Bubbletown. Stage Five.
Euphoria, leading to delusion.
“…the bubble now enters its most tragic stage. Some wise voices will stand up and say that the bubble can no longer continue. They put together convincing arguments based upon long run fundamentals and sound economic logic. However, these arguments evaporate in the heat of the one over-riding fact – the price is still rising. The wise are shouted down by charlatans, who justify insane prices by the euphoric claim that the world is different and this new world means higher prices.”
It’s one thing to read a definition of group insanity – which causes bubble behaviour. It’s another to see it playing out daily, with all the potential for destroying people’s lives. Even worse to witness irresponsible self-dealing corporate greed, fanning the flames.
First, to Leslieville, an oft-dodgy part of Toronto. Home to dead factories, 80-year-old houses meant to last 50 years, and hyperventilating realtors.
The semi pictured about went on the market days ago for $560,000. I think you can tell from the pic that it’s a mess. But even if it were stunning inside, it’s still half a house on an ugly street with a packrat neighbour, no parking and one skinny property away from an industrial building.
A blog dog wrote to let me know some friends were planning to make an offer. He even sent me an email they exchanged:
The price is right but we are going to have to go around 30-40k over to get it, and that might not even do it….but it needs LOTS of work to pretty it up to where we need it to be, but that will all be factored into the amount we offer. The bones are great and it’s fine as is, just not as pretty and updated as what we are looking for. Everything we see that we do like is upwards of 700k fully re-done and that is crazy. The market is going insane so we aren’t too set on it but we will probably try…wish us luck!
“They decided to wilfully join the insanity,” the dog writes, “and offered $589k, but were laughed at. The house sold for $720K ish.”
So, three-quarters of a million dollars for a fixer-upper in a part of Toronto that not so long ago was a refuge for the ‘working class.’ This junker – worth perhaps $250,000 five years ago – commanded $160,000 over the asking price in a bidding war made possible only by delusional behaviour, a greedy vendor, an irresponsible realtor and bubble-making mortgage rates.
Oh yeah, and the Royal Bank.
The country’s largest financial, with a mortgage portfolio to prove it, showed this week it’s capable of being just as incendiary as the house monkeys at Re/Max. In a survey done for no other reason than to pump more home loans, RBC told a breathless media that 92% of respondents “believe that buying a home is a good investment.”
In fact, 40% of those who are thinking of buying say they’ll do so soon.
My favourite part: “RBC says respondents cite good housing prices, favourable interest rates and the opportunity to buy a home as an investment or second home as the primary reasons behind their buying intentions. “
In case you think I diss the bank unfairly, and that it’s only holding a mirror to a crazed population, you’re right. The Royal Bank is a profit-making institution and its shareholders are only too happy to see its mortgage portfolio swell like Kirstie Alley’s behind. As with the property-pumpers at Re/Max or Royal LePage, more delirious young buyers mean more profits.
But is this not the same bank that taxpayer dollars streamed into after the Crash of 2008-9 as the feds bought up its riskiest mortgage loans? Isn’t this the cornerstone company of our vaunted world-beating banking system, the one that saved us a from a US-style subprime credit-drenched meltdown?
How much money does RBC need to earn? After all, profits in the latest three months were $1.5 billion – up 35% in the past year. Is there a point at which greed becomes responsibility? Why can’t our biggest and most respected bank, of which I am a customer, stop pushing more gas into the housing bubble, and warn consumers they’re buying at the top, with money that will only increase in carrying costs?
Ah well. Whadda I know.
Maybe they’re all right. It’s different this time. A geriatric semi in Leslieville will soon be a mil.
But I think if I ran a bank, believing ethics rewards more than greed, I’d be tempted to say: No bubble’s ever lasted. No boom has ended well. The rush of the moment removes the lessons of the past.
Be wise.
191 comments ↓
Why buying a house is a bad investment
http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20100315_10019_10019&page=2
It’s got a tree for a yard. Love It!
Get a load of this dump for $580K in East Van…
http://www.realestateburnaby.com/ActiveListings.php/Details/1456/#viewdetail
The upswing usually starts with an opportunity – new markets, new technologies or some dramatic political change – and investors looking for good returns.
· It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.
· In the manic phase, investors scramble to get out of money and into illiquid things such as stocks, commodities, real estate or tulip bulbs: ‘a larger and larger group of people seeks to become rich without a real understanding of the processes involved’.
· Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is ‘distress’, which generates unexpected failures, followed by ‘revulsion’ or ‘discredit’.
· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.
So many smart people are sitting on the sidelines watching the unintelligent few destroy our way of life.
Boy oh boy.
It’s the Deleveraging, Stupid!
The looming deleveraging challenge
Several major economies are likely to face imminent deleveraging. If history is any guide, it will be a lengthy and painful process.
To to gauge the likelihood of a deleveraging, we took a more granular view, studying how debt and leverage have grown over time in individual sectors of 14 major economies. We assessed the sustainability of debt by considering factors such as the level and recent growth of leverage and the borrowers’ debt service capacity and vulnerability to income and interest rate shocks.
Our analysis suggests that ten sectors have a high likelihood of deleveraging (Exhibit 2). In eight of the ten, very high levels of debt are linked to real-estate booms: the household sectors of Spain, the United States, and, to a lesser extent, of CANADA and South Korea, as well as the commercial-real-estate sectors of Spain, the United Kingdom, and the United States. The remaining two are parts of Spain’s financial and non-real-estate corporate sectors.4
JANUARY 2010 • Susan Lund, Charles Roxburgh, and Tony Wimmer
Source: McKinsey Global Institute
http://www.mckinsey.com/mgi/publications/debt_and_deleveraging/index.asp
720K ish for that halfhouse? How can a bank provide a mortgage for such an overpriced property? It’s pathetic.
Chair of TARP Oversight: I AM AFRAID
This is the chairman of the panel that oversees the near trillion dollar TARP bailout program
This is not some random web site author or blogger with a confirmation bias talking about the possibility of doom and gloom.
http://www.shtfplan.com/headline-news/chair-of-tarp-oversight-i-am-afraid_03082010
$720k?!? For THAT POS?
I’m speechless.
Vancouver East & West*
Attached & Detached
as of: 03/08/2010
New Listings – 115
Back On Market Listings – 1
Price Changes – 31
Sold Listings – 19
Vancouver All Areas*
Attached & Detached
as of:03/08/2010
New Listings – 335
Back On Market Listings – 1
Price Changes – 102
Sold Listings – 63
Garth, your behind the times – Vancouver is booming – listings that is…sales…well, the buyers must still be on Olympic hiatus.
You know how the party ends Dude. In tears. Always.
I think we may be past the peak out west.
The insanity continues…a whole generation of Greater Fools!
oh yeah…as I was e-testing the wifes minivan tonight in rolls a shooter in a Mercedes M55, he’s sitting on the bench filling out OREA forms while waiting for his test…
Garth,
I may be posted out of bubbily Victoria this summer to attended college at RMC in Kingston. Do you know of any sites that have Kingstons historic real estate values on it. If I live their for 5 years going to school I wouldn’t mind buying a 3bdroom 2bath for around $130,000 to $160,000 instead of renting a place for 1200 or so. I make around 70k a year plus whatever the wife can find for work. Do you think that part of Ontario will suffer in the downturn. Sure hope Victoria does so when I move back out here I can buy something.
Are you sure it’s a semi….looks like a row house to me.
This is insane….720000 for such a small house.No matter what area of the town it is in.
Also, it would be unwise of us to call a seller “greedy”.If an idiot is ready to pay me 5 mil for this house, I wont think twice to sell him.On the other hand you can definitely call a realtor irresponsible (in general).
But the biggest share of this insanity goes to buyer.Either the buyer is super rich and dont care for money or he is totally disillusioned.
Those govt Action Plan commercials painting a rosy picture of Canada on the upward track is also fanning the flames.
God help us.
good grief, my eyes are bleeding!
for 700k you could take a stab at a smallish but nice (still overpriced) house nestled in a quiet side street around Yonge/York Mills. Far superior to this trash.
That shack looks like it’s 12 feet wide at best.
One big chopped up narrow hallway.
#3 Crash
That slideshow just needs horror film music.
LOL what a greater fool. This peson will be bankrupt within a year. Those buyers are the biggest fools to buy in a market set to crash. With so many homes now sitting on the market and not sell who would be stupid enough to over pay ? This house will be worth $250000 in five years. POP…………What was that? Enjoy the housing crash everyone.
Living in Toronto for over 30 years there are certain areas I just don;t understand.
Leslieville
The Junction
The Stockyards
Beaches or “East Beaches”
Have never been great areas or even areas I would ever want to live in.
700K plus for that is a joke, but, I still love it at the same time, can;t wait for the Globe and mail or Toronto Life to be running stories about our very own RE crash in 2 years time. Its going to be a hoot.
Im glad we are seeing this blow off top in the final bubble phase, that means we only have a little while left until this bad boy explodes.
I am watching incredulously at all this. I really am speechless. The Canadian real estate market continues on an unrelenting upward price trajectory. When does it all stop???
Canadian cardboard houses are expensive($200/sq ft.) to build. It burns easily too.
http://edmonton.ctv.ca/servlet/an/local/CTVNews/20100308/edm_fire_100308/20100308/?hub=EdmontonHome
Houses on fire news seem quite regular.
How much money does RBC need to earn? After all, profits in the latest three months were $1.5 billion – up 35% in the past year. Is there a point at which greed becomes responsibility? Why can’t our biggest and most respected bank, of which I am a customer, stop pushing more gas into the housing bubble, and warn consumers they’re buying at the top, with money that will only increase in carrying costs?
**************************************
Why would Royal or any other TBTF bank care about whether or not–the collateral to loan-risk ratio was feasibly geared?
They have their ass covered–by Canadian tax-payers-
They can simply offload the default–onto Canada’s version of FNM–thereby-giving Fahlerity a new burst of oxygen–to get on the International stage at the G20 and proudly say–
“Canadian banks are the model for the world”
Ya know–I’ll bet Fahlerity can’t even see the bait and switch that’s happening–
Carny can see it–
GS North–waits patiently–
http://www.youtube.com/watch?v=9xskNqXmCNs
-
Are these not the same banks who asked F to tighten up the CMHC lending rules? LOL!
One of my closest friends does his business with the Bank of Nova Scotia. He saw the article a few of their economists did on their concern about the RE market. The same day he got a pamhlet in the mail from the bank telling him it was the best time ever to buy.
The retail division of all the banks are like wind-up drones. They only know what they are told which is to sell and follow the lending rules. Between the banks, the cracked up RE agents and the asleep at the wheel MSM we are headed for a train wreck.
Coming soon to a market near you.
This must be a replica colony on the moon for that price. The extra 1/2 million was to get it transported there. location, Location, LOCATION!
Ha, Unbelievable.
I thought I’d seen it all but that is jaw dropping insanity at its finest.
And here’s a comparable…
…just down the street, 3.5 years ago, much nicer looking house at half the price!!!
http://tinyurl.com/yk967h7
Actually, the bank doesn’t. It’s provided for by the people of Canada through an entity called CMHC. That’s right, when tshtf (the something hits the fan), the Canadian public will be caught holding the bag.
>#6 hp on 03.08.10 at 11:04 pm
>720K ish for that halfhouse? How can a bank provide a
>mortgage for such an overpriced property? It’s pathetic.
