Blessed by the Potato

Hello faithful readers! I’m going to be doing some work on the back end of the site over the next week whenever I find the time to. It is very possible that I will temporarily break the site as I fiddle. Have patience, and remember to come back to holypotato.com if you have bookmarked the IP address directly (or if you’ve subscribed to the RSS feed and you don’t get any new posts next week). Also, I have a number of drafts here with further rants about the housing market. I’m not 100% pleased with these, but since Wayfare and I have found a place to move to, real estate is moving out of the forefront of my mind (or the secondfront of my mind, as the forefront is probably still that grad school thing I work on every day and dream about every night), so if I don’t push them out now, they’ll die a cold, lonely death in the drafts folder. I’m also posting them to give you something to keep yourselves busy with while I work on the server.

“…Through the mechanism of CMHC, Canada’s banks HAVE ALWAYS had pre-arranged taxpayer bailouts” — Future Expat, comment at greaterfool.ca.

The CMHC was created to help make housing affordable in Canada. Affordable housing. It sounds like such a noble goal.

Unfortunately it’s one of those things where what’s good for one person is bad when it happens to everyone in society at once. Maybe it’s related to Jevon’s paradox, though the closest I can come to finding a term for this phenomenon is “congestion” (opposite of the network effect).

It may be a noble pursuit to give low-cost government insurance to cover a mortgage for a young person to buy a house in a rural area, as they may not have any rental options in a small town, and with no appreciable down payment, a bank might not give them a loan otherwise. Government intervention in these small, inefficient markets probably does bring some benefit to people, at very low cost and risk to the taxpayer. However, CMHC insurance is not limited to those looking to buy in areas where rentals are not available, but country-wide. Even in the cities where a large rental market means it’s not needed. Even to speculators who have no intention of living in their investments.

Even if a rental is an option, give a girl some low-cost government insurance to step up to owning her own condo, and she’ll take it.

As the housing bubble has inflated here, everyone started needing CMHC insurance. Houses went up faster than people could save for the downpayment, so more and more people got past the stigma of having to pay for the insurance, and took the CMHC option to “get into the game” earlier and earlier. This started a positive feedback loop, made all the worse by the government lowering the minimum CMHC downpayment to 0% (since raised to 5% — still not much!).

At the same time, amortizations increased to 40 years (since reduced to 35 years). Again, something introduced with the intention of giving home buyers a safety net and to make housing more affordable — if you could afford a 25-year amortization, you could opt to take a 35-year one and just top up your payments as long as things were good, but have a lower minimum payment if things went poorly (e.g.: if you got hit with a big repair bill, or lost some hours at work). Instead, people just bid houses up to the point where most people needed a 35-year amortization just to afford things. Houses, paradoxically, became less affordable.

CMHC insurance is also perverse because the insurance isn’t just on the part of the downpayment missing, that is, it doesn’t insure the 15% difference between the 5% downpayment made and the ideal 20% down. The government is on the hook for the whole mortgage, leaving the bank with essentially no risk for writing a CMHC-insured mortgage. For this reason, people with no downpayment, who have shown no history of financial discipline (as long as they meet some minimum credit score), can get just as good of a mortgage rate as someone with skin in the game, all because the risk is offloaded to the government. This leads the banks to be less stringent in the loans they make — the same sort of incentives towards risky behaviour that securitization of subprimes in the states had. Not quite the exact same since CMHC does have some standards, and will occasionally check up on a borrower and/or appraise the house — but saying “we’re not quite as bad as the Americans” does not bring me any joy. It’s a difference of degree but not of kind. The banks have a split interest in housing bubbles: they want to drive bubbles (at least on the way up) because it leads to larger mortgages, which means more interest income for them. Simultaneously, they want to limit losses, so they don’t want to stoke a bubble too much. But with the CMHC the risk side of the balance is blown away completely, as from the bank’s point of view a first-time buyer with 5% down, a 35-year am, buying the absolute most house they can afford and with no credit history is less risky than a millionaire putting 50% down with the intention of paying the rest back in 15 years.

Canadian Capitalist recently had a post about the bubble, shaking his head at Canadians who are driving housing prices to the moon with (currently) cheap mortgages, even after seeing the disaster that caused in the US (and many other nations), saying: “Those who fail to study history are condemned to repeat it. Those who ignore very recent experience are just being stupid.”

