The real thing

FLIP FLOP1

Well, that didn’t take long.

Yesterday when BeeMo jacked mortgages, thanks to Mr. Bond Market, I suggested it was no aberration. It’s official. It’s a trend.

In fact RBC went a step further than BMO, and its five-year, fixed-rate benchmark home loan now sits at 3.89%, ten bips more than the other guys. This is the fourth rate increase in the last eight weeks. To put things into perspective, mortgage rates have increased by a full 1% since the spring, which is a 37% jump in the cost of a 5-year home loan. In fact, it now costs more to borrow money for five years than it did to get locked up for an entire decade in May – when I pleaded with you to do just that.

And this is not the end of a process, nor is it temporary. It’s the arrival of the big, hairy bête noire everyone’s been warning about for the past two years. Hell, even the Bay Street eggs are sounding the alarm. Here’s Benny Tal, deputy chief economist at CIBC (which is also about to increase rates): “This is the beginning of a test for the mortgage market. It’s a test of how Canadians are able to tolerate higher interest rates. I think this is the real thing.”

You betcha. As you probably heard, the US Fed is about to start tapering back on its frenetic bond-buying orgy, which has goosed stocks, plunged bond yields to historic lows and breathed life back into the American economy. Now that the housing market to the south has revived (prices up 13.7% in a year – the most since 2005), the Fed will unprint money as effectively as it printed it. As a result, bond prices have been falling since June and yields rising.

The 5-year Canada bond which was at 1.15% in April is close to 2% today. That means the bankers whose mortgage costs are tied to bonds are passing through the inevitable to borrowers. If BeeMo, RBC and the rest of the gang thought this was temporary, they’d resist, since new mortgage applications are already tumbling. The fact they did not should tell ya something. It sure spoke to Benny Tal.

So let’s be clear. As I argued in the previous post, the fundamentals of the housing market are terrible. Average prices have inflated to a wicked multiple of both incomes and rents. The supply of certain kinds of properties – like condos – is overwhelming demand. New home sales, included SFHs, have collapsed. Developers have slashed their land purchases. Top-end property prices are down by 20%, while condo buyers are demanding free furniture and waived fees. And personal debt – already at a record, thanks to a house-horny society – continues to increase.

The last pillar left supporting detached house prices of $1,100,000 in Vancouver and $757,000 in Toronto? Yup. Cheap money. The cheapest ever. Mortgages at 3% or less, for the past four years. Never happened before. Emergency rates, ushered in to keep the lights on during the GFC became the crack cocaine of our HGTV nation.

Of course, this series of increases has happened without the Bank of Canada touching its trendsetting rate. Politicians can’t stop or moderate it. But they sure warned it was coming. Cue the elfin deity, from two full years ago: “We are cautioning people not to assume too much long-term debt on the assumption that interest rates will stay as low as they are — because they won’t. We want to make sure Canadian households plan ahead and know, if they renew a mortgage in the next several years, it’s likely that the interest rate will be higher. Interest rates have nowhere to go but up.”

Jim Flaherty should know, since he hand-picked the guy who engineered rates lower, while he himself was bringing in 40-year, zero-down mortgages, creating world-class house porn. If they could suck and blow any better, they’d be airborne.

Well, a rate hike of a fifth of a point won’t bring Vancouver bungalows back to earth. But four of them in a few months, layered over a slowing economy, fewer jobs, tighter lending, CMHC restrictions, flat incomes and a coming gush of listings, should start the job. As this pathetic blog said a few weeks ago, those boffo realtor numbers from July did not foretell a strengthening market. Instead, it was the rush of virgin buyers to sign offers before their low-rate pre-approvals turned into pumpkins. More evidence youth is wasted on the young.

By this time next year a shocking number of them will have lost all of their equity. This was so predictable. I will have no pity.

208 comments ↓

#1 TO and GTA Sales and Stats 2013-08-21 on 08.21.13 at 9:08 pm

This will be **First!** from now on!
TO and GTA Stats and Sales 2013/08/21
GTACondos: http://bit.ly/12q5K8m
905SFH: http://bit.ly/12q5Hte
416SFH: http://bit.ly/12q5KFg

#2 gladiator on 08.21.13 at 9:08 pm

An accidental first?
I miss Dr. WAYNE. Not.

#3 mortgagebrokeron on 08.21.13 at 9:10 pm

Affordability

here is an example of how these rising rates are going to limit the amounts people can qualify for with mortgage.

income 70000/yr property taxes 4000 / yr downpayment 20000

at 2.89% five yr fixed max purchase price is 400,000

at 3.89% five yr fixed max purchase price is 360,000

this is a 10% drop in the amounts people can max out for their bidding wars on real estate.

this is not rhetoric.

numbers here don’t lie

#4 PKP801 on 08.21.13 at 9:16 pm

Things are going to get miiighty interesting in 3-5 years. Might even look at finally buying then. Thanks for the blog, Garth!

My one question: won’t the powers that be do everything in their power to keep rates low and people buying houses? Can’t they basically do anything? Like reduce the down payment and increase the amortization period again?

#5 blase on 08.21.13 at 9:16 pm

re: #3

When did it become the norm to not put commas in numbers in the thousands or higher? Annoying.

Canadian Watchdog, when does the CMHC limit get scaled back from a million, and when?

#6 tigerbaby on 08.21.13 at 9:18 pm

> “perhaps the government should have created a
> CMHC style crown corp “Canadian Science and
> Technology Corporation” instead of keep on
> boosting the CMHC the last few years …”
—————————————————————-
> They did. The National Research Council’s Industrial > Research Assistance Program gives out approx.
> $300m a year to start up technologies.

direct funding programs like this does not level the overall playing field and leverage private capital, and that is why “An abundance of science is generated in university labs and startup firms but most of it never finds its way into commercial applications.”, while banks just keep on pushing mortgages for “risk free” profit.

#7 T.O. Bubble Boy on 08.21.13 at 9:18 pm

The future tense is becoming the present tense… “this will not end well” will soon become “this is not ending well”.

I’m still going to point to renovations (a Canadian addiction) as one of the main drivers for increased house prices. Look around almost any Toronto neighbourhood, and you’ll see a ton of McMansions where bungalows once lived, and almost any SFH has put tens or even hundreds of thousands into new kitchens, dug out basements, 2-3 storey extensions, and all kinds of other creations. These are not the “general maintenance” type work, where you get a new roof or fix a deck — these are significant changes to the house, and the owners all expect (thanks to HGTV) to get all of that $$$ back on the selling price.

#8 Sebee on 08.21.13 at 9:20 pm

What’s this I’m hearing that BRIC may have to defend their currencies through interest rate hikes?

#9 Nosty the Vladiator on 08.21.13 at 9:22 pm

#111 happity on 08.21.13 at 1:52 pm — “Emerging markets are taking on the chin, stocks and currencies.”Whowooda gest it? Just prior to when the G20 summit takes place, emerging markets tank. Does this imply a very convenient (re: manipulated) surging US Dollar? Well, whaddaya know? How Ordinawee. Almost time for China to bring forth a gold-backed yuan for stability?

SMan – Been there, done that (quite frequently)! I don’t have much of a functioning brain anymore, however. This will be a hoot at the Seniors’ Centre! This takes a slightly different view from you, whereas the universe is standing pat but humanity is shrinking.

#10 father on 08.21.13 at 9:25 pm

garth you said the us tapering would start september 1st would that also increase interest rates?

No date announced. Perhaps by the end of September, but it could be delayed. In any case, it’s coming. — Garth

#11 Sobah on 08.21.13 at 9:26 pm

You know you started to read Garth too late when you bought on plan 2 years ago and didn’t opt out in time.

3.34% 5 years fixed is the best I could land as a first time buyer. Delievery due for December and I locked it last week.

Now the question becomes, do I bite the bullet and hope this crash is back in shape in 5 years ( unlikely ) or do I compensate in lump payments for the equivalent loss of not taking a 10 year fixed.

I guess reading more of this site will tell.
Wish me luck…

#12 Your blog on 08.21.13 at 9:32 pm

Garth, why not pick a time you will post your next article. I have to check multiple times a day since you are not consistent. Well, the truth is I’m addicted and need to know. Todays and yesterdays blogs were right on target, keep up the good work.

#13 CrowdedElevatorfartz on 08.21.13 at 9:33 pm

“…..Cue the elfin deity, from two full years ago: “We are cautioning people not to assume too much long-term debt on the assumption that interest rates will stay as low as they are — because they won’t…..”
++++++++++++++++++++++++++++++++++++

Unfortunately, 2 years in the memory of the financial fruitflies that “flock to the light” of CREA……..Is an eternity

#14 DEBTMAN on 08.21.13 at 9:33 pm

I LOVE DEBT.
I JUST LLLLLLLLLLLLOVE IT!

#15 Dus10 on 08.21.13 at 9:38 pm

I love your blog Garth. I bought two books from you. Which you signed :) thank you
First post for me here.
I’m not impressed with your enthusiastic housing crash/equity evaporation as of late.
It’s one thing to be an educated advisor. You.
Now? You seem bent on fear mongering. Coupled with condescending your readers.
I liked your old days approach. The how to’s if such and such should happen. That was useful.
The current theme I’m reading is heartbreaking.
For what.. 70% of Canada? (This is the rate of ownership I recall you posted?).
Please be done with your chastising.
It doesn’t help.

#16 Musty Basement Dweller on 08.21.13 at 9:39 pm

“boffo” thanks for the new word Garth, love it.

bof·fo
/ˈbäfō/

Adjective

(of a review of a theatrical production, movie, etc.) Wholeheartedly positive.

Noun

A success.

#17 Taxc on 08.21.13 at 9:43 pm

For variable mortgage rate qualification, Canadian banks have now to take 5.34% rate to calculate GDS and TDS ratios, right?:

“For the most part, Royal Bank is increasing the rates by 20 basis points, with its fixed five-year closed mortgage rising to 5.34% and its five-year special rate to 3.89%.”

http://business.financialpost.com/2013/08/21/rbc-hikes-special-and-posted-residential-mortgage-rates/

#18 Unplugged on 08.21.13 at 9:43 pm

This is the point now where individual accountability into the life decisions that people have made in the past will come into question. There are steadily more and more people whining and complaining about the circumstances they now find themselves in.. it is the governments fault, the banks fault, the politicians fault.. Nobody seems able to admit fault to their own outcomes and circumstances.

People will need to learn the hard way what accountability and being accountable for ones own decisions in life really means. Free rides are long gone.

#19 Victor V on 08.21.13 at 9:44 pm

http://www.theglobeandmail.com/report-on-business/economy/rbc-hikes-mortgage-rates/article13900832/

Mortgage rates are again on the rise in Canada, increasing the likelihood of a slowdown in the national housing market.

On Wednesday, Royal Bank of Canada hiked its five-year, fixed-rate mortgage by 20 basis points to 3.89 per cent, one day after the Bank of Montreal raised its benchmark rate to 3.79 per cent.

#20 Musty Basement Dweller on 08.21.13 at 9:45 pm

Isn’t there a consumer protection agency which should be on the case of the real estate cartel for their boffo, dishonest, deceptive and harmful practices towards unwary consumers (aka hornies?)

I mean sure it is always buyer beware, but obviously there is a limit to that. Otherwise we would never have had the Ralph Nadars experience so much success.

#21 TurnerNation on 08.21.13 at 9:48 pm

You can polish a turd.
The 3/4 mill townhouse.
And its living room ceiling. But…why?
(Also, you could shoehorn a V8 into a Kia.)

http://themashcanada.blogspot.ca/2013/08/sold-73-foxley-street-trinity-bellwoods.html

#22 ILoveCharts on 08.21.13 at 9:48 pm

When is the last time it was 389? What were sfh prices in yvr then?

#23 Randy on 08.21.13 at 9:55 pm

Is that invisible man Justin Trudeau ? the flip – flops gave him away !!!

#24 shanks on 08.21.13 at 9:57 pm

Hey nosty
Did you see this?
http://www.cbc.ca/m/touch/world/story/2013/08/21/facebook-connectivity.html
Zucky wants everyone in the world connected to the internet, even tho he says it won’t be profitable, but rather it’s the right thing to do. I smell a rat!

#25 Locked on 08.21.13 at 9:57 pm

Glad we got our 10 year @ 3.69% a few weeks back.

