Forcing people to have 5% down at these prices will take a lot of people out of the market.

So far CMHC is the only insurer to pull out of 0 down and 40 year amortizations. They were the last insurer to offer the products following AIG and Genworth who still offer both products.

For the time being, some lender's along with CMHC, are no longer underwriting such mortgages, where others are (insured by AIG and Genworth).

Personally I do not see the reasoning behind the governments move other than to "look like their doing something".

What happened in the US was 2 fold:
1. Greed by brokers and lenders
2. Lack of underwriting criteria.

-No credit checks
-Fake job letters/pay stubs (lenders not following up with employers)
-putting people in reverse amortizations, interest only, ARM's (whatever the client needed to qualify for the mortgage)

The brokers did whatever needed to be done to qualify folks for the home and then the lenders funded the mortgages.

My theory behind it all....With prices continuing to rise year after year in the States, lenders thought it would be a win- win for them. Give people mortgages, let them assume the payments for a period of time, allowing the property to increase in value. When they can no longer afford the payments, foreclose, sell the home and make a buck! However they did not take into account the housing market crash...that they helped create by putting those who can not afford a home into a home. Therefore creating a False Economy.

In the states I believe they refered to them as NINJA mortgages.....No Income No Job? A-Ok we'll lend you the money.

All that might be perfectly true, econ101, but in the 'big picture' there's still a vital need to find ways to inject 'new credit' into the economy continuously if the overall rate of business profit is to be maintained at a level sufficent for the continuing amortization of business debt.

The long term mortgage, enabling those who couldn't otherwise afford any home, or, alternately, a home as lavish as the one they bought, filled that need. Even though it only 'deferred' the real problem, rather than ever solving it.

Like ANY economic policy predicated on there being a continuous 'inflation', it is doomed to fail.

Inflation has brought to an end every great civilization where it has taken root and been allowed to flourish. And it will destroy our modern one if we don't begin to properly understand and eliminate it.

The fundamental 'problem' in our modern economy is one of generic 'labour displacement', more particularly, the loss of consumer incomes from that displacement.

If, in the overall economy, consumer incomes are falling in ratio to the ongoing costs of production continuously being impressed into retail prices, then spending from those incomes ('Sales') will also be falling in ratio to the 'expensing' of those costs. Choking off business profit and making the ongoing full amortization of business loans impossible.

A 'housing boom' injects new credit into the economy and closes the gap between 'costs'and consumer 'incomes' sufficient to 'keep things going'. For the time being.

The construction of 'public works', or an 'Olympic games', or military spending, all do the same thing. As does having a war. In each and every case, though, we are loading ourselves up with unrepayable debt. And perpetuating an 'inflation'.

Why not inject the needed 'new credit' directly? Not 'costed' into anything? As a 'debt-free' augmentation to existing consumer incomes, or a replacement for the incomes of those who have been displaced.

If we did this, it could be counter-inflationary, since this 'credit' can be used to LOWER consumer prices through discounts made up by it on sales, preserving the rate of business profit while actually 'crediting' consumers with the ability our combined efforts have brought about in the overall increases of modern productive capacity. It is not hard to do, the necessary information to do it already exists, and the mechanism to do so is largely already in place.

I bought my first home 7 years ago and it was mandatory to have the 5% down, so i don't think this is a change? In fact, for non first time buyers is it not still 10%?

The new mortgage requirements may not have a huge impact on housing sales but in combination of slowing global economy, higher fuel costs($140/barrel), inflation(which undoubtably lead to higher interest rates in near future,tightening of credit, and an uncertain future of forest industry locally there will be a negative impact on housing costs. If the realtor figures it will be better next year I would suggest he take a course in simple economics,for the market to turn around there needs to be a catalyst, I see none until the above issues are under control... I hope sooner than later

eve - no, 0% down has been around for a few years now. RUEZ said it first and nailed it. Now, in PG with the average home price of $242K, that's a $12,000. How many first time buyers (young families, recent grads, etc) are going to have that laying around? Especially when they're budgeting for gas/food prices continuing to rise.

Now, in many markets the avg house price is higher. Take for instance Vancouver at $566,000 (Nov 2007). That's nearly 30K. Arguably of course, Vancouver has one of the highest housing costs.

