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.
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.
For who? Banks don’t hold mortgages on their books, they sell them to investors. I don’t think you understand how modern finance works.
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.
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.
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.
It was shorthand for "everyone else is doing it and having success, so lots of people jumped into the same boat to also make money"..
Advice was the wrong word, maybe "signal" or "momentum" would have been a better shorthand.
Banks don’t care, they just sell the loan. If they cared, they wouldn’t write the loan! Cmon now.
My fault, I really should have phrased that differently.
Don’t get me wrong. Cars have their in place in society but their current role is overstated and NA city design shows it (massive parking lots, expensive housing).
London has this problem more than anywhere. Blocks full of purchased and empty while locals can't get a sniff.
What we need is foreign ownership taxes / bans combined with heavy taxes on ownership of multiple single-family dwellings and townhouses.
The ban won't do much, obviously, but the cause is the foreign investments. 100%.
But regardless, not sure why travel restrictions would matter. You don't need to see a house to buy it.
If any foreign buying stat looked single digit it was only because the metric was so broad so as to include areas where there was zero foreign buying interest.
The week the BC Liberals brought in the foreign buyer tax they had data in hand that showed foreign buying in Richmond and Burnaby was (going from memory here) between 15-20% of sales that period. Worth noting that at the time those areas were building lots of new builds so possible that the trend the government was concerned about was new build condo purchases being dominated by foreign capital. That's my speculation only. CoV proper I think was around 11%.
Globe and Mail articles on this issue from around 2016 call out some of the data and there are some startling numbers that make it clear why the government acted. Perhaps its available on some government website too I dunno.
From what I've seen, some neighborhoods are high, but it's at the margin. Canadians snorfing up massive amounts of debt in order to acquire more property is a bigger driver.
Trouble is that restricting foreign buyers is meaningless unless you also reign in corporate 'investment', as endless shell conpanies obscure the end benefactor
What you have to do is reign in buying houses as an investment by people who have no intention of ever living in them.
If home prices haven’t fallen during pandemic, then the reason why prices are high is not because of foreigners.
The government is trying to point to a scapegoat rather than trying to get to the root cause.