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Author Topic: Interest-only mortgage insanity now coming to Canada!
Doug
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posted 30 June 2006 02:54 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
The corporation will provide mortgage insurance that would allow lenders to offer borrowers the option of making interest-only payments for up to the first 10 years when they buy or refinance a home.

And CMHC is introducing extended amortization periods of up to 35 years, allowing borrowers to purchase their home and grow equity sooner.


http://money.canoe.ca/News/Other/2006/06/29/1659438-cp.html

Oh joy, now we can all be owned by the bank even longer!


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
Sven
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posted 30 June 2006 09:19 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Doug:
Oh joy, now we can all be owned by the bank even longer!

But only if you choose an interest-only mortgage. Near as I can tell, the entire mortgage market will not convert solely to interest-only mortgages.

My recommendation would be to buy a smaller house and/or spend another couple of years saving more money for a house instead of buying a house with an interest-only mortgage.

But, it's kinda like leasing a car rather than buying one. I can't think of any good reason for a consumer to lease a vehicle. Long term, it's a money loser relative to an outright purchase or a purchase through a loan. But, again, it's the consumers' choice whether they choose to lease a car or assume an interest-only loan.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
Dana Larsen
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posted 02 July 2006 10:20 AM      Profile for Dana Larsen   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
But only if you choose an interest-only mortgage. Near as I can tell, the entire mortgage market will not convert solely to interest-only mortgages.


Banks know that cheap credit is needed to keep the housing market growing.

When that bubble bursts, many folks will be paying off mortgages on homes that are now worth much less than their mortgage value.


From: Vancouver | Registered: Jul 2005  |  IP: Logged
otter
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posted 06 July 2006 11:16 AM      Profile for otter        Edit/Delete Post  Reply With Quote 
This is the 21st century's version of the company store where all your wages go right back to the company in order to survive. In essence it is a guaranteed income for the wealthy. If you can get people indebted enough they, in essence, become endentured to you forever.

This is why there are so many deals available today where you don't have to pay anything down, take 2-5 years before starting payments, pawn shops are everywhere and interest only mortgages are so appealing. There is no end to the indebtedness products that are being created these days.

But the best of the bunch is gaining control of a nation's government, ratcheting up the nation's debt into the stratosphere and then grabbing as much of that indebtedness for yourself so that neither you nor your next couple of generations will ever have to worry about income again.

Guaranteed Income for those who need it the least.


From: agent provocateur inc. | Registered: Feb 2006  |  IP: Logged
Sven
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posted 06 July 2006 11:50 AM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by otter:
This is the 21st century's version of the company store where all your wages go right back to the company in order to survive. In essence it is a guaranteed income for the wealthy. If you can get people indebted enough they, in essence, become endentured to you forever.

Interest-only loans are necessary “in order to survive”??

I don’t think so.

A conventional thirty-year mortgage at 6.125% for $150,000 will require monthly payments of $911.42.

The monthly payments under an interest-only loan would be $765.63.

If a person can’t afford $911.42 per month, then find a place for less money (a mortgage of $126,006.12 will give you conventional mortgage payments of $765.63 per month).

Again, just because these products are available doesn’t mean someone is forcing anyone to use them. If banning them was the answer (in order to protect people from themselves), I think the same logic would apply to booze, cigarettes, recreational drugs, skiing, the lotto, motorcycle riding, etc., etc., etc. (i.e., anything that has a downside for using it or doing it).

quote:
Originally posted by otter:
This is why there are so many deals available today where you don't have to pay anything down, take 2-5 years before starting payments, pawn shops are everywhere and interest only mortgages are so appealing. There is no end to the indebtedness products that are being created these days.

(snip)

Guaranteed Income for those who need it the least.


Please explain how offering a deal where the buyer pays nothing down and pays no interest for, say 18 months, is such a great deal for the seller? I buy stuff on those terms all the time. If I have a choice of buying a piece of furniture for $3,000 in cash today or keeping the cash in my pocket for 18 months and paying no interest on the balance and then paying $3,000 at the end of that 18-month period, it’s crazy not to take advantage of that kind of deal.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
Sven
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posted 06 July 2006 02:58 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
Also, a person could buy about $5,700 more house if they were to forgo spending $35 per month on cable TV.

