Hang on. Could get interesting.
Bank profits surge. Economic growth numbers soar. And a federal budget that refuses to see the 800-pound deficit gorilla. No real spending cuts. No tax hikes. And a forecast of a bounding economy.
Hmm. Seems to me the feds have pretty much guaranteed higher interest rates in a few months, which is exactly why F moved to ‘tighten’ mortgage rules a couple of weeks ago. Following Thursday’s budget there’s every reason to believe the prime rate could be doubled by the end of the year.
So what?
So we flash you to two of the country’s real estate hotbeds, Victoria and Toronto, where local media were orgiastically celebrating the latest real estate board numbers in the last few hours. Sales in the BC capital were ahead 54% last month from a year ago, while in Toronto they surged by 77%.
Realtors, being genetically engineered, were saying basically the same thing in both places: Consumers are confident about themselves and the future, and so they buy. Of course they’re buying – which is why smart people aren’t. 2010, trust me, will be a great time to be a contrarian.
In Toronto, as my Post City Magazine article yesterday sought to show, housing mania is in full bloom. Usually snowy and lost February was instead a hotbed of bidding wars and curb cruising. Sales hit almost 7,300 and the average price rose 19% y/o/y to $431,509. At the same time, the number of homes for sale shot ahead of Feb ’09 by 24%.
In Victoria, as I mentioned, sales catapulted by over 50%. At the same time listings actually dropped from year-ago levels, to about 3,300 homes, from 3,800 in ’09. And the average price also took a hit, from $644,000 down to $620,000. That’s 3.7% in a month, or 45% on an annualized basis.
So, what gives? Both cities have been real estate honeypots. Both saw massive sales gains last month. But in one place listings and prices soared while in the other listings and prices dumped.
Of course, real estate is a local asset, and there can be lots of reasons – from weather to property tax changes – that affect prices. However, in house-crazy Victoria people have simply hit an affordability wall. Prices have been pumped so high so fast that the average family can no longer afford the average home.
Victoria is not an international destination, does not have a massive inflow of population and is, sadly, a government town in a new era of restraint. In other words, no flotilla of dripping-rich Chinese immigrants is going to rescue people from the housing trap they have set for themselves. Prices are coming down.
Toronto, in contrast, does have a strong inflow of people. But it also has a hinterland full of shuttered factories, depressed autoworkers and families looking at the end of EI benefits.
This means the advent of higher mortgage rates – now certain in light of Ottawa’s moves this week – will erode affordability, as runaway prices have done in the west. There is no alternative. F knows it. Carney knows it. The bankers know it.
As I said some time ago, 2010 will turn out to have been a tipping point. If you’ve been thinking about listing, get ‘er done. If you’ve been hunting for a house, quit.
If you just bought, c’mere. Hug.
Meanwhile in Van:
The latest stats show the extent of the bubble, as the price of a SFH is now within striking distance of $1 million. Look out below!
111 comments ↓
Whoa, whoa, whoa….
Bad start, don’t by the MOPE.
Bank profits soar = abandonment of mark to market accounting rules. If you declared a loss on some crap you couldn’t sell last year, mark it to what you paid for it and declare the difference a profit this year.
Economic growth numbers soar = count stimulus spending as GDP. Even if it’s a complete moronic waste of time and money.
“F” moved to tighten mortgage rules = “F” talked about tightening mortgage rules and then kissed the banker’s arse when he should have kicked it. No real change occurred.
aw…gimme a hug you big bear
Now I really wish I just bought a house.
I take it that your comment about the “flotilla of dripping- rich Chinese” means that you now think that Vancouver real estate will not go down. ( But it will in Victoria, Toronto, and everywhere else.)
I think I will go somewhere and weep!!
How come the guys at Ottawa can’t see the obvious?
Seeing blindness syndrome?
Thanks for the HUG
Double prime by year end?
CAD to the moon and unemployment at 25%
Still betting the other way–
Garth, what if your wrong? How can the economy be soaring? I’m confused. I just hope your right or I’ve probably missed the boat and I’ll never own a house! Okay now I’m really depressed!
I do not think the rate can increase that much.
You wanna bet ?
Canada is different than Australia.
Canada export to USA, Australia export to China.
1. CAD dollar will have kill the exports.
Manufacturers already so weak.
2. Will crash the real-estate market.
3. Why these politicians in BOC want to take the risk?
“And the average price also took a hit, from $644,000 down to $620,000. That’s 3.7% in a month, or 45% on an annualized basis.”
Garth, whats the point of this stat? You know month-to-
month data can be misleading.
Well the wife and I saw a bidding “war” in our neighbour hood on Sunday. Awesome. The sign got planted at 3 pm Saturday, Sunday by noon I commented whats with all this frikin traffic? Sunday, 5 pm theres a line of lemmings running all over the place papers in hand, pick me, pick me.
Monday afternoon building inspector walking around on the roof. Clipboard and checklist.
Tuesday morning “Sold” plastered on the realtor sign.
Haven’t got the skinny on the winning bid, but I know it went for “almost” a hundred “G” over BC Assesment.
Wait till they meet their new neighbour, I’m going to have fun winding them up.
Funny thing is my uncle built the house back in the sixties, I think it was like $18000 or so, I bet if he was still alive he would be laughing his head off. He was the King of Thrift.
Garth,
not only will Vic not be rescued by dripping rich Chinese, the entire province will not. Thanks to our paver turned Premier, our debt has increased 50% in 4 years! Schools have to cut back and there are cuts to health care. Over 3000 civil servants will be canned. This is what happens when you don’t have a competent opposition. Thanks to Carole James, this arrogant ##$#^ got another term. The only thing he has done is put trades people to work with infrastructure projects. There has been no investment in education, arts, healthcare etc. Roads, highways, bridges, and condos-that’s BC
#109 Nostradamus Le Mad Vlad
You mentioned yesterday: “Just wondering — the Hadron Collider started working again on Feb. 22…”
You got me to thinking some kooky thoughts, what about HAARP and ELF?
http://en.wikipedia.org/wiki/High_Frequency_Active_Auroral_Research_Program
Might really need those tin-foil hats.
Hi Garth, what’s your take on Vancouver’s housing market? What is your gut feeling – will the housing prices drop- and by how much and when? With the interest rate hike I’m feeling desperate and bewildered. Do I have to win a lottery inorder to afford to buy a house in Vancouver?
Just read this in Vanity fair about American Market and a a guy who realized it would take 2 years to blow up….
subprime-mortgage loans being made in early 2005 were, he felt, almost certain to go bad. But, as their interest rates were set artificially low and didn’t reset for two years, it would be two years before that happened. Subprime mortgages almost always bore floating interest rates, but most of them came with a fixed, two-year “teaser” rate. A mortgage created in early 2005 might have a two-year “fixed” rate of 6 percent that, in 2007, would jump to 11 percent and provoke a wave of defaults. The faint ticking sound of these loans would grow louder with time, until eventually a lot of people would suspect, as he suspected, that they were bombs. Once that happened, no one would be willing to sell insurance on subprime-mortgage bonds. He needed to lay his chips on the table now and wait for the casino to wake up and change the odds of the game. A credit-default swap on a 30-year subprime-mortgage bond was a bet designed to last for 30 years, in theory. He figured that it would take only three to pay off.
If everyone crazy in Canada is buying now with the low rates and I assume locking in for 5 years? Does that mean we have 5 years of this insane market?? noooo!
Coming to a backyard near you…. are we there yet?
The future of housing?
As home and energy prices continue to soar, a shift to ‘micro-houses’ might be just around the corner.
http://money.ca.msn.com/banking/homebuyersguide/article.aspx?cp-documentid=23555965
“. . . Risk. . . . Could get interesting. (see first link about Detroit’s RE values) . . . of a bounding economy. So what? . . . no alternative. F knows it. Carney knows it. The bankers know it.”
