Market update

RAPTOR modified

Pete and Joyce are near-50ish, and fairly easy to hate. They make $200,000 a year, have $800,000 in retirement savings and live in a suburban Toronto house they figure is worth $1.2 million with a dinky mortgage.

“You’ve convinced us we should consider selling to take advantage of the market top.  Lucky for us, our situation is not dire,” says Pete, modestly. “Tonight someone will be viewing our house who has family living on our block and so might make an offer above the already frothy market value.  Woo-hoo for us!”

“But … we’ve been looking at our options in the Toronto rental market and are very disappointed both by the quantity and quality of what’s available.  We thought we’d go as high as $3500 for rent but the pickings are slim especially since we have pets (2 cats).  At $5000+/month, the choices get better but paying 30%+ of our salaries just doesn’t seem prudent.  Also, we’re worried we many need to move frequently if our landlords keep flipping the house we’re in. Any thoughts on the rental market?  In hopes this topic is suitable blog fodder, I’ll reading faithfully as always for a response.”

Well, Pete, I guess you’re not a math teacher or a quant. Let’s figure it out. Sell the house in a private deal and walk with just over a million. Invest it wisely (you know the drill – balanced diversified, liquid) and expect an annual yield of about $75,000, which you can take as return of capital. That’s $6,200 a month, just from the house proceeds – plus you no longer have to worry about property tax, insurance or maintenance costs. And, meanwhile, you get to bank most of your salaries.

That’s enough to rent this place, or a mess of other properties in Toronto which are probably sexier than the house you live in. And you’ll be spending 0% of your salaries, while having $1.8 million in liquid assets and adding to them monthly. More reasons to dislike you.

Could you be forced to move in the future? Sure, if you’re not astute enough to negotiate a good, long-term lease. But people move frequently anyway, especially when they’re winding up careers and getting ready for retirement. Staying put is highly overrated and usually kills you faster. But I may be prejudiced.

Mostly, Pete, you’re a smart guy to get out at the top, or damn close to it.

As May pops, real estate boards across the country are rolling out stats for what’s traditionally the hottest sales-and-price period of the year. The tale the numbers currently tell (and we do not yet have data from Toronto) is (a) listings are going up, (b) prices are flat or declining in several major cities, and (c) there is no ‘real estate market’ in Canada, but rather a plethora of micro-markets where some people are depressed (Halifax) and others delusional (Calgary).

For example, consider this:

Ottawa: While everyone living there considers it bulletproof and oh-so-special, things are not going too well. April sales crashed 9.5% from the same month a year ago, with realtors blaming (what else?) the weather. Meanwhile prices have gone nowhere in the past 12 months, showing less appreciation than I get (just 0.8%), with condo values actually falling 3%. Once you factor in closing costs like land transfer tax and commission on selling, there are a lot of civil servant newbies firmly under water.

Vancouver: Sales are up 16% from last April, but that month sucked. The number of deals is running more than 5% below the 10-year average, and listings have just erupted – almost 6,000 more of them last month alone, up about 13% from March. The average property has climbed 3.5% in value over the last year, and closer to 5% for detached. If the surge in listings continues, all bets are off for more price gains.

Regina: Yikes. This was the first time all year that monthly sales crept past levels seen during a dismal 2013, and still prices are falling. The composite residential price (whatever the hell that is) dropped 1.5% from year-ago levels and straight-talkin’ prairie realtors put it this way: “This indicates that residential property values have actually declined in Regina over the past year – the decrease is evident in all housing types.” In all of the last year, the average Regina home has made less than an RBC daily chequing account.

Victoria: Listings also shooting higher – 9% over March levels. “People waiting for a large price change are going to be disappointed, because we see a steady market,” says board boss Tim Ayres. “Pricing is stable, inventory is at a good level, and we’re in balanced market territory which is good for both buyers and sellers.” But people looking for incrementally lower prices will be happy. Prices are down about 1%.

Edmonton: Even though 13 fools bought houses worth over $1 million last month, the average price of a single-family home in Edmonton fell in April. Imagine that. The cheapest mortgage rates since money was invented. The fecund Spring market. And this from head realtor Greg Steele: “The Edmonton CMA is experiencing the highest job and population growth in Canada and that should continue for the foreseeable future.” Sure. We believe you.

