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Is the U.S. housing mess headed our way?

PAUL WALDIE

From Saturday's Globe and Mail

Latest comment posted at 5:19 PM EST 21/01/08

'We will feel the sting in Canada,' one economist says as foreclosures mount across America. ...Read the full article

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  1. Anonymous Anonymous from Calgary, Canada writes: How come Canadian newspapers have been so quiet about our housing bubble. Our house prices have doubled, have increased by more than the American counterparts, but I hardly ever read stories about it in the newspaper.

    Calgary Real Estate Valuations

    Calgary Inflation Adjusted House Prices
  2. Randy D from Canada writes: The story doesn't match up very well with the sensationalist headline. Very little reporting on the potential for the bubble to burst here. Yes, house prices have risen dramatically in Canada but there is virtually no subprime market in Canada and the differences on mortgage lending practices here and the U. S. are not subtle. Certainly anything is possible and a depression/recession is going to have devastating consequences no matter where you are.
  3. Greg Cox from St. Albert, Canada writes: Good article. I think Canada has a version of the subprime problem which is a little more middle class. Home owner lines of credit which become payable on the mortgae renewal date have been rampant with escalating property values. While we've avoid that bullit, we know of several cases of people being priced out of their homes looking at mortgage renewal time. I'd like to see a researched article on what I think is the Canadian middle class version of subprime.
  4. Bob Smith from Canada writes: There is rarely any mention of the massive fraud, deception, and theft. Bundles of sub-prime loans were sold around the world, with dishonest intent. The buyers did not beware enough, for sure, but they were deliberately lied to as well.
  5. garlick toast from Canada writes: in the story,the guy losing his home had lived there for 27 yrs.did he only pay off 40 grand in that period or did he use the house as collateral for other purchasing?in a hot housing market,some one will always pay too much and when the market cools be left holding the bag.
  6. erick long from Canada writes: I agree with Randy D. Yes, there is a big problem in Cleveland and in other parts of the US, but how does it translate into Canada.

    In addition, by the author's own admission, we have little of the subprime type of mortgages in Canada. It goes to show that these articles are not very well researched and are more geared towards sensationalism. The Globe should get better writers on these things.

    Besides there are two issues here that should be better defined. One is a local US housing problem, and the other is the massive fraud and deception that the US banks perpetrated on the rest of the world.

    I am not sure whether we are going to affected by the housing crisis in the US, but certainly we are by the subprime fraud that the US Banks have carried out, which are leading to huge losses in our own financial institutions. These losses may translate to eventual write downs and perhaps even job losses. And if people lose their jobs, they may lose their homes.

    So far we have not seen those job losses in Baystreet as in Wall Street, where Merryl lynch and Citi are both cutting people with others to follow, I am sure.
  7. M P from Ottawa, Canada writes: garlick toast from Canada writes: "in the story,the guy losing his home had lived there for 27 yrs.did he only pay off 40 grand in that period or did he use the house as collateral for other purchasing?"

    There is another part of this story that isn't being told. Because mortgage interest payments are tax deductible in the U.S. Americans generally do not pay off their homes. There is a bigger benefit for them to always have a mortgage. As the interest payments as a portion of the mortgage payment reduce, they refinance, or buy bigger homes.

    A friend of mine who moved to the US was shocked at the home her husband wanted them to buy - she thought they'd never be able to pay of the mortgage - and he told her precisely - he'd pay less income tax because he could deduct the interest payments.

    Me, I'm just thrilled my house is paid off this year.
  8. Black Jerry is a idiot from Canada writes: The Housing mess is here alright, and I wish it didn't happen because now we will all suffer. This is typical with Fiat money and criminal/corporatist governments. Will people learn this time?
  9. John Daise from Toronto, Canada writes: Randy D points out that there is virtually no subprime market in Canada?
    The Canadian banks all have their hands in on this subprime market in the
    US.The credit will just get tighter & tighter to get a mortgage here in
    Canada.We are tied into this indirectly.My suggestion sell your home now,
    while the market is good & credit still available.Downsize & wait until 18-
    months to purchase another home when the market will have homes for
    sale at half the cost they are today! Another suggestion sell private,there
    are great for sale by owner websites out on the Internet with homeowners not paying any commissions! Do not fork out cash & equity to
    real estate agents & brokers--keep the money in your pocket!You will need
    a real estate lawyer of course, but they do all the work anyways!
  10. MJ M from Canada writes: There has been a huge runup of house prices in Canada the last few years and we have seen some pull back in western canada. I'm a Banker in Alberta, the difference between Canada and the US is we only lend to people who qualify.

    The idea of lending large scale to people who can't make the payments just doesn't happen here. There are always instances where clients circumstances change causing delinquency, but they qualified when they got the loan.

