Canada

Canada’s Riskiest Real Estate Buyers Are Disappearing After Mortgage Stress Tests

Think stress tests are a bad thing? You clearly have no idea who it’s stopping from buying. Bank of Canada (BoC) numbers show stress tests may have stopped a large number of borrowers from getting in over their head. Almost immediately after stress tests were implemented in both high and low ratio mortgages, the market saw a dramatic decline of borrowers buying “too much” house.

I Totally Know What A Loan-To-Income Ratio Is, But Just Explain It Again…

Have you ever heard that a home should be 2-3 times your income? Of course not, most of you are Canadian. Financial experts suggest a mortgage about 2x your income, and no more 3x. That number is called a loan-to-income (LTI) ratio, and is the size of a loan compared to the income behind it.

In Canada, the LTI rule was twisted by the mortgage industry into your payments should be a third of your income. The switch allowed people to accept increasing debt loads, as interest rates fell. That idea wouldn’t be terrible in a country with fixed rates for the whole duration of the mortgage – like the US. However, it can become a bit of a problem when interest rates are on the rise, and you’re likely to renew at a higher rate.

Regulators haven’t forgotten the 4.5x max rule, and have been watching households with an LTI over 450%. These borrowers are called “highly indebted” at the BoC, and are people that bought “too much house.” That is, they’re taking out a loan disproportionate to the income they make. Rates are just off of record lows, but that increases the odds of experiencing higher debt servicing costs in the not so distant future. Households with high LTIs will have the hardest time adapting to higher payments. That’s precisely why most mortgages in Canada are now stress tested, to eliminate highly indebted borrowers.

Total Borrowers With Loan-To-Income Ratios Are Down Over 11%

Since stress testing was implemented, highly indebted borrowers have been disappearing. Only 16.58% of mortgages went to this segment of borrower, down 11.09% from the previous year. Peak borrowing in this segment occurred in Q3 2016, and we’re now 12.13% lower from that number. To see how stress testing saved many households from financial suicide, let’s break it down by implementation.

Canadian Mortgages To Households w/LTIs > 450%

The percent of mortgage originations to households with loan-to-income ratios higher than 450%.

Source: Bank of Canada. Better Dwelling.

High-Ratio Mortgages To Highly Indebted Borrowers Are Down Over 54%

High-ratio mortgages, those with a downpayment of less than 20%, were the first to get hit with a stress test. These mortgages are subject to government-backed insurance, and therefore experience stronger regulations. When highly indebted borrowers rushed to these mortgages while prices soared, the Crown corp incharge took action. They made borrowers undergo a stress test, before their loans could be insured. The test became mandatory in Q4 of 2016.

Since stress testing high-ratio borrowers became mandatory, highly indebted borrowers disappeared. Only 9.35% of high-ratio mortgages went to households with a LTI of 450%, down 28.57% from the same quarter last year. Since stress testing was implemented, highly indebted borrowers declined by 54.98%. Maybe it’s a coincidence, and high-ratio borrowers became conservative borrowers at the same time. Now where’s that darn eye roll emoji?

Canadian High-Ratio Mortgages To Households w/LTIs > 450%

The percent of high-ratio mortgage originations to households with loan-to-income ratios higher than 450%.

Source: Bank of Canada. Better Dwelling.

Highly Indebted Borrowers Taking Out Low-Ratio Mortgages Is Down Over 9%

Low-ratio mortgages, when a buyer puts more than 20% down, have a different set of rules. In theory, these borrowers are lower in risk, but many were people borrowing down payments to sidestep insured stress tests. The Office of the Superintendent of Financial Institutions (OSFI) implemented stress testing on January 1, 2018,  to be safe. Much like high-ratio mortgages, the ratio of highly indebted low-ratio borrowers dramatically declined.

The Canadian real estate market started to see a decline of highly-indebted low-ratio borrowers almost immediately. The ratio at the end of Q1 2018 fell to 17.59%, a 9.6% decline compared to one year ago. Since implementation the quarter before, the ratio made 9.32% of the decline. It’s clear that the stress test is saving borrowers from taking out too much mortgage in this case as well.

Canadian Low-Ratio Mortgages To Households w/LTIs > 450%

The percent of low-ratio mortgage originations to households with loan-to-income ratios higher than 450%.

Source: Bank of Canada. Better Dwelling.

Stress tests are being demonized by the industry, and even some politicians. Many claim it’s the reason behind lower price growth, but it was unsustainable growth to begin with. Stress tests reduce the maximum mortgage size, and prepare buyers for higher rates. The only buyers impacted by these test, are ones that would have been highly indebted. The more of these buyers that pile into the market, the higher risk the market becomes as rates rise. The industry should be celebrating that loan quality is improving, instead of complaining that they can’t get a family into a loan that’s questionably large.

