Perfect storm

‘Few concerns’ in Calgary

At the moment, 8,400 more families go into foreclosure every day in the States. It is estimated that for each one of those foreclosures, neighbourhood property values fall 1% in a single day. Last year 1,500,000 families lost their homes, and mortgage defaults caused panic in global financial markets.

To stem the collapse, lawmakers have raised the debt ceiling of the US by $800 billion, and are on the verge of approving homeowner relief that could cost $100 billion. Fears are, however, it will have little effect.

In Canada, the average price of a house in both Edmonton and Calgary has declined by over $42,000. Home sales are down 43% in Vancouver. And a guy in PEI tells us the cottage he sold for $89,000 last summer is now on the market for $45,000. In one of the wealthiest enclaves of Toronto, the Kingsway, a home listed at $1.9 million found no buyers, even at $1.7 million, and then at $1.5 million, before the owners gave up. In Woodbridge, local realtors say there are properties which have been shown more than a hundred times, yet no offers. A year ago, they’d have fetched more than the asking price.

This week the chief economist of the Export Development Corporation said these are “dark times” for our exporters. “I’m not one to paint a rosy picture at all,” added Peter Hall. He thinks exports of consumer goods will crash this year by 18%, and more next year, the victim of rising commodity prices, the US financial and housing crisis, and the high Canadian dollar.

The Bank of Canada’s now forecasting inflation of something more than 4%, after the dramatic increase announced this week. Gasoline costs have jumped over 26%, and food prices are up by a third. It means interest rates will likely be increasing soon, jacking mortgage payments, just around the time the federal government ban on 40-year amortizations and zero-down home payments deflates the housing market. By the way, CIBC raised mortgages rates on Thursday.

I could go on. As few as 90 and as many as 300 US banks are expected to fail this year. One, perhaps, two major car companies could declare bankruptcy. The Fannie Mae and Freddie Mac bailout may not work, causing the mother of all budget problems in Washington, just as the Presidential election unfolds. As the Canadian exporting numbers and the job losses in Oakville show, our economy is being dramatically affected by these realities. There are families wondering tonight what the hell they’re going to do now after that third shift failed. There are more than 60,000 families across Canada trying to sell their houses. There are companies quietly failing each hour. As I drove through a number of southern Ontario cities in recent days, my eye could not help but see empty stores on main street and vacant units in the industrial park.

Sadly, the market declines I foresaw nine months ago when I wrote my latest book are starting to occur. The depths are yet to be known. My earlier forecast of a general 15% drop in the national average sale price may end up being too optimistic. In any case, billions in net worth are about to evaporate, just as the stock market bears come out, energy prices soar, Ottawa falls into deficit and interest rates rise.

The perfect storm.

In coming days, I will review some of the shelters from it.

71 comments ↓

#1 Lance on 07.25.08 at 11:23 pm

“My earlier forecast of a general 15% drop in the national average sale price may end up being too optimistic.”

You may end up being all too right, Garth. This is quickly becoming a serious global issue and no economy will be safe from its impact. Hunker down, seas are about to get very rough.

#2 Rick on 07.26.08 at 12:21 am

I sold my overpriced piece of crap in Vancouver last Nov and currently rent. I have as secure a job as possible these days. I have a small business I make a few dollars with but am not dependent on. I owe nothing and have no debt or loans. My shelter is built and will withstand the hurricane.

Thanks Garth, I’ve been following your advice for quite some time now and can honestly say you are the one and only politician who has helped me. In a few years when I buy a place (for cash) I’ll invite you to the house warming.

I find two things quite curious; how so many of the financial players have, within the last few weeks ceased with the denial and changed tunes. Secondly, what happened to all those smug realtors that used to frequent this and other similar sites?

#3 RJT on 07.26.08 at 1:24 am

Garth,

Read you book and liked your analysis. One question: You mention that it is always a good time to use a variable rate mortgage vs a fixed, as it will save you money. Wouldn’t you agree that while it has been true over the past 20 years (falling interest rates), it is not a guarantee over the next 20 years, as inflation imported from the developing world and the deflating US dollar has a high chance of interest rates rising substantially over the next few years. In addition, the current spread in Canada between a 5 yr fixed and variable mortgage is less than 75 bps. Do you still argue for variable rate mortgages?

#4 rationalnational on 07.26.08 at 1:31 am

It’s just getting started:
http://www.businessspectator.com.au/bs.nsf/Article/NAB-will-shock-Wall-Street-GV4M7?OpenDocument&src=stf

Read this man’s guidance for one man’s opinion of what to do:
http://www.jsmineset.com/

#5 Vlad Poutine on 07.26.08 at 2:18 am

Vancouver skated through the last recession in the 90’s due to real estate development and asian immigrant speculation. We still get that now. Prices have not gone down yet, but I see tonnes of For Sale signs, which may point to increasing inventory. And there are more condo developments coming online.
I wonder if we will be lucky this time and skate by this recession. Perhaps we may get another rich immigrant wave coming from China, India, Korea or Russian to sustain our real estate market. Something the rest of Canada does not have to fall back on.