Give up two large latte drinks a week (saving, say, $8 a week) would translate into being able to buy another $5,700 more house.

There are a lot of ways to avoid an interest-only mortgage...if one wants to.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
otter
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posted 06 July 2006 11:37 PM      Profile for otter        Edit/Delete Post  Reply With Quote 
Interest only loans mean the principle never gets paid and therefore you will be paying the same amount - or more as rates rise - for the rest of your life and probably your kids lives too.

ERGO .... a guaranteed income in perpetuity for the holder of the loan.

No interest for 5 years often means your not paying interest for 5 years. But interest is still being accrued if only through "service charges" but you still owe and pay more in the final analysis. Generally called a 'balloon' final payment.

There are NO free lunches.


From: agent provocateur inc. | Registered: Feb 2006  |  IP: Logged
arborman
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posted 07 July 2006 10:22 AM      Profile for arborman     Send New Private Message      Edit/Delete Post  Reply With Quote 
It will come into play in places like Vancouver, where the cheapest houses on the market are over 1/2 million.

It could also be a tool used for speculation. Buy a place with an interest only mortgage, watch its value rise, then sell it at a profit. Interest on investment property is a tax writeoff, which would make it all the more appealing for speculative investors. It will certainly help inflate the market for a year or so, and some savvy investors will make a fortune in the first couple of years. It would likely increase the risk of a larger deflation later on, however.

It is, of course, based on the assumption that house prices will continue to rise, or at least not fall. It's possible, but they might also collapse. I doubt it - but what do I know?


From: I'm a solipsist - isn't everyone? | Registered: Aug 2003  |  IP: Logged
Sven
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posted 07 July 2006 12:05 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by arborman:
It is, of course, based on the assumption that house prices will continue to rise, or at least not fall. It's possible, but they might also collapse. I doubt it - but what do I know?

I'm concerned that there is going to be steep decline in house values. Obviously, this is good for people who are looking for a first home. But, for the much larger group of people who have invested a significant portion of their life savings in what is the biggest investment most people make, it's very concerning.

I'm assuming that Canada has a large "baby boomer" generation similar to what we have here in America. As that group is now starting to turn 60 (like GWB did yesterday, I believe), they are starting to downsize their living arrangements (and I think that trend will accelerate over the next five to fifteen years), which means that there will very likely be more sellers than buyers.

Even from a first-time buyer's perspective, this is not good news, long term. What has in recent years been a good investment, buying a house will likely not be as good as an investment as it has been historically.

So, I'm not so sure that buying a house on an interest-only plan is good from a speculative perspective. From a longer-term perspective (i.e., for most people), I just don't see the logic in taking out an interest-only loan. It may make it possible to get a BIGGER house SOONER but, over time, it's a financial loser compared to a conventional mortgage.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
Sven
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posted 07 July 2006 12:18 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by otter:
Interest only loans mean the principle never gets paid and therefore you will be paying the same amount - or more as rates rise - for the rest of your life and probably your kids lives too.

ERGO .... a guaranteed income in perpetuity for the holder of the loan.


Principal “never” gets paid??

Most mortgages can be paid off in advance of the scheduled payment plan. I’ve never read an interest-only mortgage document but I would be very surprised, to say the least, if a borrower was prohibited from paying principal. As you said, “there are NO free lunches” and that applies to a theoretical “guaranteed income in perpetuity” as well. There are no such guarantees.

quote:
Originally posted by otter:
No interest for 5 years often means your not paying interest for 5 years. But interest is still being accrued if only through "service charges" but you still owe and pay more in the final analysis. Generally called a 'balloon' final payment.

I’m not sure I’ve seen a “no interest” loan that accrues interest (that’s an oxymoron). When you go to a store and buy something on terms that are “no payments or interest” until 2008, that’s what that means. Interest only accrues if one fails to pay the balance when it’s due. I just bought some furniture for $X with “no payments or interest” until January 31, 2008. When I pay $X in January 2008, I will be paying zero interest on that amount. I could have paid $X today, but why? I’d rather have that money either (1) earning interest or (2) paying debt that is accruing interest between now and January 2008.

