- cross-posted to:
- hackernews@derp.foo
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- hackernews@derp.foo
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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.
I’m sure there’s an argument to be made about not buying things you can’t afford
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?
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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.
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.
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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.
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.
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.
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.
I really don’t get this at all.
On one hand, I get that inflation is just the expression of the supply/demand curve and that increasing interest rates makes it more expensive to borrow money and therefore lessens demand and should, theoretically drop inflation.
But…
Anyone with half a brain knows that this round of inflation wasn’t caused by overheated demand. It was driven by supply chain issues caused by the pandemic, avian flu, climate change and the Ukraine war. The price of oil alone drove much of the inflation numbers, both directly and indirectly by increasing the cost of production and shipping of other goods.
Does anyone at the BOC seriously think that 10%+ inflation in groceries was caused by overheated demand? Do they seriously think that people should be buying less food to lower grocery demand and reduce prices? Do they think that people will?
Does anyone think that the 6-12 month waits for a new car that are typical now is because gazillions of people are suddenly wanting to buy all at the same time? OK, there probably is pent up demand due to the fact that virtually no new cars were available during the pandemic, and lots of people want EV cars now, but the truth is that availability is way down compared to pre-pandemic times.
I see talking heads from the finance sector on TV all the time saying stuff like, “We need to tame an overheated economy…”. DO WE? And then claiming that the interest rate hikes are working because inflation has come down. Yeah, right. Far more likely is that the supply chain issues are getting resolved, and supplies are increasing.
The truth is that the BOC has only one knob that they can turn, and that’s the interest rates. So they’re going to turn it. And the prevailing wisdom says that it takes close to 18 months for interest rates hikes to have an impact. So the downturn in inflation that started at the beginning of the year has virtually NOTHING to do with the big jump in rates that happened last spring.
As to that 18 month lag, it’s probably even longer this time around because of the mortgage situation in Canada. Those people with huge mortgages have, to large degree, 5 year terms. So a comparatively small number of those people have had to renew under the new rates. And even if rates start to come back down next year, we’re still going to see an increasing proportion of those mortgagees get hit with huge increases to their payments. And that’s going to suck money out of the economy - big time. Are those people already tightening their belts, before they renew? Probably to some extent, but there’s nothing like seeing an extra $2K-3K come out of your bank account each month to make it real.
Certainly some of inflation is caused by a decade of rock bottom rates. Our real estate bubble is probably partially caused by this
Ultimately, the BOC has a mandate to fight inflation, and very few levers to use. They cannot fix the supply chain issues, but they can quash demand, so that is what they will do
but they can quash demand
Can they? Remember, it is interest costs that are driving inflation.
The mortgage interest cost index (+29.9%) remained the largest contributor to the year-over-year CPI increase. Excluding mortgage interest cost, the CPI rose 2.5% in May
https://www150.statcan.gc.ca/n1/daily-quotidien/230627/dq230627a-eng.htm?indid=3665-1&indgeo=0
We’ve entered this interesting feedback loop where the higher the interest rates go, the higher the interest costs go, the higher inflation goes, the cheaper it becomes to service debt (debts shrink in an inflationary environment), the more compelling it is to carry such debt, the higher the interest rates go, the higher the…
While it is incorrect to say that the BoC only has one lever, it is true that they have few tools to work with. It is unlikely that any of their tools are appropriate for the situation we face now. Raising interest rates certainly won’t solve the problem – it is the problem.
When your only tool is a hammer then everything is a nail.
I think this is the issue we are seeing aroumd the world now: central banks have the mission to keep inflation around 2% and the only tool the have is the amount of money they are creating, aka the interest rate.
So even if inflation is caused by external factors the central banks are still trying to bring it down to 2% by using the only tool they have.
are still trying to bring it down to 2% by using the only tool they have.
Funny thing is that inflation is, excluding mortgage costs, 2.5% YoY, which is within the target range. The tool they are wielding is specifically what is causing high inflation.
QED
Reminder that it’s actually good to have an appreciable interest rate should a recession ever come. That was pretty sketchy during the '10s, if another big bank had gone belly up there would have been no way to juice the markets.
It super sucks if you have floating rate debt, though.
Content Reduced By 79%
The Bank of Canada raised its benchmark interest rate by 25 basis points on Wednesday, marking the first time since April 2001 that the figure hit five per cent. Some of the country’s biggest lenders, including the Royal Bank of Canada, CIBC, Bank of Montreal and TD Bank, have already announced that they will match their increase effective Thursday to align with that of the central bank’s. Could be mid-2025 before bank hits inflation target Wednesday’s rate hike marks the 10th by the central bank since March 2022. During a mid-morning news conference on Wednesday, Bank of Canada governor Tiff Macklem said the bank expects inflation to ease but that it could take until the middle of 2025 to hit its two per cent target. “We’ve been clear about the indicators we are watching, and it’s clearly too early to be talking about interest rate cuts,” Macklem said, adding it’s also too soon to tell how much impact the rate increases are having. Having started on a fixed mortgage, she switched to a new bank and took on a variable rate about a year-and-a-half ago - before the Bank of Canada began its quest to tame an overheated economy with a series of interest rate hikes. Bonnal questioned why the bank would continue to raise interest rates when inflation is close to its target range - and given that the impact of rate hikes can sometimes take more than a year to appear in the economy.
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Good bot
I’m a little confused on the BoC’s decision-making here. Don’t interest rate changes take ~12 months to permeate the market? It’s like these rate changes are being fired from a machine gun, won’t this lead to an over-correction in achieving inflation targets?