Dusvadanya

#6 Mike.slob on 07.26.08 at 2:34 am

Almost seven months GTA sales continued a steady decline on a month-over-month basis when compared with a record year in 2007,but still the average prices are up .
Toronto real estate agents sold 8,600 properties in June, which was an 18-per-cent decrease from the June 2007 total of 10,451 units.
A press release from the CREA noted there was also a 22-per-cent increase in listings with 26,698 properties going on the market in June compared with 21,789 during the same period in 2007.
One my friend just listed on MLS new semi in Burlington,asking price 360K which he bought last year for 299K and he told me if somebody wants to buy any property than he should to pay asking sellers’ price?
Market in GTA is more expensive than two months ago, because when I watched listings on MLS properties yesterday,properties are higher from 10K to 30k from May/08.(I watched newer properties in Burlington,North Mississauga and Brampton).
Economy will going in very bad situation in Ontario,but housing prices in GTA are still unbelievable high.
From February 1996 prices in GTA going only up.
When we can see negative price correction?
I believe that any Market has to going up and down,
but 12 and a half years only up in GTA? Forever?
I’m waiting over 2 years for this correction and still
I’m renting apartment.But probably I have to wait more 2-3 years to see the bottom on the Market?

#7 Iam on 07.26.08 at 5:45 am

Don’t worry folks! …the sky may be falling in your parts, but when you lose your job, home and possibly your sense of humor, you can take comfort that we’ll have at least two of them waiting for you in the land of the economically free. Even better, since we were the first and quickest to get over our speed-bump (ok, we admit… it was a correction) boy have we got a deal for you!!

And never fear, with the greatest investment per capita (not to mention world oil reserves), lowest taxation, and whopping salary increases daily, Alberta will always remain the most affordable province for you and your hubby to settle down and raise a family.

Later y’all!

#8 Finanzkrise on 07.26.08 at 9:55 am

After a month travelling in Europe, where I was reading newspapers in three different languages which were headlining inflation issues, credit crisis, real estate meltdowns in Britain and Spain, certain Swiss banks losing 70% of their stock value due to heavy US mortgage exposure, it was interesting to get back to Canada this week and see that the Canadian media is still sugarcoating the outlook for Canadian real estate and our economy in general. I wonder if/when an inflection point will occur in Canadian media, when the sentiment will turn decidely more negative (and realistic?)

#9 pete on 07.26.08 at 10:33 am

The credit crunch is now hitting Chrysler as they can no longer offer leases. This is very telling just how bad the credit crunch is getting.

http://online.wsj.com/article/SB121701005398185331.html?

As for the housing situation it continues to get worse as many are looking for the greatest fool alive. Prices are dropping but these drop in prices are nothing. In one or two year you will be able to buy 40-50% off today`s bubble inflated prices. RE agents are scared and the propaganda machine is running overtime. The RE bubble is popping all over the world and the RE propaganda want us to think we are the ONLY country not to have a housing bubble crash. Wait and watch sellers fighting each other by lowering prices to sell before the banks come and take it. People are maxed out and scared. Even a big company like Chryser can not offer leases since no bank will give them cheap credit. BTW just sold my home but at a price. With the number of homes in my area which are unsold and simply can not sell I lower my price by $40,000 below everyone and finally sold for below even my lowered asking price. People now are going to have selling wars. Happy to get out while the getting out is good.

#10 Joanne on 07.26.08 at 10:35 am

It’s hard to believe so many got caught up in this mess. Basic fundamentals ie: Rent vs Own ratio. Why were so many willing to turn a blind eye? Why were they so willing to pay ridiculous interest over 30, 35, 40 years? Answer : Easy , nothing to lose with nothing down. The price will be paid by those who were more prudent. Penalized by poor fiscal management of lending institutes and government oversight. Greed & Gullibility add G Force to this perfect storm. Take shelter and hold on tight.

#11 Keith in Calgary on 07.26.08 at 12:19 pm

Joanne……

I just stumbled acorss the City of Calgary’s tax assesment page on their website.

Found out that I am renting what is apparently a $615,000 condo for 1/4 the price of owning………yah gotta love ratios eh ?

#12 Gord In Vancouver on 07.26.08 at 1:12 pm

Reply to post#5 (Vlad Poutine)

Vlad,

FYI – many of the immigrants who came here from Hong Kong and Taiwan in the early 90’s went back home as they hated our taxes or couldn’t fit into society.

Immigration has most likely already been factored into Vancouver’s real estate market. If you’ve taken transit recently, attended a popular event such as the HSBC fireworks, or visited a workplace, it’s easy to see that a large percentage of potential immigrants have already come here. Contact a luxury vehicle dealership and you’ll find that many of their recent clients are wealthy Asian immigrants.

