Tuesday, June 8, 2010

Continuing Housing Bubble Rhetoric Toronto

The Bubble Heads are determined to prove to you that the housing market is going to collapse. As long as you are nervous, you are listening to their rhetoric and are buying in to their the glass is half empty philosophy. Click here to enlarge the chart to the right to see how Mortgage defaults have increased in Canada.

The Chart indicates that in 2005 the number of mortgage defaults in Ontario was 0.25% and this has steadily increased to 0.42% as of January 2010. This is in stark contrast to my understanding of the American Mortgage Crisis where; a) You walk away from your debt if you owe more than the value (Underwater) and suffer through a Short Sale, b) Mortgage defaults are in excess of 14%. In the United States they either take the house or sue you. In Canada, they do both.

All of the economics and studies aside, they have not included the numbers of homeowners who are not in default and carrying a minimal mortgage amount. These figures are explained below in the information quoted by CAAMP.
Profile of Mortgage Holders
There are currently about 9.3 million home owners in Canada, of whom about 5.55
million have mortgages.
About one-quarter (24%) of home owners had some form of mortgaging activity during the past 12 months: taking out a new mortgage on a home that was newly purchased or which previously did not have a mortgage (7%), renewing, refinancing or transferring an existing mortgage (17%), or paying off an existing mortgage (3%)1. The remainder (76% of home owners) did not have any mortgaging activity during the year.
The average outstanding principal is $138,000. Based on the survey findings, it is
estimated that outstanding mortgage principals on primary residences total $770 billion.
Mortgages that were originated during the past year have a current total principal of
$127 billion; mortgages renewed, refinanced, or transferred have a total principal of
$180 billion; and for mortgage holders who were inactive during the year the current total principal is $494 billion2.
Canadian Association of Accredited Mortgage Professionals May 2010 http://www.caamp.org/meloncms/media/Spring%20Survey%20Report%202010%20ENG_2.pdf

If you calculate the number above in reverse in excess of 40% of Canadian have no mortgage debt. So what is the point. The point is that, If they get your attention with a horrific headline, you will watch the news. But is that the reality? Will interest rates SKYROCKET? (that headline had a picture of the Shuttle) Yes, rates increased from a variable of 1.6 % increased to 1.9% How can Canadians default on debt they do not have?

How can the North American Media and Economists predict with such certainty the impending Bubble for Real Estate in China or the entire Asian Rim if they so blindly did not see the loan manipulation that was occurring in their own markets in America.

The Global financial crisis that was caused by the American system of Banking and now is the topic of the G8 and G20 summits (do we need to tax banks and limit their lending policies?) and how banks are being regulated. Do Canadians need to suffer the additional expense of a bank tax where Canadian banks lead the world in fiscal responsibility? Canadian Banks number in the top 20 in the world, we proudly have two in the top 10.

Yes, seniors will be buying fewer less expensive homes in the coming years. Couples and Empty Nesters will be downsizing as they retire; but it is all as David Foote predicted in the book "Boom Bust and Echo" when they examine the ebb and flow of generational spending. We have been aware of that demographic cycle since 1996.

Lets recap; Ontario and Toronto are moving to Knowledge Base Economics. We are currently at an employment rate of 91% (Unemployment is quoted as 9%) The United States is higher. Mortgage defaults are not what they seem when quoted in the media. Buying a house at 20 - 30% below market value is the rhelm of late night television, The HST is coming July 2010, and builders are nervous at how people will react to an additional 13% displayed on prices over 400K. The media continues to predict that Toronto will fall victim to the soon to arrive housing bubble. If prices move upwards in the New Home Sales Prices, Buyers will move enMasse to the resale market

Also arriving are recently moved in Canadians that are regionally displaced by seasonal employment or manufacturing sector changes; Students to gain a better education internationally and students locally; Immigration by Statistics Canada permits the entry of 250k applicants for permanent residence and skilled labour. Their city or region of choice appears to be the Golden Horseshoe. Traffic on a daily basis does not indicate to me that we are in an economic recession.

Housing inventory is the number of homes for sale at any given time. The number of units sold will give you an absorption rate. We are moving slightly to a more Balanced Market that will provide a greater selection for most Buyers. The real estate market does not flip like a light switch from negative to positive or from a Sellers Market to a Buyers Market overnight. The transition can take months, and even years. Lets enjoy the low interest rates while we can.

Would you like to add something to the conversation?

No comments: