Entries from August 2009 ↓

Always nice when we have a satisfied customer.

Weeks ago I gave you a couple of strategies on how to ‘short’ the bubblicious housing market now frothing in some of our more vacuous cities. The point was simple: If the people be dweebs, why not have your way with them?

Predictably, I was called callous, heartless, anti-social, borderline illegal and certainly repugnantly capitalistic for even suggesting such things. And what were these heinous, soul-crushing, testosterone-drenched bubble-pricking sales techniques?

Well, you can look up the Bubble Busters yourself, but one suggested selling in a bidding war, and insisting on a l-o-n-g closing in order to accept an offer. The logic’s simple: Sell high (now), and buy low (later). The odds of Canada being in a real estate bubble in, say, April of 2010 are remote, so why not get a fat deposit and a long close, and thereby have it both ways? You sell at an inflated top-of-the-cycle price, live in the house for most of a year, then buy into a declining market with the proceeds.

Additionally, you get a stinking big deposit which is non-refundable (you’ll have to fight your agent a little on that one), so if the buyers walk when the bubble pops, you get to keep their money. Like Divine Retribution without the thunder and bolts.

I noted with interest some real estate blogs run by actual experts (as opposed to me) said this was impossible.

Apparently not.

A few months ago I received this note:

We have a home purchased for $400,000.  It was up to about $900,000 but we are guessing it’s down to about $700,000. We have a $300,000 mortgage at 2.6% (open/variable)  My husband and I, although we love this home, are not ‘married’ to it.  We’d like to sell and either purchase something smaller (this home is 4200 sq ft  and we only have 1 child left at home) or rent while we ride out this storm.  Preferably we’d like to purchase debt free.  (We live in the lower mainland so that may not be possible).

We have been advised to keep the home because it has such a low interest rate.  Problem is, it costs a fortune to heat, in a winter like we’re having, and to replace carpets or lino will cost big bucks as well. From where you stand, how would you advise us if we were your children.  (We’re way too old for that, <smile> but for the sake of conversation).  We promise not to hold you to your ‘advice’. 

As you might imagine, my advice was to sell, reap the profits and downsize with less debt and more financial security. And here’s the update:

Well, we finally put our home on the market. (Our interest rate is now down to 1.93%)  We had it evaluated 2 months earlier and one realtor said $699,000 was the highest we should ask and another realtor said $729,000.  The higher of the two was the realtor we chose to list our home but on the day of listing he said we should got for between $749 -759,000.  We chose the higher listing price, and just received an offer of $750,000!  After some negotiations we ended up with a big deposit and a completion date that is a full 8 months away.

About an hour after the realtor left I began to giggle.  My husband was confused so I explained, “Without realizing what we were doing, we just negotiated Garth Turner’s Bubble Buster #1.”

Well, Garth, I guess we’ll ride this out and see what the market does.  We may rent. We may buy. But we’re going to find out how this bubble busts over the next 8 months.

God, I love the smell of napalm in the morning.

'Mark it on your calendar,
the recession ended in June' - CIBC economist

Some months ago I said nobody should be surprised if the economy starts to grow again and economists dance on the grave of the recession.

That actually happened today as GDP data showed the economy inched ahead a little in June. You can be sure of one thing: it’ll be trumpeted by advertising-starved media and distorted to mean something it does not.

(At this point, let’s doff our caps and squeeze a wet one out for CHEK and RDTV, long-standing television stations about to go black in Victoria and Red Deer.  CanWest Global is shutting them down, along with dumping its stations in Hamilton and Montreal for less money than my bike is worth – and still the company, which owns some of the country’s biggest dailies, teeters on the edge of insolvency. I hope it’s lost on nobody what this means about (a) service to the communities you serve and (b) why the news media’s no longer in the news business.)

While the economists grab wenches, drink from their slippers and stop traffic at King & Bay with their dancing and nakedness, let’s also remember this is no signal for people to think 2007 has returned. Bummer. When they all sober up, we’ll still be shedding jobs and watching small businesses close for the next few years.