Calgary: Yup, listings popping here, too. Up 8% over April of last year, with sales ahead about 7%. Too bad if you can’t afford anything over $400,000, though, since the bottom end of the market is pretty much evaporating in a fog of higher prices. The ‘unadjusted single-family benchmark price’ was 9.6% higher than last Spring, and just leapt 1.2% from the previous month. Vancouver, circa 2011. With hats.

Is this the portrait of a healthy market with lots of potential for future price growth?

Don’t be coy tonight, Pete. Do it.

213 comments ↓

#1 Lurcher on 05.05.14 at 6:44 pm

Do it Pete. Pull that trigger. I did. (First?)

#2 DocInWaitingRoom on 05.05.14 at 6:47 pm

Only reason I want house now is to sell one

#3 Happy Renting on 05.05.14 at 6:49 pm

YEAH Pete and Joyce! Good on ya!

BTW, at a price-rent ratio of 15, that Leaside mansion rental Garth linked to would cost $1.125m.

I know. I had to take a break because I was laughing so hard.

#4 Joe on 05.05.14 at 6:50 pm

I am surprised that there is no any statistics lately about housing market in April?
Silence…no information about unemployment data?
I don’t understand…. The unemployment situation in Toronto is bad…Edmonton is still good and no market idiocy so far like in Toronto. Who is buying those shacks in Toronto???

#5 Finally on 05.05.14 at 6:51 pm

Hi Garth, I rent and live in YVR. I have 250K in High Yield Savings Account(I know, I know, but this is supposed to be for downpayment), 300K in RRSP/TFSA. I’m 43, married to a 32 year old, 2 cars, no debt, have a 2 year old and another on the way. All my friends have houses and living it large, I feel like I’m broke and poor compared to others. I won’t ask when I should buy a place, because I’m trying to wait but there is so much pressure. I am going to ask, am I doing OK financially because I don’t feel like I am? – I’m being serious.

#6 WhiteKat on 05.05.14 at 6:52 pm

I’ve been watching the Ottawa market for the past two years since my family moved here from Brantford. Prices don’t seem to be falling, but with sales volumes dropping, its only a matter of time before prices follow. It would be great to put my money that I am hiding from the IRS back into real estate, but there is no way I am going to buy at the peak of a bubble…been there, done that in 1989. Besides if one more Ottawa realtor has a meltdown and attacks his family, something fishy is going on with the board stats for sure.

@Opinated, Did you see my comment #167 from last post?

@ChickenLittle, Ayn Rand Army and Derek R, Thanks for your support.

#7 Pete on 05.05.14 at 6:53 pm

April YTD Unit Sales – Oakville

Reported In
PY. CY.
Apr-11 1245 1091
Apr-12 1113 1215
Apr-13 1238 1086
Apr-14 883 949
Apr-15 772??** **extrapolated based on 2013-2014 adjustment

Looking at the MLS Oakville April YTD unit sales numbers. 949 units sold YTD Apr-14 compared to 883 in April-13. Nice little jump of 7.5% – market’s hot, hot, hot. Except that in April 2013 1086 units were reported, so 200 odd units have mysteriously “disappeared” making the 2014 numbers look oh so much better. Even though only final sales (all conditions removed) are supposed to have been counted.

In fact as far as we can see, it looks like the Oakville market peaked in 2010, teetered in 2011/2012, and has been in a rather serious decline over the past two years.

Not that this would ever have been described this way by the RE bunch…

#8 Istabraq1000 on 05.05.14 at 6:58 pm

Sell it Pete, wait 5 years and buy it back for half the price when the new owner defaults…Simple

#9 WhiteKat on 05.05.14 at 6:58 pm

@ Opinated, ooops, I meant comment #165 from last post, not #167

#10 Bob Rice on 05.05.14 at 7:00 pm

Seems like the price increases will continue for now…

#11 Cici on 05.05.14 at 7:04 pm

You forgot Quebec…and we’re still part of Canada!

Pas de stats. — Garth

#12 Joe on 05.05.14 at 7:06 pm

There are stories around that some flippers are pulling last deals and selling and running away from Toronto…saying that is the last chance to make a money now till summer..

