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Mortgage Broker News | 27 Apr 2015, 08:01 AM Agree 0
He’s at it again. The economist responsible for the most dire real estate prediction to date now believes the Canadian market is more overleveraged than America’s just prior to the economic crisis.
  • Anthony | 27 Apr 2015, 08:52 AM Agree 0
    When inflation starts to become an issue later this year (as evident through previous CPI numbers) and BOC begins raise rates you will see a flurry of buying homes for approx. 4-6 mos after that it will normalize the market and prick the bubble
  • Ron Butler | 27 Apr 2015, 09:47 AM Agree 0
    MacBeth's ignorance is breathtaking. The property bubble in the US in 2008 was a function of horrific underwriting and securitization practises which never existed in Canada. Canadian mortgage underwriting has grown progressively tougher in the last 4 years. I will not debate the fact that property values are too high in some markets because they just are too high and a revaluation may occur but the pure insanity of the USA housing bubble is unlikely to repeat itself here. Likely something unpleasant will happen in Canada to property values but not to the depth and breadth that occurred stateside.
  • Rick | 27 Apr 2015, 10:09 AM Agree 0
    The horrific underwriting has been studied in great depth over 8 years later its clear subprime was less than 15% of the market. Further it was a property bubble not subprime that brought the market down that was simply the focal point as it was sensational "Ninja" etc. The property bubble was fueled by low rates and easy money due with moral hazzard from securitization. In Canada we have lower rates easy money and CMHC which creates the same moral hazzard by allowing the banks to risk nothing. Agreed underwriting has grown tougher from the wild west that was 2006. And it is different here i.e. we don't have a complex derivative market and when our bubble is pricked it won't be likely at the same time a global credit crisis. The fact remains the same an economy fueled by credit is unsustainable, homes are at the lowest affordability ever and unlike the US our economy is incredibly under-diversified. Real estate (which requires debt to rise since incomes are stagnant) outpaces oil to which we are the least competitive in the world next to artic drilling in Siberia. When deflation occurs I wouldn't hazard a guess as to when or the percent but Hilliard numbers are close to the IMF/Deutch Bank analyst projections which are based on long term historical Price to rent and Price to income ratios. But then again maybe this time is different and it really is different here.
  • LanceH | 27 Apr 2015, 10:27 AM Agree 0
    Price to rent and Price to income ratios are the best way to analyze the situation in my view, but it's important to remember that the numbers are mostly out of whack in TO and Van, and whether those cities burst, or simply become our New York, remains to be seen as our world and economies make many twists and turns. (and now everyone owes me 2c. Pls make cheques payable to . . . . )
  • Ron Butler | 27 Apr 2015, 10:36 AM Agree 0
    Rick............ common sense dictates that if 15% of the entire housing market was founded on toxic underwriting the implosion of 15% of an entire huge real estate market would have the catastrophic effect that it clearly did. 15% of total housing stock created by of utterly insane underwriting in marketplace as big as the USA will easily destroy an entire market.

    At many points between 2004 and 2008 mortgage rates were often higher then than then they are now in the USA.

