The seeds

Credit crunch hikes Cdn mortgage rates, here.

Market dives on bailout dithering

I hope to post some further thoughts on the precarious position we are all now in, within a few hours. Needless to say, things are not getting better. I mean, last night the biggest bank failure in US history occured, and it was not even the lead news item this morning. Yikes!

The $700-billion bailout of Wall Street looks decidely iffy. Even if it takes place amid the posturing positions and shifting platform sands of Obama and McCain, it will likely be a fatally flawed rescue, bound to come unseamed in the coming months. Sorry to say, but these are just the early chapters of a story with much more to come. And so long as instability reigns, residential real estate will be the victim.

The Canadian market is doing exactly what I forecast. This will continue. Declines in prices of 10% or 12% in Alberta will become 20% and 25%. Vancouver ultimately will be even harder hit, and Toronto values will drift lower at the end of 2009 by about 15%. Some neighbourhoods, far more.

The deniers will keep it up. You could hear more of that this week on CBC and CTV, as the bank economists and hopeful, battered, savaged realtors were trotted out to bolster confused consumers. Hopefully, Canadians will trust their sense that all is not well, and avoid being talked into a purchase at the very time when equity is most at risk.

Yesterday a local sent me the real estate board report for one market I am campaigning in – Milton, the fastest growing town in Canada, where there are acres and acres of subdividions full of fresh-faced young couples who bought in many cases with 1.5% down. They lusted after granite counter tops and the perceived financial maturity and stability of a new home, and were lulled into this by builders, agents, banks and families who all believed (or profited from) the cult of the house.

The average price in Milton last month was 9.4% below year-ago levels – and this is in the one area of the GTA (an area of about 4 million people) with the most frenetic real estate activity. in practical terms, this translates into an average price of $330,000, down from $365,000. Do you have any idea what this means to a young family with no equity, and a big mortgage?

In this you can see the seeds of a Canadian meltdown. If you can’t, call the CBC.

BTW, the article below is in the Globe today:

New economic climate puts chill on Toronto real estate prices

The country’s largest housing market, Toronto, is slowing as sales drop and a decade-long run-up in prices stalls.

Recent figures show prices have flatlined across the Toronto region, and in both middle and high ends of the market.

The soft market and forecasts of more of the same ahead do not signal a U.S.-style tumble, experts said yesterday, but rather point to a dawning realization that sellers can no longer count on unrelenting price hikes to boost their worth.

Fuelling the new reality was a move yesterday by two banks – TD Canada Trust and Bank of Montreal – to raise mortgage rates in Canada as fears of inflation resonate through the bond market and U.S. lawmakers edged closer to a deal on a $700-billion (U.S.) bailout plan for Wall Street banks.

“Revise your expectations going forward. It’s not a valid assumption,” TD Bank chief economist Don Drummond said.

“Unless you are skillful on the timing or you are lucky you don’t tend to make a killing on real estate.”

Home price declines have already hit Calgary, Edmonton and Vancouver, and now cracks in the market appear to be spreading into Toronto. Existing home sales activity dropped by 22 per cent in August from the same month a year earlier, while prices edged up by just 0.8 per cent, according to the Canadian Real Estate Association.

Though cooling off, the Toronto house market has not hit the wall, according to Mr. Drummond and others.

“We have gently nudged the wall,” he said. “I expect barely positive [price rises] over the next little while.” But he went on to ask and answer his own question: “Are they going to come down Miami style? Absolutely not.”

According to the Toronto Real Estate Board, average house prices dipped 1 per cent in August over a year earlier but climbed in the first half of September. For the first half of this month, the board recorded 998 sales, a 23-per-cent drop from the same period a year ago.

As of mid-month, the average house price in Toronto was $386,524, up marginally from the same period a year ago and 12 per cent higher than 2006.

There is still a lot of money in the market, contended Michael Polzler, executive vice-president and regional director, RE/MAX Ontario-Atlantic Canada, with people with realistic expectations still able to sell their homes.

But he cautioned that homes are likely to stay on the market longer than during the height of the boom, and sellers shouldn’t expect bidding wars.

This is good news for buyers who until recently had no crack at markets such as central Toronto, he said.

Now these shoppers

may have a chance to get

into desirable markets and make more careful purchases than they did in the past, he said.

In the luxury home market, Toronto was among five of 15 cities that experienced year-over-year sales declines, according to a report yesterday by RE/MAX.

Sales of homes listed at $1.5-million or more dropped from 505 in the first seven months of 2007, to 487 in the same period this year.

The timing of the slowdown comes as Toronto homeowners brace for word next month from the Municipal Property Tax Assessment Corporation on changes in home property values since 2005.

Earlier this month, the agency said that as of January, 2008, property values have risen an average of 20 per cent across the province.

PAST THE PEAK?

Average house price in the city of Toronto
Aug. 2006 $344,419
Aug. 2007 $381,681
Aug. 2008 $377,990
Volume of sales
Aug. 2006 2,706
Aug. 2007 3,243
Aug. 2008 2,437

SOURCE: REAL ESTATE BOARD

126 comments ↓

#1 George Popovic on 09.26.08 at 8:14 am

Washington Mutual, the largest bank to fail in US history. The shareholders are wiped out, over 60,000 emplyees wondering what hit them…what about pension funds and all the other fallout that will never make the news?

The bailout is on the rocks and there appears to be real anger on the streets.

Interesting but disturbing times.

#2 Peter in TO on 09.26.08 at 9:04 am

Hi Garth,

I do not mean to be a pest, but I really would love to hear your viewpoint on CMHC and the results this 0% down will have on the balance sheet when the shit hits the fan in a year or so.

Thanks

#3 Interest Rates on 09.26.08 at 9:11 am

Can’t wait to see interest rates go up and the young couples start feeling pain in the pocket book. Yes that’s very negative but the central bankers who control our economy don’t care about us. Personal Real Estate is a consumable not an investment. It does not always go up, supply and demand is king. Inflation gives us false hope and worth!!!

#4 Peter in TO on 09.26.08 at 9:48 am

Here is a great article from the Globe.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080925.wreconomy25/BNStory/Business/home

It indicates why we are looking at a real deficit when you factor in a real price projection for oil.

Another great lie from the Harper government.

Peter

#5 Calgary rip off on 09.26.08 at 10:03 am

Garth,

25% off an already overpriced market is nothing in Calgary, unless you bought at peak. As it stands, it is extremely unlikely to ever go back to affordable levels in Calgary. Calgary is done. Forget about recruiting workers to come here unless they are foreign or in dire straits. I relocated here only because there were no other options in terms of my profession. I would have stayed on Vancouver Island where I trained, but there were no positions. So I interviewed around 20 landlords in the 0.5% vacancy rental situation in 2007 and rented a house. Due to the situation that you mention, I am watching mls and employment options elsewhere. Calgary is the biggest joke for housing that I have ever seen. Talk about arrogant. Look at some of the houses on mls. Homes here that are double priced what they were built for. “It”s the market”. What needs to happen is to get oil and gas out of this town. These incomes are disrupting essential services and affordability. Besides, oil is harvested in Fort McMurray. Until the “oil” is put into gas pumps locally and gas prices come down in Calgary, oil execs/workers have no support.

#6 prairiegopher on 09.26.08 at 10:20 am

Even in red-hot Saskatchewan things are beginning to melt. I spoke to a veteran realtor the other day who told me she had listed a home for 299,900 4 months ago. It finally sold for 249,000. A 50,000 haircut. So if your thinking of buying I would wait for a bit and let the dust settle on this mess.

#7 Jordan on 09.26.08 at 10:25 am

Garth, the population of the GTA is more like 5.1 million (5.8 million if you include Burlington and Oshawa).

#8 Aaron on 09.26.08 at 10:27 am

Garth:

As hinted at in your book, it’s becoming increasingly clear that many economists see only rainbows and lollipops ahead for the Canadian economy. Like real estate industry experts telling you that it’s never a bad time to buy.

Many ‘expert’ economists cited in the media work for banks or financial institutions. That doesn’t mean we should discredit everything they say, but there are certain incentive issues involved. Economists have wealth portfolios. They invest like any other Joe Blow. If their bank has a high level of exposure in housing, would you necessarily trust their analysis?

No economist wants to be the one responsible for issuing a dire warning that leads to a market decline. If you see an economist making a prediction that deviates from the general consensus, it’s probably a prediction towards the upside, like Rubin’s prediction of $200 and $500 oil.

This is why the Fed and Bank of Canada choose their words in a delibarate and formulaic fashion.

I was at a luncheon recently where an economist was giving his outlook for the Canadian economy. He related a story of an interview he gave for the local media. His benign comments were then distorted into some sort of radical prediction he didn’t make. Naturally, he now asks if there are any media present in the room before answering any tough questions. I can see why. Not many economists want to be Chicken Little, save for, maybe Roubini at NYU.

And let’s not forget that Canada’s economy lags the US by two years in terms of general popular trends. My evidence for this is anecdotal at best. But, in living in the US and Canada, it seems that things like the iPhone, fashion trends, slang and some financial instruments take a while before they are adopted in Canada. The subprime mess became apparent in the US back in August 2007. Maybe we won’t see the effects work their way through the Canadian economy for another year or so. I’d suggest that Canada’s economists are right in their rosy predictions. About as right as Hank Paulson was before he was blindsided by this mess. Economists can’t predict the future. They can only make educated guesses. And many times their prognostications err to the upside, because nobody wants to anger the market.

Finally, this bailout is not a one-time shot. It’s a line of credit. As long as the Fed pays off the loan (by allocating tax dollars to it, and borrowing for, say, medicare), the Fed can buy these debt instruments ad nauseum, ad infinitum.

Re: George Popovic’s comment:

As for unrest in the streets . . . October 1st is the Fiscal year beginning for the US government. On October 1st, 500,000 US troops will hit the streets of America. *adjusts tinfoil hat* I just find that a bit odd and have made a mental note of it.

#9 lgre on 09.26.08 at 10:34 am

where did this Drummond fellow get his education from? hopefully he is protesting to get his money back because he didnt learn sh*t. As for Milton, been there done that and yes houses are wayyyy overvalued but if you ask a local, they will tell you rightfully so, denial? yes indeed. Mattamy the biggest builder there with all the awards is now becoming one of the worst builders, people moving into houses without sinks, toilets, cracked foundations, leaky roofs and the list goes on. Glad I sold my cardboard box.

#10 Its Coming!! on 09.26.08 at 10:45 am

Hey Guys!!!!!!!!

