Seventeen days. Is that all the time left for this gasbag of a housing market?
On March 4th, as I’ve been telling you, F drops his budget. It won’t raise the GST (that comes later), make changes in RRSPs (also later) or cut federal spending (that comes soon). But there’s a growing chance it will lower the boom on first-time homebuyers. In doing so, of course, it would signal the beginning of the end of the age of delusion.
Sunday afternoon I sat on a leather couch in the Empress Hotel speaking with a millionaire exile from the US. The guy now lives in a rented condo overlooking the ocean north of Victoria because – although he could afford any house – “I’ve seen this movie before.”
He laughed as he said, “I would never have imagined before I came here that Canadians could be stupid enough to make exactly the same mistakes Americans did five years ago. I tell ya, this is like watching an old, familiar train wreck.”
His strategy is simple: Wait a year or two and buy a lot more house for a lot less money in a post-bubble world.
Seventeen days. And it might start then.
As you know, F is mulling one of three options: Raise the minimum down payment eligible for mortgage insurance from 5% to 10%, or maybe 7.5%. Shorten the maximum amortization allowed for an insured loan to 30 years from 35. Tighten up lending requirements at the big banks so people applying for loans have to prove they can handle interest rates far higher than today’s emergency levels. Or, a combination of the three.
Of course, any one of those would be like a bullet ripping into an industry which has wooed first-time buyers with a siren song of ever-rising house values, and the mantra of ‘buy now, or buy never.’ In doing so, they have helped convince tens of thousands of young couples to buy assets which have never been higher in price (and will fall) at loan rates which have never been lower (and will rise) at a time when the economy is only alive thanks to government drugs and at levels of debt previously unheard of.
This move will come (if it happens) less than four months before the HST jumps the cost of housing in both BC and Ontario and just four or five months prior to the Bank of Canada dropping the hammer on interest rates. The budget should also remind people that the country has fallen into a debt sinkhole, and nobody’s getting out alive without paying more in taxes.
So, passengers, let’s summarize: Tougher mortgage rules. More sales taxes. Higher interest rates. Less government spending. And an economy on meth. And you want to buy a house?
F probably knows the consequences of his actions. But does the little guy really have a choice?
Listen to a few other voices.
Legendary Canadian investor and financial guru Stephen Jarislowsky: “They have basically encouraged people to buy houses based on cheap mortgages. That has created the opposite effect of what was desirable. I am convinced there is a housing bubble in Canada.”
TD Economics: “While not a “bubble” per se, Canadian residential real estate is likely overvalued at present prices.”
Former Bank of Canada governor David Dodge: “The terms and insurance over which mortgage insurance should be given over the next little while probably should be tighter, and probably should have been tighter over the past period.”
The nightmare scenario for recent homebuyers, meanwhile, grows more probable. That is a combination of falling house values and rising mortgage rates, which means cash-strapped, against-the-wall young people would face higher financing costs when they come to renew their home loans, on houses which have fallen in value. Many of them will be in negative equity, which even makes renewing a loan dodgy.
All of which would be, as Barack Obama said during the financial crisis last year, “really interesting, if we weren’t in the middle of this shit.”
Please return to your seats and replace the tray tops to their upright position. The captain indicates we have started our descent.
125 comments ↓
Excellent post. It seems like several good blogs are starting to pop up supporting your position:
http://catharticranter.blogspot.com/
http://americacanada.blogspot.com/
http://rabidoux.tumblr.com/
http://canadabubble.com/
Your opinion is finally going mainstream.
Great post Garth!…I know 25 yr/old single females buying 250k townhomes/condo’s with 5/35′s working 65-70 hrs week (three jobs), balancing 2 credit cards with 5-6k each, thinking they will just re-finance in a few months.
Now their squeezing nickles so hard the beaver shits on their scratch tickets.
Just wondering how the rules go, for their RRSP withdrawal for first time home purchases, in the event of negative equity and/or bankruptcy?
From what i’ve seen both Canada and America won’t see higher interest rates until 2012 but the Canadian housing market will implode on itself with present mortgage rates.
obama’s quote had nothing to do with the financial crisis ‘last year’. he was referring to the presidential race held in 2008
He used the same phrase twice, one with regard to the race (as reported in ‘Game Change’) and the other as I quoted (as reported in ‘Too Big to Fail’). — Garth
Waiting with bated breath to see what Flaherty does on March 4th. He’s under a lot of pressure from the banks to do SOMETHING. What will he do? Although… he has said before “there is no housing bubble in Canada.” Really…I guess he hasn’t been to Vancouver in years. Make him live here for 6 months and let him try to figure out how to buy that $900,000 house. That might change his tune about “no housing bubble” pretty fast.
Ok Garth….If you are correct do,
…Toronto & Vancouver R E $$$ drop equally or differently?
Nostradamus jr.
“Seventeen days.” — About 2 1/2 weeks of frivolous frivolity left to party in, then the real fun starts. Doesn’t help that F is another spoke in the wheel, going round and round spewing the same old codswallop.
Party like it’s 1999!
——
Greece began the present-day Olympics in 1896. Now Greece is in financial (and other) turmoil, and B.C. is hosting the 2010 Winter Olympics. Is truth really stranger than fiction, or is this another topsy-turvy conspiracy theory gone wrong?
Lusi, a cousin (like Krakatoa, east of Java) of Toba is engaging in a case of man-made hiccups!
Commercial loans; TSHTF a while back, and this adds to it.
Cash4Gold — speakers up. Someone is hoodwinking sheeple again.
‘Net licences — the right-wing fanatics are blowing gaskets between their ears. What chance is their that The Bilderberg Group, the Rockefellers / Rothschilds etc. are behind all this?
Massive prolonged fart.
I love how all the blame is put on the “dumb” retail masses that have bought into the housing bubble. A majority are young first time home buyers fresh out of school. The education system is set up by the government to teach kids nothing about finance and how money works. They only teach kids how to open a chequing account, apply for a morgage and get a job. This creates another gernation of unwitting little debt slaves. Its the Government and the BoC that should shoulder the blame for this oncoming mess. They control the issuance of money and credit and inflate all bubbles throughout history. They know how the system works and use people’s ignorance to transfer massive amounts of wearlth to fewerer and fewer hands. In 1971 when the U.S dollar went off the gold standard, it freed up all currencies to be printed at will . The last remaining checks and balances were removed and we are now wittnessing the collapse of the fiat money system. There hasn’t been sound money policy for nearly 40 years and the great take down is upon us.
Garth, thanks for the excellent talk this afternoon in Victoria. Here are a couple of questions I would have liked to ask you:
How much do you think Victoria house prices could fall?
What are the chances that F (and H) will prolong the current real estate bubble as long as possible, no matter the long term consequences?
Renting in Victoria,
Hello Garth, on behalf of myself, my two guests and many other citizens of Victoria I would like to congratulate you on the great speech about economic realities in this country and particularily the unsustainable bubble in real estate prices of this and other canadian cities. Moreover, I am glad that you have revised your lukewarm attitude to gold – the real money. I would suggest that you have thus greatly increased the already huge number of your followers. Your prime ministership can not be far away.
17 days until the *announcement*, but how many days until it becomes official policy?
If F puts a date of say July 1st for his changes to take effect, won’t this cause a rush to buy “before it’s too late”?
The same thing happened with the Land Transfer Tax in Toronto — a flurry of buying and selling right up to the date of the policy change.
Does anyone have a link/reference to the timing of the elimination of 0%/40-year mortgages? Was that done as a part of the budget, or just as a one-off? (and – how much time was given to prepare for the change?)
Garth, got your book today. Look forward to reading it.
Mark
http://www.youtube.com/watch?v=1PLr2pKkzEs
from australia, but seems applicable to canada
#12 T.O. Bubble Boy
October 2008
http://uk.reuters.com/article/idUKOTW00009920080716
So they may raise interest rates by half a percent, which makes them still substantially below the 6 percent long term average-i.e. they would still be nearly at an all time low. So they may tighten the minimum down payment up to 10%, which is still small compared to the long term average of 25% down. How will this make a significant impact to those who already own houses? It won’t. Given the stubborn unemployment in the US, the consumer won’t lead us out of the recession, as they have in previous recessions, so the rates will not likely increase significantly over the next few years. I’d say we’ll have a minor correction and the market will sputter along, instead of crashing. Too many Canadians are invested in real estate for the Govt to do anything drastic. Thanks to Harper, the “leader” who puts his self interest above the public’s self interest, speculators are being rewarded and savers are being punished. Keep the hype up Garth, how many copies have you sold now?
