If you are wondering why mortgage rates in the 5 to 7 percent range have not triggered a wave of defaults, here’s your answer.
If anyone thinks there’s no downside to this, think again. Any decline in housing prices has largely been arrested, thus making it just as tough as ever for first time home buyers to purchase a house. Allowing negative amortization essentially turns home buyers into the equivalent of deadbeat tenants, while locking up the capital of bond investors far beyond what they signed up for. We now have the worst of both worlds.
A lot of posts about lack of listings.
Reason is 4 of 5 big banks have been given the green light by the Feds to extend amortizations to “infinity and beyond” or allow negative amortizations due to static payment variable products.
We are in a duct tape RE market.
— Vince Gaetano (@VinceGaetano) April 10, 2023
So that means many ‘homeowners’ are effectively renters with the added financial burden of maintaining the house. I am so thankful that I paid my mortgage off as soon as possible.
Spend less than you earn and pay off your debts before you splurge on shiny new cars/ATVs/motorcycles/snowmobiles. You’ll be happier in the long run.
Extend amortizations to infinity, eh? That means you’ll pay and pay and pay and pay and never pay off your home.
You will own nothing and be happy… or else.
Well … when 10year auto loan terms became a thing … automobile prices soared to heights eclipsing the cost of my first home in the SF Bay Area!
https://www.rategenius.com/longest-car-loan-length
So yeah … you want prices to go higher? Just extend the amortization period out to the average lifetime of a (white) Canadian.
Right? A new base model F-250 XLT is around $60K US with taxes. You want the nice one, crew cab, more like $95K.
My first house cost $89K in Phoenix, ~1998.
That’s some serious value destruction of money in 25 years. My dorky little house in Phoenix probably goes for $500K++, and it’s 25 years older now than when I had it. Might be more than that for all I know, the market is crazy.
Who’s got $60-$95k for a pickup truck these days? But they’re selling them. Extended warranty five years, loan ten years… Yeah. Sure. What a deal.
I guess we should just prepare ourselves for lots of great big shanty towns on the outskirts of real towns, just like in the third world.
We are way past “the war on the middle class”.
People need to roll down their windows and check out the geography sometime.
Why Anyone buy a $95k Truck and finance it..? is completely beyond me.
pah…I picked up a 2003 GMC 2500HD Sierra SLT 6L Vortec:
7k cash in Feb.
Threw 4k at it mechanically and it runs like a top.
2-3 days of some minor body work I can do myself and it’ll be good as near new..??
It’s just a means of getting around and my RV hauler….and I can tow significantly more than some Aluminum crumple bodied F-150.
whos the dummy..??
I’ll save my coin in Silver thank you kindly
I drive a slightly thrashed 1999 Land Rover. I call it my “work truck”. I tow my dump trailer with it. Its plastic bumpers are slightly disintegrated, and looks a little raggedy. I haven’t had a car payment for more than a decade.
But my friends and neighbors all drive Porsche SUV’s … I must make amends. Worked hard all my lifetime, no help from my friends … oh lord … won’t you finance me a Mercedes Benz
https://www.youtube.com/watch?v=Qev-i9-VKlY
You finance it when you can put the money to better use than the amount of interest that you are paying, and the truck is business expense.
My first home: $78,500.00 in Concord, CA 768 sq.ft. 2 bed, 1 ba. post-war crackerbox in 1982. My first mortgage a 12.5% 5-1 ARM !!! Yeah, I got out in year 4. Zillow says that home will cost $ 531,000 now.
I was one of those last year who thought there’d be a tsunami of people walking away from their homes so this all makes sense now.
I occasionally drive through London Ontario…if there’s a “downturn” some obviously didn’t get the memo. Seems like everyone with a hammer is putting up a new home… someone’s buying them. I’ve been told who but I’m not going down that road today.
The “banks” are buying all those homes.
Nominally there are people who “qualify” for mortgages, and then get to put their names on the deed.