I need some cash! I bought a house thats 17000 sq ft and a brand new lexus but I don’t got the money anybody wanna bail me out, I only need a few billion.

Thanks

I take cash!!!!!!!!!!!!!!!!!

#11 So what on 09.26.08 at 11:12 am

On an unrelated note to insurance, do you guys know that bank accounts (RRSP, GIC, Savings) are only insured to 100K, so if you sold your house and have something in the bank or your RRSP is now over 100K, the amount above is not insured in case of Bank problems like WM.

You better have multiple accounts in multiple banks I guess.. anyway why do I care :)

#12 The Tallyman on 09.26.08 at 11:53 am

Funny how the rain continues to fall on Harper’s peachy keen it won’t happen in Canada outlook of a few days ago.

Harper’s top adviser must be Mr. Magoo.

What’s happening South is giving Canadians advance warning and time to get our affairs in order.

Mortgage rates have increased.
Toronto is admitting a foul smell is in the air.
Realtors are spewing that Sellers should be realistic.

Don’t count on old Steve…

#13 Mises of Milton on 09.26.08 at 12:12 pm

Garth–
As one of your longtime readers and a proud constituent, I have a couple of market/policy question for you: Do you see a shift among policy makers towards a more Austrian-centric economic outlook? Or do you think Keynesianism will continue to rule the day because it will always be easier for politicians to say “let’s throw money at the problem/spend our way out of the recession” than trying to explain to the financially illiterate masses that cyclical downturns are as natural and unstoppable as the tide? Do you think that international governments will fundamentally reconsider how leverage is allowed to be implemented in their markets? Also, do you think we’re inextricably tied to the Federal Reserve/fiat currency system? Or do you see some kind of consensus emerging that the current approach of having American currency as the senior reserve currency leaves too many countries hostage to American policy?
Finally, do you think you or some similarly erudite MP could ever pass some kind of legislation mandating that all sitting MPs pass some kind of financial history/competency test? I wouldn’t see this as something partisan, just something balanced that ensures that our elected representatives fully understand the ramifications of some of the measures they propose. Call me crazy, but I get a little nervous listening to would-be national leaders talk about hiking corporate tax rates (b/c that’s how Ireland became so prosperous…wrong) or would-be MPs discussing price ceilings on gasoline (b/c those 5 hour lines in the 1970s proved how successful Nixon was with with that in the 1970s…)
Finally, to the list, I ask…can anyone else attest to being overcome by the “Garth Turner Paradox?” Symptoms include: Temporary elation that somebody in higher office gets it, followed by a prolonged nauseating realization that he’s the only one…

#14 Kash is King on 09.26.08 at 12:49 pm

#6 prairiegopher : “Even in red-hot Saskatchewan things are beginning to melt. I spoke to a veteran realtor the other day who told me she had listed a home for 299,900 4 months ago. It finally sold for 249,000. A 50,000 haircut. So if your thinking of buying I would wait for a bit and let the dust settle on this mess.”

Adding insult to injury, the homeowner would have netted @ $233k… don’t forget the Realtor’s 6% pound of flesh, plus GST on the pound of flesh!

In this kind of market, the successful Realtors will be the ones who can make the sellers see the light, sharpen their pencils, and git-r-dun!

#15 Mike.Slob on 09.26.08 at 1:20 pm

Still US has very,very good growth with Credit crunch situation.USA GDP is positive with double growth more than Canadian GDP and in despate of low FED’s interest rate 2% still $ US increased its value over 15% than CAD from November 2007.
So I think that we can’t talk about Depression in USA.
Because in Great Depression as 1929-1933, unemployment rate hit over 25%,and interest rates were over 10%, and from 1929 The Dow Jones Industrial Average lost 69% of its value before finally bottoming out in July 1932.
To 1932 in USA had 13.5 millions unemloyees and over 9,000 banks went into bancrupcy. No lenders.
That time in Canada was worst situation that US.

#16 Mike on 09.26.08 at 1:47 pm

Calgary Rip Off – “As it stands, it is extremely unlikely to ever go back to affordable levels in Calgary”

I don’t get this theroy, could you explain it? How can a market, be it housing, computers, bananas remain unaffordable.

The ‘average person’ must be able to afford an ‘average house’, over the long term, no? Supply and demand still works, no?, price is simply a function of that, it is all relative.

#17 The Tallyman on 09.26.08 at 1:51 pm

#6 prairiegopher : “Even in red-hot Saskatchewan things are beginning to melt. I spoke to a veteran realtor the other day who told me she had listed a home for 299,900 4 months ago. It finally sold for 249,000. A 50,000 haircut. So if your thinking of buying I would wait for a bit and let the dust settle on this mess.”

Kash is King said: “Adding insult to injury, the homeowner would have netted @ $233k… don’t forget the Realtor’s 6% pound of flesh, plus GST on the pound of flesh!”
—————–
Also if the Seller bought that home new….
They paid a Mountain of GST on their initial purchase.

I’d really like to see the GST scrapped on new homes
and lots, land etc.
Very unfair playing field.

Garth, what’s your view on this?

#18 Shifty on 09.26.08 at 2:01 pm

Housing will be the least of our problems down the road. We are going to be lucky not to end up in a major recession over this mess.

#19 BBC on 09.26.08 at 2:17 pm

I just read yesterday that the BOC might lower the interest rates??? I realize that the banks don’t need to follow but don’t they end up following eventually? Real Estate listing prices here in Vanc. are also getting lots of hair cuts!! I follow the MLS listings daily and just last week Starter Homes on the westside of Vanc. (900K – 1.1 Million..ha ha ha) have dropped in price 30K – 50K but they are still far from their true value. The price decreases need to come down at least 100K – 200K to refect their true value….this would be close in price to Real Estate in 2006!

#20 smwhite on 09.26.08 at 3:04 pm

The one thing I didn’t count on is the MSM actually PUSHING the RE situation DOWN because of this election.

Depending on what paper you read or news program you watch/listen too, its amazing to see the right still tout a strong economy and the left scream recession.

The mis-information war is on and media outlets on either side are taking the words of economists and twisting them in ways I’ve never seen.

There is no doubt after almost one year of negative or sideways growth, the tide is turning.

Watch the “players” as they try to save credibility, interesting times indeed.

Prime Minister Stephen Harper, in British Columbia for the federal election, responded to the investment firm’s warnings by repeating his assurances that Canada’s economy is in good shape.

Steve Harper – “I THINK(weasal word and shows a lack of confidence) our housing market is in strong position (and) consumer markets, as well, are stronger in Canada than the U.S. and the position taken by our financial institutions.”

Stornger the the US? I hope so Mr. Harper but that doesn’t give us a get out of jail free card. The old cliche when the USA sneezes the worlds catches a cold, well, its not a sneeze, its full blown terminal cancer, so what do we get with that?

We’re different, yeah, we’re oblivious to common sense.

#21 y3maxx on 09.26.08 at 3:09 pm

Ron Paul: Greenspan, Bernanke Should Be Criminally Charged …

http://www.infowars.com/?p=4868

#22 Rob on 09.26.08 at 3:11 pm

http://www.greaterfool.ca/2008/09/19/dead-cat-bounce/#comment-5828

in the midst of the craziness, a little morbid self-back pat on this one … i was off by one day

#23 y3maxx on 09.26.08 at 3:20 pm

GARTH GARTH GARTH…lol…

“”The Canadian market is doing exactly what I forecast. This will continue. Declines in prices of 10% or 12% in Alberta will become 20% and 25%. Vancouver ultimately will be even harder hit, and Toronto values will drift lower at the end of 2009 by about 15%. Some neighbourhoods, far more.””

…When was the last time Garth Turner was in either Alberta or British Columbia?

Western Canada does business with the Far East…Eastern Canada has no business partners, you have it backwards my learned friend.

…You are just spewing more sensasionilism.

Show some balls, write your new book.

“GARTH TURNER’S SOLUTIONS FOR CANADIANS IN THESE HARD TIMES.”

…Because your speculation sensasionilsm is not a solution.

jmo

Where have I been wrong so far? — Garth

#24 Bobby in Victoria on 09.26.08 at 3:45 pm

Here in Victoria, the business to be in is For Sale signs. Lots of them around and the amount keeps growing.
Lots of units, especially condos, sitting on the market forever.
It’s gonna get ugly!!

#25 Andrew toronto on 09.26.08 at 3:57 pm

From the predent bear good read .. how close are we really?

http://www.prudentbear.com/index.php/commentary/bearslair?art_id=10123

Creating a Great Depression
by Martin Hutchinson September 26, 2008
Financial downturns are unpleasant, but they do not need to turn into the Great Depression, which historians now agree was the product primarily of a number of egregious policy mistakes. For almost 80 years, we have thus felt safe from a recurrence of the “Great Depression” phenomenon, primarily on the basis of “we have learned from those mistakes – nobody would today be so stupid.” Sadly recent events suggest that this optimism may have been misplaced and that politicians, never the most economically intelligent of mankind, may be working towards the considerable feat of constructing a Great Depression – Mark II.

The bull market before 1929 was sold for a generation as unprecedented in size, representing an apogee of speculation that had never been seen before and would never be seen again. We now know that to be rubbish. Radio Corporation of America, the Google or Microsoft of the period, never sold for more than 28 times earnings, a generous valuation to be sure but nothing compared to the stratospheric prices reached by the more fashionable dot-coms in 1999-2000. The stock market capitalization to Gross Domestic Product ratio peaked in 1929 at 75%, above the long-term average of 58%, equal to the 1966 peak, but less than half of the 185% it reached in 1999 and still substantially less than the 105% of GDP at the end of 2007. Then there was housing, which in the 1920s enjoyed no great boom outside Florida (partly because mortgage finance was then very conservative) and so did not represent a giant overhang of overpriced assets ready to crush the economy when markets turned.

While the asset bubble awaiting deflation in 1929 was smaller than those of 2000 or 2007 (or that in Japan in 1990) the global economy of 1929 had other weaknesses. The world payments balance had not recovered fully from World War I, so continental Europe was dependent on loans from the New York money market, as was much of Latin America. US and most European tariffs were much higher than currently, while the British Empire was running an entirely self-defeating unilateral free trade policy, with a currency that was linked to gold and considerably overvalued – thus Britain had largely failed to share in the US boom of the 1920s.

