The sure thing (2)

I admit it. I own real estate – my house, my cabin in the woods for seasonal and often illegal debauchery, and investment property. Assertions I’m a masher when it comes to land just aren’t true. In fact, the prospect of acquiring a unique piece of dirt or an irreplaceable structure stirs my loins. The last property I bought was two weeks ago. If you don’t think there aren’t distressed bargains around, you’re not looking.

But because real estate smites me, I can lose perspective like everyone else. That’s why my last post gave a useful rule of thumb about how much to have – especially when it’s your principal residence and your emotions run riot. A Boomer like me should have no mortgage and little more than a third of net worth in property. A 30-something, on the other hand, should have no more than 60% of net worth in a house, and lots of equity. And nobody – of any age – should buy with 5% down.

Let’s be rational. Last year my house paid me nothing. It probably didn’t appreciate in value, either (after all, who wants a place with underground storage tanks and trip wires?). Meanwhile my liquid assets (bonds, preferreds, REITs, exchange-traded funds) returned almost 15%. So far in 2011 – a year of raging oil, earthquakes, melting nukes, revolting Arabs, defaulting Europeans and collapsing US houses – this portfolio’s up an annualized 9%.

What’s more, the financial stuff is liquid. The real estate isn’t. And this brings me to risk.

It will be a very bad idea going forward to have the bulk of your net worth in a house. Not to own a house. Just to think it’s a financial strategy. It’ll be an even worse idea to use a lot of leverage to buy one. Unlike my financial portfolio, sinking your net worth into one property means zero diversification and exposure to a multitude of risks you simply cannot control. What if the economy slides back into recession? Or rates rise? Or the guy next door buys chickens?

Or, in the case of 51 Melrose Avenue, what happens if you just pay too much?

I mention this place since it was featured in the Globe and Mail yesterday. In mid-town Toronto, it was on the market for seven days, had 100 showings and received 12 offers. Listed for $995,000, it sold for $1,162,000. The front lawn is a parking lot and the back yard is 400 square feet of astro turf. The faux mansion beside it has a new front door four feet from the bedroom window and all you see looking out are parked cars. But it’s got granite! Here it is:

The house last changed hands in 2003 for $651,000, which means it doubled in value in eight years, for a 9% appreciation. The question now: will it double in the next decade? Will there be buyers for this so-so house with tepid curb appeal when it’s $2.2 million? If the new owners say, ‘we don’t care!’ then I hope they’re rich. After all, that $1.1 million invested to garner an 8% return would yield almost $90,000 a year – which makes living here cost $7,500 a month (plus property tax of $6,100, plus insurance, maintenance and Krazy Glue for the lawn).

Fact is, with each price acceleration – even in demand areas like Lawrence Park off Yonge Street or Kitsilano in Vancouver – real estate just gets more dangerous. Fraught with far more risk than a 100% liquid stable of financial assets. For example, as of today we suddenly have higher mortgage rates.

The big banks announced yesterday they’re goosing fixed-rate home loans by up to a third of a point, taking the benchmark five-year mortgage to 5.69%. This has happened as stock markets continue to spike, attracting investment capital (the S&P 500 has gained 97% since March of 2009) away from the bond market. That results in falling bond prices as demand wanes, jacking up yields – and resulting in higher borrowing costs for the banks.

Did you see that coming? (BTW, China raised rates for a fourth time overnight.)

This is the kind of risk which can clobber someone who’s blown the wad on a house. As this wretched blog tries to show on a regular basis, the greatest mistake anyone can make when it comes to investing is to shun diversification. In real estate-crazed places like Leaside or Arbutus, it’s a lesson easily forgotten. But not for long.

Often people post here that they consider their homes to be, well, homes. Not investments. So they couldn’t care less if they lose value. But they lie. Today Canadians, on average, have half of all their net worth in one house. In cities like Toronto, Calgary or Winnipeg, it’s likely closer to 70%. In Vancouver, I’d estimate it’s 90%. Never have we gambled so much on a single asset, and seldom have the odds of losing been higher.

So, have real estate if you want. I do.

But if that’s all you own, it’s time to bail.

204 comments ↓

#1 bsallergy on 04.04.11 at 10:01 pm

Inherited, it is a warm place to sleep. Fixed costs are less than rent, wouldn’t own otherwise.

#2 Mr. Reality on 04.04.11 at 10:02 pm

Now tell me the correction hasn’t started folks.

Mr. R.

#3 Ralph Cramdown on 04.04.11 at 10:03 pm

One of the things which sucks in the unwary is property price histories. Sure, this place doubled in value in eight years, but how much of that is sheer price appreciation and how much is kitchen and bathroom improvements? I’ve never heard a real estate agent point out that all those people in Home Depot’s parking lot are fueling the type of home price appreciation that you don’t get by buying and holding, though real estate stats make it sound like it.

My broker never calls and says I have to sink $40,000 into my stock portfolio or it’ll look ‘dated.’

#4 Ang on 04.04.11 at 10:04 pm

1 st :p

#5 S.B. on 04.04.11 at 10:13 pm

Election: Embarassing. They will keep trying until we are destroyed. It’s not an election, it’s a game of russian routlette. The same will go on until the desired result is acheived. See Iceland, Iraq, Ireland? We are next.
WW1 was fought between armies. WW2 they targeted the civillians more closely (firebombing of Dresden, Atom bomb on Japan, the camps).

WW3? Yep we’re toast.

———————–
In news that was alarmingly under-reported even in the alternative media, Queen Elizabeth’s Governor General David Johnston approved Prime Minister Stephen Harper’s request to dissolve Parliament on March 26 for the third time in 3 years. The move came after Parliament’s first ever vote of no confidence against Stephen Harper. Elections have been scheduled for May 2.

As the Times Columnist wrote on March 26:

Prime Minister Stephen Harper will visit the Governor General today to dissolve Parliament, setting the stage for a federal election in early May.

The Harper government was defeated in the House of Commons on Friday on a non-confidence motion declaring the government in contempt of Parliament.

It is the first time in Canadian history that a government has been found in contempt

#6 Roy Stacey on 04.04.11 at 10:15 pm

The Yank weighs in:

Let me see, house US value in this market $145,000

Stocks yup. $410,000

Bonds yup $175,000

REITS, commoditiews yup $28,000

Cash yup $14,000

Am I diversified? Hope so. Stocks are both US & Foreign, Bonds too. All is paid for as we circle for that year-end retirement. Cheers!!!

#7 @crazyfasteddy on 04.04.11 at 10:20 pm

does the percentages still count if the home went up? At one time in my life the house was 100% of my net worth..now it sits at 50% yet I only put in 25% of what it is worth now… (yes that’s right..it has quadrupled…bought in 1997)..

Then harvest the gain. Or it is illusory. — Garth

#8 T.O. Bubble Boy on 04.04.11 at 10:22 pm

But, you’re just steps away from McDonalds! (corner of Melrose & Yonge)

This is convenient, because it’s the only place you can afford to eat out at after buying this place for $1.16M.

#9 Big Al (New) on 04.04.11 at 10:23 pm

Garth if your tolerance for risk doesn’t extend to the items you list than how would you approach your investments to optimize your returns? Sorry dude I have absolutely no tolerance for any risk, not at this stage in my life.

The biggest risk is running out of money, not losing it. — Garth

#10 bcc7 on 04.04.11 at 10:28 pm

i think componding 9% for 8 years = double
is such a simple fact people (including me) forgot.

#11 All is knowledge. on 04.04.11 at 10:30 pm

Home prices will always go higher….Harper and Flaherty will make sure they do. Harper majority coming soon to rescue the realtors once again.

#12 Sid on 04.04.11 at 10:34 pm

where are you buying property now?

#13 Jon B on 04.04.11 at 10:36 pm

Bought real estate only two weeks ago? Richmond BC? Out-bid the plane loads of rich Asians I presume?

#14 TaxHaven on 04.04.11 at 10:39 pm

“The house last changed hands in 2003 for $651,000, which means it doubled in value in eight years, for a 9% appreciation.”

I think you’re confusing PRICE with VALUE.

I borrowed the following from http://fofoa.blogspot.com/2010/12/value-of-gold.html He’s talking about gold, but the discussion applies to any asset:

“Probably the most common misconception is that price and value are the same thing. They are not. They are related but different. Price can be precisely known, but true value can only be estimated or guessed. And because price changes, price is always wrong while true value is always right, even though it is unknown. So price and value are always different. Value is always either higher or lower than price.

There is a little trick to knowing whether value is higher or lower than price. This trick will reveal the direction of value, but not the magnitude of the disparity. The trick is to look at which direction the government wants to influence any price. If the government is attempting to manage a price upward, then it is a safe bet that the value is lower than the price. And if the government would like to keep a price down, then you can be pretty sure the value is higher than the price.”

VALUE can only be estimated, very roughly. And it can be different from person to person, too. To somebody, 51 Melrose Ave. was VALUED at C$1,132,000+. To me, perhaps $300,000…to others more, or less…

Over the short term of a year or few, better stick to PRICE when discussing these deals…

Real estate market value = price. — Garth

#15 angry Bird on 04.04.11 at 10:40 pm

first suckers! Let me have my realestate and you can keep your 8% yield! I bet the people who invested in Leeman Brothers were better off then buying a house!

#16 Utopia on 04.04.11 at 10:41 pm

#205 BrianT on 04.04.11 from yesterday to #197 Utopia

“……look at one of the first lines this guy writes–hyperinflation would allow Joe Sixpack to pay off his debts with confetti”
———————————————————-

Actually that is a pretty good line Brian. In a hyperinflation, debts, even very large debts, eventually are reduced to almost zero.

That is why the process is so destructive to banks and other lenders. Bondholders are also a good example of a group that takes a haircut to the bone.

In the Weimar Republic the value of mortgages fell so far that banks could no longer even afford the price of a stamp (which had current market pricing) in order to send out statements to mortgage holders. The debts which were generated before the hyperinflation began were meaningless three years later as a loaf of bread now cost more than the average home.

No doubt you have seen the pictures of the wheelbarrows full of money. There is a famous story of a guy who went to buy milk. He had a literal wheelbarrow loaded with cash notes.

Not even bothering to try to guard his stash of worthless currency he goes into the shop to inquire of the price. When he comes out, the money is all spilled on the ground and the wheelbarrow is gone. It really got that bad.

In the final days of the hyperinflation it is said that one once of Gold was sufficient to purchase a downtown apartment. Money was less valuable than wallpaper and many just burned it in their homes to keep warm and cook meals.

Thus debts were paid in confetti money. Just worthless paper. Ask The big Lebowski (who knows his history of currency failures pretty well) and he will undoubtedly know the details of these stories better than I.

#17 realist on 04.04.11 at 10:49 pm

There are times when the real estate market rises at a much slower pace than others.

For example the above noted property at 51 Melrose Avenue previously sold in 1990 for $485,000. In 2003, as noted, it sold for $651,000. It took 13 years to rise $166,000 (approximately $1,000 per month for 13 years). Not bad.

A modest increase by today’s frothy values to be sure, but still an increase. The fact remains that the property has gone up in value steadily now for 21 years in a row.

Will 51 Melrose Avenue double in value again in 8 years time, probably not. Will it rise modestly, maybe. Will it crash and burn, melt slowly or simply hold its own, who knows?

#18 Tim on 04.04.11 at 10:51 pm

If you’re suggesting for someone on the west coast to only have a third of their net worth in real estate, then if we assume the average two bedroom condo is half a million on the west side (not even considering a house) then that would imply one should have 1.5 million dollars in net worth. If we take homeowners aged 30-45, probably the majority of people who own these two bedroom condos, how many of them would have a net worth of 1.5 million? How many that make money legally? I’d say average net worth for this age group is probably more like a few hundred thousand, in which case it wouldn’t make sense for most to own in Vancouver. The only way it would make sense is if we had a correction of over 50%. Since you’ve been softening your stance on the magnitude and timing of the correction, how does it make sense for people in this age group to own a condo if they live in Vancouver?

Who cares? Live elsewhere. — Garth

#19 Paul on 04.04.11 at 11:02 pm

Finally, something affordable in Vancouver.

http://www.cbc.ca/news/canada/british-columbia/story/2011/04/04/bc-container-housing-vancouver.html

#20 Moneta on 04.04.11 at 11:09 pm

My broker never calls and says I have to sink $40,000 into my stock portfolio or it’ll look ‘dated
——–
40K seems a little much… somebody, a couple of days ago, wrote in to say that they bought a 1 million + property which only requires 1K in maintenance annually.

#21 Utopia on 04.04.11 at 11:12 pm

“Then harvest the gain. Or it is illusory”. — Garth
——————————————————-

Could not agree more.

With what is coming, if it ain’t cash in the bank it is just a fiction of your imagination. Worth in dollar terms has no meaning until it is actually realized in dollar terms.

Ask anyone in Phoenix who’s property value dropped 70% and is now underwater. Ask him how rich he actually feels in paper terms…or alternatively in real terms.

That’s right, he is broke. Period. Full stop. Stuck too.

The neighbor with cash in the bank feels like a millionaire by comparison though. No worries at all, deals of a lifetime on everything and the power to travel and live free and easy.

Gee, cash is good after all. Don’t tell that to the dollar doomsday crowd who insist that the price of cash is about to fall to zero. Idiots.

Those nimrods have no bloody idea what they are talking about. No clue about the meaning of value.

#22 GregW, Oakville on 04.04.11 at 11:12 pm

Hi #196 Nostra, Thanks for that. I hope people send this 15min video to there political representatives, and stand up at local public debates, ask tough question and demand swift action!!! I know I am!