Why would the Royal Bank care about the ability of their borrowers be? RBC has no skin in the game… First, they have recourse on the borrowers. Second, the fools who buy this dump will be insured by CMHC, meaning the only institution left whole in this transaction, will be… (drumroll please)… RBC.
Which makes me wonder why Paul Krugman insists on writing a hagiography of Canada’s banks in his latest column…
http://www.nytimes.com/2010/03/08/opinion/08krugman.html?em
I think Dr. Krugman should get out of his ivory tower…
#9 Not Garth,
I have heard from a few realtors that it has been slow on the buyers side since the Olympics. I had thought it would stay hot until the April 19 rule change. However it looks like most of the buyers have dried up before the party ended. Only 5 more weeks to go.
Why would RBC say anything else. CMHC (and that means you) guarantees that they will not lose. So, if profits are what they want, what better deal than a 100% guaranteed gamble.
Now how do we convince CMHC to change their ways?
You could probably tear down that ratty old strip row and build something nice for what that one unit sold for.
I’ve been saying this part for a while: Our banking system is not more resilient than the US system was. The evidence that the Canadian system was better came from “customer surveys”. Remember, the Icelandic system was stable, the US system stable, the British system was stable, Bear Sterns was stable, Lehman Brothers was stable, they were all stable until one by one the respective housing bubbles started to deflate.
I’ve also argued that the only difference between the Canadian banking system and the US system was that CMHC has always been an acknowledged ward of the state, whereas in the US they tried to pass their various government sponsored enterprises off as privately owned businesses (although they no longer do, much to the former shareholders demise).
If the central banks of the world cannot stop the debt deflation and cause high real inflation (both in cost of goods AND wages) soon, Canada’s gamble to try and stay up until everything goes up will eventually fail. That the central bankers will eventually get good enough at causing inflation to cause a whole lot of it I do not doubt, not a bit. They just need more practice. But will they do it in time to save Canada from what every other major economy in the world that allowed a bubble is facing? I doubt it. House prices are and always have been tied to income. And they probably always will be.
I have no doubt that in 2032 a house will cost twice what it costs in 2012. But what a house will cost in 2012 probably looks a lot more like $200 / square foot, which is what it costs to put up something nice. And that price is under deflationary pressure. Unemployed factory workers often come back as lower priced construction workers once the EI runs out. Some of the skills are transferable. And some house builders, like the oft cited Mattamy, are actually factories. Plus we can go back to building almost nothing but “mobile homes” for rural locations, not fancy but the double wides are perfectly workable, rather than dispatching plumbers and carpenters to the hinter lands.
Do we in fact have (selling, aiding & abetting) culprits here or do we just have (buying) idiots?
I know the real “culprit”, and it is not RBC or the real estate touts, and it ultimately isn’t even Mr. Carney and his institution.
It’s Mr. F., his leader and his government, and the opposition parties. It’s average Canadians, who are delusionally optimistic at the best of times, wanting SOMETHING FOR NOTHING, even if it isn’t really there…
Sure, “buy” more real estate…just keep going. Then one day you, begging, can sell it all – to ME!!!
Some time back, there was an ad on TV, where three businesspeople were walking toward a departure lounge at an airport.
When the man leading started heading off on his own, the lady called out saying: “Good luck”.
The man responded: “Luck? Luck is for rabbits”. Instead of zillions of sheeples worldwide, they have become rabbits at the tail end of a feeding frenzy.
Don’t choke on yer vomit!
“. . . that taxpayer dollars streamed into after the Crash of 2008-9 . . .” — That irks me no end. The banks routinely make hundreds of millions, if not billions in net profits; they put aside a certain percentage for risky loans and they are still in the black.
So why the hell do taxpayers have to bail out profitable corporations? Will we see any of it back? Not bloody likely!
The rich become wealthy, the middle class and poor are one and the same.
——
HAARP Seems there may be connections with the Haiti, Chile and Turkey ‘quakes, so chances are good that Iran is next.
Which is precisely what Iran is doing in accordance with the NNPT, and the US is obligated to help Iran. Israel still refuses to sign the NNPT. The other half of the story.
Turkey recently squabbled with Israel. Sure would be interesting if the US got their coordinates wrong and flattened Dimona — that would make a level playing field there.
By using HAARP, US soldiers will probably head somewhere else. The US now has control of all of Haiti’s oil and minerals.
China just signed a contract with a Cdn. firm in Chile for business there. Japan has moved to closer ties with China, and both are dumping a lot of US greenbacks.
This will annoy the US (Israel must be laughing so hard now).
Israel’s goal is to have the US and Russia wipe each other out, so they take the MEast and all its’ resources.
Internment This is not the same US when I grew up.
The Ice Age cometh! Not CC, Credit Default Swaps. Is RBC involved?
Everybody’s looting everyone else, but I’m only having my bum fondled!
#3 Crash- thanks for the laugh — that looks like Sanford and Son’s place.
If you look closely at the photo of the two realtors Doris Gee & Phil Moore, I think you can see small horns protruding out of their foreheads…
Still. Royal Bank to blame which is a profit making corp or Flaherty? I’m thinking F.
#3 Crash
That listing in Vancouver is a howl! They didn’t bother to take the bottle of rye off the table before they shot the promo photograph, likewise with the dead bug in the yard. I love the walk in closet with the bed, no wait, that’s the bedroom…
Let me guess, finally sells $60k over list price, no house inspection allowed, hockey equipment included for an extra $20k!
How sad is this? Bidding wars in the middle of a recession. And getting a house that looks like that?!? Looks like a piece of junk to me. If I were to spend that kind of money, I’d like for it to have it all newly renovated. Sorry, man, their insanity level is off the chart, along with the housing bubble and both will burst at the same time. It was not that long ago, people who carried a mortgage of 200, 000 were thinking, gosh that’s a huge loan. And now, people have strangely accepted on carrying at 450, 000 loan and feeling happy about it. Actually, people are boasting about how much they paid for their home. Just as a reminder, it’s how much they owe for the next 35 years. Yippy!
In my opinion, this is unacceptable. I will continue to wait for a big sale. And I will continue to hear, “dream on, it’s never going to fall” from the same people who had to sell their home in the 80s, been laid off multiple times in Calgary as they work in oil and gas, and now don’t have a pension from Nortel.
I guess people don’t learn from mistakes in the past. Good thing for the internet and your blog, Garth
#3 crash
Holy shit !!! what a piece of crap. the east van house is just a few blinks away from being condemned . i might as well flush my money down the toilet than buy that.
with 58 large you can rent for a long time and not worry about swat.
with that piece of shit …you might be worried strong dog piss might dissolve the whole side of house
I ‘m sorry man…i CAN’t stop laughing. Americans across the border must think we are stupidiest people either that or we are smoking our own major export a little too much
#3 Crash
you made my day—believe it or not, I owned that house back in 1973—I can’t stop laughing.–it was a dump back then but from the pics I see they’ve done a few upgrades.
it does bring back a lot of memories from those days
my first wife and i bought it for 28k in sept 73 from her mother (somewhat as a gift) we split up and i stayed in the house while we tried to sell it
finally sold in the fall of 75 for 43k–had a huge moving out party where i met my 2nd wife—-i wrote her phone number in the dust on the siding “shingles” to the left of the front door
whenever we were in that part of town we would drive by and lo and behold the phone number was still there –years later
note the dark brown cupboards in the small pantry? area–i swear thats the “mac tac” (70s thing)i covered them with
but thanks once again for that link– i’ve e-mailed it to many–and yes i will be going by it this week
ps-hope andrew doesn’t see this –he’ll be calling me a fool for not keeping it as a rental
More Fire Sales of Public Assets … This will cause taxes to rise …
http://www.huffingtonpost.com/donald-cohen/emshadow-eliteem-if-you-b_b_476177.html?view=print&just_reloaded=1
Which blog dogs hate Canadian Health care??
Sarah Palin had no problem using it …
http://www.huffingtonpost.com/2010/03/08/palin-crossed-border-for_n_490080.html
Boomers looking at retirement! This is the big play if nothing else happens to rates or RE prices. Lack of employment will always be a leading indicator of where things will go.
Scenario of Joe Avg Leading Boomer now 65 years of age. Must retire…job not replaced.
He might have a $1.2M home in Vancouver. It might be paid off (unlikely) but let’s give the benefit of the doubt.
They are one of the boomers with RRSP’s which do not exceed 2 years of healthy living into retirement so looking at it firstly and saying 20 more years to live.
They downsize to a $600K condo, pocket the $600 large and now look at the nestegg for retirement. That’s $30K/yr and a $600K condo. Not bad! If things stay as they are!
Stage 2 – All boomers retiring shortly start doing the same and begin to flood the market with RE looking to downsize. $1.2M homes go down to $1.0M and a few buyers pick them up thinking that’s the bottom and a steal as rates are still low enough. Condo market still good at $600K but not boomer has $20K per year.
Stage 3 – All boomers jump into it retired or not and $1.2M goes to $800K, condo goes to $500K. Boomer has $15K per year.
Stage 4 – Boomers see that $15K/yr is not enough and begin to dump $500K condos for $400K loosing $100K in process looking for $250K one bedrooms. $1.2M property now at $650K.
Boomer has $22.5K/yr and $250K condo.
Perfect Scenario – Boomer today sells $1.2M home, cashes in with $60K/yr for 20 years. Pays 0 home taxes, maint., pays some RE fees for sale only but bidding up will pay for that above asking pricing.
Percentage of those who will succeed at the above maybe 2%.
It wont take interests rates to mess up RE, its only a few boomers away from beginning.
crash – that East Van dump is a manse on the green compared to the Leslieville, um, what can one call that sadness for 3/4 of a million, plus “reno’s” (25 bucks for a can of gas, and a nickel for a book of matches)? AND, the East Van Villa w/View is 30% CHEAPER!. (I vonder if the Wolksvagen comes vith it) AND, we just had the Big Party (and the smidgen smaller party starting next week), and everyone from Leslieville is moving here, and the price can only go… oh, nevermind.
The effects of fluoridated water become clear in Leslieville.
But you just know that factory is going to become 1300 live/work studios, and a 90 story Slump Tower is going all over that 1/64 of an acre the half-hovel sits on – which will become 1/5 of the foyer. But that will be in 15 or 25 years. Nice digs until then.
That’s pay dirt. And they always bury the zombies in pay dirt.
It’s a bad movie. Or a really weird dream for the zombie that bought it.
The banks have learned nothing, the taxpayers have learned nothing, HOUSESALESMEN(R) haven’t learned a thing, our Canadian Gov’t has learned nothing, nothing at all from just 12 months ago facing the biggest crash since 1930 in the markets.
You want to close your eyes to the pending accident waiting to happen, not willing to see thousands of “new first time buyers” feeling glutinous “pent-up demand” blow up.
There are 2 ways to learn, learn from others mistakes so you don’t repeat them or make the same mistake yourself. I see 92% of respondents want to take the hard road and learn from the School of Hard Knocks.
Mike
P.S. With banks lending out so much easy mortgage money isn’t it bad in the long run for their stocks when interest rates go up this year? (or CDN Mortgages start defaulting?)
