Baby, we got a bubble!?

[interested]

I don't know that one can take that comment out of context. I think one would have to read the whole speech. In Canada, non recourse mortgages don't exist except in Alberta as pointed out to my understanding as well. There were a lot of differences and widespread fraud in the effort to get mortgages securitized to sell to an unsuspecting public for the betterment of Wall street. James is correct in my view that there are differences. That is not to say that things can't melt down here but the likelihood of it being on the scale of the US meltdown is far less. Again, just my view.

 

[cdr108]

I don't know that one can take that comment out of context. I think one would have to read the whole speech. In Canada, non recourse mortgages don't exist except in Alberta as pointed out to my understanding as well. There were a lot of differences and widespread fraud in the effort to get mortgages securitized to sell to an unsuspecting public for the betterment of Wall street. James is correct in my view that there are differences. That is not to say that things can't melt down here but the likelihood of it being on the scale of the US meltdown is far less. Again, just my view.

this comment isn't directed at interested, but I want to retain the thought for this thread.

mortgages in Canada similar to US "sub-prime" mortgages were (and may still be but it's not a product that I follow) securitized and sold to the Canadian public as income trusts.
I know this because I investigated complaints from individuals that lost money on these 'safe' income investments.

other differences between Canada and US:
* we have to renew mortgages (hence unknown new rates) every 5 years (5-year "closed" mortgage) for the whole amortization of 25 (or longer) years, unlike the US which can get a fixed rate at the beginning of the term for the whole amortization of 25+ years. Effectively, this makes Canadian mortgages similar to US ARM - Adjustable Rate Mortgages, which had as much to do with the housing meltdown in the US as the "sub-prime mortgages" did.

ARMS - The initial interest rate is normally fixed for a period of time after which it is reset periodically.

 

[interested]

other differences between Canada and US:
* we have to renew mortgages (hence unknown new rates) every 5 years (5-year "closed" mortgage) for the whole amortization of 25 (or longer) years, unlike the US which can get a fixed rate at the beginning of the term for the whole amortization of 25+ years. Effectively, this makes Canadian mortgages similar to US ARM - Adjustable Rate Mortgages, which had as much to do with the housing meltdown in the US as the "sub-prime mortgages" did.

ARMS - The initial interest rate is normally fixed for a period of time after which it is reset periodically.

Actually, I believe the ARMS that got into trouble in the US were mainly 2 year resets.
Initial mortgages were set at 2% or similar for 2 years and in many cases with interest payments only (no principle repayment) with resets at 6% after 2 years. This worked great in 2004, 2005 and early 2006....however when the prices started to drop and people could not flip the speculative property, these individuals never qualified for the 6% rate setting up the massive defualt that occurred.

This is not quite the same in my view cdr to our 5 year mortgages, further more in the past couple of years I believe one had to qualify for the 5 year mortgage term even if one got a variable in Canada.

I am not saying there are not problems, but I do believe there are quite significant differences.

 

[interested]

cdr: I should have responded to this as well:

"mortgages in Canada similar to US "sub-prime" mortgages were (and may still be but it's not a product that I follow) securitized and sold to the Canadian public as income trusts.
I know this because I investigated complaints from individuals that lost money on these 'safe' income investments."

I do believe you are correct when you say that mortgages were securitized. However, I do not believe it was on the scale with the widespread fraud that occurred in the US. My understanding and I am not an authority by any means is that mortgage brokers in the US were encouraged to get people to sign up for mortgages they did not qualify for, to lie on the applications, and the banks did not in turn do due dilligence to ensure that fraud was not being committed or that people could realistically meet the ARM mortgages being sought.
Wall street and the investment banks were clamouring for more products to syndicate and encouraging banks to take the mortgages. We know the rating agencies failed miserably in their job rating the paper as AAA. It was in the best case extreme ignorance on the part of many agencies/banks/investors or at worst a perpetrated fraud by the banks and investment houses on their own clients for their own betterment.
It did not approach that kind of scale here in Canada....at least again according to my knowledge. Also, being a couple of years behind the US allowed us to learn somewhat from their mistakes....though Mr. Flaherty and Harper tried to go much of the same route initially with the 40 year mortgages and the 5% down which they later reversed.

1 final note: I believe we are seeing mortgage backed securities once again becoming popular as yield refugees desperately seek a bump up in income.

 

[ryans]

Alberta's bubble is largely an issue of limiting supply of new developments thereby driving prices up and up. If managed properly, this bubble can be lowered without being burst. We'll see how that goes in the coming years.

 

[Condo George]

Here is something for you folks to consider, 501 Yonge St condos is launching at the end of the month from $199,900 closing is 2019.

 

[interested]

Here is something for you folks to consider, 501 Yonge St condos is launching at the end of the month from $199,900 closing is 2019.