#26 Ben on 08.21.13 at 9:58 pm

PKP801 – this is my concern. I thought it was all about to go over a cliff in the UK then the govt pulled out all the stops. The difference this time is the US is ending QE and raising rates. Loose credit is only possible when you are the reserve currency or when you are shadowing US policy. This time it’s different :-)

#27 Jimmy on 08.21.13 at 10:01 pm

Jimmy says blog very late today.
Jimmy doesn’t like looking at hairy bra man family pics.
Jimmy is #10. Sweet.

#28 Saskatoon-Living on 08.21.13 at 10:07 pm

3 tweets in one day! You definitely outdid yourself Garth.

#29 JustTryingToProtectEquity on 08.21.13 at 10:08 pm

“By this time next year a shocking number of them will have lost all of their equity. This was so predictable. I will have no pity.”

But… even Mr. T says, “I pity the fool.”

Keep up the good work Mr. Turner.

#30 Ahead of the Curve on 08.21.13 at 10:10 pm

#3 mortgagebrokeron on 08.21.13 at 9:10 pm

I think you nailed it right on. Higher rates, everything else equal, will have a direct impact on the amount of money being borrowed. This will place supreme pressures on prices, and given the choices available prices have no where to go but down.

I still think the SFH in 416 will be ok, because of the condo over-construction that is where the best deals will be, and money will follow. But no doubt it will have an impact.

#31 For sale signs light up the GTA on 08.21.13 at 10:11 pm

NOTHING is selling. Flippers and those on the brink of going bankrupt since they are maxed out and now either losing their jobs or getting reduced hours. Lots of lay off all over the GTA. Out of work realtors haven’t made a sale in over a year. Money is getting tight as people can not borrow any more. The house of credit cards is going to fall apart. Look out below is’t going to be a ruff ride down.

#32 Boomer21 on 08.21.13 at 10:21 pm

I am surprised that no one has mentioned the August blue moon! So once in a blue moon may be appropriate for what is about to occur with housing. Anyway loved seeing the beautiful moon, not so much what is about to happen to the RE market over the next few years. Enjoy while you can. It was a beautiful show last night.

#33 Ray on 08.21.13 at 10:22 pm

With absence of a crash SFH 416 will be fine. Price will correct but will pick back up fast. Financing it now will be cheaper in the long term.

Sure. Keep telling yourself that. — Garth

#34 Musty Basement Dweller on 08.21.13 at 10:22 pm

I will admit that I had no idea how easy rates could climb without the Almighty and Brilliant and Visionary team of F and Carney initiating it.

I wonder how many house hornies didn’t realize that either.

It makes me glad that when I was a stupid house horny that the bank made me put 30% down and didn’t seduce me into debt the way it is done now.

#35 Marie on 08.21.13 at 10:23 pm

I know for a fact that everyone in Vancouver is ruined after reading this blog board. I knew it over two years ago in my heart, and realize it more and more especially after understanding that no one in Vancouver can afford to live here anymore. It’s a complete joke of a market. House prices are poised to collapse. Sellers cannot sell even after years of MLS listing sweepstakes have come and gone. Vancouver is slated for a major collapse in hosuing prices guaranteed. Might not exactly be tomorrow, but Vancouver will suffer the biggest blow to any North American market imaginable. Period. Vancouver is doomed.

#36 Don't Believe The Hype on 08.21.13 at 10:23 pm

I think it might be time to put the popcorn in the microwave because the “show” is about to start!

#37 Marginal on 08.21.13 at 10:24 pm

#6 tigerbaby on 08.21.13 at 9:18 pm

“direct funding programs like this does not level the overall playing field and leverage private capital”
————————————————————–
NRC IRAP approval for funding was often the validation needed for angel and private investors to step in…..and they didn’t until the govt vetted the technology.
Not sure what you mean by ‘level the overall playing field’. I have never worked in the public sector and have a great dislike of corporate welfare. That said, I think Canada is right to continue with NRC IRAP since every one of Canada’s competitors has such a program, most funding at far greater levels.
With respect to your comment regarding university research not leading to commercialization, I think you need to consider a) that some original research takes many decades to lead to commercial application (unlike the discovery of insulin in a university lab); and b) many universities have incubator and commercial spin offs of technology.
I sense that you failed to get a business loan from a bank? However that’s hardly a valid reason to trash all the good scientific and technological work done by others…..only some of which is supported by govt.
As most entrepreneurs know, there is no level playing field.

#38 Nosty the Vladiator on 08.21.13 at 10:25 pm

#24 shanks — Yo shanks! Agreed. Didn’t come anywhere close to smelling like the bacon and swiss quiche I had today, which was gorgeous.

4tunately, I don’t use FB, Twitter or any these social media outlets. Prost!

#39 Suede on 08.21.13 at 10:27 pm

Gen Y doesn’t care much for five year rates when variable rates are locked in for prime minus for the next couple of years:

- They won’t be selling their pre-sales or condos anytime soon. Payments will keep them debt slaves once they renew. No choice now.

With the best variable rates being prime -0.4 from sketchy lenders you’d never buy a common stock from, they still have some hope….for now.

As soon as BoC or Fed ticks up that prime rate, look out. Everyone will start panicking. Fear of losing out motivates more than anticipation of gain.

I can see the comment section two years from now:

“Garth, how high will rates go. Should i lock in at 4.8%?”

“Garth, should i cash out of the stock market ETF’s now that they’ve doubled?”

“Garth, can you give me Suede’s number? He must be handsome behind all that drivel”

“Garth, are you happy the C’s lost the federal election? That Trudeau sure has a beautiful coif”

“Smoking man, zip it already with your shtick. You’re useless”

“Smoking man, keep going with the shtick! It’s our secondary guilty pleasure from this blog”

This post brought to you buy the back to school sale on XRE.

#40 TheCatFoodLady on 08.21.13 at 10:29 pm

HGTV & other stations big on the home reno/flip shows. Now THAT is porn for the house horny – triple x rated in some cases. Very little process, cautions, real hints – almost all shiny happy people oohing & aahing over happy shiny surfaces. Yeah, marble, granite, stainless, vaulted everything – it’s a lemmingly rush to pretentiousness. Home sizes – don’t get me started. It’s housing on Viagra – ballooning prices for ballooning spaces.

How many of us know folks who’ve mortgaged their eyeballs & left front wheel lug nuts on a McCastle? Might make for several minutes of self fulfilling, braggy chat at the office cooler or on Facebook but betcha those folks rarely get past the family room just off the kitchen – unless it’s a rush to the bathroom during ads & to the bedroom for sleep & a few other nocturnal activities. The rest… space. To be filled. With stuff they don’t need & can’t afford.

If you’re seriously considering downsizing, look objectively at which rooms in your home you actually USE. Hell, we have an apartment just under 700 sq. ft. & 300 sq. ft. of it consists of the bedroom we actually use as a bedroom & the other which houses the Resident Evils, (cats) & assorted… stuff. Yes, we use the stuff & we’d be pretty shoehorned if we downsized but in a pinch, we could.

Went to Walmart today – first time in 3.5 years. I hate shopping. Might be worth making an annual pilgrimage if their prices are going to stay that low. Speaking with a few friends who do shop there often, seems prices are dropping. We had to drive by a number of other large stores on the way to WMart – parking lots were damned near empty.

Are the shoppers at home sweating over calculators, wondering if they can afford their mortgage renewal or rent increase?

Starting to look/sound that way in these parts.

#41 eddy on 08.21.13 at 10:29 pm

“By this time next year a shocking number of them will have lost all of their equity.”

If they bought with 5% down, there was never any equity.
5% down is not a significant amount of money.
5% is blended in the appraised value of every house, ie
bank appraisers do not deduct 5% from the comparable sales.

for example if they paid 1 million, but the seller got $950,000. (after commission) so the actual value is $950,000. yet the bank advances 950,000 to add to the 50,000 down. In effect it’s like the bank gives 100% financing while the buyer’s 5% down is just commission to the listing agent

#42 Ray on 08.21.13 at 10:31 pm

Sure. Keep telling yourself that. — Garth

Guess you like to live in the boonies.

#43 Realtor #1 on 08.21.13 at 10:31 pm

You can still get a 5 year mortgage at 3.4%.
Try shopping around.

Quickly. — Garth

#44 Mister Obvious on 08.21.13 at 10:35 pm

#15 Dus10

“Please be done with your chastising. It doesn’t help.”
————————-

Very much to the contrary, I say let a great cascade of wholehearted chastising begin!!

For a long as I’ve been reading this blog (4 years) Garth has consistently demonstrated almost inhuman restraint and tolerance in the face of vicious ad hominem attacks and caustic vitriol.

He has consistently and tirelessly warned about the extreme risk of the Canadian residential housing market in the face of torrid criticism from every facet of the RE cartel both within the media and from within in this blog.

Six days a week. Every week. On his own time at his own expense. If anyone deserves to say “I told you so” a thousand times it’s Garth Turner.

If that offends your sensibilities, do this:

1. Delete your greaterfool.ca bookmark
2. Vanish from this place

#45 Canadian Watchdog on 08.21.13 at 10:35 pm

No date announced. Perhaps by the end of September, but it could be delayed. In any case, it’s coming. — Garth

Ah huh.. It's not going to be like last time. It's different this time. 

FOMC March 16, 2010

The Federal Reserve continued to taper its large-scale asset purchases and wind down the emergency lending facilities with no apparent adverse effects on financial markets or institutions.

Then this happened… Stocks Tumble, Dow Ends Worst May Since 1940

Then came rumors of QE2 — stocks bounced — followed by the official announcement.

FOMC November 3, 2010

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities.

And that's all it will be from here on until QEterinty.

#46 DW on 08.21.13 at 10:37 pm

Noticed a big cube van loading up condo A frame’s and the whole truck was filled right up. That was near King and Spadina and there are condo’s being built everywhere you look. Even the local restaurants are hoping they won’t be the next target for demolition. Mr Lamb mustbe very worried!

#47 NOTHING is Selling on 08.21.13 at 10:39 pm

These town home have been for sale for YEARS! they were trying to be sold to Asians with the $888,888 price tag but not even Asians are that silly. If people stop buying prices would crash and crash hard. People are not smart and they will borrow until they go bankrupt which is happening as we speak.

http://www.realtor.ca/propertyDetails.aspx?propertyId=13384369&PidKey=-768163386

http://www.realtor.ca/propertyDetails.aspx?propertyId=13328951&PidKey=727006609

http://www.realtor.ca/propertyDetails.aspx?propertyId=13366202&PidKey=-215012042

There are two more for sale for a total of 5 out of 6 units. Many like this are popping up all over the GTA.

#48 Catalyst on 08.21.13 at 10:39 pm

Just for some perspective my fellow house bears…

The effects for every 10 bpts increase equates to:

Mortgage : Increase
200K : $10.50/mo
350K : $18.75/mo
500K : $26.80/mo

If I am looking at a 200k mortgage, the latest increase will push the monthlies (all people care about) go from $1,018/mo -> $1,039/mo.

Hardly the straw that will break the camels back.

Garth, can you comment on the latest F-bomb. He has been blowing smoke about how concerned he is with housing affordability and then the month after he sees average prices shoot through the roof he pats himself on the back and says – “see my changes are having the intended effect” and is no longer concerned with the general Canadian housing market. (my paraphrasing)

actual comments:
“so far I’m satisfied that we have a balance in the real estate sector.”
http://www.cbc.ca/news/business/story/2013/08/21/pol-finance-flaherty-economists-summer-policy-retreat.html

As mortgage brokers have pointed out here, rate hikes of this nature reduce the amount buyers qualify to borrow. That is a true catalyst. BTW the increase in eight weeks has been 100 basis points, not 10. — Garth

#49 NOTHING is Selling on 08.21.13 at 10:41 pm

Ray on 08.21.13 at 10:22 pm With absence of a crash SFH 416 will be fine. Price will correct but will pick back up fast. Financing it now will be cheaper in the long term.

Sure. Keep telling yourself that. — Garth
———————————————————-

Flipper and greaterfools are looking for other greaterfools to bail them out before they go bankrupt.

#50 Chaddywack on 08.21.13 at 10:48 pm

Even with this Garth I still don’t see why the CMHC cap is at $1M, it should be taken much lower.

F said today that right now no further government intervention in the housing market is necessary, but he has ideas in reserve if necessary……I wonder what these are…..

#51 Tony on 08.21.13 at 10:56 pm

Re: #10 father on 08.21.13 at 9:25 pm

In the minutes today at around 2pm it was stated tapering will take place in one of the remaining four months of this year.