Of course many of these people will default eventually, if not officially.
This “forever amortization” policy is just putting off the eventual crash by a year or two, and making it twice as large.
The thing I never understood about the housing crisis of 2008 was the decision to bail out the banks instead of bailing out homeowners. Backstopping the banks meant millions of foreclosures rendering the economics of foreclosure abysmal. I’m sure paying people in upside down mortgages to stay in their homes would have been so much cheaper as it wouldn’t have destroyed the housing market. It sort of tells you the banks got a good return on investment for their graft.
Make the big bubble even bigger. Put yourself in a position where if it pops, there’s little negative consequences for you.
I know a few real estate investors that have a large net worth. Even a sustained downturn won’t have a huge negative consequence to them. But the investors that are highly leveraged will get hit hard.
“…there’s little negative consequences for you.”
When you are the only guy on your street who can put gas in his car and meat on his barbecue, while everybody around you walks and eats oatmeal when they can get it, don’t you think there might be some negative consequences coming for you? Just wondering if you’ve thought this all the way through.
I can only control my situation. If the entire real estate market drops 25% tomorrow I will be fine with regards to my situation. Cash flow and mortgage qualification.
Other people may not be. Yes that can unfortunately have a ripple effect. There’s not much I can do to change that, so why worry about it?
Wow … you’re starting to sound like a conservative who believes in … the individual … and not “the collective”. You almost sound like a “selfish conservative”. Are you feeling well?
“Make the big bubble even bigger.”
Great idea. You think the government and the banks are going to survive that? This is how revolutions and civil wars happen.
“I can only control my situation.”
No, you CAN’T. If your money isn’t worth anything and there’s no goods to buy in the stores, you are just as f-ed as the guy who defaulted. It slays me that I have to explain basic reality to you, but I do it anyway because it seems other morons can’t see this either. Your personal welfare and your future depends on society continuing on an even keel.
You want to run the bubble up some more and then it pops, destroying the savings of everybody in Canada who owns real estate, ugly is what’s going to happen. You will be just as f-ed as everybody else.
Terrible policy.
Every generation needs a cleansing of the RE market to keep it healthy.
Yes, there are losers, but typically they were overextended in the first place.
This solves nothing, and rewards bad decisions by financially illiterate people.
This is a policy the banks love, Mo payments, Mo principle owing, Mo profit, AND the kicker?
They don’t own thousands of repo homes as declining assets, hurting their bottom line.
Isn’t it great to be large contributors to the Liberal Party of Canada?
Next: Forgive every deadbeat’s student loan … Right?
“Duct tape RE market”? I thought it was duck tape but, then, I was never very good at high finance.
You thought it was duck tape???? When exactly do you tape ducks??
Negative ammortization sounds nifty. Until it isn’t.
You tape ducks when the pet store will no longer sell you hamsters or gerbils.
Really, Peter? Really??
Red Green uses duck tape. Tin-bashers use duct tape.
“Duck” Tape is a specific brand of duct tape. Duct tape goes back futher than duck tape.
Duck was invented in 1942 using duck canvas (thus ‘duck’ tape) with adhesive on one side and a rubberized coating on the other. It was invented for the military and the first color was olive drab. The tape was used to seal ammo boxes.
Duck tape can be used as duct tape, but duct tape generally has a reflective, metallized coating on the back instead of the rubberized coating. Duct tape is not duck tape, but duck tape can be used as duct tape.
Aaaaand… that’s more than anyone ever really wanted to know about duck and duct tapes.
Nowadays, duck (or duct) tape is used chiefly to keep our wamyn-folk silent in the basement, and we use metallic tape on ductwork.
Nonsense. Duck tape is used to repair damaged ducks, and duct tape is used in vasectomies.
Of course, you can also use duck tape to pluck ducks. I certainly get down with it!
Germany has had 100 year mortgages. A 50-year mortgage seems interesting. Perhaps interest-only mortgages might work better. Handle inflation without crippling rate hikes, and the homeowner keeps any net equity appreciation upon sale…
I mean it beats mass starvation.
