US Treasury Secretary Hank Paulson closed an office door, grabbed a wastebasket and vomited.
A week later at a hastily-called Saturday morning meeting of G7 finance ministers in Washington, including Jim Flaherty, Paulson warned there was a good chance ‘the banks won’t open on Monday. Or the markets.’
Fourteen months after we came to the edge of a yawning canyon of financial collapse, the story dribbles out in bits and pieces. Some of it’s in an extraordinary book, ‘Too Big to Fail,’ a 600-page gripper. Other parts have slipped from the lips of people who will never forget they were there.
I hope you recall how you felt little more than a year ago. Markets falling 500 points a day. No house sales. No buyers. Massive layoffs announced daily. Sudden stories about a depression. Plunging RRSPs and a sense things were just going to get worse.
In a way, they did.
A year later the one Titanic cause of the global meltdown – debt – is a far greater problem than in the autumn of 2008. The US will now have trillion-dollar deficits for a generation. Canada’s red ink has never flowed faster. Households have more debt compared to income than at any other time. Mortgages outstanding have mushroomed. Billions in Canadian liquid wealth has also been invested in an asset which has just peaked in value – real estate.
In a word, more people are more at risk, with less cash, more debt and probably less secure jobs, than they were then. So, we blew it. After peering into the abyss and shuddering, we did nothing about it.
Hours ago I exchanged emails with a young mother in Winnipeg whose husband flies combat with the Canadian Forces. He’s being transferred to the Pacific command in Victoria, which means they face choices. If they sell the Peg house and walk away with $150,000, then buy in Victoria, the new mortgage will be $500,000. He wants to do it. Distraught, she does not.
Two things she told me. Even with just one income (pilot lieutenants make $59,000, pilot captains make $73,000), they’ve been approved for a half million dollars in financing. So much for prudent Canadian lenders. Second, they’re being told by local realtors that Victoria real estate has no downside, ‘since all the Baby Boomers are coming here.’
Flyboy thinks it might work since the military pays for real estate commissions and closing costs. Wife understands it could be the end of their financial lives. If house prices in three years are lower by 15% or so – less than the increase in 2009 – then two-thirds of their equity is wiped out. Years of saving, mortgage payments and doing with less, gone.
That anyone would contemplate such a move a year after we girded for a rerun of the Thirties is amazing. But, as you know, this self-delusion and societal myopia surrounds us right now.
Savings rates have not increased in Canada, while the rate of borrowing has increased. Worse, loans and mortgage have been taken at emergency interest rates, which can only be adjusted in one direction. Also worrisome are the investment mistakes being made. Record amounts, for example, have just gone into bond mutual funds – whose values can only disintegrate as interest rates inevitably rise.
We’re at it again, of course.
- Canadians bailed out of equities funds last March, when the market hit absolute bottom.
- Canadians piled into residential real estate, when its price achieved an unsustainable all-time high.
- Canadians shoved cash into bonds at the end of the bond rally when values could only drop.
- For a crucial year we’ve saved nothing and spent more than everything.
Some people come to this blog repeatedly to argue interest rates won’t rise soon nor real estate crash, that government stimulus and subsidy will carry on for years. Maybe so. Debt without end.
And then?
Anyone seen the wastebasket?
193 comments ↓
For margin trading, you need only to deposit 10%; considered very high risk. What’s 0% or 5% down?
Madness?
Canada won’t/can’t raise rates until the states do.
Garth,
12 months ago I wrote prime rate – discount would return, and it has with .25 off. The whole rate argument has been going on here for a couple of years now. Rates will go up; rates have been going down for that last 2 years. So I got to ask, go variable?
Oil Amen,
Post here every 90 days to tell us more about how great your Real Estate is.
I command you.
There is absolutely know need to have any Canadian Forces fighters stationed near Victoria. There is an air base at Comox. What the hell is wrong with posting fighters there.
Let’s get with the program !
Chinese Government tightens property rules
The government requires homebuyers to make a down payment of at least 40 percent when buying a second apartment…
http://canadabubble.com/bubble-watch/315-chinese-government-tightens-property-rules.html
I KNOW THERE IS A 50/50 CHANCE THAT RATES WILL RISE AND THERE WILL BE A CRASH IN THE REAL ESTATE MARKET.
SORRY FOR THE CAPITALS……..NOT SHOUTING, DIDN’T REALIZE.
Watch for higher gas prices next week.
Garth – great post – you indicate ‘prices have peaked’ – do you think we are now finally beginning the big slide?
Gold rocketing tonight.
A friend told me to look up your blog.
I’ve been reviewing and have become very disallusioned about investing. You seem to have put a reality on it.
Thanks Mr. Turner.
It would be foolish to think that most people will suddenly act responsibly with their finances just because we had a close call with economic oblivian last year. Ignorance is bliss.
Garth…We are in a very similar position. This military couple is lucky to have the option of renting a PMQ. We invested our windfall and have been adding a significant amount to it monthly. Sure we don’t live in a million dollar row-house on Bear Mountain, but our nest egg is alive and well, ready to be redeployed when we are posted back east. I have no intention of ever buying into this market. Perhaps we missed the boat, as homes have appreciated over the last couple of years but I have slept well knowing that I am not tied down to a half million dollar mortgage. This area is quite remarkable and I would pay a premium to live here, but not at the rate that the market currently demands (especially since I have the PMQ option).
Cheers!
((In a word, more people are more at risk, with less cash, more debt and probably less secure jobs, than they were then. So, we blew it. After peering into the abyss and shuddering, we did nothing about it.))
Yup, and life just goes on like nothing happened.
((Thanks to taxpayers like you who generously bailed banking from the financial shipwreck it created for itself and for us, by the end of 2009 the industry’s compensation pool reached nearly $200 billion. And despite windfall profits, the banks will claim almost $80 billion in tax deductions. And nearly $20 billion of those deductions will go to just three institutions — Morgan Stanley, JP Morgan Chase, and Goldman Sachs.))
Bill Moyers
“Some people come to this blog repeatedly to argue interest rates won’t rise soon nor real estate crash, that government stimulus and subsidy will carry on for years. Maybe so. Debt without end.”-Garth
Here some more support to your thread from Mr. Schiff.
http://www.europac.net/Schiff-CNBC-1-04-10_lg.asp
Canadians have more stimulous per person than in the USA.
Oh, Gold is up modestly in early week trading
So, the lesson is: buy when the herd is selling, sell when the herd is in a buying frenzy. Does that mean it’s time to get out of BRIC and Emerging Market investments?
On a side note: with the pro-roguing of parliament, I assume this means Flaherty & Co. won’t be changing any mortgage rules until at least after March 5th?
its not over
Many obstacles lay ahead
For flyboy and his wife, there are rentals in Victoria. Sure, there are a lot of dumps. But good places are available. I rent a 2 storey house in Gordon Head, about 2100 ft2. Built about 1980, fairly energy efficient. 4 bedrooms and a single car garage. Nothing special but much nicer than your typical 500k Victoria tear down! The rent is $1550/month and I am happy to pay it.
It doesnt matter when they raise interest rates. It is bound to happen. It’s pretty simple of when it is time to buy a house: 1) Your employment is rock solid, 2) if interest rates go up you still can qualify and afford the payments, 3) you wont move for the next 20 years, 4) you like the house, 5) you believe what the sellers are asking for the house is reasonable.
On 1-4 I would buy today in Calgary. On #5, the houses in Calgary are nothing special. They are overpriced quickly constructed shacks that are not energy efficient. Some of them are very nice, but look closer at the details: You get what you pay for: In a normal non bubble market you would get the detail at market value prices. This means that you would get a Ferrari for a house that actually was a Ferrari. As of now you get a Pontiac Fiero(1984) with a Ferrari body bolted on top and a Ford engine in the rear. It looks like a Ferrari on first glance, but it isnt. Look at the insulation, look at the drywall, look at the plywood. How much time was spent to build the house? Chances are, not much. Nothing special. There is no solid oak floors, specially laid granite, reinforced foundation, no depth to the construction and thoroughness. Therefore, no special things should be done to buy such a property, no bidding wars and certainly not anything above $300K.
Single family houses of 1500 sq. feet not counting the basement with 8 feet between you and your neighbour are worth $250K, tops. If you argue against this and purchase this with anything less than 20% down and 25 year term, expect to pay dearly with loss of equity. Unless you are happy with #’s 1-5, and even then, the current forecast of interest rates means that someone is going to get shafted as a mortgage owner.
That someone isnt going to be me.
Garth: “And then?”
And then the dollar declines, inflation takes off, and our problems are every bit as bad or worse than if they raised rates. If they raise rates, inflation can be held in check, but folks already strapped for cash due to debt won’t be able to make ends meet. But at least people with a job can still buy necessities. On the other hand, if they allow inflation through currency devaluation, everybody suffers as the cost of living rises.
Unfortunately, I think it’s going to come down to what is good for bankers. Bankers view the public purse as “the commons” just like everybody else does. So it makes sense for them to put as many cattle to graze as they can, even if they are ruining the land.
If you are a banker, better to have the debt paid back in depreciating money but still be good on your nominal amount than have to file for bankruptcy, in which case you have nothing. So it will be inflation first, gargantuan inflation, before higher rates. Then they will try and smack the inflation down with Volker style responses, and it will take Volker style responses. But inflation first. It’s inflate, or die.
The problem of lower foreign demand for US debt has been solved with quantitative easing, and no they won’t exit quantitative easing until an alternative funding source is found. Maybe they can move it to the hedge funds or find a way to hide it but that is still in the works.
Garth’s argument that there can be trillion dollar deficits for a generation and higher rates I don’t believe. Higher rates impose lower borrowing. Same as with a home buyer. Higher rates will lead to massive cut backs in government spending, which will be about as popular as a trip to the dentist prior to the invention of anesthetics. No, the governments intent to maintain and increase spending, not reduce it.
I just hope they don’t accidentally kill the electronic exchange mechanism in the process. If we have to go back to moving gold around in armored vehicles for large purchases and swapping 1 ounce airline bottles of whisky for small exchanges, it will be a huge step backward. In the modern world, gold might have a role as a currency of last resort between nations and central banks, but I need my debit/credit cards thank you! They are way better than gold, and getting better every day as technology improves, in that a stolen credit card is of less and less use to a criminal, or at least presents less risk of actual cost to the owner and more risk of getting caught to the criminal, whereas a stolen ounce of gold or $1000 cash is good to go.
I am a gold bug in a way. I have some small portion of my portfolio in gold related investments as a hedge against inflation/currency collapse. But I agree with Garth that it will not re-enter circulation as a form of currency. Burying thousands of dollars worth of gold in the back yard can only lead to being on the wrong end of a gun.
But none of this means house prices are going up. The less money there is to spend servicing debt, the less house prices can rise, since house prices are always and everywhere a function of income, interest rates and lending standards.
rates to kept low for at least 2 years as per Goldman Sachs (Canada’s rates at 0.25% for even longer). When US rates rise Canada’s will be kept low to lower our currency to around 70-75 cents US. Result: jobs boom, manufacturing return, increased immigration.
So housing definitely will be okay for the next 2 years until 2012. Then we will have a population explosion. Prime Minister Harper just said last week that he will not erase the deficit via higher taxes or spending cuts. That means more jobs!!! via an increase in population.
People wanting a crash/correction: think about what Goldman Sachs and Harper said. Don’t be complaining in 2 years about a crash that will never happen..You have only yourself to blame for not entering the housig market at an appropriate time.
Once again great post Garth. Sold my downtown T.O. condo summer 08 (bought in 05) & put proceeds into just good solid dividend paying stocks. I’m young enough to have all my $ in equities & focusing mainly on commodities. Keeping my eye on the ball & hopefully freedom 45 or even 50 will one day come to pass.
Garth: Acknowledge that rates may stay low for an extended period of time, immigration results in demand and may increase, and BoC may devalue our dollar vis-a-vis the US dollar.
People look up to you for guidance. Parents want to purchase homes for their families to live in and notfor investments. If your forecasts turn out to be wrong, much pain will be inflicted on the lives of these families. They will never be able to live in a home of their own bcause they listened to only you…waiting for a real estate crash. It is your moral duty to acknowledge that you may not be right for the sake of families who will be foreever be left behind as wealth is all relative.
Dear Garth
When are you talking in Regina? We feel neglected by you.
What in the world is going on here…
Kitchener a hot market???? A 2-bdrm condo with a $500/month condo fee in downtown Kitchener. Asking $517,000:
http://www.realtor.ca/propertyDetails.aspx?propertyId=8968109
And…only about 55 properties showing available on MLS in all of Kitchener-Waterloo??
I’ve thought of buying out of the 905 to save money. Won’t help at all….Kitchener, Guelph, all these areas, even as far as London, won’t save anything significant on comparable houses in the GTA.
You did your best to try to tell them, Garth. Wreckless government policies have consequences. I’m sure I’m speaking for more than myself when I say I deeply appreciate your efforts in trying to guide people away from choices towards future bankrupcy in favor of paths to opportunity.
