I’m sure there’s an argument to be made about not buying things you can’t afford, but looking at the graph in that article, people are going to get fucked on mortgage renewals. Anyone that locked in for 3/4/5 years are going to be renewing between now and the next couple of years and going from BOC rate of 0.25% to 5% or more is going to hurt.
Someone I know is looking at renewing their mortgage in the next couple of months and they’re already looking at a jump from 3% to >6%.
In 2020 I locked in at 1.79%. 2025 is going to be about a 1.5k mortage payment hike if things stay the same. Luckily I moved to a cheaper area and reduced my mortage and will be paying extra for the next 2 years. Even with all that this is gonna hurt!
At the same time banks get more cautious about who they lend to. If you’re rich and a cash buyer is great as you can snap up a few houses at discount to add to your portfolio. Normal people, not so great.
All those people have to live somewhere. Or there will be a massive increase in homelessness.
With a flood of houses on the market, they will snapped up by… people with a good cash flow… like… corporations. Who will then turn around and rent them out to you and me and all those people forced out of their homes… at whatever rental rate they desire… while raking in the cash.
I assume you can’t afford a house now and couldn’t afford a house when rates were as low as 1%. Even if a house is foreclosed on and dramatically drops in price, do you think you will actually be able to pony up and pay a downpayment and manage a mortgage rate at say… 8 percent? I seriously doubt it. A $1.8 million home (at today’s valuation) isn’t going to pop onto the market at $150,000 in 2 years when the renewal hits.
The reality is that the banks will do whatever they can to keep people in their houses. I checked my bank today to estimate what my mortgage renewal will look like when it comes up and they are offering mortgage terms up to 59 years. I can afford my renewal even at the new rate because I bought a bit over at 1/3rd of what they approved me for… I knew rates would go up, and I knew what I could afford at more typical rates. I’d rather pay the lower rates of course… but…
Maybe more homeowners should care about the rental situation, if home ownership is such a risk to lose.
By this, I mean people should stop lobbying against new housing being built. People should start caring when renters begin to get screwed over in new ways. The number of renters is going to keep going up unless we hit a solid population hiatus. “Wait and see” just doesn’t work with this.
Too many people have the mindset of “f you, I got mine”, without looking beyond their own nose. Many of those people don’t realize how close they are to being in a renter position themselves. Demotions, firings, unexpected disabilities, illnesses, fires, deaths, etc. don’t just wait around until you can afford them. Those things don’t care if you’ve had a bad year, or if you’re the breadwinner of your household.
You or I could suddenly wake up one day and have a stroke. Everyone seems to ignore that as if it’s something that only happens to other people.
Many (most?) people who lobby against particular developments are not against building homes, but are pro-new housing. Paving over food-producing greenbelt areas for McMansions or building 50 story condo resort towers to sit mostly empty will not fix the housing crisis. Nimbys who fight a 4 story affordable apartment building in their neighborhood -yeah, I agree 100% with you.
If my family of four can live cramped inside a one bedroom apartment for years, then overleveraged folks can downsize from the large houses they bought during the pandemic. And, if nothing else, it will feel a little like justice.
That’s not the discussion here though. It was about how the sharp rise in interest rates will flood the market with foreclosed homes… somehow making it magically affordable for people who couldn’t afford a house at the low interest rates.
And now your family of four in your cramped apartment will be competing with a LOT more people for that same number of cramped spaces… supply/demand… it’s going to hurt EVERYONE not just the overleveraged. Meanwhile corporate housing companies will be playing Scrooge McDuck.
I don’t know who is downvoting you because you are completely right.
At the same time, I am delighted at the idea of a bunch of speculators being stressed out and losing a ton of the money they obtained while making housing unaffordable for everybody else.
Housing can be affordable or it can be a good investment. It can’t be both, and it is time it starts being the former.
I don’t know who is downvoting you because you are completely right.
There’s a contingent of jaded people who just want to see slightly better-off middle-class people punished for taking any risk in buying their house, rather than actually seeing the housing market become more affordable for everyone. There’s always someone celebrating the upcoming foreclosures.
