Bank regulator raises mortgage stress test level, making it harder to qualify

[ercchry]

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Well in the 60's a family of 4 was happy with 1200sqft, 3 bedrooms one bathroom to be average.
Nowadays that same family wants 2200 sqft 5br + fully developed basement, 3 bathrooms with double vanities in each, a toilet to be used only by guests that come over 3x per year, along with their leased BMW and Audi.

I don't think things have changed much in terms of costs if you're trying to buy the same thing. A blue collar worker single income can still buy the 1200sqft 3bed 1 bath home, just that it would be in Whitehorn if closer, or Legacy.

But you use to be able to drink at the office, and fuck the secretary in your city apartment while the wife raised the kids alone back in your suburban home, so which generation is really winning here?

[killramos]

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How else can you tackle a bubble. Cap gain on all home sales? Transfer tax or 2x transfer tax if sold within 1st 5 years?

They already establish they don't want someone to own homes, it's just how high of a barrier you want to set.

My point is we don’t have the stomach to deal with anything.

[Kobe]

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That’s adjusted to 2019 dollars... I’m talking pure dollars earned, as the debt you are locking in is not increasing in dollars... if the rate is fixed ...fix rate of debt is the key here, and it is possible when talking homes... you can lock that rate in for 10yr, and they can’t even charge you an IRD after 5yr

Correct, sorry for the misunderstanding with inflation

According to the U.S. Bureau of Labor Statistics, prices for housing were 567.28% higher in 2021 versus 1973 (a $567,284.76 difference in value).

Between 1973 and 2021: Housing experienced an average inflation rate of 4.03% per year. This rate of change indicates significant inflation. In other words, housing costing $100,000 in the year 1973 would cost $667,284.76 in 2021 for an equivalent purchase. Compared to the overall inflation rate of 3.77% during this same period, inflation for housing was higher.

Im going to use this Data
https://www.cnbc.com/2017/06/23/how-...ince-1940.html

Median Home Value in 1960: $11,900
Median Home value for 1970: $17,000

1960 Adjusted for Inflation as of 2000: $58,600
1970 Adjust for inflation as of 2000: $65,600


Forbes: https://www.forbes.com/2007/06/26/wa...h=18491cc42d1c

Comparing Median Home price to Average nation wage

Cant find good examples as I have to find a similar Home in a similar location that has similar value right now.

Here is the Consumer Income Report from 1974: https://www2.census.gov/prod2/popscan/p60-093.pdf


Sorry From the data I saw/said it's closer to two years of saleries in the 1970s, but again this is when the recession was over and America was booming.

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Well in the 60's a family of 4 was happy with 1200sqft, 3 bedrooms one bathroom to be average.
Nowadays that same family wants 2200 sqft 5br + fully developed basement, 3 bathrooms with double vanities in each, a toilet to be used only by guests that come over 3x per year, along with their leased BMW and Audi.

I don't think things have changed much in terms of costs if you're trying to buy the same thing. A blue collar worker single income can still buy the 1200sqft 3bed 1 bath home, just that it would be in Whitehorn if closer, or Legacy.

This is very much a Canada/USA thing, it doesn't really happen in Europe at least. People don't usually move much in Europe (At least not in Poland)

[ercchry]

So TL: DR... buy homes before inflation, laugh at peasant co-workers who are not making any more inflation adjusted dollars than you from your castle, as they rent at ever increasing rates

[adam c]

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Thoughts on effects of this on market?

https://www.cbc.ca/news/business/osf...ules-1.5979558

Seems like this is to fix the out of control that is Toronto where dump-lexes are going for 2.2 million and houses are going 500k over asking price, but other people suffer because of it

[cidley69]

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So TL: DR... buy homes before inflation, laugh at peasant co-workers who are not making any more inflation adjusted dollars than you from your castle, as they rent at ever increasing rates

This will be net positive for rental market, that's good at least.

[ercchry]

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This will be net positive for rental market, that's good at least.

So here is the fun thing about this... this is OSFI, not cmhc, so it’s all regulated lenders that need to follow it, but when it comes to rentals, there is no hard rules on what income from them can be used to qualify, so this does NOTHING to curb people from gobbling up all the homes they want as lenders can just adjust their rental programs to find more qualifying income to offset

[Kobe]

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So TL: DR... but homes before inflation, laugh at peasant co-workers who are not making any more inflation adjusted dollars than you from your castle, as they rent at ever increasing rates

Depends how you look at it, if you believe we continue down this path of inflation with no consequences and the wealth continues to move in the direction of those that can afford payments then yah.