From Vancouvercondo: http://vancouvercondo.info/2010/03/deal-of-the-week.html#comment-66029
‘ This fixer-upper is conveniently located near the center of Vancouver BC host city of the 2010 Olympic and Paralympic games. Just minutes from downtown, it can be yours for only $579,900. You may be slightly put off by the pictures, but remember, many investors won’t be able to recognize a diamond in the rough, so you might not have to bid too much over asking price to put this baby in your portfolio of investment properties.
First time buyers, Investors, Builders. Corner lot with lane. Nice residential street. Close to everything. Central location. Handy man special. Needs TLC. Mainly Land Value. 21st Avenue and Prince Albert St. 10 mins to Downtown Vancover.
Thanks to crash and tincup for finding this gem! ‘
A MUST READ: http://www.canadianbusiness.com/shared/print.jsp?content=20100315_10019_10019&adZone=managing/strategy&pubZones=/content/MANAGING/MANAGING_SHARED_HEADER_SPONSOR_AD_HTML.jsp|/content/MANAGING/MANAGING_SHARED_SIDE_AD_HTML.jsp
“More than two centuries ago, the economist Adam Smith produced his landmark tome, An Inquiry into the Nature and Causes of the Wealth of Nations, in which he wrote, “a dwelling-house, as such, contributes nothing to the revenue of its inhabitant.” The father of modern economics placed housing in the same category as clothing and furniture — useful consumer goods that do not generate wealth. For the homeowner, a house is a “part of his expense, and not of his revenue.”
“”If you’re going out buying a home today, understand that you’re not following the doctrine of buy low and sell high,” Rosenberg says. “You’re doing the exact opposite”
“Housing has undergone painful corrections in the past. The current crop of homebuyers is likely too young to remember the housing bubble that burst in 1981, and the slow recovery that followed. According to data from the Centre for Urban Economics and Real Estate at the Sauder School of Business in B.C., the average real home price in Vancouver took more than 10 years to get back to its peak, before dipping again in the mid-1990s. Calgary fared even worse. Home prices didn’t return to 1981 levels until the first quarter of 2006. Toronto homebuyers experienced a similar pain when a speculator-driven bubble burst around 1989. In real terms, prices didn’t recover until 2007.”
Mike
OMG, but it’s hard to believe!
As an outsider, and less “adjusted” to the insanity you have over there, I think your Munch is best qualified to say that property there has truly, truly gotten out of hand.
You atre correct, Garth – there is a nightmare coming yourway (and probably the rest of the World with it).
Who, ultimately, should we blame?
Well, it all boils down to morals, I guess, and there aren’t many of those left in this World we live in. Does greed know NO bounds, even when it threatens the wellbeing of whole societies?
I guess thre’s nothing more left to say than to look in the mirror and be comfortable with the person I see standing before me, and to say, with all honesty, that I am glad that I am who I am”.
Good luck, chaps, we are going to need it!
Fond Regards
Munch
700 thousand would set me up for the rest of my life with about 600 thousand to spare.
Garth, Don’t be changing your mind now about the house market
Ah well. Whadda I know.
Maybe they’re all right. It’s different this time. A geriatric semi in Leslieville will soon be a mil.Mikey
This is just the latest insanity. It won’t keep up, surely.
#11 Jeremy. We moved to Kingston in 1998 and it feels sometimes like a real estate vacuum. Nice place but unexciting government economy (prisons, universities, military), which seems to be good for steady, if boring real estate. There are bubbly waterfront places and condos and crazy new granite/ss places in the burbs, but a 3 bdr bung. in the city is still around $200K. A nice one went down the street a few weeks ago for $189K. We bought ours for $117K in 1998 and have not lost a wink of sleep as we paid it off and enjoyed the quiet, neighbors and location close to downtown and work. It could probably sell for something like $200K. Instead, we built a bunker (cabin) ourselves on a big, cheap piece of land north of town.
Apparently, K’town is priced just over 3 times income. Strangely, when we go to parties, no one talks about real estate. This blog is my link to what is going on elsewhere, which looks increasingly ugly.
“….commanded $160,000 over the asking price in a bidding war made possible only by delusional behaviour, a greedy vendor, an irresponsible realtor and bubble-making mortgage rates….”
Garth – its worth clarifying that the irresponsible realtors were the BUYING AGENTS in this bidding war.
The LISTING AGENT was very responsible. He/She fulfilled the mandate 160,000 times over…. the mandate being “get the most for this house that you can get!”. Mission accomplished!
We’re all allowed to be opportunists, even when the opportunity isn’t underpinned by fundamentals.
#12 Contrarian
If you were super rich would you buy this house? Door number 2 it is.
Garth the Royal Bank is full of crap promoting housing as an investment (unless it is a bonafide rental property). They will however make out like bandits in the coming deflation as long as they keep enough of the debt serfs in their homes and paying their notes on time.
Ok, time to do some simple math.
$700,000 makes it roughly $7,000/year in property taxes, right?
Let’s be generous and assume the couple in question has 20% = $140,000 down to avoid paying CMHC. It leaves mortgage balance of $560,000. Let’s further assume more or less normal amortization period of 25 years and minimum fixed 5 yrs rate from Garth’s page here 3.59%. So given the interest rate won’t grow in the future the balance worth $289,179.34 in interest payment over 25 years. Which boils down to ($7,000 * 25 + $289,179.34)/25 = $18,567 a year of thrown away money just for price of loan and property taxes! And we didn’t include lost interest from down payment, maintenance, inevitable rate hikes and property tax raises!
Wow! I rent for less and much better place. And I do have a garage
BTW more realistic assumptions give us roughly $33,000 a year in property taxes and interest payments. Guess what you can rent for $2750 a month…
I think your plan for getting money out of an RRSP or RRIF is also quite good for the banks as a retiree has to have interest expense equal to the amount withdrawn in order to avoid all tax. That’s 100% interest income to the bank. Who originally came up with this strategy would it have been a bank?
I don’t believe that it went for 720k. I follow the market pretty closely and know the area well. It’s a overheated area with generally poor housing stock. Despite the hip coffee shops that have opened the remains an overall seediness to the area which makes sense as it was traditionally a place for low income people to live. Houses like that go for around 600 max these days. (roughly double what they were 5 years ago)
My friend bought a better house in the same neighbourhood for 550 in the fall. That is also crazy but it makes me think that the 720 is an exageration. Let’s see some proof.
#3 Crash
It’s hard for me to believe that is how they would present the house for sale. It’s even harder for me to believe someone will go in there and consider buying it. I am assuming whoever buys this will simply tear it down and build something new.
What a great time to be a seller in Canada.
no raise this yr for me. no raise for my wife 2nd yr. both companies are in S&P 500.
not sure how people can buy a house anywhere these day. almost any house your touch they want at least 500k plus. unless you move to Jane/Finch
I see listings up in GTA lots of them (over priced). Hold your course.
Tidbits!!
Eh Garth! I’m sure you’ve seen Diane Francis’s piece in the NP. (Which by the way is getting thinner and thinner every month)
I have a couple of questions about the panel you were on with her last week?
Where the hell did all this DATA coming from??
* Foreign “Hot Money” is propping up the market?
* Out of country Canadians from London and New York are flocking back to Canada to snap up estates?
* Boomers and Empty Nesters are SNAPPING up Brian Lamb’s Condos as investments.. with future plans to movie into as they bail on their principal residence for the REAL retirement party? (I guess they’re claiming the rental income from these condos on their taxes in the mean time so WE other Canadians can get some tax savings ourselves by not having to pay out so much Old Age Pension funds to these Land Barons!!)
* MASSIVE transfer of Wealth being handed down to BOOMERS from their PARENTS!! (Geh! Didn’t know the 1920 – 1945 generation had SO MUCH MONEY!!!!)
* Etc, etc.
Where is all the EVIDENCE & DOCUMENTATION of these claims that all the experts at this panel claimed???
I excepted better from Diane Francis…. As an investigated reporter… I would have expected her to QUESTION these claims with evidence and real data.
Not from straw polls, anecdotal clues and “A Friend of a Friend, of a Friend told me so!!”
There are sweet houses like that in Windsor, too- except all you need to own those are a dirty blanket and a shopping cart.
I just got a new service fee folder from RBC 30% increases across the board. Nice of the government to back these sharks. Anyone else getting 30%?
11 more reasons, besides the one above, not to get sucked into the vortex…
http://ca.finance.yahoo.com/personal-finance/article/canadianbusiness/1405/11-reasons-why-some-people-choose-to-rent-their-house
It needs two factors (or one of them) to crash Canadian RE bubble:
a) draining of the pool of fools in Canada
b) aggressively up mortgage rate
But first, there is unlimited supply of fools in Canada and second any government will not crash RE bubble, because it temporarily postponing and hiding economical disastrous.
RE crash will trigger economical collapse and economical collapse will trigger RE crash.
There are only two options for any government:
a) to cut budget 50% or 80%, not to bailout banks, corporations, up rate till 10 -20%, no more credits change the system
b) inflate to the death everything
No one non – totalitarian government will opt option (a).
Option (b) does not help to anyone, only triggering collapse.
So, nothing will be done (see the Soviet Union history); everything will be ruined by itself.
So, the long avoiding RE crash in Canada will occur after total economic disaster (very soon).
Remember this triad:
Economical collapse
Social chaos
Dictatorship
It is the nearest future of Canada and USA
In Western EU add to this triad – Islamic riots
Garth,
is this the “And then we fight” you promised a couple of weeks ago?
http://www.thestar.com/news/canada/article/776970–travers-as-the-heat-builds-expect-pm-to-spark-an-election
#46 Munch on 03.09.10 at 4:49 am
Well, it all boils down to morals, I guess, and there aren’t many of those left in this World we live in. Does greed know NO bounds, even when it threatens the wellbeing of whole societies?
******************************************
Greed does have boundary’s–
It’s when mortgage holders look down and have that–
Wile E Coyote moment–
Fear unfortunately–holds–no boundary’s-
This is why markets/prices-fall faster then they go up–
Everyone heading for the exits–in a no bid market–
We TRUELY live in a Bizarro World!!!
http://bit.ly/9AZ7Xl
Housing bubbles… the root of ALL financial collapses.
Blame It On The Bubble
Garth, longtime reader of more than 10yrs…first time writer—can’t you run for Mayor of Toronto or something…Canada needs you in a top spot! Oh, and yes I work for one of the Big 5 but have advised my clients to review your website as well. thanks again, mj
“The bones are good”…. roflmfao!!!!
Imagine the price if it had a parking pad!!!
If you want to see something incredible, do the math of the income needed to buy this $720k dump post-April 19th (when the 5-yr posted rate is the qualifying rate)…
For a $680k mortgage (approximately 5% down) @ 5.39% with 35 year amortization, this needs somewhere around $170,000/year income.
I’m sure that every family making $170k a year is just dying to get in the market so bad that they’d max out on this row house in an “up and coming” neighbourhood.
#3- LOL… someone needs to show this kitchen to every idiot who put a brand new “farm sink” in their $60,000 kitchen remodel to show them what a farm sink REALLY was.
In Detroit, you couldn’t sell that shack for a penny.
10-year bond yields in Canada and US treasuries, clearly show massive head and shoulder tops, that have formed over the last 2 years. they will break down, and yields will skyrocket.
Canada 10-year yields are heading to 5.50% from 3.50%.
US 10-year yields are heading to 7.50% from 3.60%
watch out below.
