Who Do You Blame For The Market Crash?

[Weedy1]

So lets get right to the point. Who do you blame for the market crash?

[maxwell]

ROFLMAO weedy u jus tmade my day.... funniest poll ever!

[PGK]

.

[SanJuanWorm]

RickR you may have the floor.

[LynnF]

Oh I can't wait for Rick to show up....this is gonna be a good one!

 

I blame it on the sperm one. Only because sperm has never been an option in any other poll and I think it needs a vote.

[SanJuanWorm]

I blame it on women and their incessant desire to buy material things.

 

Just throwin it out there. Dr. Phil had people on yesterday who had over 30,000 in credit card debt. Believe it or not there are 1000's of people like this both in the US and in Canada.

 

Oh by the way I was at the Dr and it was on the TV. I'm not a Dr. Phil guy. I get home after 5.

[LynnF]

I blame it on women and their incessant desire to buy material things.

 

Just throwin it out there. Dr. Phil had people on yesterday who had over 30,000 in credit card debt. Believe it or not there are 1000's of people like this both in the US and in Canada.

 

Oh by the way I was at the Dr and it was on the TV. I'm not a Dr. Phil guy. I get home after 5.

 

Uh huh...dr office...sure Dave...right right.

 

How about guys and their incessant need to buy cars and motorcycles and ATV's and expensive fishing rods?

[reevesr1]

Wish I could come up with something witty on this one, but I'm 48 yrs old, been saving for years with the vast majority of it in the market. I am actually afraid to look at my portfolio. While I am still confident it will recover more than in time for my retirement, I can't help but feel sorry for those who were over weighted in the market and near retirement. This will most definitely hurt!

 

BTW, I may be the only white, male, engineer Texan who didn't vote for Junior. Though I think he, or the politicians in general, did very little to cause it, they certainly didn't do much to help. I also think that the blanked blaming of "Wall Street" isn't all that fair, even though they had a huge part to play. Anyone see the 60 Minutes piece on the "Credit Swap"? Essentially a scheme to "insure" mortgage based investments without calling it insurance and hence be regulated. In essence, the big investment banks were insuring what were in effect very bad investments. Now they have to pay up, and hence are going bankrupt. (The piece said 60 TRILLION!! in these credit swap policies. Holy *hit!!) But I also blame individuals from taking loans they have no chance of repaying. Stupid on their part, stupider on the mortgager's part.

 

I am not immune. Like many in Calgary, I have taken advantage of my increasing house value to buy things (most notbably a condo) that I maybe shouldn't have. As long as interest rates stay low, I have no issue. But if rates go significantly up, I will most certainly feel it. So I'm part of the problem as well. I'm over leveraged just like the banks.

 

Good times.

 

Oh, and I blame Canada.

[SanJuanWorm]

Well i'm like you rick and I bought a second house but only because I lost value on the one in Cranston. Im going to rent it out until I can re-coop the money that went into it. I only worry about rising interest rates on the mortgages.

 

But like in the movie Risky Business............"SOMETIMES YOU JUST HAVE TO SAY>>>>>WHAT THE F**K"

[LynnF]

I blame it all on the guy in my office who is constantly clearing his throat and sniffling loudly. Can we add him to the polls? How do people like that do that kind of stuff in a public place? I'm disgusted.

 

Oh ya....back to the reason I'm here. Rick - I expected more from you. The "I blame Canada" is a copout. Go have another coffee, maybe smoke a joint or two and come back with something funnier

[Jayhad]

I know a few dudes in the US and you can purchase a 100,000 boat for cruzing the big lakes and ammortize it over 80 years.... that is just part of the reason

[Maximum]

I blame Greenspan for creating an environment of excess liquidity. And then I blame the banking system for creating an enviroment of unbridled lending, then I blame Joe Public for being so naive/uniformed/irresponsible for taking on stupid debt loads and now crumbling beneath them. This is the equivalent to the stranger handing out free candy at the playground, wouldn't you think twice about every credit card company on the planet mailing you $30K pre-approved cards??

[fishinhogdaddy]

Blame it on the government for not regulating the lenders who have been giving people 20-50% more mortgage money than their house is worth. When the dummies spend the money and try to refinance their abodes, they have a bigger mortgage than their house is worth. Sounds like the same thing that happend in the 80's when house prices dropped and people walked away from their homes as they weren't about to pay for something(with interest) that was worth less. Just my 2 cents.

FHD

[reevesr1]

I moved to Canada 3 yrs ago as part of a company relocation. On my house hunting trip, I filled out a questionaire from the bank asking me how much money I would make, investments, etc. etc. Then they pre-approved me for a loan. When I saw the number, I think I gasped. I asked "did you actually look at the numbers I gave you?" She said, "of course". So I asked "how is it possible you think I can afford that much house". Her reply "people do it all the time."

 

Not just the US. While you guys don't have the insanity loans (5-1 ARMS, Balloon payments, interest only loans) they do in the US, Canada makes it perfectly easy to way overextend yourself. Same VISA and MasterCard as the states, and many of the banks have big investment arms as well.

