Canada's housing market crash...the new reality

Its happened all around the world, and now its happening here in Canada, the inevitable collapse of our housing bubble.  There are still people in denial, especially those who've bought in during the frenzy of the past few years.  

Of course buyers have had good reason to dive into the market.  Banks were practically giving money away at what financial types refer to as 'emergency' interest rates.  Canada's banking system was supposedly more conservative in nature and subject to tighter regulation than our neighbours to the south.  And of course our media has been beating the 'buy now or buy never' drum.

After the euphoria, reality sets in.

Those super low interest rates mean higher mortgage payments at renewal.  During the first years of a mortgage, payments have next to nothing is going toward paying down the principal.  That means renewing for practically the whole amount at a much higher rate.

Our supposedly conservative banks started slutting out sub-prime 40 year zero down mortgages about 5 years ago, without even bothering to verify the value of the homes they were lending against.  The mortgage had government backing thanks to CMHC so the bank has zero risk.  Stated income was accepted without verification, and why not?  With taxpayers on the hook in the event of bankruptcy the banks posterior was covered.

And its only been in the last short while that media outlets have even begun talking about the possibility of a bubble market, while still trumpeting industry types who now talk of a 'balanced market' and the so called 'soft landing'.  Its the same language we hear just before a major recession hits.

I'm a big fan of Garth Turner's blog: Greater Fool, which is one of the only outlets which has been warning people of what will very soon be the new reality.  More popular are TV shows like 'Love it or List it' which get both homeowners and property virgins all hot and bothered to get active in the market, making industry players extremely wealthy.

Sadly I know of people who will get hurt.  One such example I'll call Bob, he will be closing on a Mississauga townhome in June.  The place cost close to 400 large and he'll be paying down a 30 year mortgage of about 350K.

Bob, like a lot of people, didn't see the point in throwing away money on rent.  On top of that everyone he knows owns a home, only losers rent....uhm, okay.

So instead of renting a townhome for 1,500 to 2,000...the same as what it'll cost him to occupy his GTA townhouse, he opted to part with $50,000 in cold hard cash for the privilege of 'owning' a home.  But if the same experts who predicted the US meltdown prove correct on their analysis of our market, then his home stands to lose about a third of its value.  

What does that mean to Bob?  It could very well fell financial disaster.  If his 400K home drops in value to 300K he'll have pissed away all of his down payment.  And when he goes to renew the mortgage he'll

need to re-qualify, which will mean coming up with at least $15,000 to meet the CMHC minimum equity requirement.

What if he can't come up with the do ré mi?  Simple, the house gets sold and he's left with a bill for the difference between the selling price and what's left on the mortgage.  In this scenario that would mean going from having $50,000 in card hold cash to owing that amount.  And why?  Because somehow owning a home has become the end all and bee all of a Canadian's existence, just like it was in the U.S. before their market tanked.

I think he would have been better off being a loser and paying off someone else's mortgage over the next five years while that 50K would have been growing into a even heftier down payment after the market corrects.

Note to Roman Catholic Church - If you take public $ you have to answer for it

Ah Rome and her church, the last crumbling and rotting vestige of a once powerful global empire.

The Toronto Star is reporting that Cardinal Thomas Collins, archbishop of Toronto, has his robes in a knot over not being able to discriminate against students with a homosexual orientation.

Go cry to an altar boy.

Well Mr. Collins...there's a simple solution to your problem. If you don't like Catholic schools being dictated to by elected officials, then stop accepting public funds for the running of your schools. Its that old saw about not being able to have your cake and eat it too.

Hopefully the church will eventually see the errors of its ways. The church has made enormous strides over the years after all. Rome now realizes that our sun doesn't revolve around this planet, and they've stopped murdering people for refusing to accept Rome's authority. Heck they don't even shuttle pedophile priests around anymore so they can prey on new victims, at least I hope they don't.

