Do you know anyone who has recently bought a house with less than 20% down? I know a few myself, young twenty somethings with decent but not great income, who've decided to take the dive. And why not? Qualifying for a mortgage is easy, and if you're not good enough at handling money to have put away a piddly little down payment, the banks will rebate it to you.
Why waste money on rent when you can build equity right? I mean its not like we're the U.S. where record levels of personal debt and ultra low interest rates caused the RE market to bubble and eventually burst.
This is Canada eh!!!
Uh huh. This is Canada where banks are covered by the Canadian Mortgage and Housing Corporation, a federal crown corporation. So if a homeowner walks away from a property and declares bankruptcy, the bank isn't on the hook, its taxpayers. So why not rebate the down payment to a kid with no money of his or her own to put into a house? The bank has its rear end covered by you and me.
The problem now is that CMHC is almost at the $600 billion limit imposed on them by the feds. How keen do you think a bank will be to loan out money if they're the ones on the hook if the borrower defaults and goes for the financial white out with a BK filing?
The reality that we're living in a housing bubble is not up for debate, the only question is when will the balloon pop. And how far will housing prices fall.
Obviously major centres like Vancouver and the GTA will be hit hardest. But over indebtedness is not exclusive to big city residents. There are people in every part of the country who have gorged themselves on cheap credit over the past several years.
At the end of the day its all about supply and demand, yes Mr. Green I did pay attention in Economics class.
A recent Globe & Mail article cited a dearth of listings in the GTA market. So while demand has eased as the economy sputters, so has the available supply...which has managed to keep prices up for the time being.
But spring is almost here, and that's when things normally heat up in the RE market. Many people like to move in the summer, so buying in April or May for a July closing makes sense.
Is the reason for the dearth of listings that many are holding off selling in hopes of a spring feeding frenzy? We'll know before too long. If listings do swell, we could be looking at the first buyers market in a long time.
Around 70% of Canadians already live in a home that's been purchased. So where buyers will come from to soak up the extra supply...I don't know, everyone keeps saying China. I have my doubts.
If you're not yet totally fed up with reading about the pending collapse in RE values in this country then here's a link to a Macleans article which compares Canada now to the U.S. back around 2005.
Warning, its not a pretty picture. (LINK TO ARTICLE)