#13 not 1st on 05.05.14 at 7:06 pm

Sound like sheltered DINKs

#14 Matt Hughes on 05.05.14 at 7:09 pm

Oh boy, no data from TREB yet? Here’s my chance!

April 2014
Sales: 9520
Avg price: $591,534

However, that’s only if TREB is still duping their listings. Hopefully, they’re going to remove all the duplicate values and get something slightly different:

April 2014
Distinct sales: 9190
Avg price: $589,998

Compare this to April 2013, which had 9535 sales at an average of $524,868.

Can’t wait to see what TREB releases! Hope I’m right one way or another.

#15 KommyKim on 05.05.14 at 7:09 pm

So does the Velociraptor represent the predatory realtor or that realtors should go the way of the dinosaurs?

#16 not 1st on 05.05.14 at 7:13 pm

Garth, you really think a guy like this who has squirreled everything away into RRSPs is going to now go hard into the equity market with his house profits?

I predict a million dollar GIC is in their future.

You don’t know what ‘balanced and diversified’ means, do you? — Garth

#17 Entrepreneur on 05.05.14 at 7:16 pm

This controlled game cannot last forever; it will eventually come to an end. Buyers are wiser and will not buy high. Also, the youth know how much it cost to live daily so how would they survive buying and paying a mortgage (and some parents know better). Some live/camp in their mortgage homes as reported by a local charity.

Only way, like the only one/flipper who bought next door, is to buy then rent out. No one, not a soul looked at the place and same with the other neighbour selling. No one is looking; the rush is over; the game is over. Some do not know. He is an older buyer so I do not feel sorry for him as he should know better but I do feel for the youth. It is not right to bind the youth to a one seller; that only destroys the economy.

#18 coastal on 05.05.14 at 7:23 pm

Victoria: Listings also shooting higher – 9% over March levels. “People waiting for a large price change are going to be disappointed, because we see a steady market,” says board boss Tim Ayres. “Pricing is stable, inventory is at a good level, and we’re in balanced market territory which is good for both buyers and sellers.” But people looking for incrementally lower prices will be happy. Prices are down about 1%.
—————————————————-

Don’t ya hate it when the salesman tries to make it look like everyone he is talking to is praying for a crash and wants to rub it in ? Very very lame comment. Guess he forgot to mention prices are down roughly 8% -10% from last year. Hard to see it now that VREB convolutes the numbers, but its the highest sales in almost 5 years and prices went down on the peak selling month of the year. Yep Timmy, we’re disappointed alright…just as CMHC cuts off more of the umbilical cord keeping agents up at night. If it keeps dropping 1% for the next couple years then who will be disappointed ?

#19 Nemesis on 05.05.14 at 7:27 pm

#BeLikeSteve. #TakeTheMoney&Run.

http://youtu.be/XtK0PX6YqBo

…or if your knees aren’t up to the impact…

#FlyLikeAnEagle

http://youtu.be/6a6lAwbE1J4

#20 Vamanos Pest on 05.05.14 at 7:29 pm

Pete, if you’re not willing to pay $5000 a month in rent, then you should definitely sell, because that is less than the current opportunity cost on your house.

#21 brainsail on 05.05.14 at 7:30 pm

“First on CNN: Keystone bill likely to fail in Senate”

http://politicalticker.blogs.cnn.com/2014/05/05/first-on-cnn-keystone-bill-likely-to-fail-in-senate/?hpt=hp_t2

#22 not 1st on 05.05.14 at 7:31 pm

You don’t know what ‘balanced and diversified’ means, do you? — Garth

—-

Nope, but I know people and someone who never risked a dime in the equity markets in their early years, sure as hell won’t do it later on in life.

Just save your self all the typing and tell the guy to go over to ING.

#23 Ben on 05.05.14 at 7:32 pm

So these guys are what, top 5% household earners? And they saved up $800k. Probably matched more generously than the youth today get but hey, let’s ignore that. So they saved up 800K over their lives and yet they will still make more than this clear profit on their house if they sell up.

So let’s assume tomorrow’s youth save up 800K. All of that goes into the mortgage. All of it. They end up with the same pile of bricks these guys got. So that’s their 800K of savings gone into thin air.

Tell me again Garth how anyone under 35 can possibly retire when all current stats are based on the assumption of the huge generational wealth transfer that is housing.