The issue goes pretty deep.

Say a home is for sale for $250,000 - You need a mortgage and say you pay $900/month for the mortgage you purchase the home as in investment and rent it out for $1,200/month expecting the value of it to increase by year (Like it's done like 40-50years)

You can not find a renter for $1200/month but then find out for $1000/month

Your profit margin is $200/month + Inflation of your asset (you assume the price of your home will continue to increase) Which we can't properly know until you sell your home, how much you earned on it.

Let's put another variable into the equation.

Let's say other people start to have higher profit margins and their mortgage is only $600/month so they can rent it out for $800 and still profit.

You now are put in a spot of uncertainty, you don't know if it's worth renting at a loss or selling it, but you have the belief that prices will go up (History in your lifetime has showed you that)

So you rent it for $800/month expecting it to be good and the markets turn and you profit from the value of your house.

Less and less people can afford rent so their is less demand for it. You decide to put it on the market for $300,000, no buyers since there is better priced homes, you try $250,000 to breakeven (-Interest paid)

No buyers, what do you do? Interest rates went to zero %, but the demand of purchasing homes did not increase enough and there is more supply on the market rather than demand.

Before you always knew that the fed will just lower interest rates to stimulate the economy, but they can't do it anymore, it's at 0%....

More and more homes start to be empty and your not bringing in income to cover the mortgage, maybe you don't work as many hours now. What do you do?

It depends heavily if you can continue to pay for it without rental income right? What if many people that are renting them out and cant find renters need to sell?


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[ercchry]

So... no inflation? I thought we decided inflation is happening here?

[Kobe]

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So... no inflation? I thought we decided inflation is happening here?

Inflation is happening, which is increasing the price of a home, which is return means that rental properties are more expensive.

If someone was renting and saving $100/month now they have zero savings because of the inflation per month, they look for a room mate

Now you have two people in 1 home splitting rent. Demand for homes decreases as less people are searching for a rental.

But the cost of purchasing that home increases.

As do interest rates which make your monthly payments more expensive. (Renters don't care about the interest rate of your mortgage, they care about the rental price you offer)

If people are purchasing an asset/investment the price goes up (Demand is higher, supply is lower)
If people are not purchasing an asset/investment the prices goes down (demand is lower and there is a higher amount of supply)

[ercchry]

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Inflation is happening, which is increasing the price of a home, which is return means that rental properties are more expensive.

If someone was renting and saving $100/month now they have zero savings because of the inflation per month, they look for a room mate

Now you have two people in 1 home splitting rent. Demand for homes decreases as less people are searching for a rental.

But the cost of purchasing that home increases.

As do interest rates which make your monthly payments more expensive. (Renters don't care about the interest rate of your mortgage, they care about the rental price you offer)

Yeah, you’ve lost me again...

Less people being able to afford housing means larger rental pool, if you’ve purchased the home already, locking in your debt at low rates as it doubles in value, you’re doing well even if stagnation follows

Doubles you say? That’s crazy! ...well some towns in Ontario are already eclipsing 50% gains over the last year... wild. The only real question here is, inflation, or bubble? Bubble is worse for asset holders, better for “savers”

[Kobe]

1. Print and keep 10y bonds down (Reducing rate of loans for mortgages/loans)
2. Let inflation run hot and kill out those over-leveraged companies/borrowers.
3. Continue to keep injecting some funds into the bonds to keep rates from going up quickly.

As I mentioned in the first post.

1. Government wants interest rates low so they print money to keep them low (So there is more demand for loans) - Better to purchase a home with 1% interest rates then 10% Interest rates and more money more demand = higher prices.

2. Government doesn't stop it, it allows those interest rates to increase and the payments for mortgages increase per month, the owner can try to increase rent costs, but they dont care about your interest rate, they care about how much a month they have to pay for rent. If someone can offer it for a lower price they prob have a better chance of renting it out.

Less demand = More supply = Lower prices

3. Government slowly injects FIAT into the bond market to try and have interest rates not spike up, which causes cost of goods (Money in circulation) to increase at a slower rate then if u try to maintain the current rate of 1.7% and buy all the bonds to not let the rates go up and still get some people to take out loans as interest rates are still good long-term for them. which I think will create a gap as wages will remain the same but prices will increase.

A mix of both.

The Fed now doesn't know what they should do but they would rather inflation rather then deflation. But causing deflation has a shitload of jobs being lost (most corportations borrow money) if they go under jobs get lost.

- - - Updated - - -

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Yeah, you’ve lost me again...

