Entries from June 2009 ↓

Well, enough about bating poor realtors. Let’s whisk now to the Wet Coast of this great country where some truly devastating personal tragedies are being quietly played out, one tormented household at a time.

I know it’s hard to witness naked suffering, yet there may be lessons for us all. Let’s hope so. Some good must emerge from such loss.

Dear Garth,

I am confused and here’s my hard-luck story: At the beginning of this year, after watching prices fall during the latter half of 2008, I made a decision to sell our house and wait out the market, thinking prices would fall even lower. I had never really liked our home (in Vancouver—I moved in with my husband five years ago) and wanted to start over with a home of our own. Well, of course, no one predicted that just after I sold my house, mortgage rates would drop significantly leading house prices to shoot up. So, now I’m sad because I know if I had waited another four months, I could likely have banked an extra $50,000—of after tax dollars! But hindsight is everything, so I try not to lament this loss.

On the plus side, as a renter, I now have an extra $800,000 with which to, a) invest at about 1.5%; or b) troll the real estate listings ready to pounce on the off-chance that prices continue on their upward trajectory. It is also challenging to talk about this with anyone I know. I’ve given up saying I think prices might not hold their value. Every person I mention this to looks at me like I’m totally, ridiculously stupid and the longer prices increase, the more I am prone to believe it myself.

But every few days I hear about a friend, colleague or friend-of-friend being laid off or I read something new and interesting about China, or I contemplate the real estate situation in the US, and I can’t believe that prices are going to continue upward. It does not make sense! No matter how many lemmings (sheeple) there are. But maybe our government will intercede at every step of the way to ensure that house prices don’t lose their value—or that no one defaults on a mortgage. If Obama can give upwards of $8,000 to families who can’t pay their mortgages, I’m sure we can also generously provide Canadian taxpayers’ dollars to those who buy what they can’t afford.

So today I find myself eyeing a lovely renovated, post-and-beam home for a mere $900,000 and thinking that maybe it is good value. Garth, help me back on track…there’s no one I can turn to…

Yours most sincerely,

On the edge in Vancouver

Hey, I told you this was ugly.  A special Vancouver kinda tragedy – profound remorse at not being able to screw another fifty grand out of a greater fool for a house which in any other city would have trouble finding a buyer for half the price.

Anyway, OTEIV has asked, and so shall we answer. A few points to chew on:

First, anyone who tries to time the stock market is called not a bear or a bull, but a pig. Same with real estate. And you qualify, babe. Just thank your few remaining lucky stars you bailed out of Van homeownership that close to the peak of the market. Thousands to come would trade places in a heartbeat.

Second, get new friends. Anyone who thinks real estate prices in Vancouver will rise in next couple of years as rates increase and the economy stumbles should not be allowed to handle money.

Third, what the hell is wrong with having no property, no debt, and $800,000 in cash? As for investing it at 1.5%, send it to me and I’ll give you 2% (and then reinvest it in bank preferred shares for 7%).

Fourth, we all know the reasons real estate prices cannot and will not continue to rise without end: Chronic unemployment, collapse of tourism, forestry and manufacturing, an energy shock, higher interest rates, climate change and water licking at the gold floor of Hotel Van, disintegrating Boomers, government debt binge and a simple inability of average families to afford average houses. And what are the reasons houses will appreciate anyway? Oink, oink.

Finally, get out of town before you spend 900 large on anything.  Especially a property you don’t need. You’re confusing investing (to satisfy your greed) with social status (house lust). It’s like driving the Sea-to-Sky with twelve shooters in ya, girl.

It won’t end well. Bacon bits.

Did I tell you the Canadian Real Estate Association took a pass on asking me to speak at its annual gabfest this year? Now, there’s a surprise. I’m sure a Garth Turner speech right now would have the same effect as one I delivered years ago to a big city real estate board luncheon.

They threw buns at me. Man, and all I did was give a rousing talk on how real estate commissions are obscene.

I mention this because  for the past couple of days I have savaged our national realtors’ group for a totally unethical media release, and for propagating the myth that housing is (as CREA said), “back to pre-recession levels.”

Actually nothing is back to the way it was a year ago, except human folly.

When I visited my lawyer a few days ago (he specializes in real estate, and I had a property to close on), he said he’d never been busier – ever – than he is right now. This astonished him. In fact, he thought he’d have so much time to kill with a moribund office this summer that he signed up to do some college lecturing. His new burden: no-money-down, long-amortization, first-time purchasers of suburban tract housing outside TO, bought from plans.

Of course, he said he’s also busy representing some buyers who did exactly the same thing last year, and are now walking away from $40,000 deposits, after losing their jobs.  Is that called irony?

