Friday, April 27, 2012

Garth takes it to Flaherty- for the record.

The Flaherty and Carney circus act keeps going. They pump and pump and then hope a few stern words will dampen the animal enthusiasm that has driven the biggest Housing bubble in Canada's history.

You remember Canada, the country with the world's second largest land mass.

Well Flaherty is trying to shift the CMHC monster to the OFSI and hope that any bust fall-out falls on them. Here's what Garth had to say: (I agree with him 100% BTW)

It might have been F’s finest hour to date. The man who brought us government-insured 0%-down mortgages. The guy who invented lifetime amortizations. The dude who, for three long years, refused to let the B-word depart his lips. The elfin protector of the real estate industrial complex. Amen, brother Flaherty. Have you finally repented? Does it matter anymore?

Of course, what could be more unfavourable, unforeseen or shocking than F?
So, here’s what he did. As I told you a month ago just before the federal budget was unveiled, the little pecker knows the real estate market is on borrowed time and our debt binge must be corralled, but he doesn’t want the spray. That’s why the plan was always to shove the blame on the bureaucrats and regulators. And it’s happened.
The budget implementation bill tabled this week will make mortgages more expensive and harder to get. It slaps CMHC around and puts the whole home lending business under the thumb of OSFI – the bank cop regulator with the Tommy Lee Jones swagger. No longer will CMHC slop around as a thinly-controlled quasi-department of the government, with a board of directors that might as well be running HGTV. As befits the stature of a financial behemoth with a balance sheet the size of the national debt, this agency will now be stress tested, microscoped and regularly reamed.
Gone is government-backed insurance for mortgages the banks use to back their covered bonds. That means their borrowing costs will rise, and so will mortgages – by about .15% very soon. More later. This is deliberate – a way for F to bump lending costs and cool housing without jacking up interest rates in general and knifing the economy.
This tightening in mortgage funding for the banks will likely make it harder for people without money, the self-employed or misguided property virgins to get financing. As one risk-management guy said after hearing the news:  “It will have the beneficial effect of preventing the most vulnerable borrowers from getting access to mortgages, so these people will have to wait longer to get into the game.”
See the irony? Here’s the father of the 0%-down, 40-year am, government-backed mortgage. The chief money guy of a government which brought in a home-buying tax credit and bloated the RSP Home Buyer’s Plan for first-timers. Now scrambling to chill the market through the back door.
Nobody is more responsible for houses in Toronto, Vancouver, Saskatoon, Calgary or Winnipeg that people can no longer afford, than F.  He’s the architect of the family debt he decries. Now that detached homes cost a million, while incomes trail inflation, he lectures us. How weak and disappointing.


  1. Fish,

    Will this really be a big deal? Garth is the one who always talks like Tommy Lee! 0.15%? Really? And first OFSI has to here from the banking/mortgage lobby group who can exert pressure on government to mitigate the powers of any changes they want to put through? Dunno.

    Do you personally believe this is the beginning of responsible lending in Canada? Does it even matter to HAM? Read all the comments section on Rabidoux's blog from all the mortgage brokers and appraisers. They don't think it will amount to squat. Plus there are a crap load of gov't incentives to entice home buying in BC.

    It's completely schizophrenic unless you consider that the plan is to keep home buying going almost-full steam but just kick out those at the bottom with poor credit scores, low-paying jobs, etc. And that means just another step in Vancouver's journey to Resortdom.

    1. egghead, you sound like my dad. LOL
      Since they came to power, they have been talking from both sides of their mouth, and their visions, words and actions are going off in different directions.

      "When thoughts are different, words are different and actions are different, you have the characteristics of a demon, not of a saint." - Sai Baba Gita

  2. You are probably right Egg. It will be more drums and smoke and very little action.

    however every little bit helps :)

    The HAM couuld care less, as long as we give them a way to export their hot money, over-paying 10% , 20% means nothing when they could have lost 100% of it at home.

    However for the rest of us, the word is getting out that the CMHc is a monster that could crush us all, and everyone is saying it is badly run and a danger to our fiscal health.

    As Garth said this board should have been on HGTV not running a $600 Billion insurance company (which BTW would make it one the biggest insurers in the world)

    1. HAM is a very small part of our market. I think the effects of this will be quite real. The reason F moved this out of political control is specifically because the changes will upset a lot of people and he doesn't want to take the blame.

    2. The number of HAM-sters may be less than 10k, but the billion dollar laundromat is huge. Those that did not make it to the HAM-list, brought with them the hoarders mentality, having bought and flipped 5-10 properties each in the past 5-10 years at frenzied overbid prices.

  3. Sai Baba? With the magic feet? Definitely not me.

    1. No one implies that you are :)
      Nevertheless, you summarize the general sentiment well. Mr Big-ender .. er Little-ender.
      Please keep your thoughts coming; I appreciate them and fish's too.

  4. Fish,

    Garth has just quoted Flaherty saying tis:

    “I also talk to developers, and I hear from some of them who are in the business of building condos that they don’t really have a plan, they’re just going to keep building them until people stop buying them. It’s not exactly a fiscal plan. It will lead to a crash. I do worry about the last person buying a condo in Toronto, and people getting caught.”

    I am not happy about this. I feel we need at least another year of developers in Vancouver building specifically for the speculative Asian market for the crash to really hit hard. I am hoping the Rennie's and Good's can keep this thing going. We need no big moves right now and big, big moves later on.

    For instance, I personally fantasize of a scenario 18 months hence, where builders have kept on building, downtown condo sales stagnate as they have this year, shadow inventory dampens the resurgent claims of US house price increases and/or the US housing recovery continues and Bernake starts to raise interest rates feeling it's safe, which then dampens sales and BAM! Chinese house prices really head South, major developers go bankrupt and the Chinese shark loan scheme collapses.

    I wan't my condo frenzy slowdown when all those stars align and not a moment before!

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