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70 Comments

  • Reply
    CS 2 weeks ago

    People should be happy that risks are decreasing, but they wont be.

    And when the market completely hits the skids, everyone will blame the government messing with the “free market”, and not idiots buying homes they could never afford.

    • Reply
      Ivan 2 weeks ago

      First, decreasing risks for banks and overall economy means sacrificing affordability. And we clearly see it, 40% less people can afford a home today than a year ago. I don’t think all of them are very happy that they were forced by a brutal force to destroy their plans and dreams.

      Second, there is a difference between reasonable risks decreasing and maniac-style overkill measures. Three rate hikes plus two stress tests plus foreign buyer taxes and other measures in less than one one is 100% overkill and market clearly shows it. That was exactly the reason why Liberals in Ontario from party with power dropped below the official party threshold of 8 chairs, because people don’t like to be harassed while they are told it is for their own good.

      • Reply
        Obi 1 week ago

        People have dreams of homeownership, but that doesn’t mean taxpayers need to be on the hook for their risk. If I want to be a dancer, and train with a world renowned Russian ballet instructor, should taxpayers be on the hook if I default? Fuck no.

        Loan channels (banks, CMHC insured loans) that require a government guarantee bond program to operate, should require plans that mitigate taxpayer risk. It’s funny, because conservatives preach free market, but when it comes to homeownership, they need the taxpayers waiting on the sidelines with bailout money.

        • Reply
          Ivan 1 week ago

          You should not use “taxpayer hook” speeches to justify overkill maniac measures. Taxpayers being on the hook is bad at all times, regardless.
          We don’t choose between overkill measures or keeping taxpayers on the hook, it is possible to achieve both decreasing the hook and not going into overkill measures zone.

          • Bluetheimpala 1 week ago

            You are a troll, partisan shill or a moron Ivan, that much is clear. We get your kind here all the time, if you even last a couple weeks I’ll be surprised. You all drop off as reality sets in and like rats on a ship your own self interests take over and a shitty little blog like this is no longer on your radar. I can assure you, we’ve seen a dozen ‘Ivans’ come and go. Bye muffin. BD4L.

          • Ivan 1 week ago

            Blueimpala, I’m not gonna stay here for long if most of people here are like you.
            The fact that you use moron etc in every message just shows how uneducated and full of hate you are.
            While other kids were growth by parents in safe and respectable environment, you could not receive a culture and behavioral pattern from your parent, maybe because they were too busy using drugs or being at prostitution business

          • Tim2 1 week ago

            housing should be earned, ITS NOT AN ENTITLEMENT.

            the same can be said on the way up………..

          • Luigi Vampa 1 week ago

            Oh dear Ivan… who is resorting to ad hominem attacks now. Blue can be really insightful if you just step back and listen for a sec.

          • CBo 1 week ago

            I feel like dropping street knowledge to reinforce the message. Had lunch with a very successful software rep the other day who makes bank. Wife and him bought on the east side, 400 down, million dollar mortgage. He told me he has never been more stressed in his entire life.
            Another broski is an master electrician who loves the side jobs. I get part of my economic pulse from him. Had dinner w him last week. People are still upgrading, installing tesla chargers, and doing aesthetic upgrades with their Visa’s and lines of credit. He often chats up his clients to make sure they have the working capital. Many still say, ‘no problem’, I’ve got a line for $10,000 project.
            Gov’t intervention was put in place to taper this behaviour, and save us from ourselves. @Ivan, if you can’t get in the market with the stress test, then you should not be in the market in the first place.
            And if one more idiot on here suspects me of being a mortgage broker, I’m literally the farthest thing from it. Very pro correction.

          • RomeTimed 1 week ago

            “Maniac Measures”

            These are pretty low-key measures for countries and areas going through mass housing crisis. Singapore, for example, brought in whole bans on foreign ownership of various residential homes.

            Don’t see a reason why not to implement similar bans in Canada.

      • Reply
        Ham 1 week ago

        Those people who can no longer “afford” places could never have been able to afford them in the first place. These are the people who need the government interventions to save them from themselves and their destructive financial illiteracy. If they have to stretch themselves thin during the period of historically low interest rate with rate increases in the pipeline, can they really afford the places they want?

        I don’t understand why one would think 2% stress test is anything but reasonable. Current rate + 2% brings us to historical norm, which is what people should use to calculate their mortgage payments to see if they can afford it.

