Smaller mortgage, higher rate?!?

If we lived in a world where free market forces set prices we might expect a buyer with a larger down payment or a smaller mortgage to get a better rate.   After all a lower loan/value and more of the borrower’s skin in the game reduces the risk for the lender.

Instead the mortgage market is highly distorted by the commission sales model and government insurance.   Are you trying to save up the 20% down and keep your mortgage small?  Well perversely you may have to pay a higher rate than your neighbour that bought a McMansion with 5% down.

For the banks, your neighbour’s government insured mortgage is about as safe as they can get, while your work to get out of the CMHC requirement means they need to shoulder the risk or pony up the CMHC insurance fees themselves (which makes their mortgage backed securities more attractive to investors).   At the same time the broker tempted with the prospect of commission on a $800,000 house will be a lot more motivated to negotiate than that sensible $300,000 you’re borrowing.    Robert McLister explains more in the G&M.

And also, a belated set of Monday stats thanks to Marko.

November 2015
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 145
New Listings 238 426 556
Active Listings 3060 3029 2986
Sales to New Listings
63%  74%
Sales Projection 609 567  581
Months of Inventory


Under 3000 inventory and almost 75% sales/list.   Yikes it is getting tight out there.

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114 thoughts on “Smaller mortgage, higher rate?!?

  1. Determining what is happening with condos is challenging since almost all new condos are reported as full price offers not including rebates that lower the actual amount paid. The median went from $305,000 in November 2014 to $357,500 last month. And that is simply a WTF moment for those following the market. Because it didn’t happen – prices for new condos did not rise that much in one month.

    Best just to look at re-sales and the median this month for condos in the core is up by $4,000 from the month before or 1.5% Definitely an affordability problem for buyers. You can’t get blood out of stone – the buyers are tapped out. And that kicks out one of the lower rungs on the property ladder as the gap widens between a house and a condo.

    If your intentions are to buy a house then DON’T buy a condo first.

  2. Maybe some resales of the same home might bring the market into focus when the Board’s summary comes out in the next day or two.

    A downtown condo along Johnson bought in July 2009 at $302,500 re-sold for $310,000

    A detached home along Wilkinson purchase April 2011 for $467,000 and just re-sold at $453,200

    A manufactured home on First Nation’s Land in Central Saanich bought September 2007 at $270,000 and re-sold at $265,000.

    A townhouse in Brentwood Bay purchased February 2007 at $348,000 and re-sold at $333,000.

    Langford home purchase April 2009 at $499,000 and re-sold at $520,000

    A circa 1982 condo near the Jubillee bought for $132,000 in February 2005 and re-sold at $167,000

  3. It may be more meaningful to know what type of property and where the sales volumes have been increasing. If you’re looking at just house sales in the core…

    Mnth 2013 2014 2015
    Jan 72 90 90
    Feb 107 125 164
    Mar 146 150 231
    Apr 199 216 235
    May 206 218 284
    Jun 196 207 261
    Jul 184 199 201
    Aug 151 171 184
    Sep 137 167 179
    Oct 134 175 204
    Nov 119 113 140

    Sale volume for Condos in the Core follows the same pattern.

    Mnth 2013 2014 2015
    Jan 58 81 78
    Feb 99 82 117
    Mar 92 118 145
    Apr 120 124 187
    May 117 127 151
    Jun 125 108 167
    Jul 111 124 180
    Aug 92 129 141
    Sep 82 111 136
    Oct 101 112 133
    Nov 80 100 125

    The table below is for all properties in all areas

    Mnth 2013 2014 2015
    Jan 290 352 350
    Feb 405 419 550
    Mar 483 562 726
    Apr 638 670 851
    May 646 732 896
    Jun 648 686 904
    Jul 598 670 810
    Aug 542 588 719
    Sep 475 584 671
    Oct 489 591 697
    Nov 395 446 520

    And here’s the yearly totals for the last decade or so.

    Primary Year Sales
    2005 8176
    2006 7754
    2007 8774
    2008 6415
    2009 7874
    2010 6389
    2011 6028
    2012 5659
    2013 5935
    2014 6657
    2015 7174

    Certainly worth popping the cork on a bottle of sparkling wine like a Baby Duck. But I’d leave the Dom Perignon 2002 in the fridge on this one.

  4. So, now 30 months of consecutive year over year price increases. Happy anniversary! I predict 567 sales, which is 20% more than last year. You realtors must be doing well these days. First round’s on Marko!

  5. Good points Jack. The banks care only about their own bottom line. I wonder how many private lenders are bailing out all those insolvencies to avoid bankruptcy. If it’s happening in Toronto you know it’s happening here but not something people want to talk about.

    Mortgages For All

    How over-leveraged homeowners are turning to private lenders and threatening the economy

  6. BNN is having a special look at the possibility of a housing crash all this week. Interesting to note Benjamin Tal’s remarks that the BOC has a history of letting inflation get away on them then have to play catch up which then overshoots interest rates which then whacks housing and the economy. But I know, it’s different this time….if you’re a home owner.

    Risks at home: Will ghosts of housing crashes past haunt Canada?

  7. When I was in my mid twenties just starting out, I made $25,000/ year and had access to over $50,000 in credit. (Credit line & credit cards). If I had wanted to, I’m sure I could have doubled that and spent it all if I wanted. No bank will lend it to you in one agreement but across several banks, just about anyone can get in a lot of trouble on a low income. Getting $92k in debt on $25,000 income is easy (even ignoring student loans).

  8. Mon, Nov 30, 2015 8:20am:

    Nov Nov
    2015 2014
    Net Unconditional Sales: 547 465
    New Listings: 716 682
    Active Listings: 2,948 3,631

    Please Note
    Left Column: stats so far this month
    Right Column: stats for the entire month from last year

  9. I doubt if a deductible is the best way to go for CMHC insurance and the banking industry. The government may be able to get the desired result of cooling the market by having the insurance premium collected in the first 3 or 5 years of the mortgage rather than just tagging the premium onto a mortgage amortized over 25 years.

    The premium would be paid back by way of a higher mortgage payment over the first 3 or 5 years. It would also give the government more control over the mortgage market by being able to adjust the payback period relative to the economy.

    This would bring back the concept of risk in the marketplace. High ratio borrowers would be paying a higher payments for the first 3 or 5 years relative to those that have saved a 20 percent down payment. That could mean higher monthly mortgage payments of $100, $200 or $300 a month which would lower the high ratio buyers’ ability to pay for a property by $50,000 or $100,000. It would also motivate buyers to save for a bigger down payment.

    Our market is out of control because of a missallocation of risk. The government can’t make the banks responsible because in the bank’s eyes they are being responsible to their shareholders. The bank doesn’t care about the effects on the housing market after the mortgage has been made. They care about their shareholders profit not that home prices are being inflated by the Canadian people buying down the risk from high ratio buyers.

  10. Interesting that the banks want nothing to do with taking on one bit of CMHC’s over lending risk or it might crash the Canadian financial system. What an outdated 1970’s and 80’s thought eh ? No problem approving the mortgage as long as taxpayers foot the whole bill. No worries though, the BOC governor is on it. 😉

    Ottawa told plan to shift more mortgage risk to banks threatens nation’s financial stability

    TORONTO — The Canadian Bankers Association warned the former Conservative government that a proposal to have banks shoulder more of the risk associated with home mortgage loans could hurt the country’s financial stability.

