This Bloomberg news item confirms what many of us have suspected for some time: the main reason why an avalanche of Canadian mortgage holders are not in default is simply because the government has instructed lenders to let the interest ride. Sounds like something you would do in a casino, right?
“We are extending and pretending,” Steve Saretsky, a Vancouver-based real estate broker, said of the banks’ approach to their borrowers. “Banks are saying, ‘We don’t really care, just extend it — just loop it onto the balance.’
With the banks also signaling an intent to accommodate borrowers once their mortgages come up for renewal, the number of houses that would otherwise have come up for sale could be limited further. And the government may soon be stepping in to make sure they do. Last month, Canadian regulators released draft guidelines for how banks should deal with the rapid rise in borrowing costs. The proposal made explicit an expectation that lenders help mortgage holders avoid delinquency.
So the longer inflation remains high, the further the can gets kicked. A recipe for disaster.
This is exactly what happened in 2008 in the US where there were sub-prime mortgages whose monthly payment didn’t even cover the interest and the excess was just tacked onto the balance. We all know how that eventually turned out. To the extent that these practices limit the number of homes coming on the market, they also forestall the price correction that would otherwise take place. The market increasingly becomes a Potemkin village. My son and his wife are currently living with her parents trying to save for a house with little hope of ever succeeding in this ridiculous market, while I counsel them to wait for the downturn that is obviously coming. Hope the whole thing blows up and the banks are left holding the bag!
They learned NOTHING! from 2008.
Never ending debt, marvelous is it not.
I would have been a billionaire if this insanity was on the go 60 years ago.
Maybe, but it sounds stupid to me.
In 2018 my rent in Greater Vancouver (Abbotsford) was 689/mo for a 1BR, 1BA and all appliances. 549sf. Built in 2008.
I moved away for a job opportunity in the Okanagan, where my rent went to $1,000.
I moved back a year and a half later, I’m renting a 1BR, 1BA, no dishwasher or laundry, 527sf, 1980’s building, and paying $1200/mo. In the year and half since I’ve been back, my apartment is now renting at $1,600/mo. How is this sustainable? And, btw, thanks for the $15 min. wage which still doesn’t pay the rent.
I’d like to say, at 52, that I’ll rely on social services for my retirement… but I’ll be working as a greeter at Walmart until I’m 100yrs old, with three room-mates. Just like college. Should be fun!
Should have planned your life better, than relying on minimum wage, entry level garbage jobs. My kid is making $25/hr, in construction, on his way to going thru apprenticeship.
There’s still time to improve your lot in life, rather than doing nothing but complaining and victimizing yourself! There’s life beyond fry cook, mopping and taking the garbage out.
Minimum wage and having your own place in a major metropolitan area isn’t possible in the current market, and hasn’t been for a decade. If you’re working minimum wage, why do you need to live where the demand for space is highest in the country? There are minimum jobs everywhere. Move to Newfoundland, and you can probably afford to buy your own home and land on a minimum wage job with money left over for investing for retirement.
I hear ya Jeb.
Rents in Calgary have skyrocketed.
Had a 1 bdrm, large living room, dining room area big enough for smaller round table n 4 chairs & in suite laundry. Complex had a pool and decent gym to boot: $ 1135/ mo. W/ free outside parking plug-in for cold winter starts incl.
Now..?? Brand spanking NEW small 2 bdrm: 1 lrg 1 smaller ( I use it for storage cause otherwise ya get a 4′ sq storage enclosure for an extra 55/mo.), no microwave, no dining area just a long counter for 2 stools, small “living” area, parking outside is 46/mo with only 1 elevator for a 110 – 4 level aptmnt complex.
Oh yea, in suite laundry that holds no more than a pair of jeans, hoody, underwear & a pair of socks – takes near 5 min to get hot water as well.
I suspect Hong Kong Investors…no surprise.
$1520/mo. All in.
And it goes up from there across the city….all the while Multi Family being by far the largest portion of new housing being built by leagues n bounds.
Dude, I am a skilled labourer making over $60k per year. FU, asshole. Minimum wage merely pushed up the price of everthing else.
Think before you type.
Jeb, I agree. The only effect of minimum wage over the medium and long term was to kill total employment rates for precisely the reason you stated. This is not surprising; the only effect of a similar program in Ontario for rent controls was to reduce the growth of new rental spaces, especially low cost ones. Both of these programs, rent control and minimum wage merely served to fuel yet more inflation.
The single worst effect on rental space was Toronto’s elimination of basement apartments in the 1970s by “Tiny Perfect” Mayor David Crombie. It flushed hundreds immediately out on the streets because of an entire class of low cost apartments that had vanished instantly.
I used to, back in 2018, treat myself to to Whopper Wednesday at Burger King (2 Whoppers for 6 bucks.) A few years before it was 2 for $5. There is a Burger King near my place that was advertising 2 for $9, and a couple weeks ago, it changed to 2 for $10.
Up yours, Burger King. I can raise my own cows for that price.
And so should we all.
Thank you, minimum wage morons.
Cgh
Funny that..not teally, but Calgary allowed secondary suites here a few years ago..but very stringent rules and regs…
Whichever party finally accepts that this cannot continue forever will usher in a tsunami of bankruptcies like we’ve never seen.
I’d like a heads up so I can offload some bank stock.
This also means that there are people staying in houses that they can’t afford, or afford to get out because this “intervention” will mean a reduction in the correction that needs to occur.
I’m a skilled labourer working in Calgary. I’m 62, own my home and go to work every weekday. I made that choice at least 25 years ago. Yes I worked many different jobs. I saw lots of younger workers come and go, I stayed, I had a goal, buy and own a home. It took awhile and now any extra money goes to renovating.