#52 dutch4505 on 08.21.13 at 11:01 pm

again I welcome my Canadian friends to the new world economy. Using the house as an ATM was a painful lesson for us folks south of the 49th. Now I see the same painful results in Vancouver and Fraser Valley. The long term benefit for deflation in the CDN housing market is that the new generation will be able to afford housing for their families over the next 5 to 10 years…..until the new cycle starts again.

#53 Marginal on 08.21.13 at 11:04 pm

#38 TheCatFoodLady on 08.21.13 at 10:29 pm
Good point about the financial benefits of keeping a smaller footprint; less space, less stuff.
However, regarding the empty shopping mall parking lots, I wonder how many people are doing their back-to-school shopping in the U.S.?

#54 Happy Apartment Dweller on 08.21.13 at 11:08 pm

Man what a creepy smile the Elfin deity flashes numerous times in this video. He says Canada is great financially, his only worries are Europe and the US. Lol.
http://www.cbc.ca/news/business/story/2013/08/21/pol-finance-flaherty-economists-summer-policy-retreat.html

I wonder what these financial experts will dream up at their summer party this time.

#55 kilby on 08.21.13 at 11:18 pm

#20 Musty Basement Dweller on 08.21.13 at 9:45 pm
Isn’t there a consumer protection agency which should be on the case of the real estate cartel for their boffo, dishonest, deceptive and harmful practices towards unwary consumers (aka hornies?)
+++++++++++++++++++++++++++++++++++++

Buyer beware being the key words, there is no protection against greed or stupid when it comes to money management. “If it seems to good to be true it probably is”. When the dentist tells you that you need $30,000 worth of implants..chances are that you don’t and they do this all the time…Should we be protected against that? Breast implant protection?

#56 wallflower on 08.21.13 at 11:22 pm

[Re Dus10]
…condescending…chastising… — whatever you term it, keep it up, Garth! It’s fun, enjoyable. Without it, not so compelling to visit… the lessons are simple and much the same so the repeat visitor is here for all that other fun stuff!

#57 Coho on 08.21.13 at 11:22 pm

#4,

I know you didn’t intend for your post to come across as a joke, but I had to laugh. If you’re hoping that humanity’s worst enemy (TBTB) is going to come to the rescue of us cattle, you’ll be very disappointed.

What most people don’t realize is that the true power behind world affairs is far above governments, central bankers and monarchies. This is the same cabal that was behind the crucifixion of Jesus achieved by pulling the strings of their various puppets. These are the ones that manipulate ‘the establishment’ (those that appear to be running things). When you get deep enough into the rabbit hole the essence of this cabal is absolute unmitigated anti-Christ.

Yes, they can do, and have done almost everything, which is very unfortunate. Pinning your hopes on these very dark ones atop the earth’s hierarchy for the common good and to facilitate true prosperity for you, your loved ones and the rest of us is misguided.

#58 Market Crash Imminent on 08.21.13 at 11:29 pm

Realtors and Condo/Home developers are pooping their pants at todays rate hike news. This comes about a month after they told all their clients rates wont go up LOL. Affordability just got kicked in the nuts across Canada at these insane prices. Here’s an example of how whacked out this market is using an ENTRY LEVEL example…I repeat , ENTRY LEVEL.

Average 600-650 sq ft 1 bedroom plus den Downtown Toronto condo @ $350,000 with 5% downpayment which is pretty much the average and a 5 year fixed mortgage at 3.89%, 25 year am.

Monthly payment $1776
Maintenance $400
Taxes $200
Cable, Internet, Phone $200
Content Insurance $30

$2606 Monthly

A $60,000 Salary has a take home pay of $3661 monthly…and thats above average for Canadian income.

That leaves roughly $1000 monthly for food, entertainment, car / insurance payments which many people still have even living downtown and (ahem) savings?? LOL

Therefore an above average salary can barely afford an ENTRY LEVEL lousy box in the sky in Toronto.

MAJOR PAIN ON THE WAY FOLKS

#59 robert james on 08.21.13 at 11:33 pm

DELETED

#60 Easy on 08.21.13 at 11:36 pm

Anyone thinking of buying should be reviewing their mortgage payments and cash flow based on higher interest rates to come. Here’s a tool that can help:

easyvirtuals.com/analysis

#61 Observer on 08.21.13 at 11:39 pm

The next test will be CMHC itself, As housing price automatically falls 10 15% (its a no brainer, just simple math) People will be under water. Force defaults occurs and will eat into CMHC kitty. Also as housing prices fall so does revenue for the government and CMHC.

So whats the next step. In several months (6/8) when this thing fans out. CMHC will have to show its cards and I true believe they will be at Defcon 3…

#62 Observer on 08.21.13 at 11:43 pm

Remember the banker for gold man sax. Who was recorded saying they will get the land for pennies on the dollar.

I think they will be getting your land for pennies on the dollar. Well wasn’t that the game all along?

Okanohoma, greece ….. etc etc, coming to Canada soon!!!

#63 FATHER on 08.21.13 at 11:52 pm

Do BOC interest rates rise when U.S. tapering starts?

#64 Freedom First on 08.21.13 at 11:59 pm

#44 Mister Obvious

I agree. Very well written. I second the motions, both #1 and #2.

#65 Cory on 08.22.13 at 12:01 am

You could go back over many comments I’ve made here saying that the only thing that will kill this insanity is higher interest rates. And here we go.

These realtors/pretend wannabe financial experts because they’ve taken a weekend course in how to rip people off in real estate will now see the error in their ways thinking it was some kind of magic demand to live in this winter wasteland. many will have to go back to cleaning toilets at McD’s.

#66 young & foolish on 08.22.13 at 12:09 am

Great post Garth …

You understand the new media … same as the old media.

#67 Donald Trump on 08.22.13 at 12:14 am

I think Garth should have his own Cable Channel

Maybe something between CNN…BNN ….SPEED porn and CARTOON..channels….

BTW: DELETED backwards is Smoking Old Man

#68 Godth on 08.22.13 at 12:28 am

Please, oh please, Taper Fed., taper. It will be amazing to behold, do it, I double dare you – get off the crack! What will reality look like when we’re sober, it’s been sooo long. What a party.

#69 Yitzhak Rabin on 08.22.13 at 12:43 am

The floor boards are givin away. Interest rates have been abused and are getting their revenge.

Things could get much worse than people think. Japan and China sold the most US treasuries since 2007 this last quarter. The Fed now owns $2 trillion of the outstanding federal debt (~$16 trillion – funded).

If the Fed pulls back its bid who is going to do the honest buying and at what interest rate? Most likely any taper will be short live and followed quickly by an expansion of QE to try and bring down rates. At this point the Fed could lose control of rates entirely.

What does a 7% 10 year treasury yield environment look like? It reveals the insolvency of a debt drunk nation. The Fed either has to allow the recession it never solved to run its course in a much worse way, or inflate the money supply to Burj Dubai levels.

Canada will have a rough time in the private sector, tough political choices will need to be made at the Federal level. The provinces could be in for a real rough ride.

#70 Sign of the Times on 08.22.13 at 12:50 am

An update on the couple I’ve been chronicling from Vancouver over the last few weeks for some of the regular readers. Him, 30, owns a Shoppers Drug Mart (one year in) and takes home over $250k a year and her, 30, a teacher. They closed on a home in a Vancouver suburb, to lock in at 2.99, at close to $1M with help from mommy and MIL putting their mortgage in the $1M range. Moving day is this weekend and, in asking for help, they mentioned that the plan is to be mortgage free in 15 years and pay off a big chunk in 5 while the rates are low. Can’t help but feel they’re in a dream world….then again I’ve been wrong for a long time so maybe I’m the one in an alternate universe?

#71 Sign of the Times on 08.22.13 at 12:51 am

Sorry, the mortgage above should be $700k. Damn touchscreen…

#72 Mr.Hulot on 08.22.13 at 1:16 am

So Chinese real estate buyers don’t make a difference in a market, Eh Garth.

Watch Cyprus, Portugal, Greece, Spain bending over backwards to sell them homes with AUTOMATIC residency.

http://www.bloomberg.com/video/can-china-save-europe-s-property-market-6MTrvKaPT7iGNtL4PeXjcg.html

#73 Dean Mason on 08.22.13 at 1:37 am

To #25 Locked
You better pay off that mortgage in 10 years because it will not 3.69% again,it would probably be 6.39% for 10 year fixed rate mortgages back to 2009 levels.This is at the very least.

If you want to shorten your term 5 year fixed rate mortgages were 8.00% in 2000.

#74 MEANWHILE IN EUROPA on 08.22.13 at 1:37 am

Still liking it in Europe. Prices are flat, if not down a bit over the last 12 month in France. Interest rates in the mid 3 and holding.

Food as good as ever.

#75 The real thing — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer™ on 08.22.13 at 1:41 am

[...] via The real thing — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. [...]

#76 Screwed on 08.22.13 at 1:42 am

#45 Canadian Watchdog

Flaherty was quoted saying today he will put QE on the agenda at G20 and will ask the US they stop QE sooner rather than later. He doesn’t like QE.

Does the man have any idea what a true end of QE would mean to Canada’s commodity based economy? How much $50/barrel oil can Canada afford to send down to the US?

Regardless of what Flaherty likes or dislikes, QE is here to stay because all CBs have agreed to follow that path. Canada not being an exception and Flaherty may very well have to eat his words when his cabinet buddies are telling him they can’t find sufficient funding for their departments.

They can either save the economy or save the currency. They cannot save both.

Time to send Flaherty back to where he came from. He’s done enough damage that will take years to unwind.

#77 El Cid on 08.22.13 at 1:44 am

“the Fed will unprint money as effectively as it printed it. ”

The Fed expands the monetary base by purchasing financial assets from banks — namely, Treasury bonds and mortgage-backed securities. The banks have been taking the proceeds from the asset sales and simply re-depositing them at the Fed. Anyone who believes the Fed can “exit” this position is delusional. The single biggest trade for the last four years has been front running the Fed’s asset purchases. When the Fed reverses course and begins selling assets, everyone will dump Treasuries in anticipation.

Indeed, we are already witnessing this with foreign nations selling Treasuries in record amounts in June when the Fed first hinted at tapering its QE programs. Japan and China alone dumped $40 billion that month (of a total $66 billion sold by foreigners that month). The Fed won’t even be able to stop buying assets, never mind trying to sell them.

#78 daystar on 08.22.13 at 2:25 am

10 year bonds show no signs of relent:

http://www.bloomberg.com/quote/USGG10YR:IND

There is a compare box at the top of the chart one can type in GCAN10YR:IND, to see the comparison (which is basically a mirror revealing just how little control Canada has over long term bond yields. Garth explains it and Garth’s Disciple touches on it from yesterday).

#19 Garth’s Disciple on 08.20.13 at 9:28 pm

#79 P. Winterton on 08.22.13 at 2:44 am

>>which has goosed stocks

Would these be the same stocks you’ve been telling your followers would continue to increase in value by 7% per annum indefinitely?

No, the same stocks I’ve counseled against. Nobody without seven figures to invest should own individual equities. As for returns, the future is never known, but a balanced and diversified portfolio has returned about 7% over the last decade, which included the meltdown. Better than housing. — Garth

#80 Notta Sheeple on 08.22.13 at 2:46 am

“…..Jim Flaherty should know, since he hand-picked the guy who engineered rates lower, while he himself was bringing in 40-year, zero-down mortgages, creating world-class house porn…..”
=======================

No worries, by proroguing Parliament until October, the Harpocrite ReformaCons are adopting a new voter strategy: replace the “Action Plan” with an “In-Action Plan”.

BTW, did Mr. Flatulence ever find that missing $3.1 Billion yet?

Inquiring minds need to know….

#81 Buy? Curious? on 08.22.13 at 3:45 am

Hey Garth! I was away for a few weeks on a vacay which gave me some time to think. As cities become the spot to live in(unless you’re into your cousins, I’m looking at you, Orillia), won’t the domestic and international migration maintain a steady rise in home prices? I know the fundamentals you mention apply to a time when people weren’t so mobile and immigration rules were tighter, but living in Toronto and having a house that I bought in 2004 for $322k be appraised now for $650k kind of goes against what you’ve been saying.

Sure there may be a little bit of a dip in selling prices but what do you think my house in Toronto will be worth in say, 5 years? Higher or lower than $650k?