  11. Thanks for the info Leo that the housing market is rigged for all Canadians to safely load up and can be guaranteed to never lose. That means there can never be a credit crisis caused from outside Canadian government control as has happened in every other boom and bust?

    That’s so reassuring that the BOC governor is going to save me after he says housing is over valued 30%? Maybe you should write the Financial Post , the Bank of Canada governor , the IMF, CMHC, UBS, Deutsche Bank and all the other international entities that have written in articles I posted the past months that Canadian housing is over valued by 30% or more and tell them they are full of it because it hasn’t happened yet. They don’t look like 1970’s and 80’s articles to me.

    Your absolute faith in the BOC governor to control the bond market is ridiculous and just another great sign of a nearing of a market top.

    BTW it’s your buddy Mike who thinks it’s 1980’s Leo. I have only pointed out his discrepancies in the economic comparisons to claim 160% gains are a slam dunk in a few short years. If that’s not worthy of debate then what’s the point of this blog ? Oh right, you own.

  12. Hawk, your daily negative opinions are based on old news, 1970’s and 1980’s news. Did you read that article I posted for you last week? … the article from the BOC explaining their 2% inflation strategy and the results of the 2% strategy compared to the economic strategies of the 1970’s and 1980’s?

    Face it Hawk, things really are different now because there is a governor on the economy, just like the governor on an old Model T Ford. If the economy speeds up too much the governor forces a slowdown and if the economy slows down too much the governor allows the economy to speedup. It’s called the 2% inflation governor and it’s working. It’s a bitch for savers and bankers, but it’s good for the economy and for real estate.

    The 2% inflation strategy works so well at regulating the speed of the economy that every western industrialized nation has adopted it. Canada began moving to the 2% strategy in 1991; there were growing pains after its implementation, and there will always be fluctuations, but that’s to be expected with any radical new strategy. The bottom line is that as the BOC gained more experience with the 2% strategy, it has worked better and better each year, despite the attempts by the bankers and financiers to sabotage it for their own benefit and their attempts to game the system.

    House prices under the 2% inflation strategy have risen to appropriate levels where homeowners can afford their monthly mortgage payments. Remember that the selling price of a house is mostly an irrelevant number, the only relevant number is the monthly mortgage payment number. Think of it as if the ‘value’ of a house is reverse engineered from the affordable monthly mortgage payment.

    Anyone who sold their RE holdings a few years ago who expects to buy back into the RE market after the next big crash is likely destined for years of disappointment. The RE market will go up and down a few percent, but a great crash is unlikely. It’s not 1981 Hawk…

    More reading material for you Hawk:

  13. “10% savings rates.”

    Not at all, but something similar to my last comment wouldn‘t surprise me… “late 80s.. 5yr mtg rates in Canada went up about 40% as Vic house prices climbed ~50%.”
    Meaning the 5yr fixed goes from under 3% now to well over 4% in the next 3-4yrs.

    I’m merely saying it’s not a bad model to follow. Of course there will be numerous differences but it has served me incredibly well so far. In the last few years it got me out of investments in Saskatchewan before the oil crash, told me to switch many of my equity & bond holdings to USD ~‘11/12, helped time the buying of property here in ‘13… last decade following the model I was even a gold hugger for a while 😉 Of course things could go totally astray, but I’m prepared for that. I often have investments that do opposite what I thought. The surprises make it fun.

  14. Not bickering just stating the facts so you don’t misead the sheep that its guaranteed money in the bank.

    Your theory holds no water as its based on commodity prices rising 30 % as well as the loonie rising 20 points as it did from 86 to 91. So you must be predicting that as well as 10% savings rates ? Commodities just blew thru 1987 levels in case you missed it. It’s the only reason prices went up plus no massive debt overhang from a decade of easy credit. It is different this time but I’m sure your banker is enjoying emptying your pockets every month and for years to come.

  15. “The world economies are much different then back in the 80’s and the US is about to unleash some serious problems when they begin to raise rates.”

    Again, same thing…US Fed raised rates by over 50% in the late 80s, while 5yr mtg rates in Canada went up about 40% as Vic house prices climbed ~50%.

    Let’s see how long we can bicker back & forth today between my xmas decorating, sun tanning, and getting my rent checks ready for deposit on Tues.
    Your turn…and for fun try not use the “it’s different this time” this time 😉

  16. Repairs are required to maintain current condition. Improvements improve the property from current condition. Improvements are generally discretionary.

    Fair enough, although I would argue that since everything in your house is degrading every year, replacing one of those things is an improvement from the current condition, but is a repair in the sense you are just returning it to the condition it was in 20 years ago.

    Anyway, good discussion thanks.

  17. That’s funny Mike since most of your charts are a year old or have your own upward arrows on them with no numbers to back them, just a lot of hope. I guess when you are maxed out on leverage you can’t paint the arrows anyway you want. The world economies are much different then back in the 80’s and the US is about to unleash some serious problems when they begin to raise rates.

    BTW, plane loads of oil workers rotating every week on West Jet wasn’t happening back in the 80’s oil crash. With 55,000 jobs lost you can be assured the lineups at YYJ are much shorter to Fort Mac these days.

    As per your harping of a repeat of house prices going thru the roof 50%, the country had just had a major market crash of houses on sale for up to 50% off. I bought one. It was not the measly 10% drop Victoria just had. That was a slowdown, not a correction. You must be new in town.

  18. This is the mother of all bear markets for commodities with no end in sight…

    Same “mother of all” as 1986 when oil crashed 70% …you remember, that was the year Vic prices started their 160% climb in the next 7 years.

    Your chart was published 6 months ago (based on ~year ago data) on a gold-hugging cavebear site called ‘financial sense’…nonsense would be a better name for the site…the chart’s not too bad, but old news. The bears hanging out there have been nearly as prescient as the bears hanging out here in the last decade 😉

  19. Old news ? It’s a chart from the summer when oil was still $60. A year ago oil was $75. This is the mother of all bear markets for commodities with no end in sight especially in light of China’s economic news the other day. China is shifting from a producer economy to a consumer economy and will have major effects on BC down the road.

  20. Old news. That’s where we were a year or so ago. Nevertheless, it won’t stop the bears from roaring recession, just like they did late 2001 & 2002.

    Some of the best fuel our market has behind it for the next 7 years is the herd of bears waiting on the sidelines shouting their doom & gloom.

  21. The graph for house sales by price range in the core remains asymmetric with three distinct modes for November. Generally a bell shaped curve with the mode, average and median closely grouped is characteristic of a stable market. This month’s graph looks like a three humped camel. The graph represents a somewhat dysfunctional market with uncharacteristic large swings in month to month median and average prices.

    The first mode is centered around $575,000 which is about $25,000 less than November of last year. The next mode is around $800,000 with no corresponding mode the year before. And the last mode is around $1,250,000 where there was just a start of an uptick in prices the year before.

    This makes determining what to bid on properties in the city difficult because of conflicting data. Just a small move up the property ladder from a starter to a middle income house corresponds to a very large increase in price. And that difficulty will continue as the volume of sales drops off this holiday season as the market becomes increasingly shallow and dysfunctional.

    For prospective buyers that means more auctions as agents capitalize on these conditions where buyers may have to pay a premium of 10 percent or more over fair market value for houses in the $700,000 to $900,000 range.