Thus the imbalances in 1929 and 2007 were different, but fairly close to equivalent. In both cases, the world economy had shown robust growth over the preceding few years but had weaknesses which were likely to cause trouble in the long run. In the circumstances of 1929, it is now generally agreed that the following ingredients came together to worsen an inevitable downturn and turn it into the Great Depression:

1. a crash in asset prices, wiping out much wealth that had been thought secure,
2. a revival in protectionism early in the downturn, destabilizing the world payments equilibrium and causing world trade to decline
3. a series of serious banking crashes – the Bank of the United States failure of December 1930, followed by the Austrian Creditanstalt crash of May 1931, leading to a collapse in the US and global money supply which was not corrected by the Fed
4. a determined diversion of resources from the private sector to the public sector, initially in 1931-32 by President Herbert Hoover’s Reconstruction Finance Corporation and then by the New Deal
5. a panicky incentive-killing tax increase pushing up top marginal income tax rates sharply from 25% to 63%
6. a partial abandonment of basic principles of capitalism through the first New Deal, disrupting relations between buyers and sellers
7. a government-directed destruction of capital raising mechanisms, motivated by hatred of Wall Street and rendering risky debt and equity issues almost impossible for the next decade

As the political picture of the 2008 electoral transition comes into clearer focus, personality parallels with the 1929-39 period appear. The current presidential candidates eerily mirror the Presidents who presided over the Great Depression. John McCain is Herbert Hoover, full of populist denunciations of Wall Street that clearly come from the heart, but devoid of effective solutions to the economic problems the US faces. We can imagine McCain in the White House, after a year or so during which the economy proves recalcitrant, adding to the national pessimism by scowling angrily for the cameras at a fate that has left him confronted by a problem he cannot solve – or possibly borrowing some leftist solution like Hoover’s 1932 tax increase that makes matters much worse. As in 1931-32, the electorate would soon be counting the days until 2012, when another choice could be made.

As for Barack Obama, he is nothing more nor less than Franklin Roosevelt, empty rhetoric and all. “We have nothing to fear but fear itself!” rivals “Yes, we can!” in its mindless uplift and lack of specificity. Like Roosevelt, Obama would be full of clever ideas to solve the nation’s economic problems; like Roosevelt’s, his ideas would mostly be half-baked leftist panaceas that did more harm than good, prolonging the downturn and leading the nation a substantial distance further towards the nightmare of the leviathan state. His rhetoric is so good, however that the electorate would not notice his economic failures and would happily re-elect him as they did Roosevelt in 1936.

Given the grim political prospect ahead of us, we can now examine the checklist for Great Depression causation, and see how many we can check off for today’s leaders:

1. Asset price crash: Check! We’ve already had the crash in asset prices, twice, in 2000-02 with stocks and now with housing. As the stock market crash of 1987 demonstrated, asset price crashes don’t necessarily lead to Great Depressions, but they do thoroughly shake the financial system and reveal hidden weaknesses. This time around, there have been plenty to reveal.

2. Protectionism: Yes, but less severe. Protectionism is definitely reviving, but to nothing like the level of the Smoot-Hawley tariff. Obama’s threat to renegotiate NAFTA, combined with a substantial recession, could produce a substantial leap in protectionism. We can however have at least moderate confidence that Obama has no intention of actually doing anything so foolish as to reopen trade agreements in the middle of an economic downturn.

3. Bank failures: Check! We need an actual bank or two to go under however, not just these investment banking houses of cards, and we need an international bankruptcy along the lines of Creditanstalt. My money would be on one of the thoroughly opaque Chinese behemoths. The Fed and other central banks will doubtless try to avoid a collapse of the money supply following a bankruptcy; they may simply produce hyperinflation, a problem we didn’t have in the 1930s.

4. Expansion of the public sector: Check! Treasury Secretary Hank Paulson’s $700 billion housing bailout fund certainly qualifies here. Commentators have noted the similarity to Hoover’s Reconstruction Finance Corporation, without noting that the RFC was a colossal economic failure. It diverted resources to politically selected companies, increasing the level of Federal debt raising and thereby crowding truly private sector entities out of the capital market. The diversion of resources from the private to the public sector was itself deflationary, weakening the system’s productivity growth potential and deepening the downturn. Paulson appears to be operating on the basis that federal resources are essentially infinite. A $700 billion bailout and the $1 trillion deficits to which it will lead will “destruction test” this bizarre theory. Obama’s spending plans, which presumably won’t be abandoned altogether, will also be a problem here, Indeed it is likely that by 2012 the ratio of federal spending to GDP will be at a new high level never before seen in peacetime. As with bank failures, this time around an excessively accommodative Fed is likely to monetize the additional debt and thereby cause rapidly accelerating inflation.

5. Tax increases in a downturn: Probable. Obama has already promised tax increases, which he will probably make larger than planned to attack the $1 trillion deficits. That’s precisely the mistake Hoover made. McCain hasn’t promised tax increases, but appears to have no great philosophical objection to higher taxes and a commitment to reducing the deficit – it thus looks like tax increases will be forthcoming from him, too.

6. Abandonment of Capitalism: Probable. The principles of capitalism will have little popular support in the years ahead, as in the 1930s. Hence there will be no immediate opposition (other than from politically discredited industries) to daft new schemes of regulation that destroy market incentives. Obama has some idea how markets work, but the barons in the Congressional Democrat majority don’t, so there is likely to be some truly damaging legislation in our future. Even if McCain becomes President, he appears to have no instincts as to which controls and restrictions would wreak most destruction so “compromise” legislation with Congressional Democrats might be as bad or worse than under a President Obama.

7. Destruction of Capital markets: Possible. This is the big question-mark. In the 1930s, the Glass-Steagall Act, by separating investment banking from commercial banking at the bottom of a recession, when capital was scarce and entrepreneurial spirits non-existent, produced investment banks that were truly undercapitalized and indeed unprofitable – even Merrill Lynch, among the largest of them even then, lost money over the decade of the 1930s and survived only through subventions from Charles Merrill’s mother’s trust fund. The result was a level of capital raising in bond and stock markets throughout the late 1930s that was below that at the bottom of the 1920-21 recession, in a much larger economy. It is not unimaginable that draconian legislation along the same lines, backed by popular outrage against Wall Street, might have a similar effect.

Thus not all of these factors operate to repeat the 1930s exactly; on the other hand, some of them merely promise a more inflationary version of that sorry decade, which would probably be even more unpleasant. While a re-run of the Great Depression, with or without hyperinflation, is still by no means inevitable, we are a lot closer than we were a month ago.

#26 cash might not be king on 09.26.08 at 4:07 pm

Gold might be king soon!!!

#27 Peter in TO on 09.26.08 at 5:03 pm

I didn’t know AIG was in Canada.

I wonder how many loans were underwritten by AIG?

Great news – Canada has finally got a new private mortgage insurer, United Guaranty, on board to hopefully cure the two way monopoly held by CMHC & Genworth in the mortgage default insurance market. Here is a copy of the press release to announce the entry of United Guaranty…

TORONTO – AIG United Guaranty Mortgage Insurance Company Canada, which provides mortgage default insurance designed to increase home ownership, has obtained approval as a private mortgage insurer under the National Housing Act Mortgage-Backed Securities program (NHA MBS).

AIG United Guaranty’s(1) approval allows for single-family residential mortgages insured by AIG United Guaranty to be eligible under the NHA MBS program. “We are pleased to announce our approval into the NHA MBS program, which allows our lending partners to securitize AIG United Guaranty-insured mortgages and support effective capital and liquidity management practices,” said Andy Charles, president and CEO. “This demonstrates to the investment community the strength and strong partnership that AIG United Guaranty offers the Canadian asset-backed securities market.”

The mortgage insurance subsidiaries of AIG United Guaranty provide mortgage default insurance and other private-sector risk management products to financial institutions worldwide. Mortgage insurance coverage on low-down-payment loans protects a lender against losses due to homeowner default. Home ownership studies show that loans with limited down payments have an increased likelihood of default, particularly in periods of severe or prolonged economic distress. For more information, visit the United Guaranty website at: http://www.aigug.ca

Posted on Monday, February 5, 2007 at 03:25AM

#28 Keith in Calgary on 09.26.08 at 5:09 pm

y3maxx…..

China’s economy is already in the throes of a struggle and it is going to have a recession/depression just like the rest of us……communist state controlled economies fall the hardest. Your RE bubble is popping as we speak.

Real estate in Calgary is off 12-15% from it’s highs of June 2007 depending on whether or not it is a SFH or condo.

I’d say the question of what really needs to be shown here should be the amount (if any) of your brains, not Garth’s balls…….heh.

#29 Dawn in Calgary on 09.26.08 at 5:27 pm

“The old cliche when the USA sneezes the worlds catches a cold, well, its not a sneeze, its full blown terminal cancer, so what do we get with that?”

A ten year long spate of recession-based chemotherapy. I feel nauseous already.

#30 Calgary rip off on 09.26.08 at 5:32 pm

Mike: Unfortunately the world doesnt operate logically. And no, its not about supply and demand in housing. Its what people can be persuaded to pay. Especially in Calgary. What is affordable to one person is not to another. To many, $400,000 for a $200,000 value house is affordable because they are naive and dont know better. I have lived in enough areas to see the big rip off being portrayed as svelte and cushy in Calgary. They may as well just put up a bunch of teepees and offered them for sale, that’s exactly what the whole city looks like anyway. To me its insane to pay that. So, affordability is defined differently to people. And the boom was created by portraying high prices as attractive and valuable. I disagree with all of it. For prices to drop in half this would require serious employment issues. And that is unlikely to happen. For most sellers if price drops too much, they will simply remove their home from the marketplace. So Calgary will go stale and stagnant.

Cash might not be king: Wrong. Gold is not king. God is King. Period.

#31 islander on 09.26.08 at 5:37 pm

Calgary ripoff wrote: “Calgary is the biggest joke for housing that I have ever seen….Homes…are double priced what they were built for.”

Sigh. Price is not determined by cost of production. (Yes I’m aware of marginal cost of production as it relates to commodity pricing but housing isn’t a commodity).

If there are a greater number of qualified buyers (however one defines “qualified”) than there are desirable properties, prices go up. No realtor, developer, marketer, politician, banker or man living in a van down by the river is responsible for this rise in prices. Buyers (considered as a whole) are.

When the pool of qualified buyers shrinks (for whatever reason) an excess of inventory hangs over the market, depressing prices. No realtor, developer, marketer, banker or snake-oil salesman can alter that reality.

It is not Stephen Harper’s fault that people took out 0/40 mortgages anymore than it’s Jean Chretien’s fault people bought gas-guzzling SUVs with no money down.