Does add up, does it?

#24 RichHill - RichVale Girl on 05.05.14 at 7:33 pm

“plus you no longer have to worry about property tax, insurance or maintenance costs.”

Still need to worry about insurance – tenant insurance.

Cheap. — Garth

#25 saskatoon on 05.05.14 at 7:34 pm

but what about saskatoon?!?!!?

#26 Glen on 05.05.14 at 7:37 pm

Garth,
Your arguments are valid but to be fair, those $6200 are pre-tax dollars and not all available to pay rent.

I said ‘return of capital.’ — Garth

#27 James on 05.05.14 at 7:38 pm

#5 Finally

Question: what is your income (family), and are your longer term employment prospects stable?

If you are asking whether you are doing well compared to the average person, my guess is that 550k in liquid assets is something that most Canadians would love to have at that age. There are a fair number of house-rich income-poor families with paper wealth, of course.

A lot of those people living it large are in serious debt and leverage troubles.

As for the rest, I’d say you did well on the kids and 43/32 front. I don’t feel particularly sorry for you. :)

#28 visorman30 on 05.05.14 at 7:38 pm

#16 isn’t it what they ought to do rather than what they may likely do? Anyways, I think the point is the $5k/month in rent as solely funded by employment income is an inappropriate basis for comparison.

At any rate, if this couple are dual-income no kids, is their financial position really all that impressive? Certainly seems impressive, but looks can be deceiving.

#29 Bobby on 05.05.14 at 7:43 pm

If it’s a steady market here in Victoria, someone should tell my colleague. He can’t sell his house and those around him that sold are well below list price.
Who believes a realtor anyways?

#30 OttawaMike on 05.05.14 at 7:45 pm

It’s official the Canadian housing bubble has finally been declared burst:
http://blogs.wsj.com/chinarealtime/2014/05/05/chinas-property-bubble-has-officially-popped-report-says/

#31 OttawaMike on 05.05.14 at 7:45 pm

Oh sorry..that was China but I’m sure some of the wishful basement dwellers have already clicked the link

#32 Son of Ponzi on 05.05.14 at 7:48 pm

You don’t know what ‘balanced and diversified’ means, do you? — Garth
————–
By balanced and diversified Garth means putting your GICs with different financial instituition to stay below the insurance level.

#33 Joe on 05.05.14 at 7:51 pm

http://www.news.com.au/finance/real-estate/property-price-growth-slows-throughout-australia/story-fncq3era-1226901914018

Australian housing is slowing … so it could be the true about selling off by flippers in Toronto right now….last moments to sell…Domino Effect

#34 Smoking Man on 05.05.14 at 7:52 pm

I tried talking to a cow this week. It lifted it’s head while chowing grass in orbital bights. I said to the bastard, tomorrow your going to be stake on my barbecue. No reaction.

Cows are dumb creatures, you can tell them we are under an alien invasion and run like hell. They won’t move.

Now dogs are a bit smarter, give them bone and they do tricks. Call it bad after it tears apart the garbage they run into the corner tail between the legs.

Now Humans they’re are smart as shit, they spend a decade and a half in training to be someones bitch. Along that road seventy percent believe that after death a nice invisible old man. A kind man, a wise man will embrace them, love them and take care of them for ever.

Yup, that’s pure brain power at work, the cows are thinking man we got short changed.

Now lets toss in a crazy idea, of the billions of galaxies, there might, there maybe intelligent life out there. But from what we understand about physics it’s impossible for them the visit. After all we are smart..

This weekend the entire aerodrome on the west coast, shut down, flights grounded and canceled. The cause, a U2 spy plane flying at sixty thousand feet caused the FAA computers to go crazy. U2’s fly every day in that airspace.

MH370 correspondence with the tower, proven by experts, doctored. What are they hiding?

On October 30, 1938. Orson Welles broadcast War of the Worlds, Out of the 6 million people listened to it.

One Million bought it hook line and sinker, and all hell broke lose, people killed themselves, each other, robberies, rapes.

What would happen today if the truth about grays was known. Billions of people, many made up of religious freaks today. One sixth of the population goes nuts.

Not that I believe in that shit.

#35 Dean Mason on 05.05.14 at 7:54 pm

Putting a $1,000,000 in a GIC is more risky than you think.