They ALL knew well in advance what a downturn looks like, and the populace was dumb enough to hand them 19 more seats to slash our throats. Hell, why don’t we give that bunch of roaches a majority? At least we will be pillaged, bamboozled and feel a lot better.
——
#146 miketheengineer — “. . . only to discover that their McMansion, only has 3 days of food in it, no gas for their generator . . .”
Akin to when Bre-X investors who had sunk millions into buying more shares while the prices went up, began to hear rumblings of “there’s no gold — it’s a giant fraud”, then after waiting for good news finally realized the chickens had flown the coop.
Same for Enron, World.com, Nortel = Greed. No sympathy for greedy investors; they know the game, played it and lost.
Update on Detroit RE values.
Quick! Invent new WMD so the planet can be emptied of humanity! Or just send them here.
The art of seeing bankers wet their pants (if it works)!
Blighty’s gone bonkers!
The last act of any bankrupt country is to loot its’ nation; here as well; and here. Added to these are the HST and the GST heading back to 7%.
Moving map — that’s where all the money has gone! Looting.
This is where the US taxpayers’ money is going, along with a major chunk of change to put Obama where he is. It’s called politics.
Detroit homes sell for $1 amid mortgage and car industry crisis
http://www.guardian.co.uk/business/2010/mar/02/detroit-homes-mortgage-foreclosures-80
Meanwhile we have this in the Times Colonist: http://www.timescolonist.com/business/Bidding+wars+take+their+toll/2635987/story.html
Victoria is all about the “sweet spot” 400-600k flies of the shelf. 700 moves, but slowly. 850 sits. 1m plus? Well you can buy a lot of house at the moment for a million bucks in Victoria.
I don’t think the market here has turned. But there are lots of new condos for rent on Craigslist and lots of unsold upscale homes. And the Bear Mountain developer is being sued for failing to make payments on his private jet.
The BC budget will hammer well paid, safe as houses, civil service jobs and there is a very limited private sector here. (Thank goodness I telecommute and rent.)
Plus, the population is aging. The last of the kids have finally moved out and four bedrooms look a bit dismal. Not likely to be a crash, just a month by month 1.5% reduction in average price until 20-30% reduction has been achieved.
best
photo/
caption
combination
ever.
Victoria!
Once you visit it, you want to live it.
Personal persectives change in this town , life appreciation begins.
It is not Cool Montreal and certainly not Fast Paced Toronto.
it is an alternative to Vancouver.
I just bought a place in Burnaby (25mins away from Vancouver) for $185000. An 800 sqft condo-> my mortgage payment $775 (it is high-ratio). Mortgage rate 2% open!
My alternative: renting @ $1150/ month…
I don’t think in this case the purchase was such a bad idea and even if interest rates would double the mortgage would still only be around 1000$…
I am aware there is a bit of a bubble in some cases (downtown, North van, Kitsilano) but I also believe that one can still put oneself in a better position by buying now (not as an investment but primary residence).
Where is my error? Negative equity could happen but in the long run….?!?
So for those with mortgages floating at prime, I assume it is a good time to lock in. My mortgage has been floating with prime (around 2.25%), but yesterday I locked into a 5 year rate (3.8%) for the next term. If the prime doubles by year end, and the direction continues to climb, then locking in makes sense. I appreciate your blog, Garth!
Signs of orgy-like demand for real estate hit me personally on Monday. Sync Lofts is planned in Toronto on Queen Street East and I called to get a price check. The young girl said all 1 bedrooms and 1+ den are conditionally sold but offered me a 2 bedroom like it was upsizing a McDonalds meal. The kicker, the grand opening of the sales office is this Saturday and approx 80% is sold out already. By the time these lofts get built, I will be in a cheaper and roomier condo somewhere else. Crazy times!!
Hi Philipp
With regards to your $775 vs $1150.
Have you added in condo fees, property taxes (if applicable, not sure with condos), insurance and any other costs that aren’t associated with renting?
The numbers might still make sense, but including them all certainly gives a clearer picture. Also, it’s worth figuring out which portion of the mortgage is interest and principal. In fact, here’s a formula:
interest + taxes + HOA/condo fees + insurance + maintenance +/- appreciation/depreciation
vs
rent + renter’s insurance – interest on unused downpayment
#8 – If Garth is wrong, then the new norm will be working your entire life to pay for a house, or renting for life. If he is wrong then the new norm would mean that bing a RE agent would make you wealthier than a surgeon. This cycle will revert to the norm again.
#22 – how many years is your amortization period?
Have some patience people!
Are there pockets of immunity to a housing crash anywhere? This house:
http://www.realtor.ca/propertyDetails.aspx?propertyId=9086928
in Guelph. Asking $242,900. 10% down and a 5.2% mortgage for 10 years could carry for $1200 a month. It seems reasonable. And you would be protected from rate increases for 10 years. Modest bungalow. Seems like a deal even today. How does it go bad?
Garth
What I like to know is the banks are making all this profit, my guess is they are handing out more and more money, I mean it seems more people are jumping in and the prices are soaring. Is this money on paper or how are they getting this money?
p.s. I feel like #8.
The current game is like a Real Estate version of musical chairs combined with the luge. The city with the greatest number (by percentage) of greater fools is going to be left with the chair. The luge chair is then placed on a luge run and they get to ride their market down to the bottom of the hill.
The people of Victoria have know for sometime that the B.C. budget announced on Tuesday would include wage freezes. Victoria is a gov’t town and if the gov’t workers are not getting wage hikes it will effect the entire community. They are used to this. Therefore the pool of greater fools is smaller because confidence (i.e. insanity) is now lower.
Toronto and Vancouver always had the greatest potential pool of greater fools. These are primarily the late 20 or early 30 crowd who are sick of renting and even more sick of hearing their friends, family and co-workers crowing about their gains in Real Estate. They will do anything they can to get into the market in advance of the April 19th rule changes.
IMO – I cannot see how Vancouver cannot possibly win gold in the Greater Fool Olympics. Toronto is a sure silver but I am not sure who will get third.
The rumours continue to swirl in Vancouver of Olympic buyers and planeloads of rich Asians running through the city looking for Real Estate deals. The next 6 weeks is sure going to be interesting. Perhaps it ends like the Olympics – Vancouver gets the gold on a per capita basis but Toronto wins the medal count on numbers. Either way, I will eat my big red mittens if they are not the top of the podium.
Hi AI and Philipp,
HOA/condo fees already include maintenance and depreciation.
Large amount of condo fees is reserve funds.
I was in board when I used to live in a Condo at Yonge and Finch.
#14 Z,
Here is what I think. Vancouver prices will not drop until after the April 19th mortgage rule change. In particular, the lower end will continue to spike. Then they will flatten somewhat and begin to head down in the summer. As rate hikes take place and the HST comes in they will accelerte downwards.
I have said they will drop 30% between January 10 and January 11. Garth had said 15% in a previous post but that was not specific to Vancouver. However he did note that he believed they would continue going down after that.
One thing to remember is that once they turn they can keep going down for a long, long time. Real Estate prices are not like the stock market which is very liquid and reacts very quickly to events. Prices in the U.S. have been going down for more than 3 years and show no signs of reaching bottom in many prime markets. Once the ship turns it might be years before it bottoms out and many more before prices return to their highs. It took the Canadian market 13 years to return to the highs of the early 80s when the mid-80s recession hit.
Bank profits surge. Economic growth numbers soar. And a federal budget that refuses to see the 800-pound deficit gorilla. No real spending cuts. No tax hikes. And a forecast of a bounding economy
******************************************
Markets never crash on bad news–
They crash on good news-or rather-exhaustion of buying-in the face of–so called–good news–
Look out below?
