Quote:
Originally Posted by Mike Oxlong
Do you really think the fact we have people who are in zero down mortgages and 40 year amortizations is anywhere near the same situation the US housing market faced with their sub prime mess?
It's not even comparable. Yes, when some of these people who are in a 40 year amortization renew their mortgage their new rate might be marginally higher than the current rate. However it is not going to be anywhere close to the difference between the "teaser" rate and what the new rate reset at on the US mortgages. Not to mention we still had relatively strict qualifying guidelines compared to what they had down in the US. A huge portion of the problem in the US was the fact they would give ANYONE a mortgage regardless of credit or income. Canadians still has to show solid credit history as well as good income to support the loan payments.
The comparison between the US sub prime crisis and people qualifying for 40 year amortizations with zero down is ridiculous.
I don't disagree that perhaps some people in Canada will have a difficult time making mortgage payments when they renew at a higher rate, some may even get foreclosed on, but that happens all the time. We will NOT see anywhere near the same numbers that they saw in the US, not even remotely close. And guess what? Some of these people who took 40 year mortgages were young and just starting careers, chances are they are making more money now than they did when they took out the mortgage. A slightly higher payment in the future is not going to crush them financially, they may have even started paying the mortgage down quicker and built equity with this additional income.
This thread has been going for a couple years now and there have been all sorts of reasons listed for this supposed bubble burst. None of them seem to have come to fruition..... I guess I'll just have to keep waiting for it to happen.
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My point was that the CMHC insures mortgages that FI's wouldn't underwrite naked. That's additional credit risk that's pooling up and is ultimately the risk of the tax payers. It also does the perverse effect of making homes less affordable, unless of course affordability is only measured by one's means of obtaining a 5% down mortgage.
Also vis-a-vis bubble, I think the comment applies more to places like Vancouver and Toronto where prices for homes are 9-14 times average income. That isn't sustainable, and there's nothing economically that can bring real incomes up to support those price levels in those cities.
In Calgary we hit our peak in 2007 and haven't seen it since. The boom itself was a bubble that corrected but got glossed over by the fact that things were worse in the US and everyone took a similar hit on their equity holdings. Meaning if you bought a home at a highly leveraged amount and did not make any extra payments all you accomplished is negative equity and lining the banks pockets with interest payments. Hardly a great move with your money. Houses don't always go up and in real terms do not always outperform every other asset class.