Once overseas/China’s economy cools down, those who come to Vancouver will do so to find a better life/improve their economic status. There is no guarantee that this type of immigrant will be able to prop up real estate prices.

I do however, hope I’m wrong as Vancouver area consumer confidence will, like it did in the USA, drop like a stone, if real estate price plummet.

Let’s all hope that the Canadian dollar tanks the way Garth says Canadian real estate prices will !!!!

#13 squidly77 on 07.26.08 at 1:24 pm

“There were 9,199 dwellings vacant — 2.23 per cent of the total units. That’s up from 5,825 vacancies in 2007, or 1.46 per cent.”
9,199 EMPTY UNWANTED CALGARY HOUSES how many ways can you say busted

#14 michael-you lose on 07.26.08 at 1:41 pm

Garth, do you think Alberta has the best chance in the country to weather the storm, or the least? Can you do a blog topic on this?

#15 Jon B on 07.26.08 at 2:26 pm

Rough seas ahead no doubt. I hope history records the impending ” debtpression ” as an example of what happens when the need to borrow excessively is met with equally excessive loose lending practices. An experiment gone bad.

#16 JW on 07.26.08 at 3:46 pm

Real estate is the easiest game to play. Just follow the cycle. If the market is trending up, buy and go with the ride up. But, there are also many signs from all over, early ones from a far, and much later ones from local markets.

Months ago smart money should have already started leaving the housing markets especially Western Canada like Greater Vancouver. For those who are selling. drop your prices and get out fast. The 10% to15% drop in prices is just the start.

#17 Sam on 07.26.08 at 4:15 pm

State of Oakville:

** Would be nice to see state of other areas Real ‘State’…

I went out on a drive by today just to see how many for sales’s and open houses are there. I don’t know about other areas but I can it is starting to go down in Oakville for sure now.

Lot’s of ‘ New Price’ and ‘ Reduced Price’ one’s available with no one parked cars for showings. Some open houses are still flying balloons on the front yard to attract visitors.

Well I guess it’s time for time to get the balloons replaced with ‘ Inflated Condoms’ on their front laws, because they are essentially F*^%$D!

#18 Bob S on 07.26.08 at 4:19 pm

I’m an American watching with amazement as Canada follows in our disastrous real-estate footsteps. I recently read “Greater Fool”. It’s amazing to me that Canadians don’t see your predictions as self-evident, Garth, but then two years ago I remember the reactions to similar prophecies here were the same.

I’m very curious about one thing: In the U.S., we securitized most of our mortgage debt and pawned it off on an unsuspecting world. I gather, however, that Canadian banks still own most Canadian mortgages (with some portion government guaranteed?). What will this mean when these mortgages really begin to (no pun intended) head south?

#19 Sam on 07.26.08 at 5:14 pm

Bob S,

We will then become the 53rd state. Can’t you see ?!?
(No pun intended).

#20 Sam on 07.26.08 at 5:16 pm

sorry.. I meant the – 51st state.

#21 islander on 07.26.08 at 5:20 pm

Rick, if you’re looking for smug, check the mirror.

#22 John on 07.26.08 at 6:00 pm

If you watch ROB TV you’ll see the most hilarious bank analyst from TD. The guy basically says that the Canadian housing market is solid and the banks are totally fine. There’s no problems here.

#23 Rick on 07.26.08 at 6:02 pm

#7 Iam on 07.26.08 at 5:45 am

=====================

Maybe, but from someone who worked briefly in Fort Mac for short term contract work I can only say that it is hell on earth. Sun rises at 11:00am in the winter and it is -40. I admire and respect anyone who can live there and keep a smile on thier face, I can’t. Edmonton and Calgary are great in comparison, in my opinion.

#24 Sam on 07.26.08 at 7:01 pm

Can anyone tell me what’s the existing morgage rates people pay ? Do banks give variable at 5% down or 3 year min ?

#25 Charles on 07.26.08 at 7:44 pm

The following paragraph is taken from an article (written by Bill Bonner) on the Daily Reckoning web site dated July 24, 2008.

“When people spend too much money…when speculators gamble too recklessly…when the government gives out to much cash and credit – there have to be consequences. A free market is not a system designed to give people a free lunch. It’s designed to make them better people – by rewarding them when they do the right thing and punishing them when they do the wrong thing. For the last 20 years – at least – people have been doing things that the old economists would have regarded as ‘moral failings.’ That is, they’ve been spending more than they make…for example. Now, they’ve being punished. They’re being re-educated. And they’re going to end up poorer…but wiser.”

If anyone wishes to read the entire article the following is the link to it:

[url]http://www.dailyreckoning.com/Issues/2008/DR072408.html[/url]

#26 Calgary rip off on 07.26.08 at 7:52 pm

Garth:

Keep up the good work. Your site is a treasure grove of useful info.