Garth – I find your Vancouver graph a bit confusing. The Median line shown, is that housing price, income? Over what time span? Without a legend a time scale this graph is not necessarily very helpful…
The graph is of house prices, not incomes. The median is the long-term trend line. Remember the rule: ‘Prices always return to the median.’ — Garth
IRT Philip
Good for you, dude. You did the right thing. Don’t let the haters and emo boomers on here get you down.
#16 KC..
Those folks in Vancouver sure know how to overprice things….
http://www.tumbleweedhouses.com/
Large!
Garth!
Could you please post some information regarding the employment and debt levels of the GEN X’s to illustrate their ability, (or lack thereof) to fill the void left from the retiring boomers?
Post#27 T. How does it go bad? This is 2.5 hours up the road from Victoria. Forestry is slowly collapsing on the Island. Victoria is crazy, reality is slowly settling in in “some” areas.
http://www.realtor.ca/propertyDetails.aspx?propertyId=8995003
Garth,
You remind me of Peter Schiff circa 2005, when his MSNBC, uhm, counter-pointers??? were laughing and making fun of him. When he mentioned subprime lending, and these economists and realtors thought it was some joke.
When faithful bloggers start to get scared, and worry, in fact, that they may have missed the boat, they should keep in mind that there is ‘no boat’. Prices ALWAYS return to the median. If something doesn’t make sense, than IT DOESN’T MAKE sense. My wife and I make what is pretty much smack dab the median household income, and we CANNOT afford a house, even in ‘Guelph or one of the outlying areas’.
A we’re savers. With no debt, or expensive toy tastes (well, except bicycles, but I only have one ;0)
I like what you said yesterday- that you stick to your convictions. Something akin to a moral code (which seems so lacking these days, especially amongst MY gen).
Anyway, hope to see you in Kitchener!
#22 Philipp
Where is my error?
______________________________________
1) You didn’t state your income. Can you pay an extra $386 per month WHEN interest rates eventually climb to their normal levels or 5%+?
2) You didn’t post an MLS listing that displays a similar property to add credibility to your claim.
The average home price in this country is around 330K. I have seen 5 year fixed rates advertised at 4%.
so let’s say you have a loan principle of 300K, at 4% for 5 years. The monthly payment is $1328 when amortizing over 35 years.
5 years pass, $21,758 of principle is paid off and it is time to renegotiate. If rates are 6% the monthly payment on the outstanding balance is $1667. $339 more per month. At 7% the monthly nut is 1850, at 8%; $2041 ($842 more per month).
My calcs are a little bit on the pessimistic side because these are monthly payments but you see the scope of the problem. Because of the astronomic initial price, when buyers renegotiate they are going to be in a right pickle *if* rates are higher. Anyone who did not have inflated housing dollars to put towards a down payment on their current mortgage has a noose around their neck.
#100 Peter W from previous thread:
“then why haven t I made a fortune on any other market in my life, cause if you did, you wouldn t be concerned about house prices, nor would you post here.”
That’s your way of saying that everyone who posts on here is an out-and-out loser, yourself leading the pack?
#27 t on 03.04.10 at 9:23 am
Are there pockets of immunity to a housing crash anywhere? This house:
http://www.realtor.ca/propertyDetails.aspx?propertyId=9086928
in Guelph. Asking $242,900. 10% down and a 5.2% mortgage for 10 years could carry for $1200 a month. It seems reasonable. And you would be protected from rate increases for 10 years. Modest bungalow. Seems like a deal even today. How does it go bad?
t, Guelph like all other cities is overpriced as prices doubled since 2001-02. Will Guelph be immune to price decrease, I highly doubt it. We have very limited inventory but there is a ton of excess baggage in the form or rentals that is rip to be dumped back onto the market. We aren’t extremely overvalued, but there are no “good deals” to be found and haven’t been any for a long while. We won’t see a crash, but how do you invest when everyone else is? Case in point of why I’ve been sitting and watching because I wont compete with other fools who have cheap debt. I’ll just wait.
Garth, what if your wrong? How can the economy be soaring? I’m confused. I just hope your right or I’ve probably missed the boat and I’ll never own a house! Okay now I’m really depressed!
———————————–
some of you must be religious people. There must have been some divine intervention that lead you to this blog. I can’t believe people determine their financial decisions on what Garth has to say. Isn’t what Garth says pretty obvious? Yes, he presents so much information, statistics and possibilities to reaffirm that position, but people should be able to see this stuff themselves. There won’t always be some blog that you coincidentally run into to help you in your financial future.
For me, I knew there was a real estate bubble a few years ago. I sought out a blog on Canadian real estate problems. It took me a while before I found this. I knew of the problems because I’ve continuously read and informed myself about finances and investing.
It’s everyone’s job and responsibility to inform themselves going forward. You can’t say “Garth I just hope you’re right, or I missed the boat!”. Are people just blindly listening to the G man? He is right, but people need to see things for themselves and understand. The Good Lord may not lead you to a blog like this again in the future!
Bless you. — G
#22 Philip,
I am a RE Bear and I have no issue with what you have done. So long as you are not over-leveraging and taking on too much debt we all need a place to live.
Most of us Bears also own property. Some of the Bulls – like VR – come here all the time and speculate we all live our parents basements and sleep on mattresses filled with cash waiting for the housing crash.
The key right now is not to speculate or too make a purchase based on the NEED for the market to rise in order to cover future interest rate changes.
Garth, is that graph of Vancouver prices in nominal or inflation-corrected dollars? If nominal, the median line should be an exponential curve reflecting the average inflation over the study period. As well, the dates are missing. Your reputation is for straight talk – please don’t mess it up with a slanted presentation of statistical data.
Inflation, as a smart guy like you would know, has been of minimal consequence for more than a decade, so a chart in nominal dollars (as this one is) is quite relevant. As for my rep, relax. This graph came from the GVREB. I just added trend indicators. — Garth
Garth,
It would be really interesting if you could mark on your graph when the zero down was intro’d and the 40 year ammortization as well.
It will directly indicate, when they were intro’d, how they affected the graph.
All the best!
RE#22
How much are your condo fees- they always increase. How much is your property tax? Will your condo leak-most of them eventually have leaks. We have some of the worst builders an unethical developers in Canada here. Rates will more than double. And finally, come on man, Burnaby? -gangs, suburbia, commutes, no beach…
Tom
#26 X on 03.04.10 at 9:21 am
#8 – If Garth is wrong, then the new norm will be working your entire life to pay for a house, or renting for life. If he is wrong then the new norm would mean that bing a RE agent would make you wealthier than a surgeon. This cycle will revert to the norm again.
____________________________________________
#32 jr on 03.04.10 at 9:52 am
Markets never crash on bad news–
They crash on good news-or rather-exhaustion of buying-in the face of–so called–good news–
Look out below?
_____________________________________________
#31 junius on 03.04.10 at 9:50 am
#14 Z,
One thing to remember is that once they turn they can keep going down for a long, long time. Real Estate prices are not like the stock market which is very liquid and reacts very quickly to events. Prices in the U.S. have been going down for more than 3 years and show no signs of reaching bottom in many prime markets. Once the ship turns it might be years before it bottoms out and many more before prices return to their highs. It took the Canadian market 13 years to return to the highs of the early 80s when the mid-80s recession hit.
————————————————-
some of you are on fire today! 3 great posts above that should be embedded in people’s minds.
All you landlords out there so confident you will be fine based on current situation, had better re-do the math to see how it looks if rents fall 10%, 20%, 30%…
Plus churn as tenants fail to earn enough to pay rent, and move back with parents etc.
The trend in the US is many more units on the market to rent, falling rents, deteriorating tenant quality, huge competition between landlords (“Free Rent for __ months, Free TV, Free cable, Free parking, Free Appliances!”), Banks clamping down on loans (demanding more “equity” = ca$h injection now) as property values fall….
= “Past performance may not reflect future results.”
What will be your response when tenants ask for a big rent reduction or they are gone? Very common in the US now. Will your Bank reduce the mortgage balance?