    I will agree that exceptionally low interest rates will push up property values, that is a proven fact but nationwide crazed mortgage underwriting will always have a worse final outcome than low mortgage rates.
  • Michael Rice | 27 Apr 2015, 11:45 AM Agree 0
    its not the housing bubble I'm concerned with its the possibility of rising interest rates. I remember walking down Broadway street in Vancouver many years ago seeing a "fire sale" of mortgage rates at 11%. Over the past 15 years or so there has been a steady decline in mortgages rates. Way back then when rates were high the f\I's back then used to include groceries/heating/utilities etc in DSR calculations. Back then there were no such thing as exceptions. Today we've done a complete flip flop. DSR's are higher, groceries/heating/utilities are not part of the DSR equation anymore and the biggest exceptions to loan applications are DSR exceptions exceeding policy. Everybody wants to get into the biggest home possible based on the last penny of their income. The housing bubble doesn't worry me, the loom of higher interest rates worry me more. It doesn't have to go up to 10% either. If the rates went up to 5% in the next couple of years we have effectively doubled the interest rate burden of the people coming due on renewals. Its not that houses are overvalued, its the future purchasing power of current and potential home owners is going to be greatly reduced as rates go up. If we want to avoid a housing crisis in Canada (and it may be too late depending on the timing of interest rate increases) when Lender/Broker take the next application factor in an interest rate of 5% into the calculation. The sad fact is that that is not going to happen because you'll be laughed out onto the street. The tsunami is on it's way folks get ready!
  • Ron Butler | 27 Apr 2015, 11:59 AM Agree 0
    Michael, I am in agreement that rates will go up some day and that 5.00% rates will change the property value landscape but how long will it take to get 5 - yr fixed to 5.00%? Big question, I don't see it happening in 2015 or 2016 so when?
  • Christa | 27 Apr 2015, 12:08 PM Agree 0
    Well if creating an equity is a result of greater fool paying a fortune for the house on the speculative confidence that an even greater fool will pay an even greater fortune for the same house in a few years and adding no real world value to it only paying a mortgage, I'd say it's about a time for change.
  • Ron Butler | 27 Apr 2015, 12:20 PM Agree 0
    Google the Greater Fool website if you want to feel depressed about Canadian Real Estate. The trouble is Garth has been saying the same thing for 5 years which throws it into the broken clock being right twice a day territory.
  • HILBOJ2 | 27 Apr 2015, 12:27 PM Agree 0
    Rick....Please understand it was sub-prime lending masked as AAA MBS that lead to the implosion. The 15% of market stat is meaningless as the actual hidden sub prime market was much higher.

    During the US housing boom an individual could state their income, with no money down, on multiple properties that were non-owner occupied, with a teaser rate set to reset to double or triple 2 years down the road.

    Even the most aggressive lenders in Canada from 2003 to present wouldn't dream of lending under this criteria.

    We have no moral hazard here.
  • Ron Butler | 27 Apr 2015, 12:31 PM Agree 0
    HILBOJ2...... you are quite correct in your analysis and here's the icing on cake: the borrowers could have 550 FICO scores.
  • LanceH | 27 Apr 2015, 12:39 PM Agree 0
    I have to agree with HILBOJ2 on the moral hazard issue. Our rate of default in Canada, at the time of the crash was about .5 of 1%, (a little higher for SE clients), and things have only gotten tighter, as we all know. The importance being, to recognize the difference between the hypothetical or theory-based arguments, and views based on historical facts. (I think I may have just described the difference between Righties and Lefties).

    As for when rates may go up, by how much, and how fast, and what else goes on in the economy and wages 'tween now and then, is anyone's guess. Japan has been stagnant with 0% for over 20yrs!!
  • LanceH | 27 Apr 2015, 12:39 PM Agree 0
    I have to agree with HILBOJ2 on the moral hazard issue. Our rate of default in Canada, at the time of the crash was about .5 of 1%, (a little higher for SE clients), and things have only gotten tighter, as we all know. The importance being, to recognize the difference between the hypothetical or theory-based arguments, and views based on historical facts. (I think I may have just described the difference between Righties and Lefties).

    As for when rates may go up, by how much, and how fast, and what else goes on in the economy and wages 'tween now and then, is anyone's guess. Japan has been stagnant with 0% for over 20yrs!!
  • LanceH | 27 Apr 2015, 12:40 PM Agree 0
    I have to agree with HILBOJ2 on the moral hazard issue. Our rate of default in Canada, at the time of the crash was about .5 of 1%, (a little higher for SE clients), and things have only gotten tighter, as we all know. The importance being, to recognize the difference between the hypothetical or theory-based arguments, and views based on historical facts. (I think I may have just described the difference between Righties and Lefties).