Breaking: Dr. Paul Connett – New Studies Yet Again Confirm Fluoride LOWERS IQ In Children
http://www.youtube.com/watch?v=qygEcorvKMs&feature=player_embedded

#23 Boombust on 04.04.11 at 11:14 pm

In that laid back, devil-may-care attitude of his, that INsightful Michael Levy was on Global TV tonight prognosticating about higher interest rates to come. (I LOVE it when he goes out on a limb!)

And then, I’ll be damned if Global itself didn’t do a mini-feature on how the rise in mortgage rates will dampen sales in the VANCOUVER area.

It’s simply all too much.

#24 Don't Believe The Hype on 04.04.11 at 11:16 pm

Too few realize that the house they live in is not an asset because it doesn’t pay you any money. If you make money when you sell it, that’s great, but is the true cost of ownership factored in when calculating that free “capital gain”? Items like interest paid on the existing mortgage, maintenance, utility costs, repairs, etc. For any “investment” all those costs factor in the ROI calculation. If those costs were factored in, that “gain” would be much lower.

#25 Hoof - Hearted on 04.04.11 at 11:25 pm

New book out:

101 Street Smart Condo Buying Tips for Canadians.

Excerpts

http://money.ca.msn.com/banking/homebuyersguide/gallery/gallery.aspx?cp-documentid=28243617

#26 Rob on 04.04.11 at 11:25 pm

Everyone in Edmonton is talking about the next boom being on the horizon. From today’s Edmonton Journal

http://www.edmontonjournal.com/business/Real+estate+analyst+says+Edmonton+verge+boom/4556462/story.html

When I say everyone I mean it. Topic #1 at birthday parties and around water coolers the last two weeks…..
Getting laughed at more than ever when mentioning any other point of view.

I still take the middle ground here in Edmonton. No great crash, but no big upside either.

We have already gone through a big price pullback since 07, 20% ish.

I wouldn’t put too much stock in anything Don Campbell says. — Garth

#27 outtahere on 04.04.11 at 11:25 pm

My problem is that i cannot figure out the % of my holdings that is real estate because i don’t know how to calculate the current value of our pensions. My partner and I, both in our mid 40’s, have public sector DBPs (sad problem i know) and have in total about 60% equity in 2 properties. Because of the DBPs I have been madly paying down the mortgage on our primary residence and not putting anything in TFSA’s or RRSP’s. We have no other debt except for mortgages. Any ideas how to calculate the value of the pensions?

#28 Patz on 04.04.11 at 11:27 pm

Be afwaid, be wery, wery, afwaid! Global TV aka RE Pumper Central had a real estate story tonight reporting the mortgage rate hike and musing about whether this was the turning point for a “real estate correction.” They may turtle away from that dangerous question tomorrow but the damage is done. Kind of like the Queen wondering aloud whether Wills was making a good match.

#29 Overseas on 04.04.11 at 11:27 pm

First!

#30 Tim on 04.04.11 at 11:42 pm

We’ll I guess we could always buy in Squamish:
http://www.vancouversun.com/entertainment/topics/city/abu%20dhabi/Squamish+site+latest+receivership+project+with+bargains/4552616/story.html

Squamish site the latest receivership project with bargains

Partly completed Aqua project is one of several developments being marketed in court-ordered sales

#31 Wise Guy on 04.04.11 at 11:46 pm

I’m a mid 30’s guy and I pay rent, $1075/month. I live on a street with multimillion dollar homes and I rent just one floor. It’s all I need as I have the majority of my money in investments and am doing quite well doing so.
Now, I have a good friend of mine that bought a very reasonably price condo at $240,000 three years ago and sold it a couple months ago for $285,000. He tells me that he has made $45,000 and has just rolled that on to his new purchase of a $350,000 town home.

These aren’t the over exagerated prices that we normally see in Toronto, but the fact is that he did not make a clear $45,000. In his mind he did, but he isn’t counting the $7,500 fine he had to pay the bank to break his mortgage and refinance. He is not counting the real estate fees, closing costs, house taxes, the painting and redecorectating..etc.

It’s funny how people think and how they truly believe that they have made such profits. Furthermore, he justifies it by stating that he essentially is paying the exact same amount in monthly mortgage payments as he was at his new place as he is paying a much lower interest rate.

He just has no clue that mortgage rates will rise and this will no longer be a fact in 2,3,4 years.

The only good thing I can see from these purchases are that they are small, but what I do know is that he has no savings!

Personally, I walk around without a stress in the world. No mortgage, no repair costs, not a worry in the world, yet my investments continue to give me great returns.

#32 Jay Currie on 04.04.11 at 11:48 pm

Patz, not even the Queen would be unwise enough to knock Kate.

I am loving the hype (being a lowly renter and all).

Our last rental (after 25,000 in cosmetics aka “lipstick on a pig) went on the market after sitting vacant for five months here in Victoria. 839. Sat there for a month. Now 798.

I suspect it will sit a while longer. It would sell instantly at 598. And it would still be overvalued.

Across the street from out current digs there has been a rancher on the market for coming on two years. There was a garage sale in the house next door to it which will be on the market within the month for less than a million. The two year house is 1.2. Bet he’ll be annoyed.

In the real world, as opposed to realty world, price matters. There are not plane loads of fast money Chinese arriving in Victoria. And there are lots and lots of 65+ Boomers looking to unload. My Oak Bay 500+ MLS scan is going up 5-10 properties a day. 406 at last count.

Time to hunker down, eat yummy (paid for) lentil and lamb stew and enjoy the pleasures of renting. With which we can still afford a decent bottle of plonk to ease us past the “stigma”.

#33 Live Within Your Means on 04.04.11 at 11:51 pm

#2 Mr. Reality

You’re right. The real estate correction hasn’t begun. Prices continue to rise.

#34 Concessionman on 04.04.11 at 11:56 pm

They are going to be in for a nice surprise when MPAC sends them their tax assement based on 1.1m next year and thier taxes jump $300/month…

Either rich or stupid, but, looking at that house, they’re definately the latter….

#35 Min in Mission on 04.04.11 at 11:59 pm

“tepid curb appeal” ??? Crap!! That place has NO curb appeal!! Even when I was drunk and working in TO would that place have appealed to me.

#36 Cellar Dwellar on 04.05.11 at 12:00 am

@ #28 Patz
Hilarious! Vewwwyyy afwaid you wascally wabbit !
Yup!
INTEREST RATES GOIN UP UP UP
YOU HEARD IT HERE FIRST BPOE :)
bwahahahahahaahahahhaa

#37 nonplused on 04.05.11 at 12:03 am

The function for house prices is of the form:

P = (I*(1+cpi)^n)/f(i)

Where

P = price
I = Something resembling the initial price at the beginning of time period n
cpi = average inflation over time period n
n = time in years
f(i) = a function of interest rates.

f(i) is equal to 1 in a balanced market. When rates fall f(i) gets smaller than 1, causing P to grow. The function is probably not linear. I imagine at really low rates (3%) f(i) goes to 0.5 or less, causing prices to double.

Conversely, when interest rates rise, the price dies. If i rises dramatically and f(i) continues to be somewhat exponential, house prices could crash. At 10% interest rates f(i) probably goes to 2, causing house prices to be at half their expected cpi adjusted value. Have to see in the real world, we haven’t had 10% interest rates in a long time so it’s hard to say exactly how the function in the real world is currently geared. But with all the leverage out there right now, I would venture to guess that the market reaction would be far worse than in the 80’s. So bad, in fact, that no central banker will ever again take interest rates through 10% no matter what gold, food, or oil is doing. But 8% would be bad enough.

You can add other factors to account for local conditions like the land developer’s cartel surrounding most cities or local economic conditions, but for a larger area like Canada those affects are probably accounted for in i and cpi.

This whole market has been sustained by low interest rates since 2005. Probably earlier than that. When rates rise again, prices will be sticky for a while on the way down, but 2005 prices adjusted for cpi are probably where they balance out again.

Of course in the US prices have blown past 2003 levels and don’t seem to be slowing down. This is without the Fed raising rates, but real retail rates have been on the rise. Joe six-pack can’t borrow from the Fed.

The timing of the great Canadian real estate crash is still very uncertain, because the corrupt CMHC is still removing any and all risk from the banks and putting it on the taxpayers. This has to be stopped, and Mark Carney will stop it one day with rising rates. When rates rise, so will defaults, and then we’ll see what CMHC is really wearing under that kilt.

But for now the music is still playing, so everybody has to get out of the chairs and dance, as a famous US banker so succinctly put it.

And PS, Harper, Carney, and all the other goons that brought you the great Canadian housing bubble understand the formula and always have, since they were wee whipper-snappers in collage. It was monetary policy, designed to give people an inflated asset to monetise through credit and thereby stimulate the economy. Unfortunately, no real economic growth occurred in Canada (or the US) to grow on the backs of that stimulation, it all went to China and elsewhere. All we were left with here is more debt.

Now the Chinese and others are bidding up resources with their new found wealth, which will give a distinct advantage to certain locales that have the resources, but for the average Joe it means yet one more thing they need that is going up in price faster than wages.

It’s John Law’s Mississippi land scheme all over again, only 100 times larger. Inflate the asset, monetize, rinse, and repeat as long as you can, and then flee before the revolution starts and heads are landing in baskets. The masses have a nasty habit of over-reacting to sudden impoverishment at the hands of banksters.

#38 Shane on 04.05.11 at 12:13 am

And in Windsor, folks have 20-30% of their income in real estate… Lots of new cars in Windsor even with the recession… That’s what happens when your city is part of the US economy of all intents and purposes… You purge with the US and enjoy their real estate prices…

#39 AACI Home-dog on 04.05.11 at 12:18 am

#14…tax haven

In my opinion, especially in real estate, price is what the vendor is asking (if it for sale), whereas value is the true worth, & hopefully what the property eventually sells for.

#40 Drew on 04.05.11 at 12:25 am

what did you buy, Garth? that was the most shocking bit of info I read. It was enough to stop me mid pull during a split screen of reading your blog and watching youporn.

where did you buy, Phoenix?

Ontario this time. — Garth

#41 viTRifY on 04.05.11 at 12:30 am

Hey garth,

Any chance you would be able to do a guide on preferred shares? With this investment climit, would it be best to buy preferreds that are straight perpetual, rate rest, fixed floating, floating rate, or ….? How about a segment on a primer on each type? Maybe use the canadian banks as examples especially when we get that nice juice canadian dividend tax credit.

Thanks!

#42 nonplused on 04.05.11 at 12:32 am

PS in other news, as Zerohedge has noted, not even the algo and robots are trading the market anymore, volume is the lowest it’s been since just prior to the 2008 crash. Rising volume and rising prices, good. Falling volume always bad. Falling volume on rising prices, correction ahead. Not sure what rising volume on falling price is, probably a bottom. But that’s not what we have. We have rising prices on very little volume. Word to the wise, the stock market won’t be liquid soon.

#43 Bailing in BC on 04.05.11 at 12:35 am

Sellers seem to be capitulating in Squamish. Houses that have been on and off the market for a few years have been selling with buyers looking for deals.

A spec house listed at $730,000 (ish) a few years ago finally sold for $580,000.
One old rancher that was listed in 2008 for $550,000 (approx) sold last week for $270,000 – ouch!

(Sorry all prices approx as I’m going from memory)

#44 Rob on 04.05.11 at 12:36 am

Don’t get me wrong, I am not a Campbell disciple and I think he is going to cause many people to get burned on real estate with his strategy going forward.

I will say that the real estate cool aid is flowing like the tar sands here in E town. No one even seems to remember or notice that we are down 20% and many landlords and flippers and even good normal people are under water on homes bought a few years ago.

Debt and rates will have their say, it is coming……

#45 Montrealer on 04.05.11 at 12:39 am

Garth,
first, why do you approve comments that say “1st” when it’s the 29th comment posted? just delete them!
second, when will you have a new book out?
third, will you do a post (or a book chapter) on how to invest if you are ~30 without debt? Most of us here get it and won’t buy for now, most of us are also probably debt free (and maybe even a small amount saved), but then where do we invest our money? Let’s say you can manage $3-5k per month of savings, how do you invest it? it’s not a fortune, but I’m sure it needs a different strategy when you plan to use that money later to buy a house once prices are lower (instead of using it only for income generation).

(a) Everyone has an equal right to embarrassment. (b) This autumn. (c) Good idea, yes. — Garth

#46 Devore on 04.05.11 at 12:42 am

#17 realist

Will 51 Melrose Avenue double in value again in 8 years time, probably not. Will it rise modestly, maybe. Will it crash and burn, melt slowly or simply hold its own, who knows?

Does that sound like a good investment?

#47 Devore on 04.05.11 at 12:58 am

I wouldn’t put too much stock in anything Don Campbell says. — Garth

Garth, you are too nice. I wouldn’t put any stock into anything Don Campbell says.

#48 Richard on 04.05.11 at 1:00 am

Garth, what sources do you typically look at to find these RE investment deals/bargains?

I will post on that. — Garth

#49 Nostradamus Le Mad Vlad on 04.05.11 at 1:01 am


“Let’s be rational.” — Compared to the bimborons (combination of morons + bimbos) who don’t bother to read this blog, and cannot fathom what’s hitting us?

Bloggers here are rational, deluded wannabeez not.

“. . . maintenance and Krazy Glue for the lawn). Did you see that coming?” — Ummm, no as I usually mow the snow and shovel the grass. Krazy Glue is a new one!
*
#22 GregW, Oakville — Anytime Greg!
*
4:10 clip Steam, and their infamous Na Na Na, plus a little history.

Obama’s scars Curious pix. As usual, nothing in the m$m.

Gold Would these be the tungsten filled bars?

7:39 clip Radioactive and plutonium seawater, plus Link in. The reality of Fukushima, or what the m$m isn’t telling us. Lying (all govts. do that well). HAARP Seems official now, except from the m$m.

Gadaffi Don’t let TPTB pull the same BS as they did re: Sadaam.

