- the source for market opinions


December 15, 2016 | What can go wrong?

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


You can’t buy a banana in Toronto without four bits in your pocket, but soon you’ll score a $750,000 house in Kelowna, or Langley or Nanaimo, with free government money. Yes, kids, the principle of 0% down is back – just in time to help keep properties from becoming affordable. Once again, government sucks. Then it blows.

Here’s the latest: staring at a looming election, BC’s ruling party has decided to play the real estate card. Again. After bringing in the Chinese Dudes tax, presiding over a sales collapse and a price rout, taking over the real estate industry, then allowing the vacant-condo levy in Vancouver, the Christy Clark government is about to give financially-retarded moisters free down payment gifts.

The bonanza is up to $37,500 to purchase a three-quarter-million house. No interest or payments for five years, then you can sell and pay it off, or stay and repay over 20 years. The bold idea is to allow people who have never shown enough discipline, incentive or intelligence to save to become homeowners and absorb up to $700,000 in debt. Nice work, Christy. This will assist young citizens in graduating from $1,500-a-month apartments into $4,000-per-month residences with debts that will grow more expensive with each renewal.

The great thing about the plan is that the kids will then join the mainstream of society, and feel included. No more of that unwanted freedom, mobility or choice. Just obligation, routine and overhead. Plus property tax. After all, if the government gives you the deposit and the bank gives you the rest, what can possibly go wrong?


As we all know by now, BC is obsessed with real estate. It’s a world-class fetish. The provincial government has turned into a giant real estate board now involved in micro-managing a market and holding up houses as the holy grails of life. “The dream of home ownership must remain,” said the premier, moist of eye and clasping her bosom, “in the grasp of the middle class here in British Columbia.”

Well, ironically, the premier and her panderers are doing exactly the opposite. What will ensure more BCers get to own houses will be things like Ottawa’s new mortgage stress test, the higher (not lower) down payments that CMHC’s lobbying for, and the interest rate tightening launched yesterday by the US Fed. By giving people without assets money to buy real estate, Clark creates artificial demand with public money, which will only negate the impact of measures intended to cool speculation, dampen sales and chill prices. Ditto Ontario’s bone-headed move lately to slash land transfer tax for newbies while jacking it on high-end houses. More demand. Limited supply. Less affordability.

Remember when we had 0% downs? Sure ya do. That was back when little F was the newly-minted federal finance minister and his boss talked him into zero-down and 40-year amortizations through CMHC. That move in 2007 helped usher in a period of frothy excess which led directly to this point – where a million bucks gets a crap semi in mid-town Toronto or a detached box in a distant suburb. And just try finding anything for less than seven figures in Vancouver.

The feds learned their lesson. Forty-year mortgages were banned. Ditto no-down-payment, government-insured loans. Then minimum downs were increased. Mortgage insurance costs increased. Lenders regulated more. Borrowers stress-tested. All for the goal of combating the debt-fueled, hormonal house lust that years of cheap rates, cheap bankers and cheap thrills had created.

You know what’s occurred. Consumer debt just passed $2 trillion for the first time. About 65% of that’s in mortgages, which have doubled since F made that memorable mistake. In Toronto 50% of all the people with new insured mortgages have loans equal to at least 450% of what they earn. It’s astonishing.


– Globe & Mail

Says blog dog Vern, looking in from Calgary: “If you figure that almost half of Torontonians have a 450% mortgage to income ratio (no less other consumer debt on top) and figure in taxation rates of at least 50% (all in) on that income, the MORTGAGE to Cash Flow ratio for any household has got to be near 10:1 (1000%) right now.

“If interest rates merely double (which aligns with long-term averages), that ratio becomes 20:1.  That means, people would have to divert 100% of all their cash flow to their mortgages for 20 years just to pay it off.  No maintenance.  No food.  No puppy chow.  No power.  No clothes.  Just mortgage payments.”

Well, this week US rates started to rise amid word they’ll do so again thrice in 2017. Meanwhile the economy remains lacklustre, commodity prices got another kick in the slats and the government’s shutting down the asbestos industry, while planning to legalize weed. Oh yeah, and BC is giving away down payment money to people without enough. So they can have more debt.

This morning I wondered what I might have to write about today. Silly me. Care for a banana?

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

December 15th, 2016

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.