Buyers make up their own minds. Their collective pursuit of goods and services affects prices.

#32 Toronto Titanic on 09.26.08 at 6:04 pm

Toronto prices are already down amost 9% from the peak in April 2008:

Month Average Price Decrease from Peak
August 364,886 -8.5%
July 371,427 -6.8%
June 395,866 -0.7%
May 398,148 -0.1%
April 398,687

Unfortunately new CMHC rules, weakening economy, higher inflation, record inventories, job losses and FEAR will likely kick the decline into overdrive.

#33 MBS-Economy on 09.26.08 at 6:31 pm

My buddy who’s a realtor tells us stories of his recents sales all the time, we all share a laugh when some of these fools that are still buying in the current market…. sometimes he would ask the purchasers non-chalantly (after the contracts are signed) if they are aware of the current global crunch and they are totally oblivious. Hahaha. These hardworking people go to work and come home without reading the papers or watching the news and are totally out of loop when it comes to current economic affairs. These are greater fools indeed.

#34 Roger on 09.26.08 at 7:55 pm

Bobby in Victoria – you are right on the mark. Sales are way down and prices are dropping. Just click on my name and you will get access to a number of graphs and charts. They clearly show that Victoria real esatte inventory is at a 12 year high and prices have been falling every month since April.

#35 GrandePrairiegirl on 09.26.08 at 8:02 pm

My guess is Wachovia is going down next. And Friday’s seem to be the favoured day for these announcements to date. There is a reason for that.
For further leisure reading may I suggest The Bank Implode-O-Meter site. You’ll note that CIBC is listed on the general distress column.

http://bankimplode.com/

#36 smwhite on 09.26.08 at 8:03 pm

#21 Rob,

Not bad at all, whats sillier is the fact the US markets gained a point today because of their mess and Canadian markets drop three, dang commodities…

Nether bullion or oil moved today, very odd.

I think that little move in the DOW will be offset by a major landslide, how can a bank fail and the market go up? But don’t worry, we’ll find out all we need to know on Sunday for as this seems to be the new way for Paulson to protect the American markets, news releases on the sabbath…

#20 y3maxx

Whats interesting about that is that congressman Louis McFadden attempted to impeach the board of the fed after the big crash in 1929.

This is from Wiki:

“In 1932, he moved to impeach President Herbert Hoover, and also introduced a resolution bringing conspiracy charges against the Board of Governors of the Federal Reserve. The impeachment resolution was defeated by a vote of 361 to 8; it was seen as a big vote of confidence to President Hoover from the House.”

In 1933, he(McFadden) introduced House Resolution No. 158, Articles of impeachment for the Secretary of the Treasury, two assistant Secretaries of the Treasury, the Board of Governors of the Federal Reserve, and the officers and directors of its twelve regional banks.

http://en.wikipedia.org/wiki/Louis_T._McFadden

Oh yeah, attempted assassinations on his life happened a few times…

I hope Ron Paul has good body guards.

#37 smwhite on 09.26.08 at 8:13 pm

Opps! Can’t impeach the fed, not government “employees” are they? :)

Anyway with the looks on the faces of the public protesting on Wall Street, the torches, pitch-forks and nooses are coming.

#38 pitte sue on 09.26.08 at 9:34 pm

“…When was the last time Garth Turner was in either Alberta or British Columbia?”

Y3Maxx:

Do you have to be there in order to observe/make comments or statements?

Are you saying information from newspapers, television or the internet is quite different depending on where you live?

The Globe and Mail reads the same, whether you’re in Alberta/BC or not. My Globe and Mail says real estate is going down… what does your edition say?

I am there at least every two months. — Garth

#39 westcoastrenter on 09.26.08 at 9:48 pm

A Victoria Remax realtor told me today that their office’s sales are off 50% so far this year.

#40 Rasputin on 09.26.08 at 10:35 pm

A couple of informal Alberta observations:
1) I got a few real estate flyers in the mail recently showing the various houses for sale. A few had sold slapped in big letters in the front of the house picture. Here is the interesting part. Of the 26 houses listed, 3 were sold. Every one that sold was between $240k and $270k. This is in the Westhills area where the so called average price is around $400K. Riiiight.
2) My dad was talking to a RE agent from Edmonton. (My dad is in Winnipeg) This agent told him nothing is moving in Edmonton and if he wanted to buy a house he should go around making offers $100k below listing and he would not have to go to more than 4 houses before he bought one. Interesting times indeed. Calgary Ripoff, we may get to reasonable yet.

#41 Future Expatriate on 09.26.08 at 11:48 pm

Smwhite #34:

Google “plunge protection team”.

#42 3rdman on 09.27.08 at 12:14 am

What was it about Al Gore that led us to this president?
Why couldn’t that pretzel have been a Mort?

Saddam should have been made a friend to war with Iran and the Muslim fundamentalists. War by proxy is a-okay if you’ve been attacked by a hidden financed element.

At home, King Stephen’s 13 point lead in the polls can’t seem to be undone. The professor is a hard-sell. The king stands alone to the right, his sword no longer stained with reform. The professor is crowded with Captain Jack and green fingers.

#43 dd on 09.27.08 at 1:53 am

“Where have I been wrong so far? — Garth”

On gold. What a great investment since 2002.

#44 squidly77 on 09.27.08 at 1:55 am

calgary ripoff quit crying already
man dont be such a wimp
calgary prices will crash hard
you realy sound like a sore loser
complaining is for losers..dont gripe
just watch the ones that thought they had won lose
then drink 15 kokanees and laugh
never never complain

#45 squidly77 on 09.27.08 at 2:02 am

never complain man..never
do something about if your not happy
i make my kids with me at there side walk for 30 minutes when they complain
if they complain about there mom that will get them 60 min…ooohhhh i wish they wouldnt..thats a long time to walk

#46 dd on 09.27.08 at 2:05 am

#5 Calgary rip off,

Why did you come to Calgary? Because of a job. Vancouver Island has none or it pays very little. Why did Caglary house prices shoot up in 2006 and 2007? Because more people moved here in 2006 and 2007 then any other time in history. You are partly to blame because of the high rents and house prices in Calgary.

Calgary exists because of oil and gas. Period.

If you want to get the “oil and gas out of this town” go back to the island. They won’t do any drilling off the coast in your lifetime.

#47 dd on 09.27.08 at 2:11 am

#17 Shifty,

House prices being too high and foolish spending was the start of the problem. The house prices have to stabilize in the US for this problem to find some sort of bottom.

#48 squidly77 on 09.27.08 at 2:15 am

never complain man..never
do something about if your not happy
i make my kids walk with me at there side walk for 30 minutes when they complain
if they complain about there mom that will get them 60 min…ooohhhh i wish they wouldnt..thats a long time to walk

#49 David on 09.27.08 at 3:14 am

Is it a coincidence that so many big players in the mortgage markets collapsed within a seven day period? The trouble is there are many more financial dominoes set to fall and more troubled assets with no tangible market to offload from the balance sheets. The only real question is how far prices will fall before there is a recognisable splat noise.
One can only hope that Ottawa resolutely refuses one penny of bailout money to the real estate shysters and their financial sector fellow travelers. There is not one good reason for the truck drivers and waitresses of Canada to be saddled with years of financial liabilities through taxes for someone else’s big barbecue party. Mr. Joe LunchBucket probably does not even have a pension plan, own stock or even have a secure well paid job and no one ever has given much thought to the LunchBucket family having affordable housing or even having the privilege of living indoors for that matter.

#50 Stephen from Toronto, Ontario ,Canada on 09.27.08 at 5:58 am

ARE WE STANDING AT THE EDGE OF FINANCIAL ARMAGEDDON?

During the last 11 days citizens in Canada, US and the world watched with concern and outright fear during the turmoil in the financial markets, triggered by the failure of subprime mortgages, resulting in a global credit crisis.

The collapse of Lehman Brothers on Monday September 15 resulted in $1 Trillion dollar default that triggered a cascade failure of the US financial system. Merryl Lynch had to be rescued by JP Morgan/Chase Manhattan while at the same time AIG was unable to raise funds or find a financial suitor to prevent its collapse. The Treasury Dept/Federal Reserve Board arranged an $85 billion loan package to prevent the default of what is considered as the world’s largest insurance company. Even more worrisome is the fact that the $1.7 trillion short term debt market seized up on Wed September 17,2008, because financial institutions could not raise $52 billion to maintain operations. The Treasury Dept/Federal Reserve Board injected $285 billion, as well as the world banks putting an additional $700 billion for a total of $1 Trillion. Treasury Secretary/H.Polson and Federal Reserve Board Chairman Ben Bernanke proposed a $700 billion bailout plan for the US financial markets.

This week, there was a talk of a deal, but it stalled on Thursday and appeared to be back on track Friday. The need for a deal became more urgent due to the failure of Washington Mutual, the largest mortgage/S&L bank in the US. FDIC regulators seized it 9pm Thursday evening and permitted JP Morgan/Chase Manhattan to buy its assets for mere billions. It is now managing $300 billion in deposits and $180 billion in assets. It is laying off 30,000 of its 43,000 employees and closing an unknown number of branches?

Although there may be a deal on Monday September 29, 2008, Americans are divided on the issue. Investors who have common, preferred stocks and bonds in the bank were wiped out as the government will be first to get its money before these groups. Middle class Americans who are losing their jobs and their homes due to foreclosures (with 1.7 million adjustable rate mortgages(ARM) due to reset to a substantially higher interest rate next month) are furious at Washington and Wall Street because the bailout package will not help them and the slowing economy. According to the National Bureau of Economic Research(NBER), the US is officially in a recession that could become very deep in 2009.

What is really going on in the Global financial system?

Who stands to gain from the global credit crisis and is the middle class in the US being manipulated ?

What are the long term implications for the US Economy?

On Tuesday September 23, 2008, Satyaijt Das was interviewed by BNN at the Toronto Stock Exchange (TSE) about the credit crisis. He is the author of Traders, Guns& Money which was published by the Financial Times in 2006 and is considered among the top experts in this field in the world.

He indicated to the business tv reporters that derivatives have been in existence for a long time and are used to hedge risk. Basically derivatives is about taking a bunch of risk, cutting them up into small trunks and selling it off to investors. The aim is to spread risk throughout the financial system-source(http:// http://www.thestar.com/article/ 503974).