 

And Lynn, when I don't feel so broke maybe I'll feel funnier! It crushes me that I'm disappointing you.

 

On a positive note, the Crow sure fished nice yesterday, particularly if you like big Whitefish. Since I'm so broke, maybe I should have kept some to eat!

[Maximum]

Here's a lengthy note from the TD's chief economist which should give some people comfort that we won't be seeing a housing crunch like we are in the US:

 

Canada’s Housing Foundations Lack U.S. Architect

 

 

 

-We have been visiting clients in Europe over the past two weeks, and a repeated worry they have expressed is whether Canada’s softening housing market could wind up mirroring the devastating U.S. decline, only lagged by a few years.

 

 

 

-It is certainly true that the Canadian housing market is softening and will likely continue to weaken somewhat further, especially in the level of activity.

 

 

 

-But we do not think there are many true parallels with the U.S. situation, and would be shocked if Canadian home prices were to decline as sharply as in the U.S. In making this argument, we look not at what the latest housing activity statistics say (because we are interested in the future and not the present), but rather at whether the underlying foundations of the Canadian housing market lend themselves to a massive correction like in the U.S.

 

 

 

-Broadly speaking, the differences can be broken two major categories – the housing backdrop, which focuses primarily upon bank regulations and actions – and household positioning, which engages in the same analysis from a household perspective.

 

 

 

Housing Backdrop

 

1) Conservative Culture: The Canadian banking sector managed to avoid the damaging race-to-the-bottom mentality on lending that occurred in the U.S. over the past decade due mainly to a combination of a more conservative culture and government regulations that reduced the threat of outside competition and thus the need to actively defend market share.

 

 

 

2) Sub-Prime Share: As a result, sub-prime mortgage peaked at just a 5% share of the Canadian market in 2006 (and has since retreated), whereas the share was as much as 20-25% of the U.S. market.

 

 

 

3) Less Securitization: Canadian banks are much less active than the U.S. in pushing mortgages off balance sheet via securitization. This means that there is a strong incentive for Canadian banks to only issue loans that “make sense” because bad loans have direct consequences for the bank’s own balance sheet.

 

 

 

4) Less Exotic: The sub-prime mortgages that did exist in Canada were not of the truly exotic sort found in the U.S. For instance, Canada had no ARMs (adjustable rate mortgages) to speak of that increase their costs sharply after an initial teaser period. In turn, no Canadian households were completely reliant upon rising home prices so that they could flip the house for a profit before the higher rates set in. Moreover, Canada’s chartered banks were never allowed to finance more than 100% of the value of a home’s purchase price, and this has recently been scaled back to 95% (more on this later).

 

 

 

5) Better Safeguards: In many instances, U.S. mortgages were issued without a proper assessment of either the house’s true value, or the proper income and employment of the prospective buyer. In Canada, there is a more robust framework for establishing the veracity of these claims.

 

 

 

6) Mandatory Insurance: Any mortgage issued by a Canadian chartered bank with less than a 20% down-payment must be insured by CMHC. This means that most of the risk for this set of buyers is eliminated for Canadian chartered banks.

 

 

 

7) Healthier Banks: Canadian bank balance sheets have not been hit as hard as U.S. balance sheets by the credit crunch. Indeed, the deposit base has continued to grow, and mortgage lending has grown moderately as a consequence.

 

 

 

8) Seeds Not Sown: To the extent that the recent housing bubble in the U.S. was inflated in part by interest rates that were too low for too long at the nadir of the previous cycle, it is instructive to note that Canadian rates did not go as low (and nor did they remain low for as long), and so Canada did not sow as many dangerous seeds for the housing market as the U.S.

 

 

 

Household Positioning

 

1) Relying on Renegotiation: In the U.S., it can be a simple matter for mortgage holders to renegotiate monthly payments downward when interest rates are falling. Some buyers came to rely upon this and so began to struggle when mortgage rates rose substantially in the U.S. over the past several years. In Canada, it is much more costly to renegotiate a mortgage, and so few buyers would have made purchases expecting to pay less than the initial monthly bill.

 

 

 

2) Less Elastic: On a related note, it stands to reason that the Canadian consumer elasticity in response to home prices is lower than the U.S., given that – as we noted above – it is easier to extract wealth from one’s house and to thus spend it in the U.S. This means that a Canadian housing slowdown should not have the same detrimental impact upon Canadian consumption or GDP as in the U.S..

 

 

 

3) Variable Volatility: Some 40% of U.S. sub-prime borrowers had variable rate mortgages that exposed them to volatility in interest rates. In Canada, only about 20% of sub-prime borrowers had the same exposure.

 

 

 

4) No Recourse: In many U.S. states, there is no recourse for banks if a homeowner gives up on their mortgage – they can simply mail in their keys and be done with it. In Canada, there is recourse, which means that homeowners are still liable. In turn, this both reduces the amount of speculation in the market and means that Canadian homeowners have additional incentive to continue making mortgage payments.

