wisdom

Privately borrowing for downpayment has been fairly common, but it comes at a price 12-14% plus fees. People were happy to pay it when the bubble was in full swing but the market for SFD houses has slowed dramatically in Vancouver. People aren't going to pay 12% plus when they have come to believe that prices pay not continue rising. This bubble is done by the looks of it.

I am starting to get interested in the Chou funds. It is great to see the pessimism build. Keep it coming!

http://globalnews.ca/news/2887766/data-is-the-metro-vancouver-real-estate-market-in-free-fall/ Not sure if it has begun, but, sure starting to feel like it has.

To understand the Vancouver market, one has to realize that most properties have been bought by so called developers (5-20 properties) that have paid over $1.2 million hoping to demolish, re-develop and to sell to Chinese buyers at $2.5 mil. If the Chiniese buyer disappears because of the tax the so called developer is scewed. Now these so called developers are in 1,000s in Vancouver because the bubble has been so good to them and it is 30% of local GDP. Look out below the day the music stops playing. Only a matter of time, no matter what stories someone can come up with about Chinese demand or not. In the end even the Chinese will buy high and sell low as do all other people.

I did hear similar stuff on Monday - the day the tax was proposed. I hear more fear and panic as people in the industry are starting to process the possible outcomes as I believe everyone believes that it is a bubble. It is just that they will get out of it before everyone else. Who knows how it pans out? just need enough people to panic and head for the exits at the same time.

The first day this news was released, the local real estate industry was in denial. Some actually argued why this would lead to a increase in prices. The last 2 days there has been a change, they are starting to squeal and put pressure on the government to make amendments as they are now worried. Apparently, some pre-sales/sales have been cancelled because of the tax, etc. They are complaining that it will result in job losses - 30% of local GDP is construction/real estate related. They did not need any amendments when the government was stimulating - as always.

I believe majority of the buyers to be locals who have taken on ridiculous amounts of debt in the belief that foreigners will keep buying at any price. My understanding of a bubble bursting is that the belief that is creating the rush to buy breaks down. The market locally has already slowed down considerably since April. Houses already sit for a while now. You don't have houses going up $100,000 in a day or even a month anymore. Most people who bought earlier in the year were expecting the prices to keep running. Not only has that stopped, but, now there is this law that attacks their belief. Most locals cannot imagine paying another $150-200,000 on top of the current prices and taxes. This is why I believe that this is the end.

Game over - 15% tax for all foreigners in Vancouver starting Monday. http://www.edmontonjournal.com/news/politics/premier+unveils+foreign+buyers+metro+vancouver+real+estate/12081555/story.html Average house is over $1.7 mil.

Happy Birthday!

This is a big deal psychologically. But, not sure if this ends the mass delusion or not. We could always add more debt to keep the music playing.

http://vancouversun.com/opinion/columnists/vaughn-palmer-nightmare-housing-scenarios-good-reason-for-government-caution A good read. The numbers are along what I expected.

Gary, do these people you refer to, understand the penalties and how they work? You have to live in a house for 18 months before flipping for the principal residence exemption to apply if you are a serial flipper. Even then CRA can question whether it is income or capital gains. In addition, CRA can question your past taxes for 7 years. Now it is different that individuals who don't understand the consequences often cheat. So much so, that I have even come across couples who claim to have 2 principal residences. But, good luck to them if they are caught.

Genworth if insured. Otherwise, private mortgages or fraud either by lenders or borrowers.

http://www.news1130.com/2016/05/31/bank-mortgage-metro-vancouver-scotiabank/ Scotia has been backing off on Vancouver and Toronto markets.

http://www.rosskay.com/vancouvers-ponzi-scheme.html Found this interesting. Not sure how good these guys are.

I stated on the previous post - yes, but they would have a cap on the exposure they would have on an individual. The $9.9 mil mortgage should tell you what the cap might be. There are a few banks that have been very aggressive in this market and others have followed suit recently. http://www.cbc.ca/news/business/rbc-mortgage-limit-size-1.3299631 PS. the Canadian and Vancouver market are built for speculators. Downside is limited to your 35% deposit if your income and assets are not in Canada. Upside has been huge.

In Canada, banks will lend to you with insurance with 5% down for the first $500k, and then 10% for the next $500k. At that point you need 20% down. As a new immigrant you need 35% down with no Canadian source of income or assets other than the down payment in Canada.

Virtually all have mortgage's. It is a myth that foreigners are paying cash - only a very small minority are not borrowing. Even in this write up on the $31 mil purchase there was a $9.9 mil mortgage. Why only $9.9 mil because the FI probably hit a cap. In most cases the financing is 65%.

Recognizing foreign income - What is the FI's recourse? The purchaser wins big if there is appreciation and walks away if the market goes the other way. A perfect set up if I were to attract speculation.

http://www.theglobeandmail.com/report-on-business/canadas-banks-fall-behind-us-europe-lenders-in-strength-gauge/article29950134/ Could we be building towards the perfect storm? This might force Canadian banks to tighten lending at the same time we are potentially peaking.

Spoke with mortgage brokers - 1) they can't believe the prices and the amount being borrowed 2) they see this as the time to make as much as they can to set themselves up for the rest of their lives. So they don't care as long as others are buying.

CMHC is a crown corp. But there are other players such a Genworth and Canada guaranty. I believe they have been agressive in increasing their market share after the government forced CMHC to reduce risk. In the first place it was the feds that doubled their cap to $600B after GFC to help the Canadian economy.

In Canada, the insurers are backed by the tax payer ( if I understand this correctly). Until 2011 CMHC insured 50% of all mortgages. But there is tremendous amounts of HELOCS out there that are interest only payments and aren't insured. The so called ATM.

rb - what scenarios do you believe will lead to lower rates? Unemployment being higher, deflation, economic shock, etc. None of these scenarios make it easier to pay back debt.

The other side is job losses due to deflation if we get lower rates. I can't see businesses prospering in that environment and with automation coming - I don't see how people will afford to pay back the debt they are taking on.