They are used now for leveraging risk through issuing basic derivatives-$700 trillion, credit default swaps-$62 trillion as well as structured investment vehicles (SIV’s ) and collateralize debt obligations (CDO’s).

The subprime mortgage mess in the US is primarily the result of bad lending practices. Satyajit feels that derivatives made the problem much worse. Banks have circumvented the financial reserve requirement meaning that it must hold $ 1 for every $10 dollars it loans out. That requirement has dropped 1/2 trillion.
The US government bailout package is designed to prevent the drying up liquidity in the global financial system and consolidate alot of the bad mortgage debt. Credit for good businesses, stable banks and individuals with good financial ratings has declined by $10 trillion dollars.

Satyajit believes that the derivatives are nearly impossible to regulate because the securities are very complicated, designed by financial engineers using the mathematical equations such as Black-Scholes and monte-carlo simulations to predict and eliminate risk. So many derivatives have been sold they have become too interconnected to a multitude of financial institutions around the world.

He also mentioned that commercial and investment banks have asked him to come to Toronto to get badly needed advice on risk model alternatives for derivatives. Between now and the end of 2009, financial institutions that hold this bad debt/paper will have a hard time getting rid of it. They may have to hold it putting them at risk of short selling hedge funds, forcing bond rating agencies to cut the quality of financial institution debt from AAA to possibly BBB to CCC-insolvency. This has the result of bankrupting more banks (massive withdrawal of deposit funds) and forcing the consolidation of firms who issue securities and debt. In the end you will have very large global financial firms who will charge higher interest rates to firms and individuals who want to borrow money!

Satyajit also points out that the Lehman Brothers bankruptcy has resulted in the courts trying to unravel 2,000,000 contracts of derivatives and credit default swaps etc to identify who owes money to whom. This process could last for years. This situation highlights the fact that the regulators failed to police the derivative markets. They are not paid well to do an adequate job since a derivatives trader can make up to 3x their salary.

The situation in the financial markets has led to a contagion that is spreading to main street as the economy is slowing due to the decline in the real estate market, increasing unemployment, lower consumer spending for durable goods due to record levels of debt.

Doug Noland (who writes for prudentbear.com) is in agreement with Satyajit Das’s view of the derivatives market and draws some sobering conclusions on the events of the last two weeks. On Thursday September 25, 2008 his article suggested that there are five consequences arising from the credit crunch.

1. The failure of Lehman Brothers has taken investors by surprise because many felt it was too big to fail. The losses in the CDS market jumped a “firewall” from risk assets to conventional money. The marketplace is reexamining its exposure to various direct and indirect counterparty risk which could lead to a fatal blow to the derivatives market.

2.Credit Default Swap (CDS) marketplace has fallen into full fledged dislocation and instigated long overdue regulator onslaught as hedge funds are being wiped out and may have stopped leveraged spending in the financial community.

3. It is causing a deleveraging and a reversal of ponzi-finance dynamics. This means that if you borrow money from a bank, they will be unable to repackage and sell it to another institution. The bank will have to work with the borrower to maintain solvency, repay the loan and save money to stabilize the system.

4. It is causing a global fear with respect to risk of participating in the $1.7 trillion interbank lending market for which there is no activity.

5. Credit growth will only occur in the banking system with govt insurance. This will result in minimum risk lending with reduced risk taking.

In the future the US economy will have to get by with less credit, less risk inter mediation and fewer imports.
The new financial structure means less money to finance entrepreneurial activities, productive endeavors and asset markets.

Part 2-The effect of the financial bailout on the US Government debt

#51 Stephen from Toronto, Ontario ,Canada on 09.27.08 at 6:07 am

Garth:

All American Gold.com has reported in its Friday September 26, 2008 podcast that Wacovia could be on the verge of collapse because of a credit default swap was triggered. To insure $10 million in debt it will cost the bank $8.27 million dollars. Another bank National City lost 50% of its stock value!

#52 y3maxx on 09.27.08 at 7:22 am

…HERE IT IS GARTH…JUST FOR YOU…THE NEW BOOK YOU SHOULD WRITE….”THE CANADIAN WESTERN PROVINCES, THE FUTURE “CENTRE OF THE EARTH” OF CANADA”

imo, THIS MAY BE THE ONE LAST CHANCE FOR EASTERN CANADIANS TO TAKE ADVANTAGE OF LOW REAL ESTATE PRICES IN WESTERN CANADA, SPECIFICALLY IN ALBERTA AND BC.

…SASKATCHEWAN HAS THE AGRICULTURE/NATURAL RESOURCES, ALBERTA HAS THE OIL/AGRICULTURE AND BC HAS NATURAL RESOURCES ALONG WITH BEING THE GATEWAY TO THE FAR EAST.

…THE WESTERN PROVINCES HAVE WHAT THE WORLD WANTS…EASTERN CANADA IS MANUFACTURING, FINANCIAL BASED AND OVERPOPULATED….
UNFORTUNATELY,THAT IS “DEAD MEAT” COMPARITVELY.

…EASTERN CANADIANS WOULD BE WISE TO CONSIDER TAKING ADVANTAGE OF CALGARY/EDMONTON’S CHEAP PRICES AND MOVE WEST.

POO POO ME IF YOU WANT TO, EASTERN CANADA WILL NOT REMAIN THE “CENTRE OF THE EARTH” FOR MUCH LONGER.

…JUST THINK IT OUT FOR ONE MINUTE AND THE LIGHT BULB WILL TURN ON.

#53 unbalanced on 09.27.08 at 7:51 am

y3maxx…Ya keep bashing Garth. He didn’t “Predict “some U S banks were going down months ago, he ” Stated ” it. He calls it the way he sees it, and its the truth. But as we all know the Truth really hurts.
I come to this site to try and learn. Not to dis everybody. My two bits worth. Thanks.

#54 GMH on 09.27.08 at 8:29 am

Bobby in Victoria, Roger, I’m trying to follow events in Victoria from afar and would love to hear more. When I left some months ago there were lots of new condo projects either underway or planned. Any sign of construction being delayed or slowing down? Any signs of strain in the construction industry yet? Are lot / land prices showing any signs of falling? Thanks.

#55 TorontoBull on 09.27.08 at 8:36 am

http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id=12306060

#56 Kash is King on 09.27.08 at 10:01 am

#48 Stephen: ” The bank will have to work with the borrower to maintain solvency, repay the loan and save money to stabilize the system.”

Huh, imagine that. Back to basics for loans underwriting. The horror, the horror.

#57 Trekie2 on 09.27.08 at 10:06 am

#33 GrandePrairiegirl on 09.26.08 at 8:02 pm

For further leisure reading may I suggest The Bank Implode-O-Meter site. You’ll note that CIBC is listed on the general distress column.

http://bankimplode.com/

This is an interesting comment…how many feel that our banks will come to failures? I bank at CIBC…should I be worried? I understand that Royal was hard hit with the AIG Insurance failure…comments?

#58 dd on 09.27.08 at 11:53 am

#3 Interest Rates,

Central Bankers do care about home owners AND the economy in general. It is a balancing act. The low inflation policy works. Interest rates have to go up to keep inflation in check.

The problem … spending is out of control.

#59 Jimster on 09.27.08 at 12:10 pm

dd: “Interest rates have to go up to keep inflation in check.”

Thats like saying ,”the floor will need to be cleaned up after I $#!% on it”.

I we borrow a $trillion to pay off the bankers, interest rates will go up. I we print a $trillion to pay off the bankers then interest rates will REALLY go up”.

Protect the voters, not the bankers!

#60 Rick on 09.27.08 at 12:18 pm

#42 & #43 Squidly –

Thanks for showing us the effect of the 15 Kokanee thing.

#61 smwhite on 09.27.08 at 12:26 pm

Thanks Future Expatriate…

http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

Wondering why the SEC chair was being dragged around at what looked like against his will!

The four stooges…

#62 Rick on 09.27.08 at 12:27 pm

#44 dd on 09.27.08 at 2:05 am #5 Calgary rip off,

Why did you come to Calgary? Because of a job. Vancouver Island has none or it pays very little. Why did Caglary house prices shoot up in 2006 and 2007? Because more people moved here in 2006 and 2007 then any other time in history. You are partly to blame because of the high rents and house prices in Calgary.

Calgary exists because of oil and gas. Period.

If you want to get the “oil and gas out of this town” go back to the island. They won’t do any drilling off the coast in your lifetime.
——————————–
Some people resent the fact that housing has become an unaffordable commodity and we complain. DD, it’s your choice to become a ‘sheeple’ but please don’t project your Prozac induced vision on others. To peruse internet blogs and take exception to those who ‘complain’ is ludicrous. If group think is your thing, stick with the MSM or internet blogs that disallow dissention from the majority viewpoint. There are plenty of those out there.

See, I’m complaining again.

#63 Jimster on 09.27.08 at 12:50 pm

Garth,

I read on a US website that FDIC covers depositers up to $100,000. But, in the event of major breakdown, they can take up to 99 years for repayment and target to have you half-way paid back in 11 years.

Do you know what the CDIC repayment rate would be?

#64 dd on 09.27.08 at 12:53 pm

#50 y3maxx,

True Western Canada has what the world wants: food, water, and energy. However house prices are not cheap.

However why would I want to pay for a house that is beyond reasonable valuations? Long-term house prices are a reflection on what people in the area can actually pay on a monthly basis.

At the moment salaries are too low to support the run up in house prices. That is why prices have been crashing down to earth.

Currently house prices in Western Canada are not cheap. They will be reasonable when a family can afford a $250K house in the Calgary Burbs.

Price reductions are continuing to that level.

#65 y3maxx on 09.27.08 at 1:22 pm

<>

…As far as Canada goes….I stand by my earlier post that the Western Provinces are the places to live or move to.

…Vancouver is by far the most international city in Canada…rated 4th best in the world…yet below 20th in relative cost of living expense.

…Garth, you better re analyze your “Centre of the Earth” opinion of the Western Provinces…especially with Ontario ready to go down the tubes.

jmo

#66 nonplused on 09.27.08 at 1:29 pm

y3maxx, the “caps lock” key is on the left, right above the “shift” key. THERE IS NO NEED TO SHOUT!

#67 Shifty on 09.27.08 at 1:44 pm

#45dd
I lay the responsibility for this mess at the feet of the financial institutions who are trying to feed off irresponsible business practices. I think this goes deeper than where housing prices are going, the financial system is broken and needs to get back to some basic fundamentals.

