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Cmhc Being Reigned In (Too Little, Way Too Late.)


ronthecivil

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CMHC is a joke. my wife and I purchased a condo 2 years ago for $170,000 with a $13,000 down payment on a 30 year mortgage 3 year term @ 2.1% our payments are $605 per month that roughly translates to about 15% of our monthly income(most financial experts recommend never going higher than 35%).... but low and behold we don't have a 20% down payment so we had to pay a $5,000 premium to CMHC effectively eating up the little equity we did have in a mortgage that has literally a 0% chance of being defaulted on.

I understand the risk some people take when they try and buy a $400,000 home with 5% down and are eating up 35% of their take home after tax pay on a mortgage however there needs to be a process that is more involved than an arbitrary "20% or you pay the premiums" rule.

Also, to those of you saying "OMGZZ CMHC IS GOING TO COLLAPASE AND MY TAXEZZZ WILL OWE THE MONEZ!!" Do some research the CMHC is a huge money maker for the government most mortgages that are backed by CMHC fall into my first scenario not the second. Also Canada's default rate on housing is wayyyyyy better than the states ever has been. In Canada even if you go bankrupt you can't just walk away from a mortgage unlike the states that actually had homeowners walk into banks drop the keys on the teller desk and say "I'm done"

The only people CMHC screws is the people who have to pay the premiums NOT the tax payers who will never have to "bail out" this insurance.

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What people aren't looking at is the obvious.

More and more homes/condos are hitting the markets in the biggest markets. Calgary, Vancouver, Toronto and Montreal. Those 4 cities somehow dictate the prices for the entire country.

Canada, Australia, New Zealand and Hong Kong are the 4 major countries that all experts are pegging for a major correction soon. Which is indeed coming at some point.

Now back to my original point.

More and more homes, condos are entering the market. Sales are slowing down all over the country yet prices are rising. With a constant influx of new homes, increasing prices and less sales we are being set up for a fall. You cannot glut a market and demand higher prices and expect the status quo to not change at some point.

Added if one pays attention more and more people are actually trying to sell their homes themselves via private sales on websites in print ads and outside of the bounds of greedy real estate agencies who are all increasing their fees and commission demands over the last 3 years (if you want to see greed check out how much Re-Max has increased fees etc over the last 39 months, outrageous)

By selling these homes privately you end up having homes not being reported by agencies and CMHC brokerages as being on the market so there is the possibility that those numbers are vastly under reported further increasing the likelihood of significant let downs over the next 2 years.

There was a young Canadian finance genius of apparent Persian ethnicity (can't remember his name) back east that in 07/08 who reported that the toxic debt load held by the US was unsustainable, major networks and "financial geniuses" nearly laughed him out of his profession, the day Fanny Mae fell in the opening rounds of the economic death of US banking every major network was clamouring to speak to him and ask his opinion about what was going to happen next like he was an economic Nostradamus.

His 2 biggest fears were

1. Credit lending via major credit institutions had hit unsustainable levels in the west and that it needed to be curbed hard and toned down, governments and banks said it wasn't an issue at all. Since then Canadians have watched their average credit debt skyrocket to record levels at or above the threshold of the average American pre economic fall. The issue was that small to mid sized businesses were and are also dangerously overextended and ALL of them were only making the minimum payments. He feared major credit lenders would need to increase payments to stay viable and that the vast majority of businesses and persons holding so much credit debt would default.

This is a very real issue and even more scary as rumours have Visa and MasterCard speaking of increasing minimum payments in the near future and capping lending amounts to unheard of levels. The resulting domino effect could potentially be worse than the housing crisis as people actually live off of borrowing and credit debts.

2. That the Canadian housing market was not nearly as insulated as most thought and because 4 major markets dictated the prices for the rest of the country any crash or glut in any one market could start a rapid deflation, not a bubble bursting as it was; but a deflation in prices which would see the value of homes decline so much that people had to walk away from them in mid payment. The issue being that homes bought at $400k were and are in actuality in other countries by comparison only worth $320k on average. not a huge gap but ever increasing.