    As for when rates may go up, by how much, and how fast, and what else goes on in the economy and wages 'tween now and then, is anyone's guess. Japan has been stagnant with 0% for over 20yrs!!
  • HILBOJ2 | 27 Apr 2015, 12:40 PM Agree 0
    ...that's right, minimum 550.

    The real question is: to what degree has MacBeth and his cohorts sold short Canadian Bank stock and ETF REITs.
    Any financial commentator worth his salt would disclose their personal positions when commentating.
    A 50% drop on Put Option would reward MacBeth much then any book sales.

    I challenge any doomsday-er to 'put their money where their mouth is'.

  • Michael Rice | 27 Apr 2015, 12:41 PM Agree 0
    I'm a conspiracy theorist. I think the government is freaking out. Too many cracks in the interest rate dam. Quantative easing isn't working (in fact it's only simmered the rate crisis) , in eurpoe bonds are in negative territory so in effect you give a bank $100 bucks and they'll only guarantee $95. You can't keep rates low forever, the problem is they are so low that the doubling of interest rates in a low rate environment has a far greater possibility than when rates were at 10%. The math is pretty easy, and so are the predictions of when the rate tsumani is going to hit. It's not going to hit when the rates go up because the people won't qualify at application time and they will be declined, it will hit when the people's mortgages come up for renewal and they start handing over the keys because they can't afford the new payment. The sad thing is it will take a crisis to change the way we lend because financial institutions and Lenders/Brokers don't have the will to change and if they did whats right by properly compensating applications for future interest rate hikes they would go broke. The crisis this time will be on the regulators because they are the ones needing to make the tough decisions (setting maximums for DSR calcs for example) but they are too concerned about not getting voted in so they continue to take the passive route. The housing bubble is a big red herring people, and if you think they States is any better off with the interest rate crisis your sadly mistaken, greed has always gotten the almighty buck down there and they'll fall just as hard! But I'm just a lonely banker with a theory! :)
  • Adrian | 27 Apr 2015, 02:16 PM Agree 0
    This book and it's author are old news. The underlying fundamentals that caused the US crisis are simply not present in the Canadian system. Will there be a correction? Probably but to lump it into the US model is hyperbole. Ron and HILBOJ2 have it nailed. The reality here is that MacBeth's ignorance is indeed breathtaking! Probably good for book sales though.
  • HILBOJ2 | 27 Apr 2015, 02:25 PM Agree 0 true Adrian! We will see a correction but it will take the form of home prices lagging inflation. If we are 10% overvalued as a whole, and inflation averages 1.5%, then home prices will grow a meagre 0.5% annually over the next ten years.
    Counter intuitively we could see a correction where home prices actually increase via inflation lag - this is typical of Real estate corrections not caused by financial shock.
    And unlike MacBeth and The Economist, we (Ron Adrian, and the rest of us in the industry) have money down on this bet.
  • Michael | 27 Apr 2015, 10:22 PM Agree 0
    Rick Butler is a real estate agent.
  • Michael Rice | 27 Apr 2015, 11:20 PM Agree 0
    I love pretend and real economists, they talk a big talk and throw out guesses (calling them calculated guesses gives them too much credit). Don't get sucked down the housing bubble rabbit hole because it doesn't matter. When the majority of applications processed are at the end of the DSR scale rates only have to go up 1% to make a difference.
  • HILBOJ2 | 27 Apr 2015, 11:42 PM Agree 0
    ...Michael....'the majority of applications processed are at the end of the DSR' ?!

    Would you mind telling me what specific percentage of funded mortgages are 'at the end of the DSR scale'?

    Or did you just 'throw out a guess'?

    Here's a fact for every 100 funded applications we 'processed' in 2014, only 8 were above 42% TDSR.

    Stress test these eight with a 1% or even 2% rate increase and those mortgages are still very solvent 5 years down the road when they renew (due to decrease in balance and income appreciation).