You can read the whole story here: Dalton McGuinty tells Catholic church he’s in charge of schools

The church has been wrong about so many things so many times, and that continues to this day.  Thankfully in our modern enlightened age we have human law to counteract inferior religious dictates. 

Ottawa citizen reports - Thomas Mulclair has a mortgage on his home

This is news? 

Postmedia Network, owners of such bastions of liberal journalism as the National Post and Ottawa Citizen, is reporting that NDP leader Thomas Mulclair has a mortgage on his west island Montréal home. 

How much does he owe?  Thanks to Postmedia's dogged research Canadians now know the mortgage is valued at a whopping $300,000.  Whoa Nelly, STOP THE PRESSES!!!

Of course, that's not really very juicy is it?  Gotta give it some spin, and here's where Postmedia really shines.  Apparently the property has been refinanced numerous times!!! 

The headline in the Ottawa Citizen reads:  NDP leader has remortgaged his home 11 times since early 1980s.

I wonder how many people will bother reading the article?  My guess, not many.  That's the beauty of a juicy and prejorative headline.

Okay, so what we're being told is that Mr. Mulclair has refinanced his home on 11 different occasions over the past 30 years and that the amount owing on the mortgage is $300K.  I  bet there are lots of Canadians who would love it if their home only had a mortgage at that amount.  Think of all the poor saps who've been buying into the Canadian housing bubble over the past 5 years or so.  Given the west island address I'm going to assume there's a fair bit of equity there as well.

Why refinance?  Why not?  With uber-low interest rates and many investments offering superior gains it can certainly be argued that freeing up equity to get your capital working is a very wise move.  Dare I suggest it could even be argued that is shows business and fiscal savy?

From where I sit this is very good news for the NDP.  It suggests to me that Conservative minded media outlets are paying attention.  Why?  Because the NDP under Mulclair is gaining some traction, and with the Liberals continued weakness, that could prove troublesome for the governing Tories down the road. 

Better still is that the dirt their digging up, well its too clean to call it dirt.  Next up we're probably going to be reading how many times the NDP leader goes to the bathroom.

EI changes nudge Canada further to the right

For the majority of Canadians, those who identify themselves as centre-left on the political spectrum, the announced changes to EI show further evidence of Canada evolving into a more and more Conservative nation.  Hrmmm, maybe I shouldn't capitalize in this case, we're actually becoming more 'small c' conservative in my view.

The proposed changes...pfffft, its a majority government so who cares if they're only 'proposed' at this point. 

The changes will make it more difficult to for those who've accessed EI multiple times to refuse work.  I have no doubt that some will take exception to this, arguing that it will result in people being forced into jobs which don't match their qualifications.  And that this is more pandering to business interests, forcing workers to lower their salary expectations.

There is merit to that argument certainly, and I do think Diane Finley stepped in it when saying that EI recipients should be working at McDonald's if they have the qualifications for the job.  I think the main qualification is a pulse.  I'm betting that's the line of attack opposition parties will take. 

Improving the economy, one Big Mac at a time.

EI is a user pay system, and it irked me that under the Chrétien/Martin Liberals EI took in billions more in revenue than it paid out in benefits.  Of course under the Liberals we had balanced and surplus budgets thanks in part to the tightening of EI eligibility rules, so perhaps the Tories are thinking along the same lines.  But minimum wage jobs aren't going to do much to improve a person's standard of living.

At the end of the day EI is meant to be a hand-up, not a hand out.  And I, like many, know that there are individuals who milk the system.  I agree with Jim Flaherty's comment about there not being a bad job, there are no small jobs in my books...only small people.  There is dignity in work from where I sit, regardless of what a person is doing.

But he economy is fragile right now, with our massive housing bubble starting to show strain.  McJobs aren't going to get the economy going in the right direction.

Bottom line though, I think most Canadians won't have an issue with these changes, most Canadians are working thankfully.  Individual opinions might change however the first time a former EI recipient has to ask: "Do you want fries with that"?

Read the full story, with Minister Finley's McDonald's comments here:

Workers' EI history to affect claim under new rules