Garth Turner - Real Estate in Canada

[wisdom]

My understanding is they get posted rates. There is no adjustment for risk other than 35% down.

[tripleoptician]

Thanks wisdom for all your insights.
This knowledge does magnify the risk compared to my impression that Canadian financing would be hard to come by and therefore most purchases were primarily cash.
Interest rate spreads should imply a downturn or flattening of prices.

I still find it hard to evaluate on what will happen to rent vs own cost dynamics as our vacancy rates are so low. If buying for 10 years duration or greater, do you believe Vancouverites will be ahead based on overall principal payments vs savings from renting and investing the difference? I'm worried rent costs will increase once home ownership becomes less appealing....

[Liberty]

http://www.bcrea.bc.ca/docs/economics-publications-archive/2015-06-foreign-buyers-research-report.pdf

[SharperDingaan]

Yes there is risk, but it is minor.

China is communist state. Residents have only what the state allows them to have, and the state can take away the bank accounts, cars, and domestic real estate at any time. They CANNOT take away whatever residents have stashed overseas.

A resident can either repay their Canadian mortgage from a Chinese source, or repay from sale of Canadian real estate. If the Canadian property was bought at 3M with 1M down, & never traded, it need only sell for 67% of cost. But … if the resident had been successfully trading Canadian property, and had interim gains to offset against, they could afford to sell the Canadian property for a lot less.

It means that residents are best served if they trade within a collective bubble, start their trading as early as possible, and stay close to the herd. Exactly what we are seeing.

Yes the bubble WILL eventually burst, but who does it really affect - ordinary Vancouverites are not those buying the luxury condos.

It is about permanently getting funds out of China; and it is a lot safer, & more utilitarian, than simply depositing funds in an offshore account.

SD

[Liberty]

Yes the bubble WILL eventually burst, but who does it really affect - ordinary Vancouverites are not those buying the luxury condos.

The bubble is not only in luxury properties.

[wisdom]

There is also a reason why BC's per capita non-mortgage debt levels are 2x the Canadian average - around $39,000. Allows the locals to enjoy the ride.

[bizaro86]

My understanding is they get posted rates. There is no adjustment for risk other than 35% down.

Do you actually mean the posted rate? Because there is a pretty big difference between the posted rate and the actual market rate that Canadians who qualify for mortgages pay. (Generally speaking). That increase in interest rate would be effectively a risk adjustment.

[wisdom]

Sorry, that should have said the same rates as everyone else that qualifies using income and credit history.

[wisdom]

A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.

[Liberty]

A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.

This post has some stuff about how some lenders like Vancity are offering all kinds of crazy products (ie. they give you half of your downpayment at 0.01% interest, etc):

http://www.greaterfool.ca/2015/06/14/the-money-changers/

Also: http://business.financialpost.com/personal-finance/mortgages-real-estate/a-third-of-canadians-would-struggle-if-mortgage-rate-grew-by-only-1-survey-finds

"A third of Canadians would struggle if mortgage rate grew by only 1%, survey finds"