Over at the Canadian Money Forum, I saw something that made my jaw drop. The CMHC charges insurance fees, and if we assume that ~6% of mortgages written today will default when the bubble collapses, which a severity of ~40% each (i.e. in the same ballpark as the US experience), then the fee of 2.75% is probably not too far off. However, one poster said that:

“…CMHC mortgage insurance operation is a great expensive rip-off of Canadian homeowners. […] last year cost Canadians $1.2-billion in premiums paid to CMHC. The net claims against CMHC for mortgage default totaled $117-million, for a premium-claim ratio of 10 to 1.”

…which made me wonder what was going through his head. On the surface, it does sound like the CMHC is a cash cow for the government, netting over a billion dollars — indeed, put like that, you could see a motive for a government facing record budgetary short falls to perhaps play with fire and stoke the bubble a bit. However, the housing market has been on steroids for the last few years, and interest rates were on the way down to the ground floor. The fact that there were any payouts made me wonder what the hell was going on. Anyone who bought more than a year ago should have been able to easily sell (or in the parlance of the times, “flip”) their place if they ran into trouble for whatever reason, and break-even at the very least. Yet somehow the CMHC had to pay out hundreds of millions to the banks on defaulted mortgages. What’s going to happen when we actually have a housing correction? Is CMHC insurance too cheap for the risks being assumed?

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Well, the blog is 4 years old now.

…Guess I don’t really have much to say about that, even though I’ve had a lot to say about just about everything else :)

Speaking of 4 though, it’s now been 4 months since Wayfare’s been paid. Not to worry: she hasn’t been laid off, she’s still working as hard as ever… but a payroll department epic fail has meant she hasn’t been paid since June. It really underlines the need for a healthy emergency fund: even if you don’t get injured or lose your job or whatever, a simple payroll issue could mean you’d have to live off your savings for a few months until the next paycheque rolls in.

First off, I’ve been getting a flood of spam comments recently. All ~20 per day seem to hit right around midnight each day, and I think I’ve managed to clean them up every day before anyone else has to see them, but just in case I’ve tightened up the spam filter, so if anyone wants to leave a comment it’s very likely going to get flagged and held until I clear the queue. So if you do decide to comment (assuming there are any readers at all left out there), an FYI that if it doesn’t get posted right away, that’s probably where it is.

After a fairly hectic few months, I finally got around to tabulating the household budget from March through June. Personally, I find the feedback stage one of the most important parts of budgeting — seeing where all the money is actually going, and how close to our targets we actually were. It’s never quite exact: some receipts I don’t get (e.g.: I’m not going to ask Tim Horton’s for a receipt for my muffin), or I forget to put them in the pile (or a note of the amount spent if I didn’t get a receipt). Nonetheless, I try to get as exact an estimate as I can, and guess at approximate monthly spending for certain areas as placeholders (both for the planning budget, and the monthly review budget).

Typically, these spring months (and Jan/Feb to an even greater extent) are our catch-up months, where we generally come in below our planned monthly budget, to make up for the excesses that always occur around Halloween and Potatomas. This year however I was really dreading adding up the spending because I just knew we were going to come in over — we ate out more than we had been, we had a fairly pricey car repair (though the bigger recent one won’t hit until July’s budget), and thanks to some sales at Pharma Plus we also stocked up on a year’s supply of ColdFX and Lactaid. Despite all that though, it actually came out as a fairly normal few months.

A part of that was due to the fact that I was running scans nearly every weekend here in London, so we didn’t go back to Toronto nearly as often. When I first moved out here I used to go back all but one weekend a month! Eventually that settled down to something more like half of them (so two or three in a month), but with all the scans I think I went back only 4 or 5 times in the first 6 months of the year. Even when I stopped scanning we still didn’t get right back to driving back — the biggest reason to drive in to Toronto of course is to see our friends and family, but as we get older our friends are getting, well… busy. So there were many times (perhaps half of them or more) where we’d spend 2 hours on the 401 to drive back, and no one would have time to hang out with us. We decided to stop going back quite so automatically, and wait until those weekends when there was a bit more of a reason to (i.e.: instead of showing up and figuring out what to do, we make plans, like grown-ups. Ugh.). It is kind of nice — 4 more hours in the weekend, we get to have some time around the house, and we don’t have to worry about the cat being all alone or always avoiding grocery shopping on Thursdays and Fridays. One other small benefit is that we save ~$30 in gas money every time we don’t go back — which more than offset our increased eating out!