Thanks again!
Hi Garth,
Excellent picture – unfortunately you never was a captain but you where crewman for a while – how to change the things?
Here, I believe the easy RE money has already been made and the smart money is getting out. In the US, the smart money is likely moving back in.
This gives an idea of what life is like at foreclosure ground zero in the States
http://www.huffingtonpost.com/2010/01/10/stockton-california-is-fo_n_417704.html
Great post to start the week Garth.
Quite fitting considering the bad employment numbers that came in at the end of last week.
When will people wake up the fact that this recession is different?
ya, its coming.
can’t wait for the ‘budget’ in 8 weeks.
I think the good wife has a valid point, whether or not her good judgment prevails is another matter. Relying on the very unscientific opinions of realtors with respect to downside risk would be madness. Taking on mortgage debt that is the equivalent nine times family income sounds like risk to me and if some real estate whiz can show otherwise then they should speak up. A $150K equity contribution is no flimsy down payment, especially by today’s relaxed underwriting standards. The money this couple loses will be their own in the event of even a minor correction. I am a Baby Boomer and so are all my buddies. I hear a lot more about wintering in the Lower Rio Grande Valley in Texas or Palm Springs, California. Victoria, BC is not on the radar for ANY of us coffee shop Baby Boomer Cranks. Sitting peacefully on the sidelines and renting makes a whole lot of sense.
Recent Alberta anecdotes… for what they’re worth…
1) Century Park in Edmonton (the old Heritage Mall site). In one of the buildings, there is only 1 occupied suite. The developer is trying to get that suite moved into an unoccupied one in another building in order to save on overhead. Question is how do you convince an owner to leave their place and what kind of appropriate incentive? Of course, this was one of the sites where just a few years ago people were camping overnight to buy an un-built unit and it sold out immediately.
2) Another development in Edmonton near Grant MacEwan College downtown… the final phase of a condo development is a tower with ~125 units and ~20% occupancy. Because the developer still holds multiple units in the different phases and because of owner apathy, the developer essentially controls the strata corporation. Plan for 2010? They want to re-constitute the condo board with ONLY individuals who have no past experience on a condo board. I can imagine the bullying tactics applied to that board. One of the other phases has ~30 rentals out of ~120 units. The original Phase I building is only 7 years old but looks at least double that.
3) In Calgary, Signature Capital (a real estate investment company) blew up in late fall. CCAA protection now… following in the footsteps of Concrete Equities and portions of John Torode’s empire. Torode’s investors apparently lost $250k per share unit. Ouch.
4) In Calgary, one commerial RE investment firm has written down the value of 3 downtown office buildings purchased ~20 months ago. The value of the writedowns? 30% or about 80 million.
5) In downtown Calgary, commercial space is being leased, but only because the owners have been forced to drop their pants. This is the only reason space is moving. The brokers are smiling though, because the per-sqft incentives have essentially tripled to almost $2 per sqft. The rub for the owners is that $36 space is now trading for $24 before the incentives even kick in. One 12000 sqft deal (raw, unfinished space), when factoring in all perks and the time value of money, was done for what amounts to $4/sqft for 5 years to the owner. Owners (and their reps) will do deals now in order to gain efficiency in operating costs. The quote given to me was “we’ll worry about collecting rent later.” Deals are getting done because, short of giving away free space, owners are panicking.
All these stories are directly witnessed or are directly from the principals. Everyone can take these stories for whatever they believe they’re worth. Everyone else’s mileage may vary.
Garth,
I read your postings on a daily basis, but for a while now, your postings seem to repeat the same thing about debt, how real estate is going to crash, and of course your book coming out on Jan. 15.
It also seems that your predictions of a crash were possibly going to happen in 2010…maybe 2011 hey lets postpone it to 2015. Damn, with those predictions, nobody is going to own a house if thats what your warning.
So leave. — Garth
Did anyone else read this?
http://www.bos.frb.org/education/pubs/wishes.pdf
it was posted in the previous post by Garth:
#212 Kash is King on 01.10.10 at 7:55 pm
It has to be one of the strangest things I’ve seen in a while – if anyone else has read it – Do you have any idea what the heck the author was writing about???
Is there some kind of moral or theme I’m missing?
That is all very disturbing if behaviour and systems must be judged by past measures.
Thing is though, the world slides sideways as well as drops down into the abyss, so the old days will never spring back. Past measures lose meaning and relevance.
Overpopulation, pathological outsourcing, excessive immigration, massive overconsumption, obesity, politically-correct lieberal ‘feel-good’ legislation, suburban family ghettos, and the devaluation of science, engineering, athletics and the fine arts in favour of financial chicanery have blocked any return to the past potential of society, or financial stability. So, obscene indebtedness, like dead Ontario industry, cannot be regarded as the evil it once would have been.
Third-world squalor, disease, crime, and social stratification are the norm in many Cdn cities wherewith the abstract concept of gross debt is a non-event. As Canadian twenty-something buyers and US underwater walk-aways already realize, complete abdication and financial capitulation is a given. So, they don’t sweat it – they figure they’ll only die tired.
At some point, most everyone will just be re-issued 20 marks, the superrich will have their gold and guarded compounds, and the world will simply have walked away from the ridiculous concept of a quadrillion dollars of unrepayable debt.
What I learned tonight is that our combat pilots should be earning a LOT more.
When approving loans banks look at something other than just earnings – that’s job security. This is why physicians – not such stellar earners as some of your readers might believe – can afford those houses and toys. Your flyboy has excellent job security and not a bad pension plan. Based on that he’s a better risk than most other borrowers. Not to mention the reputation for being good for his word as soldiers are known to be.
All that debt brings to mind only two potential outcomes: massive write downs or massive inflation. Probably a large dose of both. We must prepare accordingly…
Maybe they could just….oh I don’t know…
RENT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
And why wouldn’t you expect the masses to take on more debt?
They received some sage advice from their political leaders to take on debt with record low interest rates. Others were told to invest in the stock market by our PM, because he noted that it was a great buying opportunity.
Of course, if they listened to our political leaders their stock portfolios would have increased potentially by 55%, while their homes would have gone up 20% (the average in Canada).
Why would anyone listen the minority “doom and gloomers” when things have been so good amidst our “recovery.” The masses saw the Canadian $75 billion October 2008 bank bailout, the automaker bailouts, and watched in the US as the “too big to fail” policy was implemented.
All of this has created a moral hazard, so the masses now “know” or believe that they will be bailed out if things go sideways with the value of their home. And who can blame them….and they may be right…..
January 07, 2010
It’s Not Our Fault
by Peter Schiff
It seems that the primary qualification needed by any chairman of the Federal Reserve is the ability to never admit error, no matter how damning the evidence. During his tenure on the job, Alan Greenspan set the standard for implausible deniability. But in a speech last weekend in Atlanta, current chairman Ben Bernanke did the Maestro one better. In a tortured academic dissertation, Bernanke explicitly denied any Fed culpability for inflating the housing bubble and for the financial crisis that began when it burst. Despite his best efforts, no one seemed particularly convinced. By taking such an absurd stand, he has destroyed any credibility he may have had left.
For the rest – http://www.safehaven.com/article-15427.htm
Icelandic citizens voted to not payback a debt they owe. Maybe its time for a referendum here: Lets make it illegal to collect debts.
Wouldn’t that be nice? Visa can give us all credit cards to spend without limit without ever having to pay, since debt collecting will be illegal.
Where do I vote?
victoria–beautiful city–but you’re still on an island and dependant on the BC ferries to get off –other than flying
not to alarm the young mother moving there and thinking of buying re, but it’s recently been determined(Nov-09 i think) that the san andreas fault thought to be approx. 150km west of van isl.(out in the pacific) now runs directly “under” Victoria–i wonder if her realtor will tell her that — they say the west coast of BC only gets a major earthquake every 300 years or so –a major one hit 200 or so years ago– we should be ok?????
check out Eureka California on the weekend (6.5) largest in 20years —warnings are out again that BC should always be prepared for a major earthquake — Not to worry— It’s different here
Garth, Your prediction
DELETED
What’s the lag between a rising rate and lower prices?
It’s a double edged sword… if interest rates rise, as I most surely believe they will, we’re going to see a world of hurt as the indebted sink further into and drown in a sea of red ink. On the other hand our governments seem to believe the way to avoid that hurt is by them continuing to stimulate the economy and spew out positive SPIN. But to do that those governments will require stimulus dollars availed them today, dollars they don‘t have on hand right now. So they are forced to borrow the money. Our governments will issue new government bonds offering yet higher yields (interest rates) so as to be able to compete with other countries for those sources of capital available to borrow from lenders seeking the best return offered them. That will cause all interest rates to follow. A “demand pull” event that has also negative “cost push” consequences for the consumer.
The sequence of events is clear; Interest rates will rise, our government debt will increase, as will personal debt as consumers believe all is well because, for the time being, it indeed might seem so. So consumers will borrow and spend more themselves feeling no need to prepare for a “rainy day” as they are led to believe things will only get better. But they won’t get better anytime soon.
Ultimately taxes must rise in order to pay back that government debt, debt which is your debt and my debt, debt which will continue to balloon, despite higher taxes, beyond comprehension through sheer compounding interest alone, not to mention the continued poor fiscal and monetary management of public coffers by our increasingly fascist state in which more and more become the herded shepple of an elite few. Consumers, eventually, are hit by not just higher interest rates but higher taxes as well. Disposable income all but disappears for most families who no longer contribute to stimulating the economy by buying big screen TVs. Big screen TV manufactures lay off employees, employees who no longer buy new cars and so on and so on.
How possibly can this course we are on end any way but badly?
This is nothing more than the “calm before the storm”. And I haven’t included the demographic factors which will compound it or the non-linear events we can not forecast, but as history has demonstrated most assuredly will occur, in the form of war, disease or natural disaster
Economics is the back-story to all history and war is a big part of our history. This failed economy I fear might just be the catalyst of such a non-linear event that we are least prepared for, that we might otherwise need not be prepared for.
It’s time to grow up. It’s time to learn to live within our means so that our children might live any kind of life at all. It’s time to dispense with this “crack cocaine” economy. It’s time to stop prostituting yourself to the benefit of our pimp governments which in turn prostitute themselves to the facist minority influence rather than we meek and silent.
The world that awaits, if we continue as we are, is not the world I thought my children would be challenged to survive. I thought we were a species that evolved not regressed.
But I am preaching to the converted. We Blog Dogs know this but we are too few. And so the Revolution, another non-linear possibility, begins… Pick your poison…
To carry your analogy of the Titanic a little farther. Paulson and company (especially Bernanke) had a pump they could throw into the bottom of the boat and have been able to convince us deck chair rearrangers that the pump will prove sufficient to keep up with the consequences of the Lehman Brothers iceberg. Party on. If we hit another iceberg, we’ll add another pump. The problem is, there is no port and certainly no dry dock. And the icebergs are getting bigger.
Garth,
Why won’t you make any predictions at all for us to see where resale prices will be by end 2010 for major urban centers, like you did in 2009, 2008 & 2007?
Is it because it is too difficult to predict due to un knowns?
Interesting, The SS Tit-HarFlahCar-tanic, not to be unkind but could there not have been a more productive way to correct the Wall Street Madness than to do the same thing all over again by printing and giving money away? Hello, News is postal rates up and will rise $1.11 in a short period of time. Boy oh boys that 2% GST cut was really a gift! So stay tuned people there will be weekly daily news of yet more rates on everything!!!!!!! As for our CAF wife ….. Bon Chance, I fully suspect your flyboy was not the first chosen many turned the posting down. Word here on East Coast is the women said NO! The Navy is so bad off they can only fully crew one Destroyer!
I just finished reading “Irrational Exhuberance” by Robert Shiller. What a handbook for understanding booms and busts!
One contributing factor that jumped out at me was the invention of mutual funds. During the tech boom a decade ago, many fund managers were refusing to buy more tech stock because they knew it was going to drop anytime.
But they all got fired and replaced.
We have to remember that mutual funds are a product first, and an investment second. The job of fund managers is to keep the current stats as good as everyone else’s, or the fund doesn’t sell.
Only a very courageous fund could choose to have lower returns than its competitors.
This means that even excellent fund managers have their hands tied. If those same managers had been acting freely, at least some of them would have been advising their clients to sell. Maybe there would not have been a boom. Or a crash.
We’ve tied up too much good leadership in conflict-of-interest positions. Flaherty’s primary interest is to keep his party in power. Will he revert mortgage regulation to its old sensible standard and trigger a housing meltdown? Or dodge responsibilities and let it fly higher and higher, only to crash next year?
More doom & gloom
http://www.321gold.com/editorials/casey/casey010710.html
Last summer I posted a small piece about two 20-something friends of my daughter who purchased a house in Toronto for $525,000 with 5% down. The bank approved them for almost $500,000 in mortgage money even though one had been working for less than a year, and the other about 2.5 years. Well, the one with less than a year of experience (a newly minted engineer) has since lost his job due to a company bankruptcy, is now on pogey with absolutely no job prospects at all (materials engineers are usually hired by manufacturing companies). He’ll run out of EI by May. Hmmm…anyone wonder what will happen with that house in a few months? How many more people who have been laid off and still unemployed or underemployed will face a similar future?