How many landlords have factored the above into their income/expense calculations?
Oh, of course, I forgot, it’s different here in Canada this time. Riiiight.
Funny, when I owned rental units, it did not seem “different here”. That was in the last century, way back in the distant past, before modern history started. In our Brave New World, “Everything is Different This Time!”.
I’m sure it will work out well. Turn that frown upside down.
Perhaps it is time to revisit Hyman Minsky’s now famous 7 stages of a bubble in light of where we are in now in Canada:
Stage One – Disturbance:
Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet. It may be a shift in laws or economic policy. No matter what the cause, the outlook changes for one sector of the economy.
Stage Two – Expansion/Prices Start to Increase:
Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.
Stage Three – Euphoria/Easy Credit:
Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel. Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there. Without cheap and easy credit, the outsiders can’t participate.
The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases…such as CMHC backed 0/40 and now 5/35 mortgages.
Stage Four – Over-trading/Prices Reach a Peak:
As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.
Stage Five – Market Reversal/Insider Profit Taking:
Some wise voices (this is you Garth) will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”
Stage Five is where the real estate industry is today in Canada. This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector, like the transition from real estate to commodities now.Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble. They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.
Stage Six – Financial Crisis/Panic:
A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end.
Stage seven – Revulsion/Lender of Last Resort:
Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.
The Stage is set.
No one should be surprised at the profits by the banks. NO ONE… Imagine a business where you pay .25% interest on cash and then lend that cash out at 3-4% ie 1200% to 1600% higher than you pay. Now add the fact that these guys only really need 1 buck to lend out 15, at least in Canada. Other places in the world are leveraged 20-40 to 1.
A video on BNN really puts Flaherty in his place.
http://watch.bnn.ca/budget-2010/clip272324#clip272324
He predicted a surplus and no stimulus… months later we have a deficit and tons of stimulus . Is this guy Mr Magoo??
As for realtors… these guys are seriously messed up. They perceive themselves as some superstars, flaunting pictures of themselves on their cards or lawn signs. What they probably don’t get is that the key component to house buying and selling is availability of credit. Now with money essentially free, anyone with a pulse and a desire to buy, can get some debt at next to nothing.
I have been called by agents on a number of occasions recently urging me to sell. “It’s a great time to sell”
My retort to them is “why not sell your house then”
Dead silence. If you have some unneeded RE sell that sucker this year…otherwise just hang on for the ride. T.O. may have an influx of people but the economy here is crap unless you want low paying retail work or pouring coffee at the local Tims. Or maybe become a realtor for a few months.. Not much skill involved that’s for sure.
Outside of downtown Van things are already cooling off. My building has units sitting on the market like egg sandwiches left in the sun at an afternoon buffet.
This past Sunday there was an open house in my building between 1:00 and 4:00. I know what I was doing at that time and I’m betting no one came to that open house. Probably the owners were going to be out anyway, so the realtor thought he’d just make use of their 53″ television and surround sound.
35 throwstones …
If it came down to living in a box that small, one would actually be better off buying a truck and camper. at least that way you can be mobile and cramped at the same time…
To #8 RS
Don’t worry … if you miss everything, you won’t miss one thing… Garth’s HUG… aaaaaaawwwwwww
Victoria is a small market and month to month numbers move up and down all the time. The sales on the high end ($1million and higher) sway the average more than larger centres. It is best to look at median prices in this case. My take is that the first timers are panicking while those with millions are being patient or looking for much better deals down south.
Great post on Victoria, they have truly lost their minds in the City of Gardens, pot gardens that is. No real estate agent has the guts here to come out and say this is insanity or they would be black balled.
KC..look closely! That tiny house is on wheels!
The diff. in canada is that the house is “seated”(set on ground)….ohh..and about 175 thousand dollars more!
#35 Those are some nice ice fishing shacks….forgot the holes in the floor though!
#50 Good read, seems pretty clear even to a simpleton like me.
#27 What’s the unemployment forecast for Guelph? Over 200K for a 50 year old bunker seems reasonable?
Does anyone have a data set for Manitoba to make a graph like the one Garth posted? I can only find back to annualized data back to 1996. Thanks.
$1,000,000 I’ll give you one million dollars for the average SFD home in Vancouver by July this summer…wasn’t that a movie?? It’s coming folks.
Even if prices correct to the levels Garth thinks (January 2009 levels), they will still be very high. Also, no 40 % correction so Vancouver houses will never be $600,000 again.
I’m confused by Toronto though. Is is possible that the average SFD home there could rise to $750,000?? Based on Vancouver’s situation, it’s a real possibility.
IMO, inflation will kick in, Cdn dollar will devalue, and asset prices will remain flat or rise slightly for years to come in Cdn dollars. It will happen like in Britain where The british pound is now worth 34% less compared to the Cdn dollar than it was 5 years ago.
You forgot one element: real estate is ultimately worth what people can afford to pay. Without corresponding income increases, prices have to correct. Had a big raise lately, dude? — Garth
$fromA$ia ( o Y o )
The data appears to end January 2010, with grid lines for each year. There’s a step increase January 2006, 5 months prior to nothing/40, so I’d have a hard time arguing a causal relationship. Prices first started to take off in 2003, reflecting Greenspan’s wreckless continuation of post-9/11 monetary stimulus (we got dragged along because fighting him would have ramped up the dollar and killed manufacturing.) 2006 through 2008 appear to be above the 2003-2006 trend line by about the amount of the step increase, so it’s possible that there was a change in the way the statistics were collected in January 2006. The party paused in fear of the credit market freeze-up, but got really going again with the big drop in interest rates. The party *should* have ended in 2008, but the central banks of the world served up a fresh bowl of punch. Vancouverites better stock up on asprin and drinking water, the hang over is gonna be a bitch.
Garth – when are you coming to Ottawa? I’ve got 50 people lined up to hear you if you can schedule something. Ottawa has always been different kind of city when it comes to real estate. Prices don’t move up exponentially, but they don’t drop rapidly either. We’d all be interested to hear your thoughts about the Nation’s Capitals’ outlook.
#59 In Sept. 09 Guelph’s unemployment rate was 9.1 higher than the Canadian average. In November W.C. Wood (appliance mfgr) went out of business. 250 employees.
In Jan. 2010 two restaurant chains went under. Couple of recent closed business in downtown core. Things don’t seem right.
You’re right $200,000 for a 50 year old bungalow is high.
Garth, from the yahoo website
Budget expected to keep Canada on rocky road to recovery
Mikey
Wow are those mini houses ever expensive. We built a 100 square foot shack for about 11000 canadian complete with wood fired hot water and leaded glass windows from a local artisan .
The second poster ’s were a bit more reasonable but I am sure it can be done way cheaper.
I have asssisted in building ‘’spill control’ shacks at the former eburne sawmill and they were about the same size.
They were also cheap to build. Not to mention they were also built to a way higher standard than what I see being built here in kits say.
And as they were forklift transportable, they had to be a very robust design They also had to stand getting hit by a load of lumber and / or some other kind of vehicle.
I would guesstimate that the company paid about 2500 $ including the wages for two guys and three 8hr shifts to build.
Just to be quite honest here,it was really one master carpenter and a helper [me] that had never wielded a hammer in anger in his life.
You could tell my work by all the hammer marks around a nail.
#33 Will
…Prices always return to the median…
Prices do barring increases in wages. Do you see wages increasing like the price of housing?
The graph is not so bad. For price trends, we need to be looking at logarithmic graph to see straight line. I agree there’s a bubble, just not as bad as the graph says.
No, $951,000 for an average house is totally understandable in a city where the average family income is south of $70K. — Garth
I have consistently posted that Hongcouver “Proper”…can be found no where else in BC or Canada….not in the Fraser Valley, BC Interior, White Rock, anywhere on Vancouver Island or anywhere east for that matter.