I also mention it because this week CREA’s wonky stats were blown out of the water by another housing survey, the Teranet-National Bank index. This one (in stark cntrast) shows a weak real estate market, with prices down almost 7% in April from year-earlier levels. Home prices in Vancouver were off 11%, down 9.8% in Calgary and cheaper by 7.6% in Toronto. On a positive note, prices were up 2.4% in Montreal, 0.6% in Ottawa and 0.2% in Halifax.

This brings me an unproven factoid I don’t want overlooked. Media, the real estate industry and their accomplices in the mortgage biz believe they can influence public opinion enough to alter consumer behavior. And they’re probably right. In fact, they’re doing it now. Why do you think my lawyer’s so damn busy?

And how about this guy? He’s just some mortgage broker with a webcam in Calgary, but he scares me nonetheless. He is so typical of people justifying the unjustifiable (a housing boom during a job crisis and a recession), and making up a storyline to do so. His theory: Garth Turner is an evil dork for cautioning against the impact of rising future interest rates on housing.

Hey, says Brokercam, rates will be only “150 to 200 basis points higher” five years from now. That’s it. Big deal. No story. Move along. It’ll mean a pittance of a monthly increase on a $400,000 mortgage – and people’s wages keep on going up, anyway.

And this is based on what? Nothing. He made it up. Just like the big real estate companies do. As CREA does.

Buying a home and investing in real estate are good, solid things to do. But with huge sums of money and giant loans involved, they need to be done with care, especially in days such as these. Buying into a local bubble market could be the path to heartache, just like assuming rates will not soar or the value of your asset can’t ever tank.

Maybe the feds should spend less time worrying about how to regulate the regulated stock market and more sweat on taming the unregulated housing market. After all, it’s bigger, represents more equity and debt, touches many more people, impacts the economy more intensely and is run by manipulative bun-tossing pirate hucksters.

And I was so looking forward to that speech…

Yarmouth's lovely this time of year.

When we all know Toronto is the epicentre of life (except when it’s Calgary and Vancouver) it may shock you to see us as others do.

I mean, let’s imagine you land in this country from another planet like, say, America. You have the freedom to live anywhere you want, so long as it makes practical sense for your family. You also have experience. You’ve lived through booms and busts, bubbles and crashes. You’ve experienced the greed that drives home values beyond reason and the despair that collapses them beyond belief.

In other words, you can survey the Canadian landscape and ask yourself with some authority: Where is there real estate value, as well as hope? What community offers the best lifestyle at a decent price where my investment will hold and the entry point is a fair one? Is it exotic Vancouver? Petro Calgary? Cosmo Toronto? Euro Montreal?

Or how about, none of the above?

Imagine if, on your planet, you had to chose between Penticton and Yarmouth? Listen to what Joe and Linda have to say to me:

Hello Garth,

We’re Americans who have recently obtained permanent resident status in Canada.  Our decision is mainly economic, although there are certainly other issues as well.  Of course, no place is perfect, but we see Canada’s long term economic and social prospects to be on a far superior footing to those of the United States.  A $50 B deficit, although very bad, sure looks better than our $2 Trillion deficit, and counting…and counting.  It’s a hard decision to leave but we have a 12 year old boy and I see his future to be far brighter north of the border.

Well, we’ve been offered well paying jobs in the Penticton BC area.  But the Okanogan Valley seems to represent everything that’s wrong with real estate, both in Canada and in the States.   To say it’s way overpriced is an understatement, along with suburban sprawl, water issues, air quality issues etc. I’m thinking that Canada’s real estate folks, especially in places like the Okanogan, realtors and sellers alike, are still way in denial – maybe 18 months to 2 years behind the US in the pace of decline.  That, along with the Green Shoots fantasy, could serve to deceive Canadian buyers precisely at a time when they need to think clearly and coldly about these things

Then on the other side of the country there’s Nova Scotia.  No water issues, much lower priced real estate (other than Halifax) but a tad on the economically depressed side.  Very interesting place though, and I like to fish.

For us, we’ve been renting for a few years in the States and it was a smart decision.  Your readers need to know that renting is not a bad thing, especially if you rent a nice place for a good price.  The purchase price of the house is the most important thing, not the monthly payment, which with artificially low interest rates, as we now have in both countries, can be misleading.  And having cash at the right time in a downturn is even nicer.  Anyway, perhaps you and your readers want to, shall we say, “comment” on real estate in the Okanogan, and whatever else might seem appropriate.  Let me finish by saying that we’ve traveled a fair amount in Canada and it’s a great country.  We feel very privileged to be able to live there, and intend to move within the next few months.  I’ve been reading your blog for quite awhile now.  It’s both informative as well as a public service to potential buyers and sellers in both countries.  Thanks.

Comments for our American friends?