My brother-in-law was laid off in the spring of 2009 with a good package that took him to the end of 2009. Still no job prospects and now applying for EI. How many people do you know in a similar situation?
A very good friend of mine and a top headhunter in Toronto with over 20 years of experience tells me that the market has never been this scary. For every search there are at least 1,200 to 1,500 fully qualified applicants. Former exec-VPs who once made $300,000+ are thrilled to land a director level job for $100,000. Out of work execs are throwing themselves at short term management contracts just to get a few bucks coming in. Thousands are trying to hang up their own shingle as a ‘consultant’ or ‘coach’ with no real enterpreneurial experience or ability….and no real prospects for any paying clients. Anyone wonder why the number of ’self employed’ continues to rise?
Debt continues to rise as more and more people turn to their credit cards to buy food and other necessities. It wasn’t that long ago that food stores only took cash or debit. Ask yourself why a food store needs to accept credit cards to do business.
The residual effects of the recent economic meltdown are still being felt – but go unreported as the MSM tries its best to sooth an easily influenced, uninformed public.
The gap between what people are actually doing in terms of house buying and taking on massive mortgagee debt and the economic fundamentals in place today is totally absurd. Is it going to crash tomorrow? Or next week? Or six months from now? No one really knows. There is one truth we can all be sure of though….it’s called gravity. When you keep on making a house of cards higher, it eventually collapses under its own weight.
What is the real state of the US economic situation? Interesting stats here that gives one pause to think…especially when we are attached to the hip of the US economically through NAFTA, and its our biggest market….
U.S. Jobs Mess
The unemployment report on Friday was an unmitigated disaster. Based on the government’s payroll survey, the economy shed 85,000 jobs in December, many more than analysts had expected.
Worse, based on its separate household survey, the government reported that the job losses in December were 589,000 — over SIX times more.
So which of the two figures better reflects the true number of jobs lost last month — 85,000 or 589,000 jobs? According to John Williams’ Shadow Government Statistics, it’s clearly the latter. Strip out the faulty seasonal adjustments from the government payroll survey, he says, and it would ALSO show job declines of about 500,000 in December!
Result: Williams estimates that official unemployment is actually closer to 10.2 percent (instead of the 10 percent reported).
Moreover …
• The government also publishes a broader measure of unemployment, which has now risen to the Depression-era level of 17.3 percent. This includes discouraged workers who have given up looking for a job for up to a year, plus part-time workers seeking full-time employment.
• If you include ALL workers who have given up looking for a job (as the government used to before the Clinton administration changed the definition), Williams estimates that the TRUE, all-inclusive unemployment rate is now close to 21.9 percent!
http://www.moneyandmarkets.com/us-jobs-mess-great-asian-miracle-37252
fromAsia
That Peter Schiff guy reminds me of Garth. I listened to an interview with him from 2004 or 2005. He was speaking at a panel, with a bunch of these real estate and investment guys, and he brought up the ’sub prime’ fiasco (before anyone had even heard of it). They were laughing at him, actually. They were making fun of this guy.
Man, did he ever call it.
BTW That was interesting, how he outlined how, given inflation, a lot of unemployed people (on EI or Social Assistance or whatever) would be unable to afford many basic necessities. So, what did the panel ask?
“Then where do we put our money?” I mean, I’m proudly right-wing and all, but jeez…
So far since I’ve begun reading this blog we’ve eliminated our debt and ramped up our savings per month. The mortgage was retired two years ago. Is the tax avoidance the next thing we should be going after? Sounds like that should be our focus. I’d love to hear what others have put on their priority list for 2010.
Your deuced again Garth.
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@#17 nonplused,
None other than Marc Faber states that “gold is a currency, a currency in very limited supply”. Gold is what expunges debts, what trades between central banks, what is never refused in settling accounts internationally. It is where the wealthy choose to store a measure of their wealth. It is undoubtedly a currency, albeit not a government-sanctioned one…
#37 Vancouver Rocks
All of this has created a moral hazard, so the masses now “know” or believe that they will be bailed out if things go sideways with the value of their home.
__________________________________________
This is definitely a problem.
If Carney had the balls to put a deadline on low interest rates and warn people on taking on too much debt, he (or Flaherty) should also make it clear that speculators/overextended homeowners will get minimal support if RE prices drop.
Check out this tax increase from the Vancouver Airport
Effective January 1, 2010, the provincial sales tax (PST) rate on the purchase price of parking rights will increase from 7% to 21%. This applies to the South Coast British Columbia transportation region. If you sell taxable parking in this region, you must charge PST on the purchase price of the parking at the rate of 21% beginning January 1, 2010.”
The increase also triggers GST being payable on both the parking charge and the PST collected; the total tax (GST and PST) payable on parking will therefore increase to an effective rate of 27.05% after January 1st, 2010.
#32 West Coast:
Hmmm… here is how the Board describes this really odd (IMO) publication:
“Comic book children’s story about the introduction of colored flowers into a town that has never seen color. Designed to stimulate students’ imagination as they explore the economic problem of scarce resources, various methods of allocation, and how societies react to alleviate such problems. A teacher’s guide, The Road To Roota, is also available. (Revised in 2007).”
http://www.bos.frb.org/education/pubs/wishes.htm
There’s also a Teacher’s Guide
http://www.bos.frb.org/education/pubs/roota.pdf
“Wishes and Rainbows is for elementary school children and may be read as a simple story, or as an economics
teaching tool. Wishes and Rainbows illustrates many economic concepts including scarcity, supply, demand and allocation. This guide is designed to help teachers bring out these underlying themes.”
While I applaud the stated intentions the approach seems odd. Why not wait until the kids are old enough to apply the ideas in their own lives and use real world examples instead?
…. that government stimulus and subsidy will carry on for years. Maybe so. Debt without end.
And then?
__________________________________________
and then WHAT Garth?? WHAT? do you not see the massive printing of money going on world wide?? do you not see the government and banking criminals debasing our currencies so they can run these massive deficits… do you not understand what’s happening…
why is this a surprise to you? they did it in the 70’s, they are doing it now. governments LOVE inflation. they LOVE printing money. what’s the big deal??
PRINT PRINT PRINT..
I’ll never understand why people in the military buy to begin with. Sure the transactions are covered (nice subsidity for Real Estate cos, etc.!) but there is still far more effort involved than there is in renting.
@ Ian – my cousin is in the air force and brags about making ’six figures’. Wonder if he really does… He also boasts of going into an even more lucrative position at Air Canada when he’s done his military stint.
@Price Out – my understanding is that it’s mostly wealthy Chinese doing the buying – who see real estate as a store of value – and that changes to credit requirements might not have an impact apart from making it appear that they’re doing ’something’ in order to quell the angry mobs of under-paid factory workers who have been squeezed as all housing becomes more unaffordable.
Flyboy’s wife should tell Hubby that pilots are supposed to be only eagle-eyed, not bird-brained to boot.
At lieutenant/captain rank he is going into a junior staff posting that is going to last two to three years, after which it will be back to the operational flying world. Buying high in a high-cost area with good prospects of selling lower in a few years would be lunacy. The CF would hardly reimburse him for such a loss.
Bite the bullet and RENT!
to no. 22 posting on $517000 condo in Kitchener.
Did you notice that this place only has laminate floors!
Einstein’s Insanity theory: “doing the same thing
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Suggestion,
Transfer to Comox if you can. Housing is more reasonble there ($250K).
#61 and #22
Not a particularly nice area of K-W either.
Did you also notice that the Realtor works out of Markham? I suspect some of the pricing comes from him or her not knowing the market in that area. (Well and probably from the owners thinking that the 35K they paid for extras are “worth” 35k to anyone and everyone)
You can’t expect drunks to be rational during happy hour so how do you expect greedy people to be rational when interest rates are low. Canada not only follwed the US down the garden path it turned the garden into the 401. Calgary is full of overpriced crap while my wife squirms on her bottom while watching those twice the size houses with twice the land for half the price on househunters.
Great post Garth……. Reality is obviously very hard to swallow for many,but life in Canada is not the same and it is deteriorating daily and all the government false propaganda will not change that. ……….we have no leadership in Ottawa just a bunch of power hungry lackies who seem oblivious to the countries problems.Its all about power…there is no problem solving in our political arena that i can see……..they took a serious situation and are progressively making it worse ………and you can bet generations will be paying the tab for this one in personal hardship,loss of self esteem and a deteriorating democracy. IMO
#49 TS,
Thank you for your excellent post. I have also noted a significant deflation in the job market. I know a number of people who have been packaged out of executive and management jobs in 2009 who are now scrambling for any job they can find at 50% of the previous salary. This situation will continue to have a significant impact on the economy as household earnings in Canada will continue to fall even if unemployment is held in check.
I don’t even want to VISIT Victoria, let alone live there.
Twenty years ago, it was beautiful (if you like fish and chips, which I don’t). Today it is home to a bunch of body pierced deadbeats who don’t have any problem with the price of real estate because they sleep where they fall – mostly on the downtown streets.
Nobody I know wants to live in Victoria.
Looks like Canada’s various
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Some scary stats are offered over on Mike Shedlock’s Blog about the combined effect of the current high unemployment in the U.S. with the Baby Boomers coming of retirement age. Really scary stuff. Good thing it can’t impact Canada (ya right!).
http://globaleconomicanalysis.blogspot.com/
The US fed is printing money and buying US debt.
http://theeconomiccollapseblog.com/archives/ponzi-scheme-the-federal-reserve-bought-approximately-80-percent-of-u-s-treasury-securities-issued-in-2009
To the geniuses behind the over-blown “Economic Action Plan”:
http://news.yahoo.com/s/ap/20100111/ap_on_bi_ge/us_stimulus_unemployment
Thanks Mr. Flaherty for wasting our tax dollars on re-paving roads, renovating houses, and saving auto jobs for a couple of years.
How about taking a mulligan, and we’ll let you try again with the 2010 budget: let’s try money for science/research, tax breaks for competitive industries instead of dead ones, and investments in urban planning instead of sprawl building.
Seriously: who has created more jobs in Canada recently — GM or RIM?
Garth et al:
Advice to the Lady married with Flyboy…..do like the others here suggest….rent, especially in that market. Let someone else take that risk. Better to have 100k in equity, than risk bankrupcy, due to negative equity.
Good luck on the move….
I won’t speak for everyone, but I think those who are positioning themselves in bonds (with interest rates only to rise) would rather take a cautious position, even lose a small amount, rather than taking on risks in equity markets.
I don’t blame them, common mortal investors have been hit over the head with a sledgehammer twice this past decade. Our economic structure is still set up with systemic risk, nothing has been reformed since september ‘08. Like Shiller said, the irrational exhuberance is now in pessimism and distrust.
My advice, be patient, stay mostly in cash or cash-like investments, until things really turn around and real reform is adopted or forced upon the economic system. However, keep a small minority percentage in fundamentally solid investments: energy, water, a bit of gold, a bit of emerging markets, a bit of agriculture.
Do your homework, due-dilligence and make your own decisions.
(a) Why buy bonds – or anything else – when the market has peaked? That is nonsensical. (b) Equities gained 55% since March. Did you miss that? This bull is 10 months old, and the average has lasted 30 months. (c) It’s liquidity, not cash, which is smart. — Garth
Jeff Rubin feels the reason for the meltdown was not debt, but the high price of oil (surely combined with debt). With oil prices rising and sure to continue, combined with the ingrained problems you mention here all the time, it seems like another crash is inevitable. Does your book touch on a defensive investment strategy for this possibility?
There are many variables to the equation I think, and even the top economist may be wrong. So to the poster the truth, I do not hold ill will towards Garth if his predictions turn out to be incorrect. In fact I may be in the boat you say. My parents said not to buy and I was close to being priced out and now I am. I hold no ill will towards them etheir. It was my decision. It is something similar to what Garth said “I actually attributed common sense and rational thought to the people of Toronto” (in my caes winnipeg, but it seems like everyone is just doing dandy here)
Two more things
- royal lepage put some nice two digit numbers in the paper about specific areas in winnipeg. I kind of want ot send it to you garth. I think they may be a bit skewed
-I talked to the bank (credit union) and I though the rule was 1/3 your income and I always thought that these numbers were being flexed when approving your mortgage. This post may seem to indicate that is happening
#72 T.O. Bubble Boy,
Great post. I agree with you 100%. The politicians act like they can just manipulate the consumer a bit with low interest rates and spend a bit of dough on the usual things and all with jump start again. Not this time.
In general terms (and you pointed out a specific exception in RIM) our corporate leadership has failed us. They have outsourced and downsized to maintain quarterly earnings but have failed to invest in innovation. Meanwhile young people have been driven to Wall Street or Bay Street thinking making money was all about chasing financial derivatives and Ponzi schemes that produce no benefit for the economy and create havoc on society. If you don’t want to move to Toronto or New York you can stay home and go into the RE business which is the “stay at home” ponzi scheme.