Or with a large downpayment. People that bought within or below their means might be well within the position to upgrade using their savings. After all, high interest rates are good for those savings.
I think Canadian mortgage holders are woefully uninformed overall.
Nobody helps them choose an efficient bid price for a house, nobody explains the downside risk of variable mortgages, nobody shows them historic rates or real prices.
We just assume the banks and brokers who look at their household income and down payment amount are doing a good job selecting the right risk level for homeowners, but they really only are incentivized to make a sale (and CMHC and insurance will cover the risks).
The housing market is horribly inefficient and all incentives are to keep it that way, otherwise the unwinding of value would devastate our economy. I’m not trying to ape Micheal Burry or anything like that, my experience buying a house was just eye opening because of how poorly informed buyers are.
The banks, the Realtors and the corpos waiting to turn my home into a rental love it this way. I have a small mortgage in Atlantic Canada, when I bought my home there was a lot of pressure to shop near the top of my pre-approval , which was around $600,000. But to the dismay of my realtor I held out, was flexible, and ultimately found a place for less than half that amount.
If I had just went with the flow, I’d be house poor and spending near $2500 a month on the mortgage, plus much higher property tax and maintenance. I’d also be staring at a fixed rate renewal of close to $3500 a month, or already seen my payments climb near that with a variable rate (another thing they tried to push me into when rates were impossibly low).
And none of them would care, not the realtor who took his cut, not the lender who collects the interest and can repo the hard asset, not the corpo that will buy the home up on fire sale and rent it back to me.
As it is, I’ve insulated myself from rate increases up to a certain amount. But that was all my doing, nobody else gave a lick to help with that.
Nobody helps [borrowers] choose an efficient bid price for a house, nobody explains the downside risk of variable mortgages, nobody shows them historic rates or real prices.
Borrowers are adults. They are about to sign a pretty important document, so they should do a few hours of research. Maybe take a book out of the library. Perhaps look online.
Figuring out historic interest rates is not hard. StatsCan and a dozen other websites show rates going back to the 1950s.
Determining what you can pay is a matter of budgeting, or saying “I can afford my current rent, so the mortgage, maintenance, and taxes need to cost roughly the same”.
The level of effort is similar to doing taxes. Most people who should qualify for a mortgage can do the homework.
I agree in principal, that’s what I did, but that’s not the norm.
Most people just look at the monthly payments and ask for the lowest interest rate number which is usually variable, and they bid with very little strategy getting emotional and pay more than they have to.
That’s just it. I’m paranoid, so I actually sat down and tried to figure out what would make me go bust, when we bought. It’s always a risk, like you can’t anticipate turns in health, job losses and sudden poorly timed housing market crashes. You just can’t help that sort of stuff, other than saving saving saving. The problem with savings though, is savers have been absolutely punished in this country the last 20 years. High banking fees, super low to no interest earned on savings and erosion due to background inflation have eroded anyone’s interest in saving money. But then these government and public sector folks have the gall to turn around and dare ask us why no one’s saves. Like absolutely go fuck yourselves. The government and the bankers (usually these people are the same) have been fully complicit in causing this situation we are currently in. Their so called regulation is usually far too late, and far too watered down to have any effect.
Anyways I’m a saver nevertheless, so I’m fine for awhile. We also bought well below our means, we got lucky with timing and got in at a good time in our local market. With our current earnings, our mortgage isn’t even 2x our annual HH income. It’s actually barely even 1x. So that means we can take some heat, like I figure I’m good until somewhere in the high 30% interest range, before it starts to become a problem. The yield curve was upside down when we took out our mortgage, so variable mortgages weren’t really on the table anyways, but I still would never have taken one. The past 20 years, they’ve been the winning strategy too, but one just has to know that this can’t last forever. It’s getting pretty stupid. But again, everyone’s been complicit in absolutely pummeling people with conservative financial stances, and whelp, here we are.
Everyone who is currently about to fail to stay afloat passed those stress tests. Staying “within your means” is entirely relative to the borrowing environment. There’s no reason to gloat. You won’t win in this scenario -only cash-flush corporations that can swoop in and convert housing to rentals.