    Normally that would lead to an increase in collapsed sales as the appraised value would be less than the purchase price. However this doesn’t seem to be happening. Maybe the buyers are putting down larger down payments or the appraisers are searching for comparable sales that support the offer rather than testing the market with comparable sales to ascertain if the offer is reasonable. That introduces a bias into mortgage appraisals that any offer no matter how ludicrous is fair – and that is just wrong.

    I think a prospective purchaser should seek unbiased assistance when determining fair market value. Knowing what is fair they then can decide how much of a premium the house is worth to them. Best to have an unbiased appraisal performed BEFORE you make an offer.

  22. Here’s a better idea where Canada’s business cycle stands. It hasn’t even begun to hit bottom yet. All the commodity based countries are on a major downhill slide.

  23. Interesting chart on Garth’s blog how 70% of CMHC insurers this year only have 8% skin in the game.

    “But in pouring over the government agency’s docs, one of our highly-trained forensic investigators (a beagle by trade) sniffed out an interesting summary of recent activity. It’s the loan-to-value ratios for loans insured during the first nine months of the year. This is worth knowing: 70% of homeowners borrowed 90% to 95% of the value of their homes. In fact, the average LTV ratio is 92% among these borrowers meaning the average equity they possess is just 8%. Imagine what happens when rates go up.”

    As Garth said: We are so screwed.

  24. You forgot to put in the long term interest rates that started in the upper left corner and are now down in the lower right corner and now heading up for the first time in 10 years.

  25. You must have missed the news Mike. Canada’s going down, not up. The oil bankruptcies haven’t even started yet. Alberta is on the ropes and commodities exploded downward even after your rose colored glasses prediction of an imminent boom a couple months back.

    Finance minister revises Canadian economic outlook downward

    “Canada’s fiscal outlook is somewhat less optimistic than the one presented in Budget 2015 earlier this year by the then-governing federal Conservative Party, according to Finance Minister Bill Morneau.

    The projected budgetary balance has been revised downward by about $6 billion per year over the next few years. Deficits of $3 billion in 2015-16 and $3.9 billion in 2016-17 are forecast, and further deficits are expected in the couple years after that.”

  26. Our 7-year business cycles (recessions) have actually been quite timely lately… 2001, 2008, 2015… the next recession should be around ~2022, likely coinciding with our next price peak.

  27. “If we are at the end of the typical 7 to 8 year business cycle and heading into another recession …”

    You already missed it, we just came out of our 7-year recession cycle in the first half of 2015. GDP already bounced back strongly in the third quarter. It was very similar to the 2001 recession in severity.

  28. Consumer proposals have become more common because the laws changed. Used to be you could not do a proposal for debt over $75,000. The limit was raised to $250,000. A consumer proposal is a better thing for someone with current financial difficulty but income and assets to pay over time.

  29. My guess is that the average is skewed by the very spectacular high end debt that is correlated with business bankruptcy.

    Most business borrowing requires personal guarantees which does put your house and personal assets at risk. A business failure can result in a catastrophic debt load requiring bankruptcy. The median debt would be a more accurate representation.

    This report states: “The typical person who files for bankruptcy in Canada is a 44-year old male owing $56,545 to something that isn’t a mortgage. 55% admitted they had mismanaged their finances.”

    It appears that unpaid taxes are a big factor. 42% of debtors owed a tax debt with an average tax debt balance of $21,907.

    The report also states, “Most Canadians in financial difficulty are honest, hard working people. Much of their debt is accumulated not to buy things, but to make interest payments on existing debt. As their debt balances grow, so too do their interest costs, creating a cycle of ever increasing debt levels. Then, whether due to divorce, job loss, health crisis or the realization that they have maxed out their available credit, they are forced into bankruptcy.”

    Out all of the precipitating factors listed, divorce is the most difficult to plan for.

    My takeaway is that it is not a HELOC that is going to push someone to bankruptcy. It is other debt plus a precipitating factor.

  30. Makes sense to me. Insolvency is the first step before bankruptcy.

    As recently as 2000 the insolvency rate and bankruptcy rate was virtually identical. Now insolvency rate is almost double bankruptcy rate. How do you explain all those insolvent people not ending up bankrupt? What changed from 15 years ago?

  31. We can also say bankruptcy rates have been falling significantly since 2009.

    And that a only a small percent of the very small percent of those declaring bankruptcy are homeowners.

    And price appreciation for HELOC room only works if you have 35% of the overall value paid off. That is a lot of appreciation and equity and quite a buffer to a price decline – much more than is required to buy a home in the first place.

    Surely if you have 35% equity in Victoria you are not in a high risk category for bankruptcy due to a HELOC?

  32. Makes sense to me. Insolvency is the first step before bankruptcy. As the Manulife survey pointed out that 4 out of 10 are having difficulty paying their bills. There could be many more trying to ward off the creditors by claiming insolvency until they can figure out how to pay down the debt before they slam the door on them.

    If we are at the end of the typical 7 to 8 year business cycle and heading into another recession then it makes sense the bankruptcies are down at their low with insolvencies higher and is another sign of the easy credit coming home to roost.

    I still have no idea how half these retail operations stay in business in this town with such obscene rents. There is only so many dollars to go around with the big box places dominating. I expect to see the bankruptcies start increasing next year.

  33. While this seems logical, where is your data for this? Folding debt into mortgages is limited by equity requirements.

    When prices are appreciating at a rate of 10%, that’s $50k/year on the median house. Or $32.5k of additional HELOC room. That’s a lot of debt to squirrel away.

    In 1981 mortgage rates peaked at 21% and wouldn’t fall below 10% for another ten years. During this time bankruptcies averaged about 30,000 per year in all of Canada – less than half what they are now.

    There is more at work here than house prices. All we can really say about insolvency rates in Victoria is they are currently triple what they were in the late 80s.

    Anyone that can explain to me the growing gap between insolvency and bankruptcy rate gets a prize.

  34. How does the person making 25K aquire $92K in debt ? Doesn’t work like that. No bank lends you a line of credit or credit cards with that income. They must have had a home or had a high paying job they lost before the bankruptcy.

    That 1981 stat doesn’t count people who were forced to sell because they couldn’t qualify to renew the mortgage and ate the losses rather than go bankrupt. I’m sure there were multiples of 30,000 who were forced down that path. Not everyone claims bankruptcy if they still have a job. They just take up to 7 to 10 years to pay off the losses and stay renters. Many people will do that versus have a bankruptcy on their record.

  35. While this seems logical, where is your data for this? Folding debt into mortgages is limited by equity requirements.

    In 1981 mortgage rates peaked at 21% and wouldn’t fall below 10% for another ten years. During this time bankruptcies averaged about 30,000 per year in all of Canada – less than half what they are now.

    Bankruptcies increased after mortgage rates fell further and this appears to be tied to an increase in consumer credit and other debt by those who could least afford it – and this wasn’t homeowners.

    I’m not sure if it would be different now because of HELOC use but I don’t see strong evidence that those who are employed and paying mortgages wouldn’t try to ride out a market downturn. We didn’t have the subprime lending found in the US but I’m no expert in this.

  36. The risk is really the other way around. Bankruptcy rates increase after prices fall. While asset prices are rising it’s easy to hide overconsumption by folding consumer debt into your mortgage.

