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"Flaherty Threatens to Rein in Mortgages"
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Author:  AlphaMale [ Tue Dec 22, 2009 6:31 pm ]
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For the sake of our country, I'm with Flaherty if the situation escalates. But I feel the CMHC has to be responsible too and be very cautious of who to lend to and how much, and not take on people for the sake of making profits.

I agree with Fillerguy in that it's hard in this day and age to save 25% for a down payment even though that is an ideal percentage. Hell, it's even hard to save 10% for a village townhome in the area. For a cheapie bare-bones Cherrywood/Ashfield model, the average price right now is like 250K. 10% of that is 25K. That's a lot of freakin' money. I don't know very many people in their 20s who have 25K in savings, nor people who net 25K a year. Many middle-age adults don't even have that kind of money. Inflation keeps going up as does the cost of living, but salaries aren't. For younger people in their mid to late 20s, many have student loans to pay back, entry-level jobs that do not pay well to start, and it doesn't seem rent is really all that cheap unless you live in a rough neighbourhood, or are renting just a bedroom. Most times, parents can't help out with down payments either. I think it's harder than ever to buy a house. I remember back in the early 1980s, property seemed a lot cheaper than it is now even when you factor in inflation.

For someone young to be able to save 15%-25% down payment, my experience is that they have to be uber-frugal and earn more than $60K a year to have some semblance of savings. Things like food, gasoline, car maintenance and student loans are killers. And as young people, life would suck if you didn't budget a bit for indulgences like entertainment, coffee, a vacation, drinks, gifts and going out to eat with friends.

Another major problem that can be controlled is that most people aren't good with money because schools never taught us how to manage our finances. A lot of people max out their credit cards, lease or buy new cars when a used model is a better buy, or get new credit cards to pay back old credit card debt. Poor money management is a silent epidemic that few like to talk about.

Zeeshan Hamid wrote:
http://www.zhamid.ca/info/depressing-data-on-retirement-saving/ wrote:
An RBC survey found that only 35% of Canadians will contribute to RRSP in 2009. Worse, 45% of those above 55 are not doing any retirement planning whatsoever. Worse yet, 32% of Canadians have not even started saving for retirement yet.
'


This is a pretty scary stat. I hope these people aren't relying on the government to get them through retirement. I know I won't be. I won't be relying on them to take care of my health either, esp. when they want to add anti-cancer compounds in junk food instead of telling Canadians to minimize the consumption of junk food. :roll:

I'm pretty sure you were a very good money manager in your 20s, and earned a very respectable income very young to be able to plop down that kind of down payment. The only way people can do that is if they combine money with a girlfriend/boyfriend or wife/husband with some assistance from parents.

I bet as Fillerguy was attacking you and your blog earlier in the day, he was typing feverishly with the same facial expression as the one in his avatar. :lol:
Author:  Mbroker [ Tue Dec 22, 2009 8:50 pm ]
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Interesting argument and each person has a good point. Unfortunately it is a complicated question. I think by paying the mortgage payment rather than paying the rent payment automatically forces people to generate net worth. Since every mortgage payment contains a portion of principle that is accumulated as home equity. At the same time people who can save money, will save regardless if they rent or own. Unfortunately many people don’t receive a proper advice when applying for a mortgage and many industry participants are trying to max out homebuyer’s ratios to receive highest commission. That’s where the real problem lays. Just by simply explaining the disadvantage of little or no Downpayment will prevent many people from buying a home. So it’s all comes down to education.
In any way, take a look at my insight about this announcement and leave your comments: http://www.home-mortgage-advice.com/fla ... rules.html
Author:  JClayton [ Tue Dec 22, 2009 9:53 pm ]
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I can't believe that, after watching the US melt down this past year, anyone would be against these kind of stiff regulations.