It’s a no-brainer.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
M. Spector
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posted 07 July 2006 12:30 PM      Profile for M. Spector   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
There is no free lunch, as otter has observed.

Whether you are buying furniture from Leon's or getting a mortgage, any interest holiday you may get is a cost to the vendor or mortgagee, as the case may be, and it is recouped by them in other ways - among the most obvious of which is by charging a slightly higher rate of interest once the "holiday" is over.

As for interest-only mortgages, they are essentially like paying rent.


From: One millihelen: The amount of beauty required to launch one ship. | Registered: Feb 2005  |  IP: Logged
Sven
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posted 07 July 2006 12:39 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by M. Spector:
As for interest-only mortgages, they are essentially like paying rent.

I hadn’t thought about it that way. You’re probably correct. It would be interesting to know, however, if an outright rental of a house would result in about the same monthly rental rate as an interest-only mortgage of that same house. One key difference, even if the rates are the same: With rent, you can pretty much leave whenever you want. But, with an interest-only mortgage, you’re stuck with the obligation to pay it until you can either sell the property or pay the principal off.

quote:
Originally posted by M. Spector:
There is no free lunch, as otter has observed.

Whether you are buying furniture from Leon's or getting a mortgage, any interest holiday you may get is a cost to the vendor or mortgagee, as the case may be, and it is recouped by them in other ways - among the most obvious of which is by charging a slightly higher rate of interest once the "holiday" is over.


That’s absolutely correct. Usually, the interest rate that applies if one fails to pay off a “no payment no and no interest” loan when it is due is astronomical (like 25% or some similarly ridiculous number).

Part of the cost of a “no payment and no interest” loan is no doubt included in the base cost of a product (although not entirely). That being said, if the cost (however it is determined) is $1,000, it’s better to pay that $1,000 two years from now than today.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
M. Spector
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posted 07 July 2006 04:30 PM      Profile for M. Spector   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Sven:
It would be interesting to know, however, if an outright rental of a house would result in about the same monthly rental rate as an interest-only mortgage of that same house. One key difference, even if the rates are the same: With rent, you can pretty much leave whenever you want. But, with an interest-only mortgage, you’re stuck with the obligation to pay it until you can either sell the property or pay the principal off.

Landlords' Rule No. 1: never charge less rent than it takes to meet your monthly mortgage payment. And that's based on normal mortgages, where the monthly payment is blended principal and interest.

So an interest-only mortgage is, practically by definition, cheaper in terms of monthly payments than the rent for a similar property would be.

As for being free to leave, a tenant might have to wait until the end of a term of the lease, whereas an "owner" can essentially leave at any time, if they can find a buyer. Assuming the value of their property has not declined, they can sell it for at least enough to pay off the principal amount of their existing "interest-only" mortgage.

What I find more appalling than interest-only mortgages is unsecured, interest-only lines of credit. People borrow to the authorized limit of the credit line and then essentially carry that balance in perpetuity, paying only the interest every month. I've seen people with $50,000 line of credit debts that they only have to pay the interest on.

And unlike with an interest-only mortgage, you are not using the debt as leverage to accrue equity over time as house prices go up. It's just a dead-weight debt that goes on and on.

Until one day the creditor starts to doubt your credit-worthiness and requires you to pay off the principal balance (since almost any unsecured line of credit is, by its terms, repayable on demand). Then you suddenly have to come up with the money. That's when you find out just how good your credit is, as you scramble to find another lender willing to refinance the debt!


From: One millihelen: The amount of beauty required to launch one ship. | Registered: Feb 2005  |  IP: Logged
otter
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posted 10 July 2006 12:18 PM      Profile for otter        Edit/Delete Post  Reply With Quote 
OH ya, now i remember, those "no interest payments for x years" have a final payment they call the balloon payment. I guess because it is so inflated with all that interest you never paid - but still accrued - for x years.
From: agent provocateur inc. | Registered: Feb 2006  |  IP: Logged
Sven
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posted 10 July 2006 08:15 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by otter:
OH ya, now i remember, those "no interest payments for x years" have a final payment they call the balloon payment. I guess because it is so inflated with all that interest you never paid - but still accrued - for x years.