Iam: You think that Alberta is the solution? Calgary is a nice city, however it is extremely expensive for housing and therefore difficult to get ahead. People may be attracted here initially and find it difficult to stay afloat. I dont believe it will be so easy to attract workers here as in the past. Unless you make around $100,000 per year, I wouldnt recommend coming here unless you want to live in a hole. Add to that financial ridiculousness is the progressive conservative government in power here…Ed Stelmach with his non rent cap and minimum prices on alcoholic beverages at bars starting in August…

Squidly: I think you wrote a better article than the Calgary herald. As per usual, the Herald is spreading propaganda about Calgary about how there is no problem here or worsening issues. What a joke!!! Hopefully there will be more and more homes so that houses here will be priced what they are really worth(around $200K for the most part) instead of this bullshit.

Keith in Calgary: Right on. Another smart renter like myself. Wait with joy for the speculators/bulls to implode….right on.

Hopefully they fire Mario T. at the Calgary Herald for his inaccurate reporting of the dismal situation in Calgary.

#27 My_view on 07.26.08 at 8:31 pm

Asians will keep B.C. market afloat, LMAO, why would anyone invest in this bloated Canadian market. Let me see, California, Nevada, or Florida. Those markets tanked and investors (Asians) can pick up mansions in sunny (no winters) cities for less tahn the crap they are tring to sell out west. Give me a break………….

#28 $fromaSia on 07.26.08 at 8:53 pm

My_view, shared!

#29 Shifty on 07.26.08 at 9:07 pm

What’s this stuff about buying gold and why? Do you mean go down to the Royal bank and buy the real thing or buy futures or stocks. Don’t get your reasoning – still remember friends buying silver years ago, thought they were crazy then, and watched them loose their shirts.

Victoria BC RE. softening, condos and attached in trouble.

#30 Rick on 07.26.08 at 10:14 pm

My_view & $fromaSia want us to believe we have found the greater fool! Good luck with that, ok?

#31 My_view on 07.26.08 at 11:10 pm

Rick,

???????

#32 David on 07.27.08 at 3:46 am

The perfect storm hypothesis seems sensible. Potential write downs on mortgages will not be offset by the ability to raise new capital. The housing market is normally composed of about 40% first time buyers and price, mortgage availability and affordability quite simply are no longer there. The market data seems to suggest something more akin to an asteroid shower than a perfect storm. No plankton and the Leviathan can not eat eventually. Refinancing options for existing home owners who paid too much and are in negative equity territory look very unpromising.
With rising food and fuel costs and a weak labour market, there will be a distinct lack of smiling happy couples willing to commit hundreds of thousands in debt servicing costs hankering to purchase $300K starter homes. The banks should really start burning those posters.

#33 rationalnational on 07.27.08 at 10:35 am

Shifty – the general premise is that global fiat currencies are being debased due to massive bailouts.

How? The central banks are monetizing bad debt by taking these structure investments (SIV/CDO/car leases/credit card debt) onto their balance sheets.

See the action in the US this weekend where the congress approved a bill that allows a budget of $800 billion for this activity.

See this article for where Mark Carney now has similar powers.

http://www.theglobeandmail.com/servlet/story/LAC.20080726.RBOC26//TPStory/Business

All this leads to the central bank balance sheets being trashed – ergo the currencies they back turn to trash.

What to do when currencies crash? Buy anything that has real, tangible value. Commodities – agricultural, base metals, precious metals, etc. are a good hedge.

Some would argue that gold is it’s own currency. It has been historically, but has fallen out of favour as the fiat orgy grew. It’s making a comeback – and could very well be the next “bubble”.

Remember, if you have american investments in your portfolios you would have to make a 40%+ return over the past 6 years to be in the black as the USD has lost that amount in that period. Proof enough?

Key message: Now is the time to preserve buying power (real value) – not grow fiat dollars in nominal terms.

#34 charles on 07.27.08 at 10:48 am

The following paragraph is from a recent article on the Daily Reckoning web site. It is written by Bill Bonner. Bill Bonner was one of the coauthors of the recent book titled “Empire of Debt”. I think this paragraph does a good job of summarizing the reason for our current economic woes.

“When people spend too much money…when speculators gamble too recklessly…when the government gives out too much cash and credit – there have to be consequences. A free market is not a system designed to give people a free lunch. It’s designed to make them better people – by rewarding them when they do the right thing and punishing them when they do the wrong thing. For the last 20 years – at least – people have been doing things that the old economists would have regarded as ‘moral failings.’ That is, they’ve been spending more than they make…for example. Now, they’ve being punished. They’re being re-educated. And they’re going to end up poorer…but wiser.”

#35 brazer on 07.27.08 at 12:15 pm

#18 Bob S

“I gather, however, that Canadian banks still own most Canadian mortgages (with some portion government guaranteed?).”

mortgages with less than 20% down require insurance which is provided by CMHC; so the banks are hedged in that respect.

more here if interested:
http://www.cmhc-schl.gc.ca/en/corp/faq/faq_006.cfm

#36 liverless on 07.27.08 at 12:37 pm

Credit tightening is a viscious circle. Tightening leads to less borrowers, meaning softer demand and thus worsening conditions (falling prices). This in turn leads banks and secondary lenders to become even more conservative and require even stricter standards in their practices. And so on.