#68 Calgary rip off on 09.27.08 at 1:50 pm

DD: Thx for input. I notice the trends in Calgary partly because I like Calgary. I am not eager to go back to the island, as for the most part, the island is ignorant and run by various criminal organizations. You mentioned oil and gas. Acceptance of this industry is not the issue. The contributions of it daily is the issue. Why are gas prices still higher in Alberta? This is not logical. Unfortunately, gas and oil explorations may not be forever in Alberta. As soon as electric cars are viable and reliable, I will purchase one. I want to give the finger to the whole oil industry, in as much as possible. Especially since people have died in the middle east to maintain consumption.

Glad you are staying in shape squidly. Havent seen your posts for a long time. This exercise will keep you out of hospital and healthy. Keep at it!!

#69 dd on 09.27.08 at 1:56 pm

#57 Jimster,

Yes the Central Banks are really printing money now, which will lead to inflation, which will lead to higher interest rates, on so on.

The mess started with stupid leading requirements, low interest rates for too long, and people and goverments ability to spend more than they make.

Protecting the voters? What do you think this bail-out is all about? YEs it is about buying up mortgages from the banks at less than book value. However, in turn the total mortgage to the home owner will be cut to the “true value” of the property. This is a massive bail-out for the over extended home owner!!!!!! And for that bail-out the home owner/voter will have to pay. Higher taxes, higher interest rates, higher inflation.

Who do you think got us into this mess in the first place? The bankers? Come on and get a reality check. North American’s spend more than they make. They take out loans on home equity and buy junk. Now the voter can’t pay or it. The party is over.

Cry me a river.

#70 kabloona on 09.27.08 at 2:43 pm

#52 GMH:

If you wanna keep an eye on the Victoria real estate situation, you could check these links out:

http://victoriastruth.blogspot.com/

http://www.househuntvictoria.blogspot.com/

http://www.cheaprealty.net/

http://www.restats.ca/

Good local Victoria info on those blogs…. :-)

By the way, I wish people could post links instead of paragraph after paragraph that’s been cut-and-pasted from another site. It’s tough to plow through, and personally, if I wanna read a rant against Central Bankers or the Federal Reserve there are plenty of options. I just hope we can keep this discussion about *Canadian* real estate….

Just saying…. ;-)

#71 rant in Calgary on 09.27.08 at 3:46 pm

What do you do with a drunken sailer?

Give them 700 billion more.

#72 y3maxx on 09.27.08 at 4:50 pm

Counterpoint to U.S. Armageddon 27-Sep-08 03:03 pm

“”While reading the latest on the most heavily forecast-in-advance trip to Financial Extinction (isn’t it nice we know this stuff well in advance??), I thought I’d call a little time out–just for a minute. A couple of thoughts to ponder before converting your stock certificates into paper airplanes to throw out the window:

1.) We’re still waiting for our 1st Quarter of Negative growth in 2008. 3Q came in at 2.8% Growth.

2.) Obviously there was massive excess capacity in Financial Services. Recruiting our finest brains to dream up and pitch new, dangerous, complex securities was probably not the very best use of resources. We are now downsizing, rather dramatically, an industry that was, politely, a house of cards. This is a very positive development.

3.)According to Jason Benderly of Benderly Economics (in todays Barrons)-based on extensive analysis: the effects of the credit crunch are quite real–but exaggerated by a FACTOR OF THREE. Its believed that the crunch shaves about 1.5% off GDP. Benderly concludes the impact is more like 0.5%.

4.) The Oil Crisis. Remember that???? Benderly estimates the POSITIVE GDP IMPACT of a Drop to the $103/barrel level will provide a 1.3% BOOST to GDP. A drop to $90/barrel would boost GDP by 2%.

5.) Worker Productivity growth continues to confound the experts. It KEEPS improving, and Inflation is now a 2011 worry.
These are FAR MORE SIGNIFICANT issues to America’s Economic well being than any temporary credit crunch.

6.) In a national Economy, the macro impact of the gutting of Wall Street jobs, is no more than a blip. Most of those jobs are being absorbed by new companies. The Financial world will be MORE EFFICIENT with fewer, large, DIVERSIFIED Financial Institutions. OMG, institutions that will actually generate funds internally WITH CASH DEPOSITS–which are flooding B of A, Wells, etc faster than they can process them!!
Think of it this way: the Wall Street Crisis is end-of-the-world awful to less than 1/10 of 1% of America. A $30 barrel spike in Oil is a punch in the nose to 300 MILLION of us.

7.) 3Q 2008, the real time Armageddon we’re in as we speak–will likely see small GDP GROWTH.

8.) Warren Buffett is putting money to work in EVERY ASSET CLASS he can get his hands on: Common Stock, Preferred Stock, Bonds, Private Company purchase, Complete Public Company stock purchases, Company Financing arrangements–ALL of the above AT A PACE GREATER THAN HE EVER HAS IN 76 YEARS.

9.) Every major Financial Magazine is screaming bottom. This is better than “the death of equities” in 1981. I think it was Business Week I picked up the other day–with the biggest, boldest headlines I’ve ever seen: “IS IT SAFE YET?”.

10.) This is the first panic in the BROADBAND INTERNET ERA. So we get to Panic like crazy, all together, in real time–with friends, relatives, spammers–its piling on like never before. I just head from a jerk cousin I hadn’t heard from in years “will we be OK?”.

There, now before you jump off the bridge…..tell me exactly what it is you’re worrying about???? And why Buffett has never been more Bullish (judging by the way he WALKS) on US Financial instruments—-in 76 years??””

…There always seems to be two sides to every story…

#73 pjwlk on 09.27.08 at 5:19 pm

Just got back from Vegas visiting with a builder friend of mine who lives in Calgary. He told me that he’s seen real world price drops in Calgary of about 20% now from just a few months ago. He’s got two houses he still can’t get rid of and says he’s going to lose money if the price goes much lower.

He also said the Real Estate and Media people are still saying prices have only slide by about 10%…

#74 Calgary rip off on 09.27.08 at 5:26 pm

Cash is not king. Gold is not king. God is King.

It is quickly apparent in reading Wall st. Journal, New York Times, watching market trends that the “system” has failed due to greed. No restraint at grasping at the illusive because deep seated worth in day to day living is lacking. Seeking to satisfy feelings of dissonance through material possessions will not work. Materialism is only helpful in contributing something, whether that be a virtuouso masterpiece on electric guitar, a fine automobile, a piano masterpiece, whatever. The tools that a technologically adept society possesses should be used for the greater good. This has happened somewhat, yet those who abused it and slipped through the cracks have contributed largely to the downfall. Greed only leads to destruction. The hardest thing there is is to discipline and decide what is needed and what is desired. There is a difference.

With the counterfeit money being printed 24/7 now in the USA, inflation will soon follow and a depressed dollar. Heaven help the wood tariffs and commodity trade of lumber/oil, etc from Canada into the USA.

#75 dd on 09.27.08 at 6:26 pm

66 Calgary rip off,

We will be drawing on Oil and Gas for years to come. Furthermore by drawing on electricity for power, coal will become the issue. Wind energy will help, however, realistically coal provides the consistent base load (wind is not reliable 24/7) for the entire world.

Why wait for electrical cars to decrease your consumption of oil? Use C-Trains, buses, bikes, walking to go the distance. Move closer to your work.

Big oil, gas, and coal are in supply because we create the demand for it. Are you on the Green Plan in Calgary? Spend $20 bucks more a month to pay for wind power.

Vote with your feet and money.

#76 brazer on 09.27.08 at 6:40 pm

Housing downturn may spread
http://www.yourhome.ca/homes/article/507342

“When you buy a house with a thin or no financial cushion,” he told me, “things don’t have to turn particularly adverse for you to be under water.”

Canada is different, he says, but not that different.

If marginal buyers turn into marginal sellers, as in the United States, we could see a ripple effect from the housing market to the financial system as a whole.

#77 brazer on 09.27.08 at 6:43 pm

Mortgage rate hike sign of things to come?
http://www.yourhome.ca/homes/article/507393

“I think we are looking at an economic cycle of 10 to 12 years when real interest rates have got to rise a minimum of 3 (percentage points) in the United States and similarly the European countries.”

#78 Jimster on 09.27.08 at 6:51 pm

dd: Sure Joe Public has some responsibility for this mess, like maybe %5.

With total value of the sub-prime mortgage market about $60 billion (to buy the homes outright), the need for $700 billion has little to do with sub-prime borrowers.

#79 dd on 09.27.08 at 7:10 pm

71 Calgary rip off

You said … “With the counterfeit money being printed 24/7 now in the USA, inflation will soon follow and a depressed dollar. Heaven help the wood tariffs and commodity trade of lumber/oil, etc from Canada into the USA”

You cannot put all commidites into one basket. Oil demand might decrease of a while, however, demand grows more and more by the day. How will people heat homes? How will people eat? Oil prices are going to go up in the near future. Even if demand stays flat, supply of energy is falling short everyday by 5-8%.

There is no alternative for oil yet. Sorry to tell you that the big oil will keep raking in the oil.

#80 dd on 09.27.08 at 7:45 pm

#70 pjwlk,

I totally agree. I sold my house in mid summer in the burbs and had to drop the price 10% under list. It moved in a day. However that 10% in the summer is not enough to move the same house today.

#81 rant in Calgary on 09.27.08 at 7:59 pm

50,63,69

y3maxx,

“…There always seems to be two sides to every story…”

I read somewhere that:

the world is flat
the Titanic is unsinkable
Warren Buffet is never wrong
Calgary’s real estate values will increase by 3-8 % in 08
there is a Santa Claus
borrowed investment dollars will flow into Alberta
oil will be $200 a barrel by August 08
Elvis is still alive
U.S. credit problem confined to risky Sub-Prime

Two sides, right and wrong!

#82 dd on 09.27.08 at 9:53 pm

#65 Shifty

You said “I lay the responsibility for this mess at the feet of the financial institutions who are trying to feed off irresponsible business practices. I think this goes deeper than where housing prices are going, the financial system is broken and needs to get back to some basic fundamentals”

Blame the bankers for everything. It is the easy route. Don’t look at the couple that needs that new car, pool in back yard, or that use the credit card for everything and cannot pay the thing off.

IF people would not spend more than they make we wouldn’t be in this mess.

The bail-out is one big CONSOLIDATION LOAN for the government, business, and Joe Public of USA. For the last 10 years it has been one big party.