    Big Difference.
  11. john Dennis from Canada writes: something I did notice a few years ago were more adds in the papers enticing people here in Canada to borrow money because of all the increased equity people have in the rising value of their homes. Hope not too many people have gone for this in case they start facing higher interest rates or lose their jobs!!! Most of the mortgage companies in Canada are more carefull about the amount of equity to loan value - if they aren't and house prices plummet here in Canada we could see some problems. The next couple of years are going to be very interesting if things slow down!!!!
  12. Oslo Karmen from Canada writes: From hte story..."The house has been appraised at $160,000 and she owes $128,000".
    She makes $10/hr!
    How could she possibly maintain payments??
  13. Kothar Rumbleg from Canada writes: I bought and built my first house 2 years ago now. Before even considering doing so I had to get an approval for a mortgage. So I went to mortgage broker who worked on my behalf to get the best rate from whatever lender. But I had to prove to them beforehand in application how much money I had. They wanted my T4's, income letter from company I work for, bank statements, RRSP amounts, etc. And they did a credit check on me as well in the application. Together I sat down with the broker and we looked at my TDS and what I could relatively afford. I had a mortgage approved with 10% for 100's of thousands dollars. But I ended up taking the mortgage for 1/2 what I was offered as I didn't want to get a house maxing out my mortgage limit. I also had to pay CHMC insurance on the mortgage as I didn't put down the requisate 25%. So in effect, the lender gets somewhat stability of fact that I a)have somewhat good credit b)my income allows me to make my payments c)they are getting a % down from me up front and d)the mortgage is insured by CHMC. I didn't max out what was allowed to me, I am not going to borrow against my home to fix it up as it is new anyway, I am not going to default hopefully as long as I can work and make payments (interest rate is locked). So basically as long as lenders in canada make sure the clients they take on fall into this category then the mess they have in US will not happen here.
  14. Peter Nogalo from writes: "Is the U.S. housing mess headed our way?"

    Nice re-telling of a pretty old story, but the question remains unanswered.
  15. Vic Hotte from Kettleby, Canada writes: The U.S. is certainly digging itself into a big HOLE, and financial institutions are not performing due diligence on their portfolios, which are really personal investor portfolios. A huge disconnect develops once investors put their savings into a bank. The U.S. gov't owes approximately $3-trillion (that's $3,000-billion) in debt to the rest of the world. Americans borrowed $2.5-trillion in sub-prime loans between 2000 and 2007. On those amounts alone, roughly, that translates into Americans owing personal and public debt on the order of nearly $1-million per person right now. Not only is this unsustainable, it is impossible. Now, George Bush wants to borrow another $1.45-billion from the rest of the world to prop up the American economy, at a time when Americans really need to stop borrowing and start saving. You cannot borrow your way out of debt. Canadians aren't in the same hole yet, but we are following behind when we are also encouraged to borrow money (for the 'sake' of the economy), and our gov'ts rely on deficit-financing (pretty word for borrowing), then turn around and hand out grants and subsidies to multinational corporations. At a time that we should be saving, central banks are rushing to pour money into indebted markets. Even the Bank of Canada wants to cut interest rates. Inflation always pops out somewhere. In this case, inflation shows up in the price of houses because housing became a 'sacred cow' that wasn't supposed to fail. Construction jumped, associated costs of wages and materials rose, and the costs of associated utilities (electricity, water, sewers, etc) also rose. The banks have to stop pretending that when interest rates are artificially low, somehow that means there is no inflation. If the price of housing goes up 20%, and that's what is hailed as central to to some economy, then, basically that's your inflation rate because everyone is encouraged to want a house.
  16. Still Learning at 77 from Canada writes: CMHC has saved the banks and the citizens a lot of trouble. CMHC is not market driven, and is a crown corporation owned by the people of Canada.

    Have a good day everyone and may the grease money be returned to us.
  17. john Dennis from Canada writes: Oslo Karmen - Maybe the loan was amortized at interest rate of 3% over 100 years!!!
  18. Mike Scollard from London, Canada writes: I don't believe the inaccuracy of the title! It doesn't even deal with Canada. Writer Paul Waldie and the Editor of the Globe and Mail should apologize to their readers.
  19. Vote NDP in the next federal/provincial election. from Toronto, Canada writes: I dont want any foriegn influence in Canadian markets. I hear so many exucses that if China falls then Canada falls too simulataneously. This has got to end immeidately.

    If the US falls then it's their economy that suffers, not Canadian economy. This is why we have borders right?
  20. gerhard beck from Canada writes: My mortgage is paid off but the increasing property evaluation has resulted in my taxes rising to the amount that I once used to pay off the mortgage and its interests. Luchily I still can afford it. And the US practice of only paying interest and nothing towars the capitalisation has never been practice in Canada. As long as our economy is relatively healthy and mortgageholders keep their jobs the chances of a collapse ala USA remain slim. What I find disturbing is the present practice of wre4cking family sized solid houses by supersized woog and plastic monsters for ther sake of profits. Whaich family really needs a 5 or 6 bedroom house with 6 bathrooms, living room, 2 dens, kitchen with a dinette and a huge dining room etc. etc. This may also be a factor of a collapse, it happened in the early 1970s.
  21. Scotia Rae from Canada writes: M P from Ottawa, Canada writes:
    A friend of mine who moved to the US was shocked at the home her husband wanted them to buy - she thought they'd never be able to pay of the mortgage - and he told her precisely - he'd pay less income tax because he could deduct the interest payments.