        And here’s a silver lining for you: if 40% of people like you said disappeared from the market, what do you think would happen to the prices? It would come down and those people who got priced out of the market would be able to afford again but with much less debt. See? It’s not all doom and gloom.

        • Reply
          Ivan 1 week ago

          Ham, totally wrong.
          There was absolutely no affordability increase.
          I understand your expectations, you have cause and expected result. But there is a miscalculation.

          If you noticed, only houses dropped in price, but condo are at record high. In fact, condo prices were boosted by B20.
          Speaking about people that were struggling to qualify for a morgage, most of them now completely forgotten the idea to buy a house, they are no longer qualified. So, even though price decreased, they cannot use it for their benefit. They look at condo market only now. And what do they see on condo market? Record high prices with huge YoY increasse, while their qualified mortgage amount was decreased. They have zero benefits from B20. Let’s just clearly state it.
          The only benefit of B20 are decreased risks for banks and overall economy, it has no benefits for affordability.

          • Foxxy 1 week ago

            That is an enormous and ridiculous assumption to make about the general population. That just because the condo market is in a boom (mostly due to idiot investors trying to get on the tail end of a ponzi scheme) does not mean that buyers will never look at houses again. The condo thing has only been happening for 2 quarters (and again primarily fueled by investors) which is not enough to state it is a prolonged and reversible trend.

            I think you’re only talking about people who are trying to get in the market as an investment and not regular people who just want a place to live.

            F*ck the investors I hope they all go bankrupt

          • Ken Wu 1 week ago

            Ivan does not understand how markets move when he says condos are still increasing. Yes, the top of the market always goes first, as it leads, so people are forced into the bottom of the market, which temporarily shows increase, until the herd realizes that suddenly there is little difference between the top and bottom, at which time the herd stops buying the bottom as well.

            Welcome to Economics 101. You’re welcome

          • Ivan 1 week ago

            Ken Wu does not understand that people here discussed whether affordability increased or decreased, not predictions for condo market.
            And the answer for affordability change is clear: it decreased.
            But you are allowed to hope that it will increase because of some of your forecasts. Dream about it, I allow.

          • RomeTimed 1 week ago

            Condo markets in Canada is 80%+ driven by speculators over the last 5 years.

            Condo market sales are also down down down as not many people can qualify for the condo market anymore.
            (Condo market sales down 11% in Toronto June 2017 v 18, Condo market sales down 21% in Vancouver June 2017 v 17)

            As this continues the prices will collapse as inventory continues to increase and more and more new inventory is added to the mix (record levels upcoming), as has happened with the detached market which is down about 18% from 2016 highs and will continue to drop another 30%+ over the next few years.

          • RM 1 week ago

            The ONLY benefit is decreased risk to the overall economy.

            HAHAHAHA! Oh, is that all?

        • Reply
          CBo 1 week ago

          damn. I should have kept scrolling down. You took the words out of my mouth.

          • cc 1 week ago

            As I said many times earlier, you guys have a huge issues with understanding simple things. Your opponents are not saying B20 should have never been implemented etc. So you don’t need to reply that BS that B20 is a right thing. And don’t need to say that no longer qualified should not buy.
            What your opponent says is that everything has its golden time of introduction and the optimal scale/size.

            B20 adds 2% and removes some buyers, you are gladly ready to justify it, no matter what. Just imagine if B20 added not 2% stress test, but 45%. Your speeches would immediately become a total BS of guys who understand nothing.
            Same thing here, you are ignoring the arguments that 2017 year was overflooded with interventions, which is pretty much same thing as denying that 45% of stress test is not reasonable.

          • Grizzly Gus 1 week ago

            My point is that I think 2017 truly only had 1 measure that was within the control of Canadians, and this one was probably also a vote play. That being the foreign buyers tax/ fair housing plan. Not the only reason the LIBS got the boot (think hydro was the biggy) but there you go. The province as a whole did not appreciate this, the LIBS got a total of 7 seats. I will point out that this was the first shoe to drop. Whether they knew what BOC and OFSI had in store is a different question and one I am not going to pretend to know.

            OFSI and BOC cannot be voted out. Poloz was appointed during the CON rule fyi.

            Unless we are going to allow our dollar to drop substantially which I think will make things much much worse for all of Canada we have to follow the FED through a tightening cycle. Trumps tax cuts should add to inflationary pressures (this was passed last year) therefor the amount of hikes Canada had to start projecting went up as well.

            Once you realize that we pretty much have to follow the fed, the next question is how far will the fed be able to rise before their economy blows up or they start holding again. I think 2% is pretty reasonable, but could be a tad to the low side. 45% would be ridiculous. Even 4% would have been too much in my opinion.