I look forward to spring/summer to work/enjoy my yard.
Yes I may work for the man longer than I would like but I get to enjoy a beer or 2 when I want. That’s good enough for me.
Tell me how the government is behaving any different than a common drug dealer.
I doubt there will be a lowering of interest rates in the next few years. How far can the can be kicked? If this amount is only being added to the principal, the explosion of debt is going to be like nothing we’ve ever seen before.
It doesn’t just get kicked so far down the road that nobody can see it.
Are the banks expected to just eat these losses? I doubt they will. I do expect it to get kicked into the next federal government’s area… in which case, the #Libranos will laugh privately while the rest of the country seethes.
What a crap hole Canada is going to be. As the banks say their limit is 105% of the principal the homeowner has qualified for, +the heightened interest = above what they were earning.
Probs a good time to increase the carbon tax.
It used to be a loan that is non-performing (which these are) would be recorded as such and loss provisions set up. You would not get to set up overdue interest as earned income. No wonder TD Bank is the most shorted financial institution in the world. House of cards. Analysts will be looking at how Cdn banks financial compare under Cdn accounting vs US accounting (they are all dual listed so need to report on both accounting bases). US accounting might now be the same silliness.
More clients of the gubmint.
More people that vote for a living.
What could go wrong?
The avalanche starts with a single stone, however not every stone starts an avalanche.
But you will notice when the avalanche starts.
The inflation rate has fallen from it’s high of 8% last summer to 5.2% now.
The bet is that inflation will continue to decrease, and that interest and mortgage rates will soon follow. It’s not unreasonable, but if it doesn’t happen then things could get ugly.
5.2 % inflation, ha, more government math. It is 20% and it is not dropping.
I think 8% was a farce and 5.2% is an insult to suggest.
Anyone who’s had to pay their own way only has to stretch their minds back two years to see the wild increases in prices.
My son loves no name waffles from Super Store for breakfast. 3 years ago, they were about $8 a box of 48 and would go on sale as low as $5 a box. Today, they’re $12.99 and go on sale for $10.
I’m pretty sure that the government bean counters re-jig the basket of goods that track the inflation rate to get the results they want.
I know they’ve done it in the past and pretend that a long weekend Friday afternoon press release is being transparent when it’s just being sneaky. I bet they’re messing with the core items to lower the reported rate but this time, not telling us.
10 kilos of flour is $10, if you shop. That’s alottawaffles.
Learn to cook.
The new meme.
KM
5.2% is pure smoke n mirrors
FUEL/Energy/Lodging costs of All kinds not part of that equation nor is much else.
Food alone is hovering at 20% or higher…bought any thick sliced bacon lately..or Beef.
Spare me pls…
They have to keep the land market value up tk the next the election. The very core Trudeau voters are the urban and suburban middle class Karens and public sector workers. Their hole value is the home purchased before values went up. They feel safe now and Trudeaus crazy policies have not had a huge effect yet on them. Yes inflation and energy have gone up….but if the house value drops that’s their whole ball game.
After Trudeau’s win in the next election. I don’t see him not winning. C11 will be in and the media will get him accross the line. They will start letting the markets crash. Then out of nowhere the federal government will have some program to save you. I’m betting you sign over ownership and can rent your house at low price. They will just be “holding” the title for you.
Canadians will be stupid enough to fall for it, too.
Bob,
Do you really think Justin Trudeau of Canada has any major say or sway on the Canadian Economy, compared to Tapioca Joe Biden, Janet “Old Yeller,” and whoever runs the US Federal Reserve?
Paraphrasing the old saying, “The US Economy gets a cold, and Canada gets COVID.” Especially now that so much of the World Economy is run by Multinational Corporations, not Single Nation Corporations.
I don’t think people understand inflation and therefore they don’t see it. I’m not saying people are stupid. I’m saying inflation is insidious. There is no way inflation is 5-6% when the main costs of living (shelter and food) are increasing at 10% or more. Adding to your mortgage because you can’t afford a monthly rate increase only adds to inflation. And don’t forget that after 4 years of 10% inflation, everything costs 50% more. Have wages increased by 50%? A primary benefit of the government fudging the inflation rate (other than calming the masses) is reduced wage inflation. The government is purposefully inflating your currency to reduce its debt obligations while increasing your taxes, while giving itself raises to offset those problems and you vote for this madness. Maybe people are stupid.
Ain’t Kleptocracy grand?.
Lie ,cheat ,steal,for it is all perfectly “legal”.
Hide the decline is Government Policy.
Always.
And letting the peons sell themselves into slavery is even better than physically grabbing them and dragging them off.
Much easier and more amusing.
“In debt beyond your ability?”
“Your government is here to help”.
“We shall get you into debt beyond your comprehension”.
And the suckers will lap it up..Applauding their Dear Leader and how much it/he? “cares”.
As inflation impoverishes everyone who set some wealth aside for future days.
Followed by punitive “Death Taxes” for all who die with any amount of private property left.
And when the numbers become impossible to hide?
Bail out the Banks and take from all bank accounts..cause these are “The Rich”..
Just as predicted..
For when all are starving and poor..The man with a shiny nickel is now “Rich” and our parasitic Overload exists to “Consume the rich” and then take their place..
Justine’s “new middle class” the parasitic service…
When they go “On Strike” will anyone know?
Oh yeah..The Banks..
After what we learnt From Uncle Roulands Report..The Banks are fully a part of our Uni_Party..
“Send in the Tanks”.
Advising the Politicians and gleefully freezing customers accounts,with no legal authority,court order or legislation..
So who is making the infinite mortgage decisions?
Bank or Government?