2:53 clip HAARP can be used like a nuke, resulting in ‘quakes, storms, etc.

Organic Farming As compared to Monsanto? But these are Gestapo-like tactics.

Exposed The US – Saudi – Libya deal, which includes a host of other countries. Guess Libya’s sweet oil must be really tasty!

Expert “Like the World Trade Centre Towers?” wrh.com, and May 16 — Further reasons why the US needs wars. “Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover,” Geithner said. He warned that military pay, social assistance payments and tax refunds could be among the first things to be blocked.” Drones, as in jumbo jet drones, could be used as FFs to turn attention away from May 16.

The Pentagon speaks and the m$m shuts up shop. Possibly this has something to do with it.

Couple of good clips in here — Liberty Dollar founder and Japanese refugees.

Choose Your Poison and Choose Your Poison. They’re both as bad as each other.

#50 Timing is Everything on 04.05.11 at 1:03 am

#12 Sid
#13 Jon B

I hear Garth bought a quarter section for crop share outside of Weyburn. Comes with the oil drilling rights. Probably just a rumour.

http://tinyurl.com/3uhqbet

#51 Your local martingale on 04.05.11 at 1:28 am

I have always had a problem with owning residential real estate at all. The cost of carry is much higher than most people care to count and while many North American males identify themselves as amateur housing contractors, the truth is almost everyone hate house repairs (and I even hate the thought of it). But I think that Garth could make an even stronger point than he has made on the perils of owning residential real estate – especially at this time.

First, financial economists have shown that when price to earnings are high, you are entering a period of slow growth. This does not necessarily mean a crash (although a crash can happen which is certainly consistent with slow growth), it just means that you will not see good returns for the foreseeable future. The same is true in real estate – high price to rent ratios tell you that you are in for a long period of low housing returns. This is simply true, and both the theoretical and empirical economic work is in on these statements. So, owning residential real estate at this time, when price to rent ratios are at an all time high, is probably not the best thing you could do with your money if you are looking for return.

Second, I can demonstrate quite clearly that a house is more of a consumption asset than an investment. Imagine a riskless economy. In such an economy all assets payoff the same thing – the riskless rate. So, owing a stock, a bond, or a house makes no difference since there is no risk in any of these assets. Now suppose that I buy a house and I rent it out. I will see two sources from the house’s payoff – a capital gain, and the rental income, both of which must added up to the riskless rate of interest. Now, suppose that I live in the house instead of renting it. In this case, I only see that capital gain, which must be lower than the riskless rate as I no longer receive the rental income. So, in a riskless economy, capital gains from houses return less that the riskless rate. This central argument is the reason that over the long run, houses essentially return inflation. Of course the real economy has risk and this is what capital markets pay people to hold. The only way houses can compete with capital markets is through government created price distortion and that game can only last so long.

Finally, as a life long renter, I have found that residential real estate tends to be inefficient (in the economic sense of the word) but does not generally allow one to capture risk adjusted profit through ownership as transaction costs and taxes are too high. But where I found that you can capture the inefficiency is through renting. I have yet to rent from a private residential real estate owner who correctly accounts for all transaction costs, vacancy risk, and taxes in the rent. In effect, on a risk adjusted basis, most private owners shoot themselves in the foot as they desperately seek to avoid tenant turnover. If you do your homework when renting, it is possible to get a free lunch. I rent a beautiful high end condo and the return the owner gets less than 1 year GIC interest (and he pays the condo fees, too!). Like I said, a free lunch.

#52 squidly77 on 04.05.11 at 1:36 am

I wouldn’t put too much stock in anything Don Campbell says. — Garth

Ain’t that the truth.
He’s gotten rich by soaking many IQ challenged Canadians though.

#53 tommy boy van west on 04.05.11 at 1:40 am

Inflation. Inflation. Apple juice was . 99 five years ago and now it’s 2.22/litre. As long as they print worthless fiat monopoly paper prices will go up. And the FED has just begun printing the trillions. As have the Chinese.
A buck is incognito for something else.
Hang on to your RE. Keep up with the Jones. You have no choice.

#54 reality guy on 04.05.11 at 1:41 am

expect food inflations soon.

If you want to view Real -estate as an investment then think about this.

This morning, the Salmon companies took a hit. With Japan leaking Nuke water into the Pacific, I’m sure there will be little demand for pacific Seafood for some time.

They are going to need fertilizer to grow wheat, and with China destroying their farmland for real-estate is a pretty safe bet that POT ash or one of the 5 major fertilizer firms will out perform REAL-estate,

Actually I think the freakin GIC might even out perform Victoria Real Estate this year.

#55 randman on 04.05.11 at 1:48 am

Bubbles!

“Rodney Sullivan, co-editor of the CFA Digest, has done some great research on the history of markets and bubbles going all the way back to the 1600s. He discovered three key patterns in the 47 major financial bubbles that occurred over that time period.

These three ingredients of asset bubbles are financial innovation, investor exuberance and speculative leverage. The process begins with financial innovation, which initially benefits society as a whole. In the exuberance stage, usage of these innovations broadens; they become mainstream and attract speculation. The third step, the tipping point for a bubble to form, is when these speculators pile on massive leverage hoping to achieve greater success. This excessive leverage adds increased complexity, which mixes with irrational exuberance to create an imbalance in the marketplace. Eventually, the party comes to an end and the bubble bursts.

This is what happened with the housing bubble in the U.S. as Main Street home buyers leveraged themselves 100-to-1, Fannie Mae leveraged itself 80-to-1 and Wall Street investment firms leveraged themselves over 30-to-1.

#56 a prairie dawg on 04.05.11 at 2:44 am

@ #8 T.O. Bubble Boy

But, you’re just steps away from McDonalds! (corner of Melrose & Yonge)

This is convenient, because it’s the only place you can afford to eat out at after buying this place for $1.16M.

With today’s lending standards being what they are, the owner of that house probably works there…

#57 Inflation on 04.05.11 at 4:00 am

CNBC actually said something wise for a change:

“We see inflation starting to take hold, then fiscal monetary tightening policies come in (ie interest rate hikes, austerity measures), as the money is then sucked out of the economy we see deflation in stocks, commodities and other prices”

I think deflation is closer then many think as $110 oil, QE2 running out, interest and mortgage rates rising and a high price market is at a tipping point the world over.

Vancouver – Anyone read Japan is dumping 12,000 tones of radioactive water into the Pacific (Millions of times over the “safe” radioactive limit)? You know of the air jet stream, there is a water “jet stream” too leading to Canada and the USA.

#58 Cato on 04.05.11 at 4:03 am

Its in our DNA to lust after RE – you can bet the caveman who scored the best cave also scored the best babes. RE speculation & crash was behind the french revolution, go further back and same speculation was going on in Rome. Usually ended with heads on a stake as mob looked for someone to blame.

The bond market killed asset bubbles in the past and result will be no different today. Funny how debt holders actually want to make a rate of return, greedy bastards. Now we find out Wal-Mart is also run by greedy bastards and wants to hike prices too. This isn’t how it was supposed to be. I deserve to go through life in my suburban dream house sucking down 99 cent cheeseburgers buying cheap crap made in China on credit while big brother takes care of my every need. I’m good enough, I’m smart enough, and doggone it, people like me.

#59 Aussie Roy on 04.05.11 at 5:27 am

Aussie Update

WE ARE firmly stuck in a buyer’s market – both here and across most of the country.

http://www.couriermail.com.au/property/house-sales-slide-despite-more-listings/story-e6frequ6-1226033288951

House building at crisis point.

http://www.brisbanetimes.com.au/national/housing-and-building-at-crisis-point-20110402-1csm6.html

But, but we have a shortage.

http://macrobusiness.com.au/2011/04/so-much-for-the-californian-housing-shortage/

MORE evidence has emerged that Australians are battling financial stress.

Arrears on the home loans that back prime residential mortgage-backed securities (RMBS) have climbed to their highest level since April 2009.

http://www.news.com.au/money/property/mortgage-holders-showing-stress/story-e6frfmd0-1226033755573

Company tax revenue that has supported the budget for the past eight years is drying up, the federal government has been warned.

http://www.smh.com.au/business/company-tax-slump-puts-hole-in-budget-20110405-1cyx1.html

CONSUMER prices rose to a 14-month high in March, driven by the escalating cost of food and petroleum products, brought about by disasters in Queensland and the civil war in Libya.

The TD Securities – Melbourne Institute monthly inflation gauge jumped 0.6 per cent in March, tripling the 0.2 per cent rise in February. It was the biggest monthly increase since January 2010.

In the year to March, the inflation gauge was 3.8 per cent, compared to the 3.6 per cent in the year to February.

It is well above the Reserve Bank of Australia’s (RBA) target band of two to three per cent.

http://www.news.com.au/money/money-matters/inflation-surges-on-war-in-libya-floods-in-australia/story-e6frfmd9-1226033218313#ixzz1IddMUsIY

#60 Aussie Roy on 04.05.11 at 5:40 am

Aussie Update – busy news day today.

So prices have been falling for the last 6 months, but its all good, prices wont continue to fall there will just be NO increases. – LOL

http://au.finance.yahoo.com/news/No-home-price-growth-next-abc-208340455.html

BUSINESS executives expect sales to fall and softer employment conditions in the upcoming June quarter as they battle rising fuel prices and wages, and consumers keep their wallets firmly shut and instead pay off debt.

Read more: http://www.news.com.au/money/money-matters/executives-expect-sales-to-fall-on-rising-fuel-wages-study/story-e6frfmd9-1226033843296#ixzz1IdfzPSTd

But its all good, she’ll be right, mate, says the Reserve bank of Australia.

Read the comments from your average Aussie at end of this article.

http://www.theage.com.au/business/rba-its-all-good-mate-20110405-1d20b.html

#61 munch on 04.05.11 at 6:41 am

Yo Garth

How come you never post a post under a topic?

At most, you edit someone else’s post, but you never weigh in with your own comment

Weird, I find it!

#62 T.O. Bubble Boy on 04.05.11 at 7:03 am

GTA RE numbers should be out today… will this be 10 straight months of YOY sales decreases? (likely answer: yes)

#63 rental monkey on 04.05.11 at 7:25 am

Hey, Anyone know what happened to Kevin O’leary’s face. Did his “Greed is good” mantra finally catch up with him? Either that or he lost the round with a cat.

#64 TaxHaven on 04.05.11 at 7:47 am

#30 Tim…THAT’S A BLATANT ADVERTISEMENT! Nothing more, and not even remotely ‘cheap’…

#65 Live within your means on 04.05.11 at 7:53 am

#27 outtahere on 04.04.11 at 11:25 pm
My problem is that i cannot figure out the % of my holdings that is real estate because i don’t know how to calculate the current value of our pensions. My partner and I, both in our mid 40′s, have public sector DBPs (sad problem i know) and have in total about 60% equity in 2 properties. Because of the DBPs I have been madly paying down the mortgage on our primary residence and not putting anything in TFSA’s or RRSP’s. We have no other debt except for mortgages. Any ideas how to calculate the value of the pensions?
………………………

I have a DBP. Last summer we received a newsletter stating that for the next 5 years our provincial govt. will guarantee it will be indexed at 1.25%. After that time, who knows what will happen. I’m not counting on the indexing.

I suppose it depends on how well your plan is funded now and in the future. But, no one can guarantee what the CPI will be in future years.

#66 bigrider on 04.05.11 at 7:58 am

Garth- If you are going to run a blog on the negative attributes of being to RE heavy/horny and then chime in about your recent purchase of a property in Ontario and the bargians you are finding, then at least you should enlighten your flock on how you are finding such bargains and the nature/details of the RE you are purchasing.

At the very least ,tell us if it is residential or commercial, revenue stream from or not, long term buy and hold or flip etc.

Your opponents could interpret these actions of yours as a “bait and switch” and a betrayal of your long held premise/viewpoints.

#67 distressed clues on 04.05.11 at 8:16 am

Hi Garth, like a few of the posters I am intrigued that you’ve bought RE in Ontario recently. And you mentioned distressed.

Here in the GTA I watch MLS etc and the only thing that is distressed is me, marveling at the three bedroom semis on Lansdowne or Ossington for $600-$700K. I would even pay $150K to live in these s**tboxes.

I would consider a wide variety of properties; semi-commercial, storefront, houses, etc. Just looking for a place to park myself for a while that won’t bankrupt me. But everything is astronomical. Maybe you are finding stuff in small-town Ontario outside of the commuting range?

Whatever insight you are willing to share would be most welcome by many of us! Thanks!

#68 distressed clues on 04.05.11 at 8:18 am

oops, that should have read “…I wouldn’t even pay $150K to live in these s**tboxes…”

#69 detalumis on 04.05.11 at 8:21 am

I guess I’m the only one who isn’t jumping all over the 1 million dollar house. I think it’s okay looking and the main selling feature is walking to “stuff”, lots and lots of stuff. If I had over 1 million for a house I would be living in Toronto as well and I don’t think I am the only person who feels that way. The problem I see is that we have very, very few places to live in this country if you are an urbanite. We have wiped out all the walkability we had 40 years ago in every smaller sized city and replaced it with the pure suburban model. A huge number of kids who grew up in these areas loathe them and it’s the suburban kids who actually fill up all those itty bitty downtown condos. You never see more isolated seniors than you do where I live, the only place they can congregate is the local mall and once they lose their driver’s licence than death seems to be the best alternative in their minds.

I personally don’t think the owners of this house will see the property fall hugely, maybe a bit if the entire market crashes but long term it’s still location, location, location. And yep I could see myself living in that house.

