Entries from February 2011 ↓

Marty and his GF belong to a cult. Like all such sects, it has an omnipotent and omnivorous divine wizard, initiation rites, group hugs and an interactive web site. Three thousand cult members talk obsessively to each other in code, take bus trips together and believe they posses special knowledge and a sprinkling of fairy dust setting them apart from other humans. They crowd into three-hour meetings once a month and jam all-day cult workshops several times a year. Of course, they constantly hunt for new blood. It’s duty. For they are the chosen.

If you look deep into the eye slits of his wizard hood, you’ll discern a man able to inspire his flock into purchasing more than 26,000 properties and borrowing $3 billion. And it goes on. Every month, another 220 bleeding, pulsating deals are thrown at the feet of Donald R. Campbell, spiritual leader and resident deity of the Calgary-based Real Estate Investment Network.

REIN is boot camp for speckers and flippers. It preaches financial independence through the religion of real estate, and real estate only. One asset class. No diversification. No deviance. No other god. Members are prodded to continually spend on seminars, workshops, field trips and more, from $37 for an email to $1,500 for advice on commercial property. And everywhere, the power of leverage is front and centre.

Like these words, from a $1,000 course on how to use your RRSP to finance a house (hell, buy me a beer and I’ll spill…)

“The lever and leverage is one of man’s greatest discoveries. In a nutshell leverage is getting more for less and using the full advantage of resources at hand to accomplish a goal. In the case of Real Estate Investing and in the game of Monopoly, it means buying as many properties as possible with the cash available at hand. In the real world, it can also be translated to mean how little of my own money can I use as a down payment and still be able to buy the property.”

That epistle must have sent a hot little surge down Marty’s pants. So he and the babe scrapped together $14,000 and leveraged up a $275,000 newly-built semi in the city of Burlington, wedged between desperate Hamilton and conceited Oakville. But apparently owing $270,000  on a property which would never be in positive cash flow was not good enough. They went to other cult members to learn how to acquire more debt.

“It is now worth approx $380-$395 depending on upgrades, etc, etc.,” they gushed. “The question is, can we lease out this property while pulling out the equity from it?? Only 5% has been put down on the property, but my understanding is that there is new value to the property or equity due to its appreciation. Bottom line, is it possible to pull out the appreciation from this home and reinvest it elsewhere?”

Yes!, cried the other little REINs. You can pull out up to 90% of the value of the property – even if that added value is 100% illusionary. Plus CMHC will allow you to get insurance!

And I’m certain they will. You can read more here. It’s a small example of how emergency interest rates, rampant speculation and state-backed insurance of high-ratio, high-risk, wholly irresponsible real estate gambling has helped make homes unaffordable. Worse, this is the kind of mentality that helped push the US middle class over the edge and into a financial freefall. In Don Campbell’s world, debt’s never repaid because equity keeps swelling. Markets always rise. Buyers always score. And Global TV is always there when you need fresh virginal juices.

But what these financial whackos embody is a mentality which has swept through Toronto’s downtown condo towers and Vancouver’s delusional neighbourhoods. With banks willing to lend anyone heaps of money since Ottawa wipes away the risk, prices have catapulted higher on the back of speculation. Now we are left with two things. Houses families can’t afford. And steaming piles of risk.

As I’ve been telling you for some time, growing inflationary pressures will beget higher interest rates. Now that oil has touched $100 and foodflation is in every newscast, central banks have to do something to dampen prices. At the same time, the end of the 35-year mortgage in a month will not only help rid weasels and parasites like Marty and his wench, but also nail the market. Meanwhile millions of wheezing Boomers are finishing this RRSP season woefully aware they’ve got way more house than they do money. Soon the selling will start. And places like Ontario and BC are making matters worse by squeezing homeowners with higher property taxes and runaway electricity bills.

Already listings are surging – up 100% in some markets in the last five weeks. Soon supply will exceed demand by a long shot, and seven months of declining year-over-year sales numbers in most of Canada could turn into a rout.

If you’ve been shopping for a home, stop. If you’ve mulled selling yours, list now. If you’re in a conditional deal, get out. If you’re renewing, lock in. If you’re house-horny, look at this.

Works every time.

The CBC reporter setting up the interview sounded vexed when I mentioned the last housing downturn.