I often, however, chuckle to myself when I hear people complain about how Bush deregulated mortgage lending in the states. Can you imagine the blasting that ol' W would have got if he had done the opposite...I can hear the bleeding heart lefties now "Bush wants to make it so that only rich white people can buy houses".
Author:  Devious [ Tue Dec 22, 2009 10:05 pm ]
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I'm curious if they moved it from 5% to 10% how many people that would have effected. It wouldn't have effected us purchasing our first home, we purchased when we ~25 ish. I really didn't like the idea of giving CMHC any money that we didn't need to, so we probably under bought what we could have.
Author:  AlphaMale [ Tue Dec 22, 2009 10:35 pm ]
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mtown boy wrote:
I thought about rent vs own many times over , just like lease vs finance for a car - it's like the chicken or the egg...

here is a great tool for those wondering: Should I rent or buy a home?

http://realestate.yahoo.com/calculators ... s_own.html

even if the costs are more for ownership, IMO i would own as much as I could- even if the 25 % down payment is not there, no better feeling then to own your own Sh*t and not worry about a landlord coming to spot check or answering to his/her rules and demands.... It's yours and its a great feeling, well its the banks until you pay it off so its kinda like renting anyways.


I agree with the above.

In terms of pressure to buy, our society tends to unfortunately (and wrongfully) look down on people who rent vs. own, esp. those with families/kids, or those of a certain age range. Our society also tends to look down on adults in their mid-20s who still live with their parents, so I think there's a certain amount of pressure among the young to buy property due to these said factors to keep up with their friends, or feel like a true "adult." Traditional Southern Euro (i.e. Greek, Italian, Portugese) and Asian cultures are usually cool with the kids sticking around until they get married, which can help the kids save up money for a decent down payment provided they are fiscally responsible, but in our culture here at large, it is expected young adults in their 20s get out on their own, which in many cases, doesn't facilitate the accumulation of money.

As a rule, I still think it's better to own. Having a mortgage is a way od forcing you to save, and I think pride of ownership as alluded to above is a major intangible that makes the struggles worthwhile (most days).
Author:  AlphaMale [ Tue Dec 22, 2009 11:19 pm ]
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Bamelin wrote:
What do you folks think will happen to housing values in HVE should first time homebuyers get squeezed out of the market?


I think the values might still stay steady because this is such a family-centric town and much quieter than a typical big city that it will still be in high demand.

As for the neighbourhood, the entry-level townhomes or small semis might become very good rental units. Some of those 1st time home buyers getting squeezed out might not sell, and maybe move back in with relatives and rent out their homes for a little while until they get back on their feet and re-claim. The ones who are forced to sell at a bit of a loss might sell to smart property investors who will rent them out. When housing gets expensive, rentals become more attractive since it'd be the only option.
Author:  Mbroker [ Wed Dec 23, 2009 1:59 am ]
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This change has very little to do with debt that people are getting into. If economy was doing well there would be no talk about it. The government must slow down the housing market or else you all may suffer steep house value decrease. Consider this, if market will lose portion of homebuyers for some time, it will affect selling price to some degree, there is going to be larger unsold inventory but if you are to remain in your home, you will never notice this change. In case where government raises rates, which is going to happen, it is estimated that 10% of people simply won’t be able to manage their mortgage debt and may default. Now, you have 10% of houses all around you going for sale or Power of Sale. This may really deflate the house values, since now you have a vacant home on each street. Good luck remortgaging next time, when a mortgage amount is higher than your house value. Also, house values in Canada increased by 75% since year 2000. In USA they are now dropped from 75-80% to historically normal levels of 35%. What prevents Canada from this correction? May be immigration….???
All that government does, is protecting existing home buyers by implementing these rules. Plus, this regulation will be temporary anyways. Once economy picks up, say hello to 5% Downpayment again.
As for the question who will suffer the most. People who spent 750k dollars on a house in Milton, 200 – 350k townhomes will become more desirable now, and actually most likely will appreciate over longer term.
http://www.home-mortgage-advice.com/fla ... rules.html

But let’s see what’s going to happen.