#70 S.B. on 04.05.11 at 8:23 am

#25 Hoof – Hearted on 04.04.11 at 11:25 pm

That condo buying tips book is a relevent as a How to Buy .com Stocks book published in 2000…

In Toronto all new downtown pre-construction project are $600 to almost $700/sq foot!! Only a greater fool believes their ~500 sq foot unit, which will rent for $1600/mo max, is a good value. Plus at least .50/sq foot in condo fees which generally rise 20% in the first 1-2 years from what I’ve seen. Parking is not included (40k extra these days).

Here’s the latest project by a developer whose name rhymes with Greed. Looking at the floor plans, most units in this building are 385-400 sq foot.

http://www.thompsonresidences.com/floorplans/

One unit is on MLS, ground is not even broken on the poroject, offered at almost $650/sq foot.

#71 JackRussell on 04.05.11 at 8:42 am

Around here, they call it “leading the Ramen noodle lifestyle”. Joking aside, you read about people who spend so much on the house that they can’t afford furniture (and have plastic patio chairs inside the house).

#72 Sid on 04.05.11 at 8:56 am

Garth, I look forward to your post about real estate investing. Weyburn, seriously? I thouhgt it was in Ontario?

#73 realist on 04.05.11 at 9:00 am

#46 Devore wrote: Re # 17 realist:

Does that sound like a good investment?

Well let’s review. 51 Melrose Ave. sold for $485,000 in 1990. Sold again in 2003 for $651,000. Then just recently sold in 2011 for $1,162,000, with 12 offers.

That averages out to an increase of $32,238 per year over 21 years. Which works out $2,687 per month.

Perhaps you can find me a rental where the landlord will pay me over $2,500 a month to live there?

Typical fuzzy thinking. Where did the $651,000 come from, and what was the opportunity cost of having it buried in the house? At 7% (the historic TSX return), that cost was $3,797 a month. Some investment. — Garth

#74 bigrider on 04.05.11 at 9:04 am

I don’t get what all the hype is around 51 Melrose avenue. 2003 price 651k sold for 1.16mill 2011 total gross return 78% over 8 years.

I could list a slew of mutual and hedge funds that would have given you a better return than that and by a huge margin.

Oh and no property taxes or repair and other maintenance costs to think of.

But as the retard realturds would say ” you can’t live in a mutual fund”..LOL

#75 Form Man on 04.05.11 at 9:18 am

Spent last Sunday touring housing developments in BC’s southern interior ( Kamloops, Sicamous, Vernon, Kelowna, West Kelowna). Lots of completed inventory for sale, a handful of new starts ( fewer new starts the closer one gets to Kelowna ) Sales offices with staff, but no buyers to be seen. I was interested in several large new ‘ extended care homes’ that are sitting uncompleted, and obviously in financial distress. I realize this is a little different than the SFH market, but is this ‘over-building’ of seniors residences happening anywhere else ?

#76 torontorocks on 04.05.11 at 9:24 am

TO Bubble Boy – 10 straight months of sales declines, ReMax pimping that the market should turn around and my agent is telling me that its time to get in the market is still hot. if Melrose in 2003 was $450,000 at 3% inflation over 8 years that would be about $572,000 today. I’ve got no idea what is going on with this market, I know its due to interest rates. but I think, will our government allow things to implode like in the US or just issue a bunch of taxes to support the CMHC mess and carry on? because our phony wealth effect is very empowering.

of course, as was explained to me, houses in the areas I’m looking at are for 2nd time buyers that are rolling some of their delicious equity from being in the market in the last 5-8 years while I was fantasizing about it. so now I’m out of the market b/c they have more equity than me (and I have 20% down for my markets, thanks God) which means I can really only afford a 500,000 600sq Ft condo. in other words, every where I turn, its a total rip off and I’m gettin jacked either way.

#77 LarryLat on 04.05.11 at 9:33 am

GTA numbers are out for March. During the second half of the month sales decreased by 15.7% vs second half of March 2010. And that’s includes the week prior to March 18th, 2011 when homes were selling like hot cakes.

Here are the numbers:
First two weeks of 2010: 4,353
First two weeks of 2011: 4,138

March total 2010: 10,430
March total 2011: 9,262

Second half of March 2010: 6,077
Second half of March 2011: 5,124 or 15.68% less

#78 Joe Q. on 04.05.11 at 9:37 am

#73 realist on 04.05.11 at 9:00 am writes: “Well let’s review. 51 Melrose Ave. sold for $485,000 in 1990. Sold again in 2003 for $651,000. Then just recently sold in 2011 for $1,162,000, with 12 offers. That averages out to an increase of $32,238 per year over 21 years. Which works out $2,687 per month.”

This is a BS argument because it neglects mortgage interest. If the 2003 buyer put down 20% and amortized over 25 years at 6% (going rate in 2003), mortgage interest alone would have been about $2,400 per month.

Run the math with a mortgage calculator, “realist” — estimate the money the 2003 buyers put in and what they got out in 2011 after paying off the mortgage balance. Unless they had a huge down-payment, they got a lot less out of the sale than your post implies.

#79 CalgaryRocks on 04.05.11 at 9:38 am

#74 bigrider on 04.05.11 at 9:04 am
78% over 8 years.

I could list a slew of mutual and hedge funds that would have given you a better return than that and by a huge margin.

Yeah, anyone can do that. Can you name just one fund that will do the same IN THE FUTURE?

Thanks, and the risk must be 0. I would hate to sell my house for which I have almost no mortgage left, rent out my mother’s basement and then lose all of the money in some fly by night Maddoff deal.

#80 Will on 04.05.11 at 9:39 am

The appreciation calculation for the house on Melrose is wrong. The owners run some sort of design consultancy and they did significant renos (to an already improved house). Also the statistics for the neighborhood are unusual–near 3000 square feet and with five bedrooms.

To calculate the appreciation, you would need to know the cost of the reno.

#81 realist on 04.05.11 at 9:39 am

“Typical fuzzy thinking. Where did the $651,000 come from, and what was the opportunity cost of having it buried in the house? At 7% (the historic TSX return), that cost was $3,797 a month. Some investment.” — Garth
_____________________________________________

First of all my analysis is based on the purchase price in 1990, which was $485,000 not $651,000. And comparing the entire purchase price as an alternative investment is probably not realistic, as there was probably a mortgage involved. If it was an all-cash purchase then I stand corrected.

Secondly, your analysis does not take in to account the cost to rent over the 21-year period in question. The subject property was not only an investment, it was also shelter and that calculation must be taken in to account. After all, investing all of the money into the TSX doesn’t put a roof over your head.

Just admit you were wrong. It’s faster. Hug? — Garth

#82 T.O. Bubble Boy on 04.05.11 at 9:45 am

@ #56 a prairie dawg

But, you’re just steps away from McDonalds! (corner of Melrose & Yonge)

This is convenient, because it’s the only place you can afford to eat out at after buying this place for $1.16M.

With today’s lending standards being what they are, the owner of that house probably works there…

Sad but true! I happen to live near this place, so I’m familiar with the street/neighbourhood — lots of “normal” families, and streets upon streets of bungalows and standard 2-story places that have been demolished for McMansions like #53 in the picture. There is even one HUGE new house being built right across the street where someone has bought 2 houses and tore them both down to make 1 “Super McMansion”!

As far as the McDonald’s comment — I wonder if we’ll see yesterday’s headline touted by Harper and F as a part of the Economic Action Plan???

http://www.thestar.com/business/article/968627–mcdonald-s-canada-to-hire-4-000-people-in-one-day?bn=1

(since most of the job creation recently has been low-wage and part-time, it wouldn’t be that much of a stretch from other headlines coming out of F’s mouth)

#83 Joe Q. on 04.05.11 at 9:46 am

The TREB data for March came out today. Sales down 11% from March of last year, prices up 5%. Same pattern as we’ve seen for the last 9-10 months. New listings and active listings were way down this time, though.

Interestingly, TREB is pitching the data as “the second-best March result on record”.

#84 Joe Larue on 04.05.11 at 9:48 am

Condo sale update….

Listed the 2-bed T.O. investment condo yesterday and we already have 2 showings booked. Hopefully that’s a good sign that I’ll get close to asking. Some friends think I’m crazy for selling, some think it’s a good move, but only time will tell.

I think the market is still good (even the mayor is selling houses) but, like Garth, I like the idea of being diversified.

#85 refinow on 04.05.11 at 9:51 am

Garth, did i read correctly, you just bought another house 2 weeks ago ??? Really ???

If this is the case, check your meds… or did you recently sustain a major head injury.

You of all people… Are drinking the kool-aid !!! Why ??

First yesterday you soften your position about real estate and now admit to buying a house 2 weeks ago…

Wait a miniute….. Are they offering you your old job back ???

Where did I soften my position? And why would I not buy a bargain? — Garth

#86 Inflation on 04.05.11 at 9:54 am

#76 torontorocks “…which means I can really only afford a 500,000 600sq Ft condo. in other words, every where I turn, its a total rip off and I’m gettin jacked either way.”

I think you are looking at it the wrong way around. If new/1st time buyers like you can’t afford to get into the market you are in the MAJORITY, not the minority. If the majority of 1st time buyers can’t buy, then what do you think will happen next to prices?

#87 T.O. Bubble Boy on 04.05.11 at 9:59 am

The GTA numbers are in:

http://www.torontorealestateboard.com/consumer_info/market_news/index.htm#market

“The second best March on record” (but sales were down 11% from 2010)

#88 it's meeeeeee on 04.05.11 at 10:09 am

Garth,
A a couple of suggestions/requests: could you use more numerical examples in all your blogs? I realize that most of the general population is totally math phobic, but once I dug out my calculator and confirmed that 1.09^8=2 it was sweet!! (maybe this is some sort of rule of thumb that not being a finance person I wasn’t aware or). There are always a few naysayers making comments, but no one can dispute cold hard numbers….

Also, I’m trying to move the fixed income portion of my (small) portfolio into bonds (it’s not in the orange guy’s shorts, but may as well be). Any tips?

#89 Brian1 on 04.05.11 at 10:20 am

Yesterday I recommended some stocks. I probably should not have done it, at least CIGX. It has been driving me nuts. I’m out of it, not because it goes sideways, which is reason enough, but because I got my info from the web where there was a company by the same name which is in Austrailia and not the same company. Also my analysts will not give info. I may be wrong but I don’t want to mislead. When I’m wrong, I’m wrong. It is easier when someone jumps from a helicopter.

#90 C on 04.05.11 at 10:31 am

Just saw the GTA numbers for March 2011.

Sales really declined. In (905) they were down yr/yr almost 13%. Prices crept up only 5.1% yr/yr.

Tsssssssssssssssssssssss……that’s the air coming out of the balloon.

#91 Soylent Green is People on 04.05.11 at 10:35 am

YouPorn, now I know why HarperCon is in power raping Canada gonzo style for the last five years. Ya’ll be too busy to notice what Harper has been up to I guess.

…………………………..

Corporate Tax Cuts do Not Create Jobs and They do Not Pay for Themselves

It doesn’t matter where you look, when researching the myth that corporate tax cuts stimulate the economy, creates jobs, and pay for themselves, every expert debunks those notions.

Of course I’m not including most Republicans, Tea Party members, or corporate executives, who are only looking out for their own interests. Even former advisor to Ronald Reagan, David Stockman, says that it has to end. He told Keith Olbermann that it was “insanity to give money to the top 2% of wage earners, so they could go buy jewelry at Tiffany’s.”

Harper’s corporate tax cuts and reduction to the GST, which again helps those with disposable income the most, will cost every Canadian over seventeen hundred dollars. And it is the gift that keeps on giving, as it will drain fourteen billion dollars a year from our income, at a time when we have a record deficit and debt.

http://pushedleft.blogspot.com/2011/02/corporate-tax-cuts-do-not-create-jobs.html

.
.
.

#92 torontorocks on 04.05.11 at 10:35 am

#86 thank you for your sentiment…but month after month of declinnig sales, prices increase in a declining volume market, seller strike, limited inventory, more money chasing fewer properties….I get it. but I’m slowly losing faith. I mean, are we expected 2003/2004 prices again at about 4-5x income or is the new ‘2003’ price – 5-6 times income when we stabilize. we haven’t seen ANYTHING like they have in the US. is the debt sustainable – the banks seem to be doing everything possible to let you leverage up. however, unlike the US, our government will just tax us up and we’ll bail out the ones who are creating this market (enabled by the CMHC)…so in true communist style, YOU and I, the majority or the less risky, will still be priced out HOWEVER, we’ll be eating more $hit because our taxes will go up to bail out the more risky. See? Jacked either way.

The US market crested in 2005. Prices continued to rise, as sales fell, until 2007. They have declined now for four years, and still fall. How can people here have such little patience? — Garth

#93 Sheila on 04.05.11 at 11:03 am

If you have 3 kids, and want them to attend Lawrence Park C.I., one of T.O.’s top high schools, then 51 Melrose may not be such a bad investment. “Saves” $160,000 per kid for 4 years at a private school, and provides better value.
It depends on your priorities as well as your cash flow.

Damn expensive kids. — Garth

#94 Kevin in Winnipeg on 04.05.11 at 11:05 am

I think you need to elaborate on what a bargain is in this market. Are you buying commercial or residential? Winnipeg seems like a bargain considering it’s year over year gains keep continuing.

#95 torontorocks on 04.05.11 at 11:10 am

Garth – we typically followed/lagged the US by 18-24 months. by my read we’re about double that now (2007 to 2011)…unless the emergency rates which were kicked in in 2008/2009 and stayed are what distorted the historical lag.

Its not so much patience as 1) seeing what’s happening around us here and now versus 2) what’s happened in the US and hasn’t happened here yet. Its going on gut feeling versus watching these others getting into the market on a lower dollar salary and just living a life somehow – said “life” subject to interpretation.

Oh – I also got the HAM spiel yesterday from an Agent…I loved it.