You had some points worth debating. Too bad you choked. — Garth
How far can prices fall in Victoria?
We don’t have to look back too far in history to find an example in the Garden City. The “leaky condo”. This is what happens to prices when the main segment (first time buyer) is no longer the primary buyer in the market, which leaves only investors to bid on homes. If you want to figure out how far prices will fall just calculate at what price the property has to sell for the investor to get a return on their equity say at an equivalent rate of return of a long term bond.
mmmmmm….mmmm finished yet?
Yeah, its gonna get real ugly.
Of course, this whole distorted mess wouldn’t have happened if (you guessed it) easy money hadn’t been made available for so long in the Greenspan economy. Are policy makers trapped in that Star Trek phenomenon, where they keep looping around to relive the same thing, after losing the memory of having been there before?
I know of two cases in the past year where people have opted to rent out their first home after buying a second.
It’s not that they didn’t want to sell.
They just couldn’t sell without incurring a loss.
So now they are carrying mortgages on two houses and dependent on their tenants to keep them solvent.
It can’t end well.
Its great to see the forest but as George of the Jungle said “Watch out for that tree!” and that an election that’s coming hard on heels of this budget, not from anything in the budget but from the opposition forcing the PM to make available Afgan files. Steve will then force the election by claiming he has no confidence in the house and off we go.
Interest rates and mortgage time frames will wait under after an election, it politics my friend.
No way.
There is no way F (that’s Flatulence with a capital “F”) is going to do anything to tighten mortgage standards. If he does anything it will be an “affordable housing” program designed to increase the number of qualified applicants, or to assist deadbeats to stay in their homes, as they are doing in the US. He will take the US blue print, and implement it in advance, as he’s done all along.
There is no way Carnival Carney is raising short term interest rates more than a token amount. The long end of the curve may go ballistic as the sovereign debt crisis evolves, but there is no way Carney will be leading interest rates higher. He might follow the long bond up, but only in so much as he has to in order to lend his hand to central banks appearing to still be “in control”.
And there is no way the budget gets passed in March. The “revenge” the opposition has in mind for proroguing parliament is a defeat of any bill that constitutes a “vote of confidence”, which all budgets do. Even if F puts all the sanity one might imagine, not just mortgage wise but also maybe a little fiscal restraint and some cutbacks in the public sector, it’ll al be a show. They know we are going to a spring election. The budget will not pass even if the Liberals and the Bloc are allowed to write it themselves.
The next step in Canadian politics is a spring election. If the Conservatives get a majority as a result and thus a 4 year mandate, some of Garth’s predictions might come true. If the Liberals get either a majority or a minority, it’ll be money printing and handouts as far as the eye can see, supported by the Bloc and the NDP. Expect grants like we’ve never imagined, low interest rates, 50 year ams, and zero down, make work projects, corporate bailouts, pension bailouts, public sector bailouts, provincial bailouts, civic bailouts, complete insanity, an no tightening. Not a stitch. The new government will have to show they can spike the punch bowl and keep the party going.
There is no way anything happens until after a spring election, and then we will get what we vote for. Yuck. I have a feeling how Quebec, Ontario, and BC will vote, and with those 3 in the bag, the future is certain. More unexpected behavior out of Ottawa, and all bets are off until the “invisible hand” comes down like a fist. But step 1 is a 100 billion deficit and free houses for all, no matter the cost.
In retrospect, the correct macro call in the summer of 2008 was to go short on China the day after the closing ceremonies of the Summer Olympics.
It will be interesting to see if the same applies to Vancouver on March 1.
Some musings, not consp. theories . . .
Suppose for a moment that Toyota’s and Honda’s problems stem not from manufacturing cock-ups, but politics.
When the most recent election in Japan finished, the centre-right, which had governed for just over half a century and was very warm to the US, was swept away by a majority left-wing govt., which promptly slid across to China.
Now it’s payback time. As Nostradamus Jr. said, most of the world — if not all of it — is now broke anyway, so finances have little to do with any of this, just power-hungry politicos looking for the best land / sea masses.
My guess is Japan will align itself with China, Russia, Iran and everyone else who knows and sees the writing is on the wall for a failed capitalist system, and have nothing to lose by starting another WW (people are roadkill).
‘Net licences — the right-wing fanatics are blowing gaskets between their ears. What chance is their that The Bilderberg Group, the Rockefellers / Rothschilds etc. are behind all this?
Accidents happen!
Weather accident — someone pressed the wrong switch!
Preparation H, or Be Prepared!
Cellphone users beware!
Ok, I’m getting tired posting the same arguements for stable real estate prices in Vancouver. How about somethinng new to consider in your calculations Garth;
What’s your calculated effect on the billions of dollars Vancouver is spending to introduce the city to the rest of the world via the Olympics?
We have distressed and disfunctional economies in Europe, USA and war ravaged middle eastern countries. How much money is going to move to Vancouver, arguably the most fantastic 21st Century City of Vancouver?
Can we liken Vancouver to the US dollar whereby the default currency in a world of bad currencies is still the US dollar despite the fact that it’s such a mess? Can Vancouver be the default real estate market because all the other real estate is so undesirable IE: central Ontario?
Changes by F will not affect the serious mega millionare buyer in Vancouver, which via the publicity and the Olympics is surely enough to scoop up those mcmansions. No doubt, people barely surviving on a minimum salary will not be able to afford Vancouver in the next year or so. Maybe you got room Ontario?
Changing amortization periods from 35 years to 30 years is not going to make a big difference on its own. The difference in monthly payments is only about $100.
Same as changing the down payment amount from 5% to 7%, that’s a $6,000 difference on a $300,000 mortgage. So maybe the bank continues to give 5% cash back and the borrower coughs up the rest from their credit cards or mommy and daddy, or (gasp!) their own savings.
However, changing these two at the same time, as well as tightening up the lending rules, bringing in the HST and cutting government spending, that’s when the doodoo would really hit the fan. Thus, I just can’t see the finance minister dropping three or four bombs at once. Rather, he’ll work them in gradually so it’s more of a frog staying happily in the pan as the temperature slowly rises, so it has the effect of deflating the balloon rather than popping it. That could be effective.
http://www.theglobeandmail.com/report-on-business/economy/chinese-investors-eye-canadian-housing-boom/article1468226/
Oh my god! it appears that greater fools has taken on an international dimensions! Wow!
Ummm– F is gonna have an orgasm with this–
*******************************************
Forget about competing with the family up the street the next time you bid on a new home – the real competition may be sitting at a computer in Shanghai.
With their government worried about a domestic housing bubble, more mainland Chinese investors are looking toward Canada’s booming housing market as a haven for their dollars.
http://www.theglobeandmail.com/report-on-business/economy/chinese-investors-eye-canadian-housing-boom/article1468226/
@ #16 Gordon
You hit the nail on the head! Spot on, my brother, spot on!
It’s going to get fuglier than most of us can imagine, I imagine!
It doesn’t matter what is happening with the RE bubble. We won a gold medal and we (he) did it with the support and love of his family. What a wonderful person, family and the perfect example of what we as country can be. Take a moment and celebrate what this family has achieved. Congratulations to Alexandre Peridieu, a Jentlemen, a Canadian and a Great person. Go Canada Go!
I think the Eurozone/Greece will start another banking crisis before F comes out with his budget, a crisis big enough to topple some Canadian banks – that alone will burst the bubble. I’m thinking a run on the banks before Easter, I just don’t see how the house of cards can stay up and when the crash comes its going to be hard and fast, not gradual. I just hope a nuke isn’t dropped on Iran to help prolong this fable.
Hey Garth just found your 1988 book, Survival Guide, Your advice then Shun Debt, build equity. Your good advice has changed little in 24 years.
Interestingly you have a whole chapter on Real Estate and the road to redemption.
Back then you wrote government debt out of control! Government will be raising taxes, Interest rate shock.
and yet in 1988 you recommend buying real estate!
The same things you are saying now, government debt out of control! Government will be raising taxes, Interest rate shock. except your telling everyone to sell real estate.
On page 61 you state 1986/87 housing boom in central Canada; a house was having multiple bids and you saw houses go for $180,000 over the listed price. Is that not a bubble? Was it different then?
But I bet your going to answer but this time is different.
In truth nothing has changed since 1986; yes we have had many boom bust cycles in the economy and real estate and yes it will happen again, but this time is different?
Your going to quote your famous aging boomer slogan and $60 Billion Conservative debt and US debt out of control and Greece is on the brink. Really Garth has anything changed since 1986? perhaps the high interest rates?
I think your advice of reducing debt building cash reserves is sound advice for everyone in any times.