It is fortunate that we still have innovative companies in North America such as Apple and Google along with a few in Canada such as RIM. These companies point the way to the future but the price tag we will pay for learning these lessons will last a generation or more.
My husband has a very small RRSP (under 50K) which has been converted due to his age at the end of Dec. He is still working and has elected to take out the required percentage at the end of the year. He just opened a TFSA and will be contributing to it very shortly. Where do I find the information regarding the best way to take money out of his RIF and put it into the TFSA?
Thank you and we both enjoy this blog
Party on Dudes !
http://forums.wallstreetexaminer.com/index.php?showtopic=855541
With reference to the comic book strip I made the link to from the Boston Federal Reserve Board website..
#32 Westcoast “Is there some kind of moral or theme I’m missing?”
, and #57 Joan “the approach seems odd”
In the other link I provided, Bix Weir gives a really good breakdown of what it means, and it’s purpose.
But it still leaves you wondering why that format, right?
I’ll give a hypothysis, based on my observations. First, it’s a fact of life that there are elites. There are goodguy elites, and badguy elites.
My wife did a little delving into the “Illuminati”, and discovered that there are opposing factions within it. Yes Virginia, there are goodguy Illuminatis too.
Anyhow, part of their rules dictate that they have to publish their intent and future actions in some manner. IE a song, a game, a comic? To the uninitiated it all seems cryptic or weird, but the opposing faction gets the necessary heads-up as to what to expect. This all seems strange, I know, but that’s their alleged rules.
I think (and I could be wrong) what we have with that comic on the BFRB site is just that… a goodguy intent.
I could provide a link to a badguy intent, but it’s very disturbing so I won’t. If you are interested, and don’t mind being rattled or disturbed, you could research a publicly released cardgame from 1995 called “Illuminati- New World Order, INWO the Game”.
#49 TS
Excellent post! I too can count off the top of my head many former colleagues and friends who are either unemployed, on EI or about to run out of EI.
I’ve witnessed intelligent, well educated people who used to run major departments not being able to land a job in administration because they are overqualified (read: age discrimination). Many are at a point where they are becoming dangerously close to being unable to pay for their mortgage.
So every time I hear about the housing market going nuts, I really wonder who is buying these homes. Almost everyone in my social circle has experienced a job loss or a partner’s job loss in the past 2 years. Most are living on one salary or begging for chump change jobs to make ends meet.
Listening to CBC Radio it appears the Gold Guys tune in here … they talked about a 1/2 hr stating exactly what Mr. Turner said in one paragraph. One interesting analogy was: An once of gold a 1000 years ago would pay for one good suit and to-day it will buy the same thing. Now how cool is that?
From CBC News
RRSP contributions will dwindle until 2020: RBC
So bankers stop by here also
Real Estate ….. wait for it Greater Fools.
It won’t be pretty!
Denninger … http://market-ticker.denninger.net/
What problem? – This problem….
You’ve saved all your life. squirreled away the few dollars left over after taxes and the cost of day to day. You have lost sleep over interest rates, buying or renting, stocks or bonds, etc. You wake up this morning and and Flaherty declares that “circumstances have changed”. The Canadian dollar is now worth 50% less. Boom!
So who in Venezuela this week is worth the same as they were last week before the weekend’s 50% devaluation?
Those that held goods valued in anything else but Bolivars. I am astounded that nobody is discussing this. Nor are we talking about the strange four week behaviour of the S&P.
Why aren’t we discussing this? I can just hear The Garth now…”Canada is not Venezuela”. Is it beyond the realm of possibility for Canada? Would owning real estate protect us? How could we protect ourselves to stay even, just in case?
#41 Nostradamus jr. on 01.11.10 at 2:55 am Garth, Your prediction
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#53 Nostradamus jr. on 01.11.10 at 9:01 am Your deuced again Garth.
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#62 Nostradamus jr. on 01.11.10 at 9:49 am Einstein’s Insanity theory: “doing the same thing
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#69 Nostradamus jr. on 01.11.10 at 10:45 am Looks like Canada’s various
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Looks like your working hard Garth.
Thank you!
None other than Marc Faber states that “gold is a currency, a currency in very limited supply”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I had this arguement with a colleague yesterday… Gold is currently not considered a currency mainstream. Of course all GOLD lovers do consider it to be a currency, but ask yourself if you can buy food with it? Not easily, especially when you are wanting to get change. (its not liquid like money)
As things heat up though with currency situation and it takes more $$$ to purchase gold, gold may very well move mainstream…
Garth,
Your absolutely right about nothing having changed WRT fiscal reality. My wife and I were in the same prediciment in 2007, the solution we chose was that one of us bought the property and assumed the risk of the mortgage, leaving the other unexposed. Afterall, the bank doesn’t reduce the rate even with both sigs on the mortgage…so why should both our butts be on the line.
However, my wife now agrees that despite all the incentives to purchase a house for our next move this summer, costs covered by our employer, its just to risky to our financial situation…a renting we will likely be.
Ted
Why not go to Maui where prices are now cheaper than Vancouver and Victoria:
http://www.honoluluadvertiser.com/article/20100109/BUSINESS04/1090308/Maui+home+prices+down+to+2003+level?source=patrick.net
Less money, plus you don’t have to deal with soggy, grey skies for 6 months of the year.
I read your blog everyday. It is like watching one of those old black and white movies where someone is spewing nonsense and they get a good hard slap in the face to knock some sense into them.
Thanks for that slap in the face. I needed that. I can see the light again. It gets a little cloudy after reading the business headlines and watching BNN. When prices are going up the greed drug lets us see only the upside and minimizes the downside.
I think you may want to give folks a case study on the Japanese Real Estate slow grinding 10 year meltdown. They have been a 0% for how many years?
#25 contrarian
Here, I believe the easy RE money has already been made and the smart money is getting out. In the US, the smart money is likely moving back in.
America slides deeper into depression as Wall Street revels
Moody’s Economy.com expects another 2.4m homes to go this year.
US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. “If the 2008 and 2009 loans go bad, then we’re back where we were before – in a nightmare.
Taken together, this looks awfully like Steinbeck’s Grapes of Wrath.
Trying to rent a house in Phoenix for a couple of months and am finding it harder than usual to find something. I’m wondering is there more people holidaying in this depression economy or is there just less available because of reposes and defaults.
Two years ago there was 42000 properties for sale in the greater Phoenix area. I’m curious what it is today.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6962632/America-slides-deeper-into-depression-as-Wall-Street-revels.html
To Downsized and Delighted:
My apologies for calling you the nightmare reno customer. oops.
I had you confused with another poster here last fall(handle:Stop Putting Down Boomers) who extolled the virtues of paying cash for work done and firing them at the drop of a hat, plus making them sign a no liability form.
There already is a shortage of female posters here so I should try to avoid scaring them away!
As a Victoria resident, and as a trained economist (please don’t throw stuff at me) – there is no way I could be convinced that buying right now was less risky and less costly than renting right now. This is particularly true if I were facing a situation where I knew the risk of being forced to move again in 3-5 years was high, as the risk of property values being lower in 3-5 years than they are today is quite high.
My husband and I rent. 4 beds, 2 baths, whole house, waterfront in Fairfield (nice area of Victoria). We pay $2200 per month plus utilities. The assessed value of our home is $890,000. Even with $150,000 downpayment, a 35 year term and going with a variable rate of %2.05 (prime minus -.2), we would be paying $2403 per month. Plus maintenance, plus property taxes. And if rates rose to even 4% – our payments would skyrocket to $3162 per month. If property values were to decline by even 10%, almost 2 thirds of the original downpayme ($89,000) would be obliterated.
If the risk of a correction is high (and it is in Victoria) and the tenure of your residency is short (3 to 5 years), save yourself the grief and hassle and rent until the next transfer.
Victoria…..A nice place to visit but you wouldn’t want to live there.
1…..B.C. ferries ..Constant fare increases…Poor service record
2…..It rains 300 days a year
3…..Earthquake zone
4…..Plenty of strange and unemployed people,All on antidepressants
5…..P.S.T.
6…..Mold everywhere
7…..Over priced housing
8……High cost of living
9……13 tax based municipalities that don’t get along
10….Gordon Campell & Colin Hansen
#68 Downsized and delighted:
“Nobody I know wants to live in Victoria”
Funny – everybody I know wants to live in Victoria…and they all live in Victoria.
Artisuseless @ #59,
a footnote to help you understand why people in the military buy houses …
Until the later ’70s it was unusual for someone in the military to own a house. The military is a high-mobility profession in which many move into new jobs in new geographic areas every few years. The problem that suddenly was perceived was that a military type could spend a career in the Service moving from base to base, married quarter to married quarter, then retire and have no home to go to nor equity to buy one. (Married quarters stopped being a bargain in the ’70s too, because landlords complained about unfair competition and forced married quarter rents to be raised to match local rents.)
Civilians did not face this “disutility”, most being able to pick a geographic area for their working lives and being able to enter and ride the local real estate market, building equity and having the possiblity of a paid-off house at the end of their careers. The military did not. This is why Treasury Board then authorized the reimbursement of real estate expenses on posting to a different are as well as for a final “Intended Place of Residence” on retirement from the CF, and why members of the Service want to buy houses too.
Thanks for telling it like it is, and as it most likely will be, Garth. Another reality sandwich is being served up here:
http://www.economist.com/opinion/displaystory.cfm?story_id=15213157
Garth, has BNN contacted you at all. They just had a program on called “are we in a housing bubble.”
They interviewed people that rely on Real Estate for their own personal income (very biast). As well, why would anybody that owns real estate want to say anything bad about it? I mean really!
You got to get on to BNN and have it out with these guys like Peter Schiff does in the states.
And if they wont listen, kick em in the nards with yer’ cowboy boots!
Sheesh! Go get em Garth!
And Kunstler’s latest …
http://kunstler.com/blog/2010/01/six-months-to-live.html#more
“Canada to Surpass the United States in Residential Mortgage Debt in Q2-3, 2010, Marked-to-Market ”
This blog has data that support Garthosaurus’ thoughts
http://americacanada.blogspot.com/2010/01/canada-to-surpass-united-states-in.html
Scary thoughts.
We cannot go longer than 5 years of the current scenario.
I think ima do somethign about it.
time to buy a safe and bolt it to the basement floor, put some cash in there maybe a few gold bars and make an emergency kit.
I think Garth you mentioned this in your last book as well.
Seems out there however better to be ready for the worst incase it happens.
@ #18 Thetruth on 01.10.10 at 11:13 pm:
“You have only yourself to blame for not entering the housig market at an appropriate time.”
Just wondering: If house prices keep rising without interruption, is the above the response you will offer to your progeny when they complain to you about houses being beyond their reach?
The right honorable Stephen Harper will be speaking on bnn this afternoon . Have any of you guy’s seen the new wig ads ? They are online but I have not seen them on tv yet. I have been watching the bnn talking heads this morning and we can all calm down there is no re bubble in canada . It’s different here honest. As for the Asper fiasco don’t worry Rupert Murdock will most likely bail them out . I’m sure he will make a perfect bed fellow for them. The problem for papers is very much like a bird .. it need a right wing and a left wing of equal strength otherwise it will not fly. I haven’t read the WSJ since Rupert bought it. giday mate.
Been looking for historical house price charts for Canada. Seem to be non-existent pre 1993. I guess this was the beginning of time for Canada and house prices.
Also though you might be interested in the fact that the Bank of Canada is doing some advertising for Royal LePage, I assume it is free because they are using LePages new survey in their studies.
http://www.bankofcanada.ca/en/rates/indinf/real_def_en.html
Hey Garth: You`re doing Good Work !!
I noticed you`ve been getting a lot of invitations
to speak in different areas and I also realize that
you`re very busy.
Would you consider using Video Conferencing ?
It works for classrooms, so, why not for you ?
If the various govts. would embrace this, I`m
sure our horrendous deficit would just melt away
Looking forward to your new book !
Keep Smiling !
Garth, respectfully
(a) Diversification and hedging: What if rates do rise, creating more foreclosures/bankruptcies on so many over-indebted individuals/corporations and markets tank? What’s the downside risk of government bonds? -2 or -3%?
(b) It WAS a bull run, stock market has gone virtually nowhere in the past 60 days. The P/E of the market is now 25% above the historical average, in the middle of the greatest recession since WWII. Not exactly encouraging factors.
(c) Please explain how cash (and a little bit of patience until when the P/E is more normal) is not liquid?
12 Gloomy forecasts for the year(s) ahead
“…It is going to be very hard to preserve your wealth in these circumstances.” — George Soros
http://americacanada.blogspot.com/2010/01/12-gloomy-forecasts.html
Hey Garth,
http://www.calgaryherald.com/business/Tortoise+hare+finish+seen+real+estate+recovery/2419329/story.html
the latest bs from the Calgary Herald.
