The root cause in Canada is that a lot of the older generation, existing home owners, have put their investments in buying second or third homes as income properties, and for a lot of Canadians (I read that 1/3 of Canadian home owners have one or more additional properties) that's the nest egg now.
For years now homeowners have used HELOCs (Home Equity Line of Credit), to effectively 100% finance an additional home purchase by using the HELOC for the downpayment, and a mortgage for the rest.
This puts a lot of people in (very self-inflicted) financially precarious situations where they are counting on interest remaining low and the value of their investments going up in order to stay ahead of the payments.
Regardless of how we got here, due to this situation no government will screw all those people over just to "fix" things for those who haven't been able to get into that market yet.
It's a lose-lose.. Leave things the way they are, and you continue to price out an entire generation, which is a huge problem. Make a large corrective change to address this and you potentially force a huge amount of existing owners to sell investments at a loss and face financial distress, another huge problem.
Some folks say "too bad for them for getting so leveraged" but all they did was follow the advice given to them by the market, and follow the rules that our government put in place.
Anyways, it's a complicated problem. Foreign ownership certainly contributes to the problem but it's not the major factor. This is 100% a "for show" measure.
> For years now homeowners have used HELOCs (Home Equity Line of Credit), to effectively 100% finance an additional home purchase by using the HELOC for the downpayment, and a mortgage for the rest. Banks hate this, but it's legal.
If banks actually hated it, they would simply not write the loan. Why do you think they hate it?
I say "banks hate this" as unsubtle shorthand here. Obviously they don't hate it enough to refuse people additional mortgages (it's all secured by tangible assets at the end of the day) but they certainly aren't as happy about it as if people had a 20% downpayment in cash rather than pulling it from a line of credit.
Yeah I guess I am not trying to provide a super in-depth explanation of how finance works here, since that's not the topic we're discussing.
I am not a financial expert, but I have been told by professionals, and read in credible publications, that financing entities are not thrilled about the idea that people can effectively 100% finance additional home purchases using HELOCs, rather than having a cash downpayment.
That's the point I was making. My apologies for drawing an incorrect conclusion on the unrelated details.
100% financing is problematic mainly because the "owner" has zero incentive to not walk away if the house goes below purchase price even if they could afford to keep up the payments.
This puts the "bank" (read: bank and the investors the bank sold the loans to) in a precarious position, as a slight downturn in the market could result in a large percentage of loans defaulting.
> all they did was follow the advice given to them by the market
The market doesn't give advice, it's risk and return. Don't take more risk than you can handle is investing 101. In any case, if the market is unsustainable (non-productive assets appreciating several times inflation is indeed unsustainable), these people are going to get screwed regardless. Either completely later, or almost completely now.
Maybe in the future, after the smoke settles, governments will be more wary of moral hazard. Probably not, but one can hope.
> For years now homeowners have used HELOCs (Home Equity Line of Credit), to effectively 100% finance an additional home purchase by using the HELOC for the downpayment, and a mortgage for the rest. Banks hate this, but it's legal.
Banks don’t care, they just sell the loan. If they cared, they wouldn’t write the loan! Cmon now.
I forget how pedantic HN can be.. You're the third comment to latch onto that one phrase in my overall comment, and it's not even that relevant to the topic being discussed.
My fault, I really should have phrased that differently.
For years now homeowners have used HELOCs (Home Equity Line of Credit), to effectively 100% finance an additional home purchase by using the HELOC for the downpayment, and a mortgage for the rest.
This puts a lot of people in (very self-inflicted) financially precarious situations where they are counting on interest remaining low and the value of their investments going up in order to stay ahead of the payments.
Regardless of how we got here, due to this situation no government will screw all those people over just to "fix" things for those who haven't been able to get into that market yet.
It's a lose-lose.. Leave things the way they are, and you continue to price out an entire generation, which is a huge problem. Make a large corrective change to address this and you potentially force a huge amount of existing owners to sell investments at a loss and face financial distress, another huge problem.
Some folks say "too bad for them for getting so leveraged" but all they did was follow the advice given to them by the market, and follow the rules that our government put in place.
Anyways, it's a complicated problem. Foreign ownership certainly contributes to the problem but it's not the major factor. This is 100% a "for show" measure.