Reggie Middleton of Boom Bust Blog is THE best balance sheet analyst I know of, he digs deeper than almost anyone and finds the true situation. He gives his opinion of the global financial scene, with figures to back it up.
“Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?” (part of an ongoing series, excellent analysis)
“This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they’re domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems….
The banking crisis (borne from reliance on boom/bust cycle economics) deposited a very large problem in the lap of the economy. Simply transferring half of the problem to sovereigns while changing accounting rules to hide the other half does absolutely nothing to solve or even ameliorate hide the problem. At the very best, sovereign nations my have succeeded in quelling the risk of financial contagion leading to part two of the crisis in exchange for exporting economic contagion that will (on the optimistic side) restrain growth for at least a couple of years and quite possibly send us back into a global recession (an increasing possibility). ”
Credit contraction is still ongoing globally = deflation ascendant. Inflation only exists in the mind of Central Banksters who dream it will solve their problems.
#3 Crash
Did they pull that house off of “Hoarders”? Wow.
As for the house in the blog, Empire Ave? 720Kish? This is why we are so over Toronto. I want land. And privacy. And the ability to grow tomatoes in my backyard without having them covered in smog from the DVP.
I drive by Empire everytime I head over to the Price Chopper on Leslie St. via Eastern. All I can think of everytime I drive by those homes, is who the hell wants to raise their kids next to industrial factories and crackheads down the block. Oh wait, my bad. Kids. Wrong audience.
Oh well, at least they can console themselves with the smell of fresh bread from the giant baking factory around the corner.
I wonder if this is the same house our friends recently bid on. Also went approx 180K over asking.
#18 kitchener1
Completely agree.
I can’t even wrap my head around some of the “up and coming pockets”. They’ve been up and coming for how long now? (The Junction comes to mind yet you can still get a home there for under 250K…there’s a reason for that…)
I like the Beach(es) but you couldn’t pay me to live there just because of the commute gridlock on Queen St. Really, one road in and out. Never mind how often they do road closures for festivals, construction, etc. Trying to get through the area in the summer and out of it can take easily over an hour when the weather’s good. But again, wrong audience. You’re not supposed to leave once you’re there, right? Jobs don’t count.
It actually has a garage in the back, you can see it if you google map the area.
That saves $15/month in Parking Permit fees…surely thats worth $100k+ to some.
Well at least it looks like the young Canadian homebuyers are going to lead the way this year so we are all safe:
http://www.metronews.ca/toronto/business/article/471744–more-young-canadians-taking-advantage-of-low-interest-rates-in-housing-market
Buy! Buy! Buy!
Borrow! Borrow! Borrow!
A lifetime of debt…
Well said Garth! “Is there a point at which greed becomes responsibility”….
To the buyers:
“The gap in our economy is between what we have and what we think we ought to have-and that is a moral problem, not an economic one.” Paul Heyne
To the sellers:
“A greedy eater digs his own grave; with his teeth.”-unknown.
My wife and I sat down with a 50-something RBC mortgage broker in the summer of 2007 in Ottawa. $40,000 cash in the bank (a gift). Shety jobs, thus combined we were making only ~$40,000/yr (but both with good job prospects).
The guy wouldn’t lend us $225,000 (said the market wasn’t ‘blistering hot’, implying that if it was, he would give us the money. He also said we could get the money if we used the $40,000 as a down payment–which we needed for living expenses until we got the better jobs).
Fast-forward 2.5 years, combined we’re now making $130,000, but we missed out on the market gains (houses in the neighbourhood we were looking at are now selling for ~$265,000).
The silver lining in that cloud is that we wouldn’t want to live in those houses today. Prefer a different location, and now have a different taste.
It will be intertesting to see the blame game when the shit hits the fan. Frankly i have no respect whatsoever for the govt, banks, media or re agents. It’s the same crap every night on global, last night they had a re agent say that housing was the best investment ever. Greed has prevailed in Canada for the past 5 years.
March 9, 2010, 9:32 a.m. EST
“”Fed’s Evans: Low rates needed for some time
By John Ittner WASHINGTON (MarketWatch)–
The weak condition of the labor market suggests that near-zero interest rates will be needed for “some time,” said Charles Evans, the president of the Chicago Federal Reserve Bank on Tuesday. Evans said that the labor market may be much weaker than the headline numbers suggest because workers in this recession have been out of work for much longer than is typical in downturns. Restrictive bank credit and business and household caution making it tougher to get job growth back on track, he said. “Moreover, even once labor markets turn the corner, there is a long ways to go before they get back to what we would consider to be normal,” Evans said. Fed policy was about as accommodative as possible, he said. But that calculus may change if growth were to falter again, he said.”"
Nostradamus jr.
#70 Got a Watch,
I agree with you. Reggie Middleton is very smart and does a great job of distilling the facts into relevant conclusions.
We are in a deflationary spiral right now. It would probably continue for an extended period – certainly years – without monetary policy intervention.
However my concern is that policy will have to turn to printing money in the near future and inflate the economy. Interest rates will rise quickly but wages will not raise to match. This will through the housing market into the gutter really, really fast.
Imagine if the current group of buyers had to reset their rates are 10 or 12% rates. It would be a disaster and it could happen.
Wow, there it is… can’t believe that POS fetched that much.
#11 Jeremy on 03.08.10 at 11:17 pm
——————————————-
I went to school in Kingston. Relatively stable real estate buoyed by RMC and rich Queen’s U students(most students are from out-of-town, thus can’t live with the parents and so need a place to live).
Focus on the area ‘north-of-princess’, and down by the lake.
On another note, here’s what ~$720,000 gets you 30 minutes outside Ottawa:
http://www.realtor.ca/propertyDetails.aspx?propertyId=9174736
Of all the houses you’ve showed us, I think, this is the most shocking! $720,000 for that! OMG, I will never own a house! Nor will I ever want to – at these prices!!!!
I’m depressed!
The more I read these blogs and entries the more I believe that this PREDICTED crash that we are supposed to experience won’t be happening any time soon.
Yes, the last couple of blog entries state how ppl out there are still buying high for something so small but the prices keep going up and Garth keeps saying that we are at our tipping point…for the past 6 months.
Since when does a tipping point last so long. If this is the case, I’d have to wait until 2012 to buy a house at its so called correction price.
And whenever one of Garths predictions doesnt work out, he blames it on the government and calls them chickens. Of course they are not going to decrease amortizations to 30 years or downpayments to 10 percent…that would kill the market instantly. Instead, they are HOPING things will pan out differently if they make the changes in small progressions.
Ive been seeing jobs rise up in Calgary and thats a huge sign of good things, but I see a lot of shady things happening like everyone else on this blog.
However, Garth, keep up the good research.
The Mental Health Act really needs an overhaul.
Anyone pissing away 700k like that should be locked up or at least have their face painting privileges suspended.
Crash
I am speechless. the upside is I am apparently not as untidy as I thought i was.
not garth
I agree . The end is near…..
Future Expatriate #64
Interesting also to note in the article you mention: Spain’s banking system was: “…well-regulated financial system is often held up as model for the United States.”.
Just like ours
True…houses will probably go for double what they are now, in 2030. However….in 2030, will they go for triple what they are worth in 2014?
Many more listings in my ‘hood in North Van. Inventory for a frothy Spring or rats running for the exits. Time will tell…
boc will keep interest rates low for the next 3 years. Low meaning a 5 year fixed will be under 6%. so are you all prepared to rent until 2012 waiting for a correction? Then what? junp in the market in 2012 when prices stable?
lets face it, most of you renters are now stuck and priced out of the market. you could not save while renting and watching home prices rise. rising so much that you priced yourself out of the market. most of you are now going to be renters for the next 15 years. hows that feel?
i will say this again……. stay away from toronto, calgary, victoria, vancouver and buy somewhere that is affordable for you. you are nuts to keep waiting for a crash that was suppose to happen in 2006, then 2007, then for sure in 2008, maybe 2009?? for sure this year… ya, 2010 when interest rates go up from .25% to 1%.
i feel sorry for the renters in here trying to make us believe renting is the way to go. i also feel sorry for the renters that play the penny arcade stocks on the vancouver exchange. why are the renters gambling like this?
I would imagine the media and the realtors [ mostly crooked lot] were pumping out the same spin in the US, Spain, Ireland etc, to keep RE going but it eventually crashed anyway. Why should it be different here.I sold 5 mths ago and am renting. I talked to my realtor a few days ago and he said he’s not suggesting I do anything right now [I live in Vancouver/Lowermainland area] to wait till next Sept when we’ll have a “better read” of what’s happening. A business consultant friend has sold his home and is renting. He and his business associates think it’s going to “get worse before it gets better” here in Canada and many of them think we could go the way of the US. How can any intelligent person make such an important decision based on what a realtor or someone on tv spouts out. We all have to do our own research. We need more GARTHS on Global/CTV/CBC to open peoples’ eyes but all we get are the shysters. Has anyone checked out The Tyee on the Canadian housing market. He’s in Garths camp.
Whats your thoughts on:
- Canadian economy grew by 5 per cent in the last quarter of 2009.
- Canadian dollar close to 98 cents USD.
My thoughts are that the BOC will have to keep interest rates low as any increase will send the CDN $$ higher and that will take jobs away from the economy.
Bunker down for low interest rates for 2010….
I looked up all sales on Empire (hey, I pay 800 bucks a year for access so why not?) and if this is 90 Empire (the photo on our system is a tad more flattering), it was listed at 469,000 and sold for 521,000 in February 2010.
Others on that street sold for between 551k and 655k last fall. I’m only showing the one sale in 2010 so far, and thats the 521,000 figure.
Besides Kingston, where else can I get a 3-bed
detached for under $200K?
Joshua #82
The problem is that growth of this market is based on growth of personal credit (10% annual according to BoC) which far exceeds personal disposable income growth. This is obviously unsustainable. (Since household are in debt to the tune of 145% their income a 10% credit increase feels to the economy like a 14% growth in income…)
If growth is unsustainable then at some point it will stop, no questions.
This will actually feel like a net loss in average income, no questions about that either because there is no way income can rise fast enough to compensate for the loss in credit spending.
The question is then what? Crash? Long slow decline? Super long stagnation?
What is obvious is that incomes will have to rise substantially to justify current prices which are based on income that don’t really exist. Unless prices fall substantially to justify current incomes.
Either way, whether it is a short steep crash or a long stagnation the market unbalances will have consequences: billions in wasted wealth and the creation of an unsustainable economic model based on credit and over consumption that will be very painful do recover from (witness the USA…).
Garth, why even bother to try stop the bubble from blowing up bigger and bigger? In a way I think it’s great for contrarians who sit on the side line and watch. I mean seriously a larger the bubble the greater the benefit to be reap (for the contrarians) when it goes off. Gosh! For all we know the outcome to real estate prices might even be better than the US. See how it falls over there by x percentage? Imagine if its like x times 5 here. Wowee! I might even buy myself 2 pieces then. So it’s all good, just take it easy garth.
Empire Ave sold for $720K?
…Toronto bubble gonna burst friends, gtfo of Toronto
Very thankful our West Coast Spirits has provided us w/ a multi year, stable RE Market in Hongcouver.
Nostradamus jr.
#82 Joshua — I’m inclined to agree with you, this so-called bubble just goes on and on and on. I’m not even sure what property is worth anymore, nor do I care actually. I’ve been reading this blog two years and back then I agreed with Garth.