#96 Timing is Everything on 04.05.11 at 11:16 am

The biggest risk is running out of money, not losing it. — Garth

Agreed…How ’bout “The Trick to Money is Having Some.” – Stuart Wilde

Good read. Funny too. Sorry Garth, don’t mean to cut in on your book sales. This book changed my ‘thought process’ about money…20 years ago or so. Kinda a ‘self-help’ book…. like Garth’s.

“Filthy Lucre : Economics for People Who Hate Capitalism” – Joseph Heath comes to mind also.

Hey, you might have a title for your next book?

#97 Moneta on 04.05.11 at 11:25 am

It is pretty obvious that people have trouble dealing with semantics. You can see it when the debate revolves around bubbles. Everybody starts giving their definition of a bubble. But it’s a red herring because if there was no problem, we would not be arguing about semantics.

The same thing can be said about subprime. Many seem to think there is no subprime in Canada but if 70% of households are owners, just like in the US, and prices are now just as high, why would they think the financial of households is any different here?

One thing people have to understand is that suprime status is a moving target. During good times more people are prime and in bad times, more people are subprime. In an ideal world, we should be able to pinpoint the potential deadbeats when they are taking on loans during the good times but that is not the case.

Over the last 75 years, prime meant putting 20% down. Because households has so much skin in the game, they did everything to hold onto their houses in bad times. Mortgage losses were minimal. Because of this, bankers and society have decided that we have been too conservative and could reduce down payments to 0%, still clinging to the idea that households would hold onto their houses when they have no skin in the game.

The US is finding out the hard way that skin in the game is an important variable. In Canada, we will be finding out in the next few years.

Two years ago, we sold our house in Montreal. The buyer, a guy in his 40s with 4 kids, took a 40-year, 5% down (he was forced to by CMHC because he was not yet a Canadian resident).

It did not sit right with me. I felt uncomfortable. The house did not seem right for his family and considering the size of the mortgage, I felt he was feeling pressured into buying our house because there was nothing affordable on the market for his needs.

Sure enough, 1 week before the closing date we got a call telling us that he had lost his job and the bank financing. I’m not sure if it is true and I did not even want to find out. We relisted the house and got many offers. All from overstretched couples.

This is subprime but CMHC and newspapers don’t include these in their numbers. They’ll realize it’s subprime when they start defaulting on their obligations.

#98 realist on 04.05.11 at 11:27 am

I find it amusing that the bears are trying to spin the latest TREB numbers into a negative.

The second-highest number of sales for the month of March ever, along with a modest 5% increase in price year over year, and this supposedly represents a bursting bubble? Get real.

#99 Devore on 04.05.11 at 11:32 am

#66 bigrider

Your opponents could interpret these actions of yours as a “bait and switch” and a betrayal of your long held premise/viewpoints.

Only by those who see the world in literal absolutes of black and white. Everyone, I hope, knows there are always deals to be had and money to be made, regardless the market, for the wise investor.

#100 realpaul on 04.05.11 at 11:44 am

Indeed, your example shows why real estate should not form more than 10% of your ‘portfolio’. It is doubtful (lol) that the government can continue to devalue the currency another 100% over the next 10 years so that the ‘value’ of real estate reflects the articial inflation that the ZIRP has wrought.

However, diversified across several asset classes and managing risk by not making the mistake of focusing on Canadian issues will continue to appreciate based on a more fundamental matrix.

I would suggest that anyone interested look at the technical breakout of the Brazil, Indian, Agricultural and Chinese ETF’s. Each up 6 to 8% in the past two weeks. BRXX, INXX, COW and FCHI…not trading advice.

Meanwhile, the Liberals plan on resurecting the idiocy of the Trudeau regime and whisking us back to the 70’s.

http://fullcomment.nationalpost.com/2011/04/05/roy-green-liberals-sneak-cap-and-trade-back-onto-the-agenda/

#101 Devore on 04.05.11 at 11:49 am

#73 realist

Past performance does not guarantee or imply future success. Your comment about your uncertainty about the future direction of this piece of RE tells me this is a gambling opportunity, not investing. That’s what it is, when you are unable to properly value an investment, and put a future price tag on it with a level of certainty.

Reminds me of Ren and Stimpy. What will happen? Maaaaaaaybe something good! Maaaaaaaybe something bad! We’ll never know! Because it always goes up!

#102 cynic with a long view on 04.05.11 at 11:53 am

Anyone see what the price of gold/silver is doin?

All you deflationists should invest in huggies methinks.

#103 Devore on 04.05.11 at 11:54 am

#78 Joe Q.

This is a BS argument because it neglects mortgage interest.

Also neglects property taxes. Interest and property taxes is truly throwing your money away, because they do nothing for your equity.

What’s the tax on a $1MM property in TO?

#104 Devore on 04.05.11 at 11:59 am

#86 Inflation

I think you are looking at it the wrong way around. If new/1st time buyers like you can’t afford to get into the market you are in the MAJORITY, not the minority. If the majority of 1st time buyers can’t buy, then what do you think will happen next to prices?

Oh, I know! Wealthy Chinese with suitcases full of cash will be airdropped via helicopters to keep prices high?

http://pricedoutforever.com/

#105 Scare Crow on 04.05.11 at 12:03 pm

I knew it – I always believed G-Man had propertie(s), just like G-Man, I know the score, I realize my risk level and I too am drawn to claim that I own some dirt –

I read again someone say they rent – stress free – why do I read that all the time. I rented for many years before buying – both had a level of stress when it came to generating a income in which put off the risk of living on the street.

My mortgage + property taxes + monthly expenses averages $1700 per month for a 2430sq.ft house – pretty much comparable to rent in my neck of the woods –

Stress is all a state of mind- I could slash my monthly expenses by 98% which would leave me living in a shelter or worse – on the mean streets of Toronto. But during this short time on this planet – I will make the most of what I have worked hard towards – I leave the worrying for the other guy –

Price goes up – price goes down – big deal – you can’t take it with you anyway and I am certain you wont’ be judged at the pearly gates on your net worth – but, instead what did you do for your fellow man (and from the attitude of some in here – wishing for their financial demise isn’t gonna score you any brownie points).

Making money off the back of others, Karma may eventually play a factor in that – just saying….

(Feeling spiritually enlighten today, a far cry from my “smugness” others have accused me of)

#106 Live under your means on 04.05.11 at 12:05 pm

If I understand our online investment site correctly, our investments are up 6.508% in 3 mos – thanks to Garth. :-)

Re Garth’s post yesterday. I have no idea what we could currently expect to sell our home for as I don’t watch the RE market here. Just looked at our assessment online. It’s currently at $250,700. In 2001 it was $126K.

Last year we put on a new roof (insurance paid for half due to a storm), new windows, front door, new 1-1/2 rigid foam outside insullation, new siding, etc. Also put in new 3/6 litre toilets to take advantage of the ecoEnergy Program- Fed and Prov. Rec’d about $3K. Our efficiency rating went from 73 to 82. Hubby had put in air/heat exchange unit many years ago. We did take advantage of the reno rebate program, but I had already bought most of the stuff the year before which sat in our basement awaiting renos. Hubby did most of the reno work inside. I did most of the research. His work is better than those we hired.

During the outside reno the contractor discovered 2/3 of the house had to be jacked up. Due to improper grading, carpenter ants had eaten the sills. It’s a wonder our house didn’t collapse. Our home is a modest split entry, (in comparison to many) but hubby had renovated the kitchen/dining/living room area 10+ yrs ago. It’s open concept and we had a wood burning, energy efficient fireplace put in. Hubby did the mantle, sides, shelves and doors below on either side and laid the granite surround, etc. We also put in Mirage oak wood floors and stairs (except for bdrooms) at the time. Bedrooms will be done next yr to replace 30+ yr old carpets. Many of our renos over the years were under the table.

We live in a nice neighbourhood in Dartmouth, NS, a spit away from the lakes. I’m not counting on our home to provide us with a retirement windfall. If I had my way, I’d sell now and rent. But hubby stores one of his Beemer bikes in the shed he built while he works on the other in the back basement :-)

#107 refinow on 04.05.11 at 12:06 pm

Garth, yesterday you said>>>>

Some people think houses will never again be affordable if governments keeping pimping them. And maybe they’re right. Now that we’ve lost Michael Ignatieff.

This sounds like you are weakening…..

Garth have you been obducted, kidnapped or early on set of Alziemers….

Who are you, and who is responding to our posts…

This can’t be the real Garth…..

You said “There are deals to be had…”

I am sure the people who bought in the US during the last 2 years thought they were getting a deal too.. And now they have joined the “greater fools” list.

Stopped practicing what you preach eh ?

I preach that real estate is like any other asset class – to be held in a proper weighting inside a diversified portfolio. What a stupid, disrespectful comment. — Garth

#108 young & foolish on 04.05.11 at 12:07 pm

Ahhh leverage …. it’s what makes RE a favoured investment. Many people have bought investment properties with little or no money down and are letting rents cover their costs. No need to sell …. until old age.
If they were smart, they would have parked their cash in stocks/bonds.

#109 young & foolish on 04.05.11 at 12:14 pm

CMHC is US

#110 not 1st on 04.05.11 at 12:27 pm

U.S.A = broke, China = massive bubble

http://www.businessinsider.com/comstock-partners-deflation-2011-4

#111 realist on 04.05.11 at 12:44 pm

@Moneta wrote: “This is subprime but CMHC and newspapers don’t include these in their numbers. They’ll realize it’s subprime when they start defaulting on their obligations.”

The sub-prime market in Canada was estimated at anywhere from 1% to 5% of the total mortgage market in 2007, when all the major Canadian sub-prime lenders (Xceed, GMAC and Wells Fargo) stopped lending to sub-prime borrowers (bad credit, self-employed, low-income). Many of theses loans have been re-financed or gone power of sale already. They are virtually a non-factor in the present housing market.

The reason that CMHC never reported sub-prime loan volumes was because such loans were not insurable, unlike the garbage that Fannie Mae and Freddie Mac got stuck with in the U.S.

In the U.S. the sub-rime market climed to 20% of the market before everything imploded. Yes we are different here.

#112 Mickey on 04.05.11 at 12:59 pm

After reading the March Market Watch I agree with TREB on one issue, “The Toronto Real Estate Board (“TREB” or “Board”) is committed to advancing the interests of real estate sales people and brokers who comprise of TREB’s membership.”

#113 Brian1 on 04.05.11 at 1:00 pm

Garth: Ever since I have been buying your books and trying to follow your advice I have been working hard to try and secure a portfolio for my old age. Whether one does this on their own or uses an advisor they are still subject to the whims of their brokerages. For example, when the discount brokereages conclude that there are no more new clients to be had, what is to stop them from raising the trading fees to $100 dollars or to even $1,000 in order to protect themselves from recessionary times. It could mean that the investor is enslaved by the banks forever. Should we take signs to the streets? I have been so engrossed and having fun lately in mastering trading that I neglected that one small detail.

#114 Brian1 on 04.05.11 at 1:05 pm

I thought some more and concluded that if they threatened to raise their rates then one must immediatly collapse his portfolio as if the market was itself crashing.

#115 avenirv on 04.05.11 at 1:07 pm

Wise Guy,
good for you.
one question: how did your investment look in december 2008 ? or january 2009 ?

#116 BrianT on 04.05.11 at 1:07 pm

#98Realist-The core of Toronto is strong right now-real strong. The rest of southern ontario not so much. I agree that stating that TO has burst is far from accurate.

#117 Brian1 on 04.05.11 at 1:14 pm

Another solution to my dilemma is to merely diversify brokereages. A big task but safety from losses is prority.

#118 tony wong is a canadian traitor on 04.05.11 at 1:15 pm

tony wong (toronto star real estate reporting legend) is a propaganda expert extraordinare!!!

check this out doggys:

“This…represents the second best March on the books, since March 2010 was a record month, according to the board. There were 9,262 transactions reported by the board, compared with 10,430 last year.

The average selling price for March was up 5 per cent to $456,147.

The strongest annual price growth was in the semi-detached and condominium segment, up 7 per cent for both types of homes.

Active listings are down by 11 per cent compared with a year earlier, meaning less product on the market. Still, it took an average of 23 days to sell a home, compared with 20 the previous year.

“The strong home sales reported in March and throughout the first quarter of 2011 have been based on a solid affordability picture and improving economic conditions in the GTA and country wide,” said board president Bill Johnston.”

truly skilled “spinning”, tony!

here’s the link directly if anyone’s interested:

http://www.moneyville.ca/article/969283–home-prices-still-on-the-rise-in-toronto?bn=1

goebbels (and bernays) would be darn proud.

#119 Brian1 on 04.05.11 at 1:20 pm

The main reason this has come to my attention is due to what the cellular phone companies are attempting; three year plans which lock you into a life of pain as does a condominium or house mortgage.

#120 refinow on 04.05.11 at 1:20 pm

Garth, I don’t understand the disrespectful comment.

You continued for the last 2 years warning us of how this will not end well…..That real estate in Canada can not do anything but go down in the foreseeable future….

But now you say as long as it does not represent greater then your magical “90- your age” equation its okay to own real estate…

Well for the first time in a very long time I do not agree with your logic. Not when it comes to increasing ones holdings at this point in the cycle..

It is always easy to talk about the past, and use words like should of…..could of…and would of…..

The fact of the matter is that real estate values are cyclical. They do not always go up in value.

Buying any real estate, deal or no deal, today or in the last two weeks, before the official bursting of the bubble exposes you to potential losses.

I just dont understand someone who is so pationate about the current state of Canadian Real Estate, can change direction so quickly….

My real estate holdings is currently 0.00%… I dont think the time is right, deal or no deal to even consider getting back in. I sold last July, and am patiently waiting to see if this will end well or not..

I think in times of trouble, cash is king…!!!!