…Hongcouver is an entity to itself…and it continues to prove so as well.
Nostradamus jr.
this could go wrong #27 lagging job losses
March 03, 2010
By Rose Simone, Record staff
WATERLOO REGION — The number of people declaring personal bankruptcy skyrocketed in Waterloo Region and Guelph last year as high debt loads collided with lower incomes.
The nearly 46 per cent increase in consumer bankruptcies in the Kitchener census metropolitan area, which includes most of Waterloo Region, and the nearly 50 per cent increase in Guelph were the highest in Ontario after Sudbury.
A total of 1,974 people in Waterloo Region declared bankruptcy in 2009, up from 1,353 in 2008, which represents an increase of 45.9 per cent. In Guelph, 509 people declared bankruptcy last year, an increase of 49.7 percent from 340 in 2008, the Office of the Superintendent of Bankruptcy Canada reported today.
“It is certainly a big number,” said Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc., which has offices in Kitchener.
The bankruptcy increases in this area were much higher than the national average of 31 per cent or the Ontario-wide rate of 32.7 per cent. In Ontario, only Sudbury had a higher bankruptcy rate increase, at 51.8 per cent
#60 TheTruth on 03.04.10 at 1:06 pm
IMO, inflation will kick in, Cdn dollar will devalue, and asset prices will remain flat or rise slightly for years to come in Cdn dollars. It will happen like in Britain where The british pound is now worth 34% less compared to the Cdn dollar than it was 5 years ago.
****************************************
Inflation doesn’t just “kick in”
It has to have a driver–
It has to have “something” that causes it to happen–
A bubble/robust economy/wages going up/bullish sentiment etc–
Inflation and Inflationary–two different cats–
Here is Inflation– (increasing money supply)
http://4.bp.blogspot.com/_nSTO-vZpSgc/SufrV85vfxI/AAAAAAAAHLA/hCeXqyws2vo/s1600-h/Base+Money+Supply.png
Notice how it keeps on increasing–
the chart would reverse if this money was coming out of reserves-
You would see it here–this velocity chart would also also reverse-
http://research.stlouisfed.org/fred2/series/MULT?cid=25
But first–before anything–credit must start flowing–
It isn’t as you can see–
http://3.bp.blogspot.com/_nSTO-vZpSgc/SfU2C8TIKSI/AAAAAAAAF_U/D_rC5Qwmgbo/s1600-h/Total+Bank+Credit.png
So while money supply/printing is ongoing–ie–inflation-
It is being held and not lent out by banks–because they are capital impaired from defaults and know more are coming–
People must have jobs in order to have money/credit to spend–in order to spur inflation–to make it Inflationary-
I see nothing in the future–to cause this–
i see deflation for a long time to come–unless we do the right thing–which is–a global default–
But–for now–we’ll do the wrong thing–which is print money and stimulate–as debt levels slowly and painfully unwind–
Once debt levels re balance in ratio-with actual money supply–only then–can we look for inflation again–
I have been spekaing with a number of mortgage brokers lately…they rarely see anyone take out a 25 year amo on their mortgages.
Anything over 25 years really is just burning your money away.
Oh…got to go…I need to call my landlord to fix the window on the house that I rent for under 3% cap rate in one of the best hoods in Victoria. Boy I love not having to go to Home depot every weekend!
#50 Got A Watch
Your making too much sense, as demand gets pulled from the future and 20 – 30 somethings leave rentals to buy homes they can’t afford or buying spec properties for rentals, it just puts more and more downward pressure on rent prices as inventory builds. More choices!
As you state, it has already happened in the USA.
I believe the arguement that now is the time to get properties for flipping and your worst case is you can rent it out makes little sense as pool of renters becomes smaller and smaller.
Interesting to see you can pay almost the same amount of cash for a rental in Vancouver, Calgary, Toronto or Ottawa.
http://www.cmhc.ca/en/corp/nero/nere/2009/2009-12-16-0815.cfm
That report is now almost 6 months old, wanna bet the numbers for the next report will gett worse and not better for landlords?
This picture is as cruel as the “before” picture of the ducks and the storm drain. Please tell me there is no sad “after” picture Garth.
I just registered for your presentation in Edmonton. Real estate will probably boom here this month, so be prepared to be labeled as a nutjob by the RE establishment. Please tell me that you are planning an “I told you so” tour for next year.
#60 TheTruth (aka The Bull),
Vancouver prices can easily fall below $500,000 for the average home. Why should they be higher than compartive U.S. markets in the long run?
Do the very simple math on the price impact of rising interest rates. A return to traditional rates in the 6-8% range will bring prices down at least 20% all by itself and probably more than 30%.
Linking average family income to average SFH is flawed in some ways.
Average family cannot even dream of owning an average SFH in many parts the world.
Average family may live in apt, condo, townhouse etc. For example, no one but the super rich lives in SFH in HK.
btw, I’m not a house bull, I’m a house bear. Just want to share.
I have been hearing on this forum lately to sell property that you don’t need.
“If you have some unneeded RE sell that sucker this year…otherwise just hang on for the ride “ . My question is why only unwanted property?
What about your primary residence property? Don’t you think it is a good time to sell if we are the top?
I just don’t get it. Wouldn’t it be a good time to maximise on your investment? Sell it high; rent for a while and buy something cheaper later? It make sense to me so why I am not hearing it?????
#13 smw — Hi SMW. Part of the the link you gave (good one) says:
“The HAARP program operates a major Arctic facility, known as the HAARP Research Station, on an Air Force owned site near Gakona, Alaska.”
Alaska is on a major fault line (recall the ‘64 quake) which, in turn is in close proximity to the SAF. Not time for the big one — divert sheeple’s attention away from the Americas by having the next major one in Asia, possibly Mongolia / China.
Govts. all over have to stir more shit up to add to the present mix — tin foil hats may not be enuff! As the US is broke and needs cash inflow, HAARP and war are two separate ways they use to attract income (manufacturing weapons), so — China. But — Brazil
When the pot is boiling over, then the SAF will be taken out. Downsizing and Depopulation? You betcha! Also
#15 brendo — “. . . were set artificially low . . .” — Spot on! Can anyone say ‘pre-planned financial meltdown’?
In unison, I knew y’all could!
#32 jr — Good point. Would be interesting to see stock markets in the month prior to the Oct. ‘87 crash, and compare it to today.
#44 The Original Dave — “. . . everyone’s job and responsibility to inform themselves . . .”
Good sentence and straight to the point. The reason we’re here is because we’re NOT sheeple. We will be okay in retirement as we have paid for most, if not everything.
#22 Philipp
What are your taxes and maintenance fees?
It seems Europe is not going to raise rates any time soon: http://www.nytimes.com/2010/03/05/business/global/05euro.html?8au&emc=au
It would be odd for Canada to be one of the first to start jacking it… Besides, inflation isn’t necessarily a bad thing for governments. Doesn’t it make debts easier to pay?
Looks like it’s going to be solely up to CMHC to put a bake on the market (unless, of course, people themselves just clue in). I figure that if they end up using the BoC’s posted rate as a base for mortgage qualification, that brake will be applied pretty well.
But that would be assuming that they’ve got a pair…
Re: #76 SARENKA
I agree that logic says to sell any real estate principle or not.
However the answers to your question are the same types of answers that go into a rent vs. own debate. They involve the following:
1. Social implications of renting. Generally, renters are viewed as being of lower class because higher class individuals are “supposed” to own their own homes. (common people cannot comprehend houses as an overvalued asset,)
2. It is possible that the location of someone’s home will not be affected as much by the national correction that inevitably coming. I would never recommend someone sell their home if I don’t know their area. The fixed costs of moving/selling may not make it worth it at all. Real estate is still governed by supply/demand and local economies. There are lots of areas in the US that have not had their housing values dropped by much at all.
