There has been a lot of discussion and debate over the past while about the end of 0 down, 40 year (0/40) mortgages on October 15, 2008. When the announcement was first made in July, many wondered if there would be a surge in sales while buyers took advantage of 0/40s – our thoughts were that the impact would be minimal.
With sales up significantly this month, people are naturally starting to wonder if the end of 0/40 mortgages is responsible. Some have suggested that prices are lower and therefore more palatable to buyers, or that seller’s are becoming desparate and accepting "low-ball" offers.
We haven’t sold any homes for 0 down, ever. However, we don’t know the other details of our clients’ mortgages, and really have no idea how many have chosen the 40 year amortization period.
I wanted to find out more so I asked Gord McCallum, the broker at First Foundation Mortgages what his thoughts are on the situation:
We’ve seen some increase in interest in 0/40…but most of the zero down folks will choose 40 anyway. The thoughts at our office are that it has more to do with lower prices than anything. We’ve also seen a burst of activity from military personnel (coming back from overseas) and new to Canada, for some reason – maybe our foreign worker program has kicked into high gear.
Benjamin Tal from CIBC was at AMBA a couple of weeks ago and he said that Edmonton and Toronto are buyer’s markets now, and he thought that we had overcorrected in Edmonton, so maybe enough people saw that and started to make a move.
Incidentally, rates are going up big time this week as there is a capital shortage in the Canadian mortgage market right now. The Canadian Mortgage Bond fund only issued 8 Billion in liquidity instead of the usual 12 for this quarter…so the lenders are tigtening policy and raising rates. The bailout in the US could lead to some improvement but it could be a little while before we see it.
So there could be an upswing due to people taking the 40 year amortization period that we as Realtor’s are unaware of. However, the difference between 35 and 40 years is minimal. I think the increase is due to a few factors: lower prices, 0/40′s, and perhaps an upswing in net-migration. If you are considering buying, now would be a very good time to get a rate hold from a mortgage broker, since rates are about to go up.
The problem with trying to buy now to take advantage of better mortgage rates is that with lending tightening and rates going up, there will be even more pressure on home prices to go down.
Welcome to the credit crunch. A lot of people took a nice 10-15% shave off of their retirement savings today too.
Benjamin Tal has such an awsome track record of missed predictions
I think he’s like the black sheep of weathermen…
“it will be sunny!”…. and then it hails.
Biggest drop in the DOW’s history today.
Oil down over $10.00 a barrel to $96.00
Interest rates going up because lack of liquidity.
Were only into the previews of this movie.
Get a large popcorn, sit back into that big arm chair and enjoy.
It’s going to be good!
*** Rarely do I witnessed such a lack of humanity but have come to expect it of you. Now Brent I don’t expect much from you, but to cheerlead the disintegration of people’s retirements and equity commands a new low even for you. Of course there’s nothing for you to say the day after when the marekts are up almost 50%.
Sheldon ***
I work in the landscaping industry and often run into people associated with the home building sector. Most of the people involved have talked about how slow new starts have gotten and how building in a lot of new areas are extremely slow with vacant lots and spec homes sitting on the market. I am not an a expert at real estate by any means but this causes some concern on the simple fact that if the market is so strong then why are all these new construction neighborhoods stalling? I am not posting this comment to start a fight I am just here trying to get a reasonable understanding of where the market is at. I would like to know what you think of this Sara and how this effects the market short and long term. There is also alot of condo units that were built and are going onto the market over the next year that may replenish inventories when they start to reduce. This type of scenario sounds quite similar to US scenarios during booms in several regions. I would like to have a normal discussion on this topic with out it getting into personal attacks. Thanks for creating this blog.
In all honesty. Now is the worst time to get into the market. Cash is king right now. There is too much risk and volatility. MCC, no offense by why would you be asking realtors what they are thinking about the current market. Sara and Sheldon both think that this is a great time to buy. They always will.
***Mario…or should I say scario. How do you know what I say to my buyers? I’ve never talked to you. You don’t know what I tell my clients. I give my clients information and advice based on their situation. However if I have a different point of view and you don’t like it that is perfectly fine by me. – Sheldon ***
hIn late 2006, we were looking for signs that would indicate the end of the steep increase in housing prices.