Is real estate going to fall? If the past 25 years is any indication yes it will; by how much is anyone’s guess estimate But it will recover! and in 25 years it will be higher than ever!
Someone quoted John Maudlin previously and he has said the same things…… it looks bleak out there right now but in 20 years things will be better. Just as the early 80′s looked like we were going over the cliff and we survived.
In conclusion, I think that the ones who will prosper are the ones with cash. As they will be buyers after any crash.
How many of you bought stocks in March during the doom and gloom?
Well I have ranted a bit long, so I thank all those who have read this far, and I look forward to your constructive comments and feedback.
Cheers
and I predict that War will soon break out in Asia.
…anyone who is “filmic” or knowledgeable of film scripts technique knows that…
when a film begins w/ death…the film ends with death.
A “Georgian” Luger died the first day of the Olympics.
…You heard it here first…
Nostradamus jr.
An interesting and informative article. I understand the flying high analogy; but, why that particular Zeppelin image? It seems you may be brushing up against Godwin’s Law and you run the risk of being dismissed as a crank instead of heralded as a prophet.
i just hope Jimbo is not going to raise taxes AGAIN!
#16 Gordon…correct! People these dayz…deluded by 30 years of money printing and ponzi schemes have absolutely no clue of the downside!!!!
When RE starts the downward spiral there is nothing even more cheap money or the status quo in lending practises can stop.
As pawns we can only choose which side we are on.
Japan recalls political, why not! GREAT GLOBAL RESET UNDERWAY!
It definately points to being from Canada a good thing, living somewhere else as it all unfolds badly even better!
#32
((you run the risk of being dismissed as a crank instead of heralded as a prophet.))
which might not be a bad thing seeing as prophets are so often dismissed as cranks and cranks heralded as prophets …
Not sure it matters that much what the government does to the mortgage rules, in any case, because the feds don’t want to overshoot, changes will be small and rather easily overcome. But the market will tank anyway, actually I feel it has already started in some areas. That’s the first symptom you will see: homes not selling. I will take a while, I don’t know how long, but after that prices will start declining. And when that starts….
Allen 23, please educate us all on what the Olympics has to do with the housing market? I really don’t understand the relations. In theory, won’t all the big construction and promotional projects come to an end, causing an economic downturn?
Can you give some examples of other Olympic cities that experienced housing booms post event?
Thanks
#7 Nostradamus le Mad Vlad:
In your post, the last like says this:
“Production, transportation and consumption of goods, essential and luxury, will cease”
Essential Supplies
For those building their squirrel supplies, stock up the bunker now, while the “Dollar store” has plenty of supplies and your dollar still has purchasing power.
Items:
Matches, Candles, Can Openers, Lighters, Scissors, and all those interesting things you use on a daily basis. Don’t forget the garbage bags, and toilet paper.
I am sure that Garth is stocking his bunker, we should too.
#32
Flying high. It’s the Hindenburg dummy!! Kaboom! pop goes the bubble. Got it yet?
It seems we may be heading for a slow drawn out depression of RE values.
The budget rules will initially effect newbie home buyers, however the loss of wealth effect on homeowners will have a reduction in the populations overall spending…which won’t help for a speedy economic recovery.
When someone buys a stock, you can see online what others are asking for the share, what others are bidding for the share, and the volume, how many others are buying.
In RE we know the asking price for a house.Why can’t someone see what the others are bidding for the same house and the volume of the other offers?
In other investments there seems to be more disclosure than in RE.
There are several methods governments use to confiscate your savings:
1. Inflation (much higher % than official!)
2. Taxes (always rising)
3. Stock market manipulation (world elites control it – you play lottery!)
4. Mortgages/Loans
If you wish to understand why they want you to “invest” in RRSPs, TFSAs, UL insurance policies etc. see points 1 and 3. They have been executing a plan of our financial ruin and we bought into it…
Greetings: {#32 Jim} The Zeppelin was filled with explosive Hydrogen gas. After the Hindenberg disaster, the German airship industry collasped because United States controlled the production of the only other usable product, helium. The real estate bubble we are in, will not under go a gradual decent, but will crash in dramatic fashion, after the “Gas Bag” is deflated with higher interest rates and negative equity. Another thing to note is that the “payload” which could be carried “debt”, is now sufficient to cause the ship to sink even though the structure and mechanisms of the machine appear to be functioning normally, and people continue to climb aboard. Now they don’t even need a ticket {downpayment}. Unlike the airplane which could be installed with more powerful engines to carry additional cargo, the carrying capacity of the Zeppelin had its’ limitations. A bubble can only grow so big before its costs far outweigh the value of the payload. Think of the mess that is Dubai, soon to be followed by Vancouver , after the Olympic party ends and the hangover starts. For some reason, Greece , Athens comes to mind.
Please return to your seats and replace the tray tops to their upright position. The captain indicates we have started our descent.
yep
Grannysweat: gold winner is Alex Bidodeau
http://www.ottawacitizen.com/sports/2010wintergames/Moguls+gold+goes+Canadian+Alex+Bilodeau/2564769/story.html
Onemorething: It definately points to being from Canada a good thing, living somewhere else as it all unfolds badly even better!
I tried to figure out what that means. I cannot.
The market is still hot.
#26 jr,
China is not like Canada when it comes to repatriation
of funds. There is such a thing known as currency control. It’s the same for Vietnam.
Don’t be hoodwinked by realtor’s report about
Chinese money coming to Canada to support
the RE prices.
Garth,
Awesome presentation in Victoria . A whole generation has never lost on real estate and have no clue what it’s like when no one wants to even consider a low ball bid. It’s a very scary and ugly feeling.
The early 80′s crash is some moment in this generation’s history books but I bet some here remember blocks of half built condos/houses even here even in Victoria the Garden of Eden. It can happen and it will.
Denial in Nanaimo will be much harder in the future…. Yesterday a truly wonderful home came on the market FSBO w/ what I have to say is one of the best websites I’ve seen (e-open house, music, web layout). It’s one of the most expensive houses on the street (a busy one I may add). This, as savvy investors know, is not the best buy financially. Emotional buys are different though.
I contacted the seller to inquire and he’s quite firm on a 3/4 million price tag listed as semi-waterfront. This is on a 2-day road w/ a small park separating it from the water. Bit of a stretch and this dough can actually buy waterfront. His asking price is a cool quarter mil over BCA value. I know, I know, some say that BCA lags behind the market…..isn’t the market……
But hey, if “this” is a downward market, then shouldn’t this be a factor? So if prices are going down…. then it is even more disturbing that the difference is so high (remember, prices aren’t rising).
I noted Garth’s blog w/ the Nanaimo realtor saying something like, “come back in a few years w/ half the money.” An honest and realistic realtor.
I’ll wait and buy a house like that in 2-4 years for half that amount. If not, I have mine paid off this July and can easily stay, wait it out…..
In Nanaimo there are still “greater fools”-especially if someone buys this property.
“…make changes in RRSPs (also later)…”
=============
So, what’s planned for RRSP’s?
I hope our govt. and BOC see the light pretty soon,look at the mess greenspan created. low interest rates for too long a period.
“Changes in RRSPs”…..Garth your starting to sound like us hardcore “doomers”…tsk tsk
Gold, government interference with citizens “savings” and “investment portfolios”…yep your philosophies are coming along nicely
We are starting to see a wave of soverign defaults starting from the “outside edges of the system and working their way inward….CRE in both the USA and Canada is going to implode…..unemployment skyward of 25% stateside (and actually a lot higher than that in reality), grain supply in the USA down to 58 days, starstep drop in fuel imports 8% then 8% then 11%…..demand destruction in full swing…..
Standard investment practices…..heck..even “contrarion” investment practices are going to fail at this unique juncture in history……
Your millionaire friend may have to wait a good long time (like maybe forever) for the residential market place to recover in Vancouver after the coming debacle.
The strategies that made millions in the past 100 years (heck the last 300 years) are finished now….learn strategies for a salvage society economy..that will serve you better.
BC is screwed….no industry that can survive this depression intact….lumber..nope…fishery..nope…tourism (get real)……industry (like what?)
The lower mainland will look like a scene out of the movie “The Book of Eli” in 20 years……but probably not worth the nukes…that will be reserved for the shipping port at Rupert (can’t let those Chinese get to much tarsand oil)
I know, I know…such pessimism! Reality is going to crotch kick so many people.
I hear a lot of West and North Vancouverites trashing Ontario’s economy, particularly central Ontario, mainly because of the manufacturing industry crash.
