Recently I had a table of industry professionals explaining to me why Vancouver Real Estate was in a bubble. These smart young men were sitting ~3,000KM’s away from Vancouver… and only 1 had ever been to the city, and that was for just a weekend. Nonetheless they were resolute in their convictions.
The conversation mainly centered around ‘cheap money’ having created an asset bubble that’s about to pop. And long will come a massive wave of defaults. If you read this blog regularly, you know what the actual default rate is.
You also know there is a massive wave of buyers ready to absorb any increase in listings at this point.
If you’re truly an industry professional, you know what’s what.
What the actual default rate is.
Does ‘cheap money’ create conditions for a bubble?
Maybe.
Also maybe not.
It depends who’s accessing said cheap money, and how much of it they’re accessing.
Credit Card money is easy.
Easy to get, but expensive.
Do we as a nation have a credit card debt problem?
No, we as a nation do not.
You may know someone, of the many people you know, that’s in credit card trouble. Likely just the one. And hey, if it’s more than one, maybe you’re hanging out with the wrong crowd?
Easy but expensive money may drive a small level of overall consumption, but easy and expensive money doesn’t drive asset bubbles. Nobody buys a house with a credit card.
Mortgage money falls (or fell) under the heading ‘cheap but difficult to access’.
Today it’s increasingly expensive, and still very difficult to access.
Yes cheap money drives asset values upward.
Yes Canada had cheap money, arguably for more than a decade.
But how easy was access?
You had to have impeccable credit. Missed a credit card payment 9 years ago? We must supply a detailed explanation, and then it is escalated for review.
You had to have documented personal income.
Income from investments?
Not good enough.
Wait, it’s a ten million dollar stock portfolio throwing off 500K per year?!?
Not good enough.
Income from rents?
Not good enough.
Wait it’s an apartment block throwing off 300K per year?!?
Not good enough
Income from a job?
OK, we need;
Job letter
Pay stub
T4
CRA Notice of Assessment(s)
A phone number and contact in HR to verify said letter.
Got all that – entre the stress test – currently at 9.7% for a Home Equity Line of Credit.
Not easy to clear that hurdle for just about anyone, no matter how strong their credit, income, etc.
So, no ‘easy money’, not by a long shot.
Cheap yes, but ultimately you need a seriously skilled Broker on your side to get it.
And this’s a bit part of why there’s no blood in the streets in 2024, no blowout real estate deals, no massive wave of foreclosures. And it’s not coming anytime soon.
187 people, 3 months behind, out of 300,000 mortgages on the books says it all.
DW