5 ms·

The much bigger problem is that home prices are going down, rapidly, and that's leveraged. Prices are down 16% in Toronto [1]. On the average 5:1 leverage - tha

The much bigger problem is that home prices are going down, rapidly, and that's leveraged. Prices are down 16% in Toronto [1]. On the average 5:1 leverage - that's down 80% - anyone who bought in the last 1 year (a record number of buyers) is looking at steep loses. Combine that with the fact that Canadians - like Americans pre-2008 - increasingly finance their lifestyles with HELOCs [2]. It looks like Australia and Canada might get their financial crisis they averted by kicking the can down the road in 2008. [1] https://www.bloomberg.com/news/articles/2022-09-02/toronto-home-prices-drop-16-in-historic-five-month-correction https://www.bloomberg.com/news/articles/2022-09-02/toronto-h... [2] https://www.mpamag.com/ca/specialty/specialized-lending/how-is-canadas-heloc-debt-burden-shaping-up/411187#:~:text=Canadian%20home%20equity%20line%20of,%25%20monthly%20and%201.8%25%20annually https://www.mpamag.com/ca/specialty/specialized-lending/how-....

jbay808 4y ago
Another interesting twist is that mortgage interest is counted towards the CPI in Canada, so the increase in mortgage payments won't result directly in any loss of consumption demand. It may even increase it.
- deleted 4y ago
  [deleted]
dangerboysteve 4y ago
This, forget the mortgages, it's the HLOCs that are the issue, people using them to finance lifestyle, renovations, investment and buy more real estate. example: https://twitter.com/ronmortgageguy/status/1567551185095368704 https://twitter.com/ronmortgageguy/status/156755118509536870...
AzzieElbab 4y ago
I do not think you can get much financing from HELOC if you are a new buyer. Not enough equity yet. But even without HELOC new buyers are going under
- itsoktocry 4y ago
  This is true, but the point is it isn't only new homeowners getting harmed. It's also old homeowners financing lifestyles on margin.
refurb 4y ago
Exactly. Leverage works both ways. People who bought in the last 12 months in Canada May be underwater on their mortgages very soon. And unlike the US, they can’t lock in payments for 30 years, so there is a potential they’re underwater and see a massive increase in monthly payments when they renew.

jbay808 4y ago

Another interesting twist is that mortgage interest is counted towards the CPI in Canada, so the increase in mortgage payments won't result directly in any loss of consumption demand. It may even increase it.

deleted 4y ago
[deleted]

dangerboysteve 4y ago

This, forget the mortgages, it's the HLOCs that are the issue, people using them to finance lifestyle, renovations, investment and buy more real estate. example: https://twitter.com/ronmortgageguy/status/1567551185095368704 https://twitter.com/ronmortgageguy/status/156755118509536870...

AzzieElbab 4y ago

I do not think you can get much financing from HELOC if you are a new buyer. Not enough equity yet. But even without HELOC new buyers are going under

itsoktocry 4y ago
This is true, but the point is it isn't only new homeowners getting harmed. It's also old homeowners financing lifestyles on margin.

refurb 4y ago

Exactly. Leverage works both ways. People who bought in the last 12 months in Canada May be underwater on their mortgages very soon. And unlike the US, they can’t lock in payments for 30 years, so there is a potential they’re underwater and see a massive increase in monthly payments when they renew.