But help me understand what exactly the the economic drivers or industries are in Vancouver or the lower mainland? And why would Vancouver be the very first city in the entire history of all of the Olympic games to get a real estate or economic gain/benefit after the games? (Especially a city that hosted the WINTER games).
West and North Van are just two other wealthy neighbourhoods out of the tens of thousands of such neighbourhoods in the world. It appears though that they are populated by some of the most paranoid, belligerent, and annoying people out of all of those neighbourhoods as well.
And if you’re relying on The Economist rankings, Toronto is rated 97.2 (#4 rank), Vancouver 98.0 (#1 rank). If you agree that The Economist’s list is valid, then with this difference of less than 1 percent, you must also agree that Toronto is equal to Vancouver as a livable city – otherwise quit spouting these rankings in your rants against Toronto.
Garth, I don’t post often but I read your blog everyday. Without fail.
Now I am wondering, what will your faithful followers get for sticking around and supporting you when you were sounding like a really bad prophet?
I knew you weren’t as demented as you sounded!
Non Plussed…Nosty Vlad…Alan…et al…
1/
Its a given that the US political system is corrupt and the US Govt needs to bankrupt the world before it goes BK…
http://www.businessinsider.com/goldman-sachs-shorted-greek-debt-after-it-arranged-those-shady-swaps-2010-2
2/
Unions have too much power…
http://www.rubberroommovie.com/
3/
NBC shows off the North Shore of Vancouver…
http://www.msnbc.msn.com/id/26184891/vp/35366326
http://www.msnbc.msn.com/id/26184891/vp/35365083
4/
Alan…
Evelyn Project…West Vancouver…could be a harbinger for future R E $$$.
http://www.evelynliving.com/index.html
Nostradamus jr.
#32 Jim on 02.15.10 at 6:40 am
An interesting and informative article. I understand the flying high analogy; but, why that particular Zeppelin image? It seems you may be brushing up against Godwin’s Law and you run the risk of being dismissed as a crank instead of heralded as a prophet.
===========
#32 Jim’s right. Along these lines, I rarely tell anyone that I come to this site or read Garth’s stuff, even though I enjoy coming here. Garth already has an image of being a fringe player and naysayer. What I’ve come to learn here is that he is also defensive and childish at times as is evidenced by some of the “colourful” responses he makes to some of his bloggers’ comments.
It’s too bad, really, because I actually think Garth is a smart guy with some important things to say. Unfortunately, his behaviour takes away from the gravity of his message.
Oh come on, you already know that vancouver has no bubble and being the financial capital of the world won’t ever have a crash.
>#6 Nostradamus jr. on 02.14.10 at 10:20 pm
>Ok Garth….If you are correct do,
>…Toronto & Vancouver R E $$$ drop equally or
>differently?
>Nostradamus jr.
#26
forget about the family in Shanghai… why would they buy in Canada when prices in US are 50% or less than the Canadian prices?
Seems to be a lot of flip flopping going on regarding the prediction to curb mortgages. But we all know that come March 4th, things will stay the same, and price appreciation will go forward…
By the way, Vancouver has never had better weather than for the 2010 Olympics. With 10 degrees and blue skies, the 250k visitors here are going to think this place is mecca and that our weather is like this all the time. The poor doom and gloomers were hoping for our traditional rainy foggy weather, but alas, the property gods want foreigners to buy – and buy they will. It will take on a fraction of the visitors to eat up the already low inventory. Sorry Vancouver bears, but Vancouver will entrench its position as a city of foreign money once these games are over – you missed out….
I came, I saw, I bought (Money Road…signed!) and left the Empress yesterday ready to take charge of my finances in this town that has gone insane from Real Estate!
No wonder Harper wanted you out…the rest of the MP’s were jelous of your ability to work a PowerPoint presentation and make an engaging presentation…that actually makes sense!!
To be honest and give joe public the straight goods…that is just not what a politician can do…hence your succes with seminars from Coast to Coast.
Keep it up!
F will not do anything dramatically. Just a small change so that the monthly payment increases by $100 (?).
It has to be 10% with 30 years to cool down the young (no money) herd.
With 0% down (5% cash back) the young heard will keep on bidding. They are not bidding with their money anyways…..
In case the bubble keeps going on they win. In case the bubble pops a lot of them will start the bankruptcy legal process and tax payer loses.
So in the end the young buyer herd with no money has nothing to loose thanks to these easy mortgages (0 down and 35 years amortization). They might loose some closing money.
The ones with savings will loose entering in this market thanks to the young pack, because all their savings will be wiped away in a year or two after the bubble deflates, and they will not be able to claim bankruptcy.
So the young pack has the time advantage on their side when they will go for bankruptcy….and the 0% down (aka 5% down with cash back) with 35 years is also working good for them.
This is why deregulating mortgage insurance destabilized the housing market in Canada: the young (no money) pack wants IN while housing goes up and wants OUT as soon as the housing market tanks. Even though not all of young (no money) pack will be able to claim bankruptcy, only 5% of them will be enough to bring a lot of foreclosed properties on the market.
This is the consequence of CMHC – 0% down / 40 years casino.
More recently CMHC casino was renamed to 5% down (or 0% with cash back) / 35 years but gambling kept going on….
To Alan –
Would you have wanted to be long the US dollar in the last 3 years? Didn’t think so.
There are simply not enough millionaire buyers willing to plow money into an already too hot market. Vancouver is yesterday’s news as far as real estate goes and foreign buyers are looking at “safe” investments where they can park their dollars without risk of losing equity. Any sophisticated investor takes one look at this market and thinks it looks a lot like Phoenix in 2007 or Toys.com.
Among the sophisticated investor set, Fortress’ dismal experiment with B.C. real estate did not go unnoticed. What is Intrawest if not a real estate play? The Olympic village? FAIL.
I love this town, but this story has already been written. The Olympics aren’t going to change that.
#26 jr
…more mainland Chinese investors are looking toward Canada’s booming housing market as a haven for their dollars….
Why would someone be so stupid to put $ into a boom in the later stages.
Howdy Garth (can’t get those $1,000 cowboy boots outof my mind),
When are we going to start calling “F” a spade?
Eh?
By the way, Munch has just secred tickets to the opening match of the Soccer World Cup – I know y’all happy for Munch – 3 Boeing 747 flyover of the stadium, opening ceremony (can ONLY be better than the Vancouver fiasco, or what?
), the massive fireworks, and of course the match itself – 2,5 billion people watching, and Papa Munch will be THERE!
Wish me luck!
mwahahaha
PS:
Winter Olympics opening ceremony …
{y-a-w-n}
Reminded Munch of Frank Zappa – “t-r-u-d-g-i-n-g across the tundra, Don’t you eat that yellow snow”
Never MIND! I am sure the olympics will be a GREAT success – let’s hold thumbs that the closing ceremony is better?
{coughing into sleeve}
Talk about bad imagery Europe Economy Chief Calls for More Steps by Greece
“We expect that in due course the Greek government will take the necessary additional measures,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels today before a meeting of EU finance chiefs. Greek Finance Minister George Papaconstantinou said his task was like changing “the course of the Titanic.” <————!!!
European finance ministers meet today to review Greece’s deficit plan under pressure from investors to spell out the concrete actions they will take to rescue the country if it fails to convince markets it can control its budget gap. Even as the risk premium on Greek debt fell last week on the prospect of European support, the euro weakened on concerns about the euro region’s stability. "
A German official remarked Friday they weren't even going to discuss Greece. They need to synchronize their BlackBerries. Better hurry, The Titanik is sinking. FT headline "Quote du jour, Women and children first edition". Everyone to the lifeboats.
"Holland's Tweede Kamer has passed a motion backed by all parties prohibiting the use of Dutch taxpayer money to bail out Greece, either through bilateral aid or EU bodies. "Not one cent for Greece," was the headline in Trouw. The right-wing PVV proposed "chucking Greece out of EU altogether".
Germany's Bundestag has drafted an opinion deeming aid to Greece illegal. State bodies may not purchase the debt of another state, in whatever guise."
I'm not sure the euros can waffle their way out of this dichotomy. Public opinion in Germany etc is wildly against any bailout, from what I can gather. The Greeks assume they will get bailed out. Someone will be disappointed here. Greece last Bond auction did not go well – the Bonds sold at offer, but the next day they crashed in price. The IMF seems ahead for Greece, but they will have almost insurmountable difficulty with that. Greek economic statistics are so unreliable their actual debt is likely understated widely. The Greek Government has no credibility. Prospects of a New Drachma are dim, it might devalue 100% the first day out, slightly more than they expect.