Now today we see his projections coming true but scarily all over the country where the prices of homes are still increasing all while sales are slumping, buying is decreasing, buying power is nearly non existent as lending has dried up and at a time where building on pure speculation is still rampant and overpriced. "Condo Units" in Toronto being valued at $625k before being even built yet only holding an actual assessed value of $480k after construction.

I am not a doom and gloom person but over the last 13 years this model has indeed become unsustainable and the very scary thing is peoples greed keep pushing this issue forward, the compounding problem is that rent prices are ever increasing forcing people farther away and into rural areas taxing smaller communities and forcing the sell off of land in ALR designated areas.

I for one am a red seal individual, I do ok even after my hand injury, my wife works full time we rent and save every dollar we can. our current debt loads are as follows, $11k car payments and 16k line of credit and visa payments, my wife is/was a previous home owner and I married into her debt. We are much much better off than most as we've enough savings to clear and cover all of our debt and still have a down payment for a home.

But the prices in the Penticton/Okanagan area are also hyper inflated and only increasing so we are absolutely holding off slowly paying off our debt making MORE than minimum payments and waiting to see what the market will do.

Show of hands, who is not actually scared about this?

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I've got a condo, the mortgage payments on which could at least double without hurting me financially, however I plan on selling soon and buying an RV to live in.

With a full on Depression, not just a housing correction on the way, I'd rather get out while the going is good.

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I've got a condo, the mortgage payments on which could at least double without hurting me financially, however I plan on selling soon and buying an RV to live in.

With a full on Depression, not just a housing correction on the way, I'd rather get out while the going is good.

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You don't need an RV per say. A small cottage rigged with solar power, water recapture basins and proper fireplace venting (not just a chimney but pipes to carry the heat) in a warmer area of the country would suffice very well for about the same price.

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I've got a condo, the mortgage payments on which could at least double without hurting me financially, however I plan on selling soon and buying an RV to live in.

With a full on Depression, not just a housing correction on the way, I'd rather get out while the going is good.

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In 15 or 20 years maybe...this isn't going to be just another downturn.

Also, think of all the money saved, I could easily buy property elsewhere or invest in something else if I wasn't carrying a mortgage on a cheaply made building in an earthquake zone.

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I hope your family income is steady and at least 200k a year if not 250k, and that includes budgeting for having one person having to miss work for children, illness, or whatever.

If not your overextending yourself. Also, as soon as you don't have CMHC backing you up the credit requirements will be higher and credit is already tightening.

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Well, I will be running a business out of it which will pay some rent. I'm basically paying almost that much now between my current place and rent for my business which I run out of this house already. the people I rent are now 70 and want to downsize and I want to buy it.

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As long as the zoning allows for it then that's a differnt story. What your really doning is buying a 400k house to live in and a 400k office to work out of, the latter of which you could write off the mortgage interest as an expense.

So I take it back there's hope for your math skills.

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http://business.fina...e-of-new-rules/

According to this article in the financial post only .35% of insured mortgages are in Arrears. I don't know about you but that seems pretty stable to me. The only reason the CMHC "profits fell" is because of the new rules limiting the term of "high ratio mortgages"

I ask again does it make sense for someone who is taking on a mortgage albeit with not an ideal down payment but definitely adequate to have to pay and additional $5000.00 "premium" to insure the bank against a potential default?

In my original scenario (buying a $170,000 condo with $13,000 down mortgage payment of 15-20% monthly income) it is less likely to suffer a default than someone who purchases a $500,000 home with $100,000 down payment, mortgage payment of 35-40% monthly income, if interest rates were to go up. Regardless it's not like Canada can even raise their rates until the states do and does it seem like that will happen in the next 5 years? Even if it does it won't be drastic we are talking 1-2% gradually over 5 years.

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