Rob Ford 2015!

http://www.youtube.com/watch?v=zExlr_Ua87c

#82 angela on 08.22.13 at 3:50 am

us unemployment shocker
http://www.breitbart.com/Big-Government/2013/08/21/Gallup-Unemployment-jumped-from-77-to-89

#83 Observer on 08.22.13 at 3:59 am

Bottom line!

A raise in rates means a decrease in affordability which means housing prices have to go down!!

#84 future Expatriate on 08.22.13 at 4:09 am

Hey, just a heads up to the gov there…. before you allow Ted Cruz down south to renounce his Canadian citizenship? Make sure you send him a very nice hefty lifelong tax bill. With a couple of Mounties to deliver it and collect. He’ll of course have the Texas Rangers, but we all know who will win.

#85 Smoking Man on 08.22.13 at 6:14 am

I don’t think anyone here is good at reading charts, with calls of real estate armogeden.

So the bonds are selling off, being turned into cash, not rotated into equities, they can be purchased back with a click of a mouse.

Toronto is not as house horny as people think. Without a major Mojo rising event. No crash, see charts.

Proof

Dyslexicsmokingman.blogspot.Com

#86 DR. WAYNE on 08.22.13 at 6:46 am

#2 gladiator on 08.21.13 at 9:08 pm

An accidental first?
I miss Dr. WAYNE. Not.

====================
That’s nice, but when you are fighting a losing battle, reality sets it and you realize a$$holes will always be a$$holes.

On a more serious note, ‘keep those interest rate rises coming’. The higher the rate the more beer I can buy with my retirement investments.

#87 TipsByTopic on 08.22.13 at 7:06 am

Hopefully interest keep rising.

#88 The Big M on 08.22.13 at 7:34 am

So Garth, with this imminent rise in interest rates, how will the US continue to manage it’s debt, which is currently charged 2.5%?

A doubling of rates to 5% for the US Gov’t seems likely in the months ahead.

#89 The Big M on 08.22.13 at 7:36 am

On a personal note, if rates take off, the first sector to drop is cottages.

Almost bought 2 years ago, glad I held off.

Waterfront property is expensive but if there’s a sell off, buyers win.

Patience.

#90 Tony Right on 08.22.13 at 7:42 am

Look out below!! (And stock up on American dollars).

#91 bigrider on 08.22.13 at 7:44 am

House horny Italians, Asians, Iranians, Russians and East Indians will keep the GTA RE market as intense, loved and obsessed over as ever.

The distrust, poor understanding and volatility of the financial markets will continue to see assets flee.

Result : housing exposure of average Canadian up savings down.

#92 T.O. Bubble Boy on 08.22.13 at 8:18 am

$USD blasted through $1.04 CDN yesterday, and this morning it is over $1.05 CDN…. S&P down 0.6% yesterday, but the 1% currency gain more than makes up for it.

#93 TurnerNation on 08.22.13 at 8:31 am

More Bay St. layoffs.
This is worse than 2008′s rout. Not only is TSX Venture index back at 2008 levels, volume has dried up.
Time for a big-player entrenchment.

http://www.bloomberg.com/news/2013-08-22/stifel-said-to-plan-shutting-canada-offices-with-70-employees.html

Stifel Financial Corp. (SF), the St. Louis-based brokerage, is closing its Canadian operations in Toronto and Calgary where about 70 employees work, according to a person with direct knowledge of the plan.

The firm will begin to shut the offices Aug. 23 and keep a transition team there until year-end, said the person, who asked not to be named because the plan hasn’t been announced. The Globe & Mail reported the decision yesterday.

A downturn in Canada’s mining industry is pressuring financial firms that reap fees from selling stocks. The number of employees at securities firms in Canada fell in the first quarter to the lowest level since 2006, according to the Investment Industry Association of Canada’s most recent quarterly report

#94 Catalyst on 08.22.13 at 8:32 am

Looks like property virgins TV show (Sandra Rinomato) is now mostly filming in Cincinnati, Miami, and Texas. No more greater fools in the entry level market?

#95 Canadian Watchdog on 08.22.13 at 8:41 am

#77 Screwed

Flaherty was quoted saying today he will put QE on the agenda at G20 and will ask the US they stop QE sooner rather than later. He doesn’t like QE.

LOL.. He doesn't like QE, even though Poloz is now taking it through the stratosphere.

"When it becomes serious, you have to lie" —Jean-Claude Juncker

#96 RSS feed reader on 08.22.13 at 8:44 am

Garth, can you please talk to your webmaster and remove the CAPTCHA verification from the RSS feed page???

That page is meant to be read by machines and software applications, if you put a CAPTCHA they become useless. It makes no sense at all.

He’s working on it. You’re not a terrorist, are you? — Garth

#97 The Big M on 08.22.13 at 8:44 am

20 basis points and the renters are out of their basement apartments dancing in the streets.

Tooo funny.

The other shoe to drop is a total market meltdown.

We’ll see who’s dancing then.

The increase has been 100 basis points. Not so funny. As for financial markets, the only reason for a meltdown would be an economic reversal. Sure wouldn’t want the bulk of my wealth in illiquid real estate then. Would you? — Garth

#98 maxx on 08.22.13 at 8:57 am

Excellent post Garth…and la bête noir has been watching for a good while now.
Given increasingly deteriorating fundamentals, why would any lender take on the same level of risk as in the past?
Most will move on to greener pastures and scrutinize borrowers like never before.
You can’t buy RE on service-industry salaries……no matter how many of those jobs you hold down without the help of additional debt instruments, and everyone knows that nobody’s job is safe anymore. Nobody’s.

#99 Rob Rice on 08.22.13 at 9:01 am

@ Bigrider:

Are you suggesting Anglo-Saxons don’t like their real estate?

#100 bigrider on 08.22.13 at 9:10 am

#98-Rob Rice reply to bigrider ” Are you suggesting Anglo-Saxons don’t like their real estate?”

No, them too , but more inclined to hold financial assets as a large percentage of their net worth and trust in the value of such. Much like our blog host.

#101 Believer on 08.22.13 at 9:12 am

Garth, I believe you. But I think you do have pity. See you at the biker hangout at the Tim’s near that new church sometime? Cheers…

#102 MediaMayhem on 08.22.13 at 9:18 am

Mortgage rate hikes all over the news….might be another big housing sales number for August too as the last rush of rate holds grabs a house before rates explode….also buying houses at the top of the market aka the death sentence….

#103 Chickenlittle on 08.22.13 at 9:20 am

#40 TheCatFoodLady:

Great post!

I agree with you on house size. Why do people need 4 living rooms? There’s the living room, family room, salon, man cave, theatre room, sitting room, etc, etc.

#73 Mr. Hulot:

“Watch Cyprus, Portugal, Greece, Spain bending over backwards to sell them homes with AUTOMATIC residency.”

Why do we even have countries anymore? Is there any point in having a place called “Greece” or “France” or “Canada” when the border is open like a $5 hooker (ask SM) and people can just waltz in a change the laws of the land as they see fit?

SIGH…

#104 InsaneSellers on 08.22.13 at 9:23 am

Wow, those are insane prices. These townhomes are worth maybe $550k max or roughly $300 sq ft. Whoever buys these corn flake specials over $800k is asking for a loss.

http://www.realtor.ca/propertyDetails.aspx?propertyId=13384369&PidKey=-768163386

http://www.realtor.ca/propertyDetails.aspx?propertyId=13328951&PidKey=727006609

http://www.realtor.ca/propertyDetails.aspx?propertyId=13366202&PidKey=-215012042

#105 Uwinsome on 08.22.13 at 9:30 am

Discount mortgages dry up:

http://www.bnn.ca/News/2013/8/22/Discount-mortgages-dry-up-as-Canadian-borrowers-face-tough-test.aspx

#106 2CentsCdn on 08.22.13 at 9:41 am

“More evidence youth is wasted on the young. By this time next year a shocking number of them will have lost all of their equity. This was so predictable. I will have no pity.” Garth

You can tell a kid all day long not to stick a knife into a light socket …. some just have to learn the hard way. Unfortunately the number of people learning the debt lesson will hurt our whole country … and for quite a while.

#107 Bonds Ripping Again on 08.22.13 at 9:47 am

http://www.bloomberg.com/quote/GCAN10YR:IND

Get ready folks! 4% fixed rate 5 year!

Oh wait, I thought the realtor told me rates won’t go up???

#108 Holy Crap Wheres The Tylenol on 08.22.13 at 9:48 am

#105 InsaneSellers on 08.22.13 at 9:23 am
Wow, those are insane prices. These townhomes are worth maybe $550k max or roughly $300 sq ft. Whoever buys these corn flake specials over $800k is asking for a loss.

http://www.realtor.ca/propertyDetails.aspx?propertyId=13384369&PidKey=-768163386

http://www.realtor.ca/propertyDetails.aspx?propertyId=13328951&PidKey=727006609

http://www.realtor.ca/propertyDetails.aspx?propertyId=13366202&PidKey=-215012042
.

Come to Oakville average town home downtown over one Million. Insanity has its merits though all most of our RE agents drive Mercedes, BMW or Porsches.

#109 Kent on 08.22.13 at 10:01 am

Was just thinking…how much has the real estate market increased since you were advising us to get out of housing because it was overpriced? And you’re saying that it won’t decline more than 25%. Has it risen more or less than 25% since then?

We got out of the housing market in 2004 so I can’t blame you, but I’m pretty sure I’ll never be able to afford the properties I could back in 2004 with the same cash. Ever. These things just can’t be timed.

Did you invest your cash in 2004 in a nice, well-rounded financial portfolio? If so, you should be able to afford a house since real estate has advanced less than liquid assets. — Garth

#110 Why are the rents increasing? Would renting keep afloat negative cashflow investors? on 08.22.13 at 10:18 am

I have problems with understanding what is happening. I am hearing that the rents are increasing. This might be just RE boards’ fog and smoke, again, like in April May when they were saying that bidding wars were everywhere.
With an increasing number of investors forced to rent their units because they can not count on appreciation anymore, neither they can sell them, there should be an increased supply of rental units.
I really don’t understand why all of a sudden people should compete on renting at higher prices.
I don’t buy the idea of demographic pressure, that is people leaving their parents’ home to live in their own place,new families or more immigrants coming to Canada.

Since they stopped buying these matchboxes called condos, most must be already renting or owning, so who is going to rent the new ones..what caused the spike so much talked about in the media?
Population growth is not going to sustain that either, at least not in downtown (for the same reasons shown below)

Let’s clarify one thing:the immigrants are not idiots. Before they decide to come here they will look at salaries and rents and most of the times, for an immigrant these don’t look fantastic even if they have to rent a basement or a unit in a rental building..so this is not a reason for increasing rents. More than that, they will try to stay within their own communities and avoid downtown since those units will be more expensive. Unfortunately for investors the downtown area is the most overbuild and the most speculated area.

Then what is it that could drive the rents up? Could anybody please explain this?

It seems that at some point when I have time I will have to start posting some stats for rental units….just to see if they are, again, lying to us

recharts

Overall, rents are decreasing, not rising. The only exception is in narrow markets, such as DT Toronto. — Garth

#111 broadway skytrain on 08.22.13 at 10:19 am

not a RE agent, but bought a benz w under 90k, grandma driven, parked inside, still shines and smells like a new car yet it’s a ’97 (white leather/floor mats/carpet spotless) – 6k cash.
many ppl still look at you driving even though it’s older – weird!

wife did not like it, so got her a smaller 06 chev (50k odo, 3.5k purchase) that should last 20yrs at the rate she drives)

when you can buy 2 solid , low milage cars for under 10k that leaves plenty of room for RE purchases :)

and to the bitter, jelaous Marie who wishes so badly Van prices will crash, good luck sweetie, prices are LOW LOW LOW in prince geroge , check it out!(but older cars will rust, where in van sheet metal lasts forever)

#112 T on 08.22.13 at 10:29 am

Garth,

Can you post how many times in the last 5 years, rates went up, people cried “this is it:, followed by the tanking of rates shortly after.

And the tanking below the pre increase.

4x?
6x?
IN A ROW.

My follow up question will be what are you going to do with your time when this happens again in November-like clock work-and you are proven wrong.

Again.

Rates have not risen by 1% in over five years. In the meantime personal debt has ballooned, and home prices have risen. Figure it out. — Garth

#113 Daisy Mae on 08.22.13 at 10:30 am

#15 Dus10: “Please be done with your chastising.
It doesn’t help.”

***********************

I’m amazed at Garths tolerance. He takes a lot of crap. If he gets exasperated sometimes, is it any wonder? Some posters are rude, arrogant — they think they know better and love to contradict everything he says just because they can.