CDIC only covers $100,000 principal and interest for non-registered accounts with the same named ownership.

RRSP’s, TFSA’s, RESP’s, RRIF’s all have separate coverage until one passes away when it is not covered anymore separately.

The $1,000,000 earning $25,000 to $30,000 a year will not probably do it for them but $38,000 to $39,000 a year is better but they must lock up their money for 25 years at least.

Silly comment. No bank will fail. — Garth

#36 Macrath on 05.05.14 at 7:59 pm

Mob behaviour at TD and other broker/dealers
by Danielle Park

TD Ameritrade was able to sell the right to execute its customers’ orders to high-frequency trading firms for hundreds of millions a year.”…what Nagy did know was that the simple retail stock market order was, from the point of view of the high-frequency traders, easy kill.” (p 179)
http://jugglingdynamite.com/

Every customer should be asking their broker/dealers for information on how they are selling their best interests to the highest bidder.
———————–
Highly doubtful that ETF`s are exempt from this fraud !

You’re right! HFT and ETF have two of the same letters. How could I have missed that? — Garth

#37 Chief BootaLazy on 05.05.14 at 8:04 pm

You don’t know what ‘balanced and diversified’ means, do you? — Garth

Yes we do Garth – Picture this. A seven year old kid, perfectly “balanced” on a see-saw, (you with me so far); then visualize him/her holding an open bag of buttery popcorn in one hand and BIG cone of vanilla icecream in another – Got it Wise One !

#38 WhiteKat on 05.05.14 at 8:09 pm

@BradInVan re: #132 from previous post.

You said: “WhiteKat then please give the blog something intelligent to discuss. Your personal matters are of no concern.”

How’s about this:
https://www.youtube.com/watch?feature=player_embedded&v=08WttMWXdmc

#39 Nemesis on 05.05.14 at 8:15 pm

#Cows? #DepartmentOfHomelandSecurity #SCI-LVL7

@SmokingMan/#34

“Cows are dumb creatures…” – SM

Seriously, and strictly between the two of us… they’re, like totally, the LastLineOfDefense.

They’re actually the ShowRunners, too.

OK, SM – just promise me you won’t tell PapalNostySnugglyButtocks.

He already suspects too much.

http://tinyurl.com/p8b5pg8

#40 joe calgary on 05.05.14 at 8:17 pm

Calgary is Vancouver circa 2011? So much for correction or slow melt for that matter.

Guess its a good time to buy, prices about to spike.

Prices would have to come down 20% for Garth’s argument to be valid for the last 3 years. I along with Garth will have egg on my face at the next family dinner, as I’ve been quoting him for years. And recommending friends and family look at this site.

#41 Vangrrl on 05.05.14 at 8:23 pm

#5:
Financially you’re fine, but do you need people to tell you that? Having had kids at your age, it’s a good thing you have substantial savings. Your kids will only be in their 30s (the younger one 27) when you hit your 70s. Don’t want them to have to support you financially when they’re just get rolling. Stay fit and healthy so you can do all the fun things with your kids my dad did with us. It doesn’t seem like it matters when you’re still relatively young but my bro and I have quite different memories of how active our parents were and that’s with them being 32 when I was born and 38 when he was. Of course age is largely a state of mind- but just sayin’. Take care of your health most of all!

#42 chapter 9 on 05.05.14 at 8:29 pm

#5 Finally
Rule #1 for life-don’t compare yourself to everyone else. Decide what’s important to you in your life and forget about the sheep. Be a wolf!!

#43 T.O. Bubble Boy on 05.05.14 at 8:29 pm

#22 not 1st on 05.05.14 at 7:31 pm
You don’t know what ‘balanced and diversified’ means, do you? — Garth

—-

Nope, but I know people and someone who never risked a dime in the equity markets in their early years, sure as hell won’t do it later on in life.

Just save your self all the typing and tell the guy to go over to ING.
———————-

2 things:
1) it’s TANGERINE now, not ING ;)
2) While I agree that many could be paralyzed at the thought of Investing $1M+ in a diversified portfolio! I would think that the decision to sell would have to be combined with a decision to invest… maybe I’m wrong, but keeping $1M+ in cash seems even more insane than keeping a $1M+ house.

