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Posted

 

http://www.theglobeandmail.com/globe-investor/banks-ottawa-discuss-measures-to-rein-in-canadians-personal-debt/article1834870/?cmpid=rss1

 

"Fairfax Financial CEO Prem Watsa is among the influential voices pointing to the impact of soaring debt on the broader economy. Not only are Canadians overleveraged, primarily with mortgage debt, low interest rates have prompted speculative buying that is artificially inflating housing prices, he said."

Posted

I have never understood why bankers do not adopt the practice of pricing mortgages according to risk. My understanding is that as long as borrowers meet the income servicing criteria, lower LTV loans are not priced more cheaply than high LTV loans (i.e. in the way corporate credits are priced according to risk).

 

Apart from making theoretical sense, it also creates the right incentives for borrowers to keep their LTVs as low as possible. It also makes the risk takers pay more than the prudent borrowers.

Posted

Well, the good news is we don't use our houses to fuel leveraged consumer purchasing binges like our American counterparts did.

 

Hmmm.... really?  Then why the rising level of debt to income?  Where does the money go to, more/bigger houses?  That's even worse.. we didn't even get to enjoy the binges.

Posted

Many may be "house poor." I don't think this is just the case though. I think a lot of people in their late 20s/early thirties may have high consumption lifestyles, almost zero net worth, and/or have it tied to their house. I suspect a lot of them also use a lot of credit. Imagine what may happen if mortgage rates double when they renew in 5 yrs. Do they pay it off with their unsecured LOC?

Posted

Vancouver is probably in the midst of the most self-aware bubble I've ever seen. I know Vancouverites, and recent home purchasers, who cheerfully acknowledge that they over paid for their homes.

 

One family spent $1100 per square foot for a fairly modest home in pleasant neighborhood. You pay megabucks just to live in a clean location!

Posted

Its funny, I just had a conversation with a mortgage broker the other day how its crazy that the interest rate isn't really much different on LTV. I had asked him to quote me on a loan for a primary residence with a 40% ltv and a secondary residence with 80% LTV. He told it didn't really matter LTV and rate ended up being almost identical.

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