He’s the expert. Listen. Learn.

#114 Post Haste on 08.22.13 at 10:44 am

There are 2 reasons I hope for a market correction – Hopefully a pull back in construction will slow down the pace of builders taking prime farming land and converting it into a acre of concrete and asphalt – sad indeed.

2ndly, and maybe even more importantly – my #1ahole neighbour, who works in new home construction gets Sh$tcanned and needs to sell his house cause he has no more money – awh, if only!!

In 2005 I sensed things were about to implode (just didn’t expect it to take so long to happen). I made a radical change in my career, left Bay Street and started fresh in the Insolvency field. Business has been steady, and we have been getting updates that a crush of debtors are on the verge of throwing in the towel – maybe rate increases will be the straw that broke the camels back, my decision to change careers may have been a good one!!

#115 rosie "moving forward" in the knowledge that, "this won't end well" on 08.22.13 at 10:53 am

Sounds a bit like That 70′s show. http://business.financialpost.com/2013/08/21/david-rosenberg-get-ready-for-higher-interest-rates-and-at-least-mild-stagflation/

#116 blase on 08.22.13 at 10:56 am

Garth,

“Nobody without seven figures to invest should own individual equities.”

Why? Warren Buffett says equities are by far the safest investment. If you can handle volatility, I think buying individual blue chips or stocks selling below book value like Berkshire was last year is a far safer move than putting money into bonds. Genuinely curious as to your aversion to buying stocks (Peter Lynch is asking too)

Most folks cannot handle volatility. Witness this blog. Preferreds (safer than equities) decline 10% temporarily and people freak. DIY investing and stocks don’t mix. — Garth

#117 blase on 08.22.13 at 10:58 am

I know you are a fan of ETFs, but as Seth Klarman says, a well-diversified, indexed portfolio is a wonderful way to guarantee mediocre returns.

The goal is an adequate return with acceptable risk. Most investors are happy with an annual 7% over a decade. — Garth

#118 Derek R on 08.22.13 at 10:59 am

#87 DR. WAYNE on 08.22.13 at 6:46 am wrote
That’s nice, but when you are fighting a losing battle, reality sets it and you realize a$$holes will always be a$$holes.

True enough. I reckon that the only way to deal with the firsters is to make as many first posts yourself as you can — but ones that actually say something useful, or at least sensible.

Unfortunately insulting them just feeds their need for attention, so it’s counter-productive.

#119 TheCatFoodLady on 08.22.13 at 11:01 am

I track a dozen or so homes for sale in my local market as well as a townhouse condo project in Ottawa – one of my less bizarre hobbies. Prices are starting to drop. But in most cases, not enough for what’s on offer.

KLid used to work collections – talk about a downer job. She still keeps in touch with a few former workmates. From what she’s hearing Post Haste’s comments ring true – business is skyrocketing with an increasing number of clients seriously in arrears on several bills. As well, businesses/utilities/etc. aren’t cutting people the slack they used to. “Pay now or into collections!”

And a slow, steady increase in repo business around here.

Debt sucks – get out of it, avoid it. Balance & diversify. It’s sound advice – may not be as sexy as what some financial salesmen offer but it worked for many generations before us – stay out of debt & be careful where you invest. Why would it be different now? Only a few get lucky with sketchy investment stuff. Most end up hosed.

Don’t be a hosee.

#120 Ralph Cramdown on 08.22.13 at 11:10 am

Maybe we’re looking at things from the wrong angle? Here’s canadianmortgagetrends.com’s take:

“A 20 bps jump in the qualifying rate means a household at the edge of affordability would need ~$1,100 more income to get a variable-rate mortgage on a $300,000 house with 5% down.”

Since the variable rate is so much lower than the qualifying rate, this household as plenty of cushion even though it is at the “edge of affordability” with only 5% down. And does the phrase “people on a fixed income” ever bother you? Just march into the boss’s office and tell him you need another $1,100 because you’re at the edge. Or just add that amount on your mortgage application, or let your broker do it for you.

That publication is in the business of mortgage promotion. The key fact is not this week’s 20-basis point rise, but the fact this brings the increase to 100 points. — Garth

#121 Castaway on 08.22.13 at 11:20 am

Garth. It would make this blog so much better if when people respond or comment to a post it place their comments directly below the original. Would be easier to follow versus having to scroll around and see #95 commenting on post #7! Thanks.

#122 Derek R on 08.22.13 at 11:21 am

#77 Screwed on 08.22.13 at 1:42 am wrote:
They can either save the economy or save the currency. They cannot save both.

Oh, it is possible. They could. But they won’t.

If they really wanted to save the economy and the currency, they’d have to do something along these lines

1) Replace GST, Income and Corporation taxes with a tax on Land Rent and a tax on Loan Interest.
2) Replace the Welfare System and the Income Tax Personal Allowance with regular cash payments of an equal value payable to every citizen.

This would tilt the table in favour of ordinary people and industry and against banks and big landowners. It would also end poverty in Canada. However those are just the side-effects. The main effects would be to get the economy moving again and to encourage industrial investment in Canada from abroad because of the almost tax-free returns. That foreign investment would keep the value of the Canadian dollar high.

However like I said, they won’t do it. So we’re going to be in trouble.

#123 Suede on 08.22.13 at 11:27 am

Signs of a temporary market top #45:

Investing Whizkid Shows You How To Make Money in Stocks With Just $5000

http://www.mainstreet.com/article/money/investing/start-investing-now-5000-stockpick-whiz-kid?puc=yahoo&cm_ven=YAHOO

#124 Dan on 08.22.13 at 11:37 am

Mortgage buddy tells me the industry is in a state of panic. The gist of the worry is the house of cards will crumble. It’s funny how everyone in the industry in private will tell you flat out that housing in Canada is in trouble and nothing more then a Ponzi scheme backed by taxpayers money as banks would NEVER lend a single penny to 90% of buyers over the last few years at current low interest rates. Without the Ponzi scheme money from taxpayers interest rates would be 6-8% or higher for the sub-prime mortgages.Scary

#125 TS on 08.22.13 at 11:38 am

As when property market crashed, who will be more worried or scared? Mr Government! they will do something may be stupid, like QE3. So no worry, there will be no high rate, this world cannot take it anymore, there will be no money shortage.

#126 T on 08.22.13 at 11:43 am

Garth,

You are simply glossing over the overwhelming fact that the last 5, 10, 15, 25+ years, rates have been ratcheting down further and further and further.

This is a fact.

No matter how this is spun that “at times it went up” its gone nowhere but down.

There is ZERO technical evidence to prove, today, August 22, 2013, the trend of 27 years is reversing course and rates are going up.

In fact, a safer bet would be to assume the rates will go up a bit more, get ahead of themselves and crash right back down again.

Just like it has been doing for 27 years.

Sorry, next year is 28 years.

The average 5-year mortgage rate over the past two decades is 7%. So much for your theory. — Garth

#127 Old Man on 08.22.13 at 11:46 am

#112 broadway skytrain – Never buy an older car with an impressive low mileage because it appears to be a bargain. It is all a trap and an honest mechanic will explain this all like he did to me. Mileage is not the issue as expensive repairs become costly because parts are time based and wear out quickly. I had to replace 4 tires for example that were falling apart with just 33,000 clicks on them, and the list is long indeed.

#128 Babblemaster on 08.22.13 at 11:49 am

“You betcha. As you probably heard, the US Fed is about to start tapering back on its frenetic bond-buying orgy, which has goosed stocks, plunged bond yields to historic lows and breathed life back into the American economy.” – Garth

—————————————————————-

Total BS. The American economy may be showing some signs of life, but it’s all based on massive infusion of cheap capital. Governments worldwide have done nothing but blow bubbles over the last 2 decades and I don’t believe they’re about to stop, or even ease. And I don’t think that Bernanke has any credibility at all.

I doubt he cares what you think. Tapering is coming. — Garth

#129 House Porn on 08.22.13 at 12:01 pm

#15 Dus10
“I’m not impressed with your enthusiastic housing crash/equity evaporation as of late…Please be done with your chastising”.
Wow. I look forward to slipping between the sheets each evening for my nightly read of this blog. Why, with all the dewy eyed horny virgins, SS&G house humping, “bond buying orgy”, stocks rising bonds plunging, rising, plunging, rising, plunging…, interest rates up mortgages down, up down, up down…its enough to turn me fifty shades of blush.(Is it getting hot in here or is it just me). After four years of steamy market foreplay, when we’re just about reaching the housing climax and you want Garth to stop!!! Now? Really???!!! Don’t stop Garth, don’t stop….

#130 pbrasseur on 08.22.13 at 12:11 pm

@TS

“So no worry, there will be no high rate, this world cannot take it anymore, there will be no money shortage”

The problem here is the great disconnect between the US and Canada. The US is now ready to absorb higher rates, not Canada.

Yet rates here follow the US, not the other way around.

Sure Canadian gov. may try (again) its own brand of QE, but the bond market can’t always be fooled, il may not work and could drive down the $CAN and cause inflation and ultimately higher rates…

#131 The Big M on 08.22.13 at 12:14 pm

As for financial markets, the only reason for a meltdown would be an economic reversal. — Garth

Totally agree.

Back to my original question;

So Garth, with this imminent rise in interest rates, how will the US continue to manage it’s debt, which is currently charged 2.5%?

A doubling of rates to 5% for the US Gov’t seems likely in the months ahead.

No it doesn’t. — Garth

#132 Babblemaster on 08.22.13 at 12:20 pm

Total BS. The American economy may be showing some signs of life, but it’s all based on massive infusion of cheap capital. Governments worldwide have done nothing but blow bubbles over the last 2 decades and I don’t believe they’re about to stop, or even ease. And I don’t think that Bernanke has any credibility at all.

I doubt he cares what you think. Tapering is coming. — Garth

————————————————————-

You’re right Garth. He couldn’t care less. My wife doesn’t, why should he? Bernanke only cares about what the banksters think. That’s why there won’t be any easing.

#133 urawrongheadedostrich on 08.22.13 at 12:22 pm

I kow you’ll say there is no foriegn influence in Vancouvers million plus markets……blah blah blah…..but what do interest rates have to do with money laundering in China?

#134 The Big M on 08.22.13 at 12:25 pm

No it doesn’t. — Garth

How do you figure?

#135 Old Man on 08.22.13 at 12:30 pm

The Canadian interest rate market will always follow the FED because our economy and wealth factor is closely tied together. USA is the dog, and Canada is the tail wagging in step with them.

#136 daystar on 08.22.13 at 12:37 pm

Everyone was looking for the smoking gun. Well… the bond markets just fired off some rounds.

I had to laugh at F’s comments at the end of the link:

http://www.cbc.ca/news/business/story/2013/08/22/royal-bank-mortgage-rates.html

“Adequately calmed” the markets? F & H’s policies have created a housing/credit bubble that now leaves approximately 15% of the population holding large mortgages, at serious risk to higher rates. As I recall, it wasn’t until the OECD strongly suggested F & H do a serious reality check 19 months ago, that they actually did face reality with tighter regs last year. (Woefully late of course, following 6 years of systemically damaging regulations, why would OECD suggest that?):

http://blog.besthomesbc.com/2013/07/30/how-overvalued-is-canadas-real-estate-market/

I mean, OECD has housing overvalued by 30% with price to income but that’s not a bubble, right? Its just “overvalued” is all. We are rich like Norwegians, (wait, they actually “own” their resources) so its justified (by corporate banking greed and anything for power egomanics F & H, anyhow). Canadians buying houses at inflated prices over the last 7 years should have no trouble with higher rates, true? Not according to Mark Carney. a 2% hike in rates equates to 1 in 10 Canadians in financial trouble. Mark spoke of variable rates I assume, but you all get the picture:

http://www.thespec.com/news-story/2238862-2-interest-rate-hike-worrisome-for-4-in-10-canadians-survey/

#137 Penny Henny on 08.22.13 at 12:39 pm

Overall, rents are decreasing, not rising. The only exception is in narrow markets, such as DT Toronto. — Garth
——————————————-
it’s not just the downtown area

And I did not say that. — Garth

#138 bill on 08.22.13 at 12:49 pm

‘Then what is it that could drive the rents up?’

there is more than one factor involved.
some that have caught my [ an employee of a 'cross Canada property management company'] asst. manager’s eye is our inability to find quality tenants for the apt here in Kits. where did they go?
many of our former,credit-worthy tenants have bought a condo/whatever.
as the interest rates rise a great many of these purchases will be under water and they will have to move elsewhere and rent it out. direct competition to us ,in other words.
I think the condo over build can be viewed as virtual ‘rental’ units now as ,I reckon,they are most unlikely to sell .already in Vancouver [Kitsilano ] I have seen a former condo project turn into rentals…[do you think toronto's condo overbuild will be all sold?]
and then there is the boomers who dont /cant sell out
and are forced to take in borders.
all of this ,if it unfolds as Garth has thought it would, means a lot of competition for us to find that very elusive person:
the ‘ financially sound ,gainfully employed, excellent credit risk tenant’….
and that may take reduced/no increase on rents and deep pockets.
I can easily see an underwater condo owner pricing the rent very competitively to attract custom.
this wont happen over night .I can assure you it has already started here in Vancouver.