    But its not like you're paying interest INSTEAD of taxes. When you have a tax deduction you are only saving the taxes in the relative bracket that you deducted in. If your deduction is in a 30% bracket to be simple and you paid $1000 interest, you are only saving $300 in taxes which means you still have a net negative cash flow of $700 so you DO NOT benefit from keeping a mortgage outstanding. The ability to deduct the interest simply allows you to carry a larger mortgage due the implications on the net cash flow
  22. Scotia Rae from Canada writes: When people talk about 'Canada' as a housing market I think it makes little sense. Canada has several different key housing markets. For instance Vancouver is driven by the economy in Hong Kong. They build condos in Vancouver where the sales office is in Hong Kong. Calgary (and Edmonton to a lesser degree) is a boom-bust bubble market if you look at history. Saskatchewan and Winnipeg are very stable sort of boring markets until the recent spillover from Alberta started hitting Saskatoon. Toronto is a robust market which doesn't really bubble to the extent that Alberta's does because its perhaps more diversified. Ie if the bubble bursts TO prices are dropping 6%, Calgary 30% but Calgary is higher priced to start with. Ottawa is another stable boring market full of middle-class government jobs with unions and 2% per year increases. Montreal is a rental market. The Maritimes/NFLD are another boring market. I think your risks are best mitigated from a decline in these boring markets because their rate of increase while historically high have been more realistic and based on the price of raw materials used in construction. Toronto is probably next safest as long as you're not in some hot neighborhood like the Beach. I think people most vulnerable to a sudden shift in the housing market are those in Calgary and then Edmonton where prices have surged so much that people are simply moving to Saskatchewan etc out of frustration. Wages are high in Alberta, economcy is good, prospects of oil staying high are good but ability to hown a home is off the scale for most people. If a housing correction comes to Canada, it won't be as extreme as the US. Nothing ever is - Americans always push everything to the extreme all bets on the table. Canadians are more like prudent auditors - they like to identify and mitigate risks (ie housing insurance regulations) And remember the average US drop was 10% but is very city to city.
  23. Scotia Rae from Canada writes: Vote NDP in the next federal/provincial election. from Toronto, Canada writes: I dont want any foriegn influence in Canadian markets. I hear so many exucses that if China falls then Canada falls too simulataneously. This has got to end immeidately.

    If the US falls then it's their economy that suffers, not Canadian economy. This is why we have borders right?

    funny guy....NDP economics....its all a vast conspiracy!
  24. True Conservative from Canada writes: The US must once again mobilize to shuttle the CEO's of the Big Banks out of the country before things really start to fall apart....just like they did with the Bin Laden family post 9/11!
  25. Frankie @^_^@ from Canada writes: I love the real estate board in the way how they keep saying there is no bubble. ITS FULL STEAM AHEAD WITH PRICES. Of course they will say it. THEY MAKE HUGE COMMISSIONS AND WANT TO KEEP THE PARTY GOING. All these idiots that pay 4-5-7 hundred thousand for utter crap holes will cry soon. Everyone will cry in canada , BECAUSE HOUSE PRICES HAVE GONR THROUGH THE ROOF!!! Now everyone is just living from pay chech to check and eating hot dogs cause the mortgage eats up everything, Now you can use rrsp money for downpayment and soon the real estate board will push that you can use your kids as collateral just to keep their commissions rolling.
  26. Scotia Rae from Canada writes: Frankie @^_^@ from Canada writes: Now everyone is just living from pay chech to check and eating hot dogs cause the mortgage eats up everything,

    This isn't true since economic reports have shown that goods production is maxed in this country - consumer spending is at its highest level ever. Never underestimate how much money people have. You have several demographic factors causing the housing values - Baby Boomers who are new empty nesters are going through their 'dream house' phase - building and renovating. The boomer's kids are buying their first homes and many have migrated around the country to Alberta, Toronto etc. More and more immigrants coming to Canada are coming with large bank accounts. Housing is always driven by demand. If there is a conspiracy, then we're all conspiring together....against ourselves. Prices are relative - $500k in Dartmouth NS gets you a huge house and lot. In Etobicoke it gets you a cramped condo
  27. frequent traveler YVR from Vancouver, Canada writes: Agree with previous comments - the headline is a bait and switch strategy to get you to read the story, and the editors should be embarrassed by it.

    Granted there is little evidence of the sub-prime lending strategies in Canada, and that will not likely translate into a Cdn housing slump.

    But to the real question - will we feel the impact of the situation in Canada? Absolutely. The Canadian economy is inextricably linked to the US economy and as the US economy is no galloping into recession we will get the spillover impact on our economy. The BC forestry industry is reeling - I have friends in the industry who say they cannot give their product away. Anyone who exports to the US (i.e ~80% of our exports) will take a hit. And that will ultimately translate into negative impacts on housing in Canada, though indirectly.

    Personally - I am very glad to have a virtually paid off mortgage on a house overlooking the water in Vancouver.
  28. Jay MO from Canada writes: Well, I don't know about the rest of the country, but here in Vancouver we have as many marginal buyers as any market in the US. It is 'subprime' by any other name. What happened in the US is that prices became detached from the underlying fundamentals, and that has happened in virtually every market in Canada. Subprime is simply the place where it all started and it will end with prices in ALL US markets fall back in line with the underlying fundamentals.

    Can it come to Canada? It certainly can.

