Comment by mabbo | Hacker News Reader

Comment by mabbo | Hacker News Reader

It will be interesting to see what happens to the housing market.

Mortgages in Canada have to be renewed every 2-5 years. Rates renegotiated. There have been rumblings for years that there are a huge number of homeowners who would be unable to pay their mortgage with a 1% increase in rates. Now we've seen rates go from 1.9% to 5.4% in a year, with more rises to come.

All the while, we've had a housing bubble going on. My condo at one point had doubled in price from what I bought it for 7 years ago, based on neighbouring units for sale (and sold). And it was already inflated in value back then.

How many homeowners were barely able to afford a $1.5m home[0] 3 years ago at rates of 2%, and are paying $6,300/month, and in the next 6 month will renew their mortgage at 5.4% and be unable to afford $9,000/month?

Those houses will go up for sale, and that is how bubbles pop.

[0]What, you think $1.5m is too much for a house? Take a look at realtor.ca and browse most neighbourboods of Toronto. That much won't get you much, for the moment. Also, it's CAD so take 30% off.

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-h...

[2] https://www.mpamag.com/ca/specialty/specialized-lending/how-....

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/156755118509536870...

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.

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

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

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.

>Those houses will go up for sale, and that is how bubbles pop.

maybe. it depends on how much demand is left at higher rates. The prices are up and the rates are up. People and corporations will buy them and rent them out, and renters are at the mercy of the market. They pay or be homeless.

It's not necessarily sure that the bubble will pop if there are enough landlords or investment firms willing to buy the properties whose owners can't afford them. A lot of people refinanced at very low rates quite recently, so it may be years before some of these properties go through the 'crunch' of refinancing.

This is a great run down on the issues.

There are other problems that are going to crop up, the demographics issue in Canada is a big one and we are seeing it in the labour market already

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