3. Treating your principle residence as an investment to squeeze out capital gains every time the market is UP would be along the same lines as being like all the greedy speculators out there right now. A home is a place to live and if people treat it that way Canada wouldn’t be in such terrible shape.
4. Parents have a strange irrational notion that if they rent a house. Their children will become emotionally scarred.
5. People generally have a unreasonable belief that all landlords are unreasonable, Disney-esque villains that jack up rents whenever they feel like it.
6. I know this is going to sound misogynistic; but most women are pre-programmed in their DNA to “nest” and a renting is not “nesting”. Husbands/boyfriends cannot and will not fight against this natural instinct unless they are looking to divorce or be poisoned in their sleep.
That pretty much covers why most people would NOT sell their principle residence even though they feel like there is a coming correction for real estate.
I personally would definitely sell my principle residence if I’m looking to retire in the next 10-15 years.
My fiance’s mother is a real estate junkie and I’ve hinted to her multiple times. “Wow, the market out there is crazy. If I had a house and I was looking to retire sometime in the near future I would definitely sell my house right now. People won’t even bother insisting an inspection.” Their house is unnecessarily big, old and falling it apart because they tend to not bother renovating or fixing house issues until it’s absolutely serious. They don’t realize that in the current overheated market, their house equity is as good as cash immediately when they list it. Too bad when things cool off they’ll regret not downsizing while the market was hot.
I’m only 26 so If i had bought a house last month and plenty of equity to ride out the storm, I would probably just bunker down in “house poor”-mode and pay off the mortgage as soon as possible.
Linking average family income to average SFH is flawed in some ways.
Average family cannot even dream of owning an average SFH in many parts the world.
Average family may live in apt, condo, townhouse etc. For example, no one but the super rich lives in SFH in HK.
Right… except we don’t live in HK. So what’s your point? When was the last time you drove up the Fraser Valley? We’re not running out of space, not ever.
#68 Nostradamus Jr.,
Don’t you mean that YOU continue to be an entity to yourself?
Please. Didn’t Dubai’s explosion teach you something? There are no economic islands in this world. Repeating it like a broken record does not make it so.
Garth,
Budget is in. Election coming.
60 TheTruth
I don’t mind someone having a differing opinion on this site as it shows insightful conversation, but dude, you got to keep it simple!
Garth is using very simple logic that makes (yes/no) sense! No delusion!
House prices have only appreciated over the last 50 years because of a growing economy and growth in personal incomes. How complicated is that?
The housing market over the last 5 years has only been propped up by personal debt. Every single reputable association such as CGA for example have conducted studies that attest to this fact. This is simple…
No convoluted used car salesman, pie in the sky stuff about investment from Hong Kong or economic Canadian growth miracles.
Just Simple facts. That is all Garth is using.
For your theory to work about TO houses at $750,000, a person in that city would have to make at least $150,000.00 a year to service that size of mortgage at normal interest rates. Simple Math: 750000 x 0.07 = $52000
(Debt service ratio =1/3)
Sorry dude, wages for the masses are continuing to decrease. Only a few in GTA make 150000+ a year. 10-20% of population, check Stats Can.
You want credibility, come up with something solid, not delusional.
While rates remain low, housing will continue to ARTIFICIALLY be propped up.
For those speculators or those with long term mortgages, sometime in the next few years the tables are destined to turn in a nasty way.
IT’S ONLY SIMPLE FACT BASED LOGIC
Garth wrote:
As I said some time ago, 2010 will turn out to have been a tipping point. If you’ve been thinking about listing, get ‘er done. If you’ve been hunting for a house, quit.
Well said Garth.
Steven
Angela,
Last Sunday afternoon was the Canada-US Olympic Hockey game. Otherwise, RE in Vancouver is HOT.
#22 Philip,
Congratulations on your choice.
OT – We lost a lot of shingles on the front last week due to a storm. Someone yesterday suggested we call our ins. co. which hubby did. Ins. co. sent out a local guy today. Our roof was redone 12 yrs ago with 25 yr. shingles. But we’ve gone thru hurricaine winds 2/3 times since then. Anywho, seems the exact colour/type is no longer available so he’ll recommend the whole roof be replaced. We’ve never made a claim – house or car & have been with them for a long time. Local guy also works for a co. that supplies well known windows/doors/siding which we have budgeted to replace this spring. He’s already looked at least 100 homes in the last couple of days due to shingles blown off, etc. He gave us lots of tips. Before he came I had already made my list of cos. to visit tomorrow – his included. Done lots of research on windows/doors, etc.
In my neighbourhood (Kitsilano, one of the more expensive parts of Vancouver for those who don’t know the city) there are a bunch of converted houses that have been turned into 3-5 strata suites. I was walking by one that recently sold (asking price 925k for one of five suites in the house) and I noticed that the new owner has a brand new Jaguar. I talked to him a bit and found that yes, he did buy and yes it’s his car, not a lease.
Which brings me to the following question.
In what other neighbourhood in the WORLD does someone driving a $100,000 new car live in 1/5th of what was a single family house only a few years ago? 900 square feet, four neighbours sharing the house with you.
Real Estate is a disease in this town. The only cure will be an epic crash.
By the way, I think your, “median”, line on that Vancouver graph is unrealistically high, I think it should hit around the 375-400k mark in 2010 Garth. That’s the line I expect it to return to because we’ve had unnatural appreciation since the late ’80s and no proper crashes.
Wow, did i ever touch a nerve.
What I’m getting at is it appears Real estate in Canada and Australia is getting permanently detached from incomes because it is an intergenerational asset with intrinsic value. People born and raised in Canada may think that is delusional
but values brought in with immigration are different.
Its been the case in China and India for many generations. There, working people and educated people can never buy land. It’s priced way too high for them and has been like that for a long time. Servants live in a house on land provided my their employers and may have more education than them. This has led to socioeconomic segregation based on who owns land. People with land in India who haven’t even worked for generations have lived the best lives. Is that fair or make sense? obviously no! But it is getting like that here as is evidenced by the existence of this blog. Sooner or later people here will resign to the fact of high prices for the foreseeable future. That is how it happened there and how it is happening now in Canada.
Social stratification based on land owners and non-landowners will happen in Canada. The Fiat money system has created so much money over the last couple decades and it needs a store. Real estate is bought and held. A value shift has occurred whether you like it or not.
RE: comments on Guelph and Kitchener/Waterloo
Guelph RE market is only moving because of lack of quality inventory. Good jobs are scarce, people are worried.
Biggest problem that the region faces now is un/underemployment. The good paying union jobs are gone forever and in their place you have service sector jobs paying $10/hour.
Prices here will come down a lot and fast very soon. In Ontario, toronto GTA is about the only region where houses are flying.
Pickering/Ajax/Whitby/Oshawa/Kitchener-Waterloo/Cambridge/Guelph/Barrie prices are all down and inventory is building. The odd property sells in a few days but the majority stays on the market.
One thing happening in the Ottawa market so far this year is realignment of all the sub 300k$ single fam. dwellings.
Very little listings are available so houses at 280k$ a year ago are now going for 320-350k$ with multiple offers not uncommon. Some of the nicer town houses in the same price range are experiencing the same multiple offer effect.
I’ve been waiting to buy for a few years, waiting for the coming collapse, but to be completely honest I have pretty much given up on it happening.
My wife and I have a combined income of around $150k and rent a 2 bedroom 1 bathroom dump for $900 a month. Sure we COULD go out and buy a house for $600k+ from Surrey outwards, but we don’t want to have an hour plus each way commute every day. The alternative is to buy a condo for $400k in the suburb we are at now, but looking at $400 condo fees, $250 property tax plus the other extras and we are going to be paying out pretty much what we pay now in rent every month, so in that respect it’s a wash. Throw in the interest we’d be paying on our mortgage and we’re throwing far more money away every month by owning than we will be by renting. Sure we may be gaining some equity, but by not buying we are banking all of that equity we would be building up, plus all that money in interest we’d be throwing away each month.