            So if our rates should be going up 2-3%, and we have record household debt levels, then is it not prudent to put measures in place to protect our financial system?

            Point above is BOC and OFSI really had no choice.

            Personally, I think we should have done the foreign buyers tax after the later two measures to allow Canadians to unload to “Rich” foreigners. Leave them holding the bag

  • Reply
    Mac 2 weeks ago

    Thanks for this. I just assume any politician opposed to the stress test is a shill for the real estate industry. If Canadians have guarantee the bonds the banks use to fund mortgages, banks shouldn’t be able to make risky loans and transfer the risk to taxpayers, but keep the profits.

  • Reply
    Po 2 weeks ago

    But how many regular households are forced to use private lenders, and pay rates 3x times what they would without a stress test? These tests also kill affordability, by forcing borrowers to adopt predatory loans.

    • Reply
      Michael 2 weeks ago

      None. It’s literally designed to only prevent people from borrowing too much. If you’re going to a private lender and the payments are lower, double check that you’re not on an interest only payment plan.

    • Reply
      John 2 weeks ago

      Who is forcing them?

      The family is making a conscious effort to skirt the safeguards the government is trying to provide them.

      It’s like telling your child not to do something, so they stare at you as they do it anyway.

      I dont wish sorrow on people, but seriously, if you’re pushing ahead anyway you can piss right off when it goes sideways.

      • Reply
        Bluetheimpala 1 week ago

        Ding ding ding…spot on …my 3 year old would eat cheetos all day. He gets angry when I catch him with the bag scarfing it down. He puked once but went right back. Unfortunately we all became 3 year olds and now we’re made because the parents had to step in…boohoo…BD4L.

    • Reply
      Ivan 1 week ago

      We are surprisingly long in a stage that was supposed to be short term and temporary.
      That stage definitions is simple.
      1)Government forces population by brutal force not to buy and says it is for their own good, decreasing risks and affordability. Of cause its a lie, but it is what government says.
      2)Population is super happy because drop in sale prices look like affordability increasing

      At the next stage population realizes that they actually were victims of that brutal force and the only reason of price decrease is because they were forced not to buy. People realize that they don’t win much from that and become angry or even in rage mode.
      How soon the next stage comes depends on IQ level of population, the smarter it is, the faster it comes. So far, not fast.

      • Reply
        Bluetheimpala 1 week ago

        Brutal force of normalized lending practices designed to reward fiscal responsibility vs a messy FOMO culture of outbidding the other morons to end up with an overpriced piece of crap that you have no way of sustaining outside of an artificial rate environment? And then they become angry at the govnement because this normalized environment is ‘fake’ and we should all be borrowing money at historically low rates for, oh I don’t know, the next 1000 years or until Elon gets us over to Mars? Sorry, my brain sort of gave up while reading your blather so my penis took over and he’s not too bright. BD4L.

        • Reply
          Ivan 1 week ago

          Bluetheimpala, looks like its too hard to understand very simple thing to you.
          Noone is talking that countercyclical fiscal and monetary policies should not be implemented during crazy growth periods. What I was talking about that those measures in our case is a clear OVERKILL.
          If you wanna get rid of FOMO, morons etc, why don’t you ask government to completely ban all mortgages, force people buy for cash only? Or put 100% property tax per year on each property. As a market crash crazy believer and fanatic, you are ready to justify any crazy idea, not measuring whether its an overkill or not.

      • Reply
        Grey Outlander 1 week ago

        It makes me cringe to say this, but I don’t think people care about affordability anymore. They just want their friends and neighbours who have made a killing to STFU about real estate, and maybe even see them suffer a little and feel smug about their own prudence in not buying a house. That’s the impression I get from most RE blog comments lately. Okay, not lately. Forever. RE bears have sounded like that forever. They just want everyone to shut up about real estate.

      • Reply
        RomeTimed 1 week ago

        “Government forces population by brutal force not to buy and says it is for their own good”

        Uh… that’s not what interest rates are.

        Do you know how a fractional reserve system works?

        If Canada doesn’t keep pace on interest rates then we will hit hyperinflation.

        If you’d like to live in that you can always move to Venezuela…

    • Reply
      Bluetheimpala 1 week ago

      ‘Regular’ people don’t get caught up in FOMO and make bad financial decisions because their buddy at work did. If you’re referring to ‘FOMO’ people then a lot will continue to screw themselves over and then feel the pain when reality comes crashing down with each and every rate hike.

