Entries from September 2010 ↓

First, regarding my speaking event in Toronto on November 9th. Holy crap. Over the weekend, twice the anticipated number of people signed up to attend, and the hotel ballroom booked for the event is now of insufficient size (it holds only 500). So, more space will be added to accommodate everyone. If you received an email confirmation, you’re in.

But if you find you cannot attend, please send me an email ([email protected]). Replacement  reservations will be available here, starting on November 1st to fill those seats. Thanks for being so interested; I plan to take this occasion to outline exactly what’s coming for real estate, the economy and the poor innocents who think we’re on the way back to 2007.

Second, this blog lost its focus over the last two days. Actually, it sucked. Credit for that goes to the gold pumpers and tinfoiled conspiracy theorist whackjobs who support them. Owning gold is fine. Obsessing about it and jamming bullion down everyone’s throat, while cheering for the collapse of society and fictionalizing a world government which will control wealth and apportion babies is not. You nimrods need help. Shove off.

Third, let’s talk about the state of the real estate market as we exit the crucial month of September. Hey, let’s nob about Crystal Tost, too.

As you probably know, there are two seasons for selling houses – spring and autumn. This is when the rubber hits the road, when busy realtors make commissions that will buy them lumps of coal and hot gruel to survive the cruel months to come. This year the fall season’s wrapped in apprehension, coming after months of declining sales across the country and a widening belief the bubble is deflating.

Of course, the housing industry is fighting back, twisting a few facts and spewing out media releases designed to create an impression of momentum and recovery. Days ago, for example, Cameron Muir, chief comedian for the BC Real Estate Association declared the current buyer’s market all but dead. And in Toronto, the local real estate board said record property prices “are justified” by the “positive affordability picture.” Sure. That reminds of a famous British tab headline about the Princess of Wales: “Diana was still alive hours before she died.” Really?

Of course, there are people who believe this stuff. And why wouldn’t they? Advertiser-fed media like Global, CTV, the Toronto Star and the Vancouver Sun upchuck every positive release they’re given, while the banks continue to lend out mortgage money at half the price of two years ago. And if you don’t have a down payment, hell, they’ll give you one.

So, there have been some bursts of buying, notably in Calgary and the more delusional edges of the GTA. A few Toronto builders have shown genius in whipping property virgins into a frenzy, then selling out new developments to buyers who barely see the product and don’t even lawyer their offers. Hard to see how that will work out well.

Meanwhile in Cowtown, a classic battle shaping up between buyers and floggers. The numbers are dismal (and portend the GTA’s future): Sales last month crashed 32% from 2009. The average detached house, at $445,617, down $8,500. Over 700 new, unsold, unloved and unoccupied condos, compared with just over 200 at this time last year. Monthly sales plunges for condos over past months ranging from 20% to 43%, and average unit prices off a massive $52,000 since the peak last May. Oh yeah, and desperate developers giving away parking spots, upgrades, home entertainment systems and vacations.

Says the local real estate board prez, Diane Scott, this is a “measured correction.” Hey, let’s keep things in perspective – it only sounds like a mid-air collision. As I noted above, there are always greater fools ready to believe the spin and drink the Kool-Aid – which is behind a reported micro-burst of sales activity in recent days.

Calgary realtor Crystal Tost, meanwhile, has an important piece of news. “So when is the right time to buy?” her perky blog asks.  “Well, I think that time is now!” And why is that, Crystal? “The real estate market in Calgary may just be starting to turn around. Yes we very well may have already seen the bottom come and start to fade away, but don’t let it fall out of site. There are many buyers sitting on the fence waiting for the opportune time to jump into the market. A word of caution though, typically when the “word” gets out that now just might be the “right time” to buy, I can say without a doubt we will already be inching up to an even marketplace or a marketplace that will favor sellers… Then suddenly things start to shift and we find ourselves competing over the house that no one seemed to want just a few weeks or a couple of months ago.”

So typical. It’s not ‘buy now because there’s lots of inventory, borrowing costs are still low and vendors are really motivated’ (all valid reasons), bur rather, ‘buy now because if you don’t you’ll be priced out.’ The realtor’s motivation: fear.