Now I understand. It’s all about you. — Garth

#121 Kevin in Winnipeg on 04.05.11 at 1:21 pm

Winnipeg is a bargain according to Remax. The fourth lowest average selling price of all major markets. No wonder first time buyers are suckered into buying with “news” like this. Lambs to the slaughter.

http://www.winnipegfreepress.com/business/breakingnews/Hot-and-affordable-describes-Winnipeg-housing-market-119257519.html

#122 Brian1 on 04.05.11 at 1:21 pm

Have you had enough of me yet? Brian1 reporting. CNN.

#123 John on 04.05.11 at 1:25 pm

“The second-highest number of sales for the month of March ever, along with a modest 5% increase in price year over year, and this supposedly represents a bursting bubble?”

Yes, this is classic of a market top. In order for price to rise you need more and more volume to support the price move. When prices rise and volume drops this is a sure sign that the present price move is running out of steam. A correction normally follows.

If supply were tight than we would see houses being snatched up as soon as they were listed. What I am seeing is the GTA is the opposite where houses require multiple open houses to sell and even than many are simply taken off the market for lack of buyers.

Tip to sellers! Unless you have buckets of upgrades, fresh paint, granite, stainless, and new hardwood or ceramic your house will on MLS for a long time.

#124 Nemesis on 04.05.11 at 1:45 pm

A surprisingly on topic, as regards economic history/cyclicality, cautionary tale from the LandOfTheBrave [if no longer exactly Free] and home to HarleyDavidson. Milwaukee, WI…

[HuffPoBiz] – Out Of Service: Milwaukee Budget Cuts Hit Bus Lines — And Keep Residents From Jobs

…”The pain has spread over a range of departments. Since 2001, the public workforce has shrunk by nearly a third, as security officers have been laid off and nurses, frustrated by anemic compensation, have quit. After years of limited funding, the parks system now needs repairs that would exceed $200 million. Bus service has been reduced by a fifth in the last decade, preventing Milwaukeeans from accessing tens of thousands of potential jobs.”…

http://tinyurl.com/3k58jfs

Perhaps that’s why Harley is shifting production to India; as Indian workers have access to better public transit?

[HellForLeatherMagazine] – Harley outsources motorcycle production to India

“Tacitly acknowledging that the cost of American manufacturing isn’t competitive in the global business environment, Harley-Davidson has announced that it will open a new assembly facility in Haryana, India. Sportsters and other models will be assembled for the Indian market from parts manufactured at Harley’s US and Brazilian facilities and other international suppliers.”…

http://tinyurl.com/6y7zr7x

#125 Paully on 04.05.11 at 1:52 pm

I just spoke to one of my neighbours, near Bayview Village in Toronto. Listed her house on Monday for over $600K (I can’t remember the exact number). Lots of showings. Offers started coming in on Thursday. Sold on Saturday for $90,000 over asking! Wow!

This market is crazy. I really believe that it has to implode sometime, but when will this insanity cease?

#126 fancy_pants on 04.05.11 at 1:55 pm

My crystal ball is foggy on rates.

Will interest rates rise to quash inflation or will inflation just keep on running while rates remain low?

Since the masses need situation B to survive (low rates to keep the RE bubble from completely bursting), just wondering if the nerds running the economic machine will raise rates significantly in the short to medium term ~ especially if the US is in no hurry to?

#127 Alex on 04.05.11 at 1:57 pm

Garth: “The last property I bought was two weeks ago.”
================================

I think you’ve bought at the top of the market Garth. Time will tell.

Then you don’t know how to buy. — Garth

#128 dd on 04.05.11 at 2:01 pm

“Concludes Bill Gross, “Unless entitlements are substantially reformed, I am confident that this country will default on its debts, not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies — inflation”. . . . . “You must attack entitlements,” warns Gross, “and make ‘debt’ a four-letter word.”

This is why QE is very bad. This is inflation.

#129 Mr. R. on 04.05.11 at 2:04 pm

People people people……
Stop talking about sub-prime loans. Anyone can default on their mortgage regardless of the what kind of loan it is. There are many factors that affect cash flow. The whole point on the argument of the Canadian market correction is people have too much debt during times of low rates. Commodity prices are high and rising and the world has never been so leveraged with debt. Inflation, interest rate hikes and recessions kill cash flow causing people to default. Illiquid assets are poison during times of decline, which we are rapidly approaching.

There is ample historical data that has been posted on this site and many more that shows the inevitable decline in real estate and the global economy in generel. Look at Europe. Look at the 30 bullish bond market! Do you think if the Japanese and Chinese called on the US debt the yanks would be able to pay? Do you think bailing out countries with debt to fix their debt problem is a good idea?

A commodity rich nation like Canada is only strong when there are buyers. Guess what? The buyers are in trouble. Real estate will never again be as high as today without massive inscrease in pay and the lowering of taxes. We cannot maintain the quality of liffe we have forever. Hence the bearish market sentiment.

Please so not be an idiot and stay in a market like today. Sell out and stay with cash on the sidelines. Right now is the time that retail investors (you) jump in and become foolish. There are way too many problems to even think of a market direction. Sell your house to some fool for your high price and sit or the sidelines and rent! Then buy it back at the bottom.

It is called smart money for a reason.

Mr. R.

#130 Moneta on 04.05.11 at 2:17 pm

The sub-prime market in Canada was estimated at anywhere from 1% to 5% of the total mortgage market in 2007, when all the major Canadian sub-prime lenders (Xceed, GMAC and Wells Fargo) stopped lending to sub-prime borrowers (bad credit, self-employed, low-income). Many of theses loans have been re-financed or gone power of sale already. They are virtually a non-factor in the present housing market.
———–
I don’t care what the estimates are. I know they are WRONG.

Believe what you want.

#131 realpaul on 04.05.11 at 2:19 pm

Doesn’t it make you sick when whiny civil servants can’t add up the value of their DBP’s like the bozo #27 – Outathere has flamed on us? Here’s a c##t who has never had to save a dime because he knows that the taxpayer is going to have to carry his sorry ass….disgusting….pathetic. These parasites really need a dose of reality.

#132 jess on 04.05.11 at 2:19 pm

63 rental monkey

he’s taking his show on the road and doing concert halls to teach to the masses ;^)

#133 Smoking Man on 04.05.11 at 2:30 pm

It’s got be frustrating to be a bubble head these days. Toronto re board says March 2011 the second best on record. Prices 5% over last year.

In fact with bond yields fluctuating in a narrow band, there was no reason for the banks to spike rates, my guess is they want to put the brakes on this surging market, that everyone on this blog fails to see.

And Garth are you nuts, Boomers should have no mortgage. Why not take advantage of 9% returns when your money only cost 3%.
Duh

Because you pay off the house, borrow against it to earn 8% and deduct the interest. Duh. — Garth

#134 Hell in a Handbasket on 04.05.11 at 2:43 pm

So I signed the rental agreement on a home I could never have afforded if I wanted to buy. 2800 sqft of living space and 16,000 sqft of property, detached, with an ocean view for 2300 a month. Is this more than I was paying for my townhome, yep, by about 300$ a month but what would I have paid if I got a mortgage for 1.1 million per month? More than 2300$ a month that is for certain.

The realtor who made this rental deal with me asked me what I sold my town home for and I told him and he was shocked and I was confused. He told me that in Richmond he had a compariable townhome that listed for 700K, rejected one offer for 720K and accepted an offer for 750K which was more than double then what I sold my place for. His advice to me when I decided to buy again was get a place with some land.

Of course I think, let others get the land, and I’ll rent from them.

#135 realist on 04.05.11 at 2:44 pm

@John #123; “If supply were tight than we would see houses being snatched up as soon as they were listed. What I am seeing is the GTA is the opposite where houses require multiple open houses to sell and even than many are simply taken off the market for lack of buyers.”
____________________________________________

Newsflash: Supply is tight as listing volume is down. It takes on average 22 days to sell on TREB. That’s pretty damn amazing for a relatively illiquid asset.

Those are the stats. What do you base your conclusions on, driving around town, or other equally anecdotal and useless observations?

#136 Hell in a Handbasket on 04.05.11 at 2:44 pm

oops to clarify my last post. The property went for 1.1 million total, so I ask rhetorical what would be my monthly payment on a mortgage that big.

#137 DJ on 04.05.11 at 2:51 pm

It seems obvious that Garth bought in Windsor.
Pretty smart move. It’s RE has followed Detroit to the bottom, yet he doesn’t have to contend with those pesky U.S. rules of ownership and it is only a 2 hour drive away (in the hummer). We know Garth is betting on a U.S. rebound. If Detroit can pull up it’s boot straps, Windsor will recover with it.

#138 jess on 04.05.11 at 2:52 pm

U.S.A = broke

are you kidding !
what about the trillion dollars in excess reserves parked at the Federal Reserve?

Bernanke repeated the Federal Open Market Committee statement that low rates are warranted “for an extended period” in testimony prepared for the House Financial Services Committee.

The Fed may also temporarily replace the federal funds rate as a policy guide with interest it pays on banks’ deposits should fed funds become a “less reliable indicator than usual,” Bernanke said.

#139 Vancouver_Bear on 04.05.11 at 3:01 pm

The story line has changed now, hordes of cash loaded Mainland Chinese disappeared from Horizon and only poor first time home buyers left to support 1mil SFH prices in Metro Vancouver….Next time Vancouver Sun will report that Martians are buying up everything in sight.

Re/Max: First-time homebuyers driving up prices in Metro Vancouver

http://www.vancouversun.com/business/First+time+homebuyers+driving+prices+Metro+Vancouver/4560495/story.html

#140 SAD on 04.05.11 at 3:08 pm

To:#131 realpaul on 04.05.11 at 2:19 pm and #135 realist on 04.05.11 at 2:44 pm

I was just wondering how your personal relationships are doing? Nice coping skills.
You two related by chance?

#141 realist on 04.05.11 at 3:18 pm

@Moneta #130: “I don’t care what the estimates are. I know they are WRONG.”

“Believe what you want.”
_____________________________________________

Perhaps you could enlighten us as to exactly how it is that you KNOW they are wrong.

The CEO of Xceed Mortgage (a former sub-prime lender) said that the subprime market at its peak was $11billion in a $1trillion mortgage market. That’s roughly 1 per cent.

What do you base your knowledge of the sub-prime market on – gut feelings, tarot cards, fortune cookies, anger….?

#142 Brian1 on 04.05.11 at 3:19 pm

So; BMO is offering 150 free trades with some cash back and then $9 something afterwards. What are we to do?

#143 jess on 04.05.11 at 3:37 pm

Nytimes – The Bank Run We Knew So Little About –

…”For example, on July 23, 2007, Henry M. Paulson Jr., the Treasury secretary at the time, said the housing slump appeared to be “at or near the bottom.” Two days later, Timothy F. Geithner, then the president of the New York Fed, … For example, on Sept. 12, 2007,
For example, on July 23, 2007, Henry M. Paulson Jr., the Treasury secretary at the time, said the housing slump appeared to be “at or near the bottom.” Two days later, Timothy F. Geithner, then the president of the New York Fed, declared in a speech before the Forum on Global Leadership in Washington: “Financial markets outside the United States are now deeper and more liquid than they used to be, making it easier for companies to raise capital domestically at reasonable cost.”
http://www.nytimes.com/2011/04/03/business/03gret.html

#144 Kevin on 04.05.11 at 3:40 pm

Remax is out with their first time buyers forecast.
In their chart, an income in Saskatoon of $48,865 can afford a house worth $292,000. What they fail to mention is debt, property taxes, heat. According to CMHC, an income of $48,865 can only borrow $197,906 when those things are factored in. No wonder why the city and now some builders are using “innovative” programs for people to get into home ownership.

Remax: First Time Buyers Report 2011, Saskatoon’s Market
http://saskatoonhousingbubble.blogspot.com/2011/04/remax-first-time-buyers-report-2011.html

#145 c'mon Garth, fess up!!! on 04.05.11 at 3:47 pm

After years of warning of the bubble and the danger of being a Greater Fool, you’re baffling us Garth!

It feels like we’re at the very peak of the market, and yet you bought something 2 weeks ago?!?

Distressed, no less.

Can you at least give us a clue…..you can tell you’re driving everyone nuts.

Pretty please :)

No. — Garth

#146 poco on 04.05.11 at 3:48 pm

#118 tong wong
#135 realist

don’t believe any stats you get from any real estate board especially the DOM (days on market)
every time a listing is cancelled –expires–or the property is simply relisted –a new mls # is applied and the days on market are removed and it starts all over again–they’re just screwing with the stats to keep it looking good

from what i read on here by the posters in GTA, to the info i get for the tri-cities we are in two seperate markets –the east going up the west coming down

#147 jess on 04.05.11 at 3:50 pm

Ok ….Pivotal Point Consumers,
they want to reach out and influence you ..and reward you with a coupon …

i pay cash no id cards for me. wasn’t there a breach at one of these third party “databases” since the info is not encrypted?

Ad Network Monitors 76% of US – Knows What You Buy, What You Want

by aaron April 3rd, 2011

http://singularityhub.com/2011/04/03/ad-network-monitors-76-of-us-knows-what-you-buy-what-you-want-2/

#148 Oasis on 04.05.11 at 3:55 pm

#128 dd on 04.05.11 at 2:01 pm

This is why QE is very bad. This is inflation.
_________________________________________

and yet, some people simply don’t understand that simple point. they can only be clueless, or liars.

#149 martin on 04.05.11 at 3:56 pm

Mr. Turner
when are you gonna post something about the US currency!!
THE ALMIGHTY $$$$$
dont you think that the rate in currency plays a big role on our economy?!
thanks

#150 TheBigLebowski on 04.05.11 at 4:06 pm

why lock up any money in new real estate now. AT best it will be dead money for the foreseeable future. Why not buy something that is in the biggest bull market in the past 100 years and has a long way to go. Thats what I did. Your money will not work for you if its locked up in real estate, too many downside unknowns and knowns.

