Mass Foreclosures in Canada`s Future

[Jack]

-The Bank of Canada is warning of severe economic turmoil, including the risk of many Canadians losing their homes, if the financial-market crisis worsens.-if global financial conditions deteriorate, the bank warns the repercussions for Canada could be serious, including a deep and prolonged recession, slow income growth and severe trouble for Canadians already carrying heavy debt loads.

-"With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record-high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt," the review states.

-household debt woes could be a channel of contagion spreading through the banking system and cause even greater tightening in the availability of credit.

http://www.thestar.com/Business/article/552151

 

[brad]

Is this good or bad news?

All you have done is post a link to the Star. I don`t get it?!?!?!

Personally, I feel that the tightening of credit means more people will be unable to qualify for mortgages which in turn means more renters that require homes. I guess you posted this because it is a good news story?

Brad

 

[Jack]

QUOTE Personally, I feel that the tightening of credit means more people will be unable to qualify for mortgages which in turn means more renters that require homes. I guess you posted this because it is a good news story?

It would also mean lower demand in the resale market, ergo declining house prices.

 

[Nir]

please note: they didn`t say "risk of vacancy rate increase" or "worries concerning rent reduction". you are only bringing GREAT news to the investor whose strategy has slightly been adjusted to depend on cash flow more than appreciation.

Question in economics: how will "Canadians losing their homes" affect vacancy rate and rents in CLASS C NEIGBORHOODS? Hope you got the idea so you can also do something about it so in 5-10 years you too will laugh all the way to the bank.

Keep`m coming my friend, just don`t forget to smile.

Cheers,
Neil

 

[Jack]

QUOTE Question in economics: how will "Canadians losing their homes" affect vacancy rate and rents in CLASS C NEIGBORHOODS?

Another question in economics: if less people have access to purchase homes through a more restrictive lending environment, what does that do to the resale market? And if homes aren`t selling, if demand to buy goes down, what does that do to property values?

The vacancy rate should go down, sure, but the vacancy rate as it stands now is fine (in most markets). Canada hasn`t vastly overbuilt like the U.S. has, with the two exceptions perhaps being Calgary & Edmonton.

I`m a lot more concerned with values coming down, as you have about a 90 - 95% probability of renting out your property as it stands today. Those are odds that I like. I don`t imagine that you`ll be "laughing all the way to the bank" if your real estate holdings experience a 10 - 30% drop in their market value!

 

[realfortin]

QUOTE (Jack @ Dec 11 2008, 11:53 AM) It would also mean lower demand in the resale market, ergo declining house prices.
Lower demand in the resale market...=more renters
Lower demand in the resale market = declining house prices = easier for me to get properties

Lower house prices are good aren`t they? As long as it`s not a major crash. REIN pushes the "buy, cash flow and hold" principle.

 

[wealthyboomer]

QUOTE (realfortin @ Dec 11 2008, 01:57 PM) Lower demand in the resale market...=more renters
Lower demand in the resale market = declining house prices = easier for me to get properties

Lower house prices are good aren`t they? As long as it`s not a major crash. REIN pushes the "buy, cash flow and hold" principle.

It will be interesting to see Calgary in 2009 when downtown condos are completed.
Where are the owners of those units currently living?
Are they currently homeowners who will be selling their current residence in order to move into the condo?
Where will the buyers for their current home come from?
Or will they be putting up for sale both their condo and current residence in order to sell one of them?

If the completed condo owners are currently renters, and they move, where will the new renters come from to replace them?

Will there be a `glut` of rental accommodation raising the vacancy rate and lowering the rent prices?

Will the current `homeless` finally have a place to live?

 

[gregg]

There is no real concern as long as you have rental properties that you intend to hold. Vacancy rates across Canada are still very low despite the economic crisis. People will always need a place to live and if mortgages are hard to come by they will have no choice but to rent. A great time to be a landlord as long as you follow the REIN principal of purchase with maximum positive cash flow and hold long term.

As of this morning CMHC announcement Sudbury still has the lowest vacancy rate in Canada at 0.7%. A side note, I just bought a snowplow and thanks to the unexpected early snowfall I have already saved over half the cost of the snowplow - $3,600.00 and counting. Great time to be a landlord.