    • Reply
      JTEpic 1 week ago

      Forced? Who is holding a gun to people’s heads to BUY a SFD they can’t afford on credit?

      Again, it’s this mentality that everyone must buy the house they want, now, with “money” that is not theirs. Need affordable housing? Move.

      Overpaying for a mortgage is just dumb entitlement.

  • Reply
    Bluetheimpala 1 week ago

    Damn, did I leave the door open when I locked up last night…see the regular partisan crap that bubbles to the top when times get tough. Guys like Ivan and his ilk have such a myopic view of life and society; easily blaming others and the powers that be when in reality we ate too much, puked and then are the puke for a good 2-5 years. ‘Good canadians’ have been brutalized by the government and regulation…blah blah blah. Rates will continue to increase and more controls on foreign speculation will be put in place. We’ll be in a recession in 2019 if not before. If you honestly think the housing in Canada is sustainable you’re a fucking moron and the reckoning will hit you and your flock far worse than though who live in the light. Winter is here. Bundle up muffins. BD4L.

    • Reply
      Ivan 1 week ago

      Bluetheimpala, I know that BetterDwelling is a website for crazy bearish fanatics like u. Not gonna even argue about you being a clown. Does not worth it to waste time on that.
      We were discussing completely different subject, not your dumb predictions of crash. We discussed whether governmental actions are right and justified. The answer is no.

      • Reply
        Grizzly Gus 1 week ago

        Did you have a problem with the CMHC insured mortgage program Ivan? You know, that thing that allows banks to lend more money to homeowners at lower rates so that they are able to buy a home?

        I know the banks love it, at conferences in the US they always like to point out how they are safer than US banks were pre GFC because our government will be forced to bail out those mortgages if they go sideways.

        Should we be getting rid of this government intervention as well? I definately think so. Had we not had this program in place, prices would not have gotten as crazy as they are.

        • Reply
          Ivan 1 week ago

          Grizzly Gus, if you think CMHC insurances should be removed in the future to make taxpayers safer- why not? It just should be done gradually and without causing shocks for the market.
          The article says that risks were decreased, but it does not say that actions that were implemented were too brutal in that short period of time.
          Just count it. In less than a year:
          1)3 rate hikes
          2)first stress test under 20% down
          3)second stress test for 20%+ down
          4)Foreign buyer tax
          5)rate control tightening

          Does it look reasonable for you to implement this set of measures in less than a year? For me, clearly not. If we talk about 3-5 years, why not, if market is not placed into shock from those measures.

          • Jo 1 week ago

            I really don’t get what you’re angry about with B-20. They made sure buyers can pay their bills on time, or they have to transfer the risk to a non-MBS lender.

            Making sure people can pay their bills is worse than Hitler to mortgage brokers, but 99.9% of mortgage brokers don’t understand that rates are set by the public appetite for Canadian bonds, not the Bank of Canada. It’s becoming increasingly more difficult to lend CANADA money, so rates are rising. The more borrowers with junk levels, the more expensive it becomes to lend us money, and that would drive up rates for the rest of us.

            Kill people stretching themselves thin, to preserve rates for the rest of society sounds like a great fucking deal to me.

          • Grizzly Gus 1 week ago

            Interest rate hikes and Stress tests were implemented by independent government bodies. BOC does control our rates but in actuality we pretty much have to follow the US FED. Therefore, if OFSI realizes that the BOC is going to have to raise rates, and potentially substantially over the next few years. Isn’t it in the best interest of all of us for such measures to be put in place. Their mandate is to protect the banks, but if in doing so they are making sure that households have a buffer in place, I think its a great measure. Otherwise households go bankrupt and taxpayers have to bail out the banks.

            To recap so far, interest rates are really out of our control, we see where they are going, and put measures in place to mitigate the impending doom. = Great move.

            Foreign buyers tax which was implemented by the Ontario Liberals definitely had a psycological effect on the market place but I do not believe this is anywhere as material as rate hikes and stress tests. Reason being that China had already implemented capital controls to stop the flood of money escaping the country. BC had already done the same, there was a big drop in activity, but by the time ON government was rolling out theirs, the activity in BC was already back in action. If anything I think ON liberals thought we would follow a similar path, but wanted to show the voters that they were doing something. The psycological impact however probably did save a few Canadian households from taking the plunge last summer/fall which I would also say is good thing.

            When the recession arrives and all this shit hits the fan, I actually think we should up those taxes further. Why? Because our dollar is going to be in the crapper and our economy will prevent a lot of locals from being able to buy for a while. This would be a prime opportunity for rich foreigners to scoop up all of our shit on the low when Canadians can’t compete.