#139 Yam on 08.22.13 at 1:09 pm

It does not many any sense to buy an asset (Canadian housing) that is relying on a poor economy (globally and in the US) to survive (through low interest rates). You should be buying into real estate based on a STRONG economic outlook (like rising incomes..etc). The fact that the Canadian housing market will suffer as the US economy strengthens (our largest trading partner) through higher interest rates shows that this boom has been running all on credit expansion, and not on fundamentals.

For those that believe the Fed won’t taper QE ( I believe they will), even if they don’t, it will just fuel the equities markets more (and inflation), which causes funds to pull out of bonds into equities, causing yields to drive higher (this was already happening before the talk of tapering). Either way, yields will increase.

Actually more money into bonds drives up prices, not yields. — Garth

#140 Yam on 08.22.13 at 1:18 pm

No, I meant more QE causes money to move out of bonds (sell them) and into equities. This causes bond yields to rise. The assumption is QE fuels potential inflation (bad for bonds) and people want to hold riskier assets like equities that protect better against inflation.

#141 T on 08.22.13 at 1:20 pm

The average 5-year mortgage rate over the past two decades is 7%. So much for your theory. — Garth

You proved my point and I thank you. You are using “average” which is deceiving.

You know darn well the data you profess to work out to an Average of 7% is derived by having numbers on the far left of 18% and far right (today) of 3%

“Average”.

You simply cannot directly address the DIRECTION of the rates by looking at the 25 year chart.

I don’t know why this is difficult to accept, but you are entitled to your opinion. Even when its simply wrong.

By the way, the “average” value of the Canadian Dollar to USD is .75 cents, but for some reason the bank did not see my logic when I asked to that exchange rate.

Rates have started to normalize. Deal with it. — Garth

#142 Holy Crap Wheres The Tylenol on 08.22.13 at 1:23 pm

A technical issue, hmmmmmm

https://www.nasdaqtrader.com/Trader.aspx?id=Tradehalts

#143 Holy Crap Wheres The Tylenol on 08.22.13 at 1:34 pm

The banks and their lending policy’s remind me of this.

You know I’ve smoked a lot of grass
O’ Lord, I’ve popped a lot of pills
But I never touched nothin’
That my spirit could kill
You know, I’ve seen a lot of people walkin’ ’round
With tombstones in their eyes
But the pusher don’t care
Ah, if you live or if you die

God damn, The Pusher
God damn, I say The Pusher
I said God damn, God damn The Pusher man

You know the dealer, the dealer is a man
With the love grass in his hand
Oh but the pusher is a monster
Good God, he’s not a natural man
The dealer for a nickel
Lord, will sell you lots of sweet dreams
Ah, but the pusher ruin your body
Lord, he’ll leave your, he’ll leave your mind to scream

God damn, The Pusher
God damn, God damn the Pusher
I said God damn, God, God damn The Pusher man

Well, now if I were the president of this land
You know, I’d declare total war on The Pusher man
I’d cut him if he stands, and I’d shoot him if he’d run
Yes I’d kill him with my Bible and my razor and my gun

God damn The Pusher
Gad damn The Pusher
I said God damn, God damn The Pusher man

Lay off Justin Trudeau. This is a money blog. — Garth

#144 T on 08.22.13 at 1:36 pm

And the Average cost of Natural Gas in North America is $8. Peaked about 5 years ago at $14 and went straight down to $2 as massive supply hit the market.

Its now $3.80

Will it be going back to the Average?? NOPE. And there are multi billion dollar projects right now betting it wont either.

This is the same for the rates Garth. Fundamentally there has been a shift in the mechanics of rates that have not existed in modern banking. Just like Natural Gas.

The info you are using to derive your perception as to where the numbers are going is flat out wrong.

Rates will go up. Sure
Canadian economy will dive right back into recession
Government will react by slashing rates likely below pre peak.

And round and round it goes.

#145 pbrasseur on 08.22.13 at 1:39 pm

Talking of “the real thing”, the $CAN is sinking like a stone again today while retail spending is down.

Yet some naively thing governement could use QE to propup a failing RE market.

But this is not 2008, that would send the $CAN to zero, just forget it.

This is getting real interesting

#146 bigrider on 08.22.13 at 1:40 pm

#110 -Kent

Garth your response to Kent at 110 about a well rounded financial portfolio outperforming price appreciation of RE since 2004 is a joke right?

Even if it were so, that is, that your portfolio allocations and management has done just that, do you think that is the experience of the average investor? Do you think that anyone, anywhere, in Canada would believe that ?? LOL

Before you launch some cheap shot at me , I will tell you in advance that the rate of return generated on my liquid assets have NOT exceeded the rate of appreciation on my RE , much like everyone else in this over-hyped up ,RE obsessed nation.

No wonder. You own mutual funds, right? — Garth

#147 prairieboy43 on 08.22.13 at 1:46 pm

RE: OLD MAN #128.
Dude I purchased a 11 year old Honda Accord with 150k on it. Pd $3500.00 for it. Sold it 8 years later for $ 1600.00. That was one of the best cars I have ever had. The old honda may have been a little plain, but it worked. All my other colleagues thought I was crazy. Vehicles are not my incentive. They get me to work and back. Had a company vehicle after that. Purchased first home with 30% down, paid off in 5 years. Now am waiting patiently for interest rates to increase, and housing prices to fall. Life goes on…..

#148 broadway skytrain on 08.22.13 at 1:47 pm

128 Old Man on 08.22.13 at 11:46 am
#112 broadway skytrain – Never buy an older car with an impressive low mileage because it appears to be a bargain. It is all a trap and an honest mechanic will explain this all like he did to me.
——————————————

thx for the tip. no need for a mech as i have a mech eng background and have yet to find an old car,motocycle,rv,boat,tractor,backhoe,generator,lawnmower etc which has not purred like a kitten after a few cheap tweaks. (my desiel backhoe is 1960 – sat in the bush, totally overgrown with blackberries for 10 yrs before i breathed it back to life – now it starts up like a new honda after sitting all winter – i jam a wrench into the starter contacts to make it go – go john deere!)

mech can turn a wrench and see many cars, but know little of the characteristics and properties of the materials/alloys/dynamics/fundamentals behind them. these are not taught in mechanic school.

the only parts of a properly stored vehicle/engine which really deteroriate over time are fluids/rubbers (seals/tires)/ac coolant. of course you checked the tire date of manufacture printed on the sidewall of EVERY tire?

an unused starter, camshaft, block or piston from 100yrs ago is just as good as new

both of these cars have run, on oil changes and gas fillups for a year now, except for the accidents, which allowed me to learn to replace fenders/front suspensions on a benz – my cost 400 – mech estimate 4200.

my lower mileage chev truck is 20yrs since i got it new- runs like a top and i suspect it will go another 20 easy – just watch the fluids

honda xr650 from 1994 was low mileage when i got it 6 yrs ago – 0.00 repair bills since, lotsa miles put on.

1992 honda – got it in 99 with low mileage, ran for 12 yrs with only a new rad, but the oil seals finally started to go at 225k so we sold it for a few thou less than we paid. like all of our other vehicles capital costs were about 300-400/yr or about 30/month.

#149 Old Man on 08.22.13 at 1:50 pm

I am thinking of holding a wake in Toronto for all the losers who did not bail out. I will need a large place for such an event as it will be donations only at the door as an entrance fee; a jazz band; and lots of beer to cry the night away. All the greater fools will come to get drunk, but fear not as the popcorn will be free, and will attempt to hire Smoking Man to greet you all at the door for a seating – tip him well ok.

#150 T on 08.22.13 at 1:52 pm

Paul Beaudry, Professor and Canada Research Chair in Macroeconomics at the Vancouver School of Economics, University of British Columbia

Does not agree with your thesis Garth. Not sure if you read his papers on the “new normal rates”. Decades out.

By the way, I am sitting in Cash. Mortgage I have left is actually a joy to click on to look at. Its laughable, on a house worth over $700,000.

The cash pile is for the day when the rates do creep up to the point where the stock market collapses (again) and I can load up.

I am not some dude leveraged up to my eyeballs quaking in my boots about higher rates.

Nope. Just a dude with money making nothing. — Garth

#151 Mister Obvious on 08.22.13 at 1:54 pm

#122 Castaway

“It would make this blog so much better if when people respond or comment to a post it place their comments directly below the original.”
———————-

I disagree. As any veteran of this blog is aware, childish bickering about off topic, inflammatory subjects is likely to break out from time to time.

Keeping comments “in-line” really helps to take the steam out of such squabbles. The existing format makes it harder for trolls to ‘commandeer’ discussion.

Furthermore, this blog is almost up to the minute as news develops. Its easier to follow the time line as news breaks (and the latest comments roll in) rather than hunting around for new entries in separate threads.

I think its more functional the way it is. After a while you develop a certain skill in skipping over useless, excessively long comments without paragraphs or other disagreeable ranting.

#152 broadway skytrain on 08.22.13 at 2:03 pm

#139 bill on 08.22.13 at 12:49 pm
‘Then what is it that could drive the rents up?’
our inability to find quality tenants for the apt here in Kits. where did they go?
————————————–
don’t know about you but last week i put a dark, musty ugly 1B bsmt suite near comm dr up for 1025/mo and had a line up of good tennants 2 days later – the winner got the keys last night.
one guy even had a super sweet BMW1100cc which he said i could take anytime i felt like – but he also had a grand piano so we picked a quieter guy :(

#153 Blase on 08.22.13 at 2:04 pm

Not to pile on Garth, but the leverage advantage of real estate means that a 7% increase in a portfolio vs a 7% house price increase per year will result in exponentially greater returns for the leveraged buyer.

And more risk. Suit yourself. — Garth

#154 Bigrider on 08.22.13 at 2:10 pm

#147 Garth-” no wonder, you own mutual funds right?”

Ya , LOL, that’s it and those mutual funds own financial assets.

And cost you, what, 2.5% in non-deductible fees? — Garth

#155 Donald Trump on 08.22.13 at 2:16 pm

Dr. Wayne:

Glad you are back !

Did you have a good time lecturing at the Tijuana Medical Institute ?

Whats the survival rate at now ?
1%? …2%? …or___?

#156 broadway skytrain on 08.22.13 at 2:25 pm

http://en.wikipedia.org/wiki/Sky_City_(Changsha)

here is the omen foretelling the end of chinas current run.

building the tallest bldg in the world has clearly marked the end of the boom for
america – empire state -1931
asia – petronas – 1992
m east – dubai – 2007

and now china – due april 2014

do they still make hardhats there?

#157 Daisy Mae on 08.22.13 at 2:34 pm

#40 TheCatFoodLady: “Speaking with a few friends who do shop there often, seems prices are dropping. We had to drive by a number of other large stores on the way to WMart – parking lots were damned near empty.”

***********

Walmart is a one-stop shopping outlet — it sells groceries. That may be their ‘saving grace’. We have to eat.

#158 peter on 08.22.13 at 2:37 pm

It’s a trend all right. That is why interest sensitive investments like REIT’s & PREF’s are tanking. $XRE, $CPD.

XRE is down 8.4% on the year, and has a 5% yield. Looks tasty to me. — Garth

#159 Daisy Mae on 08.22.13 at 2:48 pm

CBC: “Federal finance Minister Jim Flaherty said today he is satisfied with the measures his government has already taken to calm the housing market and has “no plans” to intervene any further.

Flaherty said the government watches the housing and condo market closely, and noted that in the last five years, he has taken steps, including changes to mortgage lending rules, to deal with a hot housing market. But, he said, “there are no plans presently to intervene further.”

************

What a damned idiot….