We decided that 3 consecutive months of declining housing starts would be our signal to sell. That 3rd data point came in March 2007. We sold in April, and prices peaked in May.
Our buyers looked at the continued positive trend of the average and median price, liked what they saw, and held off listing their property until August 2007 – not a winning move !
Prices have gone downhill steadily since May 2007, but the inventory is still much higher than in pre-boom years. Therefore, I think there is further room for price reductions.
Given that rental vacancy rates are still very low, strong net in-migration would again put a strain on housing inventory.
Therefore, I predict that a sustained gain in housing starts will indicate the end of the current buyers’market; but that could still be some months away.
Sheldon, did you read your post? You were suggesting people to buy before interest rates go up.
Anyways, it appears nowt that Albertans are struggling to pay their hefty mortgages:
http://www.cbc.ca/canada/edmonton/story/2008/09/28/mortgage-woes.html
“More Albertans unable to make mortgage payments.”
***Spin it the way you want. I said “if you are thingking of buying then get your interest rate held because they are going up. If you have a problem with that, there’s nothing I can do about that but you are welcome to post your disagreement. Sheldon ****
MCC,
Don’t the majority of these suburb condo units look like Army Barracks?
Scario,
or whatever you call yourself of the bubble blog…I believe Sheldon said IF you were thinking of buying, now would be a good time to get a rate hold because rates are going up. How is that bad advice? He didn’t suggest anyone run out and buy now or be priced out. Wouldn’t it be kind of stupid, if you were thinking of buying, to wait so you could get a higher interest rate? Now toddle off back to the bubble blog, check your closet and under your bed for realtors…because you know they’re out to get you!
Scario, as per your linked article problem mortgages make up 0.28% of the total as opposed to half that in 2007. Now, tell us why you think that is a problem- ie why 2x a very small number is more consequential to the market than… a very small number.
Scario
Ever thought that maybe when housing was going up at those incredible rates from 2005 to 2007 that these properties were refinancing to postponed the inevitable, ie. foreclosure. If you actually bothered to look at the default/foreclosure rates for Alberta from 2005 to 2007 you would see they were abnormally low. To me this more or less shows me that poeple were using refinancing to hold off foreclosure. But once price appreciation stop in May of 2007 and refinancing was no longer an option the foreclosure process had to start. And being that in Alberta the foreclosure process takes anywhere from 8 months to a year to complete. The numbers we are seeing is no big surprise. I am actually thought they would be a lot higher than they are. Don’t you think if your great unwinding was coming true the foreclosure rate would be much much higher. So even though foreclosures have gone up in Alberta they are still way below historic norms.
The CBC article, “More Albertans unable to make mortgage payments.” was primarily in reference to speculators who had originally hoped to flip multiple properties with quick and profitable sales. Now, one of the biggest problems with the all of a sudden and huge run up in inventory is that all the speculators decided it was time to cash in, and they decided almost all at once. Then once sales started to slip because of poor affordability and less net migration, they began to desparately dump property and take lower and lower offers in order not to “struggle” in carrying multiple mortgages, or even let them go into foreclosure. We won’t see what the real market situation is for ‘home owners’ until the market is mostly purged of the speculators dumping their properties, this includes builders holding inventory as speculators as well. How long will that take, thats the question, and the answer gets back to what the net-migration figures are that are needed to suck up all the excess inventory????
If your concerned about rising bank mortgage rates, why not take a variable rate mortgage tied to prime. The Bank of Canada won’t likely be raising the prime lending rate anytime soon with the economic slow down looming (especially in the heavily concentrated manufacturing center of Ontario# as a result of the USA credit crisis.
I just wonder how much of the consumer lead American economy was built on the availability of easy credit #leverage#, and now how much it has to contract #deleverage) as easy credit is no longer available? It was at least a ten year run up of easy credit, spend beyond your means, and now will the downward slope take just as long to bottom out?
I just moved my line of credit to a open mortgage prime – .6 and a week later all banks stopped the discount, I feel quite lucky.