India now has a nuclear sub capable of hurling Armageddon-tipped missiles, presumably into Pakistan. It’s got nukes, too. World Health Organization officials are reportedly telling world leaders to expect a billion cases of N1H1 swine flu over the next six months. And when asked why he crashed interest rates, US Fed boss Ben Bernanke said on Sunday: “I was not going to be the Federal Reserve Chairman who presided over the second Great Depression.â€
Has the world always been a dangerous place? You bet. Screwed-up, too.
But the world in 2010 is unique. For example, look at this chart of corporate profits:
I included words above about Indian nukes, swine flu and the nearness of a neo-Depression to remind that we are one incident away from a changed game. Even if the Bank of Canada’s right and the recession is ending, it will not be bringing back 2006. The yellow flag is out. Speculation’s cool again. Be careful out there.
You too, Thomas:
We sold in early 2007 and closed in late 2007 and  have been renting every since.  At that time of course GIC rates were quite attractive and interest from the sale made us alot of money and safe money.  We have put many an offer in on houses that we can pay cash for, plus having quite a bit left over,  and come up empty because of crazy sellers and incompetent realtors.
Right now our lease is soon and cannot even think of renting again… just hate not being able to do things we would like and that I am good at.
We live in central Toronto and the landlord bought this place for his daughter in order to tear it down and put up a monster show home .  We essentially do not have any time left and are hedging whether to buy or reluctantly find another rental.   Your advice all along was to wait and as you know some houses did moderate in price mid to late winter here in Toronto but nothing of great consequence.  Are you still of the mindset that Toronto proper might  have a correction or do  you feel that the hype and low interest rates is just too big to see things drop AT ALL…  I am not sure if we are just cheap or know too much for our own good.  Truly sick of looking and would prefer some sort of certainty.
Well, Tom, the previous post showed what I know about Toronto real estate. We are now at the highest price point in history, just as the unemployment rate achieves its own summit. The southern Ontario auto industry’s in tatters and Nortel’s moving to Sweden. The dollar is nearing parity, finishing off the exporting and tourism sectors and we’re one year closer to the great Baby Boomer property dump.
Given all of that, what’s your problem? You’re sitting on a mountain of cash. You sold out close enough to the peak price. You’re a smart guy – you know what inevitably will come. In July of 2010 interest rates will be on an upward trajectory, while the jobless rate stays stuck about where it is now. Ottawa will be planning higher personal levies, while Ontario and BC slap the mother of all sales taxes on residential real estate.
Oil prices will be licking at a hundred bucks a barrel, squeezing family cash flow and we’ll all be buying Chinese air conditioners at Wal-Mart. Meanwhile, what if there’s an economy-wilting pandemic scare or a disintegration in the value of the US dollar as its deficit adds $1 trillion a year to an unrepayable debt?
None of those things can you control or influence. But they’ll all impact you. As a renter, at least your cash is secure and you have options. If real estate dives, you can buy in at a reasonable price. As a homeowner, with your cash buried in bricks and mortar, you’d only lose. No upside. You would have bought a home at its highest price ever, knowing full well the world is unstable and change is inevitable.
But, whadda I know? I just crave cash, independence and freedom more than I seek certainty.
Must be the cowboy in me.
Bonner: 'We're in the early stages of depression...'
With the snow still fresh, I was asked to be on a panel of ‘real estate experts’ (whatever the hell that is) to dissect the future of Toronto’s upscale housing market. I wrote about it here, and provided a link to the article which appeared some weeks later.
My message was that danger and uncertainty lay ahead, no recovery on the horizon. Nor was there reason to believe Canada would be immune to the housing meltdown which had hit the US, Britain, Spain and most of the developed world where people had lived beyond their means, borrowed their brains out and gone prone before the alter of housing.
This weekend, the magazine that assembled the panel has asked for an update, to take the form of an email thread among the participants – TO’s reigning condo king, one of Canada’s best-known economists, an architect to the stars, a radio financial guy, a realtor specializing in million-dollar homes, a flamboyant property developer, and lonely me.
I won’t scoop the mag, but this is a typical response from one of the bulls:
I will take the credit for being 100% correct. I had indicated at the time that the worst was over and that we were seeing the start of the Toronto market rebound, that December was a de facto bottom and buyers should jump in immediately or miss the best buying opportunity of the last 10 years. A couple of you were certainly of similar thought. Lets be kind and say that the others were badly misreading the signs, or unable to. As for the future, the recession is over and real estate has recovered – end of story.
Hmmm. So what has happened in the GTA since the robins returned and the garbage accumulated?
As you may know, we have an echo-bubble. Sales in June were higher by a third, and the average house price – far from declining – has actually risen, to achieve its highest point in history. There are multiple offers all over the place resulting in a mounting buyer frenzy and some silly results. As reported here, a home in Leaside (70-year-old brick houses, 30-foot lots, no garages) recently sold for $116,000 over asking price, and for close to $1 million.
So, was I wrong?
Duh. Of course I was wrong. I sucked.
I actually attributed common sense and rational thought to the people of Toronto. It occurred to me they’d realize we were in the throes of a global recession caused by excess debt, inflated asset values and policies which have systematically exported production jobs to Chindia, leaving us with an economy in which we sell each other shoes and houses.
I assumed they’d know low interest rates had only one direction in which to travel, and they’d remember the way things felt the last time Ottawa plunged itself into unrepayable debt, leading to inflation, double-digit mortgages and a fat new sales tax.
It seemed so obvious they’d look to the States and see what happens when real estate values are allowed to fly too close to the sun, and where a stunning 19 million homes now sit vacant and unwanted. After all, when houses cost five times annual income there, the jig was up. But in the Golden Temple which is Toronto, that ratio has levitated to seven. And I was convinced they’d equate the damage done by subprime mortgages and an insouciant American lending industry with our 0/40 mortgages and the facts banks will lend indiscriminately thanks to CMHC shouldering all the risk.
This led me to conclude most people would clearly see the dangers in letting first-time buyers in with little or no skin in the game, taking 95% or 100% mortgages, and risk being plunged into negative equity if house prices softened even a little.
And I sure figured mounting unemployment would weigh on the citizens of Metropolis. After all, the industrial base of hinterland Ontario has been hollowed out with 225,000 manufacturing jobs erased in a single year. Family income has been stuck in the ditch and it seemed like the last thing people would do is borrow huge sums to buy houses priced at the peak when job security wasn’t.
But I was wrong, according to my panelist colleagues. The people have been smitten again, lured into a new episode of Flip This House by the drug of 3% mortgages and the certain knowledge that this is a smart move, since house prices will rise forever.
So, when is the next price correction? When it takes ten times income to buy a home? Twenty times? When all citizens have become real estate millionaires by selling out to aliens, or maybe refugees from Vancouver?
The unreality is overwhelming. An entire society has raced from denial back to speculation, leaving guys like me in the rearview mirror. I’ll forever be discredited, wasted, rebuked, scorned. Mocked in a mag delivered to homes where true inner peace comes with a rise in equity.