BoC is helping rich people and corporations with their wealth transfer as regular people who bought in the last 3 years will be forced to sell their house to someone else so they can rent it at a higher price than their mortgage was while losing their asset.
Please start to get loud about this.
REITS need to be banned. People owning multiple homes should face a heavy tax that only increases with each property you hoard. Fuck this noise.
I agree with you. Maybe I’m wrong, but people who own even one home are an older demographic that votes in significant numbers. I feel like the fact that no federal party is seriously talking about fixing the housing issue is a reflection of that.
Sadly the situation will get way worse for millennials and gen z, who are already dealing with bad wages, eye watering tuition rates and a depressing job market. My dad was frugal, but earned 2 university degrees, bought a house and two cars while working as a lifeguard and then a teacher. Today, that would not be possible. Right now, students taking education in post secondary (& probably working a job or two to pay for it) are likely to graduate with crippling debt, and aren’t even certain to get a job in their field. Sad state of affairs.
Especially when you consider that interest costs are what is now driving inflation:
The mortgage interest cost index (+29.9%) remained the largest contributor to the year-over-year CPI increase. Excluding mortgage interest cost, the CPI rose 2.5% in May
https://www150.statcan.gc.ca/n1/daily-quotidien/230627/dq230627a-eng.htm?indid=3665-1&indgeo=0
When the BoC kept rates steady, indicators (such as housing price) started inflating again. I think their concern is that the leading indicators (e.g. job growth and employment) haven’t started to fall.
Most of the media I’ve seen says it takes 12-18 months for the effects of interest rate changes to kick in. So yeah, it seems rapid fire.
Overall I feel that’s their idea. Aggressive rate hikes in quick succession slows down the red hot economy quickly, but also creates an air of uncertainty. This causes corporations to panic and start thinking about pausing promotions and even begin layoffs. And we all know, the best way to reduce inflation and slow down an economy is to have more unemployed and poor people. The government knows that as long as companies keep paying people a lot of money, people gonna a keep buying shit.
Who’s getting paid a lot of money? I was under the impression everyone’s been getting paid shit for the past 30 years and things keep getting more expensive.
By everyone, I think you mean at the lower end of the pay Spectrum. Minimum wage hasn’t kept up for the past 30 years, but as you climb higher, the pay has certainly skyrocketed. And it’s these people that drive up the cost of housing. If everyone was being paid like shit, house prices wouldn’t have skyrocketed.
In 1980, a person making minimum wage could afford a house and a CEO coukd afford 5 houses. Today, minimum wage makers can afford 0 houses, while the CEO can afford 20. On average, house buying capacity has gone up Imo. It’s just the split that fucks over the poor people.
Mortgage rates in Canada were running over 15% in 1980 and peaked at near 22% in 1981. Minimum wage was about $3.25 depending on province, about $11.76/hr in today’s money. They weren’t buying houses. A lot of people were absolutely slammed if they had to renew their previous 11-13% mortgage at 22%.
There’s a bunch of other factors involved too. Median house size has doubled since 1970 (1200sq ft to 2600 sq ft), restrictive zoning and forcing contractors to also develop single use subdivisions puts their costs up, and promoted higher margin developments. Also, the feds and provinces have drastically reduced the construction of public housing.
Interesting stats. I just really hope to one day be able to buy a small home with a little garage and a workshop for tinkering. Maybe the sun has set on that opportunity in this country and I’ll be crammed into some sort of post apocalyptic japanese pod hotel in a neighborhood that looks like district 9. Federal political parties plz halp.
it’s not even CEOs as a class. It’s a tiny percentage of the CEOs of the largest companies, and even the richest Canadian CEOs are chump change compared to the “globally wealthy” that have real power. The richest Canadians, who don’t work as CEOs, aren’t in the top 2000 global wealth.
CEO is a job. Rich people don’t have jobs. They make their money by being rich, raking it in under ALL economic scenarios.
Mortgage rates in Canada were running over 15% in 1980 and peaked at near 22% in 1981. Minimum wage was about $3.25 depending on province, about $11.76/hr in today’s money. They weren’t buying houses. A lot of people were absolutely slammed if they had to renew their previous 11-13% mortgage at 22%.
There’s a bunch of other factors involved too. Median house size has doubled since 1970 (1200sq ft to 2600 sq ft), restrictive zoning and forcing contractors to also develop single use subdivisions puts their costs up, and promoted higher margin developments. Also, the feds and provinces have drastically reduced the construction of public housing.
Buckle up as we’re in for a ride. Thankfully this will only impact those who bought in the last 5~ years. Pricing before then was much more reasonable and should be able to absorbed.
Yup. I bought during the slight slump in 2019 and intentionally cheaper than I could afford so I’m still alright. Some folks I know bought at the peak 21-22 and spent all they got on mortgages under 1.5%. I don’t dare ask how they’re doing.
I’m concerned the BoC is eating gummies for the first time. Me thinks they should increase lead times with each subsequent rate hike, lest the compound impact hits all at once, which it already will. I’m wondering if this is all going to slam into a wall, forcing them to rapidly and dramatically slash rates.
Diamond hands on variable rate hoping for exactly this to happen so I can lock in when they do slash lol
Godspeed to you - I hope you’re not feeling regarded in a couple of years
I want to get off Mr. Macklem’s wild ride
Remember this expert said it was transiatory inflation. Nothing to be worried about. 3.5 bump later and likely more to come.
No idea how he gets to keep his job. I would be sent out the fucking door if I got something so wrong.
This is gonna be painful
@AutoTLDR@lemmy.world
Damn, will they stop?
Yo, I don’t know
Turn off the lights and I’ll glow!
To the extreme I rock a hike like a vandal.