Loss leader marketing I would bet...or 300 sq.ft. condo. There are probably a few units at this price and then prices go up.
Anyhow, other than advertising for 501 Yonge condos...I am not sure I follow the point Condo George you are trying to put forth here related to the bubble thread.

 

[cruzin4u]

Here is something for you folks to consider, 501 Yonge St condos is launching at the end of the month from $199,900 closing is 2019.

Could you imagine buying a pre-con condo today and waiting till 2019 for it to close when you could easily buy a condo today and move in within 3 months (or less) instead. Or you could rent and move in within a month.

 

[TheKingEast]

Could you imagine buying a condo today and waiting till 2019 for it to close when you could easily buy a condo today and move in within 3 months (or less) instead. Or you could rent and move in within a month.

Add to the fact that precon pricing is on par with resale.

Precon market is dying a slow death. But alas, I'm sure overseas investors will be lining up to buy into this project.

 

[KA1]

.

Add to the fact that precon pricing is on par with resale.

Precon market is dying a slow death. But alas, I'm sure overseas investors will be lining up to buy into this project.

I think you are comparing apples with oranges.

Today, precon might be at par with resale. However, for someone who does not have too much money and wishes to buy a place to live down the road, it still is a good deal.

Down payment today at 5% comes to $ 10,000. Most likely, this $ 10,000 will be payable in 4 quarterly installments. Any additional down payment will be payable in 2019, that is 5 years from now -- enough time to save additional money.

 

[cdr108]

.

I think you are comparing apples with oranges.

Today, precon might be at par with resale. However, for someone who does not have too much money and wishes to buy a place to live down the road, it still is a good deal.

Down payment today at 5% comes to $ 10,000. Most likely, this $ 10,000 will be payable in 4 quarterly installments. Any additional down payment will be payable in 2019, that is 5 years from now -- enough time to save additional money.

no one accepts 5% down payment unless it's a project near the end of construction/registration, and by that time the prices have usually gone up since the initial pre-construction sales.

if one is going to go with 5% dp, might as well go with resale if one qualifies for the mortgage etc.
no unknown developer fees, change of features and finishes or some other material thing, etc

 

[TheKingEast]

.

I think you are comparing apples with oranges.

Today, precon might be at par with resale. However, for someone who does not have too much money and wishes to buy a place to live down the road, it still is a good deal.

Down payment today at 5% comes to $ 10,000. Most likely, this $ 10,000 will be payable in 4 quarterly installments. Any additional down payment will be payable in 2019, that is 5 years from now -- enough time to save additional money.

This is not true. The days of 5% down for precon are done...unless you're referring to devs trying to rid the last few units of a particular condo that is already well into the construction.

As for the downpayment...the builder will still collect a big chunk of $ from the purchaser within the first 6 months or so. You better have at least 10-15% ready to go in the first 6 onths to a year. Then another 5 at closing depending on the dev.

 

[interested]

This is not true. The days of 5% down for precon are done...unless you're referring to devs trying to rid the last few units of a particular condo that is already well into the construction.

As for the downpayment...the builder will still collect a big chunk of $ from the purchaser within the first 6 months or so. You better have at least 10-15% ready to go in the first 6 onths to a year. Then another 5 at closing depending on the dev.

The issue is developer financing: They are required by the banks these days to have usually 70% sold of $ volume...not units before they can get construction financing. Well known developers may get 60%. Less proven ones perhaps require 80%. The banks base the 70% sold upon 20% downpayments. So assuming the developer needs 70%, they have to have about 14-15% of the total sales volume before they can break ground.
Sometimes I imagine and I am speculating, if the developer is near 70% and wants to spur some sales, he may lower the deposit structure and try with that to get the residual amount + a bit more....for e.g. if he is at 60% and needs to get to 70%, he may lower the deposit structure and aim for 75% but still achieves the $volume needed for construction. But otherwise, as a rule, the statements above are more or less correct...though deposit structures are often 15% stretched out over 1 year with 5% more on closing. Again, it can vary widely.

 

[interested]

Add to the fact that precon pricing is on par with resale.

Precon market is dying a slow death. But alas, I'm sure overseas investors will be lining up to buy into this project.

This isse TheKingEast has been discussed before. Given 5 years out, most end users cannot wait that time frame or are unwilling to do so. Some who are trading down, e.g., the boomers can plan a bit better than the youth I would think as they have a better idea of where they are likely to be 5 years down the road.

Builders build small investor units for that reason (as well as the high price point with larger units). This is exactly why some speculate that we will down the road have a glut of small units. I am not so convinced this will in fact be the case with changing demographics, families taking longer to form, and more singles staying single longer. At least, this is my view on the downtown market which I think is slightly different than either midtown or uptown.

 

[urbandreamer]

With the recent (and on-going?) stock market correction I expect a downturn in the condo (and real estate) market shortly. Actually my data points to a correction already underway since July. Investors may still be buying, but are locals?