But how many years has Garth bee predicting a crash and still we see nothing. Nothing.
Garth, either you’re Noah building his arc, or you’re the guy with the long beard in his pajamas on the corner with the sign, “The end is near.” For your sake, Garth, I hope it’s the former and not the latter. But then what do you care, you’ve already made a bundle on your books. So what if you were wrong, you’re rich.
Garth – from google street view this is 90 Empire Ave (Empire is a pretty short street)!. I can see from web searches that this address had a list price of 469k in Feb 2010, so the information your blog dog gave you might not be correct. Perhaps he’s confusing this property with a different one?!?
from: #90 Andrew (Sam is my wife)
Whats your thoughts on:
- Canadian economy grew by 5 per cent in the last quarter of 2009.
——————————————————————-
first you did not understand the numbers,
second, it is usual Canadian fabrication, propaganda.
third, it was about GDP (spending), but not economical growth.
in 2009 the GDP was down -2.6%
How Canadians perverted -2.6% into +5%?
simple:
4th quarter of 2009 GDP (spending) was higher than in 3rd by 1.2%.
They did it “annually” – times 4 =4.8 with compounding and rounding =5%
It is not “economy growth” 5%
It is only extrapolation of spending from one quarter (with Christmas and New Year) for next year.
Now you understand how Canadian “statistic” is working?
It is prostituted statistic.
from: #82 Joshua on 03.09.10 at 10:48 am
The more I read these blogs and entries the more I believe that this PREDICTED crash that we are supposed to experience won’t be happening any time soon.
——————————————————————-Do not worry!
Canadian RE will be crashed!
Canadian Economy will be collapsed!
Canadian Society will be in chaos!
Canada will be disintegrated and ruined!
You can not run away from your fate! your Carma!
Have a patience and you will be in the middle of all this mess!
Thanks Garth for having the balls to tell it like it is.
The unconscionable greed out there right now is sickening.
I am sidelined right now. People may call me many things, but stupid nor naive are not one of them. I know a bubble when I see one. I am not kidding when I state that most properties that I have been tracking have gone up 60-$100,000.00 in the last 3 months.
Can’t wait for the mortgage resets….it will be buying time again for all the vultures….I love greed when stupid people get conned by the con-men…it makes grabbing land and properties much easier.
#3 OMG is an understatement!! It needs to be bulldozed along with all that crap in the house. Seems they suffer from ‘hoarders’ disease.
How do you spell stupidity; first time buyers.
Great analysis of real estate in Canada…
http://rabidoux.tumblr.com/
Re: #90 Andrew (Sam is my wife)
Every word that comes out of your mouth spews “Realtor rhetoric”.
Rates are determined by the bond markets. Do your research.
Dollar about parity is possible and has happened before. Why didn’t they stop it then? BOC can only temporarily influence currency markets. Do your research.
Andrew, all you keep saying is this: “the gov’t will not allow this.” that’s the whole backing of your argument…Are you someone that believes that the gov’t is perfect and can do no wrong? You seem like a person that is capable of reasonable discussion but sadly too deluded to form a rational thought in this arena. Give us more facts to back up your argument, Andrew. Otherwise, it’s all just blind faith.
Re: #93 Jeff Smith
I understand what you’re saying about letting the bubble get bigger. But Garth is acting as a responsible citizen in announcing the hazards of buying real estate in this period and taking on massive amounts of debt. If people aren’t convinced that’s just their problem. No one here will shed a tear for them. It would be arrogant of Garth to believe that his blog could shout the current market down anyway. The real estate market is a huge lumbering machine fueled by the mainstream media and self-interested individuals. Irrational people will buy if they want. There’s no point talking to these people. Garth is trying to reach out to those who would appreciate the facts and data that he presents. Those that are willing to listen and at the very least consider both sides of the arguments before they decide to buy. Everyone’s situation is different, but if they go in with eyes wide open they can at least prepare themselves for a shock. Remember Garth does not say real estate is 100% bad. He’s saying that in time periods like these, where easy credit is abound, a lot of prices are overvalued. He provides reliable facts and evidence backing his argument. Prices in overvalued areas will correct. It’s up to everyone else to do their own independent research to make their own decisions.
Just curious…how long DO bubbles typically run for? 3 yrs? 10 yrs? 50 yrs? If it runs past a threshold amount of time, is it really a bubble?
I lived in Vancouver for a year in 2004 – six years ago (I’m in the GTA now). Back then there were the same perma-bears saying wait just one more year, it’s gotta burst. Now 2011, maybe 2012? And the same bulls saying buy now or be out forever. Six years is a long time.
Post # 88 Andrew , You’ve made your point. You’re twice as smart as all the renters, bears, Garth, me, etc. Thats fine. Start adding something new to the discussion.
Time will prove one of the theories out, until then, it’s a moot point.
Canadians are docile sheep…you got to become proactive to make changes!!!!
– mls and crea rules will not change. Have you heard any news since a few weeks back? likeley will not change
– No foreign investment in telecom to make wireless cheaper in canada as per the throne speech.
– no change to housing policies to bring down prices.
Next federal election, how about starting up a new party where housing becomes a right and no a pseculative investment. It starts right here not with a bang but with a whimper.
#82 Joshua,
You sound like a 20 something mortgage broker who has only seen the good side of Calgary RE (just a guess). Talk to someone who lived through the Calgary crash of the 80s and ask them what it was like. If you do make your living riding the RE wave, I hope you have been putting money away for the rough times ahead. Good luck man.
Have a window and door guy giving us an estimate tomorrow to replace all except a garden door and kitchen window. Then a home energy inpector. Replacing siding and adding extra insulation. May as well take advantage of rebates. Will pay cash as home was paid off many years ago and haven’t done much in the way of exterior house maintenance. Waiting to hear results from ins. co. re shinkles we lost in a recent storm. It will all have to be replaced. Hubby has redone & expanded basement bathrm and guest bedroom and will start gutting main bathroom upstairs. Two piece off master br will have to wait. So far very pleased with what he and a couple of guys have done. Other than 2 Caroma toilets and a better than average shower stall, we’ve gone with avg. type fixtures, accessories.
Coming population pressures for the cities of Canada from todays G&M
http://www.theglobeandmail.com/news/national/canadas-visible-minority-population-to-nearly-double-by-2031/article1494651/
#88 and #90 Andrew (Sam is my wife),
The depth of your analysis continues to overwhelm me.
Can you explain how gov’t deficits and low interest rates can continue to co-exist for as long as you predict? The gov’t has already set the stage for rising rates over the next few months.
There is ample analysis on the GDP growth last quarter. Much of it was construction related and much related to the stimulus.
When the stimulus ends and interest rates go up we have a 50/50 chance of having a double dip recession. There are nearly 3000 small and medium size banks in the U.S. facing major commercial loan defaults over the next 3 years. If you don’t think that is going to put a crimp in this recovery you are higher than the RE agents in Vancouver.
I do NOT understand how people manage their debt today. I have a cell phone, two credit cards and an internet plan. That’s all I feel like financing and it’s more than enough. HOW DO PEOPLE PAY THEIR BILLS????
#88 Andrew (Sam is my wife)
Guess what Andrew…I own a house (nearly out right) and I am going to sell it and rent.
You may be right…or…you may be wronge, very wronge.
Did you live through 1989?
Good luck, …hope you didn’t bet the farm!
#103 BigAl (Original),
The length of the bubble is really determined by 2 things. The first is the pool of Greater Fools who are prepared to enter the market. As long as the pool remains the bubble remains. For example, interest rates and easy lending terms have expanded the pool of greater fools. This is also why markets like Toronto and Vancouver have the biggest bubbles. They have the greatest pool of employed and priced out people.
The second condition is a confidence event. Typically something triggers the end of the bubble. It can be a rate change or bank default but it makes it clear to the market where it is headed.
Many of us believe the road over the next 6 months will provide such an event. It could be something specific or just the accumulative impact of the mortgage rule tightening, HST, property tax rises, flat job market and eventually interest rate hikes.
The main point most of us make is that the in order to stimulate demand we would need to see factors on the positive side and they simply don’t exist. Governments are implementing wage freezes and running record deficits. Unemployment remains high and consumer debt is at record numbers. I am traditionally an optimist by nature but I don’t see any way out at this point. The bubble will have popped before this fall.
#102 Gary,
Thank you. Good post.
#103 BigAl (Original) on 03.09.10 at 1:04 pm
Just curious…how long DO bubbles typically run for? 3 yrs? 10 yrs? 50 yrs? If it runs past a threshold amount of time, is it really a bubble
***********************************
Call it a bubble or a mania–both are correct–
There is no way to know for sure–how long it can continue–
Longer then most shorts believe–
(speaking as a well gored short)
Runaway bull markets are irrational–driven by greed and momentum–they constantly ignore bad news and continue higher–
But–sooner or later-buying volume drops off–as the pool drys up–
When they eventually do make the U-Turn–
They don’t even touch the sides–on the way down-
Oil at $145 for example–dropped in half-when the bubble popped–
Of course when this bubble pops–expect government to try and stop it–with more of your tax dollars–
In the end–we’ll of course be saved–by GS–
They will “rescue” CMHC–
Like they did with Bear Sterns/AIG–
They will of course be short CMHC–then they will offer the bailout-which Carny will “suggest” is our best option-
And of course–Fahlerity will be orgasmic over it–cuz–this will be how he once again-saves Canada–
GS will pick through the assets–find the good ones and buy–at penny’s on the $–
The bad ones–will of course be hidden in some sort of bad bank–tax-payer backed–level 3 assets–
Unmarked debt–
The Goldmen wait–their boy Carny has it handled–
The trap is open–when will it spring shut?
Only the Goldmen know–
Mark Faber on BNN – Tomorrow 9.a.m Eastern
“It’s going to end in a complete disaster. But, we have to distinguish – the disaster may not happen for five to ten years. But we’re heading into an iceberg. And, what will eventually happen is that the population will suffer very badly from inflation and declining real wages.
The establishment, including the government, will protect itself. And when everything becomes very bad and you have simultaneous, essentially, a recession/depression…
Unemployment goes higher goes higher than 10%, say maybe 15%. When that doesn’t improve, they’ll go to war. And nobody can pay for the war so you print more and more money, and you have hyperinflation, and then the system goes.
That’s why I’m telling everybody, you ought to own some land, and you ought to own some stocks and you ought to own some gold or a lot of gold and other precious metals. Because paper money and bonds are very vulnerable over the next five to ten years.”
Part I
http://www.youtube.com/watch?v=r1Ovyh4T1ao&feature=video_response
Part II
http://www.youtube.com/watch?v=SCD2oamTx9w&feature=related
andrew sam is your wife apparently:
resources have an intrinsic value that some believe will offset losses in other currencies.
canada is a resource country. so much so that canada and australia are the choices for many forex traders to park their cash in times of uncertainty.
Especially when the us dollar starts to look shaky [again].
The Canadian government has no way of contolling these huge sums of money that float around the planet looking to make a profit or to preserve one.
If they decide to buy ‘canadian’ the canbuck goes up. They dont care about what real estate goes for in canada.
they just want a safe place for their cash.
And then there is the well heeled who would buy our resources. that too ,will have an upward pressure on the canbuck.