And as I said before, get rid of your debts right now, if you cannot pay it off, take advantage of low fixed rates and just concentrate on paying it off. Plan to remain in your home for the next 10 years and you most likely will not feel a correction.
Author:  rock_80 [ Wed Dec 23, 2009 7:41 am ]
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It really comes down to sacrificing, and not letting yourself make excuses, to get off the hook with saving. I have an average paying job as does my wife, when we started out around 40,000 in student loans, we lived comfortably below our means, we had old car we had already paid off, and we went without, in 4 years student loans were paid off and we had around 70,000 for a down payment on a house.

I dont think there was anything special about our financial situation was out of the ordinary , we were just willing to go without a new car, and a lot of material frills, because we had bigger goals in mind and were willing to sacrifice to get there.

More and more with young people im seeing this sense of entitlement where people look around and say I should be able to have that, without any appreciation or desire to put in the effort it takes to get there, not saying thats the case here but its a related observation to how people approach material things these days.
Author:  csb101 [ Wed Dec 23, 2009 7:58 am ]
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Quote:
More and more with young people im seeing this sense of entitlement where people look around and say I should be able to have that, without any appreciation or desire to put in the effort it takes to get there


You raise a good point there rock. Nowadays, even after going to college or university, kids are living at home with their parents into their 30's. Yes they may have some student debt, but living at home with your parents into that age should allow you to pay it off rather quickly. I have seen studies that looked at this and the sense of entitlement that is quickly becoming common with kids freshly out of the workforce. I'm fine with what the finance minister wants to do but I think what needs to be changed more is the frame of mind and attitude a lot of the younger generation has nowadays towards money and needs/wants.
Author:  Steve Heath [ Wed Dec 23, 2009 9:26 am ]
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I think the macro and micro issues get confused, and that's why people can't believe what others are saying.

From a macro point of view... it is because there are greater pools of buyers bidding up prime locations (which has a trickle down effect on other house prices in the area) that house prices increase, and I don't think anyone is arguing that by increasing the pool of available buyers through longer amortizations / lower down payments we've seen house prices increase. This not only makes houses more expensive for everyone, those good with finances and those poor with them, but in turn it makes it that much harder for new entrants to the housing market to build up the down payment. That said, there are many other factors causing this inflation as well... more people willing to invest more of their future income into housing, kids staying at home rent free more often to build down payments faster, etc... so curbing this a bit may not have a huge impact.

From the micro point of view though, if an individual who is a good credit risk, works hard, and is responsible wants to buy a house, is it really necessary that someone make some extra profit off him from renting to him for years? On the one hand we expect him to make his rent payments or the landlord kicks him out. On the other, he must make mortgage payments or the bank forecloses.

The only reason I hear that any of this is a problem (aside from more people in the market inflating prices) is "what happens when interest rates go up"? Well, why don't we change how mortgages are done? Personally, here's what I would do.

-> Every single mortgage for every person is calculated using a 35 year amortization at 15% interest to determine what the monthly payments are. No matter what the interest rate is, that payment never changes for the life of the mortgage. If your interest rate is 3%, then you're going to pay that mortgage off a LOT faster than 35 years, but if your interest rate jumps from 3% to 9%... you don't have to come up with more money, your payments remain the same.

-> If interest rates go above 15% like in the 80's... the amortization period might go beyond 35 years, but considering periods like that are unlikely to extend over more than a decade, on average you should still be fine with the 35.

Then the only real risk of default is people losing their jobs, and that's going to happen no matter what, and because of the higher payment requirement (based on 15%), it will help curb house prices and total debt level, while also helping people pay it off sooner.
Author:  rock_80 [ Wed Dec 23, 2009 11:11 am ]
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Quote:
Sorry - but I don't think you had "average" paying jobs to allow you to put away $110K in 4 years. Combined, my wife and I came out of school about $50K in debt (biggest regret ever and the fundamental reason we are focused on our kids RESP's).


You can argue it but the average household income in Mississauga (where we lived) was around 90k at the time and we definitely made less than that
Author:  prayagrajexpress [ Wed Dec 23, 2009 11:32 am ]
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You did a very good job!!