This is what has played out in the US, and now we are starting to see it play out in Canada. Some of the commentary I’ve read about the removal of the 40 year and 0-down has tried to reassure by pointing out that the 35 year and 5% down is still availabl, and really what’s the difference?

This analysis misses the point. It assumes that the tightening away from the 40 year is a one time hit. It most assuredly is not. Falling demand now that the 40 year is gone will pave the way for the government to grow concerned about the 35 year, about 5% down, and about investment properties that will become underwater. This is just the first step on our way down a long plank.

#37 Spongerob on 07.27.08 at 1:13 pm

How low can real estate go? That is a question worth pondering whether you own a home or are on the sidelines waiting to buy, as I am. The root of it, as I see it, is how will people react to being reamed by debt? Also how will people react to seeing others have their lives ruined by debt?
Debt is a tool that can be used for good (investing) or bad ( personal gratification). This board is full of financially savvy people who know this but we are the 1% minority. After the great depression (which was also a debt washout) people swore off debt for a generation. Lenders were REALLY carefull about who they lent to as well.
My question is; will this bust have a “debt revulsion” effect or will we see a “wash, rinse, and repeat”, like we have for the last 50 years?

#38 nonplused on 07.27.08 at 2:12 pm

All they have to do is let inflation run at 10% for the next 5 years and have it flow through to wages and all will be fine. Unless you are on a fixed income or have a lot of cash assets or bonds that is. Then you are screwed. In an inflation the borrowers essentially steal the wealth of the lenders by devaluing the loan amount in terms of purchasing power. But I am sure the Russians and the Chinese won’t mind.

In a deflation the lenders take the assets of the borrowers as compensation for the borrower having defaluted on the loan, so it is probably the more just way to reslove bad debt. So it won’t be used. There is no way we are giving the Russians and the Chinese any real assets for thier money!!!

Problem is real inflation is already north of 5% but it isn’t flowing through to wages, so we get the worst of both worlds (debt deflation and asset inflation at the same time). This will mean the things rich people own will go way up in value while things working people own through leverage will go down in value.

#39 Maybe Garth Turner’s Not Such a Pompous Idiot After All » Grandinite on 07.27.08 at 2:58 pm

[…] of a book entitled “Greater Fool“, and has an associated weblog, greaterfool.ca. In his most recent post on Greater Fool, Garth discusses the perfect storm of factors hitting Calgary’s real estate market, […]

#40 EJ on 07.27.08 at 3:27 pm

#32 rationalnational:

Thanks for that link. What a horrible thing for Carney and Co. to do. They preach to us for ages about how the Canadian banking system is so much sounder than the American one, yet they’re just itching to change the rules and follow the same path the US did.

I think it’s been proven quite well that the US policy for central banking is an out and out failure. WHY on Earth would we want to copy what they’re doing? If banks make mistakes, banks should pay the price. Do not weaken the government or the dollar in hopes of fixing this. It will only make things worse for everybody.

#41 Calgary rip off on 07.27.08 at 3:31 pm

Garth:

What’s with the Calgary Herald article? One of my coworkers in his late 50’s with kids slightly younger than me commented that what the Herald will do is report on luxury housing when common folk cant afford normal homes or shift focus to whatever market is doing well rather than unbiased reporting of all three sectors, single family homes, condos, and luxury homes. His son is a journeyman electrician, makes $36 bucks an hour and cant afford a decent home. How screwed is this?

I sometimes read the Herald economics section in the morning at work, just to get angry about something about how screwed up they are. I probably shouldnt do this because this paper is too far gone and wont change(conservative). Perhaps all their staff is on uppers to keep the blinders up to what is really happening in Calgary. Its amazing truly that anyone is concerned about prices going down in Calgary, because it is unlikely that these homes will ever reach baseline to what they are really worth.

Consequently although my job pays good, I am actively searching other job offers so as to get out. I know I am not the only one.

Its all glorious if all you have been exposed to is Calgary single family homes. I know differently. It is not normal to pay $350,000 for a small starterhome with a 8 foot distance between your house and your neighbors. This isnt New York City or Brooklyn!!! Its cow town which is supposed to be affordable…at least it used to be…4 years ago.

Of course conservatives would probably say deal with it. For $200K it would be ok, but not for $350K.

#42 Shifty on 07.27.08 at 3:35 pm

rationalnational
Understand what got us there, don’t understand the extent of the continuing fall out and effect on assets (savings, RRSP’S, ETC.). Realistic shelters or safe harbors to best preserve more mobile assets is now becoming a major concern. I will be interested in Garth’s coming days reviews on the subject of shelters. Seems I misjudged the extent of the fall out of this credit mess.

