Calgary Real Estate predictions?

[Potty]

Originally Posted by photon

How exactly does he define high-ratio homeowners? And it's interesting that he goes from high-ratio to high-risk to "massive sub-prime mortgage scheme" in a few sentences.

Less than 20% down is considered a high ratio mortgage. That's a huge percentage of homeowners that would be under water on their mortgage if prices declined. That table is directly out of the CMHC 2008 annual report.

And yes, the writer jumps to a lot of conclusions without really explaining himself well in places. I considered whether I should even post it because of that, but I found some of the data he compiled interesing.

[amorak]

Originally Posted by Wookie

Conference board of Canada thinks the Calgary market is Balanced

http://www.calgaryherald.com/busines...797/story.html

[photon]

Originally Posted by Potty

Less than 20% down is considered a high ratio mortgage.

Right, that's what I first thought as that's typically what's meant by a high ratio mortgage.

This then doesn't make sense though:

"41.8% of mortgages insured by CMHC in 2008 were to rental or high-ratio homeowners."

CMHC doesn't insure mortgages that are low ratio, so 100% of homewoner mortgages insured by CMHC should be high-ratio mortgages, that's the whole point of CMHC insurance! Is every high-ratio mortgage considered sub-prime?

The actual field in the report says "Per cent of rental and high ratio homeowners units approved to address less-served markets and/or to support specific government priorities". That's not talking about increasing the percentage of high ratio mortgages they insure because that percentage is 100% right? It's talking about how many out of those mortgages fall under less-served markets category or fall under the supporting specific government priorities category.

So in 2007 296,000 mortgages were approved to address less served markets and/or to support specific government priorities. In 2008, 384,000 mortgages were approved for the same reason.

But unless "Less-served markets and government priorities" is specifically defined and explained, I don't see any reason to jump to the conclusion that it's a "massive sub-prime mortgage scheme".

Originally Posted by Potty

That's a huge percentage of homeowners that would be under water on their mortgage if prices declined. That table is directly out of the CMHC 2008 annual report.

You can't really say that though, at least based on this information. The percentages in that table don't represent high ratio mortgages, just how many were for less served markets and government priorities. 900k mortgages in 2008 were high ratio, and out of that we don't know how many are 25yr vs 40yr, 5% down vs 15% down, etc. And we don't know how many 900k mortgages represents out of all mortgages given (a good chunk I suspect).

Plus even if a high ratio mortgage is given with 5% down (10% now I guess), and prices go down 10%, that just means on a piece of paper somewhere there's a potential loss. The person still qualified with a debt/service ratio of 40%, their payments haven't changed, the banks not going to take it away because it's worth $15,000 less than their mortgage is... All it does is reduce their flexibility, people are less inclined to sell and move if they can't sell for what they paid, but other than that what's the real downside?

[yads]

I did some analysis of historical 5 year mortgage rates and BOC lending rates.

There was only 1 time in history where the mortgage rate increased at over 1% per year over a 5 year period. That was from 1978-1982 where rates increased on average at 1.5% per year.

For the BOC lending rate rates increased an average of 1.15%/year from 76-80, 1.6% from 77-81, and 1.24% from 78-82.

So if we take the worst scenario of these scenarios the 1.5%/year for mortgage rates we could see 11.25% (based on 3.75% current rates) rates and as for BOC prime we could see 9.25%. Is it possible that we could see 15% mortgage rates? Sure, is it likely within the next 5 years? Very, very improbable.

[1stLand]

Originally Posted by AFireInside

I would have guessed the household income to be around 80 - 85 k so I'm not surprised by the 77k number. Unfortunately there is information posted here that says it's 77k, your estimate of 50k/yr for a new grad is based on nothing..

50K a year for a brand new graduate is not THAAAAT common . I myself have been out for a couple years and do quite well, however when I first got out I was working for about 35 k/yr.. Several of my friends who graduated at the same time (with a range of degrees) were all in the same boat....

I don't think the housing market will completely crash, but I do think that the prices will decline.

If the interest rates hit 6-8% in the next couple years housing prices will have to come down there is no way around it. There are people who have mortgages at 2.5% when they have to renew and it's at 6% they are likely in a lot of trouble don't kid yourself.

Will this happen for sure? Who really knows...

35k a year is a reality, especially in today's economy. I was lucky to get 50 starting out after university and then get bumped up substantially after a year, but all at the cost of having to live in Edmonton. LOL

I suppose one thing that is evident is the paradigm shift that has occurred these past 15 years, where more households are dual income families. Think of the 50s,60s,70s,80s where most households were single incomes. Housing was more affordable. You can infer why.

When my dad's family came over here in the 50's, they bought in the sunnyside kensington area for tens of thousands of dollars. It only took 50 years for infills to take over and million dollar homes to spring up.

(inflation coupled with gentrification)

[Winsor_Pilates]

Originally Posted by photon

Right, that's what I first thought as that's typically what's meant by a high ratio mortgage.

This then doesn't make sense though:

"41.8% of mortgages insured by CMHC in 2008 were to rental or high-ratio homeowners."

CMHC doesn't insure mortgages that are low ratio, so 100% of homewoner mortgages insured by CMHC should be high-ratio mortgages, that's the whole point of CMHC insurance! Is every high-ratio mortgage considered sub-prime?

Glad I wasn't the only one reading that and thinking thinking this. I don't understand that 41% stat.

