Baby, we got a bubble!?

[interested]

I think we should float interest rates and scrap the CMHC.

Really?
You want to precipitate the market crash and finish our exports with a rising Canadian dollar?

The CMHC probably long term should go back to its initial roots. To help people get a home (which in the day was a starter home) with guarantees to let people in the market. Criteria should be more stringent for e.g. starter homes up to "x" dollars dependent on region and at least 10% down not the 5% with no allowable shenanigans eg. banks giving the 5% downpayment back and consolidating it into the loan essentially.

 

[littlemissJJ888]

Brockm: while you may well be right and a hard landing is unavoidable, I still think Flaherty is doing the right thing trying to deflate things going forward. Would you rather he just leave things be. At least some people at the margin today will be spared from themselves. And if a little less air is in the balloon, that can only long term help.

I would have liked though it will never happen to see a politician come out and say in hind sight, I now appreciate I made a mistake by extending the mortgages and we must correct this. The trouble is people (voters) don't reward honesty and 90-95% of the voting population is ignorant of many issues anyhow. I am sure if we went out of this forum and asked how many people realize it was Flaherty who increased the limits in the first place from 25 to 40 years and then brought back, far less than 1/2 would even be aware.

I think the government is out to get us. Their goal is to make everyone poor so we will never stop working. From a personal financial point of view, people should be saving money when the economy is BAD, not the other way around. But no, our government wants us to spend EVERYTHING when the economy is bad.

I guess the good thing is, if you can`t get a job because the economy sucks, at least you can get a loan to buy a house you can`t afford.

 

[interested]

^^^little miss JJ888

The government tried to stimulate the economy. That has not been too successful. Consumer spending in North America is 60-70% of all the economy. Hence, the government needs consumers to spend, to buy goods, so manufacturers can make them, so transport companies by move them, so retail stores can stock them, so they can pay their employees, all of whom in turn pay taxes and continue to generate the economy. I really don't buy the conspiracy theoru that government is out to get us.

However, I have always found it interesting that when your household budget is stretched,what do you do personally. Usually if you are thinking you defer deferrable expenses, you do with less and you tighten your belt. Governments, who don't take in enough, borrow more (witness the fiasco in Europe's Southern countries) as if somehow by owing even more this is going to solve the debt problem in the first place. The problem of course is as long as the merry go round is moving, no one fully appreciates the mess and therefore governments are hoping to keep the merry go round (economy ) going in the hope that somehow things will improve. I don't think anyone truly knows how to get out of this mess we are in.

 

[Kenny]

I think the government is out to get us. Their goal is to make everyone poor so we will never stop working.

I don't follow your logic. Poor people don't work, they go on UI and welfare.

 

[brockm]

Really?
You want to precipitate the market crash and finish our exports with a rising Canadian dollar?

The CMHC probably long term should go back to its initial roots. To help people get a home (which in the day was a starter home) with guarantees to let people in the market. Criteria should be more stringent for e.g. starter homes up to "x" dollars dependent on region and at least 10% down not the 5% with no allowable shenanigans eg. banks giving the 5% downpayment back and consolidating it into the loan essentially.

I suppose that's one way of characterizing my position. The other way of characterizing it, is that I want to end our phony economy of leverage. I see nothing redeeming in promoting home ownership as official government policy. I'm in the 98th percentile of income earners, with a very high personal savings level, and I'm a proud renter.

The idea that the government should be in the business of encouraging people and enabling people to own property is offensive to me. We need to de-romanticize the notion of home ownership, and romanticize the notion of personal savings and investment. A home is not an investment. Only the insanity of excess leverage has created the illusion over the past 30 years that they are an effective investment vehicle.

We know that before 1971, for over a hundred years, house prices tracked the underlying inflation rate.

The insane run-up in house prices, detached from income growth, points to a major 30 year real estate bubble in Canada (and the US, UK, Australia, etc). The percentage of our incomes that we're spending on our homes is far outpacing wage growth, which means that the whole damned economy is distorted.

Because leverage is allowing real estate demand to increase despite an all-time-low in affordability, it causes investors to move into things like REITs, and for construction companies to hire more builders, and then the whole damned economy is hinged on housing construction.

In fact, this is actually the case. A total of 50% of GDP growth in Canada this year has come from the housing construction sector. Meanwhile, investment in Canadian technology companies is now at a 10-year low.

Add to the fact that the demographic crunch of the baby boomers about to bear down on our healthcare system and pension system makes our economy growth bound, and suddenly a picture of a giant brick wall in our path starts to become less fuzzy.

Yes. Our economy needs some tough medicine. It needs to wean itself from the real estate drug.

 

[interested]

I suppose that's one way of characterizing my position. The other way of characterizing it, is that I want to end our phony economy of leverage. I see nothing redeeming in promoting home ownership as official government policy. I'm in the 98th percentile of income earners, with a very high personal savings level, and I'm a proud renter.

The idea that the government should be in the business of encouraging people and enabling people to own property is offensive to me. We need to de-romanticize the notion of home ownership, and romanticize the notion of personal savings and investment. A home is not an investment. Only the insanity of excess leverage has created the illusion over the past 30 years that they are an effective investment vehicle.