What’s with these people? Buying a house isnt like buying bread at the grocery store.
86 $fromA$ia ( o Y o ) on 01.11.10 at 12:21 pm
None other than Marc Faber states that “gold is a currency, a currency in very limited supply”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I had this arguement with a colleague yesterday… Gold is currently not considered a currency mainstream. Of course all GOLD lovers do consider it to be a currency, but ask yourself if you can buy food with it? Not easily, especially when you are wanting to get change. (its not liquid like money)
****************************************
BS–I can take my Goldmoney CC into any place there is and buy whatever I want–
I can take my Gold coin to the coin dealer and exchange it for paper and spend it as easily as i can go to an ATM–
Gold “is” a currency–always has been–
The proof–
It competes with all currency’s all the time–
It is the king currency–prove me wrong–
#97 $fromA$ia
Lot more entertainment here on the blog than bankrupt BNN. (financially and morally) . I remember the talking head Brian Acher with his magic computer program. What a dog and pony show that was. Most of the experts that lost most of their clients money, no longer appear, probably for good reason.
Garth, kudos to you, the ‘Dr. Phil’ of Canadian/Internet/Financial blogs…don’t know where you find the time. Best wishes for your new book.
Couple of more specific questions if you have a moment.
What’s your email address?
garth@garth.ca — Garth
#97, Also watched the BNN housing bubble debate – what a lunch bag let down! All I heard was a defense of the current situation all by people with a vested interest in the current situation continuing.
Needless to say I have sent BNN an email stating my disappointment in the “debate”
#20 Thetruth on 01.10.10 at 11:21 pm
Buy now or never? Are you a troll realtor?
?
?
?
?
IT’S THE LAST CAR ON THE LOT SOMEONE ELSE IS COMING IN LATER TO BUY IT. BUY NOW OR FOREVER LOSE OUT ON THE CAR.
Phil Soper President & CEO Royal LePage view of Real Estate is very different than the view that I see every day as a real estate investor and business owner.
I have my eye on several properties that have been up for sale for the last year and a half or longer (I have never heard Phil ever mention that properties can take this much time or longer to sell). One property had gone through 5 different real estate agents (brokerages in fact) until they settled on a really heavy hitter in my area. This guy can sell dog crap in a box and is very successful in the real estate industry in my area. He is the top cheese, crème de la crème, top pop. He failed miserably after 3 more months on the market. The home is FSBO now and has a really crappy hand drawn sign out front. I have spoken several times with the owner explaining that her property is grossly overpriced in spite of originally listing at $699,999.00 and now currently listing at $399,999.00. An amazing and profound $200,000.00 dollar drop and still no buyers. I have appraised the property and had my agent run comps on the property of interest leaving a realistic price somewhere in the $325,000.00 to $340,000.00 area and not a penny more.
I have been meeting once a month with the owner submitting low ball offers and basically vultching. I keep getting turned down upon sign back. However, I am starting to see cracks in here armour and she is getting more and more desperate to find a seller. She had sworn not to go any lower than $399,999.00 yet recently (December 2009) signed back at $379,999.00 on my offer of $319,000.00. I told her I would submit once per month and each time I come to the trough again I am dropping my offering price by $5000.00 dollars.
Don’t feel sorry for this woman as she is a very accomplished and wealthy business owner and real estate investor. She knows I am vultching and it has become a pride issue now (home pride). I have offered to take her problem property off of her hands now but her ego and greed is getting in the way of common sense. Hope she finds another greater fool. I will be dropping another $5000.00 come February. I am circling in for the kill like all good vultures. I promised to let her take the swing set in the back yard.
Hey Phil, you are a great salesman and marketing mouth…why don’t you try selling this house…?…She sure could use your upbeat views on the real estate market in Canada…the very views I don’t see…what is wrong with me??? ?…..?……?.
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#18
“So housing definitely will be okay for the next 2 years until 2012. Then we will have a population explosion. Prime Minister Harper just said last week that he will not erase the deficit via higher taxes or spending cuts. That means more jobs!!! via an increase in population…”
HELP ME, RHONDA.
Please tell me this Blog Dog is joking, and I missed the punchline.
You want to get reallllly scared = Sixty Minutes did a brilliant piece on ‘The Second Leg Down” – and it is downright TERRIFYING.
Mr. Harper doesn’t have a clue = he hired Mark Carney from Goldman Sachs to run our Bank. Give you an hints?
The grind that we are about to go through makes me doubly glad and thankful that I have been blessed to have been born when I was, and saw Canada enjoy a Post War Boom.
You want to be able to watch what unfolds from the safety of your quiet ranch in Paraguay (* like the Bush Family) – NOT from your $125 K pressboard house in Gordon Head – (*that you paid $600K for in 2009).
sorry Phil Soper ….late night travelling and lodging…running on 2 hours sleep and massive doses of caffine!
I meant the house dropped $300,000 not the originally stated $200,000.00.
My mind is now really tired but my will is stronger than ever!
You may lose a small fraction of your principle amount in the bond market but that beats losing it all in stocks as the market valuations are at absurd values meanings stocks will eventually fall hard again. There is no way on Earth earnings will improve to the point of substantiating the huge rise in stock valuations. So the safe place is bonds unless you buy stocks and hedge with puts and try to outperform the market. The only place probably to be is the venture exchange in Canada.
Garth – Where did this quote come from: “‘the banks won’t open on Monday. Or the markets.’”
Hey Nostradamus,
You should change your handle to “deleted”.
#40 poco — “. . . the san andreas fault thought to be approx. 150km west of van isl.(out in the pacific) now runs directly “under” Victoria . . .” — and –
#98 BDG YYC — Good link (esp. as UK citizens are hoarding food now, due to global warming [ here] and prices are soaring), but if if these two (‘quakes, fiscal naughties etc.) happen in 2010, we do indeed live in interesting times!
Second leg down; US Treasuries not looking so good;
We’re all (broke) Icelanders now; Another one bites the dust;
Feb. 14 (Valentine’s Day) is when the Chinese Year of the Tiger begins; Tigers usually lead the way;
Wealth of Nations 2010; This will affect Canada sooner or later;
Call To Arms, because we may all end up like this;
Foot Loocker closing 117 stores;
Is this before or after WW3? (assuming there IS a war; we may all be frozen stiffs by then!
#7 gold rocketing? impossible, Garth commanded it to go down short term, how dare that useless metal go up.
#68 Good One !
#94 It must be the Antidepressants
Folks…Garth’s assessments are among the least hardcore out there….
This time it IS different.
With the peaking of world oil supplies and subsequent energy throttling of the global economy….all bets are off.
Anyone who honestly does not think that the greatest depression of civilized times looms….is simply not doing their homework.
Taking into account U6 data..there americans have lost another 86,000 jobs in Decemeber …..their unemployment rate is now north of great depression numbers (over 25 %)
ARM resets are coming online now and the CRE crash is just beginning.
Oil price is hovering at near the mid 80s…the number that (inflation adjusted) ALWAYS crashes the world economy.
To foolishly believe in any way that the status quo (in ANY way) will survive is delusional. To trust so called “liquidity” investments is nieave. Cash, PMs, guns, ag land, friends and family….all else will not serve you well in the end.
The only real economy that will survive is the one based on real goods….you actually have to produce something tangible that is needed……really needed.
I don’t know how much respect I can give the government. They take over 50% of our salaries in taxes to operate. I thought the government represented us and worked on our behalf. Any company needing 50% of their cash flow to operate would be linched. What’s going on?
Bank of Canada said today that it won’t raise interest rates if the result is to cool housing prices. Low interest rates are here to stay.
As an aside, most of the stuff written on this blog predicts higher interest rates soon, etc.,etc., and a housing crash. Sorry, after readng the posts or the last 2-3 months, I Don’t see it happening and am perplexed at the posts saying it will… its like a cult here.
Anyways, time to move on and check what the masses are thinking. This gives a much bettr balanced vie…but then again, I don’t write or sell books. C-ya.
#57 because a child’s mind is very impressionable at that age. The government wants to start the indoctrination process very early. The idea that everything is running out and we all have to reduce our standard of living so the elite can live like kings. Then the kids grow up worshiping the earth and content to live like gypsies
Garth,
I know you are reading this. Like I said, I was hoping you would take the road of at least exploring this possiblility. That is why I follow your readings—you look at all options.
For some reason you are moving away from this. Too bad, that is kind of why I read your stuff in the first place.
Does anything below sound familiar??
See below:
Steve Ladurantaye
Globe and Mail Update
Published on Monday, Jan. 11, 2010 2:37PM EST
Last updated on Monday, Jan. 11, 2010 2:46PM EST
.The Bank of Canada won’t raise interest rates to cool the country’s hot housing market, a spokesman said Monday, preferring to leave any tinkering to the country’s Finance Minister.
“Some observers – those who see a housing bubble forming – have said that since low interest rates have stimulated housing market activity, the Bank should now raise interest rates to dampen that activity,” deputy governor Timothy Lane wrote in a speech delivered by an adviser on his behalf in Edmonton. “But that poses a problem.”
Existing-home sales are up 73 per cent year-over-year, while prices have climbed nearly 20 per cent as buyers take advantage of historically low interest rates to finance purchases.
Those who fear a bubble worry that many people are taking advantage of cheap money to buy homes they wouldn’t be able to afford once rates rise, leading ultimately to a crash in prices.
Mr. Lane said the bank understands the concern, but it uses its lending rate to keep inflation in check for the whole economy and the housing market is “only one of several factors” that influence inflation.
Other sectors could be adversely affected if the rate jumped before the broader economy was ready, he said.
“If the Bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water just as it emerges from recession.”
Instead, he said, the government could increase capital requirements for lending institutions, adjust loan-to-value ratios and change the terms and conditions required to obtain mandatory mortgage insurance.
“These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions,” he said. “Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system.”
In an end-of-year interview with CTV, Finance Minister Jim Flaherty said the government would consider raising the minimum down payment from 5 per cent “to a higher figure” and reducing the amortization period of 35 years to “something less.”
But the Minister stressed that the government has not yet made that decision.
“If there is, in the future, evidence of a residential real estate bubble, the tools we have are the tools we’ve used before, relating to insured mortgages, lending standards, amortization periods and down payments, which is what we acted on in the summer of 2008,” Mr. Flaherty said in a late-December interview with The Globe and Mail.
In the summer, the government said it would no longer insure zero-down-payment mortgages or mortgages with an amortization period of more than 35 years
Who said rates would rise now? Not me. This is July stuff. — Garth
Bank of Canada won’t Raise Rates to Cool Housing ( Globe & Mail)
http://www.globeinvestor.com/servlet/story/GI.20100111.escenic_1427298/GIStory/
Keep waiting for the correction…
So the deputy governor of the BoC says today that they won’t raise interest rates because that would affect the entire economy which, outside of housing, they want to stimulate. Instead, the BoC is leaving it up to the finance minister to specifically target the housing bubble – higher downs, tighter lending, etc.
That kind of makes sense, doesn’t it?
If that’s the case, then shouldn’t someone who has a low down jump in right now?
Bank of Canada won’t raise rates to cool housing
http://www.theglobeandmail.com/report-on-business/bank-of-canada-wont-raise-rates-to-cool-housing/article1427298/
Bank of Canada See No Housing Bubble
http://www.canada.com/business/fp/Housing+market+bubble+says/2429324/story.html
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Read’em and weep boys and girls…
There is no housing bubble, and certainly no interest rate hike to pop the supposed bubble….
Cheap money is here for a long time …that means the housing appreciation party will continue for some time. Maybe, Vancouver’s prices will be up another 16% this year to mirror the increases of 2009.
Don’t worry, in a few more years, you may get that long awaited “10% correction” after prices have gone up a good 30% since 2008. Of course, that will still leave housing as an unaffordable asset for the vast majority of Vancouverites…
I guess the “sheeple” were right to follow the sage advice of our political and economic leaders and borrow – they know they will be taken care of just like the banks and auto sector were taken care of…
Instead of the usual “just you wait till next year” refrain, lets just all agree it will be another 5 years before the much anticipated little “correction” happens. Perhaps then people can get on with their lives….or at least publish another book calling for the impending crash…
could of should of or would of:
Wolf, who advises Mark Carney, said there were other ways to dampen Canadians’ enthusiasm for homes without resorting to raising interest rates. ..
To illustrate the vulnerability of households, both to increases in borrowing costs and to further growth in indebtedness, the Bank conducted a series of stress tests, which we published in the December issue of our semi-annual Financial System Review. Using the current path of household indebtedness, and alternative assumptions about how quickly interest rates may increase, the simulation generates a scenario indicating that, by the middle of 2012, almost one in ten Canadian households would have a debt-service ratio that makes them vulnerable to economic shocks.
…On the economy as a whole, Wolf said the bank believes the economic recovery is still dependent on government support and that “growth drive by the private sector has yet to materialize.”
http://www.bankofcanada.ca/en/speeches/2010/sp110110.html
and our finance minister said this morning that canada is “recover-ING” ,however,that “commonality” regarding rules of finance are still to be discussed into the future. Oh and the stimulus money will start to flow in the next six months.