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(Yes, ~$60/mo does make a difference in a grad student’s budget)

First off, this is the 600th post here at BbtP. For a long while there were roughly two comments for every post (typically, someone commenting and myself replying), but lately the comments have dropped off… at this rate posts will outnumber comments around post #700.

I’d like to start off with a public service announcement: back up your data. I just backed up my most important stuff: my digital pictures, spreadsheets, blog posts, etc., to my external hard drive as part of my quarterly backup task (which was supposed to have been in March closer to the equinox, but I procrastinated). I’m now tempted to secure the external hard drive somehow, perhaps create a drywall compartment in the wall and make it a fixture of the house so that if someone breaks in and steals my computer, they’ll leave the drive alone. Another option might be to get a network drive and keep it somewhere else in the house inconspicuous. Of course, with a 60 GB hard drive the Xbox also looks like a good place to hide a backup. For the paranoid readers (and come on, with this site that must be nearly half of you) TrueCrypt is a good way of keeping your files secure on those DVD or external hard drive backups.

As the spring weather rolls in (and with today’s snow, back out) I start to think about the upcoming european trip I’ll be taking. The incessant reminder emails to register for the conference I’m attending may have also influenced this train of thought. I’ve already booked my plane tickets, after seeing the price jump a few times, but hadn’t looked at the train situation at all yet. I just sort of assumed that everyone always talks about how great the european train system is, so it must be no problem to hop from place to place by train while we’re there. Indeed, there are some bright spots, such as France’s TGV, but now that I’m looking into it, the whole experience sounds rather miserable. This is of course because we’ll be starting out in Switzerland, which is not flat. Check out this image of the rail line I snagged from Google maps:

Is that a railway or a roller-coaster?!

One thing’s for sure, Sid Meier’s Railroads! would never let me build that line. So looking up the train times now (something I should have done before agreeing that we’d visit Venice after the conference) I find that we’d spend the better part of 3 of our 10 non-conference days in Europe just lollygagging around on trains.

/train

I have not been thrilled with the consumption of Domain Direct by Hover. I figured that I was handling the hard stuff of having a website with the server, database, stylesheets, content, and that the process of pointing people to that (domain forwarding, nameserver) should just work. For the most part it did under Domain Direct — there were some twists, such as the fact that the IP of my server isn’t truly static, so every now and then I’d have to update all the pointers, and that the one time a year that would happen would invariably be when I was on vacation. Also due to the way the forwarding was made “transparent”, the URL of a specific page wasn’t shown in your address bar, so anyone wanting to put in a permalink to a specific page would have to build it themselves by hovering over the title of a post and adding the /?p=XXX part themselves. This didn’t seem to be a big issue since I seemed to be the only one who referred to anything here.

Anyhow, things worked, even if there were some work-arounds needed, and then Hover came along and broke things. They were lambasted for it, and fixed things, so that now things look to work just as before, except for the favicon.

Oh, and something I just found out about: the RSS feed.

The thing is, I have no idea why the RSS feed isn’t working properly. The real strange thing is that if I try re-subscribing to the feed in the Google Reader, I get some posts, but nothing past mid-January (right when Hover took over). That was weird, since my own RSS subscription is working fine. Now how on earth the feed could deliver some posts, instead of working or not working was beyond me. I could get all the up-to-date posts with the un-forwarded RSS feed (the IP address directly). Finally I tried another reader and there’s nothing — the RSS URL is invalid. It’s not forwarding correctly. Google just has a cache somewhere.

So, that explains my weird web server issues. It gives me one more reason to move to a professional host instead of doing it myself, but unfortunately I don’t have the time to manage a move right now nor the financial inclination to do so.

One way to get the RSS feed is to subscribe to it via the IP address. This is of course not the preferred solution since my IP can change at any time without notice, breaking the feed. You’d then need to come back here to get the new address and re-subscribe. What a pain. The other way is to try to figure out what Hover is doing to break the RSS feed (answer: frames). Since I elected to turn on the frames to hide my IP address (so only holypotato.com appears in the address bar, which looks a little more professional IMHO), I suppose all I can do is elect to turn them off to make the RSS feed work. You may have noticed that I’ve already implemented this (unless I’ve changed my mind since posting).

To subscribe to the RSS feed, simply add
http://www.holypotato.com/?feed=rss2
into your feed reader of choice (Google Reader, Thunderbird, your iGoogle homepage, etc). It should work now — please let me know if it doesn’t! (oh, and http://www.holypotato.com/?feed=comments-rss2 for the comments feed)