Less people being able to afford housing means larger rental pool, if you’ve purchased the home already, locking in your debt at low rates as it doubles in value, you’re doing well even if stagnation follows

Doubles you say? That’s crazy! ...well some towns in Ontario are already eclipsing 50% gains over the last year... wild. The only real question here is, inflation, or bubble? Bubble is worse for asset holders, better for “savers”

The housing markets been a bubble for I dunno 30 years?

The question is not inflation or bubble, it's inflation creating a larger bubble or deflation.

[Kobe]

Also to anyone that thinks I'm insane, we are in this situation becuase of 1 small thing.

https://en.wikipedia.org/wiki/Nixon_shock

UNPEGGING THE USD FROM GOLD IN 1973! Allowing those banks to control everything.

I can be wrong here not something i've really researched but the USD is the world reserve currency, if a bank like the ECB (European Central Bank) wants money they get it from the Federal Reserve.
Demand for the USD = Stronger USD
Higher Supply of the USD than demand = Weaker USD

https://www.federalreserve.gov/monet...centtrends.htm

"US printed more money in 1 month than in 2 centuries" Let this sink in for a moment.

https://cointelegraph.com/news/us-pr...-two-centuries

[ercchry]

Alright... let’s try this another way.

Inflation: money is worth less tomorrow than it is today, equities and assets increase in value with this, something that cost $1 now is $2 then, right? Good...

If inflation outpaces wages, money earned is worth less tomorrow than it is today

As money is less valuable, the cost to borrow increases. Increasing the barriers of entry

How do you combat the above?

You borrow today, when rates are low, and your earned dollars are worth the most they ever will be, you acquire the assets to track or outpace inflation, as your labour will not be worth as much

As you have secured that leverage in today’s market, it will carry into the future inflated market, locked in at the low dollar value of today

You now have created wealth, while your labour is worth less, your assets are generating wealth at tomorrow’s inflated values, offsetting your lessening buying power

If you did not do the above, you can now not afford tomorrow what you did today, as your buying power has not kept up to the inflation, you cannot afford to borrow enough to offset the increase in asset value

Bubble:

Temporary... not a 30yr, ever inflating economy. example: China cracks down on the rich, money leaves the country, investing in Canadian RE, creates a frenzy, bidding wars ensue as everyone panics to buy in... Chinese money dries up, world economies have not experienced excessive inflation, prices now drop, current buyers are left holding the bag, defaults on loans increase, further driving down prices triggering a decade long recession

Edit:

Simplification:

At the end of the day it’s all cyclical, inflation, followed by recession, repeat.

Just like anything, buy low, sell high. Load up on asset when cheap and money is easy to borrow, sell when they inflate and it’s cost prohibitive to maintain the leverage (expensive to borrow), survive the next recession with a couple bucks, load up again for the next bout of inflation

[ThePenIsMightier]

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Alright... let’s try this another way.

Inflation: money is worth less tomorrow than it is today, equities and assets increase in value with this, something that cost $1 now is $2 then, right? Good...

If inflation outpaces wages, money earned is worth less tomorrow than it is today

As money is less valuable, the cost to borrow increases. Increasing the barriers of entry

How do you combat the above?

You borrow today, when rates are low, and your earned dollars are worth the most they ever will be, you acquire the assets to track or outpace inflation, as your labour will not be worth as much

As you have secured that leverage in today’s market, it will carry into the future inflated market, locked in at the low dollar value of today

You now have created wealth, while your labour is worth less, your assets are generating wealth at tomorrow’s inflated values, offsetting your lessening buying power

If you did not do the above, you can now not afford tomorrow what you did today, as your buying power has not kept up to the inflation, you cannot afford to borrow enough to offset the increase in asset value

Bubble:

Temporary... not a 30yr, ever inflating economy. example: China cracks down on the rich, money leaves the country, investing in Canadian RE, creates a frenzy, bidding wars ensue as everyone panics to buy in... Chinese money dries up, world economies have not experienced excessive inflation, prices now drop, current buyers are left holding the bag, defaults on loans increase, further driving down prices triggering a decade long recession

Edit:

Simplification:

At the end of the day it’s all cyclical, inflation, followed by recession, repeat.

Just like anything, buy low, sell high. Load up on asset when cheap and money is easy to borrow, sell when they inflate and it’s cost prohibitive to maintain the leverage (expensive to borrow), survive the next recession with a couple bucks, load up again for the next bout of inflation

Also from this it's clear that an example of DEflation is when a steak restaurant was the best way way way back in 2020 but failed to capture the championship the next year. That restaurant now goes from irrefutably the best to completely sucking rancid cock in the short term of a mere 12 months.
Such an example would clearly be Modern Steak. Just because you heard at length that it was the best in 2020 doesn't make it so in 2021. From the best, to inedible poison.
It's simple deflation.

