The good news is that the TSX closed above 11,000 on Tuesday, for the first time since the Eco Death Star arrived last autumn. More good news was the S&P above 1,000 and the Nasdaq over 2,000, also for the first time in three quarters.

Bullish news, too, for commodities worshippers. Gold futures touched $970 and a barrel of crude is back playing with seventy bucks. In fact all the metals have been on a tear – one reason our resource-rich stock exchange is so frisky.

Even more good news: pending home sales in the US jumped more than 3.5%, when economists had been expected a single point advance. And this came just days after Congress dumped an extra $2 billion into the wildly successful Cash-for-clunkers program that has Americans lining up to buy new cars, at discounts of $4,500.

Now, the rest of the news. A resumption in global growth will mean an end to falling consumer prices. Free billions from Washington will mean an end to sacrifice tags on new cars. Higher crude oil values will translate into higher gasoline and home heating costs this winter. And rebounding real estate values, especially in places like Toronto and Vancouver mean the days of deflation look numbered.

Remember these weeks, since they’ll probably not return in your lifetime. The economy’s still contracting, strip malls emptying and jobs evaporating. Our rising petro-dollar is the worst news for manufacturers, exporters and the whale boat guys at Bay Bulls. And yet at the same time equities, commodity values, governments and consumers are all acting like there’s an expansionary party gettin’ on.

Leads me to two things: the odds this is a bear market rally are high. But if I’m wrong (hey, happens), then there’s almost no chance Mark Carney is going to sit on the cost of money for long. In either case – an economic backslide or rising interest rates – it makes me think this a fine time for a roll in the clover with Prudence.

And now, let’s ride our carpet to the North Shore:

Dear Garth:

I think you have attracted a large following not just because of your predictions or alternate viewpoint, but because there are a dearth of objective impartial people to talk to about real estate decisions. We hope to (a) remain anonymous, and (b) “move up” in North Vancouver. It is the latter on which we would really appreciate your input.

We currently live in a 3 bedroom, 2.5 bath, 2200 sq. ft. house from the mid 1980s (with the white/oak trim kitchen with pink floral tile back-splash to prove it). It is on a 33 ft. lot and has a current market value of $730,000 (we think; this is below assessed value). We owe about $335,000; have a 1.45% variable mortgage; pay just over $1400 monthly in mortgage of which just about $40 is interest). We have updated the roof, windows, lighting, paint and done some light decor touches, but if we stay much longer we feel we may need to do the kitchen, baths and flooring. One of us takes transit from work; we can buy milk at the corner store; we have great public schools and rec centres and live in a desirable neighbourhood we like very much.

In fact, we would like to stay in our neighbourhood and get a bigger home: 4th bedroom, office, rec room, larger yard. This will cost about $1.4 million and, assuming we can sell our home, require about a $700,000 mortgage. We have been pre-approved for this (and more) at 3.85% for five years. The payments would be less than 33% of our income (we understand this is a rule of thumb?). We have no other debts, but do pay a lot for childcare (about $2000 a month). We have cash for property transfer tax and the move etc.

We need (and want) the bigger home to accommodate our relatives who all live back East and visited for (not consecutively) 4 months out of the last twelve (we have a child in each bedroom and now shuffle these for visitors). They would stay longer if we could give them better accommodation. As our older child starts school, we may need a nanny and a room for her.

Although we could afford the payments at 8% we obviously do not want to lose most of our equity or bite off more debt than we need to. So:

(a) when does the 40% rule apply? As in, at what age? RE is more than 40% of our net worth now (about 70%). We put about 50% down on our house 7 years ago, and would be putting about that, or 40%, down under the above scenario. This would be more than 40% of our net worth though.

(b) when is it right to move up? We assume you will say not now, but how will we know?

(c) please don’t say “sell” but “get a bunk bed for the kids and an air mattress for the in-laws”??? Most of our relatives are not of means to pay for a hotel and we often already pay for the air fare. Renting a comparable home (to what we have) in our area is about $3200 a month, and to rent what we would move to is about $5000 (more than our mortgage would be). What do you think?

Thanks from North Van-covet

My, my, my. What ever will they say in Windsor or Winnipeg? You give us a nice little snap of what life is like from the inside of a bubble looking out. Clearly the premium for living in Vancouver is extreme – upper-middle class family like yours with a six-figure income (sounds like it’s a little north of 200K), with 70% of your net worth in a house with pink tiles.

Your note, however, shows you’re approaching this decision with as much logic as emotion. Nice. After all, you really don’t need the big house – you want it. And it’s your money, so you should use it to get what you want. If it’s a fancy house in Van, no problem. Just don’t make the mistakes of thinking this is also a balanced financial plan, or that it does not contain risk. It does. Gobs of it.

As you know, interest rates will be rising. That 3.85% mortgage could indeed turn into one in the 8% range, if rates return to their 20-year norm. You absolutely should be prepared for that, budget for it, and know the consequences. One of those will be ascertaining the answer to this question: If mortgage rates double, and a $200,000-a-year family is pinched owning that home, then who’s going to buy it from you? And as affordability falls, so will prices. It’s inevitable.

But you know that. You still want it. You’re even playing the poor-relatives-from-the-East card. It’s a sure sign.

So, (a) my belief is that anyone, anywhere with more than 40% of their net worth in one house after the age of 40 needs to change course. After age 50, you’re gambling. After 60, you’re a fool.

(b) When to do this? Two factors favour selling now – you can get a top-of-the-cycle price and a cheap interest rate commitment. But you’re also buying into peak house, and I have every expectation prices will be lower in 2011. So, mitigate it by buying the worst home on the best street.

(c) If you do rent, you’ll have $700,000 to invest which, at 5%, yields $35,000 a year – or enough to pay $3,000 a month. You can then bank the $60,000 in mortgage payments that a $700,000 home loan at 8% would cost you, starting in five year. Or you can buy a $1.4 million dollar house in North Van for $1.1 million. Cash.

Say, have you met Pru?

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