Gregg

 

[RedlineBrett]

I think this will be very interesting to see as well. No doubt the DT rental market will see higher vacancies and reduced rents.

However, I talked at length with the sales VP for one of the developers that is putting up three new towers. I asked him his thoughts on this and if he was worried about all the supply coming down the pipe. He told me that a surprisingly large percentage of his sales were to `baby boomers` that were downsizing to condos for ease of use.

Also, condos are typically sold to two different demographics: Older, retired buyers and younger buyers just getting started. People raising families almost always go detached.

Some of these units will be rented out, no doubt... but when you are paying 375+ with a condo fee above 500 there is no way these things will cash flow. I think you will see a lot of speculators default on their purchase contracts and developers will price them much lower, reducing the value of DT condos that aren`t in A-list locations (Eau claire, DT west end).


QUOTE (wealthyboomer @ Dec 11 2008, 01:35 PM) It will be interesting to see Calgary in 2009 when downtown condos are completed.
Where are the owners of those units currently living?
Are they currently homeowners who will be selling their current residence in order to move into the condo?
Where will the buyers for their current home come from?
Or will they be putting up for sale both their condo and current residence in order to sell one of them?

If the completed condo owners are currently renters, and they move, where will the new renters come from to replace them?

Will there be a `glut` of rental accommodation raising the vacancy rate and lowering the rent prices?

Will the current `homeless` finally have a place to live?

 

[newtothegame]

I could have done without another doom and gloom "world is ending" article! We hear it constantly on the news, read it in the papers and hear it on the radio. Sure, things aren`t great right now, compared to the last ten years, but when you dig down deeper, they really aren`t nearly as bad as the media is making them out to be.. of course calming reason based stories don`t sell ad space or get market share.

Go to the mall, take a look around.. it is packed, Try and get a table in a good restaurant that will cost you $100 a plate on a Saturday, you won`t be getting in.

I firmly believe that if we had a media blackout over the last 3 months, very few of us would have felt, or noticed much of a difference in our lives.

All things work in cycles, we had 10 unbelievably great years and anyone with an ounce of sense knew it wouldn`t last forever. Tighten the belt, use your mind insteaad of your emotions, and unless you`ve made some silly decisions and got greedy over the last 5 years, you`ll be doing great in 3-5.


QUOTE (RedlineBrett @ Dec 11 2008, 03:57 PM) I think this will be very interesting to see as well. No doubt the DT rental market will see higher vacancies and reduced rents.

However, I talked at length with the sales VP for one of the developers that is putting up three new towers. I asked him his thoughts on this and if he was worried about all the supply coming down the pipe. He told me that a surprisingly large percentage of his sales were to `baby boomers` that were downsizing to condos for ease of use.

Also, condos are typically sold to two different demographics: Older, retired buyers and younger buyers just getting started. People raising families almost always go detached.

Some of these units will be rented out, no doubt... but when you are paying 375+ with a condo fee above 500 there is no way these things will cash flow. I think you will see a lot of speculators default on their purchase contracts and developers will price them much lower, reducing the value of DT condos that aren`t in A-list locations (Eau claire, DT west end).

 

[JohnS]

Jack - just wanted to say thanks for taking the time to figure out how to post the whole article. If I remember correctly, you`d said a few times that you couldn`t do it, because of the way they were sent to you, but I`m glad you took the initiative to get it done.

Have a good one!

JohnS

 

[MonteDobson]

QUOTE (Jack @ Dec 11 2008, 10:00 AM) -The Bank of Canada is warning of severe economic turmoil, including the risk of many Canadians losing their homes, if the financial-market crisis worsens.

Canadian mortgage industry says rising defaults not a huge concern - Canadian Press

- Canada`s mortgage industry says it`s not concerned about the impact of rising defaults as a result of the recession that has set foot in Canada.

- According to the latest figures compiled by the Canadian Bankers Association, the percentage of mortgages that have gone unpaid for at least three months as of September was 0.29 per cent, or 11,362 of about 3.9 million mortgages in the country.

- The association says more than 20 per cent of mortgages were in the risky subprime category in the U.S., compared to less than five per cent in Canada.

