Canada's Housing Bubble

PrinceGuy

1. CMHC – when buying a home the bank asks you to get insurance on the mortgage so if you can no longer pay, the bank is protected. For est. $7000 insurance (stimulus), the bank will offer you twice the mortgage. So people take it. The banks are covered and the CMHC is covered by the tax dollars and people can always declare bankruptcy. If stimulus dries up – Possible 50% Loss.
2. Historically a good time to buy a house is at 2.25 average house prices to family earnings. A 2.25:1 ratio. When it’s at 3:1 ratio it is considered a bad investment. Currently it is at a 6:1 ratio. Incomes are also dropping. – Possible 50% to 65% Loss.
3. Historically a good time to buy a house is at 15 times average house price to average rent home price. A 15:1 ratio. Currently it is at 60:1 ratio. Rents are also dropping. – Possible 75% Loss.
4. Interest Rates – banks are offering a 3.75 rate. You may get one even much lower. The historic norm is 8%. In the 1980s we experienced 18%. The Federal Reserve does not control interest rates (misconception), the bond market does. You may see news articles soon like big financial bodies (banks, companies, countries) offering debt (bonds, treasuries) to raise capital. This is to be noticed as a huge rise in SUPPLY. Also watch for these huge bodies to not be able to pay their debt. This is to be noticed as a huge drop in DEMAND. When demand does not meet supply, debt will need to become more attractive to people purchasing the debt. So prices on treasuries and bonds will drop and interest rate yields will go up. And so will mortgage rates. – Possible 50% Loss or More.
5. Boomers – born between 1945 and 1960. The first of the lot turning 64 this year. They double the generation X’s and own a whack of property. They have stop buying, started selling to raise money for retirement and will soon be dying. This will create a huge supply and cause a large slide over the course of the next decade. This demographic fundamental is the first thing I noticed and still remains the most important. – Possible 50% Loss.
6. Subprime Loans – stupid interest rates and no background check. A subprime person to lend to. Everyone has heard of these guys. Supposedly we are still feeling this mistake. Also Prime Mortgages (a reasonable interest rate and good background check) supposedly even these people are foreclosing. It may have to do with income. I heard there have been some lay-offs lately. – More Loss.
7. Option Arm and Alt A. Loans – there are mortgages out there that offered no payment on the principal and not all the interest. What ever interest you don’t want to pay will be added to the principal. Therefore when you refinance your mortgage you will owe even more. Yes, but don’t worry in 5 years your house will be worth more so you will have more equity. However it is also possible that prices will drop and interest prices will rise forcing you to pay even more on an even larger debt. These loans are estimated to have an estimated 50% or higher foreclosure rate in coming years. This, by the way is larger than the Subprime market. – Massive Loss.
8. Foreclosure Rate – is at all time highs and the banks are putting these houses on the market very slowly. The reason is not raise supply which will drop prices. This is a devastating tsunami when it unleashes. – Massive Loss.
9. Delinquency Rate – (people late on their payments and are highly probable to foreclose) Also at all-time highs. This is a massive tsunami behind another devastating tsunami. – Massive Loss.
10. Commercial Real Estate – These guys are in big trouble. I read that there are loop holes that allow these guys to slowly show these huge losses over the next decade. This one is said to be an absolute monster that will kick us down for many years.

Note: These observations were made before 2010 when we had a recovery or thriving economy. If things get better or worse it may alter these numbers. Please feel free to verify the information over time for any changes.

hi , im new here

just drop by and say that your post is great

You are obsolutely right, foreclosure is increase dramatically:

calgary.ctv.ca/servlet/an/local/CTVNews/...res_101130/20101130/

Where are your references?

Absolutely correct. All tax payers money is at high risk. There won't be any correction but definite collapse is on the card.

Foreclosure? how are we protected from the CMHC when they come after you after they've paid the banker his monies. Do they or don't they?