    -J
  29. M T from Ottawa, Canada writes: Vic Hotte... your math is wrong:

    3 trillion 2.5 trillion = 5.5 trillion

    $5,500,000,000,000 divided by 300,000,000 Americans
    = debt of $18,333 per American
  30. frederick duquette from Edmonton, Canada writes: The Edmonton and Calgary housing markets were until recently undervalued in relation to other Canadian markets, and migration inflated prices but those price increases have levelled off, due to a late summer surge in supply. On our street there were 6 houses for sale in October, half of those from long-time residents hoping to downsize and cash in when their neighbours listed at over 500K. Come December 1, still 6 for sale; however, 3 have sold in the last month, the other 3 need tlc and renovation, so buyers are discerning. Migration continues into Edmonton, with 50,000 people expected to move here; the fundamentals are sound.
    The US government should force banks to mitigate the onerous rate increases: what does it profit a bank to have the property foreclosed, abandoned, and looted? Keep the residents there at a nominal rate, or interest free to keep the equity bouyant, rather than having the place wrecked.
  31. Jay MO from Canada writes: Frederick Duquette: Why won't the US government force the banks to keep the rates low? Because that would cause even greater losses than we have already seen. Why? Because the gains in the mortgages that were sold off as debt were 'marked to market'. That means a serious restatement of earnings and the death of a few major banks.
  32. globefan EH from Canada writes: This is not high finance..it is an example of predatory lending.

    40 years..and he is going to lose his modest home, that is worth a $100,000.

    And the brokers take home billions in bonuses for their excellent sales performance.
  33. Mike Veracity from Canada writes: I really feel I've been conned out of my time by reading this article. It does very little to answer the question in the headline. Apparently dishonesty exhists in journalism as well as in the real estate market.
    Having said that, I really appreciate being able to access the Globe and Mail online and being able to comment. And I think most journalists are honest.
  34. Jay MO from Canada writes: No Subprime? What's a 40 year amortization with 5% down carried by Starbuck's barista? Like I said, Subprime= marginal buyers= too many to mention in Vancouver. Over 40% of new buyers in Vancouver took this type of loan. It doesn't take a lot to put you upside down in a mortgage arrangement like that.
  35. huges rumi from montreal, Canada writes: `
  36. huges rumi from montreal, Canada writes: Reading this I have only one question for US financial regulators. How come domestically nothing or almost nothing is supervised when internationally everything is supervised to the point of obsession?
  37. noel fowles from salt spring island, writes: What is it Canadians don't get:
    1. CMHC was giving mortgages with 0 or 5% down.
    2. House prices are out of reach for most young Canadians, as the boomers and speculators have driven this bus.
    3. Calgary, Edmonton and Toronto house prices are already falling.
    4. Put the unemployment rate up further, which is where it is heading, and look out
    5. The average Canadian is spending 111% of his income
    6. The national debt is still high
    7. Manufacturing is off, lumber is in the toilet, and commodities ALWAYS sink in a recession, other than gold
    8 Canadians have been borrowing against their house values heavily

    REMEMBER: out of debt- out of danger
  38. Lola Tengo from Toronto, Canada writes: I don't think that people should be so sure that we don't have questionable mortgage practices in Canada. The proliferation of mortgage brokers who mediate between the bank and the borrower has created an opportunity for fraud. Surely people have received emails and seen websites promising mortgages to Canadians with bad credit, etc. I know personally that some brokers will fudge an application for an extra fee (relatively small, $500). I have also heard of lawyers being threatened for refusing to sign papers that were dodgy. Over-appraisal is also taking place. We are naive to think otherwise.
  39. frederick duquette from Edmonton, Canada writes: Jay MO: wouldnt the banks have to restate their earnings anyway if the property is foreclosed? The mortgage is worthless, the land accruing property taxes and reduced by looting, how is mitigating the interest rate going to make things worse? Are you saying that the banks are paying the high-mortgages to keep the debt market happy?
    Regardless, I should have been arguing for consumer protection - let the banks and international markets learn from the risk and move on; however, for home-owners taken in by the fraud, and the American dream of owning a home, bring the mortgages back down to earth.
  40. Yvonne Wackernagel from Woodville, Canada writes: First of all, there are about 10 million people working in the housing market in Canada. Yes, include governments, particularly municipal workers, e.g. surveyors, soil testers, bond and inspection services, etc. etc. before you even start with the layout, roads, trucks, gravel, etc. It takes about 3 years to get to the point where the roof is on the first house so that the developer can unload that lot and the purchaser can assume that little mortgage. Now think what would happen to the economy if the housing market collapsed? Take all the gravel trucks off the road, the big construction equipment manufacturers and servicemen could suffer to some extent, all the small businesses providing excellent services to this total economy, not to mention the lumber, roofing, plumbing, electrical, carpeting, appliances, skilled workers; and the Federal and Provincial Govt. losing all the taxes through lost jobs, etc. etc. STOP AND THINK! what do you get? A BIG CALAMITY.
    ---------------------------
    SO, don't you think that the Governments will work real hard to prevent such a terrible tragedy?
  41. Jay MO from Canada writes: Any interest relief would have to be across the board and would effect all homeowners including the ones that are paying their mortgages at the higher reset rate. This is a huge loss for the bank as the number of homeowners facing foreclosure is actually small in relation to all of the moretgages currently being serviced in the US. Why would the interest relief have to be broad based? Because you risk engaging in moral hazard and rewarding people that took extreme risk. This thing should simply be allowed to unfold.
  42. Ms. Grenuille from Vancouver, Canada writes: There have been numerous articles in the last month in the local media in Vancouver dealing with the "housing bubble" in Metro Vancouver. The predominant loan is now a 40 year mortgage, no down payment (parents are providing down payments when required) and interest only. Income in Metro Vancouver according to the media is not keeping up with home payments, property taxes and the general cost of living. Inflation is very underreported and the cost of living continues to rise. British Columbians are the greatest consumers in Cananda. Very high personal debt, no savings including for retirement. A 400-500 sq feet "home" now averages $400,000. The "U.S. Housing Situation" is already here. With the coming user fees connected to all things our Premier is planning the bubble will burst sooner than later.
  43. Doug Edwards from rural, Canada writes: The editors of the G&M must be getting desperate. This story had nothing to do with the "US housing mess coming to Canada?"