Maybe the government will print money like crazy to devalue our dollar but personally I dont think the guys in ottawa could organize a pissup in a brewery.
What we are seeing is extreme momentum on the buy side of the RE market. Buyers are jumping in and overbidding and maxing out their ammorts like if that extra 100K mortgage was the same as buying some trinket at a spring garage sale.
Easy money and credit is what is driving the reckelss behaviour right now. Wages and income support is not there to support the rise in prices.
Should there be another credit market crisis like last year, this market will plunge faster then anyone, Garth included can imagine. Lots of possibilites (UK in big trouble, PIGS in EURO zone are about to implode, stimuls $ is running out in NA). Credit freeze means this bubble is DONE.
At 5.3 times income we are in bubble territory, the last few holdouts are now starting to drink the Kool-aid and jumping in head first. The majority of agents are pricing homes to induce bidding wars and you are seeing price changes (increasing price by 50-70K) if the anticipates bidding wars do not happen.
So much like Bre X, Nortel, .coms bubbles its not even funny. So similar to the housing crash in the US. Man, I have seen this rerun before and profited.
This is disturbing… imagine how ridiculous the situation would be if the US had the Canadian laws where the bank/CMHC can come after your other assets!
“Program Will Pay Homeowners to Sell at a Loss”
http://www.nytimes.com/2010/03/08/business/08short.html?em
Andrew (Sam is my wife).
I love you man.
So I am priced out with 6 figure income and savings and all the suckers with half of my income buying with no money down and mortgages 7 times their income are not?
Excuse me, following your logic I would never be priced out. How could one be priced out with income twice the average income? Does that make any sense to you?
I can currently afford to buy 800k house. Will I buy? No.
If you think about inflation I would suggest you to check what is happening in Japan in the last 20 years in order to see what deleverage means and how house prices there declined by 70 percents in absolute values. Keep in mind that what we have here is more dangerous as there where no government backed mortgage insurers as our CHMC.
Japan is a country of 120 millions in 1/40 of Canada’s territory.
What makes me sick is that because of a people like you there will be less services tomorrow – less health care for everyone (how about the baby boomers..) , higher taxes.
People working in their 70-es. Structural unemployment. For a very long time.
What if one’s get some serious illness and have to wait ½ year for a doctor with a huge mortgage, house worth half of his mortgage and no money in hand to go somewhere else to get treatment…
What is this is your kid? Do you realize what people like you are? A growing cancer. Invasive. With a very bad grade.
I know you stereotype very well: if someone’s is not brainwashed he is either loser or un-patriotic. I have seen this already in Europe, US, now here. I have seen this movie, man.
You are sooo… patetic.
If there is inflation let the baby boomers tremble.
You have not seen hyperinflation in you life, I hope all of us won’t. The house prices will be the least issue we would have.
#34,
Let me guess, finally sells $60k over list price, no house inspection allowed, hockey equipment included for an extra $20k!
How can vendors insist that they will only accept offers from buyers waving the home inspection? Shouldn’t buying a home without an inspection be against the law? Cripes it’s foolish enough trusting realtors to bring their own rubber stamp inspectors but at least it is SOMETHING.
I’ve been a retail customer of RBC for over 25 years, since my ‘little Leo’ savings account when I was 10. Over the years the Royal has made money off of me:
- through retail banking service fees (always, the fees)
- student loans (in that disasterous period in the 90’s, when the government handed the program to the big banks to run)
- mutual fund management expense rations and service fees,
- interest on a Visa card, and on a line of credit
- interest on a mortgage, and shortly, on fees to break that mortgage.
Through it all, I’ve noticed a steady decline in the quality of service of the RBC’s retail banking operations. I don’t know where they make their billions dollar profits from, but given how little the bank appears to re-invest in the quality of its retail opertions, or care about the satisfaction of its customers, it can’t be retail operations.
RBC should just get out of retail operations altogether. I’m sure that they would like to – it must cost a lot to employ all those sales associates. So why do they keep retail customers? Clients like you and me?
Probably because we’re also ‘voters’. A big bank like RBC has government at its beck and call, because the clients that it has – that it sells its products to – are also the people who elect our governments.
If the government does not support the banks, the banks clients won’t support the government.
@#6 : quote “How can a bank provide a mortgage for such an overpriced property”
Easy.. they’re not responsible for it.. thanks to the chmc the tax payers are!
bubble expectants still believe that the house price will increase at a rate greater than the interest rate?
Mr. F. said no BANK will fail in Canada ,he said nothing about PEOPLE … when does the 250k safety net end?
#3 Crash,
The funniest part of that listing is the way the camera pans around each room as if it is showing an updated home, the details and workmanship of which needs to be brought to the attention of the discerning buyer.
#106 The truth
“Next federal election, how about starting up a new party where housing becomes a right and no a pseculative investment.”
There’s already a country like that…North Korea. Kim Jung Il welcomes you…
#88 Andrew (Sam…)
I enjoy reading your posts Andrew… but me thinks you`re a bear pretending to be a bull for fun. If not, then you remind me of how I thought 10+ years ago. Agreed, everyone should experience owning a home at least once in their life, if for nothing more than the education
Speaking of luck (?) or perhaps above the law?…..10 2:17 PM
Ex-MP Jaffer pleads guilty to careless driving
Drunk driving and drug possession charges were dropped against former Conservative MP Rahim Jaffer in court Tuesday, but he pleaded guilty to a lesser offence of careless driving.
Jaffer, 38, was ordered to pay a $500 fine within a month. He also donated $500 to the Canadian Cystic Fibrosis Foundation, his lawyer said.
An agreed statement of fact read by Crown lawyer Marie Balogh said that last Sept. 10, an Ontario Provincial Police constable clocked Jaffer driving 93 kilometres an hour in a 50 km/h speed zone in Palgrave, northwest of Toronto.
The village is in the southern Ontario riding of Simcoe-Grey held by his wife, federal Tory cabinet minister Helena Guergis.
Jaffer said he had consumed two beers two hours earlier and was travelling home to Angus, Ont., from Toronto, the statement said. The constable said Jaffer failed his breathalyzer test.
His lawyer, Howard Rubel, said the withdrawal of impaired driving and cocaine possession charges represented vindication for his client, adding that both charges have always been refuted.
“What Mr. Jaffer did was drive without paying attention to how fast he was going and he has acknowledged that today, as anyone would, and he will pay the same fine that everyone else will,” said Rubel. ———–boy does this smell! IMO
@88 Andrew
lol! The emo boomers and dire bears did not like that. hahahaha! Face it people, low interest rates are here to stay for a while! yippee!
lol. Not a fan of hers however it is important to know that she most likely used it before it became ‘universal’.
Nowadays, with people dying on waiting lists, having their brain surgeries rescheduled 4 times and waiting years for silly stuff like knee & hip surgeries, I doubt that anyone will want some of that medicine.
Hilarious that we need to go back 50 years to compare with the Americans.
P.S. With banks lending out so much easy mortgage money isn’t it bad in the long run for their stocks when interest rates go up this year? (or CDN Mortgages start defaulting?)
No. Because then they get to charge more on the money, and since the Canadian mortgage market is 80%+ backstopped by the government, they don’t need to worry about defaults.
If interest rates go up dramatically, I suspect Canadian banks will be strongly encouraging its clients (ie: paying) to declare bankruptcy so the bank can immediately collect on the CMHC insurance, and make a new loan at a much higher interest rate.
#118 Kitchener1,
This is consistent with the last stages of a bubble. Hyman Minsky is spinning in his grave. All too familiar.
#82 – Joshua – Jobs rise? Chevron just laid off 2k people in Calgary. More to come next year. Employment market is extremely tight. Try checking monster, or any of the other job sites – barely anything out there.
#88 – Andrew (Sam is my wife) – What do you recommend folks in Calgary do? You’re telling us to stay away, yet we’re pissing away our money when we rent…
102gary—totally agree-everyone has to do their own homework and research into areas they want to buy
82 joshua
95 angela—–don’t know what areas of the RE market you follow but in the tri cities area i’ve seen price changes, downward, ranging from 5k to 50k
check mls#v805861 425k – 379k—still overpriced
mls#807977 239k – 209k—maybe a good buy for someone–is the owner in trouble?
listings are increasing–sales slowing–sellers are still trying to get top dollar for their properties,but after 2 to 3 weeks on the market prices drop–some fools do buy at the high price and always will
the REA says a balanced market is 45% to75% sales to listings
in the tri cities, sales to listing for jan was 27.5% (676new – 186 sold)
feb– 1st 2 weeks 37.8%
feb– last 2 weeks 59% there was a sharp increase in sales after “F” came out with his new rules
overall 712 new to 335 sold roughly 48%
the RE boards balanced market numbers don’t work for me–if 100 homes come on the market and 48 sell and this happens month after month we’ll soon have an oversupply of listings
i think we’ll know very shortly where we’re headed — slow decline or a wild scramble to get out
#3 Crash,
Wow, thanks for this:
http://www.realestateburnaby.com/ActiveListings.php/Details/1456/#viewdetail
Can anyone find the spiderman doll amongst the clutter? Seriously though, what a mess! Cue the horror music indeed!
#129 Hoon,
Question over to you then. Tell us how record gov’t decifits and low interest rates co-exist for any length of time?
I am curious.
#131 Mark
I believe that you don’t have to go into bankruptcy for the lender or bank to take possesion of your home but I personally believe most people would default on car payments and credit cards before not paying the mortgage, which could lead to that anyways.
In the event that a mortgage is defaulted on in Ontario, the lender will take possession of the property after three months and then sell for fair market value. The mortgage holder has no say in the price the property is being sold off at. If there is a shortfall CMHC covers the rest and then goes after your ass.
This is the whole premise of people without a substantial downpayment of at least 10%+ are just RENTING FROM THE BANK. The bank aka the “Grandiose Landloard” won’t think twice about kicking your ass out the door and selling your home on you to recoup what they can quickly(Especially in a circumstance where property is overvalued like today).
It’s in the banks interest to sell fast even at YOUR lose. They get their money and so does CMHC in the end.
If there is a significant shortfall bankrupcy might be the only option instead of paying off CMHC.
What the ignoramuses out there need to understand, the bank is in a win-win situation. They’ve recieved payments for the property from the defaulted owner till they go belly up and in the end can end up selling it(to a person that can actually make the payments) and charging all those fees all over again.
Anyone that read that RBC report yesterday and it tipped the scales for them should reconsider the source.
#133 Will said……”yet we’re pissing away our money when we rent”
Oh really……..do you know how to use a caculator and an amortization table ? Evidently not.
#136 junius
Oh, oh! Ask me, ask me!
[EXTREME SARCASISM]
We’re going to QE the bottom out of our dollar to .50 so we can save a couple Ford and GMC plants in Ontario and save some over leveraged “real estate moguls/investors”.
[EXTREME SARCASISM]
The low interest rate arguement is ball-sack, it won’t sustain housing as exercised by Japan and pointed out almost daily on this blog, and as recently by #120 Claudius Emperor.
Its affordibility stupid, incomes need to grow to grow the economy, not personal credit. And I don’t believe that credit can grow any further until incomes do.
We’ve fallen into the American debt trap, monkey see, monkey do.
#90 Andrew (Sam is my wife)
“My thoughts are that the BOC will have to keep interest rates low as any increase will send the CDN $$ higher and that will take jobs away from the economy.”