    We don't guess in this industry. We leave that to the tourists who visit these boards.
  • Michael Rice | 29 Apr 2015, 01:07 AM Agree 0
    nice HILBOJ2. Are you a lender or a travel agent? The latter i suspect...You can spew out numbers that sound pretty but your not in the game. You only funded 100 last year? Pretty small shop, we funded over 2000 apps with the majority over 80% with DSR exceptions. You also better check in your financial bible how to calculate stress test formulas. What are you using for your probably of default and loss given default factors? Oh ya I forgot your financial bible you recite all your other bs comments from probably didn't tell you that. Those come out in the grade 3 edition..... Time to move on to your next crusade HILBOJ2. BTW easy for you to spout off on blogs when you hide behind an alias eh! Cheers!
  • HILBOJ2 | 29 Apr 2015, 01:31 AM Agree 0
    Mike Rice.....are you registered as a mortgage broker in the US or Canada - if Canada please let me know which province as I'm having trouble locating your registration?!

    A lesson in English: ' for every 100 applications funded' does not = we only funded 100 applications. Technically, I should have stated only 8% of funded deals were above 42% TDSR, but for your sake I thought I would simplify it. Appears that was a mistake.

    Now please us know if you are a Canadian broker or Mike Rice from Danver's Massachusetts.

    I await with bated breath.
  • Adrian | 29 Apr 2015, 08:27 AM Agree 0
    80% with DSR exceptions???? What kind of shop are you working for? I'd say that you have just clearly declared that you are the exact problem you are worried about!
  • Michael Rice | 29 Apr 2015, 02:48 PM Agree 0
    I'm bored! So HILBOJ2, (nice alias to hide behind.) just wondering, are you the Broker news police? Nice to see you have time to check up on writers. I hate to see you try to explain yourself. You must have been on that google search engine for a while trying to drum up an answer. My suggestion is before signing onto blogs and cut and pasting opinions from google is to finish high school first, get a job in the real world so you can give factual answers. Cheers my little buddy, good luck with your high school diploma, it's been nice mentoring you. M.R. BTW who said I was a broker :)
  • HILBOJ2 | 29 Apr 2015, 02:59 PM Agree 0
    Bahahaha. You work for Private lending MIC that specializes in B deals.....and you think your portfolio represents the Canadian Market as a whole?!
    Tell me of the whopping 2000 deals funded last year, please tell me: How many were high ratio?
    Please look up at the URL'll notice it states ''. Not '' that blog is your more your home. And you must hurry, there's a blog re: how the Illuminati run the World Bank that desperately needs your learned comments.
  • Michael Rice | 29 Apr 2015, 04:14 PM Agree 0
    it's ok little buddy, but I must admit it's getting painful to see you trying to guess the profession of the writer. Once you get your high school diploma and get a real job you'll understand that (unless your in Russia) blogs are to provide opinions, not to crush peoples views. You better go now your mommy is probably getting worried. As this will be my last post, do me a favor. Be sure not to leave this blog mad, just leave. Your favorite mentor M.R.
  • HILBOJ2 | 29 Apr 2015, 04:18 PM Agree 0
    You are a gem son :)

    How many of your 2000 deals were High Ratio?