    The story is about bad business practices by financial institutions, and bad decisions by borrowers, in the US.

    As the article says, subprime mortgages don't exist in Canada.
  44. L Harder from Canada writes: You don't need subprime to prick a housing bubble.

    The risks are recession/job loss or rising interest rates. Either would increase defaulters and collapse demand for housing priced to high.
  45. John McMortimer-Boyles from An Undisclosed Underground Location Safe From Nuclear Attack, Canada writes: To the people who ask what this has to do with Canada, I think you have to read between the lines in the story. First, something like a third of our GDP is attributable to international trade with more than three quarters of that being with the US. I'd have to check Statscan data to get the most current numbers. The article says the consumer market in the US is responsible for a huge chunk of the US market. Well, if the US consumer is tightening his belt while trying to keep his home, that can impact Canadian companies doing business in the US. Canadian banks have strict lending practices. Does that also apply to subsidiaries some of our Canadian banks have in the US? Also, I keep hearing ads for companies like Aaron Acceptance and Alpine Mortgage here in Edmonton who "will say yes when the banks say no". What is the quality of their mortgage portfolios? And how much of that exposure is attributable to homeowners maxed out with a conventional mortgage to a Canadian bank and who took out a home equity loan to pay for renovations or upgrades? The article mentions a chunk of the the US subprime mortgages have been securitized and sold to foreign (meaning non-US) investors. How much exposure to Canadians have though mortgage mutual funds? How about through other investment vehicles like REITs or investments in other companies? How about indirect exposure through vehicles like pension plans? If the US housing market is in the toilet, how long before we see the ripples up here?
  46. Alfred Colas from San Juan, Argentina writes: Am I reading the Toronto Star here? No! Say in itsn't so! A sensationalist headline then an article rehashing an issue that has already been widely disseminated, and also having nothing to do with the headline.
    I generally am a great fan of the writing in this paper, but this article was vacuous and the headline a sham.
    BTW the US housing "mess" cannot head our way, we have a fundamentally different lending landscape.
  47. Daniel Sturgeon from victoria, Canada writes: This article does nothing to answer it's headline. How about offering some useful solutions to problems instead of sensationalist sap stories about fools that sign on the line before reading?