Much of the current boom in real estate over the past 5 years has been fueled by a combination of cheap/easier to get mortgages and speculation/investment.

Inflation of course, as socredible points out, puts a new variable into the mix.

Finally, I think it's important to realize that it's in the best interest for realtors to promote a stable and increasing housing economy. The last time there was a big price drop many reators lost their job or quit.

A few more thoughts.

On the positive side - Our market in PG hasnt gone thru the roof as it has in other markets, which should mean it doesnt have as far to fall.

I think the move by CMHC, and put in place by CIBC, BMO & ING (others?) direct much sooner than the stipulated date is a step in the right direction. It may put the final nail in the last housing booms coffin, but should help us avoid a repeat of the mess the US is going thru.

A few more thoughts.

On the positive side - Our market in PG hasnt gone thru the roof as it has in other markets, which should mean it doesnt have as far to fall.

I think the move by CMHC, and put in place by CIBC, BMO & ING (others?) direct much sooner than the stipulated date is a step in the right direction. It may put the final nail in the last housing booms coffin, but should help us avoid a repeat of the mess the US is going thru.

oops - sorry for the double post.

"Now, in PG with the average home price of $242K, that's a $12,000. How many first time buyers (young families, recent grads, etc) are going to have that laying around?"

What is wrong with this statement?

People expect too much these days. Instead of living according to their means, they borrow to live beyond their means.

The price identified is an average price. Why on earth would someone who is just starting off after getting a diploma or an undergraduate degree think that they have an average income which can support an average priced house?

The have a starting salary which, if they are frugal, can get them a rental place while they save, or, if they are lucky, a starter house/rowhouses at say $120,000 to $150,000.

On top of that, for those who did that in the past couple of years, those are the houses which had the greatest percentage increase in assessed value.

My parents had to have 10% down as did I. Both lived in rental accommodation till we had enough saved for a down payment.

The amounts we both had to get was proportionately to average incomes at the time was similar to today.

Get rid of cable, get rid of cells, buy a used car, eat primarily at home ..... you would be surprised how quickly one can put together the needed money if one, at the age of 25, does not have the lifestyle one can afford at 40.

In my opinion it would make for a much better society if we preached that mantra to our youth rather than buy, buy, buy.

"On the positive side - Our market in PG hasnt gone thru the roof as it has in other markets, which should mean it doesnt have as far to fall."

Do you realize that the prices here, other than the GTA, are about the same and higher than the prices east of Saskatchewan?

If you cant save 12,000 dollars then you cant afford a house. I am not being mean, just the opposite. If you cant save money, dont buy a house. They cost money and you will lose it all the first time you can't pay the mortgage. It does no one any good to sell people houses they can't afford. Owl is right about the relative ease of saving money and even more so on the expectations of new home owners. Ever notice how small older houses are compared to new ones? I gues our parents didnt expect to start with 2400 square feet....
On the other hand, i am sure it is bad news for those who wanted to buy a home to speculate with... Pity they wont be able to do their share to ramp up house prices in the future.

Thanks for the clarification. :-D

Thanks for the clarification. :-D

Those that 'can't' save the down payment are the ones who really have nothing to lose. They'd be paying rent anyways if they want a roof over their heads, and if they can get into a home with a zero down payment mortgage, and then find they can't make the payments and are foreclosed upon, what have they really lost?

Nothing. They never had anything to lose to begin with. And if the house increases in value due to inflation, they've a hedge against it. They won't really be making money on it, if they sold, (not in terms of what money will 'buy'), but they've at least stayed even.

If they were renting and saving over the same period they've lost the rent, and the escallation in house prices from inflation has negated the purchasing power of their savings.

As regards to 'saving' money, Owl and Caranmacil are right. If your intent is to 'save' and you set your mind to it, you will save. We had a near 50% down payment saved up for our first home, and by frugal living and an open mortgage, paid the balance off in a little over three years. We did so because our upbringing conditioned both my wife and I to have a horror of being in debt. We didn't, and don't, live beyond our means.

But again, if we were to look at that 'big picture', where would our modern economy be if everyone attempted to do the same thing? Quite probably we'd be in a full scale depression, with unemployment levels not seen since the Dirty Thirties.

