January 10, 2017 | Ponzi Me
As you know, Ontario realtors are begging the premier to start giving kiddies in that have-not province free money to buy houses. Like they do in BC. The reason?
Simple. A slew of the moisters (maybe half) are no longer able to crack into the market because federal meanies tightened up on mortgage approvals. The realtors have a poll to prove it.
Unless they have 20% down, house-horny young people must qualify for financing at the withering rate of 4.64% (the first mortgage a moist Dorothy and I got was at 12.25%), instead of the current commercial rate of about 2.5%. The purpose of the stress test is to ensure new buyers are not creamed when rates inevitably rise. The goal of the realtors is to thwart it.
You may have heard the next Ontario election happens June 7th of next year. A mere 17 months away. As a former provincial politician, Hudak knows that. He’s also aware the current preem is as popular as eating bugs. I hear the proposal is being seriously considered at Queen’s Park – to match BC’s $37,500, interest-free gift to people without money so they can buy a house, in concert with the Bank of Mom.
It works this way: mom gives a loan/gift/guilt payment equal to 2.5% of the purchase price, then the province matches that with a loan/gift carrrying no interest for five years. This enables newbies to buy a house with 95% financing insured by the government through CMHC. And because the mortgage-holder gets the federal guarantee, it can offer the lowest interest rate, which helps keep house prices high.
If you’ve ever wondered how a modern ponzi scheme works, here she be. The confluence of helicopter parenting and government pimping is at the very heart of real estate unaffordability. And ironically, it more or less negates federal efforts to tame house prices before they blow up, leaving a Trumpian-sized pile of unrepayable debt.
Below is a reminder. The swelling orange bars are mortgages. Gulp.
Well, things are getting worse, thanks to Mom and the provs. A survey out this week (by Ratespy) shows 42% of first-time buyers in BC (and 35% in Ontario) get bags of cash from their families, allowing most to skate around federal mortgage rules. In other words, BoM gifts are putting first-timers who probably could not withstand a spike in mortgage rates upon renewal, into houses. And this is portrayed as a good thing.
“RateHub is expecting the bank of mom and dad to have a record year in 2017, since regulatory changes in 2016 and rising home prices have made entering the housing market for first time homebuyers an ongoing challenge.” Of course it’s challenging. For a reason. This will not end well, which is why the stress test was created.
But it gets even worse (of course).
The real estate monolith we’ve built amounts to the greatest inter-generational transfer of borrowing and obligation in history. On one hand schemes like those Hudac and Christy Clark promote encourage kids to swallow massive amounts of debt, and on the other hand governments are shielding asset-rich seniors with million-dollar digs from paying their fair share of overhead. This week BC went beyond the pale by announcing folks who own houses worth $1.6 million or less will qualify for free money to offset their property taxes. Seriously?
The old cut-off point for the pogey was a paltry $1.2 million, so the 33% increase is epic. And guess when the next election takes place? May 9th. Yep, in 16 weeks. Hence, a government which just made 91% of all homeowners eligible for tax relief, at a cost of $821 million a year.
So there ya go. Pay kids free public money to buy houses they can’t afford. Send almost everyone a free cheque to help pay for those homes. And there’s even another program to relieve old farts of paying property taxes altogether. All of it with the consequence of keeping real estate from correcting naturally, while setting up our society for a mama of a reckoning down the road.
And what do the kids do?
They comply. They borrow. They flow their future earnings – decades of it – into the pockets of their elders. Windfall gains on one side. Eternal debt on the other.
Seems we need a revolution. You in?