    So is the housing mess heading our way or not?
  48. frederick duquette from Edmonton, Canada writes: Jay mo: so you are saying that the number of people successfully paying their mortgages currently exceeds the losses incurred by foreclosure and that government bailouts would artificially lower the risk one assumes on iffy loans, encouraging high-risk behaviour which got them into this mess. Fair enough, but as this crisis grows, foreclosures will increase and impact that ratio; also the article specified fraudulent activities that fueled the crisis, therefore the morality would weigh in on justice for mortgage-holder victims and accountability of fraudsters, an exception to the sound practice of making risk-takers accountable.
  49. Andys Reason from Mississauga, Canada writes: Bravo Bob Smith, you are the only one who gets it right.
  50. George Bush from United States writes: You Canadians complain too much. What's wrong with donating some of your money to your hardpressed American friends? We'll pay you back once we get out of debt. I strongly recommend you go now and buy more Citibank, Morgan Stanley and Halliburton shares.
  51. Morley Wilson from Winnipeg, Canada writes:
    So, other than hurting Canadian banks who took on some worthless paper to the chagrin of their shareholders
    and depresssing the consumer market in the USA,
    how does all this become a Canadian problem as your headline suggests?
    Morley Wilson
  52. monty bissett from sjdc, Mexico writes: Why do we have no economists mentioning the 5 year bond is aprox 3.5% and the posted 5 year mortgage is aprox 7.25% from the big banks. What a ripoff. Is this due to the sub prime mess. Looks like were paying again for mismanagement.
    Hard to imagine some of our big banks investing in this nonsense. Like taking a 2nd mortgage for 100% of the value of a home in a inflated market. You should be able to get a 5 year mortgage for 5 to 5.5
  53. Don Portz from Trochu AB, Canada writes: I was a Banker back in the 70s & 80s. At that time CMHC and a private Mtge insurer was requiring a minimum of 10% down to Mtges granted by the Chartered Banks and in the early 80s when the economy tanked and many losted their jobs, they also lost their homes. It even bankrupt the private insurer. Many people walked away from their homes as the value became less than what they owed. As our economy lessens, the demand for housing lessens, values lessen, more layoffs and therefore we are in foreclosures but maybe not qiute as bad as USA. However not all mtges are thru the Banks. Many other Mtge Cos. are lending almost the same as down south. i.e. 100% of value with little allowance for Credit worthiness, cash flow etc. Also we are seeing a very high outside debt being carried. We may well be looking at a serious recession as well as the US.
  54. Jack Burr from Vancouver, Canada writes: You guys have got it all wrong! Vancouver is NOT in a bubble ready to burst and won't be for some time. You forgot our secret weapon! No, not Gordon Campbell, not the wonderful west coast winter weather- it is raining AGAIN today- which is why I am even bothering to talk to you imbiciles. NO! It is our drug market that will save us. As long as the judges in B.C. think it is more of a crime to send a criminal to jail then the crime itself, this market will flourish, especially in hard times. Where better to hide laundered money then in an overpriced housing market? What criminal ever gets deported anyway? What easier way for kids starting out then to grow pot for the bikers for a few years- they will even buy your first house if you are a good enough grower. Do you ever wonder why that young whippersnapper in the lane next to you is driving a $100,000 BMW and you are stuck in an old beat up pickup truck?
  55. black and white from canmore, Canada writes: Wonder what all the Harvard educated slickass brokers and investor "consultants"/manipulators at Goldman, Merrill and Morgan think about the trail of destruction left behind them....didn't they all get bonuses bigger than last years?
  56. Scotia Rae from Canada writes: noel fowles from salt spring island, writes: What is it Canadians don't get: 1. CMHC was giving mortgages with 0 or 5% down. 2. House prices are out of reach for most young Canadians, as the boomers and speculators have driven this bus. 3. Calgary, Edmonton and Toronto house prices are already falling. 4. Put the unemployment rate up further, which is where it is heading, and look out 5. The average Canadian is spending 111% of his income 6. The national debt is still high 7. Manufacturing is off, lumber is in the toilet, and commodities ALWAYS sink in a recession, other than gold 8 Canadians have been borrowing against their house values heavily Just about everything you say here can be disputed with facts. 1) CMHC does not 'give' mortgages 2) Most housing is always out of reach for the young - because they haven't built up wealth yet. 3) No report has shown declining property values in Toronto 4) There is absolutely no trend of unemployment rising in Canada. Unemployment is at an all time low and there is a labour shortage in Canada 5) RRSP saving hit an all-time record last year. Prove 111% spending! 6) National debt per capital and for size of economy is lowest of G8, one of the lowest of all industrialized countries 7) Commodities don't all sink iin recession - it depends if you are a consumer or producer of the commodity. Not all economies are in recession at the same time 8) Yes home-equity lines of credit are popular but in Canada are limited to 75% of the value less outstanding mortgage so to go into net debt would require 25% decline in value
  57. john Dennis from Canada writes: Don Portz - I'm involved with a mortgage company that will only lend up to 75% of the appraised value ( and that 75% is first and second mortgages on the property ). The loans usually come out to about 60 to 66% of appraised value which makes it a little harder to walk away from the mortgage and house. They don't lend money to people they know can't pay because of the trouble and expense - expenses which the home owner will pay. If they have a problem with a borrower they advise them to sell and work with them so it doesn't get to full blown forclosure - lawyers are expensive!!!
  58. bill k from Canada writes: Canada is in a huge housing bubble. I know of a young couple who borrowed from their credit cards to have a down payment and are now paying their mortgage by using their line of credit. Buddy told me flat out they plan to keep the house as long as they could and sell it if need be (for a profit) or if worse comes to worse give the keys back to the bank. He feels he has nothing to lose and everything to gain which is what happened in the US. The bubble in Canada is bigger then you can imagine and as the US recession gets worse more people will walk away from their homes if no buyer can be found.
  59. Don Portz from Trochu AB, Canada writes: To John Dennis - If I left the impression that all mortgage companies provide loans that are too highly leveraged then I apologise. However we see/hear that there are many that do not lend prudently. We are also seeing many people as bii k above mentioned that are very highly indebted on top of their mortgages and are susepible to default. The individual that he mentioned could be in for a rude awakening if he does not live in Alta. If Lender forecloses and they are not able to sell it for amount of mortgage or if CMHC cannot recover their funds, they will sue him for the balance.
  60. Rocky Balboa from United States writes: It would only take one sharp spike in interest rates to create a lot of problems in the Canadian mortgage market, given that almost all mortgages now come with a rate which is reset every 5 years or so. 30 year fixed rate loans are still widely available in the US and the rates are quite low (lower than the Canadian 5 year rate, as posted by Royal Bank), but the borrower needs to put down more real equity than in the recent past and the amount of the loan has to bear a reasonable relationship to the borrower's current earnings. It's too bad loan underwriting standards went into the toilet, but that's what happens in a capitalist economy when everyone is trying to build market share and mortgage brokers live for the next commission. It's going to be a lot harder for first time home buyers to get mortgages for $750,000, but then they should never have gotten those loans in the first place. Instead of trying to buy an overpriced house in California, they may have to settle for New Mexico, or continue to rent in California.
  61. John Connor from Canada writes: It is going to blow here too but not to the extreme of 1980 - 1982

    The tipping point will likely be the maturity of no interest/no payment furniture and electronic loans at the same time mortgages begin to renew.

    Add in the lengthier ammortizations on these newer loans, and lower downpayment requirements for borrowers - there is no equity created in these homes.

    If rates happen to go up, or one earner loses a job due to a mild recession - KABOOM!

    IMHO
  62. steve allan from Welland, Ontario, Canada writes: We deserve this and I hope we get a good one.

    When the economic history of the 20th century is written, the name Alan Greenspan will figure prominently...and for all the wrong reasons.