#160 Bigrider on 08.22.13 at 2:48 pm

#155 Garth ” And cost you, what, 2.5 % in non – deductible fees ”

As opposed to 1.5% in deductible ones , is that what you are getting at?

Ya, that’s enough of a difference to get people to drop their obsession in RE and dive full bore into financial assets LOL

You can’t be serious

The point was simple. Owning mutuals with high MERs has a lot to do wuth portfolio underperformance. And, yes, there is a significant difference between 2.5% fees after tax, and 1% pre-tax. — Garth

#161 Old Man on 08.22.13 at 3:12 pm

#159 peter – what is the problem with XRE as my figures are approximate – June 24 $15.11; July 8 $15.05; and August 22 $14.81 – omg what a crash, so should I sell out, or buy more?

#162 The Big M on 08.22.13 at 3:25 pm

China and Japan could be the downfall of the US economy. If they start bailing, which is quite likely considering their economic issues, then watch out…..

=====================

In total, China owns about 8 percent of publicly held U.S. debt.

To put China’s ownership of U.S. debt in perspective, its holding of $1.2 trillion is even larger than the amount owned by American households. U.S. citizens hold only about $959 billion in U.S. debt, according to the Federal Reserve.

Other large foreign holders of U.S. debt include Japan, which owns $912 billion.

============================

Don’t hold your breath waiting for QE to taper. It ain’t happening any time soon.

The next revision of the 2nd Q GDP numbers will put it around .7%, not the 1.7%

If you recall the original estimate of the Q1 GDP was 2.5% and when the final numbers came out….1.1%

Not even close !!!

#163 broadway skytrain on 08.22.13 at 3:29 pm

To RE or not to RE? This is the question.

This may be news to anyone outside east van but the proposed new city of van ‘community plan’ for the area around the station at commercial and broadway includes areas of commercial mixed use building ;
core-27-36 stories
secondary 22-26 stories
transitional up to 22 stories

where there is now mostly SINGLE story retail, old mostly crappy 2-3 floor condos, a safeway, one medical bldg and cheap pizza with sfh immediately adjacent on all 4 sides.

now regardless of the direction of the overall mkt in the next 10-20 yrs , the future prices of LAND in the immediate area seem clear as the area undergoes an intense and irreversible urbanization, forever to change its character – the drive is already changing fast, as 4th ave in kits once did.

#164 Holy Crap Wheres The Tylenol on 08.22.13 at 3:34 pm

#157 broadway skytrain on 08.22.13 at 2:25 pm
http://en.wikipedia.org/wiki/Sky_City_(Changsha)
here is the omen foretelling the end of china’s current run.
building the tallest bldg in the world has clearly marked the end of the boom for
america – empire state -1931
asia – petronas – 1992
m east – dubai – 2007
and now china – due april 2014
do they still make hardhats there?

Will China’s Manufacturing Dominance Endure?

http://chinadigitaltimes.net/2013/08/will-chinas-dominance-in-manufacturing-endure/

There is a lot of talk about whether or not China’s dominance in manufacturing will continue. We in the manufacturing business are witnessing many customers returning their CNC machining work to North America. There are a multitude of reasons for this that bode well for the small-localalized businesses that specialize in low volume, short lead-time CNC machined parts. But the two challenges that will prevent a flood of manufacturing work from returning to North America are the erosion of our industrial base ecosystem and a serious skills shortage. The most common response why companies are bringing their CNC machining work back to North America, is:………. Trust – they have had bad experiences with stolen intellectual property, copied products, substituted sub-standard materials and being held hostage for more money just before their parts are to be shipped. We need skilled people here in North America or our opportunity will pass us by.

#165 Tonight: CIBC economist Benjamin Tal on why the big banks hiking mortgage rates signals the end of an era in the housing market. on 08.22.13 at 3:34 pm

Lang and O’Leary ‏@LangandOLeary 9m
Tonight: CIBC economist Benjamin Tal on why the big banks hiking mortgage rates signals the end of an era in the housing market.

#166 Old Man on 08.22.13 at 3:38 pm

I made a boo boo with a transposition with XRE, as the strike price for $15.05 came not in July but in August about the 8th, so where is this crash? So from June 24th to August 22nd we went from $15.11 to $14.81, and am I going to lose sleep at night? No way. :)

#167 Holy Crap Wheres The Tylenol on 08.22.13 at 3:39 pm

This breaks my heart as a grandfather of four! What has this world come to! Just perusing the web and came across dozens of stories about this inhumane barbarism. It makes me think that I don’t gives two $hits about investing today when I read this stuff going on in the middle east. God help us please!

http://www.cbc.ca/news/world/story/2013/08/21/syria-gas-attack-accusation-damascus.html

#168 bill on 08.22.13 at 4:01 pm

53 broadway skytrain on 08.22.13 at 2:03 pm
Good for you.
you would think a nice one bedroom for slightly more than you are charging would just be filled instantly.
invariably they fail the credit check.

#169 The Big M on 08.22.13 at 4:24 pm

Question for the rent mob;

When folks can’t afford to keep their homes or first time buyers can’t afford to buy; what do they do, oh wise ones?

They rent.

What happens when you have a large influx of renters hitting the rental market?

Rents go through the roof!

Exact same thing that happened to house prices with low interest rates, will happen to rental units with high interest rates.

Then, just for fun, throw in a market meltdown which will wipe out all those gains in the past 5 years and what are you left with?

A mouldy basement apartment, where the landlord just doubled your rent and minimal savings left over from all that great free investment advice.

Renters better re-think their position before it’s too late.

#170 World View on 08.22.13 at 4:24 pm

Rates rise in Greece: “Greek debt is becoming risky. No one wants to lend to the Greeks.”

Rates rise in Emerging markets: “Growth is slowing. They can’t pay back the money they borrowed. So investors seek higher yield”

Rates rise in US: “US economy is recovering. Increase in interest rates mean growth is taking off”

Rates rise in Canada:”It will soon fall”. “This can’t be”. “Oops”

#171 Observer on 08.22.13 at 4:28 pm

You heard about bidding wars on houses..

Well with cheap money gone. Its now harder to get loans.

So prepare for “BIDDING WAR ON LOANS”….
Oh isn’t that whats going on right now with rates. They are headed up because people who need $$$ will have to compete with others to get that same loan $$$.

#172 T on 08.22.13 at 4:31 pm

Here is my prediction Garth.

Canada 5 year will be right around 1.4% by December. Drop of 42% from todays high of 1.98%

Banks will follow suite shortly after leading right into January.

#173 Smoking Man on 08.22.13 at 4:51 pm

#166

Until BOC jacks floating rate, fixed rates going up are meaningless, if a virgins squeezed come renew time, the go with a float.

Plus the bond sell off is just staying in cash . no rotation into equities happening Remember markets don’t like October

It’s a crap shoot but long bonds are cheap right now

#174 MIKEF on 08.22.13 at 4:53 pm

@165 Holy Crap wheres the Tylenol

You’re probably 100% right.
Also a huge factor is the price of a barrel of oil

Globalisation works at $10 a barrel.
It starts to fall apart at $105 a barrel

Been to a dollar store lately,there isn’t much for
a dollar anymore,it’s all priced at a $1.25,$1.50,$2.

If it goes any higher Mexico/Central America
will be the next manufacturing hotspot.

Former GE CEO Jack Welch liked to say that ideally
a manufacturing plant should be located on a
floating barge,traveling from place to place looking
for the best deal.

#175 bigrider on 08.22.13 at 4:56 pm

Garth to Bigrider at #161 -on mutual fund fees, performance and pre tax costs.

First of all , the original point I made in earlier posts to this thread was the fact that regardless of fees, whether they be 1% or 2.5%, none of it is going to have an impact on the majority of Canadians who do not believe, do not trust, do not understand the value of financial assets over RE ,especially at this critical point in time. Fees on financial assets are mostly irrelevant to the vast majority of our nation tuned into HGTV porn and the infinite amount of housexcapades and reno stars(fully clothed mind you, hammers and saws as their tools of the trade not nudity) it hosts.

Secondly, your penchant to exaggerate the benefits of cost reduction to performance is well noted. 1% is NOT the total cost of ETF ownership in a professionally managed portfolio, it is closer to 1.3 to 1.5 when all is properly factored and mutual funds are not all at 2.5%. Lets split the difference and call 1.1ish %. Oh yes and you can have tax deductibility as well but please do not tell us it is all at 46% tax savings rate as not all are in your tax bracket. I say big deal .

Until the value of the S&P, MSCI TSX etc. exceed their values posted some 13 years ago or so, by a large margin ,and for a sustained period of time(much like our housing market has continued to do) when this secular bear market for equities began, then , possibly, the herds will take heed.

Until then , please do not try to tell us that 7% annualized from 2004 in a well balanced diversified portfolio as you previously mentioned was easily achievable.

You are a stickler for substantiation , why don’t you take an anonymous survey of investors in financial markets and see if they have managed 7% since 2004.( Not anyone on this site however because they have all done better than that.. LMAO)

Most DIY investors have flamed out. As you know. — Garth

#176 Macrath on 08.22.13 at 5:09 pm

This show explains how the mutual fund fees compounded over many years can wipe out 2 thirds of your potential nest egg. And those are American fees which are a lot lower than ours.

http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

#177 Donald Trump on 08.22.13 at 5:19 pm

#164 broadway skytrain on 08.22.13 at 3:29 pm

I have contacted my MP about that article a while back about the immigrant investor program, and am awaiting an answer.

The way I am seeing it…Gov’ts real agenda is to stomp out small business under the auspices of bogus demand higher density housing. The banks developer and local Gov’ts do fine, but the general public loses. In addition, under the Agenda 21, they force more and more tax grabs via increased public transit.

We end up with another version of the Potemkin villages.

In the end, its simply another communist agenda to wipe out the middle class via this drain of private sector opportunity and on ever diminishing fiscal resources.

#178 Suede on 08.22.13 at 5:30 pm

#157 Broadway Skytrain

I’m pretty sure America’s been booming since 1931…

#179 Carpicker on 08.22.13 at 5:30 pm

Trust your bank !!!!!

http://www.liveleak.com/view?i=9cb_1377186472

#180 daystar on 08.22.13 at 5:44 pm

#160 Daisy Mae on 08.22.13 at 2:48 pm

Well said.

We all remember CMHC getting its act together and tightening regs and such but all F really did was slow down the volume of sales and to some degree, drop pricing somewhat in high end million plus homes that were supported by 100% financing. Everything underwritten from 07′ (depending on the marketplace) through to 2012 with a value of $200,000 or more is at risk to higher interest rates and everything underwritten with values of $400,000 or more from 2012 through to the present is at risk as well, regardless of how scrutinized credit has been over this last year and why? We have no control over what happens in the bond markets, that’s why.

Debt doesn’t just magically disappear just because we want it to. Lots can happen after 5 year terms come up for renewal, again… and again. A currency crisis could ensue from a nation like Japan causing a selloff in U.S. government bonds that spike yields and crash bond values and is the western world ready for something like that? Is the world ready for high inflation? This scenario, once unthinkable, is now highly plausible within just 5 years.

The U.S. could recover in spite of doom and gloomers who espouse the daily end of the U.S. economy and world that never comes with signs all too hard to ignore and as fear leaves the market place, greed takes hold as equities pay much larger dividends, especially in areas like energy commodities that are geared to do well with Asian growth. The U.S. recovers, Asia suffers, we don’t know who’s behind bond market selloffs of 10 year government bonds exactly, its likely both but what we do know is that there is a selloff now, its driving up yields and its impacts on interest rates and fixed incomes are undeniable to North American housing overall.

Its exactly like Garth says, its predictable what follows as yields rise. When U.S. housing collapsed, it began in Febuary of 06′ with a spike in yields and what followed was record bankrupcies. We’ve had appalling government regulations in Canada for 7 years, lion’s share of it in a record low interest rate climate for 17 quarters and no amount of hot air and fluff is going to repair the systemic damage as a result of an unbridled credit expansion that shot way, way past incomes these last 7 years.

Household debt is 165% of GDP. This isn’t the rich we are talking about that’s over extended, this is the middle class. Our government has left Canada in one bad place, its as simple as that. Take for example Vancouver where some 30% of the entire economy is dependent on RE in some fashion or another. What mortgage rates around 8% or higher (even a paltry 6% and we aren’t far off) would do there…

The long and short is valuations are sky high and built on cheap rates and easy credit saturated over 7 years as opposed to income. This is ugly government regulations and short sighted greed in financials elevating risk at its worst. For our government to take Canada there right after U.S. housing crashes for the exact same reasons means we literally have it coming to support such government policies regardless of all the other reasons why we did it. It means that Canadians can’t learn from the failed examples of others and it says a lot in terms of divide in how smart we think we are and how smart we truly are.