[albertGQ]

CMHC does insure low ratio mortgages. Examples are properties in remote areas where most lenders would not approve conventionally. Also, CMHC has a rental offset formula which lowers an individual's TDSR significantly whereas most banks just add 50% of the rent towards income. They also have Newcomers to Canada, Self-Employed Simplified programs, etc that borrowers may only qualify under.

Regardless, that 41% number appears low. I'd guess it should be double that.

[Potty]

Originally Posted by Winsor_Pilates

Glad I wasn't the only one reading that and thinking thinking this. I don't understand that 41% stat.

Haha, I clearly didn't understand it either. Photon - I totally misread that table somehow, you're right.

[photon]

Originally Posted by albertGQ

CMHC does insure low ratio mortgages. Examples are properties in remote areas where most lenders would not approve conventionally. Also, CMHC has a rental offset formula which lowers an individual's TDSR significantly whereas most banks just add 50% of the rent towards income. They also have Newcomers to Canada, Self-Employed Simplified programs, etc that borrowers may only qualify under.

Regardless, that 41% number appears low. I'd guess it should be double that.

Ah ok, so that's probably what it's talking about when it says "41% of rental and high ratio homeowners units approved to address less-served markets and/or to support specific government priorities". Meaning that 41% of all rental and high ratio mortgages that CMHC insures are these remote areas, or using rental income, all that stuff you mention..

I don't know, that seems kind of high to me, I would have thought that most CMHC insured mortgages would just be normal people in big cities putting down less than 20%.

[Winsor_Pilates]

Originally Posted by albertGQ

CMHC does insure low ratio mortgages. Examples are properties in remote areas where most lenders would not approve conventionally. Also, CMHC has a rental offset formula which lowers an individual's TDSR significantly whereas most banks just add 50% of the rent towards income. They also have Newcomers to Canada, Self-Employed Simplified programs, etc that borrowers may only qualify under.

Regardless, that 41% number appears low. I'd guess it should be double that.

Yeah, there are some more unusual cases that need insured mortgages as you've mentioned. Another example is homes under 500 sq ft.
Still, these situations are few and far between, so I would expect more traditional high ratio mortgages to represent way more than 41%.

[Mike Oxlong]

Originally Posted by Winsor_Pilates

Yeah, there are some more unusual cases that need insured mortgages as you've mentioned. Another example is homes under 500 sq ft.
Still, these situations are few and far between, so I would expect more traditional high ratio mortgages to represent way more than 41%.

Some lenders actually insure all of their mortgages "behind the scenes". Even if the client has more than 20% equity in their homes some lenders will take out the CMHC insurance and pay for it themselves to cover the loan.

But as other have said 41% seems REALLY low.

[chemgear]

http://www.cbc.ca/money/story/2010/0...ney-rates.html

Inflation higher than expected, pledging to keep prices stable, preparing to increase interest rates, etc.

[MelBridgeman]

Originally Posted by fotze

You can thank me for the high interest rates, I am switching to variable next week, exact same thing happened last time I went to variable.

How do you sleep at night

[mykalberta]

TD and CIBC raised some rates 6/10 of a percent today.
I assume because of bond markets.

[Wookie]

Originally Posted by mykalberta

TD and CIBC raised some rates 6/10 of a percent today.
I assume because of bond markets.

A broker friend just emailed me rates moved 1.0% today, from 3.69 to 4.69%

[mykalberta]

Its got to be bond market, no way BOC raises rates that much in June unless there are rumors of non schedule rate hike.

[Wookie]

Originally Posted by mykalberta

Its got to be bond market, no way BOC raises rates that much in June unless there are rumors of non schedule rate hike.

GOC bond yields for 1 / 3 / 5 / 7 / 10 / 20 year didn't change much from last week....
Last week (26th)

Bond Yield
1 year 0.95
3 year 2.26
5 year 2.83
7 year 3.26
10 year 3.64
20 year 4.11

Today (29th)
Bond Yield
1 year 0.98
3 year 2.28
5 year 2.85
7 year 3.27
10 year 3.64
20 year 4.11

[Wookie]

Lots of stuff out today about housing prices being to high, interest rates increasing, debt mounting etc. Again, Conference Board of Canada now leaning the other way (WTF) lol.

On Monday, the Conference Board of Canada sounded a similar warning in a report, saying 20 per cent of Canadian households struggle to afford their homes.
"The unaffordability tends to affect cities more than rural areas. So anybody that lives in a city is probably at higher risk, especially in cities with buoyant housing markets like Calgary, Vancouver and Toronto," said Mike Grant, an economist with the conference board.
"The rate (of unaffordability) in Calgary is somewhat higher than the rate for Canada. It's one in five for Canada, about 20 per cent, but more like 25 per cent for Calgary."

http://www.vancouversun.com/business...425/story.html

Didn't I just post a link a week or more ago from them saying Calgary was more affordable again.

Some other dude from the same article

Home prices in Calgary are overvalued by 15 to 20 per cent, "seriously unaffordable," and set to start falling, says a nationally known economic and housing market commentator.
Garth Turner, who is in Calgary tonight to speak about his views, said the residential real estate market is at the top of its curve.

[The Yen Man]

Wow, these so called "professional" economists are all over the place. Some say it will rise, some say it will be steady, and some say it will drop. It's nice to know they've basically covered all their bases on this one. Why are the professionals again?

[Winsor_Pilates]

Originally Posted by The Yen Man

Wow, these so called "professional" economists are all over the place. Some say it will rise, some say it will be steady, and some say it will drop. It's nice to know they've basically covered all their bases on this one. Why are the professionals again?

It's like Eklund predicting Real Estate and Economics. Just say enough crap, eventually get one right and you're an "expert"!