We know that before 1971, for over a hundred years, house prices tracked the underlying inflation rate.

The insane run-up in house prices, detached from income growth, points to a major 30 year real estate bubble in Canada (and the US, UK, Australia, etc). The percentage of our incomes that we're spending on our homes is far outpacing wage growth, which means that the whole damned economy is distorted.

Because leverage is allowing real estate demand to increase despite an all-time-low in affordability, it causes investors to move into things like REITs, and for construction companies to hire more builders, and then the whole damned economy is hinged on housing construction.

In fact, this is actually the case. A total of 50% of GDP growth in Canada this year has come from the housing construction sector. Meanwhile, investment in Canadian technology companies is now at a 10-year low.

Add to the fact that the demographic crunch of the baby boomers about to bear down on our healthcare system and pension system makes our economy growth bound, and suddenly a picture of a giant brick wall in our path starts to become less fuzzy.

Yes. Our economy needs some tough medicine. It needs to wean itself from the real estate drug.

Brock,
the problem I have is I am a pragmatist. I agree with you that real estate leverage has caused distortions. The problem is we are way at the end of the peer and I don't think we can cut the peer loose just yet. We have to walk back in part way, slowly deleverage so as not to have an absolute catastrophe. We have witnessed sudden deleveraging in the US with a housing crash and we can argue forever about the causes but the bottom line is it is painful, hits not only savers, but businesses, tax revenues and the whole economy.

I personally believe that home ownership is a priviledge, not a right. That said, basic shelter, whether rented or bought, should be available. I commend you on your rental decision. The problem is as you point out that as a saver, you are currently being punished with artificially low interest rates. The stock market is being largely supported by quantitative easing. The savers are subsidizing the rest of the population with record low mortgages.

This is the reason that I suggested CMHC should exist for basic shelter to allow entry with some help at the lower end of the spectrum but not so much leverage as to take away the risk from those buying. It is annoying to me that someone should be getting a CMHC insured mortgage for a million dollar property. And it bothers me that as a taxpayer funding CMHC I am going to be punished when the property declines and the person "declares bankrupsy". Why am I subsidizing someone to live in anything but essentially basic accomodation? This I do not get.

I bolded your comment about the 50% of the economy being related to real estate. Do you have a source for this as I appreciate the spin off effects but this seems high to me.

 

[brockm]

Brock,
the problem I have is I am a pragmatist. I agree with you that real estate leverage has caused distortions. The problem is we are way at the end of the peer and I don't think we can cut the peer loose just yet. We have to walk back in part way, slowly deleverage so as not to have an absolute catastrophe. We have witnessed sudden deleveraging in the US with a housing crash and we can argue forever about the causes but the bottom line is it is painful, hits not only savers, but businesses, tax revenues and the whole economy.

I personally believe that home ownership is a priviledge, not a right. That said, basic shelter, whether rented or bought, should be available. I commend you on your rental decision. The problem is as you point out that as a saver, you are currently being punished with artificially low interest rates. The stock market is being largely supported by quantitative easing. The savers are subsidizing the rest of the population with record low mortgages.

This is the reason that I suggested CMHC should exist for basic shelter to allow entry with some help at the lower end of the spectrum but not so much leverage as to take away the risk from those buying. It is annoying to me that someone should be getting a CMHC insured mortgage for a million dollar property. And it bothers me that as a taxpayer funding CMHC I am going to be punished when the property declines and the person "declares bankrupsy". Why am I subsidizing someone to live in anything but essentially basic accomodation? This I do not get.

I bolded your comment about the 50% of the economy being related to real estate. Do you have a source for this as I appreciate the spin off effects but this seems high to me.

No. I said GDP growth. In total, the construction industry accounts for about 12% GDP. I must also retract the 50% figure -- well, I must be more precise. It included all construction. Actual GDP growth for FY2012 related specifically to residential home construction was 23%. Which is still a startlingly high figure.

GDP growth all industries vs GDP growth from construction:

 

[interested]

^^^
Thank you for the clarification

 

[KA1]

Hi Guys,

A question for any one to answer -- perhaps, by R/E agents.

The question is about interest on the deposit to the builder.

I had paid 20% deposit to the developer's lawyers-- in 4 equal quarterly installments -- when I signed the purchase agreement for the unit I now live in. Upon closing, my lawyer was told that the interest on the deposit will be calculated not from the date when various installments were paid but from the date of occupancy.

Is that still the case? what happens to the interest on deposit paid till the date of occupancy?

It is now 4 years since I paid a substantial amount of deposit to the developer's lalwyers when I purchased a unit in AURA. It is another 15 months till the stated date of occupany.

This matter was briefly discussed about 6 or so months ago on this threa. At that time, I did not access to the email from my lawyer. My apologies in advance for asking this question again. And my heartfelt thanks for the answers, once again.