This is one reason the market’s destined for trouble. There’s more to worry about in the world than a bidding war. Debt. Jobs. Retirement. Recession. Losses. It’s why a correction will be followed by a melt.

But it’s not Crystal’s fault. Can’t help it. Realtor DNA runs deep.

And November will not be pretty.

This wretched blog was born 30 months ago when we all lived in a different time. The Canadian economy was humming along. The posted rate for a five-year mortgage was 7.1%. Bay Street economists declared Canada had decoupled from the US – where the housing market was freefalling and President Bush was ignoring it. Ottawa  approved federal mortgage insurance for 0% down loans with 40-year amortizations. And home prices were stiff.

A financial meltdown wasn’t on the public radar. The Toronto stock market index touched 15,000, and few would have believed it could lose 35% by the end of the year or 50% by the spring of 2009. The shocking days of autumn were yet to come, when the world stood inches away from the cusp of a depression.

Back then I spent a lot of time warning the few people who strayed here that what you saw was not what you were going to get. The economy is far more fragile than it appears, I argued, while we’re vulnerable to the same credit mess and housing disaster than was enveloping the USA.

So now in the final months of 2010 I’ve reached the view that most people, having gone through all this turmoil, have no clue where they’re or what comes next. It seems endless subdivisions full of families think we’re on our way back to 2008. Too bad for them.

Here are a few reasons you need to run in the other direction:

The US has yet to hit bottom, and it may take a year or three longer. This means interest rates will stall where they are, gold will rise some more and American politics is about to get ugly.

None of this is particularly good news. Cheap rates mask the debt trap most households have walked into. The gold bubble is a giant bet against America, and will end badly. Meanwhile US turmoil will help keep our economy weak, jobs hard to find and home values falling.

Worse, our dollar will probably soar in value next year as commodity prices rise and our rates stay above those to the south. That makes us less competitive, hurting exports, manufacturers and employment. Actually, as the housing market here heads for a dead stop, so will a huge amount of economic activity.

What won’t happen: Hyperinflation with the US government purposefully devaluing its currency. And no depression, either, with a Japanese-style decade-long spiralling deflation. There is no extreme outcome to the situation we are now in – just a number of numbing years of discomfort, equity loss and a declining standard of living for most people.

Sorry. It may suck. But there ya go.

If you are a homeowner with a mortgage, most of your net worth in the house, little in the way of liquid savings or investments, dependent on your paycheque and without a corporate pension, you are at risk. Sadly this group makes up about 60% of the Canadian population.

This is why you need to be a contrarian.

In the near future (within five years), the USA will start into an economic renaissance which will support equity markets. Interest rates will begin a long, determined march higher. It will be evident real estate soon ceases to be the dominant storehouse of value in North America. The first evidence of the coming Boomer retirement crisis will emerge. Taxes, energy and the cost of living will march higher. The Canadian middle class will be under assault, dragged down by a housing deflation that should have been completely obvious.

So, a world in which most people do less well and the people who prepared clean up.

Want to be one of them?  Then best start now.

Shift wealth from real assets to financial ones.  Invest in things that pay you income to own them – not a potential profit, but actual cash flow. Aggressively and legally avoid tax. (More on that soon.) Be balanced to counter volatility, owning equities, bonds, trusts and cash. Above all, be liquid. Never lock into a GIC or hand your money over to a salesguy who hands it off again.

As most will learn, there’s no silver bullet – not houses, bullion or a handful of stocks.

But there is a way forward.

Hear Garth here:

Wolfville NS
Tuesday October 5, 7 pm, Ken-Wo Golf Club. Register here.

Lunenburg
Wednesday October 6, 7 pm, Fisheries Museum. Register here.

Halifax
Thursday October 7, 7 pm, Ashburn Golf Club. Register here.

Victoria BC
Wednesday October 13, 7 pm, Victoria Convention Centre. Register here.

Kelowna
Thursday October 14, 7 pm. Register here.

Surrey
Friday October 15, 7 pm. Register here.

Toronto
Tuesday November 9, 7 pm, Double Tree Hilton, 655 Dixon Road (airport strip).