Ah, no. Like I said earlier, I bought a piece of furniture for "no interest and no payments 'til January 2008". I either pay $3,000 today or I pay $3,000 a year and a half from now. The "balloon" payment is $3,000 (i.e., what I would have paid today). If I don't pay the balance when it's due, then I get charged interest. So, what am I going to do? I'm going to pay the balance when due (18 months from today) rather than pay the same amount today. Very simple, actually.


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M. Spector
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posted 10 July 2006 09:38 PM      Profile for M. Spector   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
If that furniture store were not offering a year and a half interest-free loan of $3,000 it could afford to let you have that furniture for a payment today of somewhat less than $3,000.

It is not a matter of indifference to the store whether you pay now or 18 months from now; they would much rather have your money today.


From: One millihelen: The amount of beauty required to launch one ship. | Registered: Feb 2005  |  IP: Logged
Sven
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posted 10 July 2006 09:45 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by M. Spector:
If that furniture store were not offering a year and a half interest-free loan of $3,000 it could afford to let you have that furniture for a payment today of somewhat less than $3,000.

It is not a matter of indifference to the store whether you pay now or 18 months from now; they would much rather have your money today.


Actually, as far as the store is concerned, it probably is a matter of indifference. It's a credit company (a third party) that holds the debt. That credit company will charge me 22% if I don't pay the balance when it's due. That credit company is betting that a certain percentage of buyers won't pay the balance when its due, and that's how it will make its money.

Also, that same piece of furniture was offered for $3,000 when we were first shopping around for the right piece, about three months before their "no interest no payments" promotion was made available.


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
M. Spector
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posted 10 July 2006 09:56 PM      Profile for M. Spector   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Sven:
Actually, as far as the store is concerned, it probably is a matter of indifference. It's a credit company (a third party) that holds the debt. That credit company will charge me 22% if I don't pay the balance when it's due. That credit company is betting that a certain percentage of buyers won't pay the balance when its due, and that's how it will make its money.
If the debt is financed by a third party, the normal way this is done would be for the furniture store to sell the debt to it at a discount. So the store would receive, say, $2,600 now from the financier, and the financier would collect $3,000 from the customer in a year and a half. That's how they make their money.
quote:
Also, that same piece of furniture was offered for $3,000 when we were first shopping around for the right piece, about three months before their "no interest no payments" promotion was made available.
The price has the store's financing costs built into it. If they never offered these interest-free loans they could afford to lower their prices.

From: One millihelen: The amount of beauty required to launch one ship. | Registered: Feb 2005  |  IP: Logged
Sven
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posted 10 July 2006 10:21 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by M. Spector:
The price has the store's financing costs built into it. If they never offered these interest-free loans they could afford to lower their prices.

Let's say a store offers a 10% discount every year for an annual one-week store-wide sale. In theory, the store could, instead, offer its products all year round for, say, 0.2% less than what it normally does and make the same sales. In that sense, the annual 10% off sale could be eliminated and the prices could simply be reduced by 0.2% year round. Now, that certainly helps (a little) the people who normally wouldn't buy the products during the annual sale but it's significantly worse for the people who take advantage of the annual sale. In other words, the shopper who purchases the products during the 10% off annual sale are getting a much better deal than if the prices were simply dropped by 0.2% and held year round.

So, those shoppers who are buying the products during the 51 weeks that there is no sale are financing (to a very small degree) the sale for that one week.

But, the fact remains that the shoppers taking advantage of the sale are better off than (1) those who don't shop during the sale and (2) they would be if the prices were dropped by 0.2% year round.

The same principle would apply to interest free promotions, assuming that the store shoulders part of the discount, as you stated.