    You don’t know who’s swimming naked until the tide goes out

  37. Report the report.

    The average owed by an individual filing for bankruptcy was just over $92,000. “This high level is surprising, since a large percentage of individuals who file for bankruptcy are renters and, therefore, do not have a mortgage.” Between 2007 and 2009, 79 per cent of individuals filing for bankruptcy were renters.

    I wouldn’t put any faith in the assertion that any significant percentage of these folks lost their home to foreclosure first. Only about three percent of the debt of bankrupt renters is in mortgage debt. It is also better to file for bankruptcy prior to entering foreclosure.

    And this is not to say that I don’t think bankruptcy is a tough thing – it is. It might be a blessing for seniors with a lot of debt they can’t repay and few other assets who are being hounded by creditors though. They should end up with more money each month, not less.

    I don’t know why the bogey-man of bankruptcy keeps being raised as some valid point on this forum given the stats. Yes, it is a risk but the stats show it is an insignificant one and not usually happening to those who own homes. Unfortunately it happens disproportionately to those with a lot of consumer debt who are renters or who have gone through divorce and have low incomes. And other unfortunate situations like gambling issues, disability and addictions.

    If you are going to point out a significant risk to home ownership and finances in general you should be highlighting the effects of divorce.

  38. Sorry about the math error!

    The average annual household income of an individual who filed for bankruptcy is about $25,000. Bankrupt individuals tend to be unemployed, so have little to no income, and are typically renters.

    Unlike the debt load of the average Canadian household, the debt of a large percentage of bankrupt individuals does not include mortgage debt, but is instead composed of unsecured bank loans and credit card debt.

    “Household Insolvency in Canada Bank of Canada Review • WINTER 2011–2012”

  39. From totoro’s link above it looks like consumer bankruptcies in BC are down -12.8% from the previous year, business bankruptcies down -31.4%.

    “If there are more of them today then the numbers are growing.”
    Is that one of those…

  40. I’m not quite understanding what you’re saying there BeerKiller. 75% of the homes for sale in Langford were built after 2000. The Westhills development has a geothermal heating and cooling system for the entire subdivision. Cinemas, bowling alley, indoor play areas for children parties, water parks, shopping and clean family orientated restaurants.

    Langford City has an outdoor pool at Bear Mountain while Victoria can barely keep Crystal pool open.

    Meanwhile Victoria City is becoming BC’s next Downtown Eastside with tent cities and people afraid to leave their condos at night.

    Victoria City has to up its game.

  41. The problem with high end renos is it’s tough to stop. Once you reno the kitchen to a high standard, the living room looks shabby. Then you do the floors, and now those baseboards needs to come out. Now you really need to match the bathroom to the other rooms, and that deck is getting pretty old…..

  42. How does any of what you describe differ from say Gordon Head other than the fact it’s already like that and the houses are old and in need of repairs?

  43. Where does it say most seniors going under don’t own a home and due to gambling? Sounds like many did own. Even if they didn’t own they obviously had good enough credit to get into big debt but hit hard times due to health more than other reasons. As the article stated it’s a demographic explosion coming and these are the early signs. They aren’t all Jack LaLane’s.

  44. The number of people declaring bankruptcy is not growing JJ. We’ve had this discussion before. It is declining.

    The reason the rate of bankruptcy for seniors is rising is, imo:

    1. There are more seniors. This is not “spin”, this is fact.
    2. There is an incentive for seniors to declare bankruptcy in many cases as CPP and OAS and pensions are exempt from bankruptcy proceeding. If you have consumer debt and no assets or plans to borrow going forward, bankruptcy may be a logical step.

    And before we get all alarmist and sky is falling you need to remember that the percent of people declaring bankruptcy each year is tiny, and falling. It fell 2.9% from 2014 to 2015.

    The number of bankruptcies across Canada was 63,824 for the 2014-2015 12-month period. 10% is 6382 seniors in all of Canada. There were 5,780,900 Canadians 65 and older on July 2015. That is .0011 % of the senior population declaring bankruptcy. Hardly a calamity.

    Most of these are people who do not own a home and have experienced a divorce, medical problems or have issues with gambling.

  45. And one of those ways to know what is or is not the right location is to follow the trends. And that trend seems to be for smaller homes on smaller lots that require minimal maintenance.

  46. Maybe the rate has dropped, but these are people not rates. And the number of people declaring bankruptcy in one of the most affluent countries in the world has grown. Shame on you for trivializing their worth as human beings.

  47. Maybe you should contact the writer and ask for a retraction ? Imagine if the headlines said Victoria house prices are going to $1 million in a few years with zero numbers to back it up other than a wing and a prayer? At least they have numbers to back it up. Bottom line is more seniors are going under no matter how you spin it.

  48. @Hawk “According to the federal Office of the Superintendent of Bankruptcy, 10 per cent of those who declared bankruptcy in 2014 were aged 65 and older. That’s a whopping 20.5 per cent increase from 2010.”

    Lol, the geniuses at the Office of the S of B deserve an award. Gosh, I wonder if it’s because the age 65+ cohort has grown a `whopping’ 20+% in the past 5 years. The baby boom started becoming seniors in 2011 after all.
    In other words, the rate of senior bankruptcy has probably dropped. If you visually add the 60 line (below) in 2010 to the 65+ now, it looks like it adds closer to ~25% to the size of the 65+ group. But I guess that wouldn’t get the clicks for a gloomy headline…“Rate of Senior Bankruptcy Down since 2010”

  49. “I think by far the best thing you can do for resale is buy in the right location to start with.”

    I agree with you here, totoro. Location is everything, so don’t buy in places like Langford (if you can help it). No one yearns to live in Langford; people move there primarily out of necessity. And Langford will never become nice; it will only get worse – more density, more trees clearcut for development, more people on the roads, more pollution and noise.

    On a more micro level, we know quiet streets are usually good locations. Sure, you can do well sometimes on a busier street (see Henderson Rd example above), but Kendal Ave is much quieter and therefore probably a better location in which to buy.

  50. Mortgage rates via the bond market will dictate the house prices. If Vancouver starts to tank the Victoria will follow suit as that will signal the official end of the cycle as in all past booms and busts. Bankers affordability charts don’t include real life costs and we know life isn’t perfect, financial surprises come out of the woodwork on a regular basis for most folks, especially those with kids.

    More negative Chinese economy news out today won’t help matters either for those depending on the HAM to save them.

  51. “From a subjective point of view, the vast majority of retirees give a positive report when asked about their economic well-being.”

    Your study is 4 years old and the latest stats seem to say otherwise. This is clearly a shift in the demographics alright. Tapping out the wealth factor has begun and will only escalate.

    Seniors going bankrupt in soaring numbers

    More Canadians are outliving their savings and spending their golden years in debt

    “The golden years have become a tarnished chapter for some. Seniors are carrying more debt into retirement and, as a result, a growing number are going bankrupt.

    “According to the federal Office of the Superintendent of Bankruptcy, 10 per cent of those who declared bankruptcy in 2014 were aged 65 and older. That’s a whopping 20.5 per cent increase from 2010.”

    “But paying down debt in your senior years can be challenging on a fixed income. Throw in an unplanned setback like a financially needy adult child or a family illness and the bills can become crushing.”

  52. A lot of what is written or linked on this site is true or false depending on what market we’re talking about. Canada on the whole does have a debt problem (according to national economists). In Victoria, with a higher age population and little evidence of skyrocketing home prices, there’s not much evidence for that.