“I don’t remember that,” he said, an hour before I turned into the radio expert on BC condo sales. Then he laughed a little. “I guess that’s because I’m young, so I wouldn’t recall it.”

How old are ya, kid, I growled.

“Thirty,” he said. Then I remembered why youth is wasted on the young.

Actually, the last crappy housing market – apart from the brief 08-09 bust – was 19 years ago. Reporterguy was watching Sesame Street and trying to pop body hair. Interest rates spiked and house prices tanked, but he wasn’t paying attention. In fact, except for little bumps like the dot-com thingy and Nine Eleven – when he was in J-school and busy hunting women – this person’s life has been sheathed in economic growth and rising house prices. It’s now a mantra. Real estate rises. It is riskless.

Well, as we discussed here yesterday, that could soon change. In the last day Libya’s idiot leader did all he could to foment civil war. Oil prices jumped close to a hundred bucks. Stock markets dumped and bonds jumped. The concern is Libyan oil production will be disrupted, then mayhem leaks into Iran or Saudi Arabia and before you know it gas is two bucks a litre. That leads to economic slowdown, rising inflation and rate increases to counter it. Family budgets get squeezed and consumer spending halts. Already inflated housing takes a hit. It could all unravel by the summer.

But what are 30-year-old reporters with wives and babies and apartments worried about? Right. How to gorge on 35-year money and buy a house before March 18th, when F’s mortgagicide takes place.

Anyway, forget him. Let God and Google care for him now.

It should be clear to everyone that the house-buying by people not paying attention – those who work at the CBC, anyone pregnant and Mainland Chinese, for example – will continue. They don’t come to this pathetic blog. They are happy. For now. But they’re also going to be part of the problem to come.

You see, the world is getting increasingly complex. Higher oil prices stand to hurt countries like China – where demand is exploding like a Lady Gaga nipple – more than in North America. They also promise way more food inflation, since growing and shipping stuff is hugely energy-consumptive. The resulting jump in consumer prices will put pressure on central banks to cool things off with a tightening of monetary policy – which means higher rates. But increasing the cost of money also hurts economic growth (by upping mortgages and downing house prices) and makes government debt a bigger burden.

Said that cute bank economist Derek Holt this week: “This is getting much more reminiscent of 2008 by the minute as an oil shock is being imposed upon fragile recoveries, only to be met by central bank talk of taking the punch bowl away.”

And he’s right. Three years ago oil hit $147 creating inflation, resulting in 7% mortgages in Canada and a fading housing market.

But this time things are more interesting. Unemployment’s far higher. People owe vast amounts. Governments are bankrupt. US housing’s sinking faster than ever. The Arabs are revolting. Families are stressed. And there is more house horniness than ever before in recorded history.

Ah yes, and the media.

The events of the coming months and years may be utterly predictable, but the news will be huge for most people. They won’t see the jump in living costs, the erosion of government services, the nipping of public pensions, the erasing of equity or the decline in their options, until there are few left. They’ll miss selling homes at the top, and reaping huge gains. They’ll walk into debt with costs that will only rise. They won’t ride oil stocks higher, grab bond gains or taste the thrill of being lasciviously liquid in time of crisis.

And now to Kelowna. AJ writes:

I wanted to share how your blog is going down here in Kelowna, BC and how (exactly as you say), the realtors have an amazing influence on the media outlets in the city, which means the unfolding real estate disaster we are experiencing here is going almost un-reported.

So the most popular news site in Kelowna is called “Castanet” . Unfortunately, Castanet seems hell-bent on pandering to its realtor advertiser wishes and playing down our city’s housing crisis.  Not only do they automatically relegate any ‘house price decline’ discussions in their on-line forums to hard-to-find sub-folders they’ve now rolled out their resident Real Estate Columnist (as Coldwell Banker Realtor) to attack GARTH TURNER!!

YES!  Sparked by some postings which linked to your blog in the above discussion on the forum, it seems the Kelowna realtors are getting rattled that your message is landing here in Kelowna!  So, this week we saw this so called “Real Estate expert” Mark Jennings-Bates go on the defensive.  First, he logged onto the forums and started his own discussion called “Kelowna Will Not Crash”, and then he re-posts it (including a swipe against Garth Turner!) on the front page in his column.

Well Garth…its good to know you’re message is getting through!  We’re fighting back against the propaganda!!!

Damn, I love the smell of revolution. Saddle the camels.