Spain is the next fault line. Their debt makes Greece look frugal. Iceland may outright default, they are deciding by a vote this week. Watch for populist politicians in debtor nations to call for national default, that will really get the ball rolling. Angry rioting voters can do that.
Luckily for us, Canadian Banks are not hugely involved, except indirectly, neither are US or China as far as I can tell. Rather bleak outlook for Europe though. I have no idea how they successfully resolve it. I suppose Canada could see a new wave of European immigrants.
Garth I think its going to take something rather severe and persistant to bring the Canadian real estate market and the people who are in on it to their senses and induce them to exercise common sense and restraint. I don’t know if Jim is up to the task of financially water boarding and torturing the real estate fanatics but the job needs to be done properly and I hope he does a good job for the sake of future generations of canadians and those priced out of the country. Realisticly though I expect to be disappointed.
Steven
GDP – seems to have morphed into a time measurement at which wealth changes hands
#23 Alan,
As a Vancouverite here is my view. The Olympics will have the same effect on Vancouver Re that they had on the Re prices of all previous Olympic cities – none. See the UBC Study from Tsur Sommerville. Most of the people here are press or family members of athletes. The idea that they are all going to buy homes after 3 weeks here is laughable.
However – the roughly $8 billion we have spent in the run up to the Olympics will have an impact. Necessary as much of it is it bufferred B.C. and in particular Vancouver from the recession. Note that B.C. contruction employment was the highest in mid-2008 when all the venues, the Sea to Sky, the Convention Centre and the Canada Line where still being built – not to mention Woodwards, Fairmont Hotel, etc.
Now that the games end this stimulus ends. Look for the B.C. economy to start slowing down in the weeks after the Olympics. Just wait until Q3 and Q4 when the HST and other tax hikes take effect.
#26 Jr.,
Read the article carefully. It clearly points out that numbers are small and many Chinese have trouble getting their money out. Besides, why would you invest in markets like Vancouver and Toronto when better values can be had in California, Las Vegas or Miami.
Oh, I forgot. We are World Class and it is different here.
“Oh the humanity….”
It’s all fun and games until your zepplin blows up.
The balloon image, worth a thousand words.
At the end of the day, real people are gonna get really screwed.
#26 jr
So rich Chinese buy up our houses and rent them to back to us. A net export of dollars to China. Damn they are smart! Shouldn’t there be a law to limit that?
Thanks for the informative seminar in Victoria. Our group of young investors got a valued perspective they can work with in the future. Would you consider running for BC premier, probably not given the mess you would be inheriting.
Nothing is going to happen with RE prices. You people missed the boat and now all the renters with those huge money in the bank will not be able to buy a home for the next 10 years minimum. No matter what you people hope and dream the fact is the prices of homes will stay flat for many years to come.
My Sis & BIL have to sell their home on the south shore of Mtl. A really nice area. They plan on putting it on the market in the spring. I’ve tried to tell her she should do it ASAP before mtg. rates go up or Flim flam changes the 5%/35 yr. mtgs. I may as well talk to a brick wall. That’s partly why they’re in the situation they are.
#20 nonplused on 02.15.10 at 12:42 am
No way.
There is no way F (that’s Flatulence with a capital “F”) is going to do anything to tighten mortgage standards. If he does anything it will be an “affordable housing” program designed to increase the number of qualified applicants, or to assist deadbeats to stay in their homes, as they are doing in the US. He will take the US blue print, and implement it in advance, as he’s done all along.
There is no way Carnival Carney is raising short term interest rates more than a token amount. The long end of the curve may go ballistic as the sovereign debt crisis evolves, but there is no way Carney will be leading interest rates higher. He might follow the long bond up, but only in so much as he has to in order to lend his hand to central banks appearing to still be “in control”.
************************************
Couldn’t have been said better–imo
I am reminded of the Young people of the village roaming with pitchforks and torches hunting Dr. flarekenstiens monster.(mortgage )
http://nikkibroker.com/blog/mortgage-news/canadian-banks-squirmy-want-new-lending-guidelines-from-government/
Jim ,
I reckon that Garth wanted to show a vessel built by people whose blind faith in the supremacy of their product and its ability to go on to a brighter future of air travel , unchallenged by any man made or physical law came to an ugly end with one tiny spark of static electricity in New Jersey
very few saw it coming…..least of all those onboard.
#30, JAMESOTTAWA…
“Back then you wrote government debt out of control! Government will be raising taxes, Interest rate shock.
and yet in 1988 you recommend buying real estate!”
I listened (in my late 20′s) and started to buy (and sell) RE and build equity. Sometimes mortgaged to the hilt but I am now 48 years old and debt free. Sold all but my primary residence and my house in the tropics. I have money in the bank and an offer of $1.24M for my primary that I will accept tonight.
My cash will be diversified using (for the most part) Garth’s recommendations.
Sure, I could stay and reap more profits via the upcoming firesale but I am content and have enough. A few days after F reads his budget, I will be on the way to the tropics, retired (at 48) and I can only say one thing…..
“THANKS GARTH”!!
Garth, Happy Family Day
Youve said in earlier posts, or implied that this correction may happen in another year or so. However, your last few posts are leaning towards a correction this year instead based on your inside connection that of what F is going to do. Do you feel that this correction is going to happen sooner than expected now.
It’s too bad people didn’t get to ask questions Garth. Nice little talk in Victoria nonetheless. I was surprised to hear you say that gold would go to $1200 or could even go to $2000.
I would have enjoyed hearing you battle the dull and vacuous Michael Levy.
All the best.
#24 – its not about the monthly payments or the downpayment per se, it’s about what that does to the total amount that can be borrowed. Do the math – any mortgage payment calculator will do, when you change the time horizon from 35 years to 30 years the max amount drops by 6%! So anybody who put 5% down would be wiped out by a 6% drop in prices….
Hi,
For the blog haters who assume that those who rent do so because they don’t have the capital, you can add me to the list of those who have the money to buy but choose to rent. I moved to Toronto a few years ago and could buy any house in this city for cash with no debt. Instead, I rent at Harbour Square and pay the same as my landlord pays on his management fees and taxes, so he’s covering his mortgage interest on his own dime. Not to mention bearing the risk of capital losses.
I think the politicians should be ashamed of themselves to not have taken advantage of the global crisis to prick our bubble.
Garth,
I keep hearing rumours from sources that the budget coming down is going to force an election. I imagine that this remains pure speculation but it is interesting that I heard it from two very different and well placed sources.
The theory is that the Cons know the economy will be much worse later in the year so they want to run on a stoked up housing market and Olympic high.
Any thoughts on this?
#31 Your an idiot and a moran all rolled in one, Garth i’m shocked you let this clown still post on here. What a load of bollox seriously.
#16 gordon on 02.14.10 at 11:36 pm
Valuations supported by profits… thats one way to go and it sets a good benchmark. The way I’ve calculated where future RE values will be nationally is with how much house one can buy with monthlies around an estimated 8 to 10% over the next 5 years as opposed to the 3.59 – 3.79% range for 5 year terms we see now. People will still for the most part, need to borrow to buy a home just as they are today. This won’t change in the future, what will change is affordability. And as affordability (or lack thereof) gets priced in with rates that climb, so to, will valuations drop.
Lets use the vancouver example as a benchmark.
Today, 3.79 % (5 year terms) on a $700,000 home as an example, financed with 35/5 CMHC regs will cost the buyer
$25,203.00 in interest, plus $19,000.00 on principle for annual costs of $44,203.00 assuming all fees and costs associated with buying the home are paid for with cash and not financed. This makes monthlies cost $3684.00 per month assuming the buyers are helped out by parents with closing costs.
Lets assume that 5 years from now, interest rates will be at 8% for VRM’s and lets assume that regulations remain unchanged. Lets also assume that average incomes have risen 10% over this same period allowing the consumer environment to finance 10% more with this in mind. This means that banks should be as comfortable 5 years from now as they are today in financing monthlies at $4052.00 for adjusted moderate increases in income. What home values would that finance 5 years from now at 8% with the same CMHC 35/5 regs in place?
Monthlies with 35/5 CMHC regs on a $430,000 home at 8% will cost $32,680 annually plus annual principle payments of $11,671 = total annuals of $44351.00 or $3695.00 per month. Add 10% increases on incomes over 5 years and the same buyers through credit today should be able to afford roughly a $470,000 home with monthlies around $4100.00. HOw much of a drop is $470,000 from $700,000? 33%. This doesn’t factor in higher tax rates which take a bite out of disposable incomes, or what the economic effects will be from RE values that drop by 33% over 5 years on the consumer spending (most notably, the erosion of credit availability and shrinking credit based consumer spending placing a drag on the economy overall). Factor these in as well as a fear effect high interest rates and falling valuations ultimately bring, and its not hard to see the national RE average drop by 40% under 8% fed rates.