Garth??? Your take?
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Bank of Canada won’t raise interest rates to cool housing
http://www.theglobeandmail.com/report-on-business/bank-of-canada-wont-raise-interest-rates-to-cool-housing/article1427298/#comments
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Seems there’s Flaherty vs. Carney tennis match going on:
Bank of Canada won’t raise interest rates to cool housing
On one hand it appears to be only an exhibition match, on the other hand the stakes are considerable…
What problem… enjoy the game.
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Gold has no real value. the price is going up cause people are stupid and think they better go buy some in case our dollar tanks. its all about supply and demand. let me say this again so you all understand… its all about supple and demand. the price of gold rises because you idiots are now buying it. you are part of the herd. home prices increase, yes because of the low interest rate but also because of SUPPLY AND DEMAND.
So here’s my part to try and help the idiots on this site become smart investors. SELL your GOLD stocks now and while your at it never look at GICs EVER AGAIN!
You are an idiot to be holding cash in the bank and holding onto GICs & Gold.
So what to do? Use your cash to lower or get out of debt and with any money you have left over buy oil stocks. When the USA economy starts coming back they will be needing more oil, just like Europe. But, even without those two, look at what China & India are buying. should i say it again? OIL…. Yes…. Oil not gold.
Now its your turn to thank me for helping you to stop being like the other idiots in here..
Interesting discussion about gold between Larry Swedroe – Buckingham Asset Management and John Embry – Sprott Asset Management on CBC radio.
http://www.cbc.ca/thecurrent/
I figured I would post the part of the Speech from the Bank of Canada word for word, so the speculation can be taken out and the facts can be discussed. Hopefully you post this as it is fact.
If you choose not to post this, I understand but this clearly states in black and white the Bank of Canada is in no Hurry.
From Bank of Canada Speeck a few hours ago.
“Canada played an active role in this global policy response. While we did not need to bail out our financial institutions, fiscal and monetary policies were applied vigorously. Guided by the 2 per cent target for inflation, the Bank of Canada pushed its overnight interest rate essentially to the floor – that is, to the effective lower bound of 25 basis points. We also set out a framework for unconventional policies that could be used to provide further stimulus if needed. We implemented one element of this framework – our commitment to hold rates at the effective lower bound until the end of the second quarter of 2010, conditional on the outlook for inflation – while stressing that other unconventional policies were available if needed.
The worldwide effort provided the impetus for the global recovery that began to take hold in the middle of 2009. The Bank of Canada’s October Monetary Policy Report pointed to the start of the recovery, and the global outlook has improved modestly since then. However, significant fragilities remain, since the recovery is still heavily dependent on government support, and sustained growth driven by the private sector has yet to materialize.
Canada’s economic recovery started in the third quarter of 2009, although it was weaker than had been anticipated in the October Monetary Policy Report. This recovery has been supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, stronger business and consumer confidence, the beginning of the recovery in the global economy, and a strengthening in the terms of trade. At the same time, the weakness of the recovery in the U.S. economy and the persistent strength of the Canadian dollar have exerted a drag on Canada’s growth. The balance of these factors has tended to shift the composition of aggregate demand towards growth in Canada’s domestic demand and away from net exports.
Overall, we continue to believe that Canada’s recovery is likely to be more gradual than in previous cycles. While inflation is now below the 2 per cent target, the Bank expects that it will return to that target as the economy returns to potential.”
I will post the rest of the speech as I read.
From the globeinvestor.com, Report on Business, today:
Deputy governor says “Bank of Canada won’t raise interest rates to cool housing” because “such a move would also negatively affect the broader economy as it emerges from recession.”
Garth,
Sometimes I get the feeling you’re speaking for the real dump. Because most of what you say is in extremes. No disrepect to others, but I know all this stuff and have learned to take advantage of it. I started trading at 21 and I’m now 37. I’ve also bought my first place at 23. I know the angles. Garth, Could you please educate the more intellegent.
I’d be willing to pay for a special blog where I don’t have to read a bunch of nonsense and where discussing are progressive. The same people are simply repeating themselves all the time.
What do you say Gart, have you thought about a pay blog?
No. — Garth
It’s different here in ‘Kelowna North’ — Canmore. The recreational real estate market took the big swirl over a year ago when Morgan Stanley pulled the plug on the luxury Three Sisters development (still unresolved). There are half finished condos all over the place, many that were completed are nearly vacant, and unfortunate owners are seeing higher condo fees — no surprise considering the hasty construction of these particleboard palaces. The construction industry has all but fled, leaving empty bays for rent. The only permanent industry is the cement plants down the valley and those don’t offer much opportunity. There are few jobs for young people except seasonal employment at restaurants, the motels and ski hills. The motel parking lots are only half full if that on weekends when the skiers come up from Calgary. RE is still $200,000-$300,000 overpriced, and judging from the ads, there isn’t much moving. But it’s a good place to be liquid and renting until things shake out.
http://www.24hgold.com/english/contributor.aspx?contributor=Trace%20Mayer&article=2581447968G10020
U.S Treasury is attempting to confiscate people’s private 401k saving and funnel it into Treasuries in order to fund the bankrupt U.S Government. Is this still a non-issue Garth?
Garth et al:
Sorry Garth and all those on the list. I have to vent about this one.
This has got to stop. It is not right. People are “innocent” till proven guilty in this country. Not guilty till proven innocent. This is our principle of Law is it not. Why is it “disabled grandmas will continue to be treated as possible Al-Qaeda suicide bombers”
See the article, on what happened at the Ottawa airport. Hey, the airlines are loosing money, the government wants to loose tax revenue. Instead of making it easier and cheaper to fly, they go after Grandmas going to visit relatives. Shame on our government. Shame on those at the airport in Ottawa.
When are the people going to realize that this in not right. This is not WW2 and Hitler does not live anymore. Why are we doing illegal searches of Grandmas? What did she do to deserve this? Did she wave her cane at the security guards? I guess when they pay you 10 bucks an hour, you can get your anger out on Grandmas….Is there no one who can stop this insane maddness? First it will be the airports, then they will “roll” out the procedures to every thing and every where. This is what Hilter did in WW2. Accused all the people (a certain segment of the population) they were “bad” and then he had them killed. Now everyone who flies is a terrorist (ie a bad person), they are not people anymore. This is the heart of the Nazis’s theme? The Nazis are now back in full power, and they are back in Canada. Who would have believed it…the vetrans must be rolling in their graves.
Garth we have to do something about this. This is not right. We can not let these people continue to do this.
http://www.infowars.com/85-year-old-woman-terrorized-by-airport-security-thugs/
The gap between what people are actually doing in terms of house buying and taking on massive mortgagee debt and the economic fundamentals in place today is totally absurd. Is it going to crash tomorrow? Or next week? Or six months from now? No one really knows. There is one truth we can all be sure of though….it’s called gravity. When you keep on making a house of cards higher, it eventually collapses under its own weight.
Won’t crash. Any [new] buyers have already capitulated even before their purchase and have committed to never being able to pay anything back. That’s the real reason for the 0/40 loans. That is what the realtots know and that you and Garthie here don’t know or wish to accept. The horse is already dead. ‘Crash’ only means something if fiat maintains some abstract relative value.
It’s all momentum right now, which will be ridden downward for as long as they can keep bending the earth downwards. Then, payments on overbuilt infrastructure will be taken in rocks as fiat currency will be irrelevant anyway. Real estate holders won’t howl in protest at losing ‘value’ as the currency will tank first. Squatters will take over and the only ‘payments’ for anything will be made for water and power. Probably in gold currency.
Garth,
I figured I would finish with this part of the speech where the Bank of Canada specifically says it expects inflation to remain tame for the next year and a half.
translation…rates on hold till then.
unless the canadian dollar drops and imports become more expensive-feeding inflation, or unemloyment somehow drops to 4% sparking wage inflation.
Both-aint going to happen.
Bank of Canada:
“But that poses a problem. As I’ve stressed, we have a mandate to use our key interest rate to achieve our inflation target – and the housing market is only one of several factors that influence inflation. If the Bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession. As a result, it would take longer for economic growth to return to potential and for inflation to get back to target. This is why we say monetary policy is a blunt instrument for achieving financial stability”
The titanic ….. just what I was thinking…
I’m beginning to believe The Bank of Canada has placed itself into a position where it can’t reduce interest rates. CHMC is on the hook for Billions of dollars in potential mortgage defaults. Just imagine the scenario where Canada Mortgage is holding ownership on hundreds of thousands of houses who’s prices would be crashing to the ground. The Government of Canada will find itself as the unexpected landlord of hundreds if not thousands of new subdivisions and condos across Canada. If we go by the recent experience in the US housing market. It could take a decade or more before the Government could possible recoup its losses. Central Mortgage will become the largest Social Program in Canadian history. Just imagine the effect on Government coffers as it floats bond after bond to feed the rapacious demand of the rapidly swelling behemoth.
What about all the families who would be forced to declare bankruptcy? Canada doesn’t have a walk away mortgages like they do in the USA. I understand that some in Alberta are. After the little economic burp brought on by the National Energy Policy of the Trudeau era. Quite a few Albertans handed their houses over to a provincial agency which assumed the mortgages and saved them from filing for bankruptcy. In most provinces, if you default or your debt of any type it’s collection and finally bankruptcy or some debtor arrangement close to bankruptcy for you. Do you really think the Chartered Banks could absorb all of this consumer and credit card debt falling on their collective heads at one time?
The recovery in the US isn’t happening as quickly as our Government hoped. So the minister of Finance and the head of the Bank of Canada make nice predictable announcements about possible rate increases and down payment requirements for mortgages to slow down the construction of this debt laden house of cards we call the Canadian economy ….
Only a fool would pull interest rate trigger now.
Bank of Canada backs off housing bubble talk
http://www.cbc.ca/money/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html
Reeks of lobbying.
Hello Garth Oooops I made an error on my last submission
The titanic ….. just what I was thinking…
I’m beginning to believe The Bank of Canada has placed itself into a position where it can’t increase interest rates.
These people are in charge of our Country>>>> No Bubble In Real Estate Yet- Says Bank Of Canada.
AFTER the bubble explodes, they will let us know.
http://www.vancouversun.com/business/Canada+housing+bubble+Bank+Canada+official/2429557/story.html
Bank of Canada won’t raise rates to cool housing
No doubt… Knew that a long time ago! Too bad people have been waiting to buy-in. Now the market will rock for some time again. Rental strategy in your face.
We are hear what BoC said about interest rate and bubble housing.What ever it is called bubble or correction the basic is the same, price reduce, only time line different, if bubble the reduce will take in a short period of time, but correction takes longer time. So BoC and Realtor also agreed that there will be corretion in the housing price, but how far?? that is misterious to anyone now….
So the issue is when is the corrction starts?? june 2010?? and for how long??how far??
“BOC won’t raise rates to pop housing bubble” – nothing new here. As Garth has pointed out, the central bank rate is separate from the bond market, which is where the government has to go to borrow money and compete with all the other folks who want to borrow it too. This means higher taxes due to higher debt service charges, slower economic growth outside of the “stimulus” (pork barrel) umbrella, and ultimately higher mortgage rates because all the mortgages are being bundled and sold as securities – homebuyers will have to compete with the government for capital.
I will address this, and more important issues, in a few hours. — Garth
Some of the bulls on here are really missing the point.
People have been waiting to buy in because they are *currently* priced out.
So if prices go up, their situation won’t change. It’ll get worse, but it won’t change that they still won’t be able to afford a home.
So gloat all you want. There’s no one more aware of how unfair this is to people who haven’t bought in years ago, than those that didn’t. It is what it is.
Without a correction we cannot do anything about our situation because we cannot afford a 400K mortgage. Or 900 and what is it in BC now?
So Congratulations. Does it make it feel like a bigger person to mock first time buyers and laugh at them for being priced out? Some of you are so damn cruel, I often imagine you being the types to laugh at the homeless people on the street. And if you aren’t that type, you’re certainly not coming across that way in your posts.
I’m sorry but there is nothing funny about the average home costing 7x the annual income.
#119 R
“It must be the Antidepressants”
Whatever works!
Where you from?
The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens.
Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody’s Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck’s Grapes of Wrath.
Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor “harsh, repugnant, shocking and repulsive”. We are not far from a de facto moratorium in some areas.
This is how it ended between 1932 and 1934, when half the US states declared moratoria or “Farm Holidays”. Such flexibility innoculated America’s democracy against the appeal of Red Unions and Coughlin Fascists. The home siezures are occurring despite frantic efforts by the Obama administration to delay the process.
This policy is entirely justified given the scale of the social crisis. But it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of “option ARM” contracts due to reset violently upwards this year and next.
Link: http://tinyurl.com/y93go5c
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What an investor should do in 2010?
This year, you need to protect your portfolio from politicians
Thus, the political games are very important to investors this year. And in Canada the real estate seems to be running on nothing but a politician’s whim.