          • Ivan 1 week ago

            Jo, you guys clearly have some issues understanding simple words.
            There nothing bad in B20 if it is a single new measure during the year of 2017.
            But we had at least 5 strong actions in very short time period and it is not a right thing.

          • Jo 1 week ago

            No Ivan, you have basic comprehension problems. People are discussing why B-20 is required, and you’re still on about how foreign buyer taxes. You’re debating the relevancy of one issue, by saying another issue should not have been regulated.

            This is why no one cares what the mortgage industry thinks, you guys can’t string together a coherent thought. Go back to complaining about Hillary’s emails, or whatever non-sensible junk supports why you think stress tests are bad.

          • raukas 1 week ago

            All the changes you mentioned were not implemented by a single body. BOC and OSFI have independent mandates and as someone working in a professional field will tell you, all you should care about is your work scope/mandate. If the actions of BOC and OSFI act together as a double whammy to slowdown the RE then so be it. They have to protect their reputation else you will be the one blaming them eventually for not doing their job in the first place.

            Foreign buyers tax and rent controls were implemented to protect people from unreasonable (>5%) housing price and rent increases respectively. The goal is sustainable growth and any policy which helps to achieve that should be welcomed.

          • Ivan 1 week ago

            Raukas, the fact that left hand of the government does not know what right hand is doing is not a justification. Moreover, there were in sync, even BMO Chief analyst Doug Porter clearly stated it that it was designed together with help of all big banks and all levels of government.

            Wynne knew that B20 is coming and her FBT will become an overkill from January 2018, there were plenty of options how to address it. Now Ford will address it by repealing FBT. OSFI also knew what BOC is doing with rates because rate hikes already happened at the moment of B20.

            Each single measure is good alone, during one year timeframe, but saying that there were different hands of the government who overflooded the market with interventions is not a justification. Responsible government is supposed to be responsible, without creating weak justifications.

          • Ivan 1 week ago

            Raukas, I also don’t know in what entity you are working, but OSFI’s reputation actually suffered, at least in my eyes.
            There was a TV interview with head of OSFI and a reported asked him “what if B20 would be an overkill and causes market crash? Would you repeal it after realizing it?”
            And he replied “Nope, stress tests are good at all times”.

            I get it that he wanted B20 to make as big impact on the market as possible, that is why he said it. It was a message that all levels of government wanted to send to market. But as a professional, he destroyed his reputation since his words are totally not aligned with counter-cyclical monetary policy approach.

          • CS 1 week ago

            Yes Ivan it is reasonable for the governments and banking instutions to protect the Canadian economy from a housing market meltdown caused by people buying houses they CANT AFFORD.

            FYI, I was approved for a mortgage in May, stress test and all.

            Home ownership isnt dead for all Ivan…….

          • AJ 1 week ago

            Ivan
            Let me ask you: if you got into an accident and broke both your hands and legs, would you wait for your hands to heal before taking care of your legs?
            2016-2017 was such an accident that the entire housing industry was totally messed up and needed such drastic measures to cure the ills ( or at least stop the bleeding). Even after all this , Prices are still not back to pre 2015 levels even for houses. So please understand that an extreme incident does require an equally extreme reaction

          • Ivan 1 week ago

            AJ, it makes perfect sense only if government clearly states that counter cyclical policy is in progress and if reality check shows that effect of these measures is bigger than expected, government is ready for support measures as well.
            Government did not say it clearly and therefore the trust level to gov is at the bottom today. People are uncertain whether we deal with government that is capable for action in both directions, or is it an insane government that is only capable for tightening no matter what.
            The trust to gov can be returned if throughout both 2018 and 2019 we will see no more tightenings and moderate BoC activity with rate hikes.

            Using you picture with broken legs and arms, imagine that next day after you had a massive surgery, doctors comes to you and says “hey, by the way, I found you kidney also works on 20% of its capacity, lets transplant it too. You are not gonna die for next 5 years even without this surgery, but we still wanna do it today and you have no choice”. The patient would reasonable ask himself “Is doctor insane? Should I file a complaint.”

      • Reply
        carlton 1 week ago

        Ivan, I bought my home at 6.1 interest rate in 2007 and at that time the bank would have never given me more than 3 times more than my income, they had good lending practices then.
        Fast forward to 2018 and stress test sits at 5%. What is so brutal?
        There are more millionaires in china than Canada has people. what is so brutal about taxing foreign buyers?
        my home price has tripled since 2007, is that sustainable? has my salary tripled in the last 11 years? hell no. they should have raised rates years ago.