#43 Sold Out of Cowtown on 07.27.08 at 6:51 pm

Hi Garth, I appreciate your opinion and have watched the RE market do exactly as you predicted since reading your book in May. I’m really curious about what you think about the CAD? Do you believe that the USD will take a major tumble, like others and if so where does that leave the CAD? Should we put our money in the Euro, or precious metals?

Yes, the USD has no reason to rise, since the financial crisis is still just unfolding and the housing disaster deepens. That means upward pressure on the loonie, which will exacerbate the employment and export situation here. The good news it is will help to hold the line on interest rate increases which otherwise would take place. If you are into currency trading (I’m not), then betting against the greenback seems like a reasonable play. Be aware of the danger involved in such trading, however. — Garth

#44 Sold Out of Cowtown on 07.27.08 at 7:07 pm

One more question, when do you expect the Amero to replace the Loonie? Would we get a better bang for our buck, the Loonie for Amero, or the Euro for Amero?

There will be no currency union. Put the tin foil hat away. — Garth

#45 Peter on 07.27.08 at 10:42 pm

The truth is, Mr Carney has still injecting liquidity into our banking system every single week to keep the markets flooded with money..and on the other side, He is keep telling us and the world, Canada is doing fine and great and we should be avoiding the perfect storm…How can you believe what he is telling us is right ?

#46 Dig Dug on 07.28.08 at 12:18 am

The attached statistics on the Toronto housing market show that prices are currently 4.18x the average household income. This is 45% higher than the PEAK of the last major housing bubble in 1989, when only 2.87x the prevailing average income was required to purchase a home in Toronto. And to think that Vancouver is even worse!

http://multimedia.thestar.com/acrobat/50/79/d004eda0453f8443bb506994c2ad.pdf

#47 Doug on 07.28.08 at 1:34 am

Surprising, some places like Saskatoon are still in denial that they too will follow Alberta’s price decreases, and really should experience an even larger price decline:

Alberta wages are higher/grow more than Sask.

Comparable Edmonton Real Estate now < Saskatoon!

Saskatoon is actually losing population, down 2,000
http://www.canada.com/saskatoonstarphoenix/news/story.html?id=4c0536a2-24b0-40d6-9cc7-e87c286159a9

Alberta, with better, higher paying, lower taxed jobs and lower crime than Saskatoon is in many cases cheaper. How does that make sense?

Oh, and Saskatoon also has record inventory, over 1,500 on MLS alone, for a city of 200,000, that’s shrinking, and had 50 sales last week. So I guess 30 weeks of inventory. And growing. Sales shrinking, like the population.

#48 Fred Fnord on 07.28.08 at 2:34 am

Quoting someone above:
Now, they’ve being punished. They’re being re-educated. And they’re going to end up poorer…but wiser.

Or dead. I’d be very surprised if a significant number of them didn’t end up dead. So leave off with the ‘poorer but wiser’ crap unless you’re very sure you’re not living in a glass house. And even then, throwing stones at starving people isn’t typically considered a gentleman’s sport.

Personally, given that most of my skills aren’t useful in a badly crushed economy, and that’s where I see us heading, I think that I may well end up being one of the dead ones. I have no debt and a bit of money put by, but since I have no idea what to do with it (‘buy gold!’ worked fine when there were currencies with a gold standard, but there’s no guarantee that anyone will give a shit about gold this time around) it will probably end up disappearing along with everyone else’s money.

And I live in the US. We’re honestly not very good at helping people who don’t have any money. We seem to think, for example, that the streets are a great place for them to sleep.

-fred

#49 patriotz on 07.28.08 at 5:47 am

All they have to do is let inflation run at 10% for the next 5 years and have it flow through to wages and all will be fine

The problem is that it won’t flow into wages. Back in the 70’s there were strong unions that were able to keep up with CPI inflation. Thanks to Mike Harris and friends and globalization that’s no longer true.

Exactly what’s been happening south of the border – highest CPI inflation in decades and tanking house prices. You really think wages are going to go anywhere during a protracted US (and Canada) recession?

Oh higher inflation invariably results in higher interest rates too.

There is absolutely nothing that can save house prices.

#50 grandeprairiegirl on 07.28.08 at 6:24 am

#43 Sold Out of Cowtown
I think Mr. Turner may be incorrect.
A common currency could be a reality as early as 2012 is my guess. It all depends on how quickly the NAU (North American Union)is fully implemented. Laws & regulations are already being drawn up & signed, that is fact. Look to the European Union as to how the different currencies were combined and converted.
Google NAU and I’m sure you’ll find plenty of articles.
http://www.globalresearch.ca is a good site.
Had the pleasure of purchasing a new Weedeater at Canadian Tire a couple of weeks ago. What do I see on the box but the three flags together in a small outline,U.S.,Canadian & Mexican. It’s coming soon !