    MTG 101 FYI: High Ratio = mortgage > 80%
  • Andrii | 29 Apr 2015, 07:56 PM Agree 0
    Well done ,HILBOJ2 .
  • HILBOJ2 | 30 Apr 2015, 06:57 PM Agree 0
    Lol. Thanks Andrii. I'm a little embarrassed that I allowed myself to get into a debate with a trolling wannabe mortgage broker that believes 'groceries were once included in [TDS]' ratios and that heat is now excluded from the same.
  • LanceH | 01 May 2015, 09:13 AM Agree 0
    No reason to be embarrassed HILBO. As I see it, the more you engage an imbecile, the more opportunity you give him to expose his pathetic self, and that he did!!!! lol
  • Ian - Ontarian | 24 May 2015, 03:20 PM Agree 0
    The very fact that this agent refers to non-owners as "jaded" reveals his desire to conjure envy among non-owners. Trying to create envy is a dirty broker tactic that, unfortunately, many people are susceptible to. The wise, don't make decisions based on envy. The bottom line for me, is that I am not willing to pay current prices. A Lamborghini is also out of my ballpark right now.
  • Ian - Ontarian | 24 May 2015, 03:25 PM Agree 0
    Unfortunately, the exact same fundamentals are present in the current system. Of course, one could probably make the argument that the US bubble would have never crashed too, if interest rates never went up. Of course, if we never see inflation again, then perhaps we will be able to keep interest rates low, forever.
    The sad part is that, we don't recognize "inflation" in the form of appreciation in the price of the larges purchase most Canadians will ever make. Kidney beans only went up 0.78% last year. Its all good.
  • Ian - Ontarian | 24 May 2015, 03:30 PM Agree 0
    We keep interest rates low, because there is no inflation. But, paradoxically, we don't recognize inflation (in housing costs) because of (and caused by) low interest rates. A 10% increase in a 400K home represents many individuals annual income.
  • Darr Robbins | 25 May 2015, 12:30 AM Agree 0
    @Ian – Ontarian
    Inflation is not yet an impediment to low/negative yields as demonstrated in Europe. Central bankers keep interest rates low to prevent a daisy chain of domino defaults in the OTC derivative complex. Should this happen, bank solvency would vaporize, budget deficits would explode and GDP would crater deep into negative territory. The insanity will end some day but the “can kicking” may continue for awhile yet.
  • Darr Robbins | 25 May 2015, 07:50 AM Agree 0
    The short answer to the title's question is: Yes.
    Canada (and the western world) is now more exposed than pre-crisis America. Although Canada's mortgage underwriting is better than most, it is the global systemic counter-party contagion that is the problem. Moreover, the problem ( debt, multi-rehypothecation and derivative leverage) has grown since 2008. Canada is not an island and our banks, pension and mutual funds are all exposed to this problem. When it blows, a massive de-leverage will occur which will force central banks to monetize to infinity.
  • Robert | 13 Jul 2015, 07:36 PM Agree 0
    Most of the comments here are about money. I don't understand why Canadians are not upset about the cost of having a roof over their heads. In most of the US the housing market is affordable for most workers. How is it reasonable for a home in the US to cost less than a building lot in Canada. It seems clear that the government has failed the average wage earner.
  • Adrian | 13 Jul 2015, 07:49 PM Agree 0
    I find it incredible that anyone who actually understands the American mortgage crisis thinks the same fundamentals are in effect here as in the states pre crash. They simply are not nor do they bare even a slight resemblance to the American model. Folks need to bone up on facts before posting.
  • Serge | 16 Jul 2015, 08:59 PM Agree 0
    The fact is, every bubble is different. When it walks and quacks like a duck, it is a duck.
  • Joe | 30 Aug 2016, 09:06 AM Agree 0
    Watching from the U.S. as someone who accurately predicted the housing crash when I first graduated college using basic fundamentals of affordability. I can unequivicably say you are in deep shit. Get out if you can!
  • Joe | 30 Aug 2016, 09:11 AM Agree 0
    I called the housing market in the US when I graduated college. I use the basic affordability fundamentals. I used cash flow models for rental properties all which were in the red. You guys are in the exact same boat. The housing market is unaffordable for basically all Canadians thus it will crash. Every Shack I see on Love It or List It is a complete piece of junk that cost $750,000 above to purchase. Do you even have a clue of what kind of salary is needed to afford a $750,000 home. You will be destroyed your banks will become insolvent. However like the u.s. real estate market I called Canada's real estate bubble a year-and-a-half ago I'm always early.
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