Our dollar is high becaues our major trading partner is in the toilet. If interest rates stay low, it is because of this condition continuing. This means the economy will continue to take jobs away all on its own (that and deficit reduction).
I can remember the months before the US real estate crash. Both government and RE industry supposed leaders were saying there was no bubble. This included the chief economist of the National association of Realtors, now the unemployed, Mr Lereah.
I also recall watching CNBC Asia as they interviewed two supposed experts on the issue. There was a bear who talked of a pending crash, but he was belittled by the real estate expert on the panel. The expert stressed that the bear didn’t understand that real estate is the best investment and would only continue to rise. The bear’s response; was to tell him to get out of his office more.
Last report I read was that a further 5 million homes are coming into foreclosure as people continue to walk away.
Oh yes, it is different here in Canada.
Me and my husband are renting apartment, waiting for RE crash. Last week we got pay increase notice from our landlord – it is 4% up. So we will pay $ 1200 for 2 bedrs appt in Etobicoke. Not cheap.
@junius
What is “any length of time” to you? They’ve been co-existing for a year and I believe they will continue that way for several more years. Sure it could raise 100 points in that time. But that is still nominal. If I’m wrong I’ll you a beer. How about you tell me why you believe it will go from .25 to 7.25(or whatever that “average” is) in the next six months? (Six months being the time-frame a lot of the doomers like to use as the period in which the financial apocalypse will happen)
You had a lot of novice investors who got into the market looking for easy money, without any regard to the fundamentals. These stocks were running on fumes.
One of the most ironic things about capitalism is that the capitalist will sell you the rope to hang himself with. Actually they will give you the money to make a movie that makes them look bad, if they believe they can make money off it.
Michael Moore
I recall recently discussing this issue of areas becoming gentrified like Leslieville’s so many blocks of ’shabby little’ shitboxes. I recall someone saying that as soon as a Starbucks moves in properties values go up … but why would anyone want to sit on a patio sipping their latte while the pushers and hookers stand outside doing their business …. ah yes …. Leslieville! Brokers through their persistant and unscrupulous marketing feed this ‘gentrification’ process in areas that don’t deserve the attention. As an example, the ‘Upper Beaches’ … what’s up with that? Or come live in Trendy Leslieville! Right … in a shack no bigger than a dog house. But hey, theres a Starbucks!
…. and the shoebox for $720K … I think I would have to see the Bill of Sale to believe it! This is where people lose all capacity for common sense!
If you haven’t read it…Charles Mackay’s “The Madness of Crowds” is an interesting read, written from the perspective of an earlier time.
Mackay’s wisdom applies equally to what’s happening in 2010.
The author addresses the curious ‘lemming-like behavior’ that prompts a ‘collective frenzy of delusion and idiocy in otherwise intelligent people’.
Sound familiar?
#136 junius
He doesn’t need to explain it. It’s already happening. You should explain why predictions of the contrary have been wrong for so long.
2 month housing starts on Vancouver Island up 157% over 2009.
RBC annual home ownership study ……. Respondents think prices will continue to rise in 2010 and their belief that housing is a good investment also climbed to a 12 year high, with more than a quarter convinced their home will be their primary source of income when they retire. http://www.timescolonist.com/business/month+housing+starts+cent+over+2009+Vancouver+Island/2660445/story.html
junius,
Japan: 20 years of deflation, low interest rates, and a deficit that’s just under 200% GDP.
Take a look at our own future, in other words.
There is definately a bubble in TO…..gtfo!
…Move west young man, move to Canada’s Paradise.
…..Hongcouver…..
Nostradamus jr.
“I can calculate the motion of heavenly bodies, but not the madness of people.” Newton
Europe bars Wall Street banks from government bond sales
…”The EU is also trying to curb US financial power by creating its own monetary fund – a replica of the Washington-based IMF”
http://www.guardian.co.uk/business/2010/mar/08/us-banks-european-bond-trading
With NAmerica soon to experience a crash of epic proportions, it may be better to begin the eventual break up of states and provinces.
Ohio, Vermont and numerous other states are close to, or completely broke, so there is nothing left to lose by pulling the bottom cards out of the ponzi scheme and let everything fall where it wants to.
Would be a good idea to look into printing one’s own currency. The two dollars and peso are good for the furnace of heaven / hell!
Silly Billies Another gold-based conspiracy theory.
Taking the first link I placed last night, about GS being an offshoot of the Rothschild’s chain-gang, and this one mentioning the names of GS and Soros again, one can see that we’re in for a wild ride!
China and Japan dumping US T-bills may also play a role.
GSux — 10:49 clip. Guess who was behind the global warming / carbon tax scam?
Chinese are not stupid. They are willing to make deals to get what they want, and this is another deal.
Reality Check
“We’re running out of time … to prevent a true depression.” He says unless we break Wall Street’s “stranglehold” we will be unable prevent the Great Depression 2. — Another POV.
Think Cdns. are looking at nothing for retirement? Check this out. With the FDIC now looking at raiding 401K and other retirement funds to bail them out, Social Security gone (thanks to Bill and Hillary), things are falling into place now.
Finally! I’m a PROVEN conspiracy theory, so I actually DO exist!
Curious to see how much of a role this has in Canada. 1:55 clip.
#129 Hoon, for a while you mean 6 months!
John M @ #128,
Honi soit qui mal y pense – we all are equal before the law.
Surely all of us can expect such a break should we run afoul of the law: a dog that ate the evidence, a breathalizer that is known to never have worked, a cop stricken by amnesia, a Crown who finds the hidden flaw, or whatever it takes to get us and our esteemed party off a politically embarassing hook.
Why do people think interest rates-at this point–really matter?
Sure–if rates go up-it should slow buying and if they stay low-people would likely continue buying–but–
One big factor is missing–in that equation–which is employment-or-more so–the fear of unemployment–
Layoffs are starting to increase–
It’s becoming more visible–or at least–it should be–
Sentiment is what will drive markets–bull or bear–
and it can change in a very short length of time–
Within hours-sometimes–
examples–911–one day in 1929–1987–lots of instances of a sudden dynamic shift–or–
it can play out slowly–but once the weight is over or under-balanced–it changes–
This is an example of sentiment as a driving force–
Company A starts up-it has an IPO–initial public offering-
Sells X amount of shares to 100 people at a certain price-
Only one of those 100 people is willing to sell shares–
A buyer has a bid in for double the price-of what the shares went on the market for–
That one shareholder sells–
The buyer hands the money over–the seller puts it in his pocket–No new money went into that share pool–but-
every one of those remaining 99 shareholders had their share value double–no cash involved–other then the 1 transaction–
What drove the price to double?
Sentiment-of “one” bullish buyer and a willing seller-
Of course it needs more bulls to come and maintain the price there–but–that’s how it happens and house prices are no different–
As long as bulls outweigh the bears–they win–but-
fear is gaining momentum–imo–
oh boy some of you renters and soon to be renters are getting a little emotional. i can understand your anger. renting and being priced out of this market is no fun, but you must blame yourself, it was your stupid decision to sell and rent. you are now stuck for several years (a decade or more) as a renter. you will probably make another mistake and jump back in the market when prices fall 15%, but with interest rates higher, your no better off. if you are renting in calgary, look at areas 45min-60mins outside of calgary to buy. i just helped out a family relative purchase his first home just south of calgary for 225k. i would like to thank all the bloggers for sharing their views. my posts may stir many emotions with the renting crowd in here and that is good as you need to rethink what you are doing. renting doesn’t work regardless of what is happening in the world. you can put any spin on why renting is good to try and convince yourself or try to make yourself feel better, but you know renting sucks! you know your throwing away money every month.
i am not a real estate agent and agree they get paid too much for what they do. i usually purchase property myself. either i deal directly with the seller if it is a private sale or if the property is listed with an agent i usually fax the listing agent my offer myself.
fellow bloggers, stop renting and stop handing your hard earned money over to your landlord. leverage the free money banks are willing to hand out for you to buy. where can you go to buy an asset where the bank will give you 80% – 90% of the money to buy?
one last thought…..banks have started to tighen up on the lending. if you qualify today for a mortgage, you may not qualify in a couple months. lenders have started to close off the taps and with that renters may not have a choice as money drys up. you will be renting longer whether you like it or not. if you don’t believe me call your local mortgage broker and ask.
Historical 5-year mortgage rates:
http://www.bank-banque-canada.ca/pdf/annual_page57_page58.pdf
From May 1979 to Sept 1981 (in 2 years and 4 months) rates went from 11% to 21.5%, for a 10.5% increase.
Average real estate in Canada following those years definitely decreased (and Canadian debts loads actually decreased):
http://www.desjardins.com/en/a_propos/etudes_economiques/actualites/point_vue_economique/pve60622.pdf
#3crash and all the other dogs bashing that great buy on prince albert–i had a friend do some checking—the sellers are the people i sold it to back in 1975.
my friend says the last sale was in oct 75 for 40k–
i remember the buyers couldn’t qualify for anything larger so i carried a 2nd morgage (more of a promisary note) for 2.5k or3k
that dump is appraised at 521k
these people were older than me so i figure they’re boomers cashing out
Stop dreaming – I do not own a home, however, there will be no price drop
No price drop – GTA minorities to double by 2031 http://www.thestar.com/news/gta/article/777143–visible-minorities-in-gta-could-double-by-2031-statscan?bn=1
Vancouver falling apart – here are today’s listings vs. sales:
Vancouver East & West*
Attached & Detached
New Listings – 139
Back On Market Listings – 1
Price Changes – 30
Sold Listings – 32
Vancouver All Areas*
Attached & Detached
New Listings – 328
Back On Market Listings – 4
Price Changes – 92
Sold Listings – 100
Few of you lack intelligence, but some were short-sheeted on imagination. Yes, the money asked for such a dive is absurd. But the spiderman doll is sad. Take another look around the rooms: There are invisible children living in that mess.
Some apparently don’t get out much (from the middle class). Quite simply, poor people HOARD things. They can rarely bring themselves to get rid of anything because they might need to use/sell/barter it down the road. Because we’ve been living in a gotta-have-the-latest brand/invention/luxury society, there is a ridiculous amount of crap floating around out there. Well-meaning people give the poor people all the stuff they don’t need. The poor people can’t make themselves throw it out. So the pile grows. And grows. The higher the kibble, the poorer they are. These people are dirt-poor.
(Hey, this works: The clown in the PM’s chair is the Spiderman doll and Canadians are the invisible children buried in the kibble).
So upstairs downstairs. If you want to know what’s going on in society then have a cuppa with the servants in the kitchen from time to time.
On a more cheerful note, a cashier at my sweatshop took in three quarters written over with indelible black ink today. The first read “No GST”, the second “No HST” and the third (somewhat poignantly, I thought, considering the caps) “MY MONEY”.
Defacing currency is completely illegal, of course.
Hello Ronald @75. An interesting story. I have to ask though, why are the houses you looked at two years ago now not suitable? Purchasing a house is a huge
commitment and should be considered for a much longer
term than two years. I was in my “starter” home for over 10 years (though I would have preferred to been out earlier). I chose if for location, basic design and affordability.
