Entries from February 2010 ↓

When I slid through Vancouver airport on Sunday morning, I was sure that’s how the Alamo felt before the Mexicans attacked.  There were, literally, armies of security staff ready for what was expected to be the worst one-day onslaught in Canadian aviation history. Forty thousand  passengers, nine hundred flights, hours of delays and even a special terminal built to be used – if you can believe it – for just one day.

Yeah, The Olympics were cool, even when a business traveller like me ran headlong into them on two separate trips. But what I saw and heard suggests the cost will also be Olympian – six billion, with a billion alone for security. And how much did it cost to cover a mountainside with snow carried in by helicopter?

But this is not about the games. It’s about government. And us.

BC will be paying for this for a long time, as the province’s budget this week will suggest. It’s widely expected people will be seeing more schools close, more essential services curtailed, user fees go up and, of course, the HST arrive.

Like Ontario and Alberta, BC will be mired in deficits for years to come. In fact, add in Quebec (where debt now accounts for 94% of the entire economy), and the picture is brutal. It means higher provincial taxes and less spending. Meanwhile on Thursday we get a federal budget that will formally announce the greatest budget deficit in national history, as the country slides towards a $600 billion debt.

Here’s why this stuff matters: Add in the aging population and the crappy global economy, along with America’s worrisome decline, and you have a recipe for semi-permanent deficits in Canada. In fact, if we stay on this path, within thirty years our debt will equal over 300% of the economy. At that point nobody will lend us money, our currency will be used on board games and we’ll have Detroit-style house prices.

So, obviously, that won’t happen. Instead, governments will raise taxes and slash spending, while at the same time they pray for an economic boom (which won’t come). These things are now totally inevitable. The GST is going back up. There will probably be a new surtax on the ‘rich’ (starting at around 100K income). There may be a spec tax on houses. Plus new land transfer levies. RRSP contributions will go from being deductions to credits. The costs of a passport will soar along with user fees for air travellers and drivers.

As for spending, the inevitable result of cuts will include higher university tuition, a two-tiered medical system and no more free garbage pick-up.

This will all take some time, of course. For example, there will be no GST increase until after the next federal election – which will be waged on the promise of no tax hikes. But it’s best to start preparing now.

The world we are moving into will be one of reduced government services, and less disposable income. Even if interest rates are kept below market levels for a while, higher taxes and fees and the inflation they’ll breed will blow a hole in family budgets. Simply stated, there will be no room for a real estate bubble, and no fuel to keep it inflated. The insanity of the last 10 months will become apparent – a time in which young people without money bought better homes than their parents ever owned, using 95% leverage at the very top of the market, backed by the government.

It’s a recipe for negative equity, as it is for consumer shock.

The games are over, dude. This is budget season. The suits have taken the torch from the latex.

And it sure as hell is a good time to exit Vancouver.

Three or four years ago I resisted going to Calgary. The attitude was just too much. It was hard to show my Ontario DL at the airport car rental desk without getting a comment about living in a ‘have-not’ province.

But, Alberta got over it. Oil went from $147 down to the price of a barrel of shampoo, and the province is now in deficit. They may still drive trucks with nuts, but they somehow seem more delicate.

So, the mantle of arrogance has sifted a tad west, to BC – Beyond Comprehension. And some of the blame has to go to this Olympic thing. As I sat in a popular restaurant Friday night it was hard to get over the fact most people in the upscale joint had Canada hockey jerseys on. Can you imagine that in downtown Toronto? They’d be sent to Guelph.

Local realtors and developers are reveling in the attention this has brought to Vancouver, merrily telling people it will mean (of course) higher prices. And it might. For a few weeks – herd hysteria being what it is.

On the way from the Van airport I stopped to have coffee with a guy who lives nearby. He rents, and has a half million dollars in cash ready for a downpayment. But, he knows if he buys he’ll also end up with a mortgage the same size. So, given the magic of leverage, if prices fall 20% in the next year, he’ll lose 40% of his equity – two hundred large wiped out.

As I told him, things will look different by Christmas, for all the reasons we’ve hashed on this blog. Rates up, the HST in, $1.50 gas, public debt, a mired economy and Olympic hangover. Won’t be pretty.

Meanwhile in Toronto, as a blog dog pointed out to me Friday, there apparently are some realtors who get it. Well, one realtor anyway.