Saving 110k in 4 years with an income of <90k, thats saving atleast 30% of your income...

rock_80 wrote:
Quote:
Sorry - but I don't think you had "average" paying jobs to allow you to put away $110K in 4 years. Combined, my wife and I came out of school about $50K in debt (biggest regret ever and the fundamental reason we are focused on our kids RESP's).


You can argue it but the average household income in Mississauga (where we lived) was around 90k at the time and we definitely made less than that
Author:  Totalpkg [ Wed Dec 23, 2009 12:03 pm ]
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When we bought our house in Brampton, one of the conditions the bank had was we needed to pay off our debts. At the time we were $50000 in the hole and we needed to put a downpayment down as well. In 1 year we managed to pay off the debt, and save a decent downpayment roughly about 10%. I don't think its impossible. You just have to make sacrifices. I know that year I worked alot of overtime, and my wife had to change career paths which I was opposed to but, in retrospect was an excellent decision on her part. We also didn't go out alot and no vacation for that year...The biggest sacrifice we did was we had to live at my parents place...so no rent or mortage for 1 year which was huge.

I have friends that rent and they are just recently married. Their also in debt for school and don't have the 5% minimum. I suggested they do the same thing and move back home, but they aren't willing to make a sacrifice to help them save money and pay off debts. They also buy alot of nice 'toys' (new Iphones, cars, etc...).

This time around, we made similiar sacrifices. We havent been on vacation for 3 years and won't go until after closing. Its alot of sacrifices for us, but I'm willing to make these sacrifices for my kids to ensure they grow up in a decent neighbourhood. I would never advise anyone to raise their kids in Brampton. Not to mention the wife will be happy with the new home.

Happy wife...Happy life... :roll:

Right Tiger :P
Author:  ppst99 [ Wed Dec 23, 2009 12:15 pm ]
Post subject: 
prayagrajexpress wrote:
You did a very good job!!

Saving 110k in 4 years with an income of <90k, thats saving atleast 30% of your income...

rock_80 wrote:
Quote:
Sorry - but I don't think you had "average" paying jobs to allow you to put away $110K in 4 years. Combined, my wife and I came out of school about $50K in debt (biggest regret ever and the fundamental reason we are focused on our kids RESP's).


You can argue it but the average household income in Mississauga (where we lived) was around 90k at the time and we definitely made less than that


Very well done indeed. I agree it all comes down to removing excuses and sacrificing to get to the intended goal. My GF and I followed a very similar path. We had approx. 40-45k in student debt and no down payment savings. In a period of approx. 4 and half yrs we cleared our debt and were able to put down approx. 60k down on our house. And YES we paid rent during those 4 and half yrs.

Those 4 to 5 yrs after university were spend living a "student lifestyle". Living on bare minimums, having only one car, not splurging on material things etc. Take advantage of employer rrsp matches, first time home buyer programs etc.

It CAN be done, its all a matter of where you set your goals and priorities. If you finish university, start a job and the first thing you do is run out and buy a brand new $40k car, don't expect to save much for your downpayment.

Too many people use "life" as an excuse to why they weren't able to save anything. As anything else in life that's worth having it takes discipline.
Author:  Totalpkg [ Wed Dec 23, 2009 12:32 pm ]
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mtown boy wrote:
I didn't say it was easy at all..

again the theme here is sacrifice...

how does everyone else feel about emergency reserves??

- okay maybe 1 year is pushing it , but aim for 1 year worth of emergency savings and if you get 3 months you are still better off..my point .. is make sure you think about this going into a mortgage or have some kind of plans...and having a home equity line is good for emergencies but if you need to tap into it , that just creates more debt


I believe in the emergency reserve. Although, it depends on your jobs. If you have a stable job its much easier to not have that emergency reserve. People that were on contracts and or commission based salary I would definitely suggest an emergency reserve.

When I was working for a company on 6 month contracts...it sucked. I was paid very good, but I was always uncomfortable not knowing if they would renew my contract. So I decided to take a pay cut and get a job that was recession proof. Best decision I ever made...
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