    And when it comes to interest rates, they are set by the BoC based on national inflation, which tends to reflect national economic trends. Rising rates are a symptom of a strong national economy. If there’s a mismatch, this could screw a small market with a weak economy; but that isn’t the case in Victoria right now (ie, economy here looks ok; Canada as a whole looks a bit shaky (oil prices, other commodities, etc.)).

    Home affordability in Canada is a problem (and noted by international fincanciers); in Victoria, as we’ve seen repeatedly, there is very little evidence of an affordability problem, at least until interest rates rise significantly (which, as discussed above, would depend on a mismatch between national and local economy).

    For all the blather and back and forth, I suspect the case looks pretty good for continued price appreciation in Victoria in the next 12 months or so. If I was in Calgary (especially), Vancouver, or Toronto, however – I’d be worried. But there is a big difference between comments reflecting national sentiment in articles in the Globe and Mail, for instance, and what is likely to occur here in town.

  53. Debt to income we look fine too… middle of the pack.

    With this measure it would be the young heartland renter households driving their 100k financed trucks that would be pulling it higher to ~160%. However, I don’t think there was ever much risk of them buying Victoria (too techie & old for them)… it could eventually affect the western communities if their debts get out of control??

  54. If you own a $600,000 paid off home you can potentially borrow $390,000 and your equity is $210,000. You may know “many” boomers who have borrowed a lot on their HELOC, but the stats don’t support this.

    Those retired and in debt owe a median amount of $19,000. Over one half owe less than $25,000. Even those who are not retired only owe a median of $40,000.

    Lack of home ownership equity (ie. being a renter) is associated with debt. Retirees with a household net worth of $400,000 or more were found to be less likely to hold debt than the reference group with a net worth of less than $75,000. The biggest factor in debt is being divorced, not wild spending on easy credit.

    From a subjective point of view, the vast majority of retirees give a positive report when asked about their economic well-being. Almost 8 in 10 believe that their financial situation is as expected or better than before they retired; similarly, 86% say their income is sufficient to cover monthly expenses; and 82% report that keeping up with bills and other financial commitments is not a problem.

  55. Sweden’s housing bubble looks ripe for popping. Negative rates only made things worse. If Canada goes down that road then it will be a crash and not a correction.

    Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households

    “As Reuters notes, “Swedish household debt levels, at around 170 percent of disposable income, are among the highest in Europe.”

    Gee, sounds like Canada eh ?

  56. I agree – Australia has more debt, but it’s also closer to Asia, where the money comes from, so maybe that’s a thing, who knows. The numbers have lead experts to believe that AUZ would blow for years, but it still hasn’t, so who knows. Honestly, I don’t know what the difference is between 100% and 125% of household debt to GDP is. Is it anything? What’s the breaking point? Is there one?

    At the end of the day, I’ve been looking at these graphs for 10 years now and none of them predict anything. The only thing I can say for sure is that people are self interested and short term focused. If buying houses makes lives better over the short term, houses will be bought.

  57. I know many boomers who are up their arse in alligators by borrowing too much easy credit once their houses went up in value. The personal debt to income chart clearly shows this is maxed out especially versus the US when their housing market blew up.

    Canadians are slow learners. Sooner or later the debt bomb problem comes home to roost and it will be those millions of people maxed out who bring down the market for all your boomer friends. Canada’s economy is on the ropes and the seniors won’t be saving anyone, they will be hoarding their cash and putting off moves to the island in droves as their own assets deplete.

  58. Oh – and just so I’m clear, I’m not making a prediction here. Only that the graph above doesn’t support market resilience one way or the other.

  59. When the appraiser is walking through your home they are estimating the “observed depreciation”. That observed depreciation is developed by going through hundreds and thousand of homes of different ages and condition.

    Generally as your home ages there are parts of the home that become dated in appearance or outdated completely. Even the paint used in your home today is different from 20 years ago. Your windows have gone from single glazed wood sash to aluminium to thermo to argon gas filled. The roof shingles are now a fiberglass composite and no longer just asphalt. Wood siding and wood shingles are now cement fiberboard.

    And some of the newer components have a much shorter life expectancy and like Iphones will go out of fashion before the end of their life expectancy. That all goes into the observed condition which is developed from experience.

    When I take my walk through a property I will ask the home owner about the remodeling and repairs that they have done to their home over the years and if they have an approximation of how much they’ve spent. Sometimes it is not apparent where all the money has gone. Someone may have paid a contractor $75,000 to finish their basement but the appraiser looking at the finishing, and doing a mental estimate of the cost, finds that the two don’t match. The appraiser may only observe $20,000 worth of work recoverable in the marketplace.

    The appraiser is viewing the home as a prospective purchaser would. You can tell me the roof is only 10 years old but if it is curling at the edges my next question is how many layers of shingles are on the roof. You can tell me about the new motor on the top of the line furnace but if it is an oil burner from the 1960’s it doesn’t matter. Or how you spent thousands on a specialized gas fired hot water system, Pella windows and a commercial grade kitchen but the property is in neighborhood of starter homes then those renovations were done for your enjoyment and not in consideration of re-sale. I’ll write down your comments and they will appear in the report to the bank but in most cases they will not make a significant difference to the value of the property.

    Having trained appraisers and having sat on boards granting designations in my opinion, it takes between 3 to 5 years of experience for the appraiser to have viewed enough properties to become proficient in estimating observed condition on all types of properties from manufactured homes to 20,000 square foot waterfront mansions with second homes, a dozen outbuildings, and an indoor riding ring and where the owner spent half a million dollars on landscaping.

    We just don’t do condos.

  60. This graph is misleading when it comes to volatility of asset values & their relationship with debt levels.

    A simple example: a neighborhood has 50 houses in it, all valued at $800,000. Total asset value $40,000,000. Now, lets say the CMHC loosens lending and buyers that target the neighborhood suddenly can afford $1,000,000. Assuming 95% purchase financing and a highest bidder scenario, that $950,000 in new debt could result in 50 x $200,000 = $10,000,000 in asset value, because all the houses in the neighborhood would be similarly valued after the comparable sale. In this case, less than $1MM in new debt creates $10MM in asset value. This is extreme, but partially explains the inflated asset values you see in the graph above. The differential in values isn’t from actual purchase prices & mortgage pay down. It’s from asset value inflation due to comparable sales. Asset value drops can happen via the same mechanism.

  61. “Why do keep refusing to discuss the debt bomb Mike ?”

    I just don’t see how our low and flat debt line is about to explode our assets.

    Canadians average about $11 in assets to only $2 of debt.

  62. Yes, that sounds disappointing and is probably a good example to keep in mind for those planning to move at some point. I would be likely to pay more for a place with updated kitchens and bathrooms if they were of good quality. I wouldn’t pay a premium for high end unless it matched the neighbourhood/house value.

  63. Repairs vs. improvements might be more accurate and reflect the terminology used by CRA.

    Repairs are required to maintain current condition. Improvements improve the property from current condition. Improvements are generally discretionary.

    Sometimes repairs don’t recoup their cost, like a new water line to your house due to a kink, but you have to do them or your property’s resale value and liveability is compromised. Repairs are generally things like fixing leaky faucets and broken door knobs.