    I have been a critic of Greenspan for many years. While his adoring, know-nothing sycophantic admirers were heaping praise on him, I was calling him the worst Fed Chairman in history.

    So who was right.....people who know absolutely nothing about economics like Bob Woodward or economists who knew that the so-called maestro was up to no good?
  63. Angus S Miskers from rainy Victoria, Canada writes: We are just too dependent on the US market for our goods to avoid a serious correction - in most markets including stocks and real estate. Yes, the prices in Victoria are untenable, since the average income is a paltry $60K per house, but the average house is reaching $600K. I have been wrong in predicting a burst to start 2 years ago .. but prices are still climbing, and the elastic is being stretched yet more. With unemployment at record lows and prosperity peaking for the period covering my entire 40 year lifetime, we are setting up for quite a fall. Too bad, cause we have suffered mediocrity compared to the US for most of my lifetime, and only now are catching up to their prosperity levels ... and it will all come to an end very shortly ina recession. ohh well
  64. A P from Toronto, Canada writes: There are a lot of sub-prime loans in Canada. I personally know a few people in Toronto who got sub-prime loans including from major Canadian banks. This was accomplished by showing inflated income information and the mortgage brokers all know about and have been actively involved in this.
  65. John Connor from Canada writes: A P from Toronto, Canada writes: There are a lot of sub-prime loans in Canada. I personally know a few people in Toronto who got sub-prime loans including from major Canadian banks. This was accomplished by showing inflated income information and the mortgage brokers all know about and have been actively involved in this.

    This isn't subprime, it's fraud.
  66. perp lext from Canada writes: Ms. Grenuille from Vancouver, Canada writes:
    "[In] Vancouver [the] predominant loan is now a 40 year mortgage, no down payment (parents are providing down payments when required) and interest only."
    ---

    The above comment shows a tremendous lack of understanding of Canadian lending practices. Do you have any idea how hard it is to qualify for that kind of a loan in Canada?

    The claim that Vancouver's predominant loan is a 40-year, zero-down, interest-only is laughable in the extreme. That kind of loan is not even anywhere close to being a large minority percentage of loans granted, let alone being "predominant."

    Seriously. Ask any banker what you'd need to qualify for one and you'll find out pretty quickly how ridiculous this claim is. Go on, call your bank and ask. ;)
  67. J Billins from Canada writes: I expect we are in for a pretty rough ride with regards to the Housing Buble Crisis . The rent/buy ration is just to far out of wack., baby boom demographics, wealthy immigrants lossing interest in Canada, slowing economy. But it will pale in comparision to it's close friend comming in behind, the Credit Card Crisis.

    But they will just be the warmup for the real problem in store for the world. Something no one will understand, the Derivative Crisis. Prepare for the new panic buzz words, 'Credit Default Swaps", all $46 trillion worth.
  68. Bob Fugger from Victoria, BC, Canada writes: Is the U.S. housing mess headed our way? Who knows, the article provides NOTHING towards answering this question! The G&M is REALLY slipping lately.
  69. Alastair james Berry from nanaimo bc, Canada writes: Housing crisis heading North into Canada? NO, if you are suckered into listening to Real Estate agents ' blurb'. But I use my eyes, and certainly in Nanaimo there are new unsold 'luxury units' at least a year old still looking for buyers. Things are NOT looking healthy on Vancouver Island at least! With the collapse of the stock market(and Harper's slaughter of the Income Trusts) many retirees are worried and I expect many will be forced to sell for money to live on,specially as taxes on property have risen dramatically(and are still rising) over the last three or four years in the Nanaimo area. The crisis has hit the UK and some Real Estate Funds find that they are unable to pay out unit holders who want to get out because they have no buyers for the properties they might like to sell SO UNIT HOLDERS FIND THEMSELVES LOCKED IN! and it appears they will have to remain locked in until conditions improve, or the company goes bankrupt in which case they will get a reduced amount of their cash back in most cases. This scenario could easily be repeated in Canada if unit holders decide to 'unload'. The outlook is for a severe financial storm that will hit ALL MARKETS not just housing, as the froth, of massive amounts of worthless paper currency issued by the BANK of CANADA,(on the GOVT'S orders - to keep us 'competitive' with the USA's collapsing Greenback) is eliminated from the market place! All this worthless paper has stolen 98% of the value of my 1960's savings!! There are 50 X as many Can $1's circulating now! All conjured out of Air and the Printing Press to enable Ottawa to run deficit after deficit with no let or hindrance(all restraint vanished when the last silver was drained out of our coins in the 1960's! A MAJOR DEPRESSION APPROACHES!!
  70. Jim Z from Canada writes: Something does not seem right to me with regard to these sub-prime
    mortgages. Why would the banks not just re set these mortgages at the lower rate. Also would they not in some cases except interest only payments temporarily rather than bring on these massive foreclosures. Seems to me that they are only creating further problems with the falling real estate values. The problem keeps compounding itself. I am surprised that even a few of the Canadian banks got caught up in this situation. Especially CIBC some of the top people need to be shown the door.
  71. Jim Z from Canada writes: Some of the blame has to be put on the Home builders and real estate people. In January 2005 I had a relative buy a home under construction in Edmonton 1700 sq ft. The price was 276,000 by the time they moved in June 2005 that same house and floor plan was priced at 410,000. How can you justify an increase of that size in a 6 month period. At the 410,000 range they could have never qualified for a mortgage. Apparently the home prices in Calgary and Edmonton have dropped 40 - 50 thousand dollars recently. The price of homes has effectively put the possibility of home ownership out of the reach of average wage earners. Hence the construction industry lay-offs will start and very likely put the country into a recession. As the various sectors are affected ex furniture sales etc etc.
  72. Sue W from Canada writes: The troubled auto sector was the first clue that things would be going downhill in the not too distant future.