And while I’m as happy as the next guy about life improving for people, there are profound reasons nobody should be misinterpreting what this means. After all, we almost sank into a neo-Depression last autumn as a result of risky behaviour, a debt binge, greed and authorities asleep at the switch. And what profound changes have resulted?

Yeah, we’re more in debt – the government and the rest of us, we’re snapping up houses at new pinnacles of pricing, our trade picture sucks, 1.5 million people can’t find a job and policy-makers have decided to save their political rumps by shafting your kids. In short, we fixed diddly.

At the same time, the BoC had to trash monetary policy and crash interest rates in order to stave off disaster. But that simply leaves the door open to unbridled inflation and a hurtful romp higher by our currency as oil prices pace global recovery. So the bank has to choose its poison (I mean, yours, actually): start doing its job again by raising rates and stemming an unwanted rise in the cost of living and further goosing the loonie, or stay the course and preside over a massive bubblification of the real estate market and a bloat in consumer debt.

After all, higher rates are inevitable. The consequences are obvous. The question is, when?

My guess: a whole lot sooner than Mark Carney is letting on.

And Monday will be one of the days he eventually points to, when he says the central bank must once again worry about the money supply instead of the governor’s future Senate appointment.

In the meantime, hey, grab a girl.

The new face of Canadian debt millionaires.

The loudest noise in my local HD on Saturday came from the birds singing in the rafters. Knots of staff in orange aprons covered with bling and tape measures hung around roofing materials, cellulose blinds and the unloved end-of-season BBQs. I was there for the bunker, of course. This was the weekend to install the backup emergency power supply to the standard standalone power supply for the standby generator. Tempus fugit, if you get my drift.

A friend to the south called to say she’d just driven down millionaire’s row in East Oakville. ‘A forest of signs,’ she said. ‘Never seen that in my life.’

Indeed, some lakefront estates in that area trade hands once every few decades. Some, never. And certainly not like today – with fat price reductions slipping through to local brokers weekly. Hell, you can even rent a $4 million place that used to belong to the president of Ford for eleven grand a month. That’s 3%.

In the resort town of Wasaga Beach, a local developer desperate to sell languishing new homes sent out an email blast trumpeting CREA’s latest release – “TORONTO (Reuters) – Canadian resale home prices are likely to rise, not fall, and sales will match or exceed those of last year, the Canadian Real Estate Association said in a revised forecast on Thursday, August 27.  A much stronger showing in the second quarter, and a solid start to the third quarter, prompted CREA to predict a dramatic rise in home sales for 2009, and for prices to edge up…”

Hey, kids. Everybody’s doing it! Jump in!

This weekend’s Globe ROB carried the usual coy photo of a couple willing to spill their financial guts all over a broadsheet page, but eschewing a full-frontal headshot (above). The thirtysomething BCers own $1.43 million in real estate, with $1.14 in financing. That’s 8.3 times income (and she’s on mat leave), with debt payments taking 77% of net income.

Said the financial advisor in a blaze of insight, “they should consider downsizing.”

Canada, it turns out, is getting kind of a rep these days. Family debt-to-income ratios are now among the highest in the developed world. Our housing market is one of the most expensive on the planet relative to national income. A survey of the least affordable places to live had four BC cities in its top list. No other country has gone from a record government surplus to a record deficit as fast as Canada. And our trade deficit has just reappeared for the first time in 30 years – not the kinda news you want to hear when you’ve hitched your wagon to free trade.

As mentioned here a few million times (I’m tedious), what our indebted fellow countrymen and women can look forward to are higher taxes, stiffer mortgage rates and a constipated economy. There is absolutely no validity to PMSH’s comments that we will be out of this historic deficit pit without public pain. That’s not a political statement. Mere fact. The next ten years will be defined by what has happened since October.

And as I mentioned two days ago, our major economic provinces – BC, Alberta and Ontario – are equally in the soup. Surpluses have turned into deficits, with tax increases, spending cuts or both a certainty.

So, let me summarize: Families more indebted than ever. Economy still sucks. Trade crumbles. Pols choke. Did I miss anything?

Oh yeah, record real estate sales.

Gotta run. Time for a genset check.