A news report about me yesterday in various newspapers had an interesting lead:
“For years Garth Turner has been telling anyone who will listen that Canada’s long-running housing market boom is about to crash. The politician- turned-financial commentator has been wrong so far, much to the delight of realtors, bankers and homebuilders. But, like the boy who cried wolf, Turner’s day may have come.”
Man, let’s be accurate.
I do not forecast a housing crash, a la USA. Ain’t gonna happen. And I was a financial guy long before I lost my sanity and tried to change Parliament. That ain’t gonna happen again, either.
The main point is that real estate here is grossly overvalued and, as I’ve tried to underscore in the last two posts, the folks who don’t understand that are destined to relive the experiences of others. Yes, the market will be lower in a year or two than it is now, but I’m not expecting a 40% decline with foreclosures and abandoned blocks of McMansions. What happened in Vegas will stay in Vegas.
Nonetheless, Canadians will taste the bitter remedy of negative equity which has been forced down the throat of 23 million Americans. Those who bought most recently, at the highest levels, and with extreme leverage, are at greatest risk. The dangers we face have been well articulated here and will logically result in a 15% decline in the national average house price. In Toronto, maybe less. In Calgary and Kelowna, more. In Vancouver, may God be with us.
The consequences, although not as dramatic as Stateside, will be devastating to individuals and families who have swilled the Kool-Aid. The debt that young couples and trophy-seeking Boomers have just taken on has the potential to destroy the next decade or two of their lives. They’ve committed the cardinal financial sin of putting all their wealth in a single asset.
Undiversified and naked, they gamble on a market that will continually rise. Logic tells us they’ll soon be the zombies among us.
So, back to wolf boy. Yes, I may have been baying out my warning for a while now, but it’s hard to fight governments who give away mortgage money. Nonetheless, I would rather be warning too soon, than apologizing too late. The key to building and keeping your treasure is always the same – sell too early.
In Canada at this moment, it’s a seller’s market – a condition which will likely change by April. It’s the polar opposite of the US, where an agonizing four-year slide is not done yet. Looks like prices have another 10% or so to crash, as monthly double-digit declines moderate but are still making houses cheaper, month after month. When Obama announces government spending restraint in his Wednesday night State of the Union, that collective wail you’ll hear will be coming from realtors and desperate sellers nation-wide.
In fact, all governments – ours included – will be turning off the money spigots just as they raise taxes. The economy is not going to boom, or even be moderately robust. Economic growth will crawl at 1% or 2% a year, and many of the unemployed among us will be that way for a long, long time. America is in for endless trillion-dollar deficits and a real jobless rate close to that of the Thirties. How can the next five years – in which nine million Boomers turn into house-rich, cash-strapped seniors – bring anything but a slow and relentless melt of the residential real estate market?
Negative equity. That’s what it means for recent buyers. The ebb of property values to a level often below the amount of mortgage debt the owners are responsible for. And then, selling is impossible without a huge financial loss.
So, no big, swaying foreclosure signs. No sheriffs with padlocks. No families moved out onto the front lawn. No news crews covering evictions.
This is Canada. No bang. Just whimpers.
But, the wolf howls, you still have time.
163 comments ↓
Ironically, just today I corrected a coworker who saw Money Road laying beside my computer. He is a former Milton resident and described Garth as “Halton’s Lowell Green”. I cleared up that inaccuracy right away.
If economic growth is going to be so sluggish, then why do you see inflation rates spiking . . . ?
And if they don’t spike, then will we really see the pain we saw in the US except on paper in property values?
you still have time
not to much time by my reckoning
#42 I think that I am right….and I don’t even have a degree in “economics” (like that matters)
Even good ole Garth (respectful tip of hat) does not “really” get what is going on.
We are not looking at a 40% correction in the housing market…far from it. That type of thinking is from the “cyclical” economics of the increasingly distant past. What is going on now, is well beyond “Elliot Wave theory” and Keynesian vs Austrian economic theory.
99% of so called “advanced” economic theorists and even practical analytical economists are just plain and simply flat out wrong.
The Peak Oil event is THE event. Everything else is just a symptom. All industrial economics is premised on energy cost availability of less than 8% of total GDP.
The entire house of cards was sitting on this for 150 years!!!!
It is GONE people..get over it.
This year will probably see 65 dollar oil…that is not a sign that there is more supply..it is a sign of MASSIVE contraction of the world economy. It will hit Alberta like a runaway truck..oh yeah sorry..it already did….the rest of canada better pray for gold mining stocks as that will do well as the money printing heats up when the wingnuts running the nation states of the world confuse paper currency with actual solar dollars (you know..food and such)
This is the pivotal point…oil can never again stay below the level needed for any industrial (or IT based) system to exist. There ain’t enough of it..plain and simple. The EROEI necessary for any other alternative to exist is a pipe dream….never ever happen…..not possible at least in this universal plain…laws of thermodynamics and all that frightful stuff.
Thus there is only one alternative…..devolution, following the laws of entropy…and the ones that all human civilizations have always followed as their “energy base became to expensive”
We are poached…..
Now I realize that Garth and many others do not want to go there…because there be dragons after all…..
and the solutions to that sh.. aint palatable to a bunch of only marginally useful boomers and a whole lot of useless Gen X and Ys (I am an X BTW).
There is a wolf at the the door….and he is much much more dangerous than most of you think…..or maybe most of you do know….when you lie awake in the dark and ponder the future……
I think that the most important trait that one should have to face what is coming…..
Is a sense of the tragic…and an appreciation for irony
Why is Canada so special?
The last few blog posts compare Canada to the USA – very similar.
Garth: Why no crash here?
atta boy Garth one of the best posts I’ve ever read from you.. clear, concise, straight forward, and aggressive cheers buddy!!!!!
Garth…. “not expecting a 40% decline…” ??
Didn’t you say 40% decline for Vancouver on the Globe video interview? C’mon, I’m banking on that!
Garth
It may have already begun in Vancouver.
Listings surging. MOI rushing higher. Sales – appear to have lost steam.
Just thought you should know.
G man, are you serious you think Toronto might have only 15% or less to fall in RE values? I’m looking at the U.S and considering the cost of living is cheaper, their after tax-dollars are more etc. and their market is still falling. The truth is: we haven’t seen the end yet down south after 4 years. How can we have such a mild pullback after so many years or robust increases?
I’m disagreeing with you on this for sure.
Garth, I disagree, there will be 40% discounts in some markets to be had but that will be minimal, pretty sure that Oshawa and Windsor are close to that already.
We are looking at a mild correction that will drag out over the years just like it did in Ontario in the 90’s. First year drop will be substanial, im guessing in the 8-10% range and afterwords it will be minimal, 2-3% a year until we hit 15-20% in a few years time.
however, the big BUT is that when the market turns, only the best properties in choice locations will move and the trendy upstarts neighbourhoods will be no more.
I compare RE to GM in Canada, every year from 2001 onward was a record breaking year in terms of automobiles sold, then it just stopped and crashed.
Just look at last year this time, people where scared and RE dropped 10% in a few months in the GTA, until they brought in 0.25 rates.
So the prediction is maybe a 15% decline in the national average? I trust that was the same prediction from 2008.
Yet, the national average went up 20% this year. Oh no, watch out below! A minor pullback at best, with a couple of subpar mortgage holders getting hit. Big deal. Nothing like sidelining it for that dire prediction.
I think the greaterfool is the one that sidelined it waiting for a substantive correction…
The largest real estate mortgage walk away in history:
http://www.huffingtonpost.com/2010/01/25/dont-look-back-major-play_n_435965.html
3.5 billion underwater so the CALPERS pension fund turned in the keys on their Manhattan property.
So the rules down there are : Homeowners are morally obliged to keep paying, Wall street players are not.
I understand the moderate to stay mainstream approach but let’s be realistic – there’s no soft landing in store here.
Economic growth will crawl at 1% or 2% a year, and many of the unemployed among us will be that way for a long, long time.
__________________________________________
Won’t retiring baby boomers negate a large chunk of the unemployment problem?
I don’t see prolonged unemployment unless the federal government introduces excessively lenient immigration rules or raises the retirement age to 70.
So, if prices are up 20% year-over-year (2008 to 2009), a 15% drop would still leave things 5% above 2008 levels.
I can’t see Toronto dropping only 10-15%… bungalows are still $650k-$750k in many areas.
http://www.realtor.ca/propertyDetails.aspx?propertyId=9017823
http://www.realtor.ca/propertyDetails.aspx?propertyId=9037093
http://www.realtor.ca/propertyDetails.aspx?propertyId=9031431
I guess that the 905 region skews the average for the GTA… if you throw in 3 Milton/Brampton/Mississauga homes @ $400k for every 1 on the subway line @ $800k, it averages out to $500k overall.
Sorry Garth, I still don’t understand the ban from Vancouver. And Lord help us, another Ozzie? Please no. Put him in the regurgitating machine with Bob R.
I think the prediction of a correction makes perfect sense considering what is most likely coming: larger mortgage payments, increased closing costs, larger downpayments, shorter amortizations, the boomer selloff, sales stolen from 2010.
I have the Vulture pages from After the Crash dogeared…….
Mel.
America is in for endless trillion-dollar deficits
C’mon Garth, think it through, you know this isn’t true. Much as the American government would love to do this, it can’t. Reality will be forced on them before too long, and that will have consequences. Just like if the Canadian government tried to run $100 Billion deficits year after year.
Lots of ways it could go, most of them unpleasant. I doubt Obama and the Dems have the cojones to raise taxes enough and cut expenses enough to stop the deficit in its tracks.
Listen to Peter Schiff. He’s not right about everything, but he’s right about this.
Garth,
prices in GTA have already gone up by more than 15% as compared to last year when you was still suggesting not to buy. So even if there is a expected 10-15% correction in GTA, prices would be at Sept 2008-March 2009 level. Did those people who bought during that time with low interest rate made a good decision?
#2 Ted …. Remember Stagflation? Wikipedia offers a nice definition: “Stagflation is an economic condition in which inflation and economic stagnation are occurring simultaneously and have remained unchecked for a significant period of time.”
Lets review some recent Canadian history … It’s the early 1980’s Canada .. inflation is running at 17%, mortgages are 22% and unemployment peaks at 12% nationally. How did this happen? 1. Excessive and quick growth of the money supply (M1) through Government action (sound familiar?). Sudden price increases caused by Oh, lets say a sudden rise in oil prices caused by political instability the oil producing regions of the Middle East. Can you say OPEC?