A co-worker of mine who happens to hail from a European country helped me see why it may not all come crashing down, ever. His observation was that Vancouver is time and time again ranked in the top 3 places to live in the world. Couple that with our extremely friendly immigration policies for those that can invest $400k+ as part of their immigration, makes Vancouver one of the premier destinations for people of means from all over the world. That isn’t to say that millions of well to do people from all corners of the globe have to move here. But even if only a small percentage do, it still makes real estate here unaffordable for most.
I will be the first to stand up and admit that the majority of posters here are far more intelligent than I am. I don’t really understand why economies *have* to return to certain level, why levels of affordability *have* to equalize, and all kinds of other economic principles, but I will say that my co-workers observation really made a lot of sense to me.
On the economic front of Vancouver, I’m not really seeing the hardship. Maybe I’m just isolated from it. Last month the company my wife works for just moved into a space twice the size of their old space, and they have seen almost a doubling of their client base since last year (gym), and the company I work for is doing exceptionally well and growing like crazy (tech). Neither my wife or I know anyone that is currently unemployed or has been unemployed in the last few years, except by their own choice.
I’d love to see the market drop here in Vancouver and thought for years it would. The further and further this goes however, I just don’t see it happening. I see all kinds of quotes of historical norms and historical averages… Maybe we are now in a new economic reality? As a complete neophite, that makes as much sense to me as anything else. Everything else around us changes, why not economics?
The Goldmen–
Carny’s umbilical cord–is still attached–always will be–
March 4 (Bloomberg) — Bashing Goldman Sachs Group Inc. has been elevated from a national pastime to something far more serious: a bona fide threat to the company’s operations. Don’t just take my word for it, though. We have it from Wall Street’s highest authority. That would be Goldman Sachs itself.
Among the new items in the investment bank’s latest annual report is a 219-word risk-factor disclosure, cautioning that the constant drumbeat of criticism is taking its toll. This isn’t to say Goldman is acknowledging there might be something wrong with the way it does business. That would be a wholly unnatural act.
Rather, the problem as identified by Goldman is the way other people have chosen to respond to its existence.
http://www.bloomberg.com/apps/news?pid=20601039&sid=an1S9gwperQc
Here is a good article.
http://www.financialsense.com/fsu/editorials/2010/0304.html
The summary is:
“… We expect rising interest rates and bond yields until the end of the century. The result will be mass defaults and bankruptcies of nations, municipalities, corporations and individuals. Therefore we expect a chaotic and turbulent 21st century.
Interest rates and bond yields have bottomed long term in their 54 year cycle and should rise for decades in a wave III of the next cycle. Bonds have peaked and should decline for decades in wave III. You can expect that a number of countries, municipalities and corporations will default on their bonds and interest rate payments in the coming years.
From the middle of the 2030’s we expect a IV wave correction in bond yields and interest rates which will last for decades possibly until around 2060 when the next 54 year interest rate cycle is expected to bottom. This will be followed by a rise in interest rates in wave V until the end of the century. Bond prices should naturally decline during this period in wave V.
Intermediate bonds will soon rally in a small wave 2 upward correction that might last until the end of 2010 / early 2011. Interest rates are expected to decline during the same period. This creates the biggest shorting opportunity in the bond market for centuries. …”
Interest rates rising until the end of the century?!?!….OUCH. Can we look forward to housing moving opposite to the interest rates?
What of the 30 – 40 year ‘investors’?…sounds like they bought high and intend to sell low.
EW
“feds have pretty much guaranteed higher interest rates in a few months … the prime rate could be doubled by the end of the year” – Garth
Gov’s debt servicing explodes, and we are on the hook for $25 billion in insured mortgage pools unloaded from the banks – thanks F
While I’m on a roll with bank bashing. I didn’t believe for one minute F’s assertion that Canadian banks were immuned to the financial crisis and should be held up as a role model for the rest of the world. The truth be told, there was two Canadian banks on the ropes.
The 67-year-old version of Rocky — 2:44 clip. TAKE BACK OUR COUNTRY!
Nothing like seeing evidence first-hand. The Roaring ’20s
Mega-quake at Seattle, and 6.4 Vanuatu
Another reason why a war is necessary (other than depopulation).
Soviet-style collapse in North America. 3:18 clip. These names have been seen before — most here know them.
Isn’t it convenient that the US can dictate which Cdns. can / cannot fly into or over the US? Or has Harper begun the process of turning us over to America? Could be this is what he meant when he said “You won’t recognize Canada when I’m finished with it.”
Queasier side of North Vancouver.
One thing leads to another. It is because the US is planning on expanding into South America (no chance!).
The US Social Security plan (probably our CPP / OAS as well) is brpty, so Carney, Harper and Flaherty may start tinkering around with our private pension plans to suck us dry.
Another reason for depopulation.
#90 The Truth,
Two things in response.
First, in China is home ownership at 70% of the population? If not, and if substantially lower, than I think your analogy disproves your point.
Second, I agree with you that the past two decades have created a huge amount of wealth, and that this wealth needs a store. There are those who predicted the dow going to 30,000, and I think the reason they missed the mark is because the wealth went into RE instead.
However, I think it is fake wealth which exists becaues the buyer/seller marketplace is out of balance due to the baby boom demographic bulge. Our economic python digests that pig, much of the wealth will reveal itself as so much vapor – unsupported in the context of true wealth.
ps. No inflation coming. But interest rates will rise nonetheless due to the appetite for sovereign debt.
sorry, when I types “appetite for sovereign debt”, I meant to type “appetite OF sovereign debt”
Garth,
Well said. With interest rates heading up, buyers will slow down, and we will see more foreclosures etc… when they have to refinance. Heck I have to renegotiate my own mortgage soon and I have some numbers to crunch. 2010 will indeed be a tipping point for awhile.
I have to say to the diehard (not to be mean ) renters out there, your calculations say don’t buy, but there are other reasons.
As an ex-military person, I used to live in rented quarters subsidized by the gov’t. It was okay but it was like the military itself and why I left.
I decide where I live, where I get posted (move), and what I can do with my own place. Period. There is a big value in that! I own a revenue property, so I have a tenant too.
As for whats gonna happen, I think you have a good grip on the reality. Towns and cities may vary, but the results will be basically the same.
Oh, and for :
“Keith in Calgary
In my personalopinino, the vast majority of realtors are FRAUDS, CHEATS, THIEVES and LIARS.”
Keep that load of crap to yourself! I dislike people who hide behind an anonymous post. I’m a Realtor and proud to say I work hard and fair for my clients. ;D
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off topic but check out this us realtor commerical with uncle sam. Kind of fitting
http://www.youtube.com/watch?v=sYXbt5VZ4-0
#80 Gary on 03.04.10 at 5:01 pm
Excellent post, Gary. You are exceptionally wise for your age.
#68 Nostradamus jr. on 03.04.10 at 2:42 pm
You are about to find out just how wrong you are within 2 years tops, more likely within 6 months.
There are a number of myths about to be busted concerning Vancouver. Here are a few examples that I suspect you yourself believe in:
Myth #1:
Vancouver RE will continue to rise due to wealthy immigrants buying RE.
All evidence points to immigrants needing (I’m stressing “need”, not want) to finance their homes in Vancouver… just… like… everyone else. The idea that Chinese or any other affluent immigrant wannabee Canadians pay cash for their homes is in 9 of 10 cases (yeah, I’m ballparking a guess) a myth. Its not rocket science to take a look at a 20 year chart of interest rates and CMHC regs and compare mortgage affordability and RE values in Vancouver to see a bigtime correllation. Improved/reduced mortage affordability pulls RE values like a puppet on a string in Vancouver (just like everywhere else). In short, immigrants finance for their homes just like everyone else and as such are prone to the same affordability risks. (i.e. rising rates)
Myth #2:
Tourists coming to see the Olympics will fall in love with Vancouver so much so, that they’ll by.