    It was during the last recession, and also this time around. This has been in the making for some time now. Unfortunately the subprime mess will just make things much worse.
  73. Rudy Krueger from High River Alberta, Canada writes: I haven't had a chance read every one of the comments in this good conversation so I hope I am not being redundant. The USA always deals from a position of strength. They have been the superpower for so long that it affects all their decisions. Foreign policy is obvious. Their financial practices are a bit easier to disguise. When you owe the world several trillion dollars because of on-going trade deficits, the best way to pay it down is to devalue your own currency. The best way to that is is to increase your money supply. Military spending is the best way to increase your money supply quickly. Meanwhile you can treat your citizens to on-going spending binges by keeping your interest rates low and giving them tax deduction rights for the interest on money they borrow to binge spend. You don't have to invest in new plant and equipment for consumer goods because the mark-ups your merchants make on imports are better than they would have made as profits on manufactured goods. Instead you increase investment in strategic industries to keep power centralized. It is the 21st century version of collecting tribute from your territories while "Rome" builds its army.. Reckless spending is key to this economic game plan. The sub-prime lending situation was a small, totally predictable consequence of this economic domination tactic. USA has to draw other countries into it through spreading the write-offs around - everybody gets to write off some of the costs of US spending if they want to keep the roulette wheel spinning. It cannot go on forever as it is. The world is more integrated with the USA economy than ever. This is unfamiliar territory. It invites speculation for the next 20 years. Canada will be engrossed in advantages related to being a continental resource supplier. We won't pay attention to the changes that occur to our sovereignty until we have lost what remains of it. Better this than endless rounds of world wars.
  74. john Dennis from Canada writes: Don Portz - the problems with suing people who you forclosed on if you don't get what is owing is the legal expense and if they are insolvent or become that way the seven years you have to collect the money is meaningless.
  75. Alistair Thomson from Oshawa, Canada writes: I have read that subprime mortgages are only a part of the mess. In addition to ABCP, there are Structured Investment Vehicles, SIVs, which are described as blind pools of capital as well as something called a Collateralized Debt Obligation and I haven't been able to finda definition of CDO's. It sounds to me as if some high-finance guys discovered a marektable way to package bad debts along with good debts in order to be able, in part, to get out from under the bad debts
  76. Daniel Brault from Ottawa, Canada writes: Thanks to our regulated environment and traditional collective approach to social needs, Canadian Banks have been transferring high risk loans to CHMC and are therefore shielded from domestic exposure to this category of loan.

    Temptation of riding the wave of continuously increasing house values to increase mortgage levels is high both from the borrower and the lender side. That is why constraining rules are required to prevent excess enthusiasm by the consumer to keep spending beyond his/her ability to repay. Forcing the banks to behave, i.e. to say no to abusive debt loads as a result of overconsumption is a good idea when times are getting tough. Our current system does actually work because it curbs, to some extent, this excessive consumption.

    US economy has been maintained in an artificial good condition for the last 5 years because funds were injected to the consumers to keep maintaining the illusion that domestic demand was strong: all other components of the US economy were pointing in the other direction. In Canada, beside dependance on commodities, what we show is true performance and ... our government does not run a deficit neither do we have a negative trade balance. We will suffer a setback but we will quickly rebound.
  77. garlick toast from Canada writes: somehow,along the way,housing went from being a reward for hard work to a commodity.sub-prime borrowing is like buying on margin,it's a wager.we are not immune in canada.interest rates will go up or we'll have increasing inflation coupled with job losses.we are in uncharted waters.the question is,who's the skipper?
  78. Don Portz from Trochu AB, Canada writes: To john Dennis - You are absolutely correct in your assessment about suing people. However there are many financial institutions that will commence this action even though the return may be neglible. I saw this in the 80s and if we get to this point again (God forbid) then I would hope that cooler heads will prevail.
  79. garlick toast from Canada writes: with foreclosures and repos,it's gonna be a hellava yardsale.
  80. oswaldo perez from Vancouver, Canada writes: Its obvious what is happenings. An economic recession due to the irresponsability, ignorance, negligence, etc. There are lot of fraud in the USA, lots of unethical practices, and lots of ignorance and greed.

    In addition we have the humongous spend in the war which cost higher prices for energy, the unemployment, the diminish of the middle class and the high poverty rate and the lack of a good health care system.

    A disaster
  81. John Connor from Canada writes: Don Portz from Trochu AB, Canada writes: To john Dennis - You are absolutely correct in your assessment about suing people. However there are many financial institutions that will commence this action even though the return may be neglible. I saw this in the 80s and if we get to this point again (God forbid) then I would hope that cooler heads will prevail.

    A waste of time and good money after bad. Besides, CMHC will pick up most of the tab, the banks will take a writedown for the balance, reducing their taxable positions, and guess what?

    Taxpayers get the billn net of (non)invested CMHC premiums. It's the taxpayers who should be suing the banks here freind.