    For example, if you have wooden steps that are rotting you can repair them by replacing them with new wood. Probably will get your money back and you need to do something. However, you could improve them by replacing them with concrete steps which would cost a lot more and would be an improvement. You probably won’t get your money back on resale but if you live there a long time it might save you multiple repair bills. If you are handy and do the steps yourself you might save the money you would have spent on repairs over the long-term.

    When you have a perfectly serviceable kitchen that is dated and only requires fixing of taps and hinges and maybe new counter tops and you then decide to completely redo it with new cabinets, flooring, tile, electrical and appliances that is an improvement.

    I would consider doing this for my primary residence but not a rental because I know that I would only expect to get a percent back on resale so there has to be a quality of life factor for me to justify it. Even then, I’m not going to spend more than $20,000 because the overall quality of the home doesn’t warrant it and I don’t believe I’ll get the money back. For a rental I’d do high impact low cost improvements like putting in tile floors in the kitchen, redoing countertops, and new fixtures, taps and paint.

    Whether or not an improvement will recoup its financial costs is dependent on the type of improvement (ie. visible impact and tastefulness), time between improvement and sale, and how thrifty you were in carrying out the improvement. And, resale value is predominantly location because most value is in land.

    I approach home ownership differently than, say Marko does because I know my window of occupation is going to be shorter and I don’t get as much satisfaction from a really fancy house as he does. My goal is not to work and have one fantastic place to live. My goal is to be able to retire twenty years early and have enough income to live on. If it wasn’t I’d probably be in his mindset.

    Also, we know we might travel extensively in a few years and rent out our house when we do. I would feel uncomfortable worrying about very expensive improvements left in the hands of tenants.

    Oh, and fwiw, I wouldn’t knock the Ikea kitchens. There is a high satisfaction rate with them for the price and I am one of the crowd there. We have the new line Sektion and I’m thrilled with the space and organization – love the soft close drawers with organizing inserts everywhere, pantry cupboards, special drawer for cutting boards, plus pull out under counter cabinet for recycling. Ours looks a lot like this with different hardware and tile – same sink:

    Given that we started with a kitchen that was falling apart and half-done I’m pretty sure on resale we’ll get our money back even after 10 years.

  64. I pushed the agent and appraiser heavy on the fact the place two doors up with same structure style and an old kitchen recently sold for the same asking price with original kitchen. Didn’t matter they said, unless you put in solid gold counters it was a depreciating fix up and was not just installed brand new. It’s been used, even though it was a high end kitchen.

    It’s also all about your market and what houses are selling at in your hood. I was selling in a flat market. Imagine what you would get in a down/correcting market. In a hot market you might get more action if the neighbors have all old kitchens but I think it’s a HGTV myth you get any payback once past 5 years. Speaking from my experience of course, not some research paper.

  65. I’ll agree with that…..if you do the roof, kitchen, floors, and a bunch of other stuff, if it is the right property you might get the full value of the roof back.

  66. If you have a home that needs a new roof for 500k and a new roof will cost 12k it probably won’t sell for 512k? More like 508k

    Probably right. Although I think multiple renovations will have a multiplying effect on resale by improving the overall condition of the house.

  67. When you buy a place with a new roof the previous owner paid for it and you may have paid 60% of what he paid to have the work done in your purchase price. If you put the new roof on you lose 40% of the value right away on sale because a new roof is never worth the cost on resale even if you sell it tomorrow

    There’s a reason people buy fixer uppers to flip, and its not because they want to lose 40% of their reno costs

    As for a kitchen. Why would you need to spend $40,000 on a kitchen reno?

    I dunno, maybe they don’t want an Ikea kitchen? It’s just an example. Why would you need to spend $20,000 on a kitchen? Why not just repaint the cabinets and pour a concrete countertop yourself? Point is that $20k or $10k or $40k counts as maintenance to your house.

    I do agree a house costs in maintenance each year but maintenance and renovation are not the same thing all the time.

    Unless you are adding value by adding something that wasn’t there before or significantly upgrading quality, it’s maintenance.
    Right now we would think replacing that lime green toilet and matching tub and sink is a huge upgrade. But back in the 70s when that stuff went in it was modern. That’s just maintenance.

  68. A kitchen is a solid re-sale investment if you are selling within 5 years; however, a horrible one if you plan on selling in 20 years. Whether the kitchen is 20 years old (1995 style) or 40 years old (1975 style) it won’t impact re-sale too much. All the current buyer knows it isn’t quartz, there is no under-counter sink or soft-close hardware. The same concept will apply in 2035.

    That being said that is strictly speaking from a re-sale investment. There is $50,000 worth of custom upgrades in my home that I would have a hard time getting $5,000 back for on re-sale but until I sell the home they are worth $50,000.

    Think of the 20 birthdays/thanksgivings/holidays you’ll spend in a nice kitchen.

    Using a HELOC to do a kitchen probably not the smartest move in my opinion.

  69. For a car loan, just do the math. Will the dealer give you a significant enough discount if you pay with all cash? Or are the 0.x% financing terms a better deal? Often the dealer won’t give you that much of a discount if you buy the car outright, and the total cost of ownership is less if you finance instead.

  70. Doesn’t make a difference. Say you buy a place with a new roof. You paid for that new roof on purchase. Then you sell the place 20 years later with the roof still serviceable but has maybe 5 years left. You will lose the “new roof” premium when you sell.

    I agree with your fundamental point, but it isn’t quite that straight forward. If you have a home that needs a new roof for 500k and a new roof will cost 12k it probably won’t sell for 512k? More like 508k, for example. I don’t encourage my sellers to change out their roof if life expectancy is near the end. In my personal experience I find things like roofs, drain tiles, etc., don’t re-coup value as well as suites, kitchens, flooring, etc.

    Gems for buyers would be horribly cosmetically dated homes but the sellers have taken care of the roof/windows/drainage/electrical/plumbing.

  71. 3524 Henderson just went for $820,000. Purchased earlier this year for $765,000 and before the renovation in 2014 purchased for $520,000.

    I remember showing the home in 2014 when it was listed for $549,000 to two different clients and neither thought it would be easy to re-sell post updating due to the busy nature of the road. Did not end up holding the property back twice this year.

  72. It does make a difference. When you buy a place with a new roof the previous owner paid for it and you may have paid 60% of what he paid to have the work done in your purchase price. You just made $6000 after tax.

    I think we’ve had this conversation before and I did the research to back up the roof example then. I’ll look for it later. If you put the new roof on you lose 40% of the value right away on sale because a new roof is never worth the cost on resale even if you sell it tomorrow. You may have needed to replace to sell at that point due to obvious damage, but you just lost $6000 doing it.

    As for a kitchen. Why would you need to spend $40,000 on a kitchen reno? Seems high. We just put a brand new Ikea kitchen in including flooring and counters, tile, new farmer’s sink, tap, lights, used new fridge, (stove stayed), used microwave for under $20,000.

    I think if you put a $40,000 or more kitchen in you are much less likely to get your money back then if you do something nice for less. And some of the older homes don’t need major kitchen replacements – they need some strategic upgrades like flooring, counters, fixtures and appliances. There is price point limit on recovering the reno costs I think.

    I do agree a house costs in maintenance each year but maintenance and renovation are not the same thing all the time.

  73. Doesn’t make a difference.

    Or rather, just because you don’t do the maintenance doesn’t mean you don’t pay for it. Whether you are better off buying a house that needs a roof and is appropriately discounted, or buying a house with a new roof, that we can argue about forever.