So, what does your Federal Government do to get the economy growing? All deficit spending has done is fan the flames of inflation. They reduce the price of oil for domestic consumption … For convenience let’s call it the National Energy Program. It’s basically a subsidy for manufacturing firms
in Ontario and Quebec.
Wage and price controls in 1975-78 didn’t help either. Everyone wanted to play catch up. Wage settlement were running around 10% and C.O.L.A. (not the stuff you drink) Cost Of Living Allowances added to pension plans became a significant burden to employers who of course raised prices to cover the new labour costs. Taxes zoomed to cover all these debt service charges. Canada was actually paying out $32 billion just to cover interest charges!!
Could we revisit this nightmare? Yes, and it could be much worse. Canada basically had almost no National Debt in the early 1970’s. Today, we have maxed out our credit cards. Ramping up taxes to cover this new wave of deficit spending will kill any spark of economic growth. Big increases in Taxes to cover the National Debt and the CPP shortfall = Big increases in Prices …. after all. Everyone has to pay taxes including businesses and who do you think pays for those? Taxes today could become our oil price increase shock of the 1970’s.
Why would any sane person actually think this is a good time to buy a house?
#2 Ted
You should review the economic history of the 1970’s. Low growth with high inflation. It’s called stagflation.
We’ve exported a considerable amount of our value added industries to other countries all in the name of higher profits and cheaper consumer goods. This has all been done in the US on borrowed money and in Canada by not diversifying the economy, relying on a cheap CAD and selling key resource companies to foreign interests.
Add to that the unprecidented printing of money. Money supply expansion without the growth to support it leads to inflation.
Garth, years ago I read in one of your columns that as Canadians we should be concerned about our rights as property owners. I cannot remember the reasoning behind it but I’ve never forgot article. Most of us know the government is full of crooks, thieves, liars and idiots. Sad as it is, we soon come to realize it’s not about to change and that we need look after ourselves within the framework that is available. Now that you’ve decided to help people who will listen to you instead of trying to fix the unfixable, please enlighten us to what the concern was about and if it still (or more so) applies.
Loved your talk in Kelowna BTW, working through your book now.
So, what happens in Vegas….. stays in Vancouver?
I did here that there has been a massive influx of “working girls” to Vancouver from all over North America to make sure that the visitors to the Olympics “enjoy their stay”.
I wonder what percent of our real estate market Vancouver is say compared to Florida, Nevada, and Michigan state side?
And how on earth do people from Vancouver qualify for CMHC approval even with the bizarro world interest rates? Certainly at some point Vancouver becomes so expensive that even CMHC can’t swallow the risk. Or are they already effectively out of that market?
The Feds, CMHC and the banksters have it figured right out.
They have most of these idiots by the balls…right where they want them.
Garth,
by forecasting a 15% correction, are you saying that the best time to buy a home was beginning of 2009? at least some principal would be been paid down this past year … instead of delaying the same payment schedule while paying rent?
discounting the demographic trends, which would happen regardless of fiscal/monetary policy, bank business practices and “greater fool” decisions, wouldn’t a 15% correction be rather muted considering the wild excess already experienced?
with US RE forecasted to go down further, 15% correction here would mean the Canadian RE would remain double that of US RE in the foreseeable future, how is that justified base on Canadian economic fundamentals? (in other news, USGS now says Venezuela may have twice the crude reserve as Saudi Arabia http://online.wsj.com/article/BT-CO-20100126-714992.html?mod=WSJ_latestheadlines, and of course, we all know about US shale gas reserves)
In the end, I guess the relevant question is that: would you still recommending renting for a number of years if all we are getting is a slow melt of RE? what is your estimates/projections on the total costs of shelter over say 30 years, comparing between buy now vs rent and buy in 4 years?
Garth
Your mission is starting to have an effect – better bad publicity than none at all – you will be able to look back in good conscience, when the inevitable happens – I still can’t figure out why you say Canada will not crash?
Canada is not “different”, I don’t think – when I was in Toronto a while back the pople seemed to be just like me – nothing special about them, although they seemed very obedient – the on fella there said that if you acost Italians on the street and tell them to queue up they will likely scream blue murder, but if you did the same with Canadians they would just load up on coffee and stand in the queue until someone told them not to.
Munch
for Toronto to return to a 3.5 level on the affordability chart, (which could be considered normal), we’d have to see a 32.69% correction in the price of homes. I calculated this with the formula: 5.2 (our current rating) -3.5 (desired rating) = 1.7
1.7 divided by 5.2 = .3269 x 100 = 32.69%
if people like Benjamin Graham are right, and fundamentals always return, then a 33% correction is very probable.
I’ve been thinking that Toronto is over-valued roughly by this much.
Dan from yesterday,
I enjoyed your realtor rants man. You certainly did not hold back. I don’t see that profession faring well over the next few years. The culling of the realtor herd is imminent. Anticipating this, just last year I warned a loved one not to register for the realtor licensing course at a local college. I was concerned that he may not find meaningful work after three hard weeks of school; in addition, I was also concerned that he was overqualified, having recently gone back to school to acquire his grade 10. In the end he agreed with me and now he hands out the Metro newspaper at the transit station. I figure it was a good thing he got that job early because of the deluge of realtors that will be looking for jobs like that in the near future. Consider yourselves warned Metro pushers; there will be more competition in the near future. That goes for you too Costco sample people….keep those corndogs hot, or they will find someone else who will!
Okay, okay, I am just being a jerk. I have met a few realtors I like, but man does the “professional” organization as a whole annoy me. As for the Costco sample people, they most certainly do not annoy me. I look forward to spending an afternoon with them in the near future.
Its an election year in the States, no spigots will be touched. Anew stimulus will be passed to keep things going sideways. Any spending cuts of any significance would instantly cause a deflationary spiral collapse. Governments will always choose the less obvious pain spread out over a longer period, that pain is inflation and more monetization.
There has been a series of jugglers on stage for my whole adult life, and I have watched with great wonder and awe as these jugglers learned to juggle the money supply, employment, fiscal and monetary policy, and public opinion. The early 80s were when I first saw that there was going to be only one end to this act.
Now lots of people can also see that the act must end. The last jugglers ought not to be blamed for the truly amazing amount of manipulation that they are now asked to keep “in the air”. They inherited the challenge, and were just born in the wrong part of the cycle.
And guess what? When the SHTF, it’ll be okay. A new set of jugglers are waiting in the wings to start the whole wonderful performance again. Their first declaration is that they will not pander to the short term popular game but show stern discipline and fortitude and strength of character. Try not to laugh.
CBC, BC reports:
“Vancouver has world’s least affordable housing”
…Four of the five least affordable cities in Canada were in B.C.: Vancouver, Victoria, Abbotsford and Kelowna. Toronto was the country’s fifth least affordable and ranked 57th in the world.
http://www.cbc.ca/canada/british-columbia/story/2010/01/26/consumer-home-affordability.html
Now that was a heck of an entry…confident and elequently written. A great read!
Garth, your forecasting is only off by the timing of stimulus. Without it, your on track brother. Two words, FALSE BOTTOM!
What surprises me is your generous call on 15% downward nationally in Canada. In the US it’s 30% and 50% for national and high bubble Vegas Cali cities and Florida cities.
It’s not over so 40+ and maybe 65-70% still to go in USA over next few years. Plus the bubble in Canada is more inflated than the USA as its continued since only a minor correction.
Well I guess better to predict a safe (easily attainable) number then to overestimate — given the way all the ponzi’s are treating you!
To Dan: Garth just predicted the housing market in Toronto to correct 15% or less. To last year’s levels. Now tell him he’s wrong
Garth,
Love your blog, love your books, and taking lots of advice from them … your advice has motivated me and my wife to bring down the mortgage fast and be free of it in 4-5 years.
The way I look at it, other investments are great (I’ve done plenty of trading of my life) but 5-10% interest payments over 20 years sucks. Better to kill that liability quick and move on.
Then we can focus on investments for our retirement and not worry about our basic need of shelter (and community, schools, parks, forests, pool)
So do you think in the next 4 to 5 years all hell will break loose if we have zero liabilities and cashflow keeps coming in to invest in our and kids’ future?
Worst case, I got deer, coyotes and Squirrels near by to catch …
I still think there is a chance of a US style crash here in Vancouver.
During the brief but powerful dip of late 08- early 09 prices fell 15% in less than a year. Now we are back to where we started, thanks to a prime of 0.25%. All we need is a slight tick in interest rates and a loss of confidence (the only thing holding this market right now) and I wouldnt be shocked if we see a 30-40% haircut for prices in a few years.
Even that would bring us to a price to income ratio of 6, which is still quite high according to the post yesterday.
And Garth, you article actually seems very balanced…for a change. I actually liked it. But I am disturbed by the notion that your blog dogs thought you were forecasting a crash like the U.S. for the past several months. It did seem that way.
So, no crash like the U.S. And I agree that household debt should be less than 40% of you portfolio, if not lower. Good Day, Eh.
Obviously , the government has a plan to recue any and all beleagured homeowners who may run afoul of the housing crash. The CMHC plan is to use tax payers dollars to smooth out all the problem files. Debt has been higher in Canada historically and the taxpayers have no end of sympathy for the losers of the world. I don’t expect to see mass bailouts but I wouldn’t wonder what happened when a special fund is set up to congratulate new homeowners who have supported the governments recent zero intrest rate policy.
Sorry dude, but this is sucker-land and thats the way its gonna stay.
Garth, Come on now 15%? More like 35% Minimum correction.
No foreclosures? No POS? No massive defaults? Toronto may go down 15% (I believe it was up something like 19% for the year)?
Surely you jest!
From all the issues affecting this market, if you only expect a 15% decline, why bother waiting Garth?
I haven’t sat this out and gone to cash for a 15% decline. Are you hedging your bets? I hope so – that’s what pundits did in the US when the game wasn’t going their way and boy did they look out of touch as some markets fell 33% IN A SINGLE YEAR! Here’s hoping you are as wrong as they were!
With almost a 50% marginal tax rate for anyone qualifying for a large mortgage, non-deductability for interest / taxes / maintenance and virtually unlimited land, gotta think more like a 40% haircut for Vancouver and at least 30 to 35% for Toronto for starters. I heard the same tepid nonsense about the dot coms and property back in 1998/9. Bubbles burst and that doesn’t mean a 15% retracement, it means reversion to the mean minus movement for momentum (overshoot on the downside).
