Over and over again we're being told how, "Canada is different". While other countries (most glaringly the United States) have suffered serious erosion in the value of real estate, Canada has largely dodged the bullet...SO FAR.
We don't have "no money down" mortgages is a familiar refrain.
Well...that is if you're willing to ignore 5% rebates offered by the big banks which allow those with zero savings to finance 100% of a home purchase. Want to purchase a $300,000 house and don't have $15,000 for a piddly 5% downpayment...not even in an RSP? No worries, in Canada you can stil buy a home without tappinig into any of your non existent savings.
Can't borrow enough for your dream home over a 25 year amortization? No worries, we'll make it 35 years and you can qualify for even more money. Afraid of a bidding war with other no money down first time buyers? Don't be!!! Go in 30 or 40k over the asking price, you don't want to miss out!!
$Kaching$ $Kaching$ $Kaching$
Every $500,000 home sold represents $25,000 in real estate commmisions at 5%. Mortgage brokers, RE lawyers, home inspectors, moving companies, builders, financial institutions...real estate is a multi billion dollar industry and the players want this party to go on as long as possible.
Those not completely lacking in common sense know the free drinks won't last forever, but let's keep the tap open while we can. The only thing that will change is the size of the hangover, but who thinks about a hangover when they're on their fifteenth drink?
So what are the proposed changes being bandied about?
Canadians are too indebted, that's reality. So our elected officials are talking about bringing back some of the lending rules our parents and grandparents had to live with.
-Scrapping 35 year ams which many are using to qualify for fatter mortgages. Amortizing a mortgage that long basically means renting debt for 15 years anyway.
-Raising down payment requirements. Imagine expecting those taking out a mortgage to have some skin in the game instead of allowing them to play with 100% (or damn close) of other people's money?
That's it, just two little changes and the Real Estate industry is in attack mode. Garth Turner's Blog of yesterday's date has a screen shot of a CREA letter the author claims to have obtained from friends in high places. (SEE IT HERE) The letter exhorts members to contact their MPs to protest any changes.
Here's another calling such moves "Draconian" (SEE IT HERE) by a mortgage broker.
Whether changes come or not everyone knows that no party lasts forever, and when people get as drunk on cheap money as we've become, a hangover is coming. Changes like the ones being advocated will only serve as aspirin, but aspirin does help a bit.