Check out this flyer that Richmond Hill agent Patrick Poirier just unleashed:

Top reasons why you shouldn’t wait to sell your house:
Perfect Time to Sell as Home Values are at their peaks:
* Spring is approaching which is typically when most Buyers start looking to buy. Interest rates are low now making purchasing more affordable, but how long will these interest rates stay low?
* Low inventory of available homes which make it a Seller’s Market
* Starting July 1, 2010 HST will make home buying more expensive creating the current rush of Buyers
* Starting April 19th, 2010 the Federal Government will introduce New Tougher Mortgage Restrictions reducing the number of Buyers
* Time to cash out when the market is ripe and buy back when prices are lower.

Home Values Will Plummet
Home prices couldn’t be more disconnected from fundamentals. In many areas, individuals who make the median income can’t afford a median priced home. For this reason alone, current home prices cannot be sustained.

And, heaven forefend, Agent P even linked to a CBC housing bubble article that quotes this blog. Is there any greater proof that my life’s work is done?

Well, here’s the point: Reality is on the march across most of the land. In the coming four or five weeks you will see a torrent of new listings as wannabe sellers realize the top has passed, and this is the moment to bail. Supply will start to overtake demand, and the price balance will tip as a result. And while some crazed, house-lusty young turks may scramble to buy before rates rise or mortgages get tougher to nail, the path ahead is clear.

Until you get to, oh, Langley.

The crash in BC, being delayed first by disaster myopia and then Olympic meth, could be spectacular. I’ll be telling the crowd that Saturday afternoon in my speech.

Meanwhile let’s buy Agent P a red hockey jersey and a one-way ticket on Westjet. His head may end up being carried down Robson Street on a stick.

But he will be a hero.

Garth does Langley, Sat @ 2. Coast Hotel.

A blog dog sniffed me out at a bookstore event last night.

Some time ago on this godforsaken blog I mentioned I would be changing directly slightly. Details soon. But the thrust of the change will be that I will be less of a dancing bug in the future.

As you know, I have been travelling the country a fair amount in the past year (off to Vancouver today). In fact, most of the past twenty years has been spent on the road, either when I was mentally deficient (and elected) or incredibly wise (unelected). Lately I’ve been speaking a lot to people about their financial affairs, promoting my books and ensuring the country’s airlines have a robust balance sheet.

In this vein, I have two more events to add to my schedule, by the way:

• Tuesday, March 30 in Edmonton, and

• Thursday , April 1 in Saskatoon. (The day between, I’m in Cowtown.)

After that, it’s off for a romp through Nova Scotia (Halifax, New Glasgow, Sydney), then back into Alberta and BC. And then, well, change.

During this excellent cross-country sojourn, I’ve had a unique opportunity (like on this blog) to drop into people’s lives, and learn about how Canadians buy and sell houses, and manage their finances. This makes me different from, say, a realtor, a banker or a finance minister.

Last night, for example, a whack of people jammed a suburban Toronto Chapters store to hear my ravings. Afterwards, while signing books, I answered the same question at least thirty times: when should I buy? I gave thirty variations of the same answer: Not now. Later. Maybe in the autumn. Perhaps by Christmas. Better next year than this. 2012 would be even sweeter.

Of course, people who come to hear Garth Turner are not normal, so I wouldn’t presume to make generalizations. But I will say that over the last couple of months I have sensed a growing scepticism on the part of folks to the whole idea of sacrificing everything on the altar of a house.

It may be the knowledge rates will rise. Or taxes will explode. Or house prices will stop spiralling higher. But the overwhelming concern is jobs. There is not a factory that I’ve heard of in southern Ontario, or a mill in northern BC, that has reopened in the last few months. In fact that only big hire to make the news lately was an expansion by Wal-Mart, as it throws up some new mega-stores. Ironically, that move will probably end up costing us jobs, as local grocery stores, clothiers and hardware outlets are sucked dry.

As I told people at the event, until the jobs come back, this is a false economy. Until the government drugs stop flowing, the future’s foggy. This is a time for caution and contrarians; to avoid the rock cocaine of cheap debt that has so many people flipped out.

I’m sure this will become evident over the coming months. Too many Canadians will look back at the end of 2010, and wonder how they could have been so foolish. ‘Why weren’t we told?’ they’ll ask the media. And the answer will be, ‘We reported the news. The experts said all was fine.’ And it won’t be.

I do what I can to raise the alarm. And I will for a few more weeks. Then, we fight.