Now… I don’t have a crystal ball. I can’t say for sure that 5 years from now BoC rates will reach 8%. But if they do or go higher, the mortgage holders of today will be snowballed by payments that will balloon to $6100 monthlies with the same 5 year mortgages they hold now being refinanced at 8%.
Certainly, this is the biggest systemic risk to our financial institutions going forward and the only solution I can think of to fix this problem today is to introduce 30 year fixed terms and to do it now while interest rates are still low so that all of Canada’s mortgage holders of today have the option to refinance their loans with monthly payments that will be higher, but only marginally compared to the threat of 8% – 10% interest rates hitting mortgage holders when their existing terms come up for renewal. If the feds don’t act on encouraging the banking industry to go for 30 year terms, their window of opportunity will disappear as interest rates climb later this year and next.
Its what I would do as a FM to fix the problem inherited by this current Conservative government but it must be done quickly and I doubt that this is currently on the table with the government we have now.
As for the other choices on the menu, which Garth has already pointed out:
“Raise the minimum down payment eligible for mortgage insurance from 5% to 10%, or maybe 7.5%. Shorten the maximum amortization allowed for an insured loan to 30 years from 35. Tighten up lending requirements at the big banks so people applying for loans have to prove they can handle interest rates far higher than today’s emergency levels. Or, a combination of the three.” – Garth
Something needs to be done to keep the homebuyers of today from getting in over their heads. The buyers driving up this market are the very same buyers that are at most risk to bankrupcies going forward into higher interest rates. I would prefer a combination of all three and bite the bullet of falling valuations this brings regardless. Its either this, or a free market economy approach which is to let interest rates decide it but this means the bubble continues to inflate between now and then and the longer that takes, the worse it gets as the bubble collapses from higher peaks.
Personally, I believe Harper/Flarehty will do nothing. If they do tweak regs, it will be very marginal, just enough for the propaganda machines to call them prudent in a bid to win a majority and yet marginal as they don’t want to risk jepardizing the majority government they seek by putting the brakes on the RE wealth effect they’ve created through this RE bubble/credit expansion they’ve engineered in an attempt to win/buy a majority government with our own borrowed money. They’ve gone this far damaging this nation with the creation of a RE bubble/wealth effect plan to buy a majority government… why on earth would they stop now?
I can only say that the greed of our own chartered banks has not helped this situation. In my view, they’ve engineered the borrowing environment in many ways as much as our feds have that has created this bubble. Surely, at any time, our elected officials could have said no to the banks lust for quick profits in the face of long term potential bank failures such bubble environments breed as bubbles collapse over time. Competition, greed, power, its always the same with what blinds banks but the feds could have said no and tried to win an election anyway (and they likely could have and still won, mabye even winning that majority they so desperately want). They didn’t and as such, the blind leads the blind and unfortunately we’ll all pay for their foolishness as a result. I don’t see any way out of tumbling RE values going forward as interest rates inevidably rise or avoiding the misery it will bring to us all, homeowners/taxpayers/dependants alike. All one can do now is control the damage left behind and the first thing on the table for me is to replace this government all together with one that actually acts once and for all in the best interests of this nation as a whole while encouraging the opposition to hold talks with the big six to warm up to the idea of 30 year terms before interest rates rise.
this will be a controlled demolition of our economy. carney gave up several million a year to be in his present position , why? desire to serve, he actually said that. LOL who he serves is Rothchilds, Goldman the Illuminati etc, not Canadians. watch your wallets
Nothing is going to happen with RE prices. You people missed the boat and now all the renters with those huge money in the bank will not be able to buy a home for the next 10 years minimum. No matter what you people hope and dream the fact is the prices of homes will stay flat for many years to come.
—————–
haha, nice try. The cash in the bank bought stocks and multiplied many times over in March of last year. I love you people that come here with the all knowing attitude. I wish you could talk about other markets or assets you think are bullish, but you don’t know of any. Just riding the trend with the herd. All you know is that real estate has been going up. It’s what you don’t know or understand that will take you to the slaughter!
Could we also see an increase in the CMHC Mortgage Loan Insurance Premiums?…..Seems that the ‘house of cards’ and liability that had been taken on by the taxpayer could/should be mitigated by higher premiums. I’m doubtful that such a move would totally send the market into a spiral, but socking away even more hidden taxes for the day of reckoning might soften the pain.
23 Alan
58 Vancouver Rocks
Just to disspell another myth – the proportion of real offshore buyers in the Vancouver market is tiny, tiny tiny. And they all tend to be for big expensive houses.
There are no real numbers on this but ask any realtor how many houses they have sold to people from offshore over the past year. You will be lucky if the answer is one. (i.e. By offshore I do not mean some guy living in Richmond that immigrated from China 12 years ago).
Plus as somebody else pointed out – if you are a Chinese millionaire why by in Vancouver when you can buy cheaper, better, sunnier in SoCal.
Anyways – love you RE bulls, we wouldn’t have much to talk about without you.
Garth,
Don’t you think it’s a bit of a contradiction when you call for more regulation and tell people that now is probably not a great time to purchase a house, and then advertise mortgage rates on your blog?
Just sayin’.
Saying what? There’s absolutely nothing wrong with people borrowing money or buying houses. — Garth
#46 tran, hcmc on 02.15.10 at 10:42 am
#26 jr,
China is not like Canada when it comes to repatriation
of funds. There is such a thing known as currency control. It’s the same for Vietnam.
Don’t be hoodwinked by realtor’s report about
Chinese money coming to Canada to support
the RE prices.
******************************************
Wow–sure did get a lot of assumptions from only saying
“F-will have an orgasm” from reading the “link” i posted-
We could-i suppose-debate that–
tran, hcmc–you said–
“China is not like Canada when it comes to repatriation
of funds. There is such a thing known as currency control. It’s the same for Vietnam.”
You can’t be serious?
China is printing more then the US–their economy is overheating from the inflation/stimulus they’ve force fed into their economy–
China is in serious danger of a currency collapse,the only thing that keeps it alive,is the fact they are 60% or so–pegged the Yaun to the USD–
Vietnam’s currency–the Dong is collapsing so fast that they have restricted gold buying,to prevent the people from outright dumping–
The black market in gold in Viet Nam is trading way above comex prices–
#16
Your comments are right on!
I must also add that the Conservative government has created an easy monetary environment that favours borrowers over savers, that rewards speculation over entrepreneurism and hard work. But I dont blame the people for borrowing as much money as they can when made available to them. Look, if you have no money but a decent job and you want to borrow say $400,000 from the bank to start a business to create jobs, the banks will probably turn you down, but tell them you want to buy a house and presto you get the money. Why, because the banks can get CMHC (all Canadian taxpayers) to guarantee the loan. So the people are in a way in a no lose situation, instead of paying rent they all of a sudden have $400,000 dollars at very low interst rates, that they would not ever have qualified for. Then as the value on the house goes up ,as they have been over the past 10 years, borrow against the equity or sell, and reap the rewards. Then move on to the next borrow and buy and make more money. Many people have done this and have made alot of money tax free.Many real estate speculators have not even reported their windfalls and paid capital gains taxes. Revenue Canada seems to turn a blind eye to real estate specualtors, but believe they are out there riping of all Canadian taxpayers. Our gutless politicians do not realize how bad this wil hurt Canadas future, all they care about is getting re-elected. We need politicians with guts to fix this unfortunately they dont exist. So the bubble will grow. I do not expect FM to do anything any time soon.
Given that real estate is ‘local’, I went through the CMHC stats for 2009 and did some quick calculations. Rough estimate of 2009 real estate prices (the ‘average’ home) divided by rough estimate of yearly income (times 2 individuals). Here are the ratios:
Victoria = 5.3
Edmonton = 3.3
Regina = 2.8
Winnipeg = 2.75
Toronto = 4.5
Quebec city = 3.85
Fredericton = 2.3
Halifax = 3
Charlottetown = 2.5
St. John’s = 2.5
Ottawa = 2.9
I realize this methodology will skew the numbers lower (2 times yearly income is greater than average family income).
Who knew Quebec city was in a bubble (>3.5)?!
Your income numbers are wrong. — Garth
The government and the banks could do absolutely nothing to reign in housing prices and they would still collapse. Look at the US. They did everything they could by hook (but mostly by crook) to artificially maintain absurd price levels and guess what? House prices are still collapsing there and could easily fall another 25 to 30 percent in some areas. When there are no more buyers there are only sellers.