The dangers we face have been well articulated here and will logically result in a 15% decline in the national average house price. In Toronto, maybe less”
********************************************
I can’t go along with your call on the depth of the RE correction–
I think it will be much more then 15%–
Where are the jobs going to come from?
What do you see as an engine to drive our economy–in fact any economy in the world,that will create employment?
Here’s what will happen–imo–
Job losses will continue–defaults will rise,because of this–
Family’s will be forced to move into one house,helping to create a housing glut and fewer buyers showing up,will drive prices down–
Simply put–with poor job prospects–
Sentiment will change-
From borrow and spend–to–save and pay down debt–
This is happening in the US now–
Extremely deflationary–
Our largest trading partner–
So we can dig up our resources build cars and then–
Sell to who?
Sentiment–is all powerful and once it establishes itself,it can take years if not decades to shift–
Just got your book today! Page 42 so far.
It’s good, cause just like the Bible it contains everything and its opposite. My dad had a 6 figure indexed pension, but left me little. Educate yourself about investing, but for god’s sake let a professional do it for you. 60k will last 2 years in retirement, 500k will last 20, and you need 50k/year when you retire [blog]. This book will teach you how to make money in any market condition, but future investors will require more daring than before.
I kid I kid…
On a more serious note, you obviously made a conscious decision not to bother with sources for a lot of the numbers you bring up. Can you explain the rationale behind this decision? It certainly makes the book flow better, but it does make it hard to judge how accurate any given number really is…..
Anyway, entertaining so far. Thanks for writing!
Less than 15% in Toronto? In the neighbourhood I’m renting in now, it would have to come down at least 25% just to return to sanity, and may go down further if there’s an overshoot to the downside… Still no Phoenix or Vegas, but not pretty.
*But, the wolf howls, you still have time.*
Not in Windsor.
Okay, why?
What makes Canada so special that we won’t see this serious correction here that we are witnessing in the US, UK, Spain, Dubai….
In order for housing to be a sensible investment (not an emotional one) the numbers have to add up and they don’t. A “crash” (let’s call it a correction) is in order / needed and by your own account the income to debt ratio has to fall.
So why all of the sudden the backtracking? What, in your opinion, makes Canada so special compared to the US, UK, Spain et. al?
Perfect analysis Garth, as usual.
Singapore (as posted in yesterday’s topic). I just came back from Vacation there and you want a shocker?
As seen last week at a regular pub there:
HAPPY HOUR PRICES
4-6pm
$9.95 a pint
$19 for 2 pints
Crazy eh? That’s happy hour prices too! I’m afraid to ask what normal price is…
Mike
Not sure how Canada escapes U.S.-level housing pain. Our day of reckoning just got put off for a while by interventionist fiscal and monetary policy.
Remember that 70-80% of our trade is with our cousin to the south.
http://theautomaticearth.blogspot.com/
I see The Canadian Press is looking for the government to continue the Home Renovation Credit. When Jimbo gives his budget, that will be the tell-tale on what he really thinks about the economy.
Only a 15% drop?
So Canadian prices, which are now worth 2 times US prices, should really be worth 1.7 times US prices?
Personally i think the correction will be much more severe,jobs are still disappearing,UI benefits are running out,so many people are in debt to the max every dollar spoken for as they earn it.Any increase in interest rates or costs of living will be devastating…many will lose their homes,some will hang on to their dream as long as possible when negative equity hits but homes are huge expensive energy consumers that require maintenance.. i don’t think the crash will hit overnight but it will be long and painful and gain momentum IMO
Vancouver has world’s least affordable housing: report
Enough said!
a 15% decline in toronto from prices now? that would put us back to where we were in April ‘09 or so.
so really i should’ve listened to my immigrant parents and bought a condo in 2008?
prices for toronto houses and condos have doubled since 2001-ish. doubled. save for realtors, i don’t know anyone whose income has doubled since 2001-ish.
so now you anticipate only 15% of a decline? what about when you posted a link to that falling-down house at yonge and eglinton, priced at $700K? are you saying it’s actually genuinely worth $600K?
Less than 15% in Toronto, Mr. Turner? So values will return to what they were in, say, late 2008?
I’m with #43 above. Values in my area (Toronto west end, Roncesvalles) would have to drop 25% to even approach sanity. I’m in a rented, charmless, attached shoe box with street parking — and STILL people drop off letters in the mailbox, desperate to buy it.
Knucklewalker has it right….all bets are off on a”normal economy”that requires exponential growth based primarily on fossil fuels.Peak oil in 2005 has put the stop to any return to “normal”
@Michael
“What makes Canada so special that we won’t see this serious correction here that we are witnessing in the US, UK, Spain, Dubai….”
I think it’s not about the seriousness or depth of the correction but about the way it will unfold, it will be less spectacular in Canada for two major reasons:
First, unlike in the US mortgages in Canada are recourse loans. It’s much less tempting to walk away like many have done in the US in severe cases of negative equity. Not saying it won’t happen, but it will happen less and when something don’t happen it doesn’t make headlines, even if the end result in economic terms is just as devastating.
Second, in Canada where there are only five major banks, almost all the mortgage risk (loans with smaller down payment) is taken by the government through the CMHC, the banks themselves take virtually no risk, even securities associated to those loans are baked by the government. The bank will likely suffer from slower business cycle in the RE sector (which will also impact the rest of the economy) but not likely from bad loans.
In short the RE correction should be less spectacular in Canada but it doesn’t mean the consequences won’t be just as severe for the economy and for Canadian who relied too much on RE.
Garth,
In the end of 2008 you were predicting 15% decline in prices. Since then prices have gone upby approx. 15%. Wouldn’t it be logical that prices should falm more than 15% based on your previous calls?
I have no idea what’s in the water this morning. There will be no 30% crash in Canadian real estate prices, but rather a 15% correction, followed by what could be a long period of nothingness. In the end, our prices could be substantially lower, but it will not happen in one cataclysmic event. Sheesh. Stop watching CNN. — Garth
There is more to add to words Senior Boomers than what Real Estate is expected to solve:
Canadian Statistics
In 1998, there were over 3,700,000 seniors age 65 and older in Canada. Over the next two decades, that number is expected to almost double, reaching almost 7,000,000 seniors age 65 and over. – Source: Stats Canada
In Canada 1 in 6 family caregivers report being in a “high stress group”, where family caregivers have a 63% higher death rate than other people their own age. – Source: Division of Aging, Stats Canada
66 percent of family members who worked while caring for an aging parent experienced conflict with their jobs, including tardiness, lost hours or income, or sacrificing of vacation time. – Source: Stats Canada
Employed individuals who care for their aging relatives costs companies in Canada an estimated 16 billion a year. – Source: Watson Wyatt Worldwide Study
Recent changes in patterns of care provision for the elderly, including a withdrawal of the formal system, and increasing reliance on family care providers. – Source: Ward-Griffin and Marshall
Based on the 2001 Census, 35% of women aged 65 and over lived alone as did 16% of the men in this age group. Living alone is becoming more common even for the seniors aged 85 and over. Living alone is also common for seniors receiving care due to a long-term health problem. According to the 2002 GSS, 52% of women aged 65 and over and 18% of men 65 and over who received care lived alone. – Source: Stats Canada
Based on the 2002 GSS, an estimated 1.0 million Canadians aged 65 years and over living in the community reported receiving care due to a long-term health problem. – Source: Stats Canada
And, Harper/Flaherty/Carney can keep on selling homes at present rates and driving up personal debt all the while looking out for Seniors and their caregivers (Family)?
This means more and more money time and effort each and every day will be required paid for by who?
#49 Joe on 01.27.10 at 7:06 am
“I see The Canadian Press is looking for the government to continue the Home Renovation Credit. When Jimbo gives his budget, that will be the tell-tale on what he really thinks about the economy.”
________________________________________
A few points here:
What’s the media doing looking for an extension of the HRTC? They have got to get back to reporting the news…the real news.
You never know, but I wouldn’t count on an extension of the HRTC. Look at the deficit we are running now; the government is looking for ways to cut spending and bring the budget in line. Based on that, this should be an easy decision. But again, you never know.
I was loading up on hardwood flooring on the weekend. I asked the salesperson how business was and the reply was “crazy busy”. They also mentioned that they do not expect too much business for a while after this weekend.
This could get interesting for both retailers and manufacturers of building supplies in Canada as the end of the HRTC stimulus is near. From what I have heard, it appears that the HRTC has generated a lot of spending. If it does in fact end, the results could provide a good indication of what will happen when other stimulus spending dries up.
#4 knucklewalker.
Impressive, a Gen Xer who knows sshhtuff. Personally I believe in Hubbard’s curve and we’re now heading towards the downward slope. My brother argues that oil is abiotic. Even if it were it couldn’t regenerate fast enough for our consumption rates. There are currently no alternatives that can entirely replace oil. Globalization will eventually die (fine by me) as shipping costs become prohibitive, mfg. jobs will need to come back to N.A.(no more Made in China crap). Things will cost more. Your 100.00 dvd player will be 500.00 and repair shops will regain popularity.
Or it all collapses and a dvd player will be the very least of your worries.
How long will the great unwind take, 10-20-30 years?
I’m a tail end boomer and probably won’t see the full extent of it. You unfortunately will.
#49 Joe on 01.27.10 at 7:06 am I see The Canadian Press is looking for the government to continue the Home Renovation Credit. When Jimbo gives his budget, that will be the tell-tale on what he really thinks about the economy.
Joe.. he’s already said his NOT renewing it. In the paper a couple of days back.
GONE! To expensive!!!
There will be no 30% crash in Canadian real estate prices, but rather a 15% correction, followed by what could be a long period of nothingness. In the end, our prices could be substantially lower, but it will not happen in one cataclysmic event. Sheesh. Stop watching CNN. — Garth
Garth, usually (I know that its different in Canada!) when there is a correction, prices tend to over/undershoot rather than correct smoothly.
As of CNN, I cancelled my cable couple of years ago so I have no idea what you are talking about
LMAO,
The best post yet. The dogs are all barking and howling “no crash”, only 15%. The point is most of these blog dogs wont know a 15% correction unless it hit them in the face, like Nov 2008-Mar 2009. However if you follow Brian Ripley’s Plunge-o-meter, the correction has started. http://www.chpc.biz/
Who let the dogs out?