My sis, in her 50s, works at a local CU. She has owned
since the 80s. It is actually she and her similarly-aged co-
workers cautioning their 30-something whiz-kid bosses not to max out mortgages. They get dumb looks with the response “but real estate only goes up”. So, is it possible that the broker in your story was trying to caution you that the market was not hot, and that you could slip into negative equity if it corrected, unless you had equity from your DP?
hmmm, Diane Francis from the National Post predicts:
“prices will hold if interest rates go up and rise if they don’t”
http://www.financialpost.com/opinion/story.html?id=2e1dddf9-efee-450b-8d39-c1ac6ac1f2a2
Isn’t this the same columnist that “exposed” the CMHC and generally called the market a bubble?
#3 Crash
The only way one can justify $580 large for that POS is if the hockey gear in the last picture contains the missing stick and glove.
This example seems to show that real estate is a good investment, and the 92% who thought real estate was a good investment were right in this instance.
After all, if this vendor had purchases for 250K, held onto the property for five years and then sold, they would be rolling in 500 large. 100K per year. Not too bad.
It’s stories such as those, from people we all know, which are repeated and form the urban legend of real estate. Who amongst doesn’t know some novice who flipped a property for major coin? It’s these stories far more than the polls of RBC that influence young buyers.
#94 Nostradamus jr.
….stable RE Market in Hongcouver….
You are a clown. Do you know what stable means? Balanced or slightly rising! Vancouver is anything but stable. It has gone up like a rocket … that is not stable. Sell when everyone is buying Nost. It is time to cash in.
#148 WatchedBubbleNeverPops,
He doesn’t explain because he can’t. What do you mean interest rates have been down for so long – they have been at emergency lows for less than a year. What are you talking about?
#150 Bumsup2,
You may be correct but don’t tell the Bulls that. They think that RE prices can’t go down if interest rates remain low. Of course it is different in Japan and the U.S. and……….yup…different here.
Answer – Interest rates will have to rise in order for gov’ts to raise money in the bond markets. Economics 101 Bulls.
#158 Andrew (Sam is my wife).
What? Getting desperate? Already?
Sam is my wife idiot said “banks have started to tighen up on the lending. if you qualify today for a mortgage, you may not qualify in a couple months. lenders have started to close off the taps ”
If that is true the housing crash is just starting and will distory those who bought with nothing down. Look at this graph to see all of Canada future. POP…..What was that?
http://4.bp.blogspot.com/_3-h7k_OIJk0/S5cTKtCQtJI/AAAAAAAACcU/P2uQM5oLM8w/s1600-h/MedianCA2009.jpg
#143 Hoon,
No, it should take a long time to get back to historical averages which are 6-8%. It should take a few years to even get to 4 or 5% if things remain as sluggish as they are – all things being equal. There does remain a risk that gov’t will try and inflate us out of the recession which could mean they go much higher as they did in 80s. This is a potential policy choice.
I guess my point is two fold. The gov’t has already set the stage for rate increases over the summer. They are running record deficits and as of Tuesday made clear this is going to happen for a long time.
At this point any rise is going to have a negative impact on the RE market considering the state of the economy. Once they start rising what is it going to matter who fast or for how long? The market is going to keep going down for a long time until everything resets. It could keep going down for many years. 3 years in the U.S. and just getting started. Nearly 20 years in Japan. When will we hit bottom?
#120 Claudius Emperor
Thank you. I agree with everything you wrote; People care about the wrong things.
Thx
Looks like someone has learned a lesson from the crisis. Wall Street banks have been removed from selling European bonds:
http://www.guardian.co.uk/business/2010/mar/08/us-banks-european-bond-trading
#142 Sveta
This is illegal. The rent increase is up to 2.1 for 2010.
http://www.mah.gov.on.ca/Page6540.aspx
Just go to the tribunal. Or better yet let your landlord know your’e going to do so. It’ll be enough I believe.
Besides refusing to sign year lease usually does the trick of keeping your rent pretty steady. I haven’t got any increases for 8 years. Got some reductions
And I didn’t even need to move. Abundance of vacant properties on the market wonderfully concentrates minds of landlords and makes them nice and considerate people 
159 andrew sam etc
read your last paragraph—if banks tighten up –guess what happens to house prices
you were an idiot yesterday and you’re still an idiot today
Like #176 (Double Mike), our rent that has held steady since we moved in is probably going to drop by 10% this upcoming year. An increasing number of granite/stainless/ocean-view downtown or trendy burb places are coming up for rent (feel free to speculate reasons at your leisure). It doesn’t seem that there are as many takers, or takers that can afford to pay even these dropping rental rates.
That’s good news for us – more money to invest in something that actually makes money
#148 Jeannie on 03.09.10 at 6:52 pm
If you haven’t read it…Charles Mackay’s “The Madness of Crowds” is an interesting read, written from the perspective of an earlier time.
**************************************
Your right–
A great book that delves into the mass mind and all the greif- society’s-acting as one mind-driven by some outlandish mania–have caused over the century’s–
All the manias and ruin-people have brought on themselves–
I always think about the Dutch tulip mania and wonder how a smart people like the Dutch could have gone so insane–
Then I think about today and wonder–how could what they did–be any more insane-then what we’ve done–when–the end result–will be the same–
Another good book on the same subject–is–
Mass Psychology–Jim Dines
For Sam is my Wife #159
I get it. You are paying probably $2500 plus a month, just to service the mortgage of that little condo that you just bought. I’ll bet you even bid up the price. Had to get in now because your realtor colleagues said real estate will only rise. They probably just finished their 6 week course just like you. Factor in insurance, property tax, maintenance and the rising strata fees and I’ll bet you’re pretty stretched. Oops, probably forgot it didn’t include a parking stall, so another fee. All with a 35 year amortization.
I’ll bet someone bought a couple of these great buys just like yours to rent out. But he now finds out that there are so many for sale that they can only be rented for $1000, heat and cable included, a month without the extra add ons. The renter is eating out, holidaying and banking $1500 a month in a sound investment.
Sadly, you are so far behind, you think you are ahead.
#164, blockexistentialist, thank you so much for that explanation of hoarding–it makes so much sense. I still go into shock when I hear of people getting rid of some household appliance or piece of furniture simply because it is the wrong colour. Some are even changing sets of dishes!
However, at least some of the hoarding also has to do with the flight to quality. As metal alloys become adulterated and thus weakened in far-off lands, many people, myself included, are looking for old tools made here and in US. In fact, some US hardware stores are placing the last of the made-in-US tools at the back of the shelf behind the made-in-Chinas and are selling them selectively.
#163 Not Garth “Vancouver falling apart”
Thanks for posting the stats here, they are interesting to read to see how Vancouver RE is starting to fall apart. Upward price pressure is definately lower with more inventory and less sales. If Vancouver starts to decline the rest of the country will follow it (like the Olympics). But then thinking of Bejing Olympics, just after they finished their economy tanked.
#138 smw “What the ignoramuses out there need to understand, the bank is in a win-win situation.”
Agreed. Canada NEEDS regulation in the RE mortgage market in terms of putting the risk on the Bank LENDER not the CMHC insurer. End these high-risk (5-10% down) mortgages and end the “take out $500k and get a discount”. If it was 1900, you would pay MORE to borrow MORE. Makes sense right? Why are people getting better rates borrowing more money? Why are people with big downpayments getting shafted?
#136 Jake “Wow, thanks for this:
http://www.realestateburnaby.com/ActiveListings.php/Details/1456/#viewdetail”
OMG. $580k for that. I wouldn’t even step foot into it let alone give someone money for it OR give someone money for it and SLEEP in there! Uugh.
#114 junius “The length of the bubble is really determined by 2 things. The first is the pool of Greater Fools who are prepared to enter the market. As long as the pool remains the bubble remains. For example, interest rates and easy lending terms have expanded the pool of greater fools. This is also why markets like Toronto and Vancouver have the biggest bubbles. They have the greatest pool of employed and priced out people.
The second condition is a confidence event. Typically something triggers the end of the bubble. It can be a rate change or bank default but it makes it clear to the market where it is headed.
Many of us believe the road over the next 6 months will provide such an event. It could be something specific or just the accumulative impact of the mortgage rule tightening, HST, property tax rises, flat job market and eventually interest rate hikes.
The main point most of us make is that the in order to stimulate demand we would need to see factors on the positive side and they simply don’t exist. Governments are implementing wage freezes and running record deficits. Unemployment remains high and consumer debt is at record numbers. I am traditionally an optimist by nature but I don’t see any way out at this point. The bubble will have popped before this fall.”
Outstanding point! A+
Mike
#151 bumsup2 on 03.09.10 at 7:07 pm
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The problem with Japan was that people were buying small condos for $500,000 that were a 2 hour commute from major downtown centres. That would be like buying in Woodstock or Orillia or Newcastle (relative to Toronto). Toronto and surrounding areas do not nearly have it as bad as what the bubble was in Japan.
#165 Taxpayer like everyone else on 03.09.10 at 10:14 pm
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Correct, I believe the banker actually (partially) had our best interests in mind. We changed our criteria for buying a house based on learning more about our city (traffic patterns, proximity to amenities etc.), as well as learning from Garth’s blog (location IS important, avoid the burbs, buy close to downtown, close to public transit etc.)
I’ll take you way back to whoa,, 2003.. There’s been about 14% CPI inflation since then ($1 in 2003 = $0.87 2010).
Leslieville
Asking: $229,000
Sold: $218,000
http://juliekinnear.com/imagesall/images-newsletters/295greenwood.jpg
Asking: $810,000
Sold: $808,000
http://juliekinnear.com/imagesall/images-newsletters/118eastbourne.jpg
Unbelievable what you got then compared to now.. what is that, a 300% price increase?
I have worked in this hood a few summers ago.. What a dumpy area… spotty at best.. but even during that summer I saw some ROW houses… not semis… townhouses that were maybe 10 feet wide sell in mere days. Of course the price was somewhat lower then..but still they were pieces of crap… just visit the local Shoppers Drug Mart for not only your drugs and sundries but the barrage of beggars at the doorway.
In maybe 20 years this area will be nice but its got a long way to go..
Let’s add Keller-Williams to the list of real estate pumpers. Note the use of CMHC info as gospel and the CYA disclaimer at the end
http://kwconnect.kw.com/connect/user/share.jsp?p=3399&sh=8261
Banks making record profits… so hard to believe… let’s see they are leveraged 15 to 1 and so they only need one buck to lend 15 PLUS they get the cash from the central bank of Canada for mere .25% interest BUT loan it out at 3-4% a mere 1200-1400% profit.. How hard is it to make profits when you have everything stacked up in your favour. Just crazy. This will never end in my opinion as the banks are the epicenter of our economies world wide. Hell… look at the banks in England… they are all still nationalized and they are leveraged at 30 to 1.
Re “They decided to wilfully join the insanity,” the dog writes, “and offered $589k, but were laughed at. The house sold for $720K ish.”
I honestly almost fell out of my chair when I read the above. I don’t have words to describe this insanity.
p.s. I could live on 150,000 for 12 years.
.
Well said Garth…and all the while they commit what amounts to theft from Senior Citizen’s savings by offering GIC rates that are laughable.
#159 Andrew “bla bla bla…bla bla bla…”
Dude, some of us renters actually have money to buy a home outright when the time comes, and some of us have our investments paying for our rent too. Whether it be a 15% or 50% drop, it would still be money in our sorry pockets… One blanket does not cover all…