On a slightly different note: a new tool to help discern good companies from bad?
A new financial checkup
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Addendum to my last:
Just off the phone with cable company, rates are going up soon (18th), so more increases just think BC and Ontario Harper’s Sales Tax will be added to those and more . Sad part is we can not even have a opposition member bring all these raise up in Parliament along with the interest rates that will effect Real Estate and food cupboards big time! Could it be possible many are doing this just because of that fact …. nah never eh!
Told you all…
DELETED
Rate won’t go up… Blog dogs don’t want to be accountable for their previous comments… Unsupported comments continue… Nothing learned once again!
BS–I can take my Goldmoney CC into any place there is and buy whatever I want–JR…
I can take my Gold coin to the coin dealer and exchange it for paper and spend it as easily as i can go to an ATM–JR
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Hey buddy, you just went to two places to purchase one item and you got charged $50per ounce for transaction fee.
Money is still more liquid and less hassel…
Definition of the word Liquid for investment purposes: easily transfer from currency to asset or back to currency.
Not from gold to money to asset.
I am talking gold straight to purchase asset.
Or perhaps you like taking a $30 dollar hit to buy gold and a $50 hit to sell.
Sheesh.
And you guys that think gold is useless… well you just think your too smart for gold.
That leaves lots of opportunity!
#147 Grey
I will put it this way – both bears and bulls have a vested self-interest in what is supposed to be a free market sector.
While some bear posters here are currently “priced out forever,” many bears are simply waiting for the right time to buy, as they do not want to pay “inflated” prices in their minds. They do not want reward someone that was “lucky enough” to get into the market years ago with a massive selling profit, particularly since some of the more proficient posters on here fancy themselves smarter than the “uneducated sheeple.” In many respects, by not buying when they have the means to do so, bears are simply “speculating” on the direction of the market (much like the detested bulls). Some bears here appear to be genuinely concerned about the implications of unaffordable housing for the broader society, but at the end of the day, this form of thinly veiled altruism is really self-interest – they want to have something that everyone else has, or they want their kids to have something they have.
Many bulls promote the virtues of the current RE market because they are speculating as well, often from over-leveraged positions in the minds of many posters here. There is admittedly inherent self-interest in seeing prices continue on their upward trajectory. However, there are many bulls that like to think they did the “mature thing,” or the “smart thing,” by buying a house, and as such, dislike it when someone tells them they are simply “sheeple” for buying. Nor do they like it when they are told that they “just don’t get it” because they don’t follow micro and macro economic policy. Given this context, and the fact that they have been RIGHT FOR OVER EIGHT years (at least in Vancouver), it is no wonder they respond with what to be appear callous comments. A dichotomy between poor dumb renter and rich smart homeowner easily emerges from these two vested interest positions.
Besides, many bears become bulls the instant they buy, realizing that once they have attained their RE dream, that housing is a privilege – not a right. At the end of the day, it is purely greed and pride at stake for both camps of thought. They are both the same – just on different sides of the market.
Interesting!……..but not amusing..the quest for ultimate power continues…..freedom of information is almost non existant,watchdog positions are being eliminated,tax dollars are being used to promote our political leaders,why we even have a government appointed head of our national police force (the RCMP..for the first time in history),the senate is being stacked with favorites at a time when they are not needed or affordable,our taxpayer owned assets are being sold off at garage sale methods(behind the scenes),why we even have a prime minister who admittedly was “aware “of an attempt to overthrow the government by bribery to secure a vote (Chuck Cadman’s)..this is even recorded in front of an eye witness…and the RCMP found no grounds to start any criminal investigation? (our prisons are full of people who had less evidence against them)…the average citizen in the same scenario would be prosecuted to the fullest. And now our economy is in a mess people are overextended on their credit..im sure every day is a nightmare fearing a rise in interest rates….and along comes our power hungry Leadership to save the day for a day or a few….after all now their futures rest in their whims……….who could vote against that………christ i wish people would wake up and get rid of this dictatorship before its too late……….the day of awakening is inevitable and our democracy is deteriorating.There is no free ride for the blunders of this leadership and we will all have to pay the piper when they have accomplished their power hungry goal! ……….in my opinion!
I have to admit it…. all the people trashing Victoria….it’s all true…there I admit it. Why, here’s a video of one of our seniors on the way back from the fish and chip shop defending herself from someone who is on anti-depresents and is obviously late for the ferry. http://www.youtube.com/watch?v=-qkMmT16MUY
Garth,
Can you explain in plain english what the Bank of Canada deputy governor Timothy Lane said today?
“Those who fear a bubble worry that many people are taking advantage of cheap money to buy homes they wouldn’t be able to afford once rates rise, leading ultimately to a crash in prices.
Mr. Lane said the bank understands the concern, but it uses its lending rate to keep inflation in check for the whole economy and the housing market is “only one of several factors” that influence inflation.”
******************
All your blogs and every other indicator recognizes that there will be a housing bubble soon. Why do they come out with such warped reasoning. Here’s the link:
http://www.theglobeandmail.com/report-on-business/bank-of-canada-wont-raise-interest-rates-to-cool-housing/article1427298/
@125 (Tim) : Of course they wont raise rates to stop a housing bubble. That’s not what rates are for. They WILL however raise rates for other reasons later this year.
Garth,
All I asked was for you to address this possibility.
Thanks for doing this now.
I know this was a bit of a surprise for you, but
At the end of the day this is now a possiblility.
Low rates for another 18 months, and by then we are clear, the
Recession by another 18 months.
Looking forward to your thoughts as alway.s.
Again, I think highly of you.
Just want to see more of an alternative view than the obvious connect the dots.
Hey “C” ( post # 124 ), you get a “D” in politics. Do you really believe what politicians ( with one notable exception ) and bankers ( no exceptions ) say, versus what they do, especially during times of major crisis ? Were you born yesterday ?
dynamic/time inconsistency
“Government policy makers also suffer from dynamic inconsistency, as they are best off promising that there will be lower inflation tomorrow. But once tomorrow comes lowering inflation may have negative effects, such as increasing unemployment, so they do not make much effort to lower it.
I am not sure of this statement:
This is why independent central banks are believed to be advantageous for a country: some believe they worry about making decisions for the greater good, not to keep government policy makers popular. “
Seems like the ‘blame game’ is just starting. Instead of the BOC being accountable for the bubble, they are shifting it over to Flaherty who will go down in history as being the one responsible for it all.
#135 Soju, take your subscription fees and buy Garth’s books, that’s how it works!
Onemorething…have you noticed that just when a Vancouver Bull hits the sin bin, 2-3 more pop up to support his/her views/denial.
Vancouver is different!
Vancouver Rocks
You post 2 links from publications with vested interests in seeing this continue.
To be a contrarian is to listen to people like you wag their “equity” in one’s face. It takes emotional stamina to stick to one’s values and avoid exposing oneself to risk.
I think you miss the point of most of the bears here- they could indeed “buy” into the RE market. Just about anyone with a steady paycheck and $10k in savings can get some kind of mortgage . The point we are making is that we want to avoid exposure to events that can have huge negative impacts. By staying in more liquid assets, you avoid the risk- you give up the potential returns, which until now have been fantastic.
However, excessive debt does bring increased exposure to risk. Just because the risks have not materialised in the last 8 years (such a long time frame) does not mean they will not materialise in the future.
Our world is more fragile, vulnerable and volatile than ever before. I work for one of the world’s largest software companies, and let me tell you execs are on a knife edge- paranoid about imploding markets and disappearing revenue. These people are used to closing $100m deals and they now admit they have no visibility beyond the next 3 months. This is a company once known for its predictability and they are now scrounging for loose change in the cushions each quarter to make the numbers- that and axing jobs left and right.
I’ve been on the wrong end of a $1m development loan at 25% interest in 1981- let me tell you things looked bright up until then. Perhaps that is my aversion to exposing myself to big risks.
The captain of the Titanic never saw any risks on the fateful voyage because he had never run into an iceberg before-ergo, i’ll never run into one again.
I hit the iceberg in ‘81, and i have never seen more icebergs in the water
#147 Grey:
Dont be so depressed. Mortgage ownership doesnt give you salvation. And it doesnt give you peace of mind. So you buy a house say, now what? You are in the club of mortgage owner? So what!!!
So the Bank of Canada has said it wont raise interest rates. Right. And this bubble is sustainable. That makes it even worse because if they dont raise rates soon, when they do go up not if, but when, it will be much much worse because the pinnacle will be so much higher.
So you are priced out of an overpriced shack? So what!! I rent a house that is worth $180K and has a current market value of $390 and I made $95K gross last year. I rent cause my down payment is not say $30K. Once I have a big enough down payment, say in 2 years, interest rates will have gone up and then I can buy a shack.
It’s pretty funny that people that bought way before the boom want some kind of justification to the outrageous prices in Calgary. Only a fool would support the current prices which are a pain for everyone, sellers, renters, buyers, everyone.
This is just the way it is. What’s the word? Snafu? Yup. So the idiots in that Bank of Canada say they are going to not raise interest rates now? Seems to me these people probably dont know what toilet paper is, or even underwear. And soap is non existent in their world.
So Grey, sit and wait. Patience. Remember: When you are dead you cant take it with you. Unless you are immortal, dont worry about some overpriced crap shack.
Hi Garth and greaterfools audience, hope all is good I have $80000 in instant access bank account for the last 3 years (since moving from U.K) thinking the housing market will burst so I can buy a house for me my wife a our two baby girls. Since the last three years we have been renting in Richmond, bc. what should we do with our money?
ps we both work and earn a total $60k gross
yours very worried about the future finances
#127 Vancouver Rocks,
Thanks for that. The Bank of Canada has spoken and they must be correct.
All hail our great sage Vancouver Rocks. The debate is over. I have seen the error of my ways oh great one.
#147 Grey,
Excellent point. The Bulls simply ignore affordability.
I think even the most optimistic recovery right now would have a very gradual rise in wages over the next few years. I, for one, am thinking we see a deflation or at very best a very flat average.
Meanwhile costs will come up on many items including taxes. Even if interest rates where flat – and they can’t be for long – affordability is stretched.
Even a prolonged flattening in Vancouver would scare out the speculators and lots of people who are depending on rising prices to get them out of their overleveraged lives. Remember that many homeowners are strapped into heavy mortgages because they believe the market gains in housing will continue to outperform other market areas. When this changes it will also have a negative impact on house prices.
Thank goodess we have the Bulls to tell us that we don’t know what we are talking about.
#155
I think that is a really well-written comment.
Higher taxes
DELETED
Lost decade …
http://www.chrismartenson.com/blog/lost-decade/33670
Mrs Flyboy, don’t be listening to all those realtors about the boomers all coming here. Some will, most won’t. I would be very hesitant to buy in Victoria right now, its crazy what’s going on.
I suggest you rent and learn about the areas that will be a good fit for you and your family.
I would suggest some of the older areas in Colwood, my area is an older area mid 60’s to mid 70’s build out. The lots are 7-10,000 sq feet. Nothing fancy but a good stable quiet area.
The bonus is (compared to other areas) houses go for 450K to 500K, Royal Roads walking trails, and the beach are only a few minutes away, Langford lake is close by and has a fishing dock for the kids. Eagle Ridge “park” is only five minutes from here. Schools all close by.
Costco, Home Depot, Rona, Timmies, Canadian Tire etc are only a couple of minutes from here.
Also hubby can drive down Metchosin road, turn off, go down along the lagoon spit, go up the hill turn into the CFB parking lot and catch the Blue Boat to CFB in Esquimalt.
No traffic to deal with. Five minute commute.
Good Luck, and Welcome to Victoria.
Well, all I can say is i dont know where these people in victoria are getting all this money to buy these houses.
I bought mine 12 yrs ago at a realistic price 2500 sq/ft 1/4 acre lot @ 235k and i’m not going anywhere. Even though i’m 37 i will probably die in this house.
Where are is all this wealth coming from? And if you plan on moving to vic bc you had better get a wood stove because bchydro is a complete f#cking ripoff.
In late 2009, former Merrill Lynch economist, now with the Canadian firm, Gluskin Sheff, said the following:
“The credit collapse and the accompanying deflation and overcapacity are going to drive the economy and financial markets in 2010. We have said this repeatedly that this recession is really a depression because the (post-WW II) recessions were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses.”
Summarizing his 2010 outlook, Rosenberg highlighted asset deflation and credit contraction imploding “the largest balance sheet in the world – the US household sector” in the amount of “an epic $12 trillion of lost net worth, a degree of trauma we have never seen before,” even after the equity bear market rally and “tenuous” housing recovery likely to be short-lived and illusory with a true bottom many months away.
As a result, consumer spending will be severely impacted. “Frugality is the new fashion and likely to stay that way for years,” highlighting a secular shift toward prudence and conservatism because households are traumatized, tapped out, and mindful of a bleak outlook. It shows in new consumer credit data, contracting $17.5 billion in November, the largest monthly amount since 1943 record keeping began.
