- Joined
- Aug 22, 2008
- Messages
- 428
-At least four times last week I was contacted by a young reporter from the Globe and Mail who told me he was writing a story about the coming of 40-year mortgages to Canada. He had heard I’d been the only MP to object to changes in the regulation of mortgages when they were proposed, then passed, by the Harper government in 2006. Why, he wondered? You can read his story here. It is compelling evidence Jim Flaherty was instrumental in destroying the Canadian residential real estate market, allowing a sudden drop in lending standards to turn a healthy and strong housing market into an unsustainable bubble.-Two years ago I went public about the potential chaos that would ensue from allowing borrowers to extend repayment periods from 25 years to 40 years, and also sanctioning zero-down real estate transactions. After all, it was very clear that allowing people who had no money to buy houses would end badly. In addition, 40-year amortizations did nothing but drop monthly payments and let people borrow more on the same income. That fuelled higher real estate prices, and quickened the death spiral of debt.-One year ago, in December 2007, I sat and wrote the book, “Greater Fool” which spelled out in detail my problem with these Canadian subprime mortgages, and predicted the outcome – a US-style real estate contagion which would sweep Canada. Unfortunately, I was right. It is now infecting every city. It will grow more virulent as the economy weakens and unemployment spreads. By the time the real estate market bottom in perhaps a year, maybe longer, values will have dropped by up to a third more.-the advent of Canadian subprimes started almost immediately with the election of Stephen Harper. In Flaherty’s first budget, the way was paved for a relaxation of lending standards which would contain the seeds of disaster. At the time I raised the reality of the rapidly-devolving US housing market and the apparent destruction of the American middle class as a result
-We were told the banks were the strongest in the world, and yet Ottawa found it necessary to give them a $75 billion bailout. Also telling is the fact three of the Big Six – including our largest bank, RBC – are out flogging new stock right now to raise more money, despite a terrible environment on Bay Street
-We were told there’d be no deficit. But there is already. Now the prime minister calls red ink “essential,” and the Parliamentary Budget Officer says we could have a shortfall of up to $14 billion.
-We were told there’d be no recession here. “This is not the United States,” Mr. Harper said pointedly during the election. But now there is, of course.
-We were told the value of our homes would keep on rising, that the US real estate meltdown would pass us by. The Canadian Real Estate Association said this, and bank economists, Canada Mortgage and Housing and most urban real estate boards. But real estate sales have fallen as much as 70% in major cities, and average prices have plunged up to $175,000 in Vancouver, $56,000 in Calgary and $45,000 in Toronto. Buyers are staying home as sellers flood the market, ensuring more price drops.
-We were told Canadians were safe, and our households were far less indebted than those to the south. And yet today the Bank of Canada is raising the awful spectre of widespread anguish, as more and more families face losing their homes. “With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt,” the bank says. If this happens, it adds, so much for Canada’s ‘strong’ banks. “Should this scenario materialize, the banking sector would suffer significant losses from the rising vulnerability in the household sector.”
-It underscores one reality: You’re on your own. This economy’s in very bad shape and there’s worse to come.
http://www.garth.ca/weblog/2008/12/11/guess-what/
-We were told the banks were the strongest in the world, and yet Ottawa found it necessary to give them a $75 billion bailout. Also telling is the fact three of the Big Six – including our largest bank, RBC – are out flogging new stock right now to raise more money, despite a terrible environment on Bay Street
-We were told there’d be no deficit. But there is already. Now the prime minister calls red ink “essential,” and the Parliamentary Budget Officer says we could have a shortfall of up to $14 billion.
-We were told there’d be no recession here. “This is not the United States,” Mr. Harper said pointedly during the election. But now there is, of course.
-We were told the value of our homes would keep on rising, that the US real estate meltdown would pass us by. The Canadian Real Estate Association said this, and bank economists, Canada Mortgage and Housing and most urban real estate boards. But real estate sales have fallen as much as 70% in major cities, and average prices have plunged up to $175,000 in Vancouver, $56,000 in Calgary and $45,000 in Toronto. Buyers are staying home as sellers flood the market, ensuring more price drops.
-We were told Canadians were safe, and our households were far less indebted than those to the south. And yet today the Bank of Canada is raising the awful spectre of widespread anguish, as more and more families face losing their homes. “With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt,” the bank says. If this happens, it adds, so much for Canada’s ‘strong’ banks. “Should this scenario materialize, the banking sector would suffer significant losses from the rising vulnerability in the household sector.”
-It underscores one reality: You’re on your own. This economy’s in very bad shape and there’s worse to come.
http://www.garth.ca/weblog/2008/12/11/guess-what/
