Fat Lady Sings For Some

Reform

You can’t say this wasn’t expected! For months Finance Minister Flaherty and Co. have plainly warned us that changes to Canadian mortgage lending rules were on the block. The demise of the 40 year term and 100% financing was the first hint of things to come.

Now unless you have been hiding in a dark corner of your basement hoping to escape Flaherty’s latest wand waving you won’t have to look far to find news that tells you that mortgages with a 35 year amortization are now that which once was. You’ll also find that loan to value ratio’s have also dropped from 90 percent to 85.

So what!

  • it means that some first timers won’t be moving into their Yaletown condo.
  • it also means that fewer homes will be sold – some claim 20,000 units
  • it does not mean that the Vancouver real estate market is off the rails
  • it does mean that the Bank of Canada can hold off increasing interest rates – at least for now
  • if you are into political whispers, this mortgage reform might be a political ploy to soften the blow in the next budget which some see as a catalyst for a general election
  • it does mean it will be harder to get lines of credit against the value of your home – this will mess up yacht sales and that planned Italian Villa holiday

But Really

It wasn’t so long ago that a 10% interest rate with a 25 year amortization was de rigueur. Somehow, life carried on and the buying and selling of homes continued. Being a cup half full kind of guy, I’m of the opinion this will continue.

Simply, as it pertains to the buying and selling of homes, I’m not convinced the Fat Lady is singing yet but, if you are talking about personal debt, that is an entirely different song.

Rob Regan-Pollock of Invis thinks…

This is a clear message to Canadians that they can no longer use their home as ATM’s to consolidate their debts. The Government wants to see more home equity and encourage better financial management by eliminating the refinance lifeline. This policy will hopefully encourage more awareness and personal responsibility as there is no longer an easy exit.

What Others are Saying:

Wall Street Journal – Canada Fin Min Tightens Globe and Mail – Investor – returned to roots Windsor Star – rules could slow local home sales Vancouver Sun Globe and Mail – Slow Loan Business

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

When Life Moves You - contact Larry:

*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

Amazed Says:
January 17th, 2011 at 6:57 pm

For the majority in Vancouver this will have little effect. For first timers in the burbs perhaps a little more. However Vancouver west side sets the pricing standard, and since the majority are cash buyers, it will not cause the crash.

1 Says:
January 17th, 2011 at 7:34 pm
vomitingdog Says:
January 17th, 2011 at 8:20 pm

How did life carry on when it was 18% interest and 25-yr mortgage? Just curious. That must have been a tough year and a half for agents.

January 17th, 2011 at 9:48 pm

@VOD
All I can tell you is that I was at 19.5%. Job was 100% full commish, 3 kids. No Horatio Alger stories but – it simply just got done. Camping with like friends was the big holiday.

January 17th, 2011 at 9:50 pm

@1
VANCOUVER SUN DISAGREES! –

My my – I’m sure there are authorities much wiser than the Sun who will also disagree.

Samsonite Says:
January 18th, 2011 at 7:31 am

Yes, perhaps the sell/list will move back over 100% in the coming weeks?

Best place on meth Says:
January 18th, 2011 at 8:57 am

Life carried on at a 10% interest rate with a 25 year amortization because prices were 1/4 of what they are now.

It’s only loose lending standards and cheap credit that allowed them to balloon and now we’ll get to watch prices go into reverse.

January 18th, 2011 at 9:08 am

@meth
Does your view include that ‘wages’ were also less? This isn’t implying that they have kept up which some might view as part of the problem.

Bob Lucas Says:
January 18th, 2011 at 10:50 am

As far as I can remember, Vancouver houses have always been expensive. I guess I was never rich enough to ever feel they were cheap! But alas I still feel blessed to have my own home though it was pretty darn tough in them early years.

Best place on meth Says:
January 18th, 2011 at 3:31 pm

Of course wages haven’t come close to rising as fast as real estate prices.

Hence the ridiculous 9.3 multiple, the highest in the world.

January 18th, 2011 at 3:51 pm

@meth
which would be easier to improve – prices or income levels, both have issues.

emanuel Says:
January 18th, 2011 at 6:25 pm

Where’s John V, the guy who boldly predicted listings were going to zero and prices would rise another 10%? Looks like that ain’t gonna happen … 293 new listings yesterday alone

John V Says:
January 18th, 2011 at 6:28 pm

I just want to be a renter.

January 18th, 2011 at 6:46 pm

@emauel
@john V

@emanuel – don’t recall @John V saying that about ‘zero’ listings – then again I might be having a moment or you are looking for a scrap.
With cup half full there is a chance we’ll see something approaching 10% in 2011 in Vancouver. 100 large on a million – sure that’s possible. Almost too easy on the west side. 🙂

Best place on meth Says:
January 18th, 2011 at 7:07 pm

John V Says:
January 2nd, 2011 at 1:57 pm

I think the market pushes higher into spring as inventory drops to zero. (and I am talking only West side here).
—————————————————————-

Remember now, Larry?