#14 Gord in Vancouver “Won’t retiring Baby Boomers negate a large chunk of the unemployment problem? ”
Nope. Actually, it makes it worse. Retired people consume less After all, they are living on a fixed income. Less consumption = less jobs. They pay less taxes too … I guess you know what that will do to tax revenues. That means less Government jobs. OK, maybe it’s not so bad after all.
#55 do you notice how few folks on here and in the population in general have the courage to look at the future realistically????
I realize that this site is primarily a housing blog..but seriously people…do you honestly think that a “15-20%” correction in housing prices in Canada is the “worst” that can happen????
If it were not so serious I would just laugh my ass off at you “financially astute” types who debate RRSP contributions and TSFA investment styles all the while not seeing the HUGE elephant that is squatting to sit on your collective heads.
If the secret to success is contrarion investing then I guess that I will be wildly successful as I am not looking in the same direction as the rest of you.
Vancouver’s eastern suburbs are experiencing a slowdown in sales of all types of housing stock.
Particularly hard hit are the “ghost towers” near Coquitlam Centre and the Klahanie neighbourhood of Port Moody.
Garth, just finished reading your section on real estate in Money Road and I must say I’m a little disappointed that your “bubble busting” has nothing on how to short the real estate market for those of us who rent already (other than where you say sell, rent, and invest in preferreds). There must be something more juicy? How can we short the real estate market?
Greetings: In 2006, the Standing Senate Committee on Agriculture and Forestry had the following to say: “The average age for Canadian farmers is now almost 60 years of age. We have been seeing a rapid decline in the number of farms in Canada. We expect that rate of decline to accelerate rapidly in the next couple of years and our ability to feed ourselves, as a nation will be further undermined.” The discussions on The Greater Fool blog have been focused mostly on urban real estate and the demographics of city dwelling “boomers” . Here is the link to another wake-up call for Canadians.
http://www.parl.gc.ca/39/1/parlbus/commbus/senate/com-e/agri-e/rep-e/repintdec06-e.pdf
I think what Garth is trying to say is that we will start with an immediate 10% to 20% real estate price decline by the end of this year THEN, we will go through a slow downward grinding in prices for the next 5 to 10 years. By the start of the next decade 2020, real estate prices all across Canada will probably be 25% to 40% down in price from the 2009 2010 peak.
T.
peter weiner said
“I haven’t sat this out and gone to cash for a 15% decline. ”
LOL, obviously weiners don’t have brains
anyone who takes real estate buying advice over the internet is an idiot, and deserves a concentration camp style haircut
the only way out of the financial mess is inflation
Market Consensus Before Announcement
New home sales plunged 11 percent in November to a 355,000 annual rate. And to make matters worse, supply rose to 7.9 months from 7.2 months in October. Prices appear to be leveling as the median price was up 3.8 percent in the latest month to $217,400 for a marginal year-on-year decline of only 1.9 percent.
http://www.bloomberg.com/markets/ecalendar/index.html
Lower mainland foreclosure ads showing up on Craigslist:
Around 2-3 ads daily from Jan 1-7
6 ads on Jan 25
More to come?
http://vancouver.en.craigslist.ca/bnc/reb/1572620546.html
Garth
Okay, no crash – but, how do you KNOW?
What water are YOU drinking?
Just asking …
Luv, Munch
In past episodes of ‘real estate’ boom/bust, prices did not crash overnight like a stock market. Real estate just moves slower and is harder to turn, like a super-tanker. But when it makes the turn, it goes in the opposite direction, just like the price of any other asset.
I had an old (’80s) study of historical real estate busts all over the globe. The average length of time that prices fell was 4 1/2 years, followed by a period of 3-5 years where the market was flat (buyers market) before prices began to rise. Most of these were just normal recessions, nothing special, just the normal market corrective process.
Then I skimmed a study recently of recessions by Rogoff of the IMF et al, they studied 256 credit bubble bursting recessions throughout history, the average length of those contractions in the economy was 5 1/2 years, and the economy dipped lower than other more ‘normal’ recessions that were not driven by a credit collapse.
We are on the ‘worst case’ end of those contractions, most direct comparisons of how much the economy globally has shrunk prominently feature words like “worst since the 1930’s”, “comparable to the Great Depression” etc – metrics such as the fall in global trade, plunging Government tax receipts, idle capacity, reduction in credit, etc etc.
I can see no reason why we would escape with any other outcome than one comparable to past history, and most probably worse than any ‘regular’ recession.
Though I think many Canadians see Garth as a ‘doomer’ with the ‘worst case’ scenario, it is my opinion he is in fact rather optimistic in the face of a global credit bubble bust. The real ‘worst case’ is a lot worse than he writes, and the probability of it happening is high IMHO.
Obviously, many disagree with me. So be it. I just evaluate the facts I see in front of me. Canadians (and Australians) have not felt the full force of the global credit storm yet, but it is coming, and we will not skate away with just a minor recession. With Governments around the world now winding down porkulous “stimulus” projects and cutting credit and budgets and raising taxes, the next dip in economic activity looms dead ahead.
Garth, a 15% dump in Toronto real estate? Then you are predicting prices won’t quite make it back down to where they were just 8 months ago since prices increased 20% in 2009 alone. I remind you that prices were still 40% over inflated a year ago based on fundementals).
So much for a crash?
Garth, I would expect at the very least all the 2009 gains to evaporate (like they did over just 2 short months last year before emergency rates were implemented) and then maybe a 15-20% decrease in value ontop of this. If this is not the case then your whole talk of a real estate fiasco coming based on a 15% drop would be equal to a load of bunk!
So whats up?
Garth, the believers on the site are in complete panic following your prediction that Canadian RE might escape US style decimation.
Better post something about guns, ammo & squirrel meat next otherwise they may rebel.
LOL
#4 Knucklewalker …
Excellent piece. You are stretching a bit though if you have an expectation that many at all are ready to start wraping their minds around the possibility that those beasties could possibly be lurking out there. You’re dealing with a “flat earth society”. Nothing exists beyond the horizon. Anyway, in practicle terms it doesn’t matter for most people because:
1. At least 30% of the population are without the means with which to do anything constructive about the situation anyway. People with nothing have noting to lose and no avenue to gains. They will simply take whatever comes thier way and deal with it as best they can. Knowing of dragons is of no value to these folks … they are stuck on shore … period.
2. Its likely that there is another third who one way or another are lost at sea. They’ve thoughtlessly sailed themselves beyond sight of land – no charts, no compass, no clue. They’ll be bobing around with the tides and winds and will be heading for the first shore they sight thinking its the one they left … where be yer dragons. Some will make it past the rocks … some be dragon food.
That leaves a third or so of which …
1. A third are active card carrying members of the flat earth society. Dragons are meaningless when “there” simply doesn’t exist. So you are speaking of ficticious waters beyond a horizon that … well … has no beyond … period. You can scream your message at these folks as much as you like … but they are effectively deaf.
2. A third that might entertain the possibility of your dragons … but are from the school of “If there are dragons I’ll deal with them when I come to them. In the mean time they are far too occpied with trying to deal with the question of ” Is thire raely a dog?” A third of these folks will actually see one of your dragons before the rest and get very serious. But all in good time, and certainly not in time to do much more than go into damage control mode.
3. A third already know of what you speak. A third of these are way out in front of it and have been on it for a long time. A third are up the track with some catching up to do. And a third will be relatively new and struggling to get a grasp of it all.
I think Garth’s stuff goes a hell of a long way toward advancing dragon awareness for mass consumption. Those so inclined will find it a short step to discovery if they actually manage to get past the stage of looking for easy answers to be handed to them on a silver platter and start looking for answers elsewhere and on their own. You see “stuff” daily where people ask inane questions here looking for knowledge on a platter. Stuff like … and this is serious in case you missed it – “Garth, what do you mean by sideways?”. Huh??!!
A lot of people will buy Garth’s book … a third will likely make a half assed effort to read it but really won’t ever finish it. A third will skim through the whole thing and get a bit of value from it. A third will give it a serious read and figure “stuff” out or take something away that makes a difference to them. Some will find it eye opening and life changing.
There be dragons alright … I suspect Garth knows dragons well … but as you obviously know … they are not necessarily easy to speak of. How the hell do you talk dragons with a crowd that can’t get past basic stuff like … 95% leverage is a dragon, … a home, only a home and any home is a wealth formula … geezez … the extent to which people are stuck on real estate is mind boggling. It ain’t about real estate … and there be your dragons.
Luck to you.
After your latest rounds of prognostications re Toronto RE I think I got the meaning of “greater fools”! See a few others got it too. Congratulations. From insanely unaffordable off we go to bloody unaffordable. I am guessing the methodology arriving to these numbers is the same as for the “20% chance slipping into depression”. I don’t wanna know. No idea how have you been mistaken for a wolf boy. More like a coyote kid.
“I have no idea what’s in the water this morning. There will be no 30% crash in Canadian real estate prices, but rather a 15% correction…”
We’ve all been sitting here with our popcorn waiting for a big show, and 15% is nothing to write home about. You’re probably right, but can’t blame us for dreaming.
#11 Vancouver Rocks: Don’t feel sorry for us “sideliners.” We’re not all just sitting waiting to jump into owning the roof over our heads. I’m quite happy knowing that the less crap I own, the less tax can be leached out of my pockets. I happily take the difference between what I rent for and what it would cost to own and stuff it into investments that don’t cost me anything to own and maintain, don’t break down, spring leaks, or get washed away in floods.
Here’s the kind of “crash” you can expect in Canada:
http://www.homesinottawa.com/index.cfm?fuseaction=reports.trends
Look between 1987(Black Monday) and when RE started chugging again in 1997. No crash, as stated by #56 pbrasseur , its recourse here in Canada so it makes it had to walk away from your home, pay off the difference in the mortgage that you owe and still have cash for renting another roof. Hence why the majority in the red will have to suck it up and each a lot of SPAM.
Remember, a 15% or 20% drop in value is still dangerous to the new buyers and speculators with no or very little skin in the game, even for those that have done the right thing and dropped a minimum of 10% down in the last couple years.
Some parts of Canada will feel a bigger pinch, those affected by unemployment, higher taxes, etc.
A place like Winnipeg, Saskatoon or St. John’s will have less pressure on their home prices as they are emerging Canadian economies.