Most are missing the point:

The process of underwriting a mortgage.

O down requires a strong credit score with a min. 680 beacon and established credit lines (most look for 24-36 months)with strong payment history.

This did not happen in the States. Period!
It has to do with the underwriting.

As for the 40 year amortization the difference between a 25 and 40 year amortization (with a purchase price of 242K is approximatively $225 per month. Not that big of a deal breaker at 242K but 800k maybe! Some people just do not know how to live within their means!

As for Socred's "The fundamental 'problem' in our modern economy is one of generic
'labour displacement', more particularly, the loss of consumer incomes from that displacement".

After tax income in Canadian households is up year after year for the past 6 years (Stats Can).

I've been displaced, fired, quite, plant closed, you name it. I made the changes necessary to make myself employable.

There is no free lunch!

Econ101:- "After tax income in Canadian households is up year after year for the past 6 years (Stats Can)."

But where are "prices"? If the OVERALL RATE of income generation is equal to that of price generation, debt, in all its forms, would NOT be expanding exponentially.

Debt is really no more than a cumulative deficiency in purchasing power recorded over time.

To say that "after tax income is up year after year" is as meaningless a statistic as saying that because a lumber piler in an IWA mill made $ 2.25 an hour in 1966 and makes, say, $ 22.50 an hour, or more, now, he's ten times better off now than he was then!

It's NOT the number of dollars we need to be concerned about. It's what each one of those dollars will actually BUY. And they're buying far less today than they were any number of years ago you want to look at.

Econ101:- "There is no free lunch!"

Does a worm, on chomping into an apple, freeze with moral guilt that it has to "do something" before it can eat? It's there, the apple's there, it's hungry, it eats. Yet you say, "There is no free lunch." Interesting. Tell me, where is a "debt" found in the natural world? What, and who, does the worm 'owe' for its meal? If there isn't anything, or anyone, did it not get a "free lunch"?

As for people "living within their means", it is quite true that there are those amongst us who will quite likely never learn how to do that. To ascribe all the mortgage problems to them and their profligate ways, however, is totally ignoring the main issue.

Without a continuous infusion of 'new credit' coming into any modern economy that economy will collapse.

If you want to prove it, just let the Banks stop lending, even for a day, and see if all the loans coming due on that day could be paid from 'money' that's already in existence.

The mortgage mess in the USA certainly does have overtones of 'greed', and all the other individual detriments that those who write about such things for a living have ascribed to it.

But they are, either unwittingly or fully consciously, creating a 'smokescreen' which masks the main problem.

The new 'home mortgage' is now the vehicle by which necessary 'new credit' mainly enters the system. It has been so since the end of World War Two, and has replaced borrowing for industrial expansion, which, along with government spending (in the latter part of the 1930's, and beyond, as the incomplete ideas of John Maynard Keynes were adopted), was the former main conduit.

It has enabled the highest levels of home ownership ever in history, which, though certainly beneficial to those who otherwise would not have a home of their own, holds a problem for the overall economy. Since this method of introducing ever larger amounts of 'new credit'is becoming impossible to sustain. And the 'orthodox' alternatives are leading directly to 'war'.

"After tax income in Canadian households is up year after year for the past 6 years (Stats Can)."

Cherry picking the years I see .....

here is the record from 1980 to 2002 from a statscan site.

http://www.statcan.ca/english/freepub/75-202-XIE/00002/part6.htm

Thus, from 1980 to 2002 there was a 12% increase in after tax income.

According to the linked article below the average house price in Canada over that same period corrected for inflation as well, was 152%.

Then think about car price increase over the same period.

I think if we look even further, it appears that after tax income has not kept up with the price increase of major purchases.

http://www2.jurock.com/articles/columnist.asp?id=1564

That's right, Owl. And what that means is for those 'major purchases' to have been made, which they by and large have been, there has to be a source of 'money' distributed to their purchasers OTHER than that from which they've earned as incomes.

There has been. And it is from the ongoing expansion of 'new credit' recorded as bank debt.

This debt was already un-repayable in its totality, and now we are approaching the point where the ongoing service charges on it are also becoming more difficult to sustain.