[Kobe]

As money is less valuable, the cost to borrow increases. Increasing the barriers of entry

Value money has nothing to do with the cost of borrowing

Cost of borrowing = Interest rates
Money value = Inflation

Other then that yes I agree with the statement but your creating it under the assumption we
1. Never go into a deflationary stage
2. This is sustainable. (As in 1 salary was enough not 2 barely pays the bills)
3. Assets will continue to always go up (homes, stocks, investments) - If we look at Japan we know this is not true, Stock market was higher in 1990 then it is now)

Venezuela can also be used as a good example of the opposite side - their investments (stonks) went up like 1000% in a month, but inflation went up 2,000% in that month (It was much worse i don't have the real numbers by me)

The argument is then, we will never do what Venezuela did it was corrupt. Which is true but it happened from printing trillions of dollars to benefit their economy devaluing their currency and causing inflation.


How do you combat the above? - Simple don't put yourself in this place from the start, if the dollar was pegged to Gold like it was in (Britian went bankrupt cause of WW1 and WW2) but they never unpegged their currency from gold to avoid this situation.

You also assume that anyone can get a loan (sure the easier it is the more loans the higher the prices) And why we get back to the article "Bank regulator proposes higher mortgage stress test level, making it harder to qualify for home loan"

If they get scared of people defaulting the interest rate goes up, the goal now is to keep it down.

Regarding china - How they need to get money out of their economy since it's being cracked down on, Bonds are the safest investment for investors, ROI isn't as high as stocks (And this is why in theory they should go in opposite directions (The stock market follows bonds)

Bonds go down = Stocks go up
Bonds go up = stocks go down.

And your bubble statement is 100% accurate -

"investing in Canadian RE" - Which causes the price to increase (More demand)

"buyers are left holding the bag" - And this is the problem if it is to explode.

This is how i see it.

Air in a bubble and you poke a hole in it so it starts to deflat, but you don't want it to get deflat so you inject more air into it to keep it going.

Air = Fiat Money
Bubble = Economy
Hole = Covid / Housing crash, Dotcom bubble, etc.

The end end result of it is. "Buyers are let holding the bag"

When it explodes I don't know, but have been in a bubble for some time now and this is why the wealth is in the baby boomers.

They were able to buy homes for cheaper, their purchasing power was much greater, and now they profit as you mentioned

"As you have secured that leverage in today’s market, it will carry into the future inflated market, locked in at the low dollar value of today" (Interest rates might of been higher at the time, but it was much easier to save as well and prices were ALOT lower)

And for your final statement, this is why the IMF was created when Bretton Woods was created as well.

International Monetary Fund
Main article: International Monetary Fund
Officially established on 27 December 1945, when the 29 participating countries at the conference of Bretton Woods signed its Articles of Agreement, the IMF was to be the keeper of the rules and the main instrument of public international management. The Fund commenced its financial operations on 1 March 1947. IMF approval was necessary for any change in exchange rates in excess of 10%. It advised countries on policies affecting the monetary system and lent reserve currencies to nations that had incurred balance of payment debts.

Formal regimes
The Bretton Woods Conference led to the establishment of the IMF and the IBRD (now the World Bank), which remain powerful forces in the world economy as of the 2020s.

The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system.

If the USD was to fail at any point the IMF was to take over. (This globlization thing you hear a lot now)

Other people again will have different views if unpegging the USD from gold was good or bad but we would not be where we are with technology right now without doing it, prob would of taken like another 50-100 years to get to the point we are, but it's also created a lot of issues going into the future.

[ExtraSlow]

Buncha fuckin economists up in here. On a related note, Mark Carney is in town this week meeting influential business leaders. I don't trust him, but I especially don't trust y'all.

[ercchry]

Yeah, maybe “less valuable” is the wrong word, but the message still got there

[Kobe]

This might let you understand the point we might be approaching.. (This video is from 2013, when most people thought the economy is booming)



Highly recommend you watch this to get an understanding of what is going on, how we got to this point.

Also if you get much more curious about the Debt cycles (This is not the first time, only the first time in our lives)

There is a free Book by ray dalio which you could read, I'd recommend looking into it.

https://www.principles.com/

[vengie]

Good.
People are still dead set on buying shit they can't afford.