The average price in Toronto and Vancouver will take more of a hit as they try to maintain public services and appease unionized labour as well as deal with the “swell” of condos. These two cities for example are the ones schewing the national numbers. Although the benifit of condo development in the metros means more property taxes per…
Single family homes take less of a hit than a condo will.
Now back to looking at that chart from Ottawa, I’ve told this story a few times here and one more for good measure. Notice the CORRECTION in prices over the 90’s during our own Canadian period of stagflation.
In 1997 I found a great 2 bedroom 5 appliance condo for $800 a month rent, I was offered the thing at $90K even thought the doctor that owned it had purchased in 1989 at $125K.
That’s a 28% decline, of course that unit has got to be worth $250K today, if not more because of the lending practices of the last couple years.
If your hot and horney for a home and don’t have a pot to piss in but have a 10 year plan to stay in your residence, get in there quick before all that credit dries up, and stop coming to this blog.
If you have a down payment that you want to preserve or would like more choice when house shopping, wait. In the three months after the removal of the 40 year turd, sales dropped in half compared to the previous sales in the fall of 2007. That’s my gamble, but I’m about preserving my capital, because ITS mine. Its easy to buy at the top when you have nothing to lose, today.
The old saying, although beat to death is true, real estate is local and all markets( and housing units) have differeing factors that make them desirable(or undesirable) to buyers.
I believe Garth means 15% per year for a couple of years.
Garth, i think your playing it very safe with your comments in this post. Calgary prices would have to decline 20-40% for the average family to afford the average home not 15%.
The sadistic side in me is quite disappointed that i may not see mass foreclosures and serious corrections in this greedy city.
This is an interesting study if you are trying to predetermine the potential downside in your area.
http://money.cnn.com/2010/01/27/real_estate/most_overvalued_metro_areas/index.htm
“I’ve done some research that shows when you get a bubble, you don’t just return to normalcy,” he added. “You go past normalcy for a long period of undervaluation.”
Quote from global yesterday,the economy will grow 4 to 5 percent this year. Is this propoganda or is somebody on the wrong track?
Garth,
I agree with you regarding the pace of the price change. I think Vancouver has already started but it will see-saw for a long time until it accelerates in the fall. There are too many speculators who will keep guessing at the bottom for it to fall quickly. However at some point a tipping point will be reached and prices at the high end will fall much more than the lower – IMO.
I don’t mind your prediction of 15% nationally but the GTA will be more and I still think Vancouver proper will be 30%.
One very important point you make is that once values have declined they could stay there for a long time. Many economists and experts don’t expect the U.S. values to recover for a decade or more. Canada will be the same.
#27 Dave
Nice analysis. And Garth you are right, housing is not a Nasdaq stock and is therefore unlikely to correct more than 15% (at once). Also agree that when it finally gets to where it’s going it is likely to lie there for years until we see real growth in the economy (not government job creation through wasting tax payer dollars). I will say I agree with most of the posters so far that the correction will ultimately be much more than 15%. I think we are seeing some of the same deluded hubris we experienced in this country leading up to the failure of Credit-Anstalt in 1931, in that somehow, because our banking s**t doesn’t stink, we will escape the carnage occurring in other markets that have “bubbled.” Unless and until the real employment situation picks up (full time good paying jobs increasing for more than a year) real estate is a dead duck. My guess: When the Olympics are over, it’s finally over for housing in this country for a very long time.
“”Vancouver to lead economic growth, Conference Board of Canada says”"
It’s not just because of the Olympics, but they help.
Vancouver is expected to top economic growth among Canadian cities this year, the Conference Board of Canada predicted Wednesday. The boost from spending related to the Olympic Winter Games is a chief reason, but the report also cited a rebound in housing construction and consumer spending for spurring growth.
The city is expected to tally economic growth of 4.5 per cent this year, the biggest expansion among all 27 cities in the report’s metropolitan outlook. It’s a reversal for the city that saw a 1.8-per-cent contraction last year amid factory and construction woes.
“Vancouver is poised for a substantial rebound,” said Mario Lefebvre, director of the Centre for Municipal Studies. “The housing market started to rally in the second half of the year, and builders are expected to break ground on twice as many homes this year as in 2009.”…………..
http://www.theglobeandmail.com/report-on-business/economy/vancouver-to-lead-economic-growth-conference-board-of-canada-says/article1445929/
Nostradamus jr.
“there will be no 40% drop” Real estate has increased by 20% in one year. It has doubled in 7 years. Anything much less than a 40% correction would put us back to where prices were a couple of years ago. No big deal. Yet you talk like this will end so badly. Keep stirring it up- good for your book sales, even though you are now back pedaling.
Garth – maybe you should clarify that “less than 15% in Toronto” remark, before you get quoted on that in the MSM.
It sounds like you are calling for: a 10%-15% near-term correction (say, within 1-1.5 years), then a total correction by 2015 (when all of these 2009 mortgages get renewed) of perhaps 25%-40%.
hahaha the emo boomers on here are pure gold. I wish I could buy stocks in that.
“In Toronto, maybe less. In Calgary and Kelowna, more. In Vancouver, may God be with us.”
We need to ramp up the bubble talk about Victoria – we made the unaffordability list too!
Worst case, I got deer, coyotes and Squirrels near by to catch …
Where Kanata squirrel?
Scotiabank Place?
Shouldn’t the gov’t do more to protect home buyers from themselves. ie 10% down rule.
Regardless of keeing a RE market inflated, or keeping it from deflating, shouldn’t the gov’t function be to protect people and keep them in their homes?
#14 Gord In Vancouver
I agree in the long run but I think it needs to be looked at it another way – smaller workforce participation supporting a larger and aging non-participant group (boomers). We may eventually end up with lower unemployment but paying much higher taxes. A bummer either way.
For the people thinking 30% drop will happen, its possible but not likely. I see a few game changers that might spur that.
In choice areas, prices will correct and remain sideways, in “trendy” neighbourhoods prices will plummet.
possible game changers:
10/30 becomes law, this will be great in the long run and will get rid of speculators and keep prices more stable. short term, it will hurt the market as someone with 25K down who now qualifies for a 500K house will only qualify for 250K. Thats a huge loss of demand in the 500K range.
Over saturation- record breaking years and double digit gains cannot go on for ever, they never have and always end regardless of the market.
long term interest rates are also a game changer, current pricing is only sustainable with super low interest rates, long term it will go back to mean.
True, people will be stuck with the debt, but how many realize this? Many jumped into the RE business based on emotions, I am pretty sure many will do the same when they get out of it.
The end result will still be a lot of places on the market that the former owner owns a lot of money on but are now pretty much empty.
Yes, CHMC is covering the banks bets but they are seriously overleveraged on this one (I read 600 billion somewhere), where is that money going to come from?
Further, if people start defaulting they do so because they won’t have jobs etc. If that is the case then the banks will suffer as well, regardless if they lose the money on the RE game or not.
I think the consequences can be quite a bit worse and it does have the potential to destroy the RE market for a decade or two. If many people go underwater and CHMC jumps in it will need money from somewhere to pay off the banks, which will mean an increases in taxes somewhere as the Government needs to give the banks “their” money.
Secondly, what happens to the RE once CHMC insurance has kicked in? I take it the property goes to the banks? If so , they most likely want to unload it as quickly as possible as they don’t want to be on the hook for maintenance fees, property taxes etc. Which means, as they have already “made their money” they will just dump the houses and condos on the market in the hope that they (CHMC) can recoup some of the losses, but if you have a lot of foreclosed properties on the market it will drive down even more the price of “good” properties.
I don’t quite see how this can not play out, especially should the second hammer fall and interest rates rise back to 7 or 8%.
I heard the same tepid nonsense about the dot coms and property back in 1998/9. Bubbles burst and that doesn’t mean a 15% retracement, it means reversion to the mean minus movement for momentum (overshoot on the downside).
—————————————
exactly, it’s panic selling. The housing market also has the most “retail” investors, so their reactions will be more frantic. Panic selling is stronger than panic purchasing and happens with much more velocity. You’re seeing it with stocks today and with stocks in Oct. 2008 – they go down in a faster time frame than they went up. Fear is stronger than greed.
Think of all the real estate “experts” you’ve met the past 3-4 years, with loads of advice related to investing. Whenever retail investors flood a sector, the sector falls significantly. We can expect a fall more than 20% in Toronto.
Although those of you saying about a 20% increase last year, followed by a 15% increase year would have net someone who purchased last year 5%….not true.
Here’s the calculation:
$300,000 home X 20% increase
300,000 X .20 = 60,000 + 300,000 = $360,000
the home after last year’s rally would be $360,000. Now we’re going to subract a forecasted 15%
360,000 X .15 = 54,000 ….360,000 – 54,000 = 306,000
So with a rise of 20% and then a fall of 15%, the home went from: $300,000 to $360,000 to $306,000. Basically the home increased by $6,000 and not even close to 5%.
Anyhow, my interest is Toronto. A 15% decline is very conservative. If you don’t believe me, stop someone on the street between 15 and 85 years old and ask them what the best investment is: I’m almost certain they’ll say real estate.
The consensus investment opinion is always wrong and in a big way.
Garth, it looks like you are caught between a rock and a very hard place. Behind in the proverbial vice. How do you get out of this one? I don’t envy you….He!He!He!
I think this may well be “it”.
I have a feeling in my tummy and it’s not a good one.
We are heading to bottom….what that means I have no idea, neither do the feds.
I figure it will take about 24 months to see absolute bottom, then we get to poke our heads up and see what’s left.
The truth is, we no longer have a nice fat customer with tons of cash….which means we don’t have an economy, because of course we put all of our eggs in one basket.
Logistically, we have zero chance of replacing that huge customer with tons of cash.
We will generate sales to China and Asia, but no where near what we need to sustain any kind of black ink. Plus, the competition for those markets will be intense and dirty (laced with kick-backs).
I have no idea how Harper thinks we can compete with Russia/EU/ to move commodities into China…..I mean…hello?
All you have to do is read between the lines of the leaders around the world are saying….
The next two years are going to be very interesting.
#77 Thanks so much for that well thought out prose.
I agree with much of what you said….and I agree most cannot be saved.
I will probably bow out of this site now as it is clear that the majority are simply not capable of reading the documents put in front of them.
Back to my contrarian ways…..and watching…always watching for the dragons on the horizon.
#64 Industrial Guy
They will consume more…in health care.