Sorry Vancouverites. It says “visitor” on their passports. They are already back home.
Myth #3: Vancouver has nowhere to grow but up and as such, lots/land parcels will continue to rise forever.
Vancouver is no different than any other coastal city. Its RE will be dramatically effected by credit availability and cost of living just as any other city in the world is. Its not an Island.
Myth #4:
Vancouver is recession proof.
The big hammer that begins most recessions is rising interest rates. Look around. Look at the nations (and coastal ones at that) that have had major economic turmoil from blown RE bubbles to currency crisis’s. They all have two general things in common. They’ve all experienced unprecidented credit expansions created by historically low to near zero central bank rates, followed by rising interest rates near the end of the expansion. To think that Vancouver, a city dependent on credit to support RE is immune to this kind of recession (which is the one that is coming for Canada within the next 2 years, guaranteed), is to live a life as a shut in.
Hey, its not hard to like Vancouver. I lived there myself, know what it has going for it (pretty girls, nice weather when its not raining 6 to 9 months a year). But aside from this, Vancouver is a city built on credit. Once easy credit disappears… think, Nos… we’ve had falling interest rates for 20 years now. What do you think will happen when they start their way back up and credit seriously contracts in Canada? Thats Canada’s future.
This is where we are headed and off topic, but after listening to the budget buzz today, I fail to see how any government can steer this nation back into the black heading into a future of rising interest rates, especially if they approach double digits within 5 years the way I think they will. F’s budget projections may as well been drawn with crayons for all its worth. Its a failed budget for the times, guaranteed. We need much larger spending cuts and we need a GST hike with hikes to taxes in the following budget if necessary and it likely will be. Projected 50 billion dollar deficits are unacceptable. In my mind, 20 billion dollar deficits are unacceptable. No surprise here. F is an F.
I made a pointless, off-color comment yesterday as per the real estate gathering and was deservedly bleeped.
My sincere apologies, Garth. A split second after sending the d—ed thing, I realized I was neck-deep in the swamp with the critters. Sorry. Those lovely men and lovely women at the lovely table, thrown into heightened and ever-sharper detail by your increasingly scintillating writing (and yes, I’m sucking up bigtime), apparently set off some kind of weird Pavlovian reaction.
Then again, it could be that I simply felt like being a
b—h after working a 12-hour day.
Truly though, I don’t wish what’s coming on ANYONE, not even the honte tonte of Cabbagetown. Self-censoring is now on tap in this particular rental unit. I promise.
#90 The Truth
Social stratification based on land owners and non-landowners will happen in Canada. The Fiat money system has created so much money over the last couple decades and it needs a store. Real estate is bought and held. A value shift has occurred whether you like it or not.
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The Fiat money system has created so much money over the last couple decades and it needs a store.”
I think your making a mistake by saying that-
What our system is/was was a credit money system and produced debt–
Debt is the flip side of credit–both are money–
The problem is–when the collateral that underpins it deflates in value–the debt does not–
It hangs–while leverage increases–
If this continues–you wind up owing more then you can sell it or buy another one for–
Looking at the US over the last 3 years–is a good example–
People/mortgage holders–get pushed so far underwater in equity loss–that they just walk away/default–which doesn’t wipe out the debt–but only transfers the debt-from the borrower–back to the lender–
The debt still exists–and as more defaults come in–the bank cannot write down the debt–because–they have their “assets” in derivative paper–that they’re afraid to sell–because–it’s all built upon “collateral” that the same borrowers that are defaulting on–
In other words–they are insolvent–f–ked
In a normal world–the bank would die–this would wipe out the debt–but–this ain’t a normal world–
We have HSBC or whatever they;re called–to take the loan losses from the banks and by doing all that–has–transferred the debt onto–us peasants–
“The taxpayers” or so–GS calls us–
My point is–we have none of the money that you say–has been created–
It was an illusion–it was a credit ponzi scheme–
What we created–was not wealth–not money–
Only–a world of debt–and somehow–
It must be paid–with no money left–to do it–
If we could just print and pay it–why don’t we?
#93 VanRenter,
Don’t fall victim to “if you don’t get in now you will be priced out forever mentality.” Don’t drink the Kool-aid.
Vancouver remains a very liveable city but plenty of cities on that list are much more affordable. Remember that prices in Vancouver were falling in 2008 and into 2009 before the gov’t instituted emergency interest rates. Had the gov’t not dropped the rates to the floor and expanded the CMHC mortage terms the market in Vancouver would still be dropping.
The Van Bulls always conveniently ignore this fact. However it is crucial to understanding the long term and very dire implications for the hottest markets in the country – Vancouver and Toronto. These cities have the most people who – like yourself- should be able to afford a home but cannot. This is the sad irony. The most unaffordable markets will create the most casualties.
Think hard before you leap. Rents are coming down right now. Get a better place and wait a year. You won’t regret it in the long run.
Hah, Garth… gotcha being an Easterner, again. As those of us who escaped Toronto many decades ago… we can vouch for the eternal draw of Victoria over most any other Canadian city. And that is; where do you want to move to when you inherit your folks hard earned money in a few years as most boomers will (or already have) soon. Unless you’re a member of the Tourism Ontario bandwagon, you gotta be honest and just admit it… frozen, polluted, overpriced and overcrowded center of the known (Canadian) universe or a little city that just about everyone who visits can’t seem to stop dreaming of?
It’s a no-brainer, Garth. And as for the government layoffs and cutbacks – there have been as many of those in my 30 years here as there have been cries of Armageddon and the end of the world every time the economy hiccups in Canada… we’re still here and doing fine thank-you (and the prices just keep going up).
But I do agree with you on one point; as a REALTOR I can second that: all those who want to sell… get it listed pronto. If you’re buying, don’t get stampeded into something you can’t afford (which is good advice anytime). And I hope to see your shining faces here on your next visits as tourists!
#93 VanRenter: “I don’t really understand why economies *have* to return to certain level…On the economic front of Vancouver, I’m not really seeing the hardship. ”
This economy is a ‘fake’ economy, built on a credit bubble with multiplying debt that is unsustainable. The longer and higher it goes, the worse the crash.
#101 REinYEG “Keith in Calgary -In my personalopinino, the vast majority of realtors are FRAUDS, CHEATS, THIEVES and LIARS.”
I’ll also add self-centered and money driven to that list.
To: Mike (Authentic)
#101 REinYEG “Keith in Calgary -In my personalopinino, the vast majority of realtors are FRAUDS, CHEATS, THIEVES and LIARS.”
I’ll also add self-centered and money driven to that list.
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Garth, you would figure you could (and do) attract some intelligent discussion here. I find when it comes to real estate, a well-informed populous with competent advice would go far. I keep up on topics, mortgage rates/happenings and many others to give good advice to my clients or customers. I tell them 2010 will be interesting because of these reasons and then let them decide for themselves.
Mike (the Authentic ???) and Keith have no credibility and therefore should be somewhat ignored. Every occupation has its good and bad. They should tell what they do, so we may comment.
#93 VanRenter: “I don’t really understand why economies *have* to return to certain level…On the economic front of Vancouver, I’m not really seeing the hardship.”
When so many of your friends and families have HUGE amounts of debt, but financed at low interest rates, sure things look just fine. You can live in your expensive house, drive a nice car, go out for nice dinners etc. But, I’m seeing a lot of people who are essentially maxed out on credit cards (it’s easy to mask your true standard of living with plastic) and although they can pay the mortgage NOW, how about when interest rates go up 1, 2, 3 or 4%? The world is awash in debt. Sure, things look ok now, but raise interest rates a few percentage points, have unemployment increase a bit, and oh boy a whole lot of people will be in big trouble. Creditors eventually come knocking and that’s going to be a huge problem for individuals and entire countries in our lifetimes.