- Derek Holt, an economist with Scotia Capital, says the Bank of Canada report suggests a "gentle deterioration" of the overall household credit condition over the next year as the recession deepens.

http://finance.sympatico.msn.ca/investing/...mentid=15861945

 

[vandriani]

Jack

What is the obsession with appreciation or depreciation TODAY or within the next year?
Are you of the belief that real estate will continue to depreciate for more than 12 - 24 months?
If not, then why be so concerned about it. Our plan extends out at least 5 year.
I`m pretty confident that our properties will appreciate significantly by then.
So, you loose 10% by purchasing today.

 

[rymac]

The problem will come from people who went 5% down and need to refinance.

Say someone went 5% down and your purchase price was $400k. They were able to pay their mortgage no problem but the market went down and the home lost 3% of it value. So its now worth $388k.

This person has to refinance but the bank will only finance 95% which is $368.6k.

Home owner their original down payment and $3k of principle pay down which is $23k, and they lost $12 from the market. But they need a 5% down payment to get a mortgage which would be $18.4k dollars. Here`s the pickle. The difference being: 23-12= 11, 18.4-11 = 6.4. So they`re short $6400 cash.

Where is that going to come from? Visa at 20%, personal loan for 3 years at 10%. Top that up with a car loan and the mortgage on $368 house and people will be hurting.

 

[tbarcier]

Price decline, good, I am glad. Now I am really seeing deals come out of the woodwork. Less people buying, ever better. I buy for cash flow so lower prices even better! I am not day trading, nor selling anytime soon. Some people invest based on what they read in the media, however by the time you read it, it is old news. Some "investors" read in the paper that the price of x is up, so the hurry out and buy it. But guess what, you are too late, you should have done your homework. This story is misleading as well. The key word is "if". Fine, so what "if" it does, what "if it doesn`t? I will say this, if in 5 years my properties are worth less what I paid for them but are still cash flowing, I`ll wait another 5. My 2 cents, and probably worth just as much.

 

[Jack]

QUOTE Lower house prices are good aren`t they?

If you`re buying, yes...but not if you`re in possession of a large portfolio!

 

[tbarcier]

Unless you own a large portfolio, I don`t feel you are qualified to make such a statement.

 

[Jack]

QUOTE It will be interesting to see Calgary in 2009 when downtown condos are completed.
Where are the owners of those units currently living?
Are they currently homeowners who will be selling their current residence in order to move into the condo?
Where will the buyers for their current home come from?
Or will they be putting up for sale both their condo and current residence in order to sell one of them?

No kidding, good points. The problem with a huge, relatively unexpected influx of migrants is that there`s an obvious time-lag between their arrival and when enough housing can be constructed to keep the market stable. So, while we had a big run-up in `06, it looks like we`re well-poised for a significant drop going-forward (already at 6 - 11% YOY).

 

[Jack]

QUOTE Vacancy rates across Canada are still very low despite the economic crisis. People will always need a place to live and if mortgages are hard to come by they will have no choice but to rent.
Agreed, vacancy rates are very low. Like I said before, you almost always have roughly a 90 - 95% probability of having your dwelling rented, which are excellent odds.

But - again - vacancy rates aren`t the problem!

The problem is a declining resale sector. If the ability to purchase real estate drops, which, thus, drops demand, prices will come down. Prices coming down sucks. The big money is made by steady capital appreciation. This is a fine example of the double-edged sword known as leverage:

• You put down 20% of the home`s price as your down payment, but you get to benefit from 100%

• of the home`s value appreciation. So - you put down $20,000 on a $100,000 condo in Regina. The market goes up 7% in 2009 (hypothetically). You now own an asset worth $107,000, and you`ve essentially earned 35% cash-on-cash in one year.
  • But

• • , if it goes the other way, this is where the trouble starts. If it declines
  • 7%, you`ve lost
  • 35% cash-on-cash.

Point is, declining prices do matter. Unless, of course, you don`t care about your investment`s performance.

And, sure, like what`s been said a million times before, if you have a long enough time-horizon, chances are that you`ll do just fine. But you can`t have many years of significant price declines, if any, to have the asset yield you that strong of a return once it`s all said and done.

 

[KimFranz]

There are quite a few "ifs" and "coulds" in that original article that was posted - maybe that should be your first clue that no one really knows what it going to happen...

Kim