#151 Brian1 on 04.05.11 at 4:07 pm

I read that I mastered stocks. I have too many. I doubt I could ever do that. In fact I had become quite emotional. Never do too many.

#152 Dodged-A-Bullit-in Alberta on 04.05.11 at 4:08 pm

Greetintgs: Coming to a west coast city near you:

http://boingboing.net/2009/09/24/storm-sewer-dwellers.html

#153 Utopia on 04.05.11 at 4:20 pm

#50 Timing is Everything on 04.05.11 at 1:03 am
#12 Sid
#13 Jon B

“I hear Garth bought a quarter section for crop share outside of Weyburn. Comes with the oil drilling rights. Probably just a rumour”
———————————————————

Where did you hear that?

If true, it is pure genius of course. Canadian crop land is the absolute best buy on the market today. It is dirt cheap and will yield tremendous income over the course of both a depression or a even a serious inflation. It is a no-lose proposition.

If anyone is not paying attention yet, agriculture is the place to be for long into the forseeable future. Crop land that other guys farm on your behalf is a terrific bet that will pay off in spades. Big fat black spades if I might add.

I had not heard before that Garth had in interest there but if he does then I say Kudos to him. Most other R/E is toast. Productive agricultural land near water is as good as Gold itself.

And that my friends is a future you will want to be a part of. So dump Vancouver and buy Weyburne before it is all gone. The future is already here.

No, I am not kidding.

#154 not asian on 04.05.11 at 4:26 pm

With so many people on this blog wanting to know the details of your RE purchase, why are you so tight lipped? It’s not like they are wanting to know the boxer or brief question. This is totally relevant to your real thoughts on RE. Why buy now when you claim that we will see a bust like nothing before? The bubble will burst? Do you believe that? I certainly wouldn’t buy a pair of shoes if I knew it would be on sale for 25% off very soon. Do as I say, not as I do?

Hard to know how many times I have to say this: real estate is an asset class like all others. It should be in the proper weighting in a diversified portfolio. My weighting is 30% for residential and investment properties combined, with 70% liquid assets. If you are surprised I bought a property far below market value, you’re not looking too hard. I will repeat this answer as required. — Garth

#155 pablo on 04.05.11 at 4:39 pm

Garth; Let’s assume you’re a young boomer, packaged out of your career years earlier, savings long gone carrying your lifestyle/family, credit rating having taken at hit or two because of hard times, using credit cards to cover p.i.t.u. for months now, and little hope of anything short of welfare or a McJob, based on the last few years looking in desperation for any reasonable employment, lots of equity but little else left, living cheaper than rent for a similar dwelling and location; just what would you do besides selling, how can you use that equity to finance a liquid portfolio?

#156 T.O. Bubble Boy on 04.05.11 at 5:01 pm

Sales in the T dot are still rising fast. Average price, median price, it’s all higher. Those who purchased real estate in the GTA over the last decade have made out like bandits – especially considering how borrowing rates have been crushed in that time period.

Days on the market have fallen from 36 days to 24 days since the beginning of 2011. Homes are selling faster, not slower.

I guess it’s been bad to be a bear. Even Garth has bought real estate. You guys are done.

#157 not 1st on 04.05.11 at 5:21 pm

Renting is the stupidest thing you can do. Its the path to 21st century serfdom. Just buy and own what you can afford and what is good value for the money..period. Unfortunately, that means you can’t live in T.O. or Vancouver.

#158 vomitingdog on 04.05.11 at 5:29 pm

Question for Garth:

OK. You say about a third of your money can be in RE. Are you referring to 1/3 as downpayment or 1/3 as downpayment plus rented money?

ie: Say you’re lucky enough to have a million bucks but unlucky enough to live in Vancouver. You put 330K toward real estate. To me, it seems that’ll only be a down payment and you’ll be looking to borrow at least 200K more in this town.

Does that fall within your realm of diversification, having to pay back that 200K over the next 25 years or does that make you over-invested in real estate? You’d have 670K left to go into the Garth Diversified Bond-Stock-Preferred Investment Scheme but you’d also owe a schwack ‘o’ dough over the remainder of your life. Or does that schwack equal out to rent payments?

#159 Alex on 04.05.11 at 5:45 pm

#139 Vancouver Bear: That report, translated almost verbatim from another lie-filled ReMax press release, is once again credited to Brian Morton. I’ve complained twice to this drone about favorably slanting just about everything in relation to real estate, and have yet to see a reply. Figures.

The Sun once has a “comments” section accompanying one such article, but it was filled with so many reader accusations of “bullshit” that they removed it.

I once again implore anyone who cares about all of this to contact the media outlets in question, all of which are funded heavily by the real estate mob, and COMPLAIN. Posting here at Garth’s blog is one thng, but letting the people responsible for this continuing stream of LIES is something much different. The mainstream media is where the general public goes for information, and articles like this are *intended* to keep them buying. So filthily dishonest.

#160 not 1st on 04.05.11 at 5:45 pm

I repeat, our 2 largest trading partners are teetering on the brink.

First, U.S. of A. is technically broke and bankrupt with at least 75 trillion in outstanding accumulated debts. Look up on the web how much a trillion is and see your jaw drop. It will never, and I mean never, be repaid without pain that would cause a 2nd revolution.

Second, china just used massive reserves of dollar denominated assets to overbuild their countries infrastructure by 50 years at least so they have created the largest credit bubble in the history of mankind. Look for the vid in Garth’s recent post showing ghost cities and malls. Scary.

#161 pablo on 04.05.11 at 5:48 pm

It really is different here, go see sunday’s sixty minutes piece titled “the next housing shock” and then to 60minutes overtime .com for “mortgage mess; who really owns your mortgage.”

Well at least the canadian banks haven’t bee quite that criminal in their behavior in canada. As far as we know at this time.

#162 bigrider on 04.05.11 at 5:58 pm

#108 Young and foolish

You sure are.

Wait until rents do not cover expenses. Wait for property tax increases and maintenance fee hikes.

All the no money down ,Donald Trump wannabees will be crying to their proverbial mommies

#163 bigrider on 04.05.11 at 6:04 pm

Reply to Calgary Rocks #79.

The point of my comment about the mutual fund was simply to illustrate that the gain at Melrose place is no big deal. No, their is no certainty that any mutual fund or financial investment would repeat previous performance but even LESS so that the Melrose Avenue house will enjoy same appreciation over same 8 year period going forward.

I would much rather put my 1.16mill in a diversified basket of financial holdings going forward from today with the full knowledge that reaching 2mill POSSIBLY in 8 years is far more likely then that Melrose ave address selling for north of 2mill in same 8years.

You keep your bricks.

#164 Jake on 04.05.11 at 6:08 pm

Garth,

I am sure your recent purchase has a lot of readers confused. I don’t know the details, and obviously you are not going to provide any except that it was a heck of a deal. But given your belief that a correction is coming, do you believe your purchase will hold up in value during the ‘melt’? If not what’s the logic behind your purchase? Is it an emotional buy, that your proflio is balanced enough that you can afford some loss?

Hard to know how many times I have to say this: real estate is an asset class like all others. It should be in the proper weighting in a diversified portfolio. My weighting is 30% for residential and investment properties combined, with 70% liquid assets. If you are surprised I bought a property far below market value, you’re not looking too hard. I will repeat this answer as required. — Garth

#165 LOOK OUT BELOW.......crash on 04.05.11 at 6:12 pm

Sales in Toronto fell once again to mark the 10th straight month in a row of falling sales. Just drive around the city to see the countless for sale signs as homes sit on the market longer and longer without any buyers. Canada’s ponzi is falling as we are well over the edge. The next leg is a steep crash of not only sales but prices. Canada is in the biggest housing ponzi bubble in it’s recorded history. Look out below its going to be a nasty crash.

#166 Worried realtors? on 04.05.11 at 6:17 pm

Never seen so many realtors post on garths blog before. Looks like the housing crash is worse then the MSM is letting on. I think realtors are cooking the sales numbers to make it look better. When going around Toronto all you see is for sale signs. It’s seems for every ten places that do not sell maybe 1-2 house do sell.

#167 Derek on 04.05.11 at 6:21 pm

#155 not 1st on 04.05.11 at 5:21 pm wrote
Renting is the stupidest thing you can do. Its the path to 21st century serfdom. Just buy and own what you can afford and what is good value for the money..period. Unfortunately, that means you can’t live in T.O. or Vancouver.

You think renting is the path to 21st century serfdom? You’re not even close. Here’s the the path to 21st century serfdom.

1) Get a good steady job, doesn’t matter what.

2) Buy a big house in Edmonton, using a 95% mortgage, a house so expensive that the down payment consumes all your savings.

3) Wait for the price of the house to fall far enough that it is worth less than the mortgage

4) Keep on paying the monthly payments

5) That’s it.

Congratulations! You are now a 21st century serf who must keep working at their job to pay the bank for the amortization period of the mortgage because they can’t afford to sell their house.

Don’t you wish you were still renting ?

#168 VICTORIA TEA PARTY on 04.05.11 at 6:21 pm

CHAOS, WHATEVER, it’s here…Bloomberg says so!

The headline:

“Gold Rises to Record $1,452 on ‘Chaos’ Hedge; Silver Tops $39.”

Thus Bloomberg news services, a friend of Wall Street, makes the day of every Gold Bug between here and a non-producing Libyan oil well.

The straight goods:

‘April 5 (Bloomberg) — Gold futures surged to a record of $1,452 an ounce as sovereign-debt concerns boosted demand for the precious metal as an alternative asset. Silver topped $39 an ounce…

The cost of insuring Portugal’s debt rose to an all-time high. The conflict in Libya and the nuclear crisis in Japan spurred demand for gold as an investment haven….

“There’s still turmoil in the Middle East, uncertainty in Japan and possible sovereign-debt defaults,” said Adam Klopfenstein, a senior strategist…in Chicago. “There’s still demand for gold and silver as a hedge against chaos.”…

Federal Reserve Chairman Ben S. Bernanke yesterday said inflation must be watched “extremely closely,” spurring bets that interest rates may be raised sooner than analysts expected.

The European Central Bank has signaled it is ready to raise borrowing costs this week.

Today, China raised rates for the fourth time since mid-October to restrain increasing consumer prices…

Dennis Gartman, an economist and the editor of the Gartman Letter, told clients to sell Japanese equities and buy gold.’

WOW…

I never thought I’d live to see the words “chaos” and “Gartman” quoted in the same article written by an ink-stained wretch toiling for Bloomberg.

So, the feelings in my gut that “this time it maybe different” in that some kind of financial day of reckoning, worse than 2008 is unfolding now, seems to be coming to pass.

I figure that by the time Bloomberg is running the word “chaos”, in regards to investor sentiment toward gold, then something’s up.

The MSM is always a day late and a dollar short when it comes to climbing onto the trends bandwagon.

Some ride this’ll be!

#169 Greg on 04.05.11 at 6:25 pm

I just spoke to one of my neighbours, near Bayview Village in Toronto. Listed her house on Monday for over $600K (I can’t remember the exact number). Lots of showings. NO Offers…..Now neighbour is listing for $555K so now wait and see.

This market is crashing. I really believe that it going to implode hard. Can you say

TIMBERRRRRRRRRRRR

#170 Abitibidoug on 04.05.11 at 6:27 pm

In response to posting #155: So then what do you do if you live in over priced Toronto or Vancouver? Pitch a tent in a park or a sports field?

#171 Moneta on 04.05.11 at 6:33 pm

Oasis on 04.05.11 at 3:55 pm
#128 dd on 04.05.11 at 2:01 pm

This is why QE is very bad. This is inflation.
_________________________________________

and yet, some people simply don’t understand that simple point. they can only be clueless, or liars.
==============
I think people want bad debt to be written off so badly that they have convinced themselves governments will soon see the light and write them off… which would mean deflation in everything.

But when you look at history, there is much more chance they will print and generate inflation. Everybody loves receiving free money. The only thing governments and our leaders worry about is hyperinflation but it does ot keep them up at night because they typically think they are god’s gift to the world and have everything under control.

#172 jess on 04.05.11 at 6:48 pm

The Fed documents,

Washington policy makers, said that the subprime crisis would subside with little impact on the broad economy and that world markets were highly liquid.

deep and more liquid ???

http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs

“With these crises,” says Costa, “the banking sector was short of liquidity, the banks exposed themselves to the criminal syndicates, who had cash in hand.”

deferrals for the banksters

Investigators say Wachovia failed to scrutinize as much as $378 billion in transfers.
The feds agreed to “defer” criminal charges for a year. year is up no charges laid

#173 April on 04.05.11 at 6:51 pm

Pablo #159
You should read “Why Canada’s Real Estate bubble will burst” written by The Tyee.

#174 April on 04.05.11 at 6:54 pm

Alex I agree with you. Who did you address your email too?

#175 Otto Doppelganger on 04.05.11 at 6:59 pm

http://www.vancouversun.com/business/First+time+homebuyers+driving+market+Metro+Vancouver/4560495/story.html

Poor lady spent so much on her condo she can’t afford socks or shoes.

#176 jess on 04.05.11 at 7:00 pm

cobalt shares?
http://www.cobalt.ca

MIT Lab Creates Artificial Leaf…“Holy Grail of Chemistry”
Tuesday, April 05, 2011

Artificial Leaf
Debut of the first practical ‘artificial leaf’
ANAHEIM, March 27, 2011 — Scientists today claimed one of the milestones in the drive for sustainable energy — development of the first practical artificial leaf. Speaking here at the 241st National Meeting of the American Chemical Society, they described an advanced solar cell the size of a poker card that mimics the process, called photosynthesis, that green plants use to convert sunlight and water into energy.