Yep. It’s like this is specifically targeting people who could finally fucking afford to buy homes in their thirties and jumped on it before it was too late. (I know it isn’t actively malicious, but the effects down the line - and let’s just throw in https://lemmy.ca/post/1338829 while we’re at it - are going to be horrendous).
I guess I’m gonna have to pay off as much as I can before the renewal hits.
It was sort of obvious it was too good to last though. When it made sense to pay off your mortgage as slowly as possible because you expected better returns investing that money it means that something is probably wrong.
I think the last 10 years has been too good to last, at least when it came to interest rates.
What I don’t think a lot are anticipating, is this is going to release a torrent wave of shit in about a year or twos time. Imagine all those Vancouver/Toronto folks having to renew at like 6 or 7%. It’s going to wipe a lot of people out. Even the pandemic buyers are probably only a couple years out from their renewals. Hopefully some panic selling takes place to cool off a lot of the markets they pumped up.
Creating sell pressure is a tiny part of the solution. The real problem is supply. We need 10x the current build rate. Zoning laws, out dated transport infrastructure and greedy developers will ensure this remains a decades long problem.
We’re having the exact same issue in the UK. Plus the price of energy pretty much quadrupled.
The era of cheap debt had to come to an end, and before the pandemic the BoE had a plan to gradually raise rates over a 5 year period. Then COVID happened and they dropped rates even lower than they had been before! So rather than a gradual end to the cheap debt era we’ve shoved our foot on the accelerator and gone straight into the wall. With no airbag or seatbelt.
I’m sure there’s an argument to be made about not buying things you can’t afford, but looking at the graph in that article, people are going to get fucked on mortgage renewals. Anyone that locked in for 3/4/5 years are going to be renewing between now and the next couple of years and going from BOC rate of 0.25% to 5% or more is going to hurt.
Someone I know is looking at renewing their mortgage in the next couple of months and they’re already looking at a jump from 3% to >6%.
Haha, I’m in danger!
In 2020 I locked in at 1.79%. 2025 is going to be about a 1.5k mortage payment hike if things stay the same. Luckily I moved to a cheaper area and reduced my mortage and will be paying extra for the next 2 years. Even with all that this is gonna hurt!
I renew next August
RIP me.
Look on the bright side. If enough people default on their loans, I might be able to buy a house one day.
That won’t go on your favour. That will go VERY badly.
Why not? Genuine question. If a bunch of people go under and their houses hit the market, supply increases, homes get cheaper.
At the same time banks get more cautious about who they lend to. If you’re rich and a cash buyer is great as you can snap up a few houses at discount to add to your portfolio. Normal people, not so great.
All those people have to live somewhere. Or there will be a massive increase in homelessness.
With a flood of houses on the market, they will snapped up by… people with a good cash flow… like… corporations. Who will then turn around and rent them out to you and me and all those people forced out of their homes… at whatever rental rate they desire… while raking in the cash.
I assume you can’t afford a house now and couldn’t afford a house when rates were as low as 1%. Even if a house is foreclosed on and dramatically drops in price, do you think you will actually be able to pony up and pay a downpayment and manage a mortgage rate at say… 8 percent? I seriously doubt it. A $1.8 million home (at today’s valuation) isn’t going to pop onto the market at $150,000 in 2 years when the renewal hits.
The reality is that the banks will do whatever they can to keep people in their houses. I checked my bank today to estimate what my mortgage renewal will look like when it comes up and they are offering mortgage terms up to 59 years. I can afford my renewal even at the new rate because I bought a bit over at 1/3rd of what they approved me for… I knew rates would go up, and I knew what I could afford at more typical rates. I’d rather pay the lower rates of course… but…
Maybe more homeowners should care about the rental situation, if home ownership is such a risk to lose.
By this, I mean people should stop lobbying against new housing being built. People should start caring when renters begin to get screwed over in new ways. The number of renters is going to keep going up unless we hit a solid population hiatus. “Wait and see” just doesn’t work with this.