        You need to move away from these brutal tyrants oppressing your need for bankruptcy. Bunch of assholes getting in your way! I feel your pain Ivan how dare they!

        • Reply
          Ivan 1 week ago

          Carlton, don’t try to offend me, its not a pain, but a reasonable criticism that I simple expect to be heard. If it is not heard, the next steps are simple. Federal Libs will have same level of disaster on next elections like Wynne recently had. Its that simple.

          Speaking about “your pain”, even you clearly say they should have raised rates earlier etc. Technically, you are actually agreeing with me, but still trying to bite. It was exactly what I was saying, government is not allowed to do irresponsible things for years or decades and then in less than a year do a massive surgery to fix all of that. If they respect taxpayers, huge mess that was created by decades, should be fixed shocks-free gradually, not in one day.

          • bull with steel balls 1 week ago

            Ivan. why you waste time with these fools? they don’t want education – they want free lunch. Blue is biggest troll loser. site is for renters hoping for crash. what the problem? many canadians made huuuge money from real estate from foreign investors. these canadians did nothing – they are just lucky to own house in major city in safe country canada. renters on this site just upset because parents won’t give them down payment. this site for bears with dirty asses.

          • BikeMike 1 week ago

            You know that the Federal Liberals were not even in power for the period from 2006-2015, right?

            Cause a lot of the loosening of credit occurred under the watch of their predecessors… it’s too bad that a new gov’t may have new priorities and see this as a huge economic risk?

            It’s unfortunate that folks get caught up in this, but the reality is that people are actually better off going bankrupt quickly or having the booze taken away immediately. Otherwise, it just continues to drag people in and prolong the problems for a longer period of time.

          • LL 1 week ago

            BikeMike, there is a huge difference between addressing “huge economic risk” and being an actual “root cause of new crash”. If interventions are not measured accurately, they can cause crash that otherwise would not happen. Therefore, Fed Libs are either should be extremely accurately or keep their dirty hands off the market at all. So far, they fail to be in category #1 by accuracy standards.

          • BikeMike 1 week ago

            LL – let’s just agree to disagree on this. Given what I see on the ground, I think they’re doing exactly what they should be. Housing needs a severe correction to occur and the medicine will taste pretty bad. It’s gotten to the point where even high income families are having problems due to the trickle down impacts – both parents working, but childcare providers, teachers, etc are increasingly in short supply due to housing being out of reach.

            On top of that, we’re *badly* in need of a drastic course change as far as economic diversification is concerned. These things *never* unwind gently and without a severe change of course, it’ll just be worse in the end.

          • LL 1 week ago

            BikeMike, you completely misunderstand governmental actions.
            None of them had a goal to cause a “severe correction”, it was actions to decrease risks, cool the growth etc. The moment when anyone in government says they wanted to cause a severe correction, the queens Park and Ottawa will be burning if fire from population in rage mode.

            You are just mixing your personal hopes and dreams with what governments actually wanted to achieve and how exactly government calculated the effect. As a result, you are ready to justify anything they do blindly.

          • carlton 1 week ago

            You’ve been heard, Its pretty obvious I was’nt trying to offend you. Your very touchy, you must no longer qualify, sorry about that.
            Boc is still raising rates too slowly we should have had 2 more raises by now. If the economy is at full tilt and we can’t raise rates, when should we do it?
            If I were in your position itching for bankruptcy, I would run to my alt. lender before the unjust government brutally raises rates another .25

          • BikeMike 1 week ago

            LL – no, I’m not. You think political actors are going to tell you that’s what they intended? You think it’s impossible that they saw the writing on the wall and figured that they can’t kick the can any further? I don’t know for sure what they were thinking, but I do know for sure that it was necessary.

            Just like you don’t know my personal aspirations. I don’t have any desire to own a house – too much hassle. We have the cash and income to do it, but trade off is working for another 30 years to pay for it. That’s for chumps.

          • LL 1 week ago

            LL it does not matter what you assume they were going to do.
            They had clear plan that they promised to population and population has right to judge how good results are, how accurate results from what was promised etc.

            Looks like Wynne sacrificed her status of political party in Ontario for decades, if not forever, because promises were not well aligned with results. Hopefully she thinks the sacrifice did worth that. But I personally think she is too dumb to even understand why she lost.

      • Reply
        RomeTimed 1 week ago

        I’m interested to see how Ivan thinks a recession isn’t coming.

        Every banking system on the planet is preparing for it and he’s like “OMG BEARS!”


  • Reply
    Spectator101 1 week ago

    *Stephen, can I get some popcorn? Thank you.

