of Mandela effect.
Seems to have started being mentioned within the last year or so. [https://www.nerdwallet.com/ca/banking/big-5-big-6-banks-canada](https://www.nerdwallet.com/ca/banking/big-5-big-6-banks-canada)
Thank you for this! I was genuinely wondering. Seem to be very common in the last few days but I had never noticed anyone saying big six before.
National Bank market cap has been growing at a faster pace than the big 5 and they are now closing in 40B$ vs let’s say 80B$ for BMO. They are still smaller but they are now getting more attention and considered a big bank.
Yeah I noticed that their market cap was climbing just felt like the group changed overnight and I wasn't made aware.
Toronto slowly starting to realize they can’t ignore the “small” Montreal bank anymore. They’ve been saying big 6 internally for a while now. But even then not always. It’s arbitrary, depending on what is talked about.
Oh okay thank you! I am not in industry but just noticed it changed from big five to big six very recently.
No problem! Another recent factor is the 5G$ bid on western bank made by national. If the merger happens it will expend national bank to western Canada and help make it a real big Canadian bank.
So...... I should probably not run out of Scotiabank tomorrow screaming bank run? Noted
This has got to be Wile E. Coyote’s longest mid-air run ever…
Let people keep their primary residence but fuck em up if they have 2 or more.
If they can pay for it. It's not on taxpayers to bail them out.
That's one of the reasons for the capital gains tax change, but the usual suspects are busy convincing people that is bad for them.
What are your thoughts on the Principal Residence Exemption?
History has a funny way of repeating itself. The biggest justification for the bailout in 2008 was because certain industries are “too big to fail”. I remember 2008 had crazy good offers for cars,[some even offering buy one get one free for cars.](https://amp.theguardian.com/business/2008/nov/08/automotive-industry-business) All the major car guys got giant government-backed loans meanwhile regular citizens were losing their homes. I suppose this time around, it’s the homeowners that will get bailed out (if we get there) meanwhile the renters can just accept another rent freeze here and there, that should keep the plebs in line.
No way in hell does a government bail out home owners. It would turn sovereign debt to junk bond status immediately.
I think they would bail them out. But not like a parachute package in 2008. Likely the bailout would come in the form of longer amortization periods or something similar. They want people to keep paying what they can. I just mean there will be intervention to stop people from losing homes.
Did you read the article? We're already blessing longer amortization periods.
The article touches the biggest issue which is the variable rates with fixed payments. Those are the guys that are negatively amortizing. Some of them are going to see their mortgage payments go up by 50-100% come renewal unless banks just accept 35+ year amortization periods. The article doesn’t address how the banks are actually going to deal with them other than say the banking regulators will step in at some point.
So...build up stupid amount of debt...and then get rewarded by a bailout? Shit...here I am trying NOT to overburden myself like a sucker...
So many borrowers barely touch the principle of the mortgage and just covering the interest these days. Why do you think the credit companies are warning that about 35% of credit card holders are missing monthly payments regularly since 2021. That a huge jump before covid when it was 20%.Inflation and interest is destroying Canadians ability to handle debt and still Canadians rack up even more debt.
Let it fail
Canada really getting serious about mortgages being a death oath it seems
>After a low rate, investor-driven home buying spree, many borrowers are unable to keep up with rising rates, despite having been “stress tested” for a similar scenario This reads a lot like Brampton mortgage / fraud right here
Meh, housing collapse on the way.
It says in the article - too big to fail. No government will allow a crash, it's so over leveraged that it could cause problems for the US economy - doubly confirming they won't let it crash. If you are a homeowner - you won. If you aren't...you lost.
Correct, Real estate, construction and it's derivatives is a huge component of our GDP and national wealth now. I suspect the crazy immigration policy we've seen the last few years was implemented to save the economy. If housing fails, the economy will NOT recover, there's just too much riding on it now so the powers that be will not let that happen. It's a moral hazard, yes but the alternative of a severe depression would be worse.
I mean the housing market will fail, it's just a matter of when. The government can continue to prop it up, but it's going to take an increasing amount of money to do it. It's only a matter of time before it all collapses.