Garth, you wolf you, I’m lovin’ the book, but I payed for two and only received one (are you trying to spare me the rath I will receive after giving the 2nd copy to an unsuspecting relative?)!! I have sent an email to xurbia.
On another note, here’s why people are buying instead of renting in Ottawa ($2000/mo for a townhouse on a busy road in a sketchy neighbourhood):
http://www.realtor.ca/propertyDetails.aspx?propertyId=9029959
The price-rent ratio is around 14.
We bought in Nov and closed mid Dec 09 the house in Spruce Grove Alberta, a 2150 SF 2 story built in 2006 on a large lot was listed for 469,000, sold to us @ $431,400. City hall had the tax assessment in 2007 for 521,180 and then in 2008 for $437,800. Because they did not provide a RPR we asked for a hold back of funds, this is when we found out they are in some kind of foreclosure (according to the lawyers) and there is no more money left after they pay there loans. We hope we have bought low enough with over 50% down locked in at 3.99%/5y. Hope to fair OK in the coming years.
We decided not to wait for years; rent was high and slim pickings with two special needs kids and a dog, now we have the room to set things up as we need them.
This shows about a 16% drop in tax assessment, and since the $521,000 was shortly after the first owners bought, that must be close to what they paid, sad to say I think they lost there shirts. I do believe that RE prices will continue to drop over the next 5-6 years like it has in the past. I’m OK with another 10-15% drop over the next 5 years and if interest rates are 8% in 5years with a current income of 78,000 with the Coast Guard. But a 30-40% drop will mean we made a wrong bet.
http://www.youtube.com/watch?v=lHyQIo6jiHs&feature=player_embedded
Jim Rogers says he only knows of two bubbles one is china Real Estate and the other is american debt.
Should we let him in on Canadian Real Estate?
I could not agree with your point here Garth.
Canada might end up with a crash worse than US.
In a previous post you stated that houses here are twice overpriced than in US.
In 2008 in GTA prices fell 10-15 percents in 2 months without any major reason. The market started correcting itself. Then the stream of cheap money was released and the prices jumped 20 percents….
The house prices in Canada can easy drop in half in less than a year. Once the crash starts and the fear comes it will be a very fast drop.
I can see you point here trying to be cautious but above all trying to avoid the attack from the RE/politicians/banksters.
Well I can understand you point and would like to clearly correct you:
The house prices in Canada will drop to 40-50 percents of their current valuations. In absolute values. In a year or two.
This has nothing to do with the baby boomers. In US the correction had nothing to do with the baby boomers.
It is based on the grossly overleveraged investments and quick cheap cash stream that is to stop.
The credit trap we are in will ensure it.
Just watch it when the baby boomers start retiring, there will be additional drop of at least 40-50 percents.
Normal values for house prices in GTA based on the current income, economic conditions and the future baby boomers retiring will be 200-250k. absolutely serious.
Vancouver maybe 300-350. (all these rich Asians… Martians…)
What worries me really is the increasing number of job losses. And the increasing taxes.
This is not a recovery.
#56 pbrasseur,
I have to agree with you there. Those two differences you point out will definitely affect the course of our correction here in Canada.
I also have to agree with the majority of the dogs who don’t believe a 15% correction will represent a return to RE sanity. I am in Alberta though, so perhaps we are a deviation or two above the average. 15% for the country as a whole may be close though.
Say bye bye to the last of the manufacturing jobs… apparently “Made In Canada” doesn’t = quality:
http://www.theglobeandmail.com/report-on-business/faulty-toyota-part-made-in-canada/article1445925/
Hold on for the 10-year bear.
Stuttering Paulson is trying to defend his position in the bailing out AIG!!
What a joke!!
http://www.c-span.org/Watch/C-SPAN3.aspx
This is much better then Oprah!!
I think you all are expecting too much.
Who is really sure or knows by how much RE is going to correct, if ever ? Last year, as soon as the correction started, our loved government “pulled a card from under the sleeve” (Who could imagine that kind of “trick”?) Crashed the rate and started insuring everithing. So, do you think they didn’t know what were they doing?
If you want to buy a House, go ahead. If you don’t want or cant to buy a house just don’t. But don’t blame on anybody else. If you buy and all is fine, don’t say Thank you. It’s all yours to keep.
For Garth, the most important thing is to keep his credibility. Last year he said: RE is going to correct by this much; there will be no spring market. And… what happened? It increased by around 20% and sales were records. You can’t afford to miss many time.
On my own, every day, I’m more and more convinced that the government will do whatever in order to keep it runing. I wish to beleive that something will stop them, but what? I don’t know much from Canada’s history.
Government has the power to:
-No new buyers? Open the inmigration gate, and filter the richest.
-No employment to provide for income to buy house? Give them more and more debt (never give money for free, that’s not the idea).
-Any other that you can think of.
#98
Missed the boat!
It’s all about excess, high consumption and rising prices, especially in the house market!
We, in the privileged country of Canada will just keep buying more, making more, expending more…well… forever …right? or at least until those dam 35 year ams are up…after all mortgage rates will stay low for…maybe… the next ten years! Wow! By that time we’ll all be making $100.00+ dollars/hr!
By 2020 every SMART person will own a house, not because it’s a privilege, but a right! and when we all retire in say 10-20 years our real estate will be worth possibly…$2,000,000.00 for a backhouse flat!
You know, in 2005 there was an Engineer in New Orleans warning city officials about under constructed levee’s. They scoffed at him. Storms came and went and the Big Easy endured. More people built in the flood zone. “Don’t worry our system works, see?, it’s been proven to outlast!” but those people were there for life, like a 35 year am…Long before the 35 yr am were up,… in came the flood. The rest is all history.
A lot of history is about to be made over the next 35 years or so!
Maximum 15% correction for the GTA?? If the GTA market goes up by another 5% by spring, then prices will really fall only 10% (To summer 2009 levels)…and that’s a maximum. Sorry, but I disagree with the top blog dog on this one.
Garth assumes interest rates are going to rise, and this will cause the a slowdown in housing.
Interest rates will not rise. Economic suicide to do it before the U.S. because our dollar will rise and cause unemployment. U.S. is slowing down again and they won’t raise theirs until 2011. Even when they do, it will be to max 3% or so. Ours will be kept low.
Garth may be right if you look at our housing prices in U.S. dollars. It will probably decline 15%. Our Cdn dollar was at $0.97us and if it drops to $0.83us, then you have the 15% correction.
Mortgage debt in Canada will be inflated away!! So who are now the sheeple?? If only people used common sense rather than try bashing TheTruth.
#60 G.P. Girl,
You and your brother might enjoy debating the merits of this clip.
http://www.youtube.com/watch?v=4bHZRSlhJxY
Garth, are you being Modest by saying the market might have a 15% correction but in the end you know it will be more? you just don’t want to burn your bridges by over stating a bigger correction usl
Shane
#96 Michael – “Yes, CHMC is covering the banks bets but they are seriously overleveraged on this one (I read 600 billion somewhere), where is that money going to come from?”
The $ will come from where it always comes from – Joe Six Pack. They didn’t hesitate to hand over trillions in the USA to backstop the banksters, and they’ll do it here to prevent losses to the well-connected.
Any incidental effect, positive or negative, to the average homeowner will be largely incidental. Once the big boys have their winnings assured, the rest of the chips can fall wherever they like.
Garth et al:
Get ready folks, inflation is on it’s way. Got a letter from Rogers today. They are going to “CUT YOUR SERVICE” and raise your rates. Check your letter today. For me the service is going to increase by 25%. That is high way robbery. This is HYPER INFLATION FOLKS. I called to complain. They offered a discount on a much more expensive price package, even though I explained that I was out of work and losing my EI soon. I also informed them that I had a Fido phone and would drop both services. The lady on the other end of the phone, could have cared less that I had lost my job. Who knows, most likely someone in India answering on their end. I think I am going to switch to one of the other price gouging corrupt companies. I am soooo angry I could scream.
Do agree that Rogers should be able to do this? Man, am I pissed with this company. They are making money (I think?) or at least they used to make billions a year in profits….and now this. Robbery, plain and simple. So when my EI ends, out goes the Fido (Rogers too) and the Internet. They can get their money from somebody else, cause the well has run dry people. The well has run dry.
Man, am I pissed with Rogers. What a company.
Garth,
So, will a 15% correction bring us back to affordability?
If not, does that mean that incomes will rise?
What gives?
More later. — Garth
POSSIBLE SCENARIO FOR THE BEARS:
They wait to buy a $400,000 house in 2009 in the GTA because they know a 12.5% correction is coming after an interest rate hike in 2010 (This is what Garth predicts).
In 2010, the correction happens magically over the course of one day (Not likely). That house is now $350,000. But now the interest rate is higher by 3%. The Bears go for the safety of a 5 year fixed. Over those 5 years, they will pay an extra $51,300 in extra interest as compared to having bought the $400,000 house in 2009 at a lower interest rate.
So who in the GTA is the Greater Fool now??
PS Just hope that CMHC doesn’t start requiring 10/30. It will hurt renters even more. Just look at what this did to Australian Cities over the last year.
#80 is the most reasonable, common-sense post I’ve seen on here in ages. The emo boomers should read that and feel better instead of feeding on the fear Garth is mongering to sell books. And dudes from #77 and Knucklewalker are hyper-paranoid and should be ignored completely.
This blog is very entertaining, though. I keep coming back.
#87 Nostradamus Jr.,
I read that Conference Canada Report this morning and blew my morning coffee out my nose! I hope it is true. Certainly it will make my life better. However I have serious doubts.
There is significant debate about the value of an Olympics on a city. Most of the best reports I have read seem to indicate that it has a limited and short term impact. Other economic factors are much more significant in the long run. Do we attribute Calgary’s boom in the 1990s to oil or the Olympics. I go with the black, sticky stuff.
In Vancouver’s case the lead up to the Olympics includes an unprecedented regional build-up of infrastructure and long term investment. Furthermore much of this happened during a high wage and cost period at what may turn out to be inflated prices.
When you add together the scope of the investment including the venues built and upgraded and athelete villages, the new subway line, the new convention centre, the highway to Whistler, Robson square renovations, Granville Street re-build, QE Theatre renos, the CBC building, the Carrall Street Greenway and throw in the projects pushed forward so they were ready for the games such as Woodwards, the new Fairmont Hotel, the new Coast Hotel and many others there were substantial sums spent over the past 5 years in order to prepare for these 3 weeks.