#51 Keith in Calgary on 07.28.08 at 11:28 am

Leave it to the egregious swine that run the Bank of Canada to announce on a Saturday no less that they will now take pretty much worthless US and Canadian ABCP, as well as US treasuries, and any other crap paper as collateral for overnight loans to financial institutions.

http://globaleconomicanalysis.blogspot.com/2008/07/bank-of-canadas-monkey-see-monkey-do.html

I am going to move my money out of Canada in 1-2 weeks. Enough is enough. We’re toast……

#52 Keith in Calgary on 07.28.08 at 11:28 am

Leave it to the egregious swine that run the Bank of Canada to announce on a Saturday no less that they will now take pretty much worthless US and Canadian ABCP, as well as US treasuries, and any other crap paper as collateral for overnight loans to financial institutions.

I am going to move my money out of Canada in 1-2 weeks. Enough is enough. We’re toast……

#53 Vlad Poutine on 07.28.08 at 12:31 pm

Travelled to the Okanagans and the Kootenays lately and you will see most of the big honking SUV’s and trucks are Albertan plates. They actually think they are making the smartest move buying all the property between Kelowna and Fernie it is not even funny. Seems that they are just raking in the dough in Alberta, just to bring it all to Beautiful B.C. to buy up the property here. I can so see that they just want to make the dough and leave Alberta, but eventually settle down in B.C. or Sask. even though both provinces have higher sales tax. Still, cannot blame them though considering I have been to Calgary and Edmonton and do not see anything impressive after seeing the raping and pillaging of the landscape around there. There is no such thing as urban planning or eco-density compared to B.C. And where there were once pristine areas around Banff, Jasper or Canmore are now super commercialized and expensive now. They of all people are going to be so screwed when this RE bubble hits.

#54 Sam on 07.28.08 at 12:45 pm

grandeprairiegirl, Amazing site you gave http://www.globalresearch.ca exposing the ugly face of Americans. I hope the killers of humanity pay a heavy price this time.

#55 Mike on 07.28.08 at 1:27 pm

Doug from post #46. It is not just out west that is in denial Doug. In Toronto prices are still sky high. Bungalows are easily 500K and in some cases much more.
Just saw a two storey on the weekend that needed everything and they are still asking $720K. Whether they get this is another thing all together. So I guess you can take some comfort in knowing that other places are still very very crazy indeed still. The sellers just expect bidding wars and at least 10% over asking because that is what the market has delivered.
Hopefully this time next year all of the BS will finally hit the fan.

#56 anonymous on 07.28.08 at 1:43 pm

Keith,

Where do you plan to put it? I agree, the Canadian dollar is way overvalued and is due for a correction.

But as far as I can tell, the US is the only place, as they were the first to enter a bear market, and they will be the first out. The rest of us will follow… years behind.

There’s more pain in store, but the big US financials have taken the brunt of the pain so far. Other countries are feeling the pain from the US, but soon they will have their own housing problems. Look, today Britain and Germany announced that their housing is falling. That’s not a good sign.

It’s too early to put on a LONG US financial / SHORT Canadian banks because the bastards trade together right now… but soon. Oh, yes, very soon.

#57 smwhite on 07.28.08 at 1:46 pm

Keith in Calgary,

I hear you on that, I’ve been wondering if the ABCP will get sorted in with some of the money market funds.

With the TSX so heavily weighted in Banks and Energy there is little upside for 2009.

I’ll be curious to see what people here come up with as shelters and strategies. I moved half my RRSP into a GIC last year, glad I did but the 4% return is barely enough to keep with inflation, same with treasuries, only getting 5% there.

SO what do people need to live, they don’t need stainless steel or granite counter tops. I think its time to start buying into utilities if anything, that and the sin stocks, tobacco and alcohol. If you can get European or Asian companies even better…

#58 anonymous on 07.28.08 at 1:52 pm

Fred Fnord,

It’s your lucky day. I’m going to give you a financial education.

Economies go through two stages… expansions and contractions.

When you are at the beginning of an expansion, you want to borrow as much money as you can to invest in assets… like housing, stocks, bonds, businesses, etc. The beginning of the last expansion was in 2002-2003.

When the economy starts to contract (as it has been doing since spring of 2008), you do the opposite… you need to pay off all your debt, dump your overpriced assets and hunker down for a while. Conserve cash!!!

Why? Because at the beginning of the expansion, banks are shell-shocked from the recession/slowdown and don’t want to lend money. Prices are cheap, cheap, cheap on everything but nobody has any money. But, that’s ok because you have money.

Got it? It’s hard because everybody around you will be doing the opposite of you. It’s a very lonely road, but you will be wealthy.

The problem with most people is that they are either a bear or a bull all the time. So, they always break even in the end.

Be a bull or a bear when it’s appropriate. So, right now (for the next couple years) you can be a bear. You have my blessing.

#59 $fromaSia on 07.28.08 at 3:20 pm

I read somware that CHMC is forecast drast interest rate increase for the next few years.

Can somebody here clarify this?

Something about 8-10%!?!