#44 Jsan on 05.05.14 at 8:30 pm

This is what happens when the hype and novelty of home ownership wears off. The real estate mania going through Canada is no different than any other mania. It goes from being an obsession where it’s all people can think or talk about to the final stage where people realize that it was not all it was hyped up to be. When I bought my first house it was “glorious” for the first few months, than the novelty wore off and life became the same old same old but with a bunch more bills to go with it.

Garth hit the nail on the head when he refers to it as house “lust”. It is more than house desire, it is a totally and somewhat unhealthy obsession and craving. It is almost looked at as something that will fulfill a missing part of their lives…….until they buy their first house, fulfill that craving and soon realize it wasn’t all that it was hyped out to be after all.

Many Americans who recently went through the house “lust” stage are realizing that a far more important goal is to save up for retirement. The one thing that you can never get back is time and for many people who have taken the real estate plunge over the last several years, they have kissed their retirement goodbye and guaranteed themselves a lifetime of debt or as it used to be called centuries ago, Serfdom.

“20 million U.S. families could buy homes, but don’t.”

http://www.marketwatch.com/story/many-renters-have-enough-money-to-buy-homes-2014-05-02

#45 Macrath on 05.05.14 at 8:34 pm

How could I have missed that? — Garth
________________________________________

Garth, She says firms like yours are being front run as well as on line investors for hundreds of millions.

Are you amused ? Is this meaningless fiction ? Like, I got my 7% so who cares ?

That’s why smart people buy indices. — Garth

#46 Mr. Reality on 05.05.14 at 8:34 pm

#4 Joe on 05.05.14 at 6:50 pm

I am surprised that there is no any statistics lately about housing market in April?

They are late when its bad. This has happened before……..let’s see when they are released.

Mr. R.

#47 Vlad on 05.05.14 at 8:37 pm

Has anyone calculated what rents will be if we start to get hyper inflation from all the FED’s QE (quantitative easing)? No way Canada can escape the effects of what happens in the U.S. At least if you have your own home your house value keeps up with inflation. If you only rent you will be totally screwed!

#48 Dean Mason on 05.05.14 at 8:38 pm

The big bank will not fail but for that financial security and convenience of having a $1,000,000 GIC in one place will not pay $25,000 to $30,000 a year in interest.

It is more like $22,500 to $25,000 a year in interest as in order to get a higher GIC rate will mean the need to shop around and deposit with many CDIC financial institutions.

Most are paying 2.75%, 2.85%, 3.00% to 3.05%.

A million in a GIC? You just keep getting weirder. — Garth

#49 Van Isle Renter on 05.05.14 at 8:40 pm

Just saw a blurb about CMHC cutting their underwriting by 2% this year. Doesn’t seem like a lot. Unless of course you’re the one who can’t get CMHC and the bank wants you to cough up real $$$$.

#50 WhiteKat on 05.05.14 at 8:40 pm

@BradInVan, perhaps you will also find this “intelligent to discuss”.

James Jatras, a former US Diplomat and US Senate staffer, who now runs a legal firm in Washington D.C which specializes in foreign affairs and human rights, wrote this comment today at isaacbrocksociety.ca regarding an article in EptochTimes titled “IRS – The US Economic Weapon to Be Unleashed on Russian Banks ” (http://www.theepochtimes.com/n3/659183-irs-the-us-economic-weapon-to-be-unleashed-on-russian-banks/) :

“What’s incredible is that this is characterized as economic warfare uniquely against Russia. Russian institutions would be treated exactly as those in any other country that doesn’t have an IGA. The only unique wrinkle is that Russia evidently is not being permitted to surrender as several dozen other countries have, and its institutions would have to individually comply. But that only puts them the same boat as 130+ other countries not currently exempted.

A more accurate headline would be “US ECONOMIC WEAPON UNLEASHED ON MOST OF THE WORLD (EXEMPTING ONLY THOSE THAT HAVE ALREADY SURRENDERED)”

#51 Nemesis on 05.05.14 at 8:46 pm

#TheTruthAboutWolves. #FarleyMowat

@Chapter9/#42

http://youtu.be/6uI4XAGO2BY

#52 Victor V on 05.05.14 at 8:56 pm

Garth recommended Leaside. Heck, just a few hundred more per month and you can live like royalty in Hogg’s Hollow just a stone’s throw from the Rosedale Golf Club.