Oh and the odds of the Bank of Canada raising interest rates with the next, far more severe and lengthy decline in the stock markets of the world waiting in the wings? Nil.
hi, i’m from victoria ,owned my home 12 yrs now and keep hearing of the 1980′s and rates at 20%.
That cant happen again can it? everyone would just say fug it and move into beacon hill park.
I just cant believe people put up with that..wtf!
#95 Robert,
Agreed. The gov’t tool kit is pretty much used up. Any moves by the B of C or the Feds will only lessen the problems once prices begin to fall. While it is the responsible thing to do – especially considering most of the victims are Gen-Ys in their late 20s and 30s – there is no guarantee F is going to do the right thing.
David Dodge spoke up about doing to the right thing. Maybe they will listen to him. In any event, we are pretty much topped out now anyway. The January numbers in Vancouver show a flattening trend. Whatever F does prices aren’t going up anyway.
Whether it is March or the HST in June it won’t take much to start the unwind.
#53 BigAl,
My apologies from a Vancouverite for the behaviour of a number of the number of Clueless Vancouver Bulls on this Board. They do not believe in the laws of economics or gravity. Living proof of Voltaire’s comments that “Common Sense is not too Common.”
You are correct. The B.C. economy does not have strong fundamentals. It is highly dependent on commodities and right now very much dependent on China’s continuing purchase of these commodities to maintain itself. Like Australia, there is major concern about this in these market areas.
Way too many people in this province fail to recognize that Re is not a primary industry but a service industry highly dependent on the health of the rest of the economy. We are pushing tourism and services but lack a strong primary industry sector. Even our film and television business is highly service orientated.
Long term we have potential but we have focused too little on building a competitive advantage in primary industries. My hope is that we do a better job going forward in furthering our initiatives in bio-tech, sustainable energy and digital media but we have not done enough.
the big lebowski
“The education system is set up by the government to teach kids nothing about finance and how money works. ”
SO ARE YOU SAYING PRIVATE EDUCATION BY CHARTER IS BETTER?
LOTS of flawed “educational ” text books AND math models.
The worst ignorance –eugenics. Corporate financed by Rockefeller and Carnegie and taught to many college level kids etc. The Trait Book.
Eugenics Record Office in America
Cold Spring Harbor Laboratories
It seems The Elite don’t like you to know that all humans are cousins.
Your income numbers are wrong. — Garth
———————————————–
No, my calculations are based on two salaries (and not based on average family income) using average weekly income for the year 2009 given in the documents available from the following website:
https://www03.cmhc-schl.gc.ca/catalog/productList.cfm?csid=1&cat=70&lang=en&fr=1266273489790
For example, the average weekly income for Victoria residents was $770/week, giving $80,000/yr (for two individuals combined). Average townhouse price of 427,000 thus results in a 5.3 ratio.
Income is still wrong and a TH is not the same as the average house price. — Garth
23 Alan
58 Vancouver Rocks
Re – offshore buyers
Of course I have forgotten the obvious. The biggest “offshore” buyer in Vancouver, although still very very small proportional to local buyers, are the Americans.
Even moderately wealthy Americans used to be able to afford a Vancouver condo to get away from Arizona/LA heat in the summer. They would just lever their multimillion dollar US house or their business.
Well we all know what has happened to that.
Garth,
first time for me here…although I feel like I know you personally as my husband lives, breaths and eats your comments and belives. Anyhow, sold our home, sold our rental home, paid most of our debt off (we both work full time..ok salaries), we are part owners of pretty stable francise and we are renting. It has been an incredibly unstable and emotional time in our marrige and it gets worse each time we visit our friends who live in big and decorated homes! So my question is “is there a light at the end of the tunel and how long do we have to walk until we get there?”
Thanks so much for reading!
A number of people wonder what the Sovereign debt problem has to do with us. Greece is the biggest problem in Europe right now but Portugal, Ireland, Italy and Spain are not far behind.
A huge problem in Greece and many European countries are that in order to bring spending under control gov’ts will have to cut back gov’t wages. Greece is already ablaze with strikes as a result.
One potential solution is to inflate the economy out of the problem. Right now the Federal banks are keeping a lid on inflation but that could change quickly if this is seen as the only solution. Interestingly it could also be a solution implemented in China depending on how their tightening of monetary policy impacts their economy.
Just think of what this would do to RE prices here as Interest rates sky-rocketed well ahead of wage gains.
See Paul Krugman’s Blog on this:
http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/
Garth et al,
…If interest rates rise, powering the Canadian Loonie, in very short order Europeans or Americans will no longer be able to afford Atlantic Canada’s Lobsters, Swordfish or Ontario’s minerals or the Western Provinces wheat and barley.
Nostradamus jr.
RE prices will be significantly down, but affordability will not rise, because average income of Canadians will be also significantly down.
The level of living standards in Canada is going down and down and down to the third world country average.
Garth, I was considering waiting for the real estate market to tank and pick up a few properties. After the discovery of 6% dividend paying stocks, why would I do that? I’d rather collect the 6% with a company with a low P/E. I have the benefits of being paid the dividend plus capital appreciation on the stocks I purchase. This and I would never have to change a toilet or a furnace.
Most people today don’t get 6% per month in homes they’ve bought for the purpose of renting. Also, they’re paying capital gains on that rental income rather than dividend gains.
I’ve always been a super agressive investor and/or extremely conservative (ING, CHQ acct). I needed information like this. Thank you sir.
$450,000 at 6% a month is: $27,000 a year in dividend income which equals $2250. This doesn’t include capital appreciation and I wouldn’t buy a stock above a P/E of 15, so my $450,000 would double in no more than 15 years.
You have been referenced in today’s Vancouver Sun
http://www.vancouversun.com/business/There+housing+bubble+just+overheated+market/2566324/story.html
“Now, there’s simmering worry about a Canadian housing bubble, based on the remarkably fast rebound of house prices here after a brief, violent crash triggered by the 2008 U.S. financial crisis. This week, the concern got more visibility when the venerable Wall Street Journal, where big Canadian stories are rare, belatedly reported it in a front-page article. But the large volume of hot air expended on this issue doesn’t seem to be matched by an equal quantity of careful analysis.
The most prominently quoted source in the Journal article, for example, wasn’t an economist or real-estate expert. It was Garth Turner, a former politician who wrote a book two years ago predicting the collapse of housing prices in Canada. It didn’t happen and economists never took Turner’s analysis seriously, but he keeps making the same prediction.”
Post #102 Kasia, I hope this story about my wife and I will help you. We had the nice fancy house with granite and hardwood floors, double french doors with carved glass, small gym in the bedroom, opulent plumbing and light fixtures, vacation condo the whole bit.
We got a bit of a s–t kicking in the early 90s downturn and had to do some deep thinking about “things.”
We bought an old fixer upper for considerably under market value and have slowly fixed it up. Solid working class area. Pay as you go. Nothing fancy, just what we could afford. (I can’t imagine what my neighbours will do for entertainment when we move LOL)
A couple of years ago we were invited to dinner at a friends house.
Well it was home and garden on steriods, designer this designer that.
Dinner was some sort of fancy designer food, cooked on a $1000 barby.
We really enjoyed ourselves.
When we were driving home the boss said to me gosh I would love to have a house like that again, she was really longing for one.
I said it’s all smoke and mirrors dear remember that.
A few days later she said to me you’re right, we have everything we need here. We’re warm and cozy, great neighbours and a few minutes to everything.
About a year later TSHTF for that couple, business took a turn for the worse, and for them the illusion was over.
They now live in a mobile and are stuggling to get “back” to where they once were.
My wife and I could move to a “nicer” area and drive “nicer” vehicles etc.
The descion we made 15 years ago to jump off the trophy merry go round and live below our means, save and now start to invest for our retirement was the BEST thing we ever did.
We rarely argue about money anymore, and are committed to a plan for our retirement.
After all, its all about being secure, comfy and having a long worry free retirement that was important.
It took us awhile to see the light at the end of the tunnel, for us it was a few dollars saved here and there, make do with less, and quit worrying about what others thought.
Just really think where you want to be, and when. I found if you look long and hard there’s people out there that can help with the confusing things.
Good Luck.
@#102 kasia
Like you and Lynn (see http://www.greaterfool.ca/2010/02/09/jim/) I too am growing fustrated with waiting. I sit here and watch those around me buy new houses and new cars (on cheap credit) and wonder why I don’t join the party. I watch the gov’t, banks and RE lobby tell everyone there is no bubble and wonder if Garth (and all us bloggers) could be mistaken. The media is largely a bullhorn for the RE industry so it’s easy to buy into the hype.