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khrisse-boy
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posted 17 July 2006 12:29 PM      Profile for khrisse-boy     Send New Private Message      Edit/Delete Post  Reply With Quote 
People keep on saying things like "people don't have to use this new product if they don't want to." I think this may be missing the point. The point, I suspect, is that housing prices are now so high (read: inflated) in most major urban centres that for many of us the only way we can afford to buy (and thus maintain demand, keeping prices high and maintaining the value of the investment people have made in their houses) is by financing over a longer term and not paying down principal in the first 10 years of the life of the mortgage. Due to a combination of high housing prices and a high student loan debt, I can't afford a house or a condo in Ottawa, thus I rent. I might possibly be able to finance a house purchase under these new terms (haven't crunched the numbers)... but I won't. It worries me that the CMHC feels this move is necessary because it suggests to me that they're trying frantically to stave off the inevitable bursting of the housing bubble by making easy credit available to people who want to buy homes, thus keeping demand high. That suggests to me that they're seeing the possibility of a housing bust in the future, which would be an economic debacle, wiping out a significant part of the accumulated wealth of the middle class. I'm very reluctant to buy a house in this market, and certainly not under those circumstances... when the bubble bursts those who took out the huge longger-term mortgages will be doubly screwed.
From: Ottawa, ON | Registered: Jan 2003  |  IP: Logged
Sven
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posted 17 July 2006 04:09 PM      Profile for Sven     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by khrisse-boy:
People keep on saying things like "people don't have to use this new product if they don't want to." I think this may be missing the point. The point, I suspect, is that housing prices are now so high (read: inflated) in most major urban centres that for many of us the only way we can afford to buy (and thus maintain demand, keeping prices high and maintaining the value of the investment people have made in their houses) is by financing over a longer term and not paying down principal in the first 10 years of the life of the mortgage.

I’ll reiterate that people don’t have to use interest-only mortgages if they don’t want to because there are two fundamental alternatives:

(1) Buy a house using a conventional mortgage, or
(2) Don’t buy a house right now

If, as you say, “the only way we can afford to buy” a house is to take on an interest-only mortgage, then I suggest alternative (2). You mentioned that you can’t afford a house right now and that, instead, you rent. So, you have, in effect, elected alternative (2), no?

I think that your point about high housing prices, however, is pretty much on target. If you are planning on putting your life savings into a house and if you have any question about being able to make the monthly mortgage payments, I wouldn’t buy right now. Otherwise, you could be stuck losing your investment if prices decline even a small percentage (which I wouldn’t bet against right now).


From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005  |  IP: Logged
khrisse-boy
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posted 18 July 2006 07:56 AM      Profile for khrisse-boy     Send New Private Message      Edit/Delete Post  Reply With Quote 
Sven: I agree, but only up to a point. Home ownership is traditionally the main way in which middle and working-class people build wealth. If you rent, you're basically buying a service from your landlord and that money simply disappears. It's worth noting that in many cities rental rates are pretty close to what you'd pay under a mortgage. Buying a house means that even if the price goes down, at least a portion of that money you're spending on a place to live is retained as accumulated capital... under a traditional mortgage. For that reason, and for a number of other economic and social reasons (real estate and construction are great contributors to the North American economy, people who own assets have a lot more invested in the status quo, amking it easier to manage dissent) the powers that be encourage home ownership.

However, the policies encouraging home ownership have led to unrelenting demand that has pushed housing prices out of the reach of many... and now they're encouraging people to overextend themselves so that when the crash comes they'll be royally screwed. So we're faced with a situation where people without a significant amount of cash can either choose to pour their money down the sinkhole of renting, or overextend themselves on a mortgage, conventional or these new ones. I'd like to see a more holistic approach to managing this issue than simply keeping the bubble going by making easier credit available to more and more people.


From: Ottawa, ON | Registered: Jan 2003  |  IP: Logged
New West
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posted 18 July 2006 02:50 PM      Profile for New West     Send New Private Message      Edit/Delete Post  Reply With Quote 
Housing/condo prices have gone nuts out here in the Vancouver area. We've got about five or six condominium towers sprouting up in downtown New Westminster right now. (That's in a small strip of land in the downtown with several more projects booked to start in the next year.)

The worst part of this whole building boom is that no rental housing is being built. In fact very little rental housing has been built in the last 20 years. It's all condos and rental housing being converted into condos. So what are renters supposed to do? 50% of the people in this town rent. But the rental stock is getting old, and the rents go up by inflation + 2% every year. You've got rich investors/speculators from the U.S. and overseas driving up prices and then charging high rents, or, even worse, letting their units sit empty.