    Point is your house costs you money in maintenance every year, whether you maintain it or not.

  74. I don’t believe that I have to do a kitchen reno to maintain value, never mind a $40,000 one.

    So you think that a 25 year old kitchen is not worth less than a 5 year old one? Like anything in a house, it degrades the more it is used. No matter how well you take care of your kitchen, after a while it’s worn, old, and out of date.

    Try to buy one that won’t need replacing in your ownership window.

    Doesn’t make a difference. Say you buy a place with a new roof. You paid for that new roof on purchase. Then you sell the place 20 years later with the roof still serviceable but has maybe 5 years left. You will lose the “new roof” premium when you sell. The idea that you can avoid the cost of maintenance by not doing it doesn’t hold up at all. Sure if you buy a house with a 10 year old roof and sell it 2 years later, it won’t impact anything, but when the condition of anything goes from new to used to soon to be replaced it will impact resale.

  75. I don’t believe that I have to do a kitchen reno to maintain value, never mind a $40,000 one.

    Some stuff pays off and some stuff doesn’t. You need to weigh the cost vs. the benefit. That is why some renos recoup zero even if done the day before sale.

    In order to maintain the exact same level of home as you purchased you might need to redo the driveway, but it is never going to pay off and you can live with cracks and bumps.

    House roof – you have to take care of this if the time comes up but you’re not going to get your money back on resale. Try to buy one that won’t need replacing in your ownership window.

    Suite, now that is going to add more than you spend if you do it right, and buy a home that is suited for it in the first place. Add another bedroom and you’ll probably get it all back.

    I think by far the best thing you can do for resale is buy in the right location to start with. Land appreciates while homes tend to depreciate.

  76. Most renos are more accurately classified as maintenance. Unless you are actually upgrading the kitchen by making it bigger or building it to a way higher standard of quality, you are just maintaining it like you would a roof or a deck.
    If you buy an 80s place in 1990, you are getting a 10 year old kitchen. If you never renovate it and try to sell in 2015 you’ll notice it will have reduced your resale value. If you reno it in 2005 and sell in 2015 then you’ve sold with a kitchen in equivalent condition and can expect it not to pull resale up or down. A very recent reno will increase resale since now you are selling a house with a new kitchen instead of a 10 year old one.

    This is also why most people vastly underestimate maintenance expenses. They think that maintenance is only new paint on the deck or replacing a broken fridge. In fact maintenance is the $40,000 you spent on redoing your kitchen, and the $20,000 you spent replacing the floors. And if you don’t redo the floors, you will pay for it in lost resale (deferred maintenance).

  77. Yes – 75-100% return depending on the reno ie. is it reasonable cost and what people want. Unlike things like sun rooms, pools and skylights. The biggest ROI comes from fresh paint and decluttering.

    There is quite a bit of research on this Hawk – including by the Appraisal Institute of Canada.

    You are saying you would get zilch as all the neighbours are doing them too, but imagine you did not do it – you are stating that you would not have received any less than you did? Maybe your reno wasn’t what people wanted then?

    I’ve done two kitchen and three bathroom renos. I haven’t sold anything yet but I would be surprised it they didn’t pay for themselves in the end.

    If you reno and hold for 40 years your kitchen is going to be dated and worn again so you’ll want to be doing it for your own benefit.

  78. If you want any money back from your kitchen/bathroom reno it better be in near new condition.
    I think a lot of people kid themselves as to the extent their renovations will increase resale. Then they can justify what they want to themselves. Sure it’s a lot of money but it’s an investment so it’s ok.

  79. If you keep the house long enough, kitchen renos won’t matter as all the neighbors will eventually have one too. Been there,done that, got zilch back after 5 years of usage. Helps as a selling point but not a financial payback.

  80. Kitchen renovations can pay off – and bathrooms (75-100% on resale)

    Do you mean one recuperates 75-100% of the cost of the reno upon the sale of the home?

  81. You’re not going to get a HELOC unless you have sizeable equity. On a $600,000 home you won’t qualify for a HELOC unless you have at least $225,000 in equity and even then all you can borrow is $15,000. Not very extravagant. Kitchen renovations can pay off – and bathrooms (75-100% on resale).

  82. Interesting comment from the Manulife CEO via Garth’s blog. Looks like all hypothetical affordability charts mean squat when 4 out of 10 homeowners are clearly screwed. That’s enough to crash the market.

    “Manulife’s CEO Rick Lunny (I know the guy and he’s cool) doesn’t mince words when it comes to an explanation. The cause is houses, he says. “It does appear there are a lot of people living on the edge,” because homeownership has turned into a cult, and insane prices have saddled families with more debt – and overhead – than ever in the past. Meanwhile the real estate bubble has been unsupported by economic fundamentals, which means we’ve spent more without earning more. So we borrowed the difference.”

  83. A car is a useful asset but an always-depreciating asset, so it’s rarely sensible to borrow (much) money for a vehicle.

    OK, I agree with you, totoro: a HELOC is fine to put in a suite. But, generally speaking, taking out a HELOC to renovate one’s kitchen isn’t wise unless one has sizable equity in the home and all other finances are in order (even then, I’m still not sure it’s a great idea).

    As for zero percent car loans, that zero percent is for a limited time only. And one is still borrowing money (even if cheaply at first) to purchase an always-depreciating asset.

  84. With a lot of cars the cash incentive isn’t enough to offset the 0% for 72 months or similar. Sometimes you are faced with a pathetic $500 cash incentive versus 72 months “free financing” (72 months financing for $500), the decision is easy.

  85. Why do keep refusing to discuss the debt bomb Mike ? It’s the elephant in the room you refuse to acknowledge and blows massive holes in your whole fantasy pump to keep your clients from reality.

    The tech industry investment climate in BC is in major decline down $200 million in past two years. That’s a 30% or more drop which is massive. I showed you the article but you continue to not want to talk about that.

    Now the shipbuilding contracts are going to be overhauled bigtime so scratch a lot of those jobs down the road. It’s looking more and more like the top is in, and the sellers are the only ones winning.

    Lastly the BC government coffers are relying heavily on real estate fees to keep the lights on. When the slowdown comes soon there will be some major wakeup calls ….from the bankers.

  86. HELOCs can be really good for financing home improvements that are needed or bring value to the home such as putting in a suite. They are lower rate than other types of borrowing and sometimes homeowners don’t have the entire amount of a reno in cash. I think that can be a good use of a HELOC. I’m with you on credit card debt. Not sure about car loans. I have never had one because I’ve always bought used with cash, but I think some places offer zero percent?

  87. The latest affordability looks fairly close to me to the late 80s (esp. for condos)…

    The one big difference I see this time around is the shear size of the retirement cohort. It’s an absolute monster compared to the one in the late 80s, and any that are considering relocating to Vic from say Van or GTA will likely have no need for mortgages and they may even have a laugh if someone tried to tell them it was unaffordable here.
    Another possible difference is that Vic seems to be becoming a high tech hub that’s starting to attract talent from around the world, but then again maybe there was some high paid industry that I’m unaware of that attracted the younger buying demographic in the late 80s (boomers back then).

    Also, I have to ask, why wouldn’t it be “no big deal as many were already locked in” now too? I mean the time span is the same, I’m estimating ~13% average yearly gains for the next 3.5 years, same as the late 80s when mtg rates went up ~40%. When you compare to Van’s current ~20% a year gains, ~13% doesn’t seem unfathomable.

