Wednesday, February 1, 2012

Buy fire insurance

Because the place is on fire!  The CMHC "has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance."
Don't worry, the stupid corrupt government will sell it to them.  They'll raise the cap if necessary. Anything to loot the taxpayer. Privatized profit and socialized loss. That is why it's good to be a bank.  But what's this?  CIBC may actually require you to prove your income. That's a big step up from simply making an 'X'.
In the United States these stated income loans were called "liar's loans", and they were widely used by realtors, mortgage brokers, construction workers, and the poor to speculate on housing. But Canada doesn't have any of those "subprime" lending practices, right?  So says our national media, over and over again.  But the Americans know this game:
Hat tip to AG Sage, for recording these for posterity.  Here's your prudent Canadian banks.  I wonder if anyone got a cash back mortgage with no job.  I might have tried, but I have a job.
I'm curious, what subprime practices did the US have that we don't have?  We have liar loans, cash back loans, and the entire country is on a teaser rate.  One thing I do not recall from the US is taxpayer gifted down payments (hat tip
I think it's interesting that the City of Saskatoon is willing to spend precious tax dollars to help put the working poor under an unrepayable mountain of debt.  Privatized profit, socialized loss.  The banks won't lose anything if these people default.  It's all insured by your old age pensions and medical care.  What's this?
And that's why it's good to be a Canadian bank.

Tuesday, January 17, 2012

Last call for retards

This reads like marketing slosh.  Last chance to be an idiot?  Let's say you jump in and borrow $500,000 on 30y amortization with this mortgage.  Your mortgage payments will be $2374.76 per month.  Each year you will pay $28497.18.  After 10 years your balance owing will be $393349.39, so your interest payments are $178321.19.  You will kiss that money goodbye for the luxury of borrowing from a bank.

Now let's say the price of houses declines 10%, which is definitely at the low end of predictions. You borrow $450,000 on 5 year mortgages at the same 4% rate (because the interest rate went up from the current 3.34%).  Your mortgage payments will be $2137.29 per month.  Each year you pay $24647.49, and after 10 years you will owe $354014.45.  You get a free fucking vacation every year and at the end of it, you're an additional $39335.05 ahead.  You would, of course, be massively ahead by putting that $4000 a year extra into your much smaller mortgage, but life comes with unforeseen expenses.

Wednesday, December 21, 2011

Canada will be different

"You don’t have a once in a lifetime bull market in property and the you expect a 5-10% correction. Historically, at least, this has never occurred."

The author, Puru Saxena, is referring to China.  But wages in China have risen rapidly while inflation was out of control.  In real terms, the Economist reports that the price of houses in China has risen almost 100% in a decade.  This is less than what they report for Canada:

So what do we have?  Canada's housing boom is now among the longest in the developed world, but you should only expect a 10% correction:

Now granted, China has built entire cities that sit empty.  We only have empty neighbourhoods on the Vancouver west side, ironically due to China too, and enough uncompleted condos in Toronto to house a small city:

So it's a totally different situation entirely.  Don't worry.  Buy now, and most importantly, don't sell.

Tuesday, December 13, 2011

Mark Carney understands the problem

He just isn't going to do anything about it.  Does he not realize he should be steering the ship?

"Canadians have now collectively run a net financial deficit for more than a decade,"
"Canadians are now more indebted than the Americans or the British."
"much of the proceeds of these capital inflows seem to be largely, on net, going to fund Canadian household expenditures, rather than to build productive capacity in the real economy."
This is quite an accomplishment.  Who would have thought Canadians would be so dumb as to follow the exact same scenario that brought the US to ruin?  Houses go up forever?  Really?! And Saskatchewan is running out of land?  If there is a lesson in this, it is not that people are blindingly stupid, but rather that society at large responds to bad economic policy, no matter how obvious a trap it is.

All of the above imbalances have been present since at least 2007.  The time to fix it was in 2009.  We are going into 2012.  Carney spent five years expanding the debt bubble and repeating horse shit with inflation mostly above target.  All he had to do was his job, but instead he played Greenspan.  Then we get the clincher: 

"To eliminate the household sector’s net financial deficit would leave a noticeable gap in the economy. Canadian households would need to reduce their net financing needs by about $37 billion per year, in aggregate. To compensate for such a reduction over two years could require an additional 3 percentage points of export growth, 4 percentage points of government spending growth or 7 percentage points of business investment growth."

This is impossible.  China is crashing so export growth is out.  Government is already running large deficits.  Business investment +7% is a pipe dream.  Why would businesses invest when exports, consumer, and government spending are flat to falling?  Who are they going to sell to?

"This would be good for Canadian companies and good for Canada. Indeed, it is the only sustainable option available."
An appeal to patriotism is the last refuge of a scoundrel.  Instead of forcing Canada onto a sustainable path, Carney doled out the crack and will surely blame everyone but himself for his stupid failed plan.