Financial and political illiteracy knows no bounds, no, not here in Canada.

#181 Old Man on 08.22.13 at 5:47 pm

I feel sorry for the food vendors at the CNE as 100 are now ill, so pack a lunch, as nobody is buying. Kind of like the Real Estate market as when things go bad there will be no sales as fear is in the air.

#182 espressobob on 08.22.13 at 5:53 pm

#159 peter

REIT’s & Pref’s move this way. What where you expecting? Did you take profit from your winners & average in to forementioned ETF’s ?

Thats the ‘problem’ with DIY investing. Re-balancing is a bitch. It tastes bad but it works. Hang in there and think long term!

……………………………………………………………………..

Oh, and Dr. Wayne, welcome back.

#183 Ray on 08.22.13 at 5:53 pm

Enough said. SFH is safe.

http://www.leaderpost.com/business/Condos+houses+tale+markets/8818728/story.html

#184 45north on 08.22.13 at 5:54 pm

This is the beginning of a test for the mortgage market. It’s a test of how Canadians are able to tolerate higher interest rates. I think this is the real thing.

that got my attention

T.O. Bubble Boy: talking about Toronto: almost any SFH has put tens or even hundreds of thousands into new kitchens, dug out basements, 2-3 storey extensions, and all kinds of other creations

yeah that is true
digging out basements is too much work, not worth it

Marie: I know for a fact that everyone in Vancouver is ruined after reading this blog board. I knew it over two years ago in my heart, and realize it more and more especially after understanding that no one in Vancouver can afford to live here anymore.

that rings true

Don’t Believe the Hype: I think it might be time to put the popcorn in the microwave because the “show” is about to start!

Mark Hanson? In which case the show is about to start.

#185 The Big M on 08.22.13 at 6:04 pm

Been to a dollar store lately,there isn’t much for
a dollar anymore,it’s all priced at a $1.25,$1.50,$2.

===========

Mr Buffet?

#186 Harry Wilson on 08.22.13 at 6:13 pm

re #152 Mister Obvious:

I’m throwing in with Mister Obvious on this one, on each of his points. Watching idiots fight, in real life, is hilarious, but watching idiots fight in a comment section is a waste of time, space, and electrons. Conversation in comment sections too often degenerates into mutual hissy fits, and belongs on Buzzfeed, not Greater Fool.

I would actually like to see the comments section move in the opposite direction, and have the parliamentary rules of question period applied: all questions and responses must be addressed to the speaker (Mr. Turner), and lying or name-calling will get you thrown out. This would eliminate the pooh-flinging monkeys who, ironically, often have the word ‘man’ in their screen names (See yesterday’s post).

The one exception to the parliamentary rules that I would like to see is that I don’t want to have to wear a tie to read, post, or respond to comments. Or pants.

#187 eddy on 08.22.13 at 6:15 pm

@broadway skytrain,

A ‘community plan’ for Vancouver? That IS agenda 21 or the ‘Communitarian agenda’

“Across the globe there is a massive effort underway to transfer land use control away from the local people and hand it over to a different community. When the word community is used in a local land use plan, you can be sure it doesn’t mean the local people. There are opposing meanings for the word community.”

http://nikiraapana.blogspot.ca/

#188 Bill Gable on 08.22.13 at 6:15 pm

“Ex Goldman Trader Found Guilty for Misleading Investors.” “Bond Deal Draws Fine for UBS.” “JPMorgan Settles Electricity Manipulation Case for $410 million.” “Deutsche Bank Net Profit Halves on Charge For Potential Legal Costs.” “US Sues Bank of America Over Mortgage Securities.” “Senate Opens Probe of Banks’ Commodities Businesses.” “US Regulators Find Evidence of Banks Fixing Derivatives Rates.” “Goldman Sachs Sued for Allegedly Inflating Aluminum Prices.”

So goes a sampling of headlines about the banking industry from the past week — yes, just one week. We seem to be living in an era where bankers can do no right. I can’t put it any better than a smart hedge fund friend of mine, who upon reading the news about the $410 million that JPMorgan paid to make allegations that it manipulated energy markets go away, sent me an email. “I am a bank friendly type,” he said. But, he added, in typically terse trader talk, “Something structurally amiss when so much financial activity is borderline.”

LINK: http://tinyurl.com/kdw7ed5

#189 gg on 08.22.13 at 6:16 pm

You betcha. As you probably heard, the US Fed is about to start tapering back on its frenetic bond-buying orgy..

LOL. You mean QE 4 is slowely ending? And waiting the start of QE5. LOL

#190 daystar on 08.22.13 at 6:18 pm

This thing with Japan:

http://www.forbes.com/sites/jamesgruber/2013/08/10/a-japanese-crisis-nears/

When we read headlines like this that are common and mainstream, its bad. Abenomics, currency crashing policy caused by printing money like its going out of style (because it is lol) just isn’t producing trade surplus’s through exports as was hoped:

http://www.rte.ie/news/business/2013/0819/468942-japan-trade-deficit/

Fukushima is proving up to be the black swan event analyst’s feared and the nuts and bolts numbers from media that isn’t so mainstream flatters Japan, not so much:

http://rt.com/op-edge/fukushima-disaster-economy-debt-stimulus-840/

#191 Babblemaster on 08.22.13 at 6:56 pm

#180 Carpicker

————————————————————-

When I see this kind of truly egregious malfeasance, I have to wonder why Garth has issues with the word “bankster”.

#192 AisA on 08.22.13 at 7:09 pm

Everyone on the sidelines MUST chill. Even if a crash takes place tomorrow, the bottom is YEARS away.

Everyone else knee deep with 25 year and longer (dear god) debt obligations SORRY.

#193 Rob Rice on 08.22.13 at 7:13 pm

Folks, some direction needed please; we sold our condo in spring anticipating a meltdown in condos. We opted to rent a SDH for now. We’d like to buy – eventually. What would you do with your savings right now while this housing market sorts itself out? Wait to buy for another year? Invest in the meantime (IN WHAT??!!) – We are trying to figure out what our next step is. IF prices do fall, who knows how long it will take for prices to come down to more reasonable levels. What would you do in our shoes?

#194 The Big M on 08.22.13 at 7:50 pm

Renters that don’t have a lease or one that’s coming due soon, you might want to lock in for awhile.

Otherwise here’s a recipe you might have to get used to in the months ahead.

http://cheapstudents.ca/kraft-dinner-recipes/

My mould free basement will be ready in Nov.

1200 square feet for $2800.00

I think you’re done here. Your insults add nothing to the discussion. — Garth

#195 Daisy Mae on 08.22.13 at 8:01 pm

#161 Big Rider: “The point was simple. Owning mutuals with high MERs has a lot to do with portfolio under performance. And, yes, there is a significant difference between 2.5% fees after tax, and 1% pre-tax. — Garth

*****************

Just ask me. Been there!

#196 Daisy Mae on 08.22.13 at 8:08 pm

181 daystar: #160 Daisy

“Well said.”

******************

Well, daystar…you always say it better! ;-)

#197 Vamanos Pest on 08.22.13 at 8:39 pm

#179 The Big M
As good as the mouldy basement sounds, when rates go higher, I think I’ll just buy a house at a huge discount to today’s listing prices. In the meantime, I’ll try and just stick it out in the brand new 2800 sqft landscaped house that I rent with the 2 Bimmers in the fully finished garage. But hey, your idea was good too.

BTW, enjoy the strangers in the basement come November. That idea is a little creepy for me, but good luck with that.

#198 Vamanos Pest on 08.22.13 at 8:52 pm

Garth,
You gotta leave The Big M on here. He’s not said anything offensive, and you don’t want to give fuel to the argument that you censor dissenting opinion. (Plus, the KD thing was kinda funny. No?)

#199 Vangrrl on 08.22.13 at 8:58 pm

#170: Wrong.
For the most part renters are far more mobile than people changed to mortgages. I think a lot of us think more outside the box perhaps, too, so if a place becomes too costly- move to another city! I’ve had friends over the years who left Vancouver as prices/housing climbed and job opps decreased. They’re all doing just fine wherever they started over. Lots of my friends here have below market rent due to being long term tenants. In 12 yrs I’ve never had more than a mth-mth lease and I have chosen to move one of two times. One time was stressful (house sold for demolition) but I had 2 mths notice and one mth free rent. That was at the height of the madness, 2008.

#200 Vangrrl on 08.22.13 at 8:59 pm

‘chained’ to mortgages, that is ;)

#201 Derek R on 08.22.13 at 9:06 pm

#187 Harry Wilson on 08.22.13 at 6:13 pm wrote:
The one exception to the parliamentary rules that I would like to see is that I don’t want to have to wear a tie to read, post, or respond to comments. Or pants.

As long as you are wearing your top hat, you don’t need to wear pants or a tie. But no top hat, no commenting.

#202 Ralph Cramdown on 08.22.13 at 9:20 pm

I think The Big M’s analysis is hilarious. No complicated household formation analysis, or explanation on how we will be different from the US, where rents didn’t rise significantly. Nope just a simple “more renters” argument which sincerely hopes you’ll ignore the fate of all the existing vacant homes that they won’t be buying.

#203 Tony on 08.23.13 at 1:58 pm

It is true rate that interest rate is on the up trend but putting $ into housing is still better investment than stock market or mutual funds.
1. Look at the financial market crashes over the past. Scary, people lost their life savings, pensions and some delay retirements.
2. A home is tangible but stock or mutual funds is a piece of paper we buy. No matter what, home or condo provide us shelter and we all need it unless we all live in a cave again.

Please look at Asian such as Hong Kong and Japan, the housing is always up and of course they do come down but historically the trend is up if you look at the housing price data from 1920 to present.

Thank you for being iconic. — Garth

#204 Uwinsome on 08.23.13 at 2:51 pm

It’s not just rising interest rates that are having a negative effect on housing in the US. Also, most of the purchases have been made by private equity or investors on foreclosed properties. Mainly, this is what has caused prices to rise sharply in the last year. Now this is drying up and rates are increasing – a double whammy. It may also have implications on tapering. So says this article:

http://www.cnbc.com/id/100983583

That is not what that article says. It is a complete myth that the US resale housing market is dominated by institutional buyers. Just check the numbers. — Garth

#205 Bob on 08.23.13 at 3:09 pm

Rob Ford defeats his ‘hero’ Hulk Hogan in friendly arm-wrestle

Read more: http://www.vancouversun.com/entertainment/Toronto+Mayor+Ford+take+hero+Hulk+Hogan+friendly+armwrestle/8825431/story.html#ixzz2coxbZrcB

http://www.vancouversun.com/entertainment/Toronto+Mayor+Ford+take+hero+Hulk+Hogan+friendly+armwrestle/8825431/story.html

#206 Bob on 08.23.13 at 3:36 pm

Remember (last October) when the out going Victoria Real Estate Board president made this remark:

“because we never know when interest rates will be increased to stimulate the economy.” VREB

Do you think she’ll be right???

#207 walter morel on 08.24.13 at 2:13 pm

This is part of the deflationary trend we find ourselves in.
Hard assets will tumble in prices as we have seen with commodities and we will have defaults in housing galore. We will have lots of credit defaults but we will also see gold surge to new heights as bonds with falling yields will be dropped like hot potatoes. Dollars will fall in value as bond sold, rates will rise but at some point, those with cash will scoop up opportunities and as prices drop on all goods, people will begin to buy again and inflation will return. Problem will be, there won’t be too many of us standing after the next coming depression to re inflate in any hurry as currencies will all be in turmoil.. The 1930′s were based on a deflationary problem which we are finding ourselves in from and it took years to recover as we know and it took a big war. This will and is going to be ending badly and the effect of current interest rate hikes on housing while huge, will only be one small area of collapse

#208 Michael on 08.25.13 at 5:08 pm

Wow, look at all of these renters wringing their hands and salivating as they hope for the downfall of home owners and happiness.

Instead of just accepting the fact that you have missed the greatest decade of realestate wealth creation in our lifetime, you’d sooner hope for the ruin of your fellow Canadian urban home owners.

Pathetic.

House prices may fall 10, 20, maybe even 30% in Vancouver and Toronto, but either way you can never make up for the loss of not having bought your home ten years ago in either of these cities.