All I know is this: if the jobs dissappear then, no matter what happens, RE prices will tank. I live in Calgary and the unemployment rate is on the rise and so is the Alberta foreclosure rate. As long as oil and natural gas prices remain high Calgary house prices will rise; however, if they go down then jobs will dissappear and RE prices (espcially if people have bought on the edge of their means) will go down. I’m not sure where you live but in the coming months I would pay attention to the unemployment rate and the outlook of the main driving forces for your local economy to try to make your own predictions about when to buy.
“There is no bubble … but we shouldn’t do anything lest we pop it.” – Jim Flatthery, the RE industry and ING Direct.
Congrats Garth on your book; look forward to seeing you in Calgary.
#100 DUI on Money Road,
Who are you trying to convince what kind of math are you using? Use the standard medium household salaries to medium priced single family houses.
Stats Can 2006:
http://www40.statcan.ca/l01/cst01/famil107a-eng.htm
For 20090-2010 add 2005-2006 growth of 6% a year. So say income is about 90,000
http://www.vreb.org/mls_statistics/current_statistics.html
Medium house price = $595K
Therefore $595/90 = 6.6
# 11 T.O. Bubble Boy
a grace period of 60 days mid August announcement. Mid October cut off date but banks made the 0/40 mortgage emmediately unavailable.
one of the local radio stations are reporting F is bringing in changes to mortgage qualifying on tuesday (this tue or next not sure)
true????
#38 mikethengineer and #55 Nostradamus jr. — “. . . . the US Govt needs to bankrupt the world before it goes BK…”
As soon as the Pound and Euro simultaneously hit the skids (after the Olympics), then the greenback follows suit. Hence, a pre-planned takedown.
The rest of the world can not prevent this from happening and thus, has to live with the consequences of others’ choices.
Ted Turner’s words are quite accurate — he said a while back the world only needs a population of 300 million or so. Another figure I have seen bandied about from the elite is one billion tops. It will play out in the end by having a level playing field for all countries.
Whether we are here to witness this remains to be seen. WW3 (almost certainly nuclear) will wipe most of us (including the elite) out altogether. BTW, a 6.2 ‘quake hit Indonesia today, which may go with the link I posted last night about a volcano dumping nearby — not Toba or Krakatoa, the other small one.
The elite are mentioned here as well, carefully orchestrating all the events that are taking place all across the globe. Mike, you may like this link.
Woe is England (with all the snow)! 4:45 funny clip.
This could be a part of this. There was an incident not too long ago, when a military jet took off with six nukes. Somwhere allong the way, it lost one. It may have been found.
Countering false info on you tube.
FDIC Provides Additional Information on its Loss Share Agreement With OneWest Bank
February 12, 2010
http://www.fdic.gov/news/news/press/2010/onewest_lossshare.html
FDIC Director of Public Affairs Andrew Gray said, “It is unfortunate but necessary to respond to blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and OneWest Bank. Here are the facts: OneWest has not been paid one penny by the FDIC in loss-share claims. The loss-share agreement is limited to 7% of the total assets that OneWest services, and OneWest must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets. In order to be paid through loss share, OneWest must have adhered to the Home Affordable Modification Program (HAMP).
The producers of this video perpetuate other falsehoods. The FDIC has not requested to borrow money from the Treasury Department. Indeed, we continue to be funded by the banking industry through assessments, not by taxpayers as claimed in the video.
This video has no credibility. Regardless of the personal or professional motivations behind its production, there is always a responsibility to be factually correct and transparent. The FDIC made available a fact sheet on the day that the sale of IndyMac was announced that details the terms of the contract. It’s too bad that the creators of this video opted to premise it on falsehoods.”
#107 Vancouver Suburbanite,
I saw this article today. What nonsense. The really laughable part is the whole explanation of why we don’t have a bubble and his dismissal of Garth. Here is why we don’t have a bubble:
“widespread worry about a bubble is the opposite of what drives a real one: the disappearance of normal caution, replaced by a near-universal delusion that no matter how costly an asset, it’s a good buy because prices can only go higher.”
So, because we worry about having a bubble we must not have one. Except F says we don’t have a bubble. CREA says no bubble. Vancouver Sun says no bubble in an editorial a 4th grader could have written.
Meanwhile Gen-Ys rush madly to get into the market for fear of being priced out forever. Pop goes the bubble.
Sounds like tomorrow:
http://www.news1130.com/news/national/article/27224–new-mortgage-rules-introduced-to-lessen-mortgage-crunch-risks-sources-say
Okay organizers were dropping the ball at the winter Olympics here. No more fug ups okay ????????????
Nos LMV…I agree with the timing on those currencies. I think the USD has about 4 months left to go to 0.86 then crash!
The challenge is what currency to be in?
Those who cannot take possession of physical GOLD (and you cannot get it anymore) and stuck in paper will loose their investment value. Physical GOLD faces confiscation same as 1933.
Silver!!! is the play for any currency crisis. Even the sale of diamonds are on the rise!
This just in:
http://www.cbc.ca/canada/story/2010/02/15/flaherty-mortgage-rules.html#socialcomments
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20100215/mortgage_rules_100215/20100215?hub=TopStoriesV2
We’ll know in 2 days!
Hello Mike in Langford @96.
The 20% interest rates were the weapon used to bring inflation under control, which was running around 12-14% average for everything, including your wage (assuming you werent locked into a long-term contract
that sucked).
The thinking was that as your wage was going to increase dramatically, the 20% didnt look so bad. Until they pushed for another 1%, then another, then…..pop.
102 Kasia – Mama said dont speculate with the family home – in either direction! Why didnt you keep one of the houses, maybe the cheaper one as a hedge?
Garth – DUI has presented some numbers with references and explained his calcs. I don’t see how you
can proclaim the numbers are wrong. Perhaps it is better
explained as the “wrong numbers”.
Already done. — Garth
BC’s economic drivers are very elusive lately. Used to be the economy was based on forestry, fishing, and natural gas. Fishing has tanked, forestry isn’t bringing in what it used to and gas prices are low. I don’t know what is left. The film and tourism industries brought a higher profile, they failed to bring in the big dollars other commodities did. Yes I know there is alot of service sector but there has to be some main industry driving the economy. Could weed be a big economic driver? I dont’ know anymore. That province confuses me.
#99 didn’t say private education was the solution. I guess the only way to get your kids away from the mass brainwashing/indoctrination going on is to home school. But i guess thats why they are arresting home schoolers in the States now. We can’t have a public that is free thinking now can we. That would be a population much too hard to bankrupt. Better to have kids that can memorize what they are told so they can pass three government tests a year, and grow up to be good little produces and consumers.
No doubt, there are people who disagree with my posts and I appreciate the feedback. I actually think through the ideas that are presented and I think if we are all living in a small town with no other reference other than US real estate, 20th century manufacturing and highly indebted foreign countries that may/will default on their debt then it makes sense that some parts of Canada will be affected, especially the manufacturing sector of Ontario.
It may be a bit absurd for this blog to consider Vancouver or Vancouver Island to be a place of tremendous interest on the part of retirees and those people from distant lands that want what we have to offer, but the truth is in the eyes and conversations we have with those that want to move here. I say that for those of you that are still living in that small space and thinking no one can ever afford to buy real estate on the west coast of Vancouver, I say start thinking 21st Century where you may not have an opportunity to buy here after the masses of foreigners choose to buy in Vancouver because it is cheaper than most equivalent european cities. Canada has proven to be in better financial shape than many other high priced economies like Spain, Italy, Britain, US, Greece, and other high debt per GDP countries. I say that we are still a great choice as a Country, given the resources we have to offer the rest of the world. Vancouver, while still the kid that everyone wants to beat up from a real estate perpective, has a new world ambiance with green spaces, a population of individuals that want to do good, and a healthy outlook on living life. What’s not to like about that? Those of you that just want to look at the micro environment and dismiss the largese of the part of the world that will attract the next generation are still living in past times. Wake up to what’s next in the world of real estate. Google, Apple, YouTube, MySpace and Vancouver!!!!! See ya all when you all wake up to reality not some negative perseption of some past world!
#39 El Rojo, if you want people to think Hindenburg, you use the image from “Arrival”, or perhaps one of these:
http://www.propertiesofmatter.si.edu/images/L20/L20_Hindenburg_NY.jpg
http://www.militaryartgallery.com/images_3_b/b_hindenburg.jpg
A picture which prominently displays Swastikas, that conjures something else to mind.
Garth changed his position on gold ? This is news to me .
Provide link .
Black swans all over the landscape .