Surprisingly, only people over age 55 have experienced job growth. All others have lost jobs, can’t get them, and for youths the “unemployment crisis (is) of epic proportions.” In addition, there’s a record number of Americans out of work for longer than six months, in part because the “aging but not aged” aren’t retiring, and those who did are coming back, of necessity, to make up for wealth lost.
Rosenberg stresses that for a sustainable recovery to begin, the ratio of household credit to personal disposable income must revert to the mean and reach an excess in the opposite direction. In the 1950s, it was 30%. Today its 125%, down from the late 2007 139% peak, with a long way to go taking years, and when it’s over, another $7 trillion in household credit will have to be extinguished.
Link: http://tinyurl.com/ybnnduy
@ #170 medic:
well-written? –> yes.
convincing? –> not exactly
What I get out of this is: there are two sides to every market, and even though the current market conditions are ridiculously skewed towards the bears, today’s buyers/bulls are still “correct” in their decisions because the choice was besed on their own sensibilities vs. economic principles. Since they don’t understand interest rates, Jim Flaherty/CMHC stimulus, taxes, price-to-rent ratios, price-to-income ratios, demographics (boomers retiring), or other factors.
Wow – sounds like the logic of a ponzi scheme: those buying near the end of the scheme can still be “doing the right thing” even if they are about to lose all of their money.
The only difference here is that all of the facts are out there… if you bother to read them.
Looks like they have decided who the fall guy is going to be.
I wonder what kind of plum job/pension Harper dangled and where?
He’ll take the blame and disappear.
for taylor192:
icelandic citiZens have no debt. mainly britons and dutch invested/”deposited money for high returns” in their iceland banks. the banks went belly up. why the population should pay for a failed investment ?
#155 Vancouver Rocks,
There is no question that people are more prone to believing information that confirms what they already believe. I was a Bull for many years. I am now a Bear. However I do take issue with your characterization that it is all about self-interest.
One of my main concerns right now is the young people – late 20s to late 30s – who are being sucked into the RE market early by the low interest rates. I think it is insidious of our government to be pulling so many people in with teaser rates and the CMHC backed 5/35s in order to try and jump start the economy.
I see serious pain coming a few years for many people of that generation. You may be laughing now and I am sure you will be laughing at them then as well for over leveraging themselves. However I am very, very worried about many of these people who are too sophisticated to know better – and who listen to people like you.
to 165 old man wintah
well said– my feelings exactly– I also went through the 81& 82 interest rates of 20 3/4 as many of these bloggers probably did– didn’t lose the house -but no spending money– went into a little debt but made it through –maybe the bulls should look at some housing graphs –we know this won’t last forever
and forever is not a long time
Bank of Canada won’t Raise Rates to Cool Housing ( Globe & Mail)
http://www.globeinvestor.com/servlet/story/GI.20100111.escenic_1427298/GIStory/
Keep waiting for the correction…
———————————-
what are you suggesting then? so lets say, we’re in absolutely crazy situation and rates don’t rise for 6 quarters ( 1.5 years) someone should still go out today and purchase a home and get a $450,000 mortgage? is that a wise decision?
those that are impatient deserve to wait longer. Take it easy with that arrogance too. I’d bet my two friends down below that you’ve never seen one of your investments gain 10 times + its value like yours truly has.
You’re one of those people that assumes if a person isn’t invested in real estate they’re not invested at all.
and your favourite catch phrase is: don’t wait to buy real estate, buy real estate and wait!! lol
Hi Garth and greaterfools audience, hope all is good I have $80000 in instant access bank account for the last 3 years (since moving from U.K) thinking the housing market will burst so I can buy a house for me my wife a our two baby girls. Since the last three years we have been renting in Richmond, bc. what should we do with our money?
ps we both work and earn a total $60k gross
yours very worried about the future finances
——————————–
you’re going to be even more worried if you commit that $80,000 into a falling asset. For the love of God, keep renting. Even if prices dropped 50%, you’re not in a financial situation to consider buying a home. What, you’re going to commit every penny you’ve saved into a home? are you feeling okay? Lets say you lose your job, or one of you gets sick **knock on wood**. You need an emergency fund too. You can’t afford drop that money on a home with two little ones to take care of, not at these prices and not at prices in 3 years…with what you have saved.
However, if you manage to save some more money in the next 3 years, do research (maybe consult Garth), and make some sound investments paying you a few points on that $80,000, you’ll be in a better predicament and you could possibly make that purchase.
You seem antsy to purchase and I know that anytime someone panic purchases anything for fear that it’s their last chance, a nice drop in the asset is on the horizon. Take a deep breathe. It’s not your last chance to buy real estate or anything else. Be disciplined and don’t expect everything gift wrapped to you with such a young family or you’re going to have a religious experience (praying to God overnight to help with your finances). Work towards it. Buffett did it that way, Soros did it that way, Ben Graham did it that way. Discipline wins. Be patient, discipline, and learn as much as you can. Garth provides great info on here for you guys.
131 gold bugs me on 01.11.10 at 3:58 pm
Gold has no real value. the price is going up cause people are stupid and think they better go buy some in case our dollar tanks. its all about supply and demand. let me say this again so you all understand… its all about supple and demand. the price of gold rises because you idiots are now buying it. you are part of the herd. home prices increase, yes because of the low interest rate but also because of SUPPLY AND DEMAND.
So here’s my part to try and help the idiots on this site become smart investors. SELL your GOLD stocks now and while your at it never look at GICs EVER AGAI
*******************************************
I’ll bet gold does “bug” you–lol
This is typical drivel from some sh*t for brains,that missed a 10 year bull market-
But–guess what?
It’s your lucky day–cuz–ol “jr” is gonna tell ya a secret pssst-
It ain’t over yet (:
#155 Vancouver Rocks
While some bear posters here are currently “priced out forever,” many bears are simply waiting for the right time to buy, as they do not want to pay “inflated” prices in their minds. They do not want reward someone that was “lucky enough” to get into the market years ago with a massive selling profit, particularly since some of the more proficient posters on here fancy themselves smarter than the “uneducated sheeple.”
_________________________________________
Most bear posters here will never, ever own a home that costs over $800,000 but could easily jump in right now to buy a 1 or 2 bedroom condo/apartment. I suppose reluctance to reward a person who bought 10 years ago may be a factor for some but most bears are probably holding out for these reasons:
1) Excessive market hype – many bears feel that today’s real estate talk/media coverage is eerily reminiscent of the 1999/2000 tech bubble.
2) Market catalyst – many bears feel that today’s real estate momentum is based on one factor only (low interest rates) and won’t commit until those who snatched up teaser rate mortgages are flushed out or overall economic conditions improve.
3) Government intervention – many bears question the sincerity of today’s RE market as Canadian interest rates were, interestingly, slashed to record low levels right when the 2004 to 2008 bubble started to lose air. If the government didn’t do this to pump the market, they’d have introduced tougher mortgage rules in early 2009.
4) Fear of being unemployed and accumulating negative equity due to a market crash – a combo that could force them to fork out $10,000+ if they have to move.
5) Uncertainty surrounding mortgage rules – if many of today’s buyers are employing 5% down/35 year mortgages, to what extent will RE sales dip? When this factor is present, you have to understand why the bears aren’t drooling now.
Sorry, I know what I said echoes much of what’s been posted before but I hope you don’t see bears as being “piss poor” or “full of vengeance”.
Whether the BoC raises rates or not, this economy is out of fuel and is getting high on gas fumes. Jobs are still being lost and many of those newly unemployed are mortgage holders. I would not be surprised to see major cuts to the public sector in the coming year. In my view housing prices have reached a saturation point at these emergency interest rates whereby new buyers are now once again unable to participate in the market at an affordable level. When you have no new buyers coming into the market it will ultimately dry up as the only sales will be between existing home owners looking to trade their shacks with each other. The rise in gasoline prices and the HST will further suck the life out of the consumer and it is not unreasonable to expect a second dip down into recession or worse. If the Feds tighten lending regulations it will further add to downward pressure on prices. Oh ya, and did I mention the IOC is having troubles finding sponsors for the Vancouver Olympics. Seems like nobody cares all that much about it as the youngsters would rather watch the X-Games and everyone is still burned out from Beijing. But what do I know?
I’m sure some of you may have watched The Wealthy Barber (David Chilton) on The Hour the other night essentially saying the same things as Garth.
Hi,
We moved back to Victoria from Ottawa last year and love everyday of it (10C at 10pm tonight). We can walk outside in green all year around, rain or sun.
Everyone may like or dislike a city for your own reason, but no need to trash it, especially if you don’t even live here, what do you know and what’s for?
The real topic here is for the flyboy and his smart wife who are moving to Victoria for work. I would say renting is your best choice. Unless you are planning to stay here for a long time (say 15-20 years or more), do not even buy in the suburb like colwood or langford. That is probably true regardless which city is now.
So that is at least the 3rd person from Victoria telling you not to buy, in addition to Garth and other smart blog dogs.
Thanks for the advise dave #182 nice to now there are people out there to steer people in the right direction.
bless you and your family with supreme bliss..
#32 West Coast
Maybe it relates to Adam and Eve in the Garden Of Eden with the apple. What you don’t know can’t hurt you.
People are delusional, that’s the bottom line. No matter how clearly we can see our mistakes, we will still make the same ones over and over, until we make a conscious decision to change things, and even then it’s still not fool proof. Oh the human mind!
I am commenting on Garth Turner’s recent ‘Fly Boy’ article. Please correct me if I am wrong about this.
Garth says,
In a word, more people are more at risk, with less cash, more debt and probably less secure jobs, than they were then. So, we blew it. After peering into the abyss and shuddering, we did nothing about it.
Hours ago I exchanged emails with a young mother in Winnipeg whose husband flies combat with the Canadian Forces. He’s being transferred to the Pacific command in Victoria, which means they face choices. If they sell the Peg house and walk away with $150,000, then buy in Victoria, the new mortgage will be $500,000. He wants to do it. Distraught, she does not.
Two things she told me. Even with just one income (pilot lieutenants make $59,000, pilot captains make $73,000), they’ve been approved for a half million dollars in financing. So much for prudent Canadian lenders. Second, they’re being told by local realtors that Victoria real estate has no downside, ‘since all the Baby Boomers are coming here.’
Flyboy thinks it might work since the military pays for real estate commissions and closing costs. Wife understands it could be the end of their financial lives. If house prices in three years are lower by 15% or so – less than the increase in 2009 – then two-thirds of their equity is wiped out. Years of saving, mortgage payments and doing with less, gone.
I say,
This is about a $550,000 house today with a $150,000 down payment and considering ‘flyboy’ is getting his moving and closing costs and realtor fees paid for by the ‘taxpayer’.
Live exercise.
Income of $75,000 x 44%[TDS] = $33,000 available for P+I+T+H
Say $33,000 – $4,000 = $29,000 / 12 = $2,417 rounded up
Interest = 5.35%
Amortisation = 25 yrs
Term = 10 yrs
Payment = $2,417
Loan amount = $401,703 rounded up
Out Standing Balance 10 years from now = $299,857 rounded up
Now a new 10.7% interest rate would cause the payment to be $3,309 rounded up for the next 10 years requiring an income of approximately $108,428 rounded up.
This scenario is likely to play out. So what is the risk, So what is … the problem … I ask?…
There is really no risk here since his employment is secure.
Post# 192-Good post Ian. Good to see some effort and thought. Yep, all fine and dandy, how long is he posted here? Ten years maybe…… Three-four years more likley, who knows? These people move around, part of the job. “IF” there is a correction as Garth (and I) think and he gets transferred after a 15% correction say in three-four years. 550,000 x 15%=$82,500 hit.
Why not put that 150,000 to work at 6% compounding( Garth has given many examples)
Gives you roughly 40,000 more after four years.
Now you have 190,000
Lets say they rent for 1750 a month.http://www.usedvictoria.com/classified-ad/11004154
This saves them another 32,000 over 48 months (2417-1750= 667) which now gives them 220,000 (i’m not going to compound the rent savings at 6% for 48 months but its avaliable to them)
Now factor in the property taxes at 200 a month for 48 months thats another 9600 bucks so lets say 230,000 in the bank for sure.
$230,000 paying 6% a year is $13,800 and its yours.
If this market corrects 15% that would leave them with $67,500 of their original investment, plus they would be paying $667 more for the right to rent the house off of the bank every month. Oh yeah, and another $200 a month on top for property taxes and who knows if there are any maintenance costs….
Would I gamble on house prices to rise? Not right now they have been on about a 12 year (give or take) run up, so if we add 4 more years on we would get a 16 year run up. Me, I find that hard to believe.
Lets say there is no correction and the house price is $550,000 in four years they have $230,000= $320,000 Mortgage.
Say it corrects 15% and goes to 467,000-230,000=237,000 mortgage
We could throw numbers around here forever, but none of us know where its going exactly.
Me I like the 230,000 in the bank idea. (At this time)
And yes they can afford it, and I can afford a 60,000 diesel pickup, but why?