“A practical artificial leaf has been one of the Holy Grails of science for decades,” said Daniel Nocera, Ph.D., who led the research team. “We believe we have done it. The artificial leaf shows particular promise as an inexpensive source of electricity for homes of the poor in developing countries. Our goal is to make each home its own power station,” he said. “One can envision villages in India and Africa not long from now purchasing an affordable basic power system based on this technology.”

The device bears no resemblance to Mother Nature’s counterparts on oaks, maples and other green plants, which scientists have used as the model for their efforts to develop this new genre of solar cells. About the shape of a poker card but thinner, the device is fashioned from silicon, electronics and catalysts, substances that accelerate chemical reactions that otherwise would not occur, or would run slowly. Placed in a single gallon of water in a bright sunlight, the device could produce enough electricity to supply a house in a developing country with electricity for a day, Nocera said. It does so by splitting water into its two components, hydrogen and oxygen.

http://www.eurekalert.org/pub_releases/2011-03/acs-dot031811.php

#177 realist on 04.05.11 at 7:17 pm

@#162 LOOK OUT BELOW…….crash wrote: “Sales in Toronto fell once again to mark the 10th straight month in a row of falling sales. Just drive around the city to see the countless for sale signs as homes sit on the market longer and longer without any buyers.”
_____________________________________________

You need to loook a little closer when you are driving around town then, because there are 300 sales each and every day that you are apparently missing.

Listings are taking 3 weeks on average to sell now, down from 4 weeks earlier in the year. Yeah, that sounds like forever to me too.

Active listings are down 11% from last March, which is keeping inventory nice and tight – so you can expect prices to be higher again next month.

Yeah, all the classic signs of a crash. Get real.

Bear-hug anyone?

#178 realpaul on 04.05.11 at 7:49 pm

Theres a sucker born every minute…as evidenced by the photo of this young lady FTB whi smiles as she sits in her 8ft wide condo that probably cost her 350++ or more.

http://www.vancouversun.com/business/First+time+homebuyers+driving+market+Metro+Vancouver/4560495/story.html

Bwahahahahahahahahahahahahahahahahaa……..I’ll bet she has no door on her bathroom and has to stand up to pee.

People live in these litter box sized coffins? Suckers….every one.

#179 Nostradamus Le Mad Vlad on 04.05.11 at 7:52 pm


#58 Cato — “Its in our DNA to lust after RE” — Disagree somewhat, mainly because I don’t have any DNA to speak of.

Manufactured from old, rusty spare parts. Three wheels on my wagon and I keep rolling along!
*
CANAMEX “Which will not be applied to the Mexican border same as today.” wrh.com and Remember this when our election comes up in a few weeks. Also keep in mind that Harper and Obama struck down the security perimeter between the two countries a few weeks ago.

7:05 clip — Radiation and
Radiation levels. Toxic EU “This is proof positive that no one can really manage this catastrophe, so they up the safety level on a toxic chemical! Way to go, EU!” wrh.com.

4:29 clip Each month, US$8 billion spent on wars that can’t be won, plus Libya. Gaddafi “Remember what I said on March 8th? Israel wants Qaddafi to stay in power and sure enough, here comes the soft sell to let it happen.” wrh.com.

Medicare That’s another aspect the IMF (elite) want to lose. IMF “Notice that no where in this article does it mention that perhaps funding these wars without end might be a good way to shrink the US deficit.

“And that is because financial institutions love war, because no matter who wins, the debt with which to fund wars is incurred, at compound interest.” wrh.com.

US$ — Going down fast. Nice chart at top, and China raises interest rates again. 3:01 clip Charlie Sheen or the WH. Who is responsible for America’s demise?

Oil Prices This is where war comes in mighty handy. Hence, it pays dividends to fund all sides.

Obama Ten reasons why dubya was better (?).

#180 Neo on 04.05.11 at 8:00 pm

Realist,

So you are ignoring the 10 months straight of sales declines in the face of declining new listings? If this market is as robust as you seem to think it is then the continuing weak listing volumes would be gobbled up by all the demand out there and we would not have this consecutive year over year decline. It’s the same with a stock forming a top with weak trading volume yet the price is still going up on fumes. What we have are fewer and fewer buyers ie. greater fools willing to pay these every increasing prices.

Active listings may be down 11% but NEW listings are down 19%.

#181 Kevin O’leary’s face on 04.05.11 at 8:03 pm

Looks like cosmetic surgery.

#182 Pat on 04.05.11 at 8:35 pm

Garth wrote:
“Hard to know how many times I have to say this: real estate is an asset class like all others. It should be in the proper weighting in a diversified portfolio.”

Yes, but you are also advocating active portfolio strategies such as economic cycle rotation and so on.
So if you are expecting the RE market to decline 20% in the next year and continue a slow melt thereafter, that RE purchase you made must be a heck of a deal.

Good for you but irrelevant for most people.

There are abundant properties which have already had a 20% haircut. Open your eyes. — Garth

#183 Herb on 04.05.11 at 8:38 pm

#27 Outtahere,

I do apologize for fellow blogger (un)realpaul. Stick around and you will realize that his bile runneth over and that, as a good neandercon, he does not need facts because he has convictions.

Until more expert dogs bark up, let me suggest a simple way to estimate the current value of your DBP. Estimate the annual “defined benefit” you expect on retirement, assume a modest annual interest return, and solve for the capital sum that would give you that return.

For instance, if you expect a pension of $40,000 a year and assume a growth rate of 5% a year, the $40,000 would be 5% of the capital value of your DBP, which thus would have a current value of $800,000. This calculation may not be perfect, but it’s close enough for government work (heh, heh) and Garth’s calculation.

And don’t tell (un)realpaul that you contribute 7% of your gross pay to your DBP every year, that your RRSP contribution limit is reduced accordingly, that the “employer” makes a similar contribution, and that you do pay taxes. I like him the way he is, good and mad.

#184 Ronaldo on 04.05.11 at 8:45 pm

http://www.edmontonjournal.com/business/Real+estate+analyst+says+Edmonton+verge+boom/4556462/story.html Fresh off the news that real estate in Edmonton on the verge of a boom…..what? Are they serious?

#185 Trouble selling on 04.05.11 at 8:46 pm

@#162 LOOK OUT BELOW…….crash wrote: “Sales in Toronto fell once again to mark the 10th straight month in a row of falling sales. Just drive around the city to see the countless for sale signs as homes sit on the market longer and longer without any buyers.”
———————————————————-

Realtors on this blog hate the truth and 10 months of falling sales is making alot of sellers worried about what comes next. No one wants a race to the bottom but lucky for me bought home in 2002. Many new buyers last 4-5 years are going to take a huge loss.

#186 Jfd on 04.05.11 at 8:58 pm

I’m 31, have a net worth of $1 .4 mm, and rent a condo for $3200 / month in Toronto. To buy the condo I reside in would cost just under $1mm. The monthly maintenance fee is $1550, and property tax is likely around $1k / month. After the mortgage and agent’s commission, the owner is losing a fair bit every month. I have my money invested in stocks, bonds, and an overseas rental property which gives me positive cash-flow. I have been renting for 3 years and will not buy until owning makes fiscal sense. My banker at TD has given up on asking me to get a mortgage!

#187 tkid on 04.05.11 at 9:02 pm

#27 Outtahere, see this National Post story on the teacher’s pensions as a cautionary tale on relying solely on one’s pension plan for retirement income.

I particulary liked the chart where there were 10 working teachers for every 1 retired teacher in 1970, 4 working teachers for every 1 retired teacher in 1990, and 1.5 working teachers for every 1 retired teacher in 2010.

And those hoping for CPP raises via the Liberals, here is an article for you: http://opinion.financialpost.com/2011/04/04/canada-pension-myths/.

#188 HouseBuster on 04.05.11 at 9:04 pm

#177 realist
Bear-hug anyone?
———————————————————–
Do you want a kick in the nuts? Well it’s coming anyway.

Housing is going to implode.

#189 BuBu on 04.05.11 at 9:27 pm

Ronaldo #184, how about this: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/alberta-conservation-plan-stuns-oil-patch/article1971930/

again 80s? No problem.. everybody wants to leave in Edmonton.. boom?

#190 Pr on 04.05.11 at 9:29 pm

#127 Alex on 04.05.11 at 1:57 pm
I think you’ve bought at the top of the market Garth. Time will tell.
Then you don’t know how to buy. — Garth

I made 4 diferent offers in the last 16 months, 2 simply refuse and 2 came back with counter- offers that I refuse. Make a offers at 2003 prices. Because its where it will end very soon.

#191 Karl Hungus on 04.05.11 at 9:43 pm

Still waiting for that crash in Edmonton, average residential price up 4.8% since last month.

“Edmonton ranks #1 as the city with the largest loss of equity since their peak 45 months ago. Average SFD prices (chart) are down $66,094, a 15.5% loss of equity since the peak.” Source. — Garth

#192 realpaul on 04.05.11 at 9:49 pm

I drove past Vancouver Shitty Hall today and see that the entire building is wrapped in blue plastic sheeting. How appropriate a signal to the city that has been covered in blue plastic sheeting for two decades ever since the lawmakers abandonded the citizens to the unbridled depravity of incompetant architects, engineers, developers , builders and inspectors.

Bwahahahahahahahahahahahahahaha …. to be hoist on ones own petard……et tu shitty hall?

Meanwhile massive mold overgrowth has been discovered in the walls and floors of the Olympinkshit boondoggle. Water is pouring in through the cracks and seventy ‘owners’ have ponied up 5 grand a piece to a local shylock to try and get them out..

You need help. — Garth

#193 T.O. Bubble Boy on 04.05.11 at 9:58 pm

#156 was not me — another blog troll!!!

#194 JD on 04.05.11 at 10:11 pm

I bet Garth snagged an OV suite!

#195 Mtl RE Observations on 04.05.11 at 10:24 pm

Garth, what is a good deal for you? 20% below average asking price? I’m starting to see increasingly more asking prices in the downtown Montreal area that are very close to municipal evaluations. I’m sure we’ll see more of that next year, but was wondering if this is a good gauge to go by.

#196 walter safety on 04.05.11 at 10:30 pm

# 49 Obama head scars. Those would be recognized by anyone who has been to Kenya as cuts from a panga which most Kenyans carry and fight with . A curved blade about 10 inches in length.Its a different kind of hacking than we use in Canada.

#197 realist on 04.05.11 at 10:33 pm

@ # 180 Neo wrote: “Active listings may be down 11% but NEW listings are down 19%.”
_____________________________________________

So what part of supply and demand do you bears not understand? Fewer sellers, plenty of buyers – 51 Melrose Avenue that Garth used as an illustration above had 12 offers!

Get it?

P.S. Comparing the stock market to the real estate market is idiotic. Every share of a company is identical and every ounce of gold is exactly the same, but every house is different.

#198 Morry on 04.05.11 at 10:54 pm

Nothing beats real estate! But it is a matter of buying at the right time… even Garth has a hard-on for the dirt.

#199 JC on 04.05.11 at 11:15 pm

#167 Derek

Add:

6: walk from mortgage

7: 7 yrs in FICO-Tibet

8: rinse and repeat 2-5

#200 Derek on 04.06.11 at 1:04 am

#199 JC on 04.05.11 at 11:15 pm wrote
#167 Derek

Add:

6: walk from mortgage

7: 7 yrs in FICO-Tibet

8: rinse and repeat 2-5

Tell me about it. Apart from step 8, you’re describing my parents’ lives from 1978 to 1989.

#201 Derek on 04.06.11 at 1:28 am

Garth, I’ve been reading your blog, and you sound very knowledgeable, however, I can’t disagree with you more with your analysis of Vancouver and Richmond. I advise you to see for yourself the true and fundamental demand from Asians abroad and money spewing in from abroad for local real estate. Despite the fact there may not be hard numbers showing who is buying in these cities, it is true, real and undeniable.

To all the readers that have sold in either Richmond or Vancouver due to Garth’s predictions of an impending crash, you have been sadly mislead.

I understand completely. The best thing anyone in those areas can do right now is sell. — Garth

#202 Vancouver_Bear on 04.06.11 at 3:00 am

177 realist on 04.05.11 at 7:17 pm

by your postings I can see who you really are, you are not realist you are another realturd worried about loosing comissions and being a poggey recepient soon. Get real yourself and stop being a realturd. All you do is another classical example of realturd’s crapoganda nobody needs here.

#203 Alpha Bravo on 04.06.11 at 8:37 am

#125 Paully

I just spoke to one of my neighbours, near Bayview Village in Toronto. Listed her house on Monday for over $600K (I can’t remember the exact number). Lots of showings. Offers started coming in on Thursday. Sold on Saturday for $90,000 over asking! Wow!

——————

Last summer it was difficult to find a SFH in that area under 750k. (North of Sheppard, East of Bayview)

#204 Neo on 04.06.11 at 8:51 am

@ # 180 Neo wrote: “Active listings may be down 11% but NEW listings are down 19%.”
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So what part of supply and demand do you bears not understand? Fewer sellers, plenty of buyers – 51 Melrose Avenue that Garth used as an illustration above had 12 offers!

Get it?

P.S. Comparing the stock market to the real estate market is idiotic. Every share of a company is identical and every ounce of gold is exactly the same, but every house is different.

No. What part of supply and demand do YOU not understand. There are fewer sellers AND fewer buyers otherwise we wouldn’t have 10 consecutive months of lower year over year sales. There is no positive spin you can put on that number. Don’t be silly a use one sale in a 80,000+ sales a year market to make a point. The trend isn’t good. If demand is this weak in a low supply environment, what happens when new listing volumes return to norms? Yes, that’s right, “normal” supply and weak demand equals prices “receding”. If there were “plenty of buyers” this weak listing volume would be snatched up.

Get it?