 

 

 

5) Lax Tax: In the U.S., the tax deduction on mortgage interest income creates an incentive to delay paying off one’s mortgage. In Canada, no such deduction exists and so the pace of mortgage payments is not artificially stunted. Logically, this means that Canadian homeowners should build up equity in their homes more quickly than Americans on this factor.

 

 

 

6) Debt Burden: The burden of debt on Canadian households is far lower than in the U.S. A direct comparison is difficult because of different debt-service ratio definitions between the two, but suffice it to say that the U.S. measure is substantially above its historical norm, while the Canadian number is slightly below its historical norm. This means that Canadians are dedicating a smaller share of their income to interest payments on debt than normal. This means that Canadians are not about to buckle in response to their mortgage burden.

 

 

 

7) Delinquencies: On a related note, Canada’s 90-day mortgage delinquency rate is still rock bottom at about 0.3% despite home prices that have fallen over the past year. This speaks to homeowners who are currently having very little trouble sustaining their mortgages.

 

 

 

8) Personal Savings: More broadly, Canada has sustained a generally positive (though slim) personal savings rate for years, and – until the past year – rising home prices and rising equity markets have kept the effective personal savings rate even more strongly positive. As a result, the overall household wealth position begins from quite an attractive starting point to weather the downturn that is clearly occurring in 2008 (and likely 2009) as home prices and equities decline. We reject the circular argument that Canada’s housing market is in trouble because household wealth has recently begun to go down, since household wealth is primarily going down in response to falling home prices.

 

 

 

Odds & Sods

 

-It cuts both ways to note that CMHC recently scaled back the nature of its mortgage insurance program. Chartered banks will soon be no longer allowed to give 0% down mortgages or to make 40-year loans. On the one hand, this hurts the housing market’s prospects in the near term as these markets are eliminated. But we take a more optimistic view and believe that CMHC would not take a step such as this if the Canadian housing market were truly on the verge of a crisis – to provide a parallel, you wouldn’t increase bank reserve requirements at the exact moment that banks were in desperate need of cash. This suggests a vote of confidence from CMHC on the nature of the Canadian housing market.

 

 

 

Conclusion

 

-To conclude, we readily acknowledge that the Canadian housing market is correcting, with home prices slightly negative and activity set to decline somewhat further. This is a function of activity levels that were unsustainable strong for many years plus credit conditions that have tightened moderately.

 

 

 

-But despite this initial eerie parallel to the U.S., there are few true similarities in the underlying foundations, and thus little reason to expect a spectacular bust in the Canadian housing market on par with the U.S.

[birchy]

Holy crap that was long.

 

 

I blame people that fish with more than one fly.

[reevesr1]

I see Maximum downtown from time to time. He wears very nice suits, so listen to him. We are all safe.

 

Whew! I'm glad I don't have to worry about this anymore.

 

On a related note, my US 401(k) plan is down like 30% over the last few weeks. Yaayyyyyy!!!

[toolman]

Great info Maximum and thanks for posting...Myself, I'm very nervous about the Canadian/US housing market, as this is where I earn my bread and butter. We've seen our forestry industry crash and burn as a result of the US housing woes, which has cost me in the past year. Also a couple of large local housing component mfg's., who were exporting to the US, have went down as well, Weyerhausers joist plant, in Claresholm (one of my clients) and more recently Jager Building systems joist plant in Calgary.

Fact is, the US is the largest market for Canadian exports and that market is drying up. So, I don't see a rosy picture on the horizon. I for one, am trying to get rid of any/all debts asap. Lean and mean is gonna be my survival strategy.

Save yer pennies and get out of debt is my advice...and go flyfishing at least 4-5 times a week.

 

ps. Anyone remember what happened back in the mid 80's...CRASH!

[SanJuanWorm]

Holy crap that was long.

 

 

I blame people that fish with more than one fly.

 

 

Holy *hit was this funny.

[rehsifylf]

I blame myself.

 

I read a good article on Adjustable Rate Mortgages last summer (2007). The woman that wrote it spelled out exactly what has happened - it is scary how accurate she was. At the time, I just could not believe that it was true, but inside I sort of knew it was.

 

There are many people that have not been impacted much at all by this. Less than 20% in equities, and those are down about 30% - so a 6% impact to their savings. I blame myself for not being one of them.

[Pythagoras]

I blame Greenspan for creating an environment of excess liquidity. And then I blame the banking system for creating an enviroment of unbridled lending, then I blame Joe Public for being so naive/uniformed/irresponsible for taking on stupid debt loads and now crumbling beneath them. This is the equivalent to the stranger handing out free candy at the playground, wouldn't you think twice about every credit card company on the planet mailing you $30K pre-approved cards??

 

Yup...thats the crux

[SanJuanWorm]

I blame my GF because she got herself pregnant.

[toolman]

Congrats Dave!

[Weedy1]

I blame my GF because she got herself pregnant.

 

You should have demanded she "cease and desist."

 

http://www.edmontonsun.com/News/Canada/200...002151-sun.html

[SanJuanWorm]

Weedy you find the weirdest stuff.

 

Im pretty excited.