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13988339

#53 Dean Mason on 05.05.14 at 8:56 pm

There are Israel Bonds that pay currently 4.07% in C$ and 4.10% in U.S. $ for 10 year maturities.

They are RRSP/RRIF/RESP/TFSA eligible. They pay semi-annual interest so $1,000,000 would payout $20,350 C$ every 6 months in interest.

#54 Nemesis on 05.05.14 at 9:01 pm

#BonusZen. #TwoSocks.

http://youtu.be/ahW9jOS0-pY

#55 Accountant on 05.05.14 at 9:01 pm

Garth,
Your arguments are valid but to be fair, those $6200 are pre-tax dollars and not all available to pay rent.

I said ‘return of capital.’ — Garth”

Well that means there has to be cash available for the rental term so less is available for investment return and the fixed income part of the portfolio will still be taxed at marginal rate so rental $$ is less than you say. You need capital appreciation deferred ETF’s none that I know of but there are some exchange traded fund companies that run capital appreciation deferred investments that are not so liquid due to low volume and no fixed income types.

Interesting an ‘accountant’ would not know what this means. — Garth

#56 4 AM Sunrise on 05.05.14 at 9:03 pm

#41 Vangrrl on 05.05.14 at 8:23 pm
#5:
Stay fit and healthy so you can do all the fun things with your kids my dad did with us.

——————————————————

I tutor from time to time. One day I was teaching an 8-year-old boy and his 10-year-sister. Suddenly the boy blurts out, “my dad is SO OLD! He was born in 1944!” I’ve seen the parents – the kid’s not exaggerating. Their mother is in her 30’s.

#57 Victor V on 05.05.14 at 9:04 pm

http://www.theglobeandmail.com/report-on-business/cmhc-to-underwrite-less-mortgage-insurance-in-2014/article18462946/

Canada’s federal housing agency said it would underwrite less mortgage insurance in 2014 as the government adds more restrictions to the kind of insurance offered in a bid to keep the country’s hot housing market from overheating.

The Canada Mortgage and Housing Agency said on Monday that it expects the amount of insurance in force to continue to decline in 2014 to $545-billion, down 2.2 per cent from $557-billion in 2013 and 3.9 per cent from a high of $567-billion in 2011, at the height of the post-recession housing expansion.

#58 Aggregator on 05.05.14 at 9:11 pm

#49 Van Isle Renter – Just saw a blurb about CMHC cutting their underwriting by 2% this year.

That's what they've been saying for the past few years, yet when one looks at CMHC and Genworth's balance sheet, government backed insurance and guarantees continue to swell every year. Chart

Despite whatever they say, they won't pull back, rather move on to the next scheme out of the pubic's view.

#59 Freedom First on 05.05.14 at 9:13 pm

#47 Vlad

IF hyperinflation? IF……IF….IF…….and if my aunt had balls she would be my uncle.

Vlad, your hypothesis on inflation is too simple for such a complex event. Fail.

#60 Joe on 05.05.14 at 9:13 pm

#47Has anyone calculated what rents will be if we start to get hyper inflation from all the FED’s QE (quantitative easing)? No way Canada can escape the effects of what happens in the U.S. At least if you have your own home your house value keeps up with inflation. If you only rent you will be totally screwed!
—————————————————————
Have you ever thought about disinflation……….
Have you noticed that right now everyone wants you to buy anything and give you good rates..?
75% cars people buying for 72month period, homes for 3%…why???? they want you to buy it…..there is no economic grow…you consumer have to support “them”
We produced so much no one wants to buy it anymore…
Toronto in terms of employment is screwed and will be more lay offs …than what?
Did your paycheck goes up……NO , so where is inflation???
Disinflation will wipe out house prices…it starting..
Don’t tell me that Toronto Housing is so HOOT…..
nice bidding story…..Normal people …just barely pay mortgage and food….and sleep and work….
no money for kids for after school activities….and most popular car hundai or kia…this is reality….man
and from other site riches….the gap getting bigger and bigger ….

#61 Fox on 05.05.14 at 9:15 pm

WhiteKat, copying and pasting the opinions and editorials of others to serve your own personal agenda does not make you intelligent.