Working people and people with fixed or modest incomes are getting squeezed out of town or out onto the street. This is a slow motion disaster in-the-making and the pols are doing nothing.

You'd think that the city, provincial, and federal governments could get a handle on it, but they don't even want to see the problem. Maybe they think it's just fine that renters become an extinct class - join Bush's ownership society and take on a quarter million dollars in debt for the privilege of owning a 500 square foot mouse hole. Thanks to CHMC, the entire monthly mortgage payment can now go to enriching the bottom lines of our wealthy bankers.

Is decent, affordable housing only the right of the upper crust? Will government step in now that the free market has so utterly failed to provide for the critical needs of those on fixed or modest incomes? How about reserving 25 to 33% of the units in these condo projects for government-owned, non-profit rental housing that restricts rent increases to actual costs? This could ease the rental shortage, ease the upward pressure on rents, and perhaps slow the speculative fever that has forced housing prices beyond the means of most ordinary Canadians.


From: New Westminster | Registered: Oct 2005  |  IP: Logged
otter
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posted 19 July 2006 12:59 AM      Profile for otter        Edit/Delete Post  Reply With Quote 
Those who have no poltical voice to represent them such as the marginalized and the poor, will always be accorded a low priority - if accorded any at all - Until we institute a political decision making process like Direct Democracy.

Renters, by definition, in this wealth and property obsessed culture have no such voice except as a distant,indistinct wail.


From: agent provocateur inc. | Registered: Feb 2006  |  IP: Logged
Odin
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posted 19 July 2006 03:00 PM      Profile for Odin     Send New Private Message      Edit/Delete Post  Reply With Quote 
I really feel that there should be price controls on houses. I come from a family where only now are my parents able to afford to buy a place to live, and that's only because the matriarch of the family died and left my parents a gob of money. It's in court until ~2008, but since the credit union knows it exists, they could get a much better mortgagae rate (IOW better than prime) than if they were regular people.

There really is no benefit for people renting: you have nothing to call your own and you are held hostage to the whims of the landowner who will work in his own best interest. The answer, therefore, is to buy your own place; at least that would affort some stability and security (and your money wouldn't go into the hole known as the "rent," but instead into a slightly more useful hole known as the "mortgage.").

When you can't find some kind of place to live in in Vancouver for under $400,000 that is over 1,000 sq. ft., you know that Vancouver is made for the rich and the working family is once again shut out. Think of it, an entire city for the monied classes to call their own.

Even now, my parents can only afford to rent/buy in Surrey and have to use two cars to get to work in two different places in Vancouver (transit is horrible for shift workers).

Just my $0.02.


From: Greater Vancouver | Registered: Jul 2006  |  IP: Logged
jester
rabble-rouser
Babbler # 11798

posted 19 July 2006 11:39 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
You all miss the point of CMHC's foray into interest only mortgages.

Under the Bank Act,any mortgage with less than 25% down,requires mortgage insurance.CMHC provides mortgage insurance at a steep price.

Historically,CMHC has had a monopoly on this service and generates a huge profit for government.

Now,Genworth Capital,a division of GE Capital is competing in Canada and more competition is on the way.In order for CMHC to maintain it's huge margins fucking over those who cannot raise 25% down,they need a new carrot.

The solution to this problem is not interest only mortgages but changes to the Bank Act reflecting the 21st century and reining in the monopolistic vultures at CMHC.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
lucas
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posted 20 July 2006 06:44 AM      Profile for lucas     Send New Private Message      Edit/Delete Post  Reply With Quote 
My experience in renting has not been so negative. The adavantage of renting, I found, was that I was far more mobile than if I owned a house. I held off buying a house until just a few years ago so that I could remain flexible. A mortgage is a huge cost... far more than I ever paid in rent. I guess that was likely due to roommates though.

One possible way to control skyrocketing prices is the mandate a percentage of any new development to affordable housing. You will provide the housing needed, AND you will lower the price of the other units as well since you won't be able to sell 'mixed' housing at a premium.