#83 Rasputin on 09.27.08 at 9:56 pm

y3maxx. Your position is logical, well considered and completely wrong. You are removing the emotional human element. I have it on good source that up to 1000 more banks in the US are technically insolvent. This bailout will add capital to the banks but will they lend??? I think not. Will people borrow more once they realize the game has changed? I think not. In an economy that depends on easy credit as it’s lifeblood, well, I shouldn’t even have to say what happens when credit all but stops. This does not even get into the fact that the US has been in a recession since 2006. Over the years they changed how they calculate GDP every time it produces a number they don’t like. It’s true. If GDP was calculated like it was in the 80’s and 90’s, like I said, recession since 2006. Those suspect economic stats are the reason Paulson and Bernanke (Hanke Panke) is have such a tough time convincing congress that the sky is indeed falling. Like you, congress sees positive “growth” as far back as 2001. Hanke Panke are victims of their own BS stats and boy does it ever look good on them.

#84 anonymous on 09.28.08 at 1:59 am

Looks like the US got a bailout deal. Anybody else going to make a rediculous amount of money on US banks, come Monday morning?

I bought a little JP Morgan Friday morning around $44. Shored up my GS, and even bought a little Citigroup.

Not that I think C is a good bank… but I think it will have a nice short-term pop.

#85 Greg in Victoria on 09.28.08 at 2:18 am

So… some pretty big banks go under in the US due to falling house prices and bad debt. Now Merrill Lynch is warning that Canadians are now even further in debt than US or US consumers were prior to their housing crashes and suggests it may be ony a matter of time in Canada. Nobody can deny that house prices have started to fall now in Canada. So if the meltdown comes to Canada… what come next is anyybody’s guess.

Anybody have any idea of the real terms of CDIC deposit insurance? If my bank fails (a credit union in Vancouver) will CDIC really insure my cash promptly?

Am I better keeping my capital in an offshore bank (EU or CH)?

Also does anyone have any reliable source of information where the financial health of Canadian banks/credit unions is reported? Real question is when do I press the panic button and pull/move my money. Seems crazy to even be asking this question… but one never knows and US is clearly tanking in the short term anyways.

Cheers

#86 T-Bill on 09.28.08 at 2:33 am

Well I remember when the first revolving credit card came to Canada in 1968. It was called Chargex, and later became Visa. Before that there was American Express, but you had to pay it off at the end of the month.

People may have to get used to that kind of paradigm once again. And actually save for a house!

#87 Chincy on 09.28.08 at 2:54 am

#80 Rasputin…what you are saying then is deflation? Could you give me your thoughts on the inflation/deflation debate…thanks in advance.

#88 womp on 09.28.08 at 3:14 am

GMH #52:

There’s a local RE blogging community in Victoria that tends to touch on local developers and their projects every once in a while. Roger puts out fantastic graphs, my site tracks daily listing statistics, and a couple of other blogs (http://victoriastruth.blogspot.com/ and http://househuntvictoria.blogspot.com/ tend to get the good discussions. Post a specific comment in either of those and you might get a good response.

#89 Greg in Victoria on 09.28.08 at 3:28 am

Sunday Guardian in the UK

A sadly relevant column. ‘A shattering moment in America’s fall from power’

http://www.guardian.co.uk/commentisfree/2008/sep/28/usforeignpolicy.useconomicgrowth

#90 David on 09.28.08 at 4:32 am

Y3Maxx, your posts have a certain unique imbecile charm to them. Everyone has the right to be wrong and you exercise that right with great frequency.
Bargain real estate in Western Canada? Are you serious? Million dollar 80 year old shack starter homes in Vancouver or paying $350K to live in a virtual gang infested ‘hood in Calgary does not sound like a missed opportunity. Sorry.
Markets like that have no economic reason to exist and at this point the only solution is total collapse, with the caveat that there should be absolutely no government bailout for the criminal classes that transformed middle class people into phooked borrowers.
It is different in Canada than the USA. At least Canada has a functioning public health care system compared to that hopelessly inefficient and over priced Third World outcomes based “system” the Americans have.

#91 peter on 09.28.08 at 11:26 am

Any short term pop in the markets if any will be short lived as people will bail and take profits as the situation in the US is worse then anyone could imagine. Just a couple of weeks ago the markets and economy was sound and now without $700 billion to bailout the banks the economy will crash? Out of the markets since the freddie and fannie mae bailout/ dead cat bounce and been laughing ever since. This bailout does nothing but reward those who created the mess with taxpayers money. Funny how there is no money for the poor for healthcare , increased unemployment insurance ,raods ,schools or anything else which would benefit the PEOPLE but lot’s and lot’s of money for the rich. Good time to sell before BLACK OCTOBER

#92 Rasputin on 09.28.08 at 12:35 pm

Chincy #87
I think the fed and every other central bank in the world is trying desperately to inflate. I believe they will fail and we will end up with deflation. The money being put into the system pales in comparison to the money lost every day in blown up banks, businesses and housing prices. This “hide the salami” hot injection into the banking system might buy the world 6 months. Might. The various interventions will only make the final washout worse for every one. But that’s the nature of goverment. In the face of a crisis, politicians want to be seen “doing something”, when doing nothing might be the best thing to do. Like I said in a prior post, money can be injected into the banking system but people still have to want to to borrow and banks still have to be willing to lend. Right now the banks don’t trust each other at all. Normal inter bank short term transactions are just not happening and that’s why banks are failing. No one trusts the other guy because accounting standards are so bad and rating agencies have been getting too many brown envelopes full of unmarked bills to look the other way. That is exactly why Japan did nothing economically for the last 15 years. When you paper over a problem and the real issues are not dealt with you get a generation of stagnation and the underlying problems are STILL there. Japan went into their recession with next to no debt. Needless to say that’s not the case with the US. We need to get real and get on with it.
This rambling missive probably makes me sound pessimistic but really I’m not. Events like this are as necessary to our system as forest fires are to the wilderness. Clean out the dead wood and corruption. Improve the accounting standards. It’s no coincidence that this is happening now. People forget the lessons of the past and the ones who were alive during the last depression are not here to warn us about the perils of too much borrowing. At the end of the day I don’t see how a problem caused buy too much easy credit can be solved by more easy credit.
Where have you gone Paul Volker? A nation turns it’s lonely eyes to you.

#93 Al on 09.28.08 at 1:06 pm

I might be wrong, but what I see is not a bailout for the Banks. What I see is the Banks using the government to recover all the money that people-country-society (debtors) borrowed for years and now don’t want to pay back. It’s easy to default, but how are they going to pay for all what they “enjoyed” without proper incomes? Normally they borrowed more to pay debts off, and continue the expending race. So, now Banks will get the payments from the government, and the people will pay to the government in many different ways: higher taxes, interest rates, no access to credit, you name it. History will tell.

#94 confused and a little crazed on 09.28.08 at 4:16 pm

hi guys,

any thoughts on JP Morgan, Wells faargo and Bank of America. These seem to be the survivors of this meltown…recommend buy?

#95 JO on 09.28.08 at 4:58 pm

The bailout plan will not change anything over the next 3-4 years. Home prices in Canada will likely continue to drop for 4-5 yrs at least. The we are different story here in Canada is taken out of perspective by most. We are not as squeaky clean as people may think. Our individual balance sheets are horrific on the whole with historic amounts of debt. Even a modest increase in unemployment to 8-8.5% will cause extradordinary damage and result in some sort of deflation. And same for long term mortage rates. From my 10 yrs of financial service experience, 7 of which involved lending and training junior lenders, I do think most Canadian banks are in decent shape in relative terms to their American counterparts; however, major challenges are still coming for them. The credit cycle should be much worse than expected in the next 4-5 years, dividends will likely not grow much at all and a cut in dividends 24-36 months out is a possibility at a couple of majors; however, on the whole, no need to worry about your money at most Canadian banks as of now. And if you are worried, you can move all your money into Gov Can T Bills held in the discount brokerage of the bank and not have to worry about the CDIC limits…rates will be a little lower than most terms but safety is unmatched. I think it is likely prices is many GTA areas will drop about 20-30 % over next 3 years, so if you can wait to buy, it may be a good idea. US looks likely to head into a freaky next 3-4 years which will put global growth in question. Our government is in decent shape compared to most. So things will get tough and scary at times, but I do think we will make it out of this is relatively better terms than US or Europe. Either way, most of us will likely be poorer 4-5 years from now thanks to a combo of deflation and elevated inflation.
JO

#96 Shifty on 09.28.08 at 6:07 pm

#82dd
Yup, somebody has to stand up and be responsible. Banks going broke, government assuming private sector debt, stock markets imploding and RRSP’S shrinking. Short and simple, the lender has a responsibility to assure that the debtor has the ability to pay. A 0/40 mortgage with payments of 50%,60% or 70% of income is pure bull s–t.

#97 Roger on 09.28.08 at 6:40 pm

Greg in Victoria,

If your money is in a credit union anywhere in Canada it is NOT covered by CDIC insurance. Each province has different regulations for insuring credit union deposits. In some cases they provide more coverage (>100K). In BC your deposits are insured by the Credit Union Deposit Insurance Corporation (CUDIC).

#98 dotava on 09.28.08 at 7:59 pm

Sweden “socialism” is much advanced and has better future than ours. To have 95% rest of us. Will be your pick in REAL democracy – ABC. :-)

#99 dotava on 09.28.08 at 8:03 pm

#73 pjwlk on 09.27.08 at 5:19 pm

Tell him to go back to the bank who accepted his “business plan” not to come to tax-payers valet.
We suppose to live in Canada not US?!? (or gangsters without border apply to us 2)

#100 dotava on 09.28.08 at 8:31 pm

#79 dd on 09.27.08 at 7:10 pm
“…There is no alternative for oil yet…”
Nonsense – Check the Denmark and few other EU countries, moreover, check where the richest Texas man shifting his money (wind turbines). I can tell that GM will cry loudly that they scrap EV – take my word.

#101 dotava on 09.28.08 at 8:45 pm

#84 anonymous on 09.28.08 at 1:59 am

Sell it around the 09:35 – will not last long (triple amount is needed to get to 0). :-(

#102 dotava on 09.28.08 at 8:49 pm

#90 David on 09.28.08 at 4:32 am

Hate to repeat – but – MAN -> U R The Champion.

#103 Chincy on 09.28.08 at 10:16 pm

#92 Rasputin
Thanks, that makes sense to me.
So with deflation, what are your thoughts on gold short, medium and long term? Thanks in advance.

#104 Anita Holm on 09.29.08 at 12:50 am

Something isn’t playing out according to script. Sales in Edmonton are up 70% this month.