The question we should be asking ourselves is what happens after the games? I only see a fraction of the construction cranes in Vancouver that there were 2 or 3 years ago. What makes us think this stimulus will be picked up by the rest of the economy in B.C.?
My view is that Vancouver will have a very good February and March but things will really slow down in the Spring. Then things will unwind during the summer and the cracks will be apparent in the fall.
Hope I am wrong but I don’t see the fundamentals there to support a positive outlook to year end.
all these bloggers are disapointed with a 15% correction.
all waiting on cash . waiting for crash.
cash can be king but when government print big time money, savers are losers, so many losers on this all crying at the same time ‘garth save us, please say bigger crash, please’
no crash
#115 MiketheEngineer,
Rogers is a regulatory monopoly. They get away with this because there is very little competition. Thankfully we will have a 4th carrier this year with Wind being introduced but 5 or 6 more would be even better.
Rogers and all the others will tell you it is because the CRTC forces them to carry a whole bunch of subsidized Canadian services. Don’t believe it. Mobile Phone is now the most profitable area for Rogers, Bell and Telus by nearly 5x. Normal phone, internet and television are a pittance in comparison.
Regulatory Monopolies are not consumer friendly companies because they do not operated in a free market. Much like the banks, they work hardest at establishing barriers to entry for competition as opposed to providing innovative products and services.
there are people who had zero down 1.5 years ago, they bought houses, if in Van or To, made a lot more money than the crybabies on this blog, all the ‘kings of cash’
missed the boat. the revolution will not be televised.
the time to buy will not be posted here
Hello Garth
Its bearish Steven again. The downfall of real estate prices by 90% or more is the the awfull price of financial sanity. It has to be that way or society will cease to function properly. The land speculators and real estate speculators have had their chance at plundering the market. If the wise have paid for their property fine, more power to them. For the good of young men and first time home buyers prices must collapse to where they were 40+ years ago which is where their incomes currently are. Once that happens
there is a good chance Canada will grow again and families will form because getting started in life will once again be possible. Providing of course people avoid the same old mistakes. We must start over from scratch to make things right otherwise Canada will decline demographicly and economicly faster and faster. If I can stomach geting wiped out in the stock market between 1983 and 1990 then Canadian real estate fanatics can do the same with real estate.
Kool Aid anyone?
Steven
15% across the country could mean a range from -35% to +5% depending on market locale.
There will be a correction in Ontario. H.S.T. will have a profound impact on new housing. New housing creates jobs direct and indirect. Our manufacturing needs housing. Without jobs there will be minimal demand. Later this year the market will unravel. How deep will it fall depends on our wealth creation. Seems to me Ontario and B.C. are going to hurt for quite a long time. We need a turnaround in the U.S.
Canada’s future?
“Where Will US Job Growth Come From?”
http://www.marketoracle.co.uk/Article16818.html
Buying Vs. Renting: What Your Realtor WON’T Tell You… (From Debt Free Bible)
http://www.youtube.com/watch?v=SXt1duIcJ4s&feature=related
I’m seeing so many on this board talking about hyper-inflation–
Have to wonder if people even know what it is–
Because if they did–they would know its already happened–
Now we are in the inevitable deflation that follows–
If you understand that credit is money and it can be and was hyper-inflated,through such instruments as CDO’s where credit was levered up to 90/120-1 –
What do you suppose gold and the long bond (Greenspans conundrum) could see?
You cannot mask credit risk from the long bond or gold–
There is no way in hell–we can print our way out of this-
We are in deflation and until the debt to cash ratio is unwound to an acceptable level–10/15-1—
We will stay in deflation–
Then we have the unemployment monster-to ensure we drag along bottom for years to come–
If anyone can see what economic event,will pull us out of this–please point it out–cuz–i sure as hell don’t see anything–
Of course a war always works–
I bought my place October 2008 when all the bloggers here were saying it was an awful time to buy. I wasn’t too excited to buy at that time either, as prices already came down by about 8% at that point from the 2008 highs and I thought they would crash shotrly thereafter as I was reading this blod like nuts at the time…but I needed shelter so I did it. Judging from Garth’s latest sentiments, looks like I may have made a fairly good decision after all. Bought for $380,000, similar, but lesser ones now selling for $420,000.
Good posts by Got A Watch, Michael, Dave.
Others who think that Canada’s recourse loans will save the RE market will be wrong. In the US, most defaulters were forced out of their homes because they could no longer afford them, non-recourse or not. A major US newspaper (sorry, no link) reported that the percentage of those who voluntarily walked away from their homes was actually very small, despite the lurid press coverage of those few. Most left because they had to, just like Canadians did in the early 1980’s, and just like they will again. There’s too much debt out there and no savings, so it won’t be a Japan-like slow decline.
I understand that Garth is being conservative in his predictions, that’s reasonable, but I don’t see anything that’s going to put a floor in the RE correction after a 15% drop. I suspect that, when the next price drop hits, the current baseless optimism will vanish and panic will set in rather quickly.
Whatever the route, it ends up going in the same direction. Garth has wisely capitulated because he knows from announcements like todays that free money policy means higher taxes, higher inflation and discounts bargoons for all. These are happy days.
Now excuse me, I seem to have a foot in my mouth.
http://www.financialpost.com/news-sectors/economy/story.html?id=2491025
Calgary was down 20% in 9 months back in 2008 before the government panicked………..
The shock that is going to hit Canadian RE will be twice of what people are suggesting……..simply because things are now worse than they were before……and they are not going to get any better. In fact, they are getting worse…….
————————–
Regarding Australia….WESTPAC, their biggest bank, has just announced they have increased down payment requirments from 10% to 13%……..of course the “experts”….err……sorry ’bout that, the “property pimps” are up in arms about a bank being fiscally responsible.
Fed Holds interest rates at Record Lows
http://www.globeinvestor.com/servlet/story/GI.20100127.escenic_1446287/GIStory/
Well Garth, you were wrong about the correction
No. — Garth
Must admit I read this and thought “Is this an early April Fool’s joke?”
If you’re thinking only a 15% drop in the GTA, you just told an entire new generation of first time home buyers that they’ll be renting til they die.
Regardless of interest rates rising or not (because apparently now there is talk of them not being raised this summer), I can tell you that what I am unfortunately seeing friends deal with right now, is the hard decision as to whether or not to sell their homes.
Not because they want to, but because their EI has run out or is about to while others have absolutely exhausted their job search and now are thinking they have no choice but to try and relocate just to find work. And oh yeah, they can’t make their mortgage payments. I’ve lost track of how many couples I know are living off of one spouses income right now because the other has lost their job.
So everytime I hear the ongoing rising real estate prices, I honestly have no idea who the hell is buying these homes. Most people I know are on the verge of losing theirs.
And for those interested in inventory MLS listings, they’re coming up and out based on what’s showing up in our inbox each day. The new “norm” number for a 2+ average McHome in the burbs is about 349K. On a good day. And man is the inventory crap. Every house looking the same with a big ass garage as the focal feature.
And listings closer to downtown, you can’t get a good run at anything under 439K for an 80 year old semi that in 2005 was selling for 249K. (I’ve actually had our agent compare old listings on streets and have been blindsighted at how prices have doubled on some properties).
Nobody on this blog seems to know (or remember) that, except for the last couple of years, buying a house always required a 25% down payment, and there was no amortization longer than 25 years. If you didn’t have 25% down, you had to take out a second mortgage at a higher interest rate. The banks would not give you a mortgage any other way. Why are the lower lending standards acceptable now, when they never were for decades? The world has gone crazy IMO.
Also, Garth, I think you are hearing footsteps, as the expression goes–you are doing some serious backpedalling on your predictions about a RE correction, as other bloggers have noted. Shows that NOBODY can time the RE market or predict the future; I think if you want to buy a house to live in, and you can afford the payments and expect future pay raises that will cover potential increased borrowing costs, you should buy when you can. Real estate SEEMS like it is in bubble territory to me, but who knows? When only the bears seem to have RE blogs, maybe we aren’t getting a balanced view.
Michael Hudson:
….’ When it changed ownership you could start depreciating it from scratch all over again. That’s called over-depreciation.
What’s ironic is that the role of depreciation was developed in classical economics by Karl Marx. His Theories of Surplus Value criticized Quesnay’s Tableau Economique, pointing out that it didn’t have a figure for replenishing the seed needed to grow next year’s crop. He said the same for industry: An industrial investor must recapture the capital he has put in, just as a bondholder gets back the principal, not only the interest. Marx added that for industry we are talking not only about physical depreciation of machinery, but about technological obsolescence. Then Schumpeter elaborated this with his theory of technology, innovation and creative destruction. But that doesn’t happen much in real estate. The older the building, the more valuable it is because new construction standards are going down and properties are more shoddy.
What the Federal Reserve statisticians do is take the original cost of the building, and then factors in the construction price index to calculate its replacement cost. This makes it appear as if buildings are rising in value. In fact, the rise that the Fed has imputed year after year is that by 1994, the replacement costs of all the buildings owned by all the corporations in America was so large that it left a land residual of negative $4 billion dollars. This was like saying to someone, “I’ll give you $4 billion, but there’s a catch. You’ll have to take ownership of all the corporate-held land in the United States.
http://www.michael-hudson.com/interviews/0902TaxProgramRecoveryItulip.html
#115 Mikethe Engineer – Sorry to hear about your imment situation. My sis finally admitted this past Xmas when we were visiting them that they’ll have to sell their house this spring. Both are unemployed, no EI (long story) and have been living off an inheritance for the last year. At least they’ll both receive CPP at the end of Feb. Couldn’t talk finances with sis, as its always been a taboo subject with my BIL. It’s a 50/60’s mentality – what goes on in a home, stays within the home. Thankfully, they owe less than $50K on their home, but they have to put in a bit of sweat equity & a few $$ to get it ready to sell. Thankfully, their house was built by a contractor who is well known in her area for excellent workmanship. They’ll end up renting and my sis is looking forward to getting rid of lots of ’stuff’. My sis does far more than her hubby in terms of maintenance.
I found a link to UBC Prof Tsur Somerville’s report on the impact of the Olympics on Re prices. Essentially no impact on pricing fundamentals.
http://www.upi.com/Business_News/2010/01/26/Olympics-have-no-impact-on-real-estate/UPI-13821264488980/
Again, my view is that due to other conditions Vancouver will decline because the Olympic Stimulus will soon be over.
re # 70 Beatrice McGillicudy
You are making an assumption here. You don’t know when I went to cash or how much cash I have.