#60 Sold Out of Cowtown on 07.28.08 at 3:23 pm

Hi grandprairiegirl, I know I’m wondering how the new NAU and currency will affect us. The Amero’s been already reported on Lou Dobbs on CNN. As far as the put the tin foil cap away comment I take it with a grain of salt, I doubt an elected MP can comment on the change of currency at this stage of the game.

As far as the so called conspiracy websites I find them more informative and honest than main stream media. Thanks for the link, I’ve already bookmarked it :).

#61 Keith in Calgary on 07.28.08 at 3:29 pm

Anonymous at 1:43 PM…..

“the Canadian dollar is way overvalued and is due for a correction”

Correct……..

There are countries out there that did not have a housing bubble, countries where mortgages and easy money do not exist…..that have sound banking systems, stable governments with bonds that have yields in excess of 10%, as well as economies on the upswing. They are few….but they are out there.

I have an apartment in one of these countries and a wife from there.

smwhite……

The ABCP restructuring was a joke. The paper is only worth what someone will pay for it…..and I’d bet you that no one buys it when it starts “trading” again…….the fact that the BoC is following in the idiot Bernanke’s footsteps is enough for me to lose financial confidence in Canada as a safe haven.

Why take garbage as collateral when you know it is garbage ?

#62 Sold Out of Cowtown on 07.28.08 at 3:35 pm

Sam, I don’t like the USA either but the people in general are totally clueless about whats happening in their own country and what their doing internationally. A friend from work asked his brother in-law in Seattle recently about the housing crisis and how it was affecting his area, he had no idea what he was talking about! Most people there only know whats going on in their own little state and are more concerned about the penant races and football training camps. Bread and Circuses, we’re no better, it’s actually scary.

#63 My_View on 07.28.08 at 4:14 pm

Same sh*t, different smell.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080728.whomesales0728/BNStory/Business/home

#64 Rob M on 07.28.08 at 4:21 pm

#49 grandeprairiegirl

I would agree with Garth on this one to say the least.

Europe had been talking for eons about the flimsy union they have now – I really can’t see N America clearing the various and numerous hurdles they took forever to overcome [and still are] in a scant 4 years.

#65 brazer on 07.28.08 at 5:53 pm

Bell Canada to cut 2,500 jobs to lower operating costs ahead of takeover
http://ca.news.finance.yahoo.com/s/28072008/2/biz-finance-bell-canada-cut-2-500-jobs-lower-operating.html

“Crandall said he expects another 500 to 1,000 jobs will be cut over time as the company makes strategic changes to its workforce, which numbers about 40,000.”

#66 Independent in Calgary on 07.29.08 at 12:05 am

Garth, I enjoy your blog and have been pretty much preaching the same message for a couple of years now, but quit blaming the high Canadian dollar for our export woes. For decades the Liberals used a low dollar to prop up an uncompetitive export manufacturing sector, much in the same way the Conservatives are using high oil and commodity prices to hide the crappy outlook for our exports.

Instead of putting dead industries like the auto industry on life support, let’s use some of that green shift money to produce the components the world needs to switch to clean energy and put Canada back on the forefront of innovation, manufacturing and the environment.

#67 Suzie Orman on 07.30.08 at 10:52 am

I wonder if we will be lucky this time and skate by this recession. Perhaps we may get another rich immigrant wave coming from China, India, Korea or Russian to sustain our real estate market. Something the rest of Canada does not have to fall back on.As far as the so called conspiracy websites I find them more informative and honest than main stream media.

#68 Jamie on 07.31.08 at 1:50 pm

Garth, what would you recommend someone do in this real estate market if you already own your home? I’ve been in Calgary 10 years and bought a home when I moved here for $150,000. I own it outright, mortgage free and in the current market could expect to get about $300,000. Now, assuming I don’t want to leave Calgary and I’m already at the entry home level so downsizing isn’t an option, is there really anything I can do other than sit back and absorb the paper loss in the value of my home?

#69 Keith in Calgary on 07.31.08 at 2:36 pm

Sell…rent…and buy a nicer one than you have now in 3-4-5 years for less than the $300K your is worth today.

The interest you could get is 4%…..so $12K a year interest income kinda offsets the $18K of rent you may have to pay.

#70 cmh on 08.01.08 at 11:59 am

The article in the Calgary Herald sent shivers up my spine. Rachelle Starnes and Ted Zaharko are realtors not economists. It is frightening that there are people who will take their word at face value. It is even more frightening that these realtors make these claims and assume that we are gullible enough to believe them. It would behoove these realtors to keep up with the global geopolitical climate. If they were reading the Telegraph in London, The Business News in Singapore, the NZ Herald, the LA Times – a different picture would appear. Further, the independent economists out there not employed by the banks or the real estate companies are providing valuable information. Clearly, this is a global situation and Calgary is not immune. I sense they really are acutely aware of what is unfolding, but it is not in their best interest to share this knowledge with the general public.

#71 ForexFires on 08.21.09 at 11:18 am

Keep up the good work