#105 GMH on 09.29.08 at 2:50 am

An excellent article this morning in The Independent (UK) on the “plight” of real estate agents in England…
—————-

A bad day at the office: How the credit crunch is hitting estate agents

Prices are plunging, repossessions are rising – the property bubble has burst. So how are Britain’s estate agents faring? Rhodri Marsden joins them at the sharp end

http://www.independent.co.uk/life-style/house-and-home/property/a-bad-day-at-the-office-how-the-credit-crunch-is-hitting-estate-agents-945047.html

#106 patriotz on 09.29.08 at 3:40 am

“I just read yesterday that the BOC might lower the interest rates??? I realize that the banks don’t need to follow but don’t they end up following eventually?”

No. The BoC sets only the “overnight” rate, which is what the banks charge each other for overnight loans. What the banks charge you depends on what they have to pay to borrow money from the public, i.e. GIC and bond rates, plus customer risk.

The overnight rate has a lot of influence on short-term rates (less than a year), but not on longer-term rates. These are determined by the market. If the market sees inflation risk in the CAD, and the banks see lending risk in their customers, rates will go up.

#107 patriotz on 09.29.08 at 8:13 am

“Where have you gone Paul Volker? A nation turns it’s lonely eyes to you.”

Volcker is an advisor to Barrack Obama.

http://blogs.wsj.com/washwire/2008/01/31/volcker-joins-list-of-obama-backers/

#108 Toronto Crash on 09.29.08 at 11:03 am

Has anyone noticed the the Toronto real estate market is dead? Sept should be one of the busiest months in the year and it is VERRRRYY SLOW. Every house in my area has had price reductions in the past two weeks.

One agent told me that the “market has fallen off a cliff”.

It would be interesting to see the Sept numbers. Expect prices to continue to fall.

My coworker just bought a house in the beaches that was listed “aggressively” at $680,000 and eventually dropped to $530,000.

#109 Mylene on 09.29.08 at 11:17 am

Garth,

Do you still believe going variable is still the best option? You’ve always pushed for the variable rate when opting for a mortgage…

Your thoughts given rates are going up to 10-12% in the next 5 years?

History is unequivocal. Go short. You can always lock a rate with a phone call. — Garth

#110 gold is money on 09.29.08 at 12:25 pm

for Toronto crash i dont now which agent you have been talking to must be a rookie? the toronto is still happening

#111 Dawn in Calgary on 09.29.08 at 12:41 pm

More Albertans unable to make mortgage payments

CBC News

A growing number of homeowners in Alberta are having trouble paying their mortgages on time, according to statistics from the Canadian Bankers Association.

The numbers, pulled from seven major banks in Canada, show that in June 2008 the number of people behind on mortgage payments three months or more doubled to 1,208, up from 659 in June 2007.

Bud Stein, a lawyer with Whitten LLP in Edmonton, who specializes in foreclosures, said he is seeing five times more foreclosures than he saw in 2007. Stein said he has had approximately 550 foreclosure files since the beginning of 2008.

“To a very great extent, property owners have been living beyond their means,” Stein said. “They’ve been living off the equity in their property and that’s just not available to them any longer … they are just simply in over their heads in terms of their entire family debt load.”

http://www.cbc.ca/canada/calgary/story/2008/09/28/mortgage-woes.html?ref=rss

#112 Two-thirds on 09.29.08 at 1:16 pm

More Albertans unable to make mortgage payments

“Bud Stein, a lawyer with Whitten LLP in Edmonton, who specializes in foreclosures, said he is seeing five times more foreclosures than he saw in 2007. Stein said he has had approximately 550 foreclosure files since the beginning of 2008″

Some unnerving trends are emerging in Edmonton. In my building alone, there are 17 “for sale” signs right by the entrance. These condos have been on the market for *months* now and they haven’t sold, even after some price drops of as much as $40k.

@ Anita:

Perhaps the spike in sales this month is due to some people rushing to buy now before the Oct 15th deadline for the phasing out of 0-40 mortgages, as Garth and others here have suggested earlier.

Personally, I think the breaking point for widespread price declines in Edmonton will be somewhere in the middle of 2009. In the post-US bailout, post 0-40 mortgage world, and once the significant new slew of new condos/houses are completed, local conditions should favour patient buyers, assuming they buy with a decent down payment and have outstanding credit histories.

#113 Downsized and Delighted on 09.29.08 at 1:30 pm

108 Toronto Crash- I have definitely noticed the same thing, but a few houses are still selling, but I sense that it won’t be long before the market dries up completely. In my neighborhood, there have been around 40 listings all summer, of which maybe 5 have sold. Those that sold were priced attractively. Many of the 40 listings are overpriced which is pure stupidity (or greed?) in this market. Sellers have a hard time evaluating their properties – and real estate agents apparently don’t help because I see many properties still overpriced even after 2 or 3 reductions over the summer. Only an idiot would price their property higher than the comparable sales from last fall!

#114 Wealthy Renter on 09.29.08 at 1:31 pm

“Has anyone noticed that the Toronto real estate market is dead?”

Although I am firm bear, until September I would have conceded that the Toronto market appeared to be strong.

In September, my little piece of the city W7, W8, W9 has had about a 30% increase in inventory (in my price range) since August. Houses are not moving at all. I think the listed inventory is actually lower due to a number of houses that have been for sale for a year or so, but pulled of the market.

I am not sure if this situation will persist, but it has changed.

#115 brazer on 09.29.08 at 2:11 pm

TSX down more than 800 points near midday trading
http://www.thestar.com/Business/article/508091

“The credit crisis will persist until house prices stop falling, and given the massive overhang on the market, that could take until early next year.”

#116 brazer on 09.29.08 at 2:12 pm

EU confidence hits 7-year low
http://www.thestar.com/Business/article/508240

“The outlook is getting gloomier by the day,” said UniCredit economist Aurelio Maccario. “Financial conditions keep tightening and the massive liquidity injections guaranteed by the European Central Bank have done little to alleviate the problem.”

#117 brazer on 09.29.08 at 2:15 pm

Credit cards to ‘implode:’ analyst
http://www.theglobeandmail.com/servlet/story/RTGAM.20080929.wcreditcards0929/BNStory/Front

“A combination of a 10-year steady drip of deteriorating personal finances and a tidal wave . . . brought on by the mortgage and credit crisis leads us to believe that credit cards are going to implode in the near term,” Gregory Larkin, Innovest’s senior banking analysts said during an online seminar on the topic.

#118 brazer on 09.29.08 at 2:16 pm

Gloomy days ahead for Ontario economy
http://www.theglobeandmail.com/servlet/story/RTGAM.20080929.wonteconomy0929/BNStory/National/home

Ontario is already reeling from a slowdown in the United States economy, with the loss of thousands of manufacturing jobs. It is now facing even tougher times following the collapse of several U.S. financial institutions, which will have an impact on the global economy, Mr. Duncan said at a news conference today.

#119 JHO on 09.29.08 at 2:33 pm

http://www.reportonbusiness.com/servlet/story/RTGAM.20080929.wbailoutstaff0929/BNStory/Business/home

#120 NC on 09.29.08 at 2:33 pm

I moved to Calgary sixteen months ago after university, and decided to rent with a buddy to save up on that downpayment. I would go visit my grandparents (who also live in the city) every few weeks, and had the fortune to meet their realtor neighbour. the guy looked at me like i’m from Mars when he found out i was waiting to save up before buying, and insisted that i get pre-approved for a 0-down mortage with his mortage broker buddy. He also kindly offered to educate me, the naive new grad, about the wonderful benefits of home ownership versus the evils of renting. When I brought up the subprime mortage situation that was unfolding to our south, he again pointed out my naivite and that we live in an oil-rich province immune to what happens elsewhere in the world.

As of today, I’m well on my way towards my savings goal and am in no hurry to buy. The few times I’ve run into the guy since this summer, he has not said a word about the housing market. May be he was just busy heading to his next appointment to enlighten more naive renters like myself.

#121 NC on 09.29.08 at 2:34 pm

spelling check – *mortgage

#122 Anita Holm on 09.29.08 at 3:40 pm

#111 “More Albertans unable to make mortgage payments.”

I actually read the story from the link you provided. The entire story. It also said…

“the people in trouble make up only 0.28 per cent of all the mortgages in Alberta, and that’s not enough to affect property values.”

#112 The spike in sales activity in Edmonton(and it seems in Calgary, too) is not because of 0/40. Why would it only be happening in Alberta? http://www.edmontonrealestateblog.com/my_weblog/

#123 Calgary Rip Off on 09.29.08 at 5:34 pm

NC:

Watch out for those persons wanting to sell those them thar shacks that are double priced what they are worth. The market may or not crash in Calgary. Wait and see.

#124 brazer on 09.29.08 at 7:05 pm

http://ca.news.finance.yahoo.com/s/29092008/2/biz-finance-canada-catch-america-s-economic-cold-stock-traders.html

“At one point in afternoon trading, the Toronto’s S&P/TSX composite index plunged more than 900 points and wound up suffering its biggest point drop in history. ”

what happened to those that were saying, it’s “different” here in canada.

sad day for fools.

#125 brazer on 09.29.08 at 8:15 pm

Fear sweeps markets as U.S. bailout fails
http://www.financialpost.com/most_popular/story.html?id=846909

As panicked investors headed for the exits, U.S. stocks lost a whopping US$1.1-trillion in value. The Dow Jones Industrial Average plummeted 778 points, its biggest decline ever.

In Toronto, stocks saw their greatest drop since 2000, plunging 7%.

#126 cmh on 09.30.08 at 4:12 pm

First to y3maxx, your comments lack validity and demonstrate someone who is incapable of doing a scholarly review of the literature/statistics.
To the person (sorry, can’t remember who it was) who commented on how because they are in health care, they will therefore be exempt from this financial fallout.
I’m wondering if you are relatively new to this profession? I too work in health care – graduated in the late 70s. In the early 80s when our then premiere of B.C., Bill Bennett initiated cutbacks, I lost my job. Fortunately, I got one in Alberta and moved there. But things didn’t stay rosy for a long time and in the early 90s during our next recession, I got laid off (by then I had over 10 years of seniority.)
I then had to go either to the middle east or the US as there were no other options. In fact, there were only a few states we could go to as some were in better shape financially than others. This upheaval was traumatic for many of us!
I’ve since returned to Canada and at no time feel my job is safe – and neither do many of my colleagues. The sad part is that if I get laid off this time, there may be no where else to go!