 

[interested]

^^^
KA1 Here is a reference for you.
http://www.movesmartly.com/2007/12/new-condominium.html

Interest is paid at the Bank of Canada rate - 2%. The bank rate has been 1% for quite a while. They do not pay negative interest but certainly it won't be much as the rate has been at 1% for about 2 years now I believe. I believe it was a higher previously. I believe but would have to check that they have to pay interest on the deposits from the date the money was received. I will try and look at the condo act but remember this is me, a non lawyer, trying to read law so....

the relevant section is section 82 of the condo act.

Interest

82. (1) The declarant shall pay interest at the prescribed rate to the purchaser on all money that a person pays on account of the purchase price of a proposed unit or that the declarant credits to the purchase price of a proposed unit. 1998, c. 19, s. 82 (1).

Money released from trust

(2) The interest is payable on the money even if, under clause 81 (7) (b), the declarant provides security of a prescribed class for the money. 1998, c. 19, s. 82 (2).

Calculation

(3) The interest shall be calculated from the day the person pays the money received until the day the proposed unit is available for possession or occupancy in accordance with the purchaser’s agreement of purchase and sale with the declarant. 1998, c. 19, s. 82 (3).

Time of payment

(4) The interest shall be paid to the purchaser by way of payment or set-off,

(a) on the day the declarant delivers to the purchaser a deed to the proposed unit that is in registerable form, if the declarant so elects; or

(b) on the day the proposed unit is available for possession or occupancy in accordance with the purchaser’s agreement of purchase and sale with the declarant, otherwise. 1998, c. 19, s. 82 (4)

I believe that your suggestion that interest would be calculated from the date of occupancy is not correct.

My understanding is that interest will be payable from the date held until occupancy, after which it will not.

Here is a link to the tables from the bank of canada.

http://www.bankofcanada.ca/rates/indicators/key-variables/ You will note that interest was below 2% since Dec 2008.

It was above this amount and interest can be calculated based on the rate -2%.

So for e.g. it has varied from 2.25 to 4.50% since 2006. So it averaged about 3.1% from Jan 1 2008 to Nov 2008. So subtracting 2% would mean interest from Jan 1 2008 to Nov 2008 will be based on 1.1%.

For all of 2007 Jan 1 to Dec 31 2007 it averaged 4.35%-2% or 2.35% is the interest paid during that time.

Hope this helps.

Perhaps someone can correct me if I am wrong.

 

[KA1]

Interested,

Thanks for your response.

The blog, to which you have posted a link is dated December 2007. I should have clarified in my earlier post that the purchase agreement that I had signed for the current unit was signed in November 2001. Perhaps, the law/regulations were different then.

Purchases agreement for a unit in AURA was signed in March 2008.

Once again, the blog refers to the deposits paid to the builder. Both the last time, and this time as well, deposits were paid not to the builder but to builder's lawyers "In Trust".

Last time, I was credited with the interest on deposits from the date of occupancy till the date of closing. Somewhere along the lines, I was told that interest earned on the deposits in "In Trust" with the lawyer goes to the Law Society of Upper Canada.

Perhaps someone connected with the R/E industry could enlighten me

 

[interested]

^^^
Ka1
I don't know for sure but I don't think that is correct.
The interest in trust with the lawyer will go to you I believe from March 2008 to Nov 2008. As I mentioned after Dec 2008 Bank of Canada rate was below 2% and no interest accrues.

 

[avenirv]

^^^little miss JJ888

... so manufacturers can make them...
.

what is manufactured in North America any more ?

 

[rbt]

what is manufactured in North America any more ?

More by dollar value and quantity than at any point in the history of the continent. Yes, it's percentage of GDP has dropped, but not total manufacturing capacity or ability.

You won't find much of it in dollar stores though, except perhaps food items.


Robotics killed manufacturing jobs in North America, not a reduction in actual manufacturing.

If you want to work in manufacturing in North America then get a computer science degree and specialize in PLC programming and/or network engineering. If you can do both, you're worth your weight in gold right now in the GTA.

 

[brockm]

More by dollar value and quantity than at any point in the history of the continent. Yes, it's percentage of GDP has dropped, but not total manufacturing capacity or ability.

You won't find much of it in dollar stores though, except perhaps food items.


Robotics killed manufacturing jobs in North America, not a reduction in actual manufacturing.

If you want to work in manufacturing in North America then get a computer science degree and specialize in PLC programming and/or network engineering. If you can do both, you're worth your weight in gold right now in the GTA.

Unfortunately, a very significant portion of this figure is contigent of US defense spending and over-inflated prices that the Pentagon pays contractors. So while the dollar value is an interesting measure, other measures of the size of US manufacturing are also informative. Particularily, the US balance of trade.

If the US is the world's largest manufacturer of goods, then why does the US export very little finished goods compared with what it imports?

It's all very well and interesting that US manufacturing is largest by GDP component. But it means very little if a great percentage of it is all government consumption for defense spending. The balance, of course, is largely automobile manufacturing and feeder industries into that.

Anywhoo: http://www.thevolunteer.ca/2011/07/the-myth-of-cheap-labour-and-the-inflation-in-your-future/