There have been over 100 west side houses listed since this inane comment was posted and over 300 total right now.

emanuel Says:
January 18th, 2011 at 7:53 pm

OK, here’s the exact quotes:

“I think the market pushes higher into spring as inventory drops to zero. (and I am talking only West side here)”

“We aren’t selling yet but when I think we can clear $3.5M (after fees) we likely will. 10% to go …”

I’m not looking for a scrap Larry, just having a little fun 🙂

BTW John V, I’m not a renter, I just think it’s amusing how people can get such tunnel vision. I work in finance and can recognize an overvalued asset for what it is. With fundamentals that are out of whack, and the tightening of mortgage rules, I believe the entire market will get a haircut. Doesn’t bother me, I bought my home to live in for the next 20 years … not to flip.

Oh, and it appears I’m not alone in my thinking: “BMO Nesbitt Burns deputy chief economist Douglas Porter said resale prices could drop as much as 7 per cent within the next 12 months”

Boombust Says:
January 18th, 2011 at 7:57 pm

“How did life carry on when it was 18% interest and 25-yr mortgage? Just curious.”

Well, being a native Vancouverite, unlike a recent arrival from Montreal like you, VD, let me tell you…

It was ugly.

But, as perseverance would have it, things worked out just fine for those who waited in the wings. Just fine and dandy.

Boombust Says:
January 18th, 2011 at 7:59 pm

“My my – I’m sure there are authorities much wiser than the Sun who will also disagree.”

Yeah, agreed. I would rather read the “Coquitlam NOW” than that rag.

1 Says:
January 18th, 2011 at 8:24 pm

Within a few weeks the surge in listings and drop in sales will become noticable to the average person.

JMHO

Then, the tide really begins to shift, but not fast enough to beat the upcoming interest rate hikes starting in about 90 days.

January 18th, 2011 at 9:22 pm

@emanuel
Wow Mr. V did make that claim. Got to admit that has some ‘Garth’ DNA attached to it. Ah the words that come to bite us. 🙂

John V Says:
January 18th, 2011 at 9:27 pm

Comedians. Inventory continues to drop on west side.

January 18th, 2011 at 9:43 pm

@John V and the Comedians 🙂

SnapShot for 60 and 30 days
Total Listings Nov/Dec 504
Sales 121
Total Listings Dec/Jan 459
Sales 53

Samsonite Says:
January 19th, 2011 at 11:32 am

Larry – what do you make of the jump in MOI (months of inventory) on the westside from 4.17 to 8.66?

Inventory dropped by 8.93% yet sales are down 56.20%

Is that material?

John V Says:
January 19th, 2011 at 7:00 pm

if anyone actually believes there are 9 months of inventory on the westside they are seriously delusional – there is nothing for sale and even stuff 3-4.5M is selling in less than 2 weeks. see MLS# V862447, V862950, V863069, V861881, V863169 for example from this week alone.

then see how many lots sell above asking in a couple of days. again from this week alone: V862841 ($110k over ask), V863203 ($117K over ask), V863499 ($1K over ask), V863069 ($184K over ask), V862748 ($212K over ask) etc.

just keep renting fishies …

bbcoq Says:
January 19th, 2011 at 7:55 pm

Sorry but tighter rules will ultimately bring more stability to the market, not pull the rug out. Look what happened when stock brokers tightened up margin rules-the market, the real market went higher as positions became longer.
These tighter rules may shake out some weaker players but that will ultimately be good for the market.

E Says:
January 20th, 2011 at 6:59 am

“It wasn’t so long ago that a 10% interest rate with a 25 year amortization was de rigueur. Somehow, life carried on and the buying and selling of homes continued”

Life carried on because most people weren’t carrying a lot of debt at that time. Today things are much different and there are likely few people who could “carry on” if interest rates were at 10%.

January 20th, 2011 at 7:12 am

@E
you are probably correct – if we are to point fingers we then must also ask who is responsible for that conundrum?

E Says:
January 20th, 2011 at 1:09 pm

The consumer is responsible for their own actions. However since many of us cannot act responsibly when enticed with low interest rates then it is the goverments responsibility. IMHO!

January 20th, 2011 at 1:57 pm

@E
Society’s slippery slope methinks….

Samsonite Says:
January 21st, 2011 at 8:26 am

Any thoughts on the ratio of sales to listings this month? (in terms of what might unfold in the months ahead).

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