  • Reply
    @xelan_gta 1 week ago

    First of all, I 100% support stress test so whatever I say below doesn’t change that fact.

    “The Canadian real estate market started to see a decline of highly-indebted low-ratio borrowers almost immediately. The ratio at the end of Q1 2018 fell to 17.59%”
    Those are great news, but in order to have full picture we need to compare those numbers to total mortgage originations, private mortgage lending originations and other credit products changes.

    If private lending is growing at the same time as High LTV originations are declining at big banks that is definitely bad for homebuyers and overall financial stability.

    This article may explain BoCs approach as well if they are mostly looking at LTV numbers and then claim that credit quality is improving.
    B20 is good and it’s doing its job removing risk from big banks balance sheets, no doubt about it. It’s just my view is not so rosy and I can see new risks created as a result of B20 as well.

    • Reply
      Rr 1 week ago

      Sometimes you just cannot save people from themselves or their friendly, RE agent who also happens to be a mortgage broker, who can arrange an alternate lender for a year, but next year when the house goes up by 20%, you can get a mortgate at under3% at a regular lender. And you will be able to use your rental income from the illegal besement apartment to qualify or some not so real income documents if you pay a little bit of money…….

  • Reply
    Ham 1 week ago

    Wow, clearly this article describing prudence measures irked some/all of the following groups:

    * Bag holder speculators who lost hundreds of thousands over the last year
    * Mortgage brokers
    * Realestate agents
    * Developers

  • Reply
    Mark Baum 1 week ago

    Ivan I’m with you.

    1 change, remove government intervention: Take away CMHC mortgage insurance for new buyers. Force private industry to take on the risk/insure the mortgages.

    Remove OFSI stress test (are you assuming private industry won’t implement their own, lol), foreign buyer tax, etc. It’s just 1 change – would that make you happy?

    Market would fall apart extremely quickly BTW.

    • Reply
      Mark Baum 1 week ago

      To be clear my point is, reverse the numerous regulations that are irking you/added last year, and make 1 change only which would be removing CMHC mortgage insurance for new buyers. Private industry (ie. Genworth, banks, etc) would then insure new mortgages solely from that point on and sell at premiums/risk levels that they see fit.

  • Reply
    Adam 1 week ago

    Prices have dropped slightly but the major issue in Toronto is that sellers are still in denial that 2016/7 is gone. They want what the neighbor got and they arent going to get it.

    My prediction is prices fall 10-15% by the end of the year with 2019 offering major uncertainty due to rising rates coinciding with renewals.

    I am a private lender*

    • Reply
      @xelan_gta 1 week ago

      If you are indeed a private lender do you understand that your prediction will cause you problems?
      As far as I know private lenders provide short terms loans(1-2y) and then borrowers refinance.
      If borrowers came to you that means their finances are not great or shady.
      When prices fall 10-15% how do you think they will be able to refinance?

      • Reply
        Adam 1 week ago

        If they default they lose the property. It’s not the end of the world.
        I didn’t say prices will never rebound. I believe we (real estate industry) are in need and deserving of some short term pain. 2016 will go down as a once in 50 year episode whereby the masses were blinded by greed and desperation.
        Long term (10-20 years) the money lending business is the way to to.

        • Reply
          @xelan_gta 1 week ago

          Be careful, because GTA market is overvalued by at least 30%. Nobody knows when it corrects and how deep it will be but it would be smart to calculate risks for that scenario as well. As far as I understand if borrower defaults you will only receive money in case there are leftovers after bank’s foreclosure.
          Good luck with your business.

        • Reply
          RM 1 week ago

          Adam, I am completely bearish on real estate but I greatly appreciate hearing sensible comments from those who benefit from a bullish market. I am actually a home owner with no debt, so my views technically affect me negatively, but I don’t want to be blinded by that. If we could all just agree that we got a little greedy and pushed things to unhealthy levels we would better off, at least in the long run.

  • Reply
    @xelan_gta 1 week ago

    Hot discussion today, I just want to clarify for all bulls/neutrals, especially LL and Ivan

    Should government intervene when RE prices grow 30% in 3 months when it’s clear bubble? Most likely. Seems like everyone pretty much agree here.

    If you are OK with government trying to slow down the market and engineer “Soft landing” you should understand one thing: Bubbles never end up in “Soft Landing”, they only end up in “Hard landing”. Study history of bubbles and you will understand why it’s happening.

    So it’s pretty much doesn’t matter what government is trying to do now as long as they try to slow down the market it will eventually crash it and it’s not their fault. They are doing great job at protecting as much important stuff as they can right now.

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