  88. Car loans are debatable. I shun them but if you need a vehicle and don’t have 10k in cash or whatever then it makes some sense. At least it’s a useful asset unlike say a trip or a tv.

  89. 29K paper profit from 5 years ago is a bloodbath ? Did you miss Jack’s numbers above ? Can’t even sell out without losing money or breaking even after costs if you bought during most of that time period.

  90. I can’t believe people use HELOCs. Instead of taking out a HELOC, just admit you don’t have any money.

    And if you don’t have any money, maybe you shouldn’t be buying whatever it is that you want to take out a HELOC for.

    A mortgage is fine if your finances are sound, but HELOCs, credit card debt, and car loans are beyond stupid.

  91. You are missing major points Mike. In the late 80’s personal debt to income was half at what it is now at 163% and climbing. Where is the room to finance debt if rates go up this time ?

    Also the 40% interest rate pop you quote in the mid 80’s was a short term effect and home owners were already used to paying 14% from 5 years or so before. It was no big deal as many were already locked into 3 and 5 year deals at those 12-15% levels.

    As rates came down from 20% the banks were not handing out easy money like candy like we just had happen the past 15 years, they were tight-fisted after the blood bath they just went through. There was no opportunity to take out a 30- 40% HELOC loan on your house.

    As the article stated, who will be able to afford a 50% increase on a measly 1% increase, none. So comparing to the late 80’s is pure fantasy and I expect to see a major change from the banks lending practices moving forward. This is not chump change we are talking about, people have borrowed their faces off with limited payback room without selling their houses.

    “The average homeowner had used up 42 per cent of total borrowing capacity under the home equity lines of credit, CAAMP said in a November report on residential mortgage trends, with an average debt outstanding of $57,000.”

  92. Rates are the key difference for sure. So totally convinced that the entire market hinges on affordability (if there is only minor external influence from outside buyers). People don’t care about prices they care about payments. Fact is with the low rates affordability looked good in 2013/2014, so no signal of overvaluation there. However with rising prices now and rising rates possibly soon, that could change quickly.

  93. Mortgage rates actually fell by ~50% from ‘81-86, similar to what they have during this decade’s commodity bust.

    You might want to brush up on your history Hawk, we’ve seen similar absolute levels before in the mid to late 40s. The following ~35 years saw house prices go up over 1000%, as rates went up ~1000%.

  94. How long have bears been calling for a crash now? I think we’re nearing a decade right? 10 years of being wrong doesn’t make you prescient bear.

  95. Life in the bubble must be fun when you never have to face reality. HELOC’s didn’t exist in the 80’s Mike. Rates in the 80’s were coming down 30% plus from 20%, we’re heading up off of historical lows never seen before. This is a whole new ball game but keep on hoping and wishing for Santa to come.

  96. The ending of that article is the clincher. Stats may say mortgage payments aren’t falling into delinquency at any high rate, but it’s because of access to HELOC’s that they are able to cover. When hard times hits then this is when the wheels fall off the whole bus. If over a third are having trouble then this could be why less houses are for sale, a big chunk of owners can’t afford to move up or down, nor sell and want to take the loss and are praying the greater fool keeps on buying at the top.

    “But Mr. Hoyes worries that many homeowners could be in trouble if interest rates rise. If they have to pay more interest on their variable-rate lines of credit at the same time that payments rise on their variable-rate mortgages, they could face a double whammy of growing payment costs that could create a major problem.

    He said many people don’t understand that if they’re paying only interest on their lines of credit – with no principal repayments – their payments would climb by 50 per cent if interest rates move from just 2 per cent to 3 per cent.

    “How many people out there can handle a 50-per-cent increase in your expenses? None. That’s where we’re really vulnerable.”

  97. The road map for the remainder of this decade (2016-2019) has become that much more clear lately. We need only follow the late 80s model where we experienced nearly identical currency movements, buyer demographics, stock & commodity markets, interest rate movements, migration patterns… If we place ourselves at the end of 1986 (the same 1 year distance after that decade’s oil crash) then we would see at very least another ~50% increase in core prices over the next 3.5 years. Mortgage rates here climbed over 40% from early 1987 to mid 1990, so we should expect 5-year fixed rates to rise from the under 3% range now to well over 4% as prices climb another ~50+%.

  98. The number of house sales in the core so far this month totals 120 with a median price of $611,000 and an average price of $714,000. Cross your fingers for some enormous sale prices in the next few days to bring those numbers up.

    Last month we had 204 house sales in the core at a median price of $677,250 and an average at $794,000.

    Should we worry?

    Last year in November the house sales in the core were pretty bad totally only 113 with a median of $569,000 and an average at $644,000 following several months of declining prices from a high of $610,000 and $701,000 respectively. So I suspect what is happening now is simply a seasonal slow down in the market and that October’s numbers were an anomaly.

    The big difference between this year and last year is that the market for houses in the core has been extremely in favor of sellers for most of this year. Anyone trying to buy this year realizes how crappy the market has been to find a reasonable home at an affordable price. That poor selection also makes people that would like to move on – not list their home but instead borrow more from their home equity for overly expensive home renovations. Depressed from not being able to find a better home they satiate that desire to move with granite, stainless steel, finishing the basement or building an addition.

    Now they have a bigger mortgage and far less equity, that if the market was to correct they could not take advantage of better homes at lower prices.

    Median House Prices in the Core so far for this year and the previous 5 years.
    2010 $601,000
    2011 $595,000
    2012 $578,000
    2013 $572,500
    2014 $582,000
    2015 $629,900

    The volume of sales this year will be the highest since 2009 following five years in the 1,600 to 1,900 range. Only in the years between 2001 to 2007, during the wave of baby boomers retiring to Victoria, did we have higher sale volumes in the 2,500 range with the median house price increasing from around $250,000 to $535,000. Obviously we will never see that kind of appreciation again as we are at the extreme of affordability for at least half of all prospective purchasers today. Unlike in 2001 when falling interest rates and greater demand were causing prices to skyrocket.

    Time to sell the construction company and move to the Bahamas.

  99. More than a third of home owners aren’t having a happy time keeping up with the glossy image that the real estate industry and media pumpers seems to portray. Perceptions can be extremely misleading.

    Debt load has many Canadians ‘living on the edge,’ with high housing prices largely to blame

    “Canadians households have become so financially stretched and hooked on debt to get by that, in just the past year, more than a third of us have found ourselves covering expenses by running up credit lines or credit cards, or even selling off investments and hitting up family members for much-needed cash.

    That’s according to a new Manulife Bank survey, which also found that 14 per cent of those already stuck in a hole of debt have had to turn to more desperate measures in the past year — liquidating portions of their RRSPs or turning to high-interest payday lenders.”

    “For one thing, many people seem puzzlingly confident in their ability to handle unexpected expenses, with nearly three-quarters of respondents saying they could handle it if they had to replace their furnace or were hit with a major car repair. Yet half of those surveyed said they are already struggling to maintain a cushion of as much as $1,000 in bank accounts. And then there’s the 38 per cent who, at least once, had to borrow from family, credit cards or lenders, or sell investments to cover their bills.

    “It does suggest a contradiction,” Lunny said. “They feel they’re prepared, but when life happens, they’re not prepared.”

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