Please drop the self righteous act. If you yourself were not born in the US and did not have to face the responsibilities of US citizenship you would not know or care about FATCA and would most certainly not be talking about Charter challenges on the behalf of one million “accidental” Americans.

#62 Musty Basement Dweller on 05.05.14 at 9:17 pm

Hi Garth, la bell province (or at least Montreal) was notably absent from your market update. I know from your comments around election time that you agree Quebec is important to our economy. What do you think of the Montreal market?

#63 joblo on 05.05.14 at 9:24 pm

“Is this the portrait of a healthy market with lots of potential for future price growth?”

Yup, just waiting for Harpo’s Economic Action Plan to really kick in.

Home prices to the moon!

#64 X on 05.05.14 at 9:28 pm

Is it a full moon tonight?

#65 Joe on 05.05.14 at 9:28 pm

#40 Calgary….what is so special about Calgary…Downtown is a very nice place just during lunch hours….very busy….but the rest of it…? bunch of particle boards…..overvalued…
Dont worry it is coming to Calgary big time…..not everyone has a job withing oil companies…the rest just service and hospitality jobs….
and real estate is cooking the books….

#66 LB on 05.05.14 at 9:30 pm

@Jsan

You are exactly right. It is “house lust”. I have been there, have owned 3 homes (2 in Toronto and 1 in Kelowna – not all at the same time of course). I renovated them all, top to bottom. All for what? To show it off to friends. And that’s what home ownership is, especially to the younger generations – it’s a way to “show off”. It’s almost a competition at times between friends – who can buy the nicer house first. It’s sad, but that’s the reality. I am now married and my wife wants a house – but I keep telling her renting is much smarter, but like many people she thinks it’s “throwing away money”. You just can’t win sometimes.

#67 bonehead on 05.05.14 at 9:30 pm

The rental house Garth pointed out sold, IIRC, in 2006 for around $1.1M. I remember the agent being quite attractive.

#68 WhiteKat on 05.05.14 at 9:39 pm

This is just so sad. I know I am repeating myself with this story, but I also have a 20 something daughter living at home (in the basement, don’t laugh), and I just cannot imagine what this family is going through.

From CBC news http://www.cbc.ca/news/canada/ottawa/labib-khawas-facing-2-attempted-murder-charges-1.2632028 :

An Ottawa real estate agent whose daughter had one of her fingers cut off and whose wife suffered multiple stab wounds has been charged with two counts of attempted murder. Khawas had been working as an agent at Coldwell Banker First Ottawa Realty for a few months, according to owner Ross Webley.

“I’m totally surprised to hear of this news. Although Mr. Khawas has only been with us for a few months, he was always smiling,” said Webley in a statement. “Our hearts go out to everyone involved.”

#69 Pope Two Sheds Snugglebombed the 999rd (aka Nosty) on 05.05.14 at 9:39 pm

“A million in a GIC? You just keep getting weirder. — Garth” — I thought I was a freak of nature too. Guess I’ll just keep letting my portfolio zoom ahead.

#34 Smoking Man on 05.05.14 at 7:52 pm — “I tried talking to a cow this week.”
— and —
#39 Nemesis on 05.05.14 at 8:15 pm — “OK, SM – just promise me you won’t tell PapalNostySnugglyButtocks. He already suspects too much.”

Hmmm. I’m at the stage of my life now where the less I know, the better I am. However, I do surmise that the flyby asteroid earlier today was, in fact, a herd of soon-to-be-steakettes moving thru the atmosphere at breakneck speed.

As far as the human herd, gentlemans, better to have conversations with blocks of wood!

#70 Victor V on 05.05.14 at 9:40 pm

#54 Accountant

http://www.theglobeandmail.com/globe-investor/wrapping-your-head-around-reit-taxation/article5575073/

Reduction in cost base – also known as return of capital or ROC – requires a bit of an explanation.

When you receive ROC, you are not taxed immediately on the amount. Rather, you subtract the ROC from the adjusted cost base of your units. This gives rise to a larger capital gain, or smaller capital loss, when you ultimately sell your units. Because of the tax deferral, ROC is considered tax-efficient income.

There is no ACB adjustment taking capital from your own portfolio’s cash position. — