Blessed by the Potato

I put a movie on in the background and just spent an hour and a half going through the last year’s worth of posts correcting the relative links. I figure anything older than that and it won’t really matter that much anyway. It was a little dull, but nowhere near as taxing as the initial adjustment of trying to figure out how to get the MySQL database working.

Things are pretty smooth now, so I think I’m going to point holypotato.com to the DreamHost version now. The plan is to run both in parallel for a while, then start shutting down the self-hosted version for most of the time to save power (though if I keep copying my posts to the self-hosted version, it’s there as a backup in case anything happens to DreamHost, or I decide to leave them, so it won’t go away completely). I know I’ve only been doing this in the middle of the night, but a shared space on DreamHost’s server is about 10X faster than my ancient yet dedicated server!

There’s still work to be done: I’ve lost my ability to upload pictures via the WordPress interface due to a permissions problem (there’s still FTP, but it’s a little more awkward when in the middle of composing, especially when on the road). The search function has never worked right (the first page of results come up ok, but after that the string passed to the URL is wrong and I don’t know where in the php to fix that). I’m sure there are more things on my to do list, and more moving hiccups that will crop up along the way, but none of them seem to be impinging on the core capabilities of me writing and you reading.

So the big news is that I have gone out and purchased actual webhosting from DreamHost (hatip: CC). The idea is that it would let me stop having to deal with server issues (which thankfully have been astoundingly rare considering the dinosaur I have under my desk powering the site), and also make the site more easily indexed by The Google, plus fix some of the issues I was unable to resolve with the RSS feed.

This has been the plan for some time — ever since I first started putting ads up. I know I’ll never make money with BbtP (certainly not enough to hire staff writers!) due in no small part to the fact that I don’t really write for a commercialized audience (I don’t stay on topic, I’m verbose, I have a sick proclivity for parentheses, and I don’t stick to a schedule), but I was hoping to pull in enough to cover the hosting costs at least. Sadly, I just don’t have the readership for that — right now my full year ad revenues are adding up to be enough to cover approximately 3 days of hosting.

Fortunately, my dad gave me some money for no reason at all, and just told me to spend it, so I got the hosting plan.

As of right now I have bumped the blog directory from /blog to the root of holypotato.net (an additional domain to holypotato.com), which I think is a good long-term organizational move. However, that means that I have broken every single link within my posts (i.e., those links referring to other posts). External links should be ok if they were using the permalinks I was putting at the bottom of posts, but I know that at least a few people linking back here were cut & pasting from their browser’s URL (which would have been the IP, which was doomed to change sooner or later anyway).

So right now I have the two domains acting separately: .com is still hosted on my PIII under my desk, and .net is at DreamHost (with all the broken links). Hopefully by January I’ll have fixed things up and merged the two domains so that no matter which one you choose to use to visit me they get you to the same place. Hopefully, I won’t break anyone’s RSS feed in the process.

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)