Germany used to use taxes to subsidize food and beer, public transportation, etc.
Back in 2006, a 6-pack of beer cost me less there than a 6-pack of Coke.
Bought 200 grams of M&Ms for a Euro.
Unlike Canada, where taxes are used to subsidize…attracting women to the trucking industry, and now MAiD? Whatever the case, your average Canadian gets FA for their taxes, and if anybody tries to suggest otherwise, the Conservatives all scream “deadbeat” in unison.
In Canada, Liberals are born slavers, but Conservatives are born slaves.
In 2008, the STM of Montreal bragged that 2 million people a day used the subway. I did the math, looks like the STM was bringin’ in almost twice its budget in revenue, ie a tax, but you have aholes here who think that its some kind of money drain, and whine about any public transport at all.
Canada is a kleptocracy, and both the left and the right in this country seem to like it that way.
Well why not?
We already have Generational Debt as a country.
So why not let the family unit enjoy ‘Generational Mortages’?
A brilliant Liberal plan to make us all equal.
Did someone notice the similarities to that good old method of government?
The Feudal System..
Know your Lords,for they will be those you dare not criticize.
Our modern “lords” have taken on the aspect of land-owning Highwaymen, or more simply, bridge trolls.
Old feudal lords were never this evil.
What’s in your wallet?
Debt.
Now you can keep it in your basement, too.
Canadians are way too stupid to understand the differences between mean, median and mode.
Didn’t Justin just recently explain to an adoring crowd that using your credit card to pay for your house is a wise investment? Or maybe I heard that wrong.
I can’t listen to the Pony, it burns up my liver. But did he really say use the credit card to pay for the mortgage? That’s obtuse even for him.
What would Trudeau know about a “Mortgage”?
Something he heard about at a gay bar once maybe and figured people should pay for male prostitutes with a credit card for convenience.
So, now we have dead-beat landlords who over-leveraged their assets trying to off-load their incompetence on tenants who never missed a rent payment, but are expected to shoulder their landlord’s miss-management.
Sh*t may flow downhill, but lead doesn’t.
Sure thing glow-worm. You first.
Nice Dylan Mulvany avatar, you freak.
What, mall ninjas don’t like bacon?
““…there’s little negative consequences for you.”
When you are the only guy on your street who can put gas in his car and meat on his barbecue, while everybody around you walks and eats oatmeal when they can get it, don’t you think there might be some negative consequences coming for you? Just wondering if you’ve thought this all the way through.”
…and The Phantom wins hypocrite of the year award by a country mile, no mean feat here at SDA!
“Sh*t may flow downhill, but lead doesn’t.”
I like that.
Next up, Zombie cars, when a new car now costs more than a new house 20 years ago.
Canadians, indeed westerners in general are zombies, re-regurgitating whatever BS their little data-set tells them too, just like ChatGPT…what’s worse, they think that a few outliers in their training data makes them free, when the reality is, its just a trick and you have all fallen for it:
https://www.youtube.com/watch?v=yCJ1D_vgOKI
The Canadian right:
Mortally afraid of cigarette vending machines and lawn darts, but brave enough to stand up to Dylan Mulvaney, by boycotting only, as opposed to name-calling, which would be rude, and Canadians can never be rude to their owners. The banksters, big pharma and the WEF in general and so on have nothing to fear from the likes of Canada, especially when anyone who would stand up is instantly denounced by the left and the right alike. We make Swedes look like Vikings, except the Swedes are less prone to ratting out their own countrymen.
The west continues to castrate itself for “safety.”
Enjoy your bubble wrap, aholes.
All fine-and-dandy until the financial analysts look at the banks books and realise they are insolvent. (a la Silicon Valley Wank, hey these mortgagees are not even paying the interest part of the payment !)
Then they start shorting the stock eg TD Bank. Justinflation buck-look out below.