Too many people have the mindset of “f you, I got mine”, without looking beyond their own nose. Many of those people don’t realize how close they are to being in a renter position themselves. Demotions, firings, unexpected disabilities, illnesses, fires, deaths, etc. don’t just wait around until you can afford them. Those things don’t care if you’ve had a bad year, or if you’re the breadwinner of your household.
You or I could suddenly wake up one day and have a stroke. Everyone seems to ignore that as if it’s something that only happens to other people.
Many (most?) people who lobby against particular developments are not against building homes, but are pro-new housing. Paving over food-producing greenbelt areas for McMansions or building 50 story condo resort towers to sit mostly empty will not fix the housing crisis. Nimbys who fight a 4 story affordable apartment building in their neighborhood -yeah, I agree 100% with you.
If my family of four can live cramped inside a one bedroom apartment for years, then overleveraged folks can downsize from the large houses they bought during the pandemic. And, if nothing else, it will feel a little like justice.
That’s not the discussion here though. It was about how the sharp rise in interest rates will flood the market with foreclosed homes… somehow making it magically affordable for people who couldn’t afford a house at the low interest rates.
And now your family of four in your cramped apartment will be competing with a LOT more people for that same number of cramped spaces… supply/demand… it’s going to hurt EVERYONE not just the overleveraged. Meanwhile corporate housing companies will be playing Scrooge McDuck.
I don’t know who is downvoting you because you are completely right.
At the same time, I am delighted at the idea of a bunch of speculators being stressed out and losing a ton of the money they obtained while making housing unaffordable for everybody else.
Housing can be affordable or it can be a good investment. It can’t be both, and it is time it starts being the former.
There’s a contingent of jaded people who just want to see slightly better-off middle-class people punished for taking any risk in buying their house, rather than actually seeing the housing market become more affordable for everyone. There’s always someone celebrating the upcoming foreclosures.
Depends. Maybe OP meant outright.
Or with a large downpayment. People that bought within or below their means might be well within the position to upgrade using their savings. After all, high interest rates are good for those savings.
There is. Taking on a mortgage is a huge risk. Looking at historic rates and saying “can I afford this when rates return to normal?” is important.
The scary part is that OFSI and the feds had to restrain both borrowers and banks by requiring the mortgage stress test is worrying.
I get that some individuals aren’t going to stay within their means, but everyone? And banks too?
I think Canadian mortgage holders are woefully uninformed overall.
Nobody helps them choose an efficient bid price for a house, nobody explains the downside risk of variable mortgages, nobody shows them historic rates or real prices.
We just assume the banks and brokers who look at their household income and down payment amount are doing a good job selecting the right risk level for homeowners, but they really only are incentivized to make a sale (and CMHC and insurance will cover the risks).
The housing market is horribly inefficient and all incentives are to keep it that way, otherwise the unwinding of value would devastate our economy. I’m not trying to ape Micheal Burry or anything like that, my experience buying a house was just eye opening because of how poorly informed buyers are.
The banks, the Realtors and the corpos waiting to turn my home into a rental love it this way. I have a small mortgage in Atlantic Canada, when I bought my home there was a lot of pressure to shop near the top of my pre-approval , which was around $600,000. But to the dismay of my realtor I held out, was flexible, and ultimately found a place for less than half that amount.
If I had just went with the flow, I’d be house poor and spending near $2500 a month on the mortgage, plus much higher property tax and maintenance. I’d also be staring at a fixed rate renewal of close to $3500 a month, or already seen my payments climb near that with a variable rate (another thing they tried to push me into when rates were impossibly low).
And none of them would care, not the realtor who took his cut, not the lender who collects the interest and can repo the hard asset, not the corpo that will buy the home up on fire sale and rent it back to me.
As it is, I’ve insulated myself from rate increases up to a certain amount. But that was all my doing, nobody else gave a lick to help with that.
Everyone involved has a perverse incentive to railroad the buyer into the most expensive house possible. The whole system is rotten.
Borrowers are adults. They are about to sign a pretty important document, so they should do a few hours of research. Maybe take a book out of the library. Perhaps look online.
Figuring out historic interest rates is not hard. StatsCan and a dozen other websites show rates going back to the 1950s.