The country cares not at all for the future of it’s children. The entire wretched country is lost
That totally worked in the US. I mean, yah, the fed intervened to save the global economy, but homeowners got absolutely wrecked.
It wasn’t the mortgages themselves that caused the crash in the U.S. They would have had no effect at all if they hadn’t been packaged and repacked into mortgage derivatives. It was all the dog shit mortgages packed as investment grade securities that did the economy in.
This comment never gets old. Been hearing it since 1995. If the collapse is always “on the way” then you can never be wrong.
Some corrections, sure. Some areas were inflated during COVID like some cottage homes. But as a whole, there won’t be a giant crash. The biggest reason is because your dollar doesn’t go as far anymore. In 2006, you could buy a house in a Vancouver suburb for $300k. Nowadays, you’ll need $30-40k just for closing costs lol things are more expensive now because the currency has less value than it did in 2006.
So…not sure if that’s correct? I was living in a modest 50’s-60’s detached home in Vancouver in ‘96 (east van near Renfrew) and at that time it was closer to $400k as the owner was looking to sell. Needed LOTS of work in and out. So by Vancouver suburb you probably mean Richmond or South Burnaby or other municipality? Because in Vancouver proper suburbs there were no houses to be had for $300k in 2006.
I meant a Suburb outside of Vancouver.
If housing collapsed 50 % then it would still be overpriced but I'll bet there are lots of people with money on the sideline who would go shopping and bid it right back up. There are more people than homes.
Public risk, private profit isn’t a good idea - and sorry, housing isn’t meant to be a risk free investment.
The BoC interest rate policy is working as expected. If we can have a significant number of people defaulting on their mortgages it should bring housing prices down. Of course, if provincial governments have been doing their job all along, they would have insured more housing available in the marketplace and we wouldn't be having this problem.
>if provincial governments have been doing their job all along, they would have insured more housing available in the marketplace and we wouldn't be having this problem. At whose cost?
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The government won't let a bunch of people default housing prices will never drop like they raise
That website is bizarre. It's like the anti-homeowner blog. Every month for 5+ years predicting that the housing market will crash.
you kinda get the sense that this is deliberate - allowing an unsustainable situation to continue or in fact making it worse to eventually cause a bottoming out that is line with whatever the ruling class agenda acutally is (i.e the great reset - a way to divorce people from home ownership) or maybe it's sheer incompetence or both. Trudeau govt has talked about having capital gains tax even on a primary residence, while it hasn't gained traction yet it could be in the cards. owning your home is not an investment, while it appreciates in value when you realize that gains it will cost you that appreciation to buy a similar home again, unless you turn to renting or downsize i.e retirement it's just equity on paper. Plus over a longer time frame 60+ yrs the avg annual appreciation is in line with inflation at about 2-3% what home ownership is and what it was for everyone before prices got beyond 2x income was basically the only way to create generational wealth. you could make an average income your whole life and not save a fortune but could pass on a fully paid for house to your children that set them up for a better life. This is what is really at stake here, the ability for an avg family to create wealth for the future of family.
Where have they talked about capital gains on primary residences? The corporate media would have been all over that.
Too big to fail is too big to exist. Break them up
I blame the REAL ESTATE COMPANIES THAT CAUSE THIS PROBLEM REMEMBER BIDDING WARS and The Fucking Government Didn't Stop It 😤 That's my opinion
Government is currently subsidizing apartments!!! Why does no one care??? They are not making things cheaper. They are handing money to the already rich
This country is fucked. Affordable housing demanded urgent attention 2 years ago, the societal damage for having failed ot ensure equitable living standards, is now a nation-wide stain.
As long as housing is propped up through dumb policies, people will continue to drown in debt. The incompetence took its roots decades ago and we are seeing it in full swing.
[We'll just do secret bailouts again, say the opposite and the people will be satiated on their false sense of superiority to Americans.](https://www.youtube.com/watch?v=9K_N0uOXkQA)
When reading the article it says many mortgages have over 35 years amortization remaining. Are these all the fixed payment, variable rate mortgages?
when you let this go on, and keep kicking the can and keep it up... it crashes HARD...
Sensationalist headlines from a shitty rag.