Anybody assuming anything about another’s situation predicated on an internet posting is an idiot. Making a comment about someone’s name is just juvenile and pretty indicative of your low level of maturity.
Do you have anything of substance to add or are you just a really happy person inside.
Have a nice day jerk-off (applies doubly if you are female ).
117 the truth
I can throw out imaginary numbers to counter your argument. But then my argument would be as weak as yours.
Reply to #102
That’s actually a very nice model of townhouse, but not at that price. My first home was a Monaco II model that I bought in early 2000 for $146500 brand new. It was in a nicer newer area near the General Hospital. When I wanted to move, it sold instantly (deal done in 3 days). The 1815 sq feet in the ad includes the finished basement. Actual size is 1405 sq feet. At least the builder put in the larger optional kitchen.
I have since upgraded to a newer, larger semi-detached home. I hope they don’t rent it at that price, $1950 a month is too much for a townhouse!
Seems as we have been the greater fools waiting on the side lines for house prices to go down for the past few years??
Garth or blog dogs do you think this is sad fact?
Have spent most of my day reading Garth’s Money Road. Learned a lot so far, making notes, trying to assess our total financial situation with a view to putting our assets into a fee-based, no commission advisor’s hands that Garth so kindly recommended. I have several questions, but will ask only one now. We stupidly and hastily put in $5K each into a Bank TSFA account last year because we didn’t know any better at the time. Can we transfer this to another account with another institution in which we can hold stocks. Or do we have to withdraw it & get next to no interest. We’d like to put in another $5K each this year. Maybe I’m getting ahead of myself as I haven’t yet read all of Garth’s strategies for avoiding taxes, etc.
Unless the money is locked into a GIC, it is totally movable. Just ensure your TFSA is self-directed, and not a glorified savings account. Invest, don’t save. — Garth
#136 Live Within Your Means on 01.27.10 at 4:41 pm
RE:TFSA transfers
I’m going through a transfer now. My bank is hitting me with a 50$ transfer out fee but the discount broker where I’m going is paying the fee for me. Negotiate with your selected financial institution.
Some banks charge up to 200$ transfer out. There must be a legislated cap on the fee otherwise I’m quite sure they would charge 5000$ if they could get away with it.
#115 miketheengineer
Do you think Rogers is losing customers therefore in order to stabilize the revenue flow prices must rise for the remaining?
if demand is down why are prices up?
Ahhhh…you can almost taste the disbelief and disappointment by Garth’s faithful blog dogs today.
He has the “dire” prediction of a 15% correction (no longer a crash) nationally? That is after a 20% ramp up in prices nationally in one year? And he still only predict a 15% decline despite predicting a 10-15% decline in 2008?
Oh no, look out below! That is nothing but a minor event, unworthy of discussion, as it will simply catch a couple of subpar mortgage holders. No collapse, no US style foreclosures – life will carry on as usual. Meanwhile, the rest of RE holders have enjoyed unprecedented gains wile those sitting on the sidelines have wasted 2 years of rent and grief waiting for that “big” correction.
This is simply too funny. I think people are starting to appreciate that the term “greaterfool” doesn’t apply to people that bought in the last 2 years, but rather, to people that sidelined it and shelled out money on his book that outlines a non-event.
Why both writing at all. It is like writing a stock newsletter saying that there might be a minor pullback in a SP prior to its stabilization and/or further increase. Big deal.
@ #142 Peter:
I’m convinced that the 5-year drop will be more like 30%-40%… for GTA anyway. 10%-15% would be the short-term drop (i.e. within 2010-early 2011)
Crap bungalows for $750k makes no sense whatsoever, unless the average family income is $250k/year.
#119 junius,
Good summary. I like the concept of the cranes count as an economic indicator. From my observation, we are at a small fraction of what we had a couple years ago.
Edmonton’s economy will rebound in 2010.
http://www.edmontonjournal.com/business/Edmonton+economy+will+rebound+2010+report/2490843/story.html
These forecasters don’t really say how this will happen. I can’t believe people believe this crap. Note the comments on the strong rebound for Vancouver.
A few people were asking about the safety of putting money into MMMF’s–
This is in the US today–but–
with our two little US sock puppets–Steve and Jim–
expect it to become financially vogue here–very soon–
Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund.
http://www.zerohedge.com/article/suspending-money-market-redemptions-now-legel-sec-approves-new-money-market-regulation-4-1-v
#145 jess
Pressure on earnings per share, they need to keep that stock price attractive, its that simple.
Read the artical about Garth crying wolf.
While it may appear that way it really is irrelavant.
The real core is people are now flocking to this blog with hope of the percieved “crash”
The truth is majority of the people here are:
A) renters
B) first time buyers
C) people who sold and are waiting to get in lower
All of which the above people are waiting for that “sign to buy at the bottom” and the truth is, most people will have no clue what to do if that ever happens.
Here is a question for all. Lets just say that housing dropped 20%.
Then what? Would anyone buy? Wait to drop further? Sell?
You see, just like stocks, most people spend every waking minute trying to find that perfect time to buy.
And almost nobody ever does.
But it does make good reading though.
Welcome back Volcker…
http://www.nypost.com/p/news/business/paul_volcker_has_president_ear_on_Nins7V669dwpTGNEZOg9iK
I don’t think Garth has been predicting at any time a huge hit to Canadian RE like Vegas or Phoenix.
This is from March 2008
“The Canadian housing decline is just beginning and although we should not expect the same 30% price dump that has hit California and Florida, Detroit and Phoenix, there in Vancouver you should certainly be anticipating a 10-15% correction, or possibly much more in some condo developments. ”
http://www.greaterfool.ca/2008/03/
re # 100 Knuclewalker
Unfortunately, I think you are correct.
This madness has infected everyone and neither you nor I nor reason will dissuade these real state junkies.
Reality will set them straight eventually and I do sincerely hope they lose their shirts – the smugness is just a litle too much to bear, especially in Toronto. I am reminded strongly of the NASDAQ bubble – most people are just inherently incapable of conducting or understanding objective analysis.
I’ll just have to scale back my estimation of human intelligence a little further – think hairlesss monkeys as opposed to discriminating beings! LOL!
as of today calgary RE is down $65,000 or 13% edmonton is down $84,000 or 20%
so what constitutes a crash 10% 20% 30% 40% 50% ?
there is no question that when banks eventually raise rates..which they will definitely do.. prices will fall further
how much further ?
consider that calgary homes are priced about $240,000 higher than the long term median would indicate
calgarys unemployment rate is now at 7.3% or about the same as it was before the boom..and its getting worse
metro-calgary has built approximately 140,000 new homes since 2001 and its population has grown by 250,000 = 1 new home for every 1.78 new calgarians
people are now leaving alberta
alberta is a unique place for housing for many reasons the main one being we are the only non-recourse mortgage province in Canada and mortgages debtors can leave the keys by the sink and simply walk away with little consequence..which is why i say
nobody knows where the bottom will be
———————–
the looming housing crisis is being masked pretty well
the temptation to buy is great..realtors the media and even politicians are painting a happy go lucky face onto a badly deformed and rotting pig but in the end it will be what it will be
i haven’t noticed any back tracking by the author despite the massive and unexpected taxpayer subsidization of the REIC
one more thing CMHC are the same as freddy and fannie
you remember those two don’t you ?
since the USA bubble peaked the national median house price has fallen only 30% http://montyhigh.typepad.com/.a/6a00d8341cba0553ef011570a3859b970c-800wi
its tracking the 100 year avg mean price
which is what i would expect will happen in Canada
some Canadian cities wont even feel it
some Canadian cities will get obliterated Phoenix style
Unless the money is locked into a GIC, it is totally movable. Just ensure your TFSA is self-directed, and not a glorified savings account. Invest, don’t save. — Garth
Thanks Garth. We do have other investments in MF’s. Held onto them but lost confidence and stopped investing several years ago. Trying to ascertain whether our current investments plus cash on hand is enough to “hire an advisor to set up and manage a balanced portfolio on an active basis”. Page 116 in Money Road. You mention a few hundred thousand. We are likely shy of that, tho own our home and are totally debt free.
Penny
I’ve noticed that if there is an article about the market and you post anything that mentions bubble, rising rates, falling prices, crash, etc., that there’s always a vicious backlash from people who say:
‘Oh people like you have been predicting this for years and it hasn’t happened.’
These people then proceed to offer myriad reasons why the Canadian market is sound and different. I recently started reading J.K. Galbraith’s The Great Crash 1929 and became familiar with the phrase ‘This time it’s different!’, which I had never heard before yet now, when I look around, you see it everywhere in the frantic denunciations of people who have no choice but to believe that things are different this time, otherwise they are up the creek.
calgary are about 50% overvalued
toronto about 20%
montreal about 25%
vancouver about 45%
halifax about 25%
ottawa about 25% at least according to these guys
http://www.housepriceindex.ca/Default.aspx
Anecdote from a banker:
I had a quick chat with a banker about how business was going. I was almost speechless after I heard the response.
One of the most noticeable pieces of growth was in the creation of new Lines of Credit… LoCs that were fully max’ed immediately upon creation.
Huh?
Well, apparently when you go to the bank to tell them that you are going to break your mortgage contract because you are selling your house, but when your equity is underwater, the banks are now offering a LoC to pay off the difference owed to them.
Yep, that’s right. Just because you are underwater doesn’t now mean that you are going to have to stick out living in that location until prices recover! You can sell and move somewhere else and just sign up for endless nickel-and-diming of your finances in order to pay off the remaining debt from your last home!
Sure that $50k equity delta was originally at, say, 4-odd percent. Now that you’ve sold, the interest paid on the outstanding debt has practically doubled to around 8.
I just continue to shake my head. Everyone else’s mileage may vary.
Holy crap, a bunch of people must have gotten rabies from that wolf…..unreal.
Peter Wiener, Knucklewalker and a few others seem to get it, some of you others…… oh boy.
Some big talk from a few who will not back up what they say, so in essence bags of hot air.
This is not hard to understand, a little critical thinking will lead you to some answers.
Arguing about the date when interest rates will go up, so what, they are going up.
But Garth, you said this and it didn’t happen on that day… get over it. Think of the message he was sending to you.
Start using what is here as a tool, think it through and apply it to your particular situation, disregard what does not apply to you.
#64 Industrial Guy & #94 Reasonfirst
Excellent replies.