Determining what you can pay is a matter of budgeting, or saying “I can afford my current rent, so the mortgage, maintenance, and taxes need to cost roughly the same”.
The level of effort is similar to doing taxes. Most people who should qualify for a mortgage can do the homework.
I agree in principal, that’s what I did, but that’s not the norm.
Most people just look at the monthly payments and ask for the lowest interest rate number which is usually variable, and they bid with very little strategy getting emotional and pay more than they have to.
That’s just it. I’m paranoid, so I actually sat down and tried to figure out what would make me go bust, when we bought. It’s always a risk, like you can’t anticipate turns in health, job losses and sudden poorly timed housing market crashes. You just can’t help that sort of stuff, other than saving saving saving. The problem with savings though, is savers have been absolutely punished in this country the last 20 years. High banking fees, super low to no interest earned on savings and erosion due to background inflation have eroded anyone’s interest in saving money. But then these government and public sector folks have the gall to turn around and dare ask us why no one’s saves. Like absolutely go fuck yourselves. The government and the bankers (usually these people are the same) have been fully complicit in causing this situation we are currently in. Their so called regulation is usually far too late, and far too watered down to have any effect.
Anyways I’m a saver nevertheless, so I’m fine for awhile. We also bought well below our means, we got lucky with timing and got in at a good time in our local market. With our current earnings, our mortgage isn’t even 2x our annual HH income. It’s actually barely even 1x. So that means we can take some heat, like I figure I’m good until somewhere in the high 30% interest range, before it starts to become a problem. The yield curve was upside down when we took out our mortgage, so variable mortgages weren’t really on the table anyways, but I still would never have taken one. The past 20 years, they’ve been the winning strategy too, but one just has to know that this can’t last forever. It’s getting pretty stupid. But again, everyone’s been complicit in absolutely pummeling people with conservative financial stances, and whelp, here we are.
Everyone who is currently about to fail to stay afloat passed those stress tests. Staying “within your means” is entirely relative to the borrowing environment. There’s no reason to gloat. You won’t win in this scenario -only cash-flush corporations that can swoop in and convert housing to rentals.
Yep. It’s like this is specifically targeting people who could finally fucking afford to buy homes in their thirties and jumped on it before it was too late. (I know it isn’t actively malicious, but the effects down the line - and let’s just throw in https://lemmy.ca/post/1338829 while we’re at it - are going to be horrendous).
Fml. That’s me!
Me too thanks.
I guess I’m gonna have to pay off as much as I can before the renewal hits.
It was sort of obvious it was too good to last though. When it made sense to pay off your mortgage as slowly as possible because you expected better returns investing that money it means that something is probably wrong.
I think the last 10 years has been too good to last, at least when it came to interest rates.
What I don’t think a lot are anticipating, is this is going to release a torrent wave of shit in about a year or twos time. Imagine all those Vancouver/Toronto folks having to renew at like 6 or 7%. It’s going to wipe a lot of people out. Even the pandemic buyers are probably only a couple years out from their renewals. Hopefully some panic selling takes place to cool off a lot of the markets they pumped up.
RIP in peace 😔
Corporate investors can’t wait for you to default on your mortgage! They can scoop up all these discounted properties and rent it back to you.
The UK has gone through something like this. I went from 2% to 5% earlier this year.
I think that’s the intent right? How else are property values going to stop skyrocketing if no one is under any sell pressure?
Creating sell pressure is a tiny part of the solution. The real problem is supply. We need 10x the current build rate. Zoning laws, out dated transport infrastructure and greedy developers will ensure this remains a decades long problem.
We’re having the exact same issue in the UK. Plus the price of energy pretty much quadrupled.
The era of cheap debt had to come to an end, and before the pandemic the BoE had a plan to gradually raise rates over a 5 year period. Then COVID happened and they dropped rates even lower than they had been before! So rather than a gradual end to the cheap debt era we’ve shoved our foot on the accelerator and gone straight into the wall. With no airbag or seatbelt.
I wonder if home insurance claims are also increasing?
Why would they be increasing? The insurance company rebuilds the house as it was before, they don’t pay you cash.