From: Turner Valley | Registered: Jul 2004  |  IP: Logged
M. Spector
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posted 21 July 2006 06:55 PM      Profile for M. Spector   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
The spin on these new mortgage options is that they're a way for home buyers to cope with a residential real estate market where the national average price was up 12 per cent in June to $304,328. By paying just interest on your mortgage or extending its lifespan beyond 25 years, you shrink your monthly payments and put yourself in a position to buy a more expensive home.

You also put yourself in a position to waste tens of thousands of dollars on extra interest costs and, even worse, to have your financial flexibility limited in a way that can affect your ability to save for retirement or help your kids afford a university or college education....
....
What you're essentially doing with both these mortgages is shovelling money into interest payments that do nothing to reduce your debt. When you eventually start making blended payments of interest and principal, it'll be as if you're starting fresh in a new mortgage with a repayment schedule that's more aggressive than the traditional 25-year amortization period. Will you be able to afford the much higher payments?

On a $200,000 mortgage at 5.5 per cent, the interest-only payment would be $916 a month. After five years, the payment would jump to $1,368.78, or about 50 per cent if you assume the same interest rate. Source



From: One millihelen: The amount of beauty required to launch one ship. | Registered: Feb 2005  |  IP: Logged
brookmere
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posted 22 July 2006 10:16 AM      Profile for brookmere     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by New West:

The worst part of this whole building boom is that no rental housing is being built. In fact very little rental housing has been built in the last 20 years.


Actually, a lot of rental housing has been built and is being built in Vancouver. It's called "condos". Also basement suites in owner-occupied houses. That's why rents haven't gone up for the last 5 years while prices have doubled.

Condo specuvestors are renting out property on a negative cash flow basis on the hope of future capital gains. That's a bubble, folks.

The real estate market crashed in Vancouver in 1982/83 (by over 40%), the crash is already under way in the US, and the resulting recession will trigger another crash in Vancouver.

Vancouver Housing Market Blog

The Housing Bubble Blog (US)

[ 22 July 2006: Message edited by: brookmere ]


From: BC (sort of) | Registered: Jun 2005  |  IP: Logged
brookmere
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posted 22 July 2006 10:35 AM      Profile for brookmere     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by odin:

you know that Vancouver is made for the rich and the working family is once again shut out



If working people are shut out from buying, how can anyone sell? There aren't nearly enough rich people to buy everything on the market.

Prices will drop. That's called supply and demand. Working people cannot be priced out of the market long term because they are the market.

[ 22 July 2006: Message edited by: brookmere ]


From: BC (sort of) | Registered: Jun 2005  |  IP: Logged
otter
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Babbler # 12062

posted 22 July 2006 01:01 PM      Profile for otter        Edit/Delete Post  Reply With Quote 
quote:
If working people are shut out from buying, how can anyone sell? There aren't nearly enough rich people to buy everything on the market.
Prices will drop. That's called supply and demand. Working people cannot be priced out of the market long term because they are the market.

Tell that to the people of places like Haiti, Jamaica, The Dominican Republic or any of the dozens of other nations where the wealthy control evreything worth owning.


From: agent provocateur inc. | Registered: Feb 2006  |  IP: Logged
brookmere
rabble-rouser
Babbler # 9693

posted 22 July 2006 09:04 PM      Profile for brookmere     Send New Private Message      Edit/Delete Post  Reply With Quote 
Third world countries do not have effective and reliable labour and capital markets and often do not have functional land title systems.

If a capital asset is priced in line with its economic return, if you can afford to rent it long term, you can afford to buy it. That's basic economics. Think about cars, which don't have pricing bubbles. If you can afford to rent a car long term, you can afford to buy one.

What is happening right now in Vancouver is that people are buying housing at prices far above what is justified by the economic rate of return of the asset (i.e. the market rent). This is exactly what happened with dot-com stocks in 2000.

And it's not the fault of the developers or the banks. It's the idiot buyers who think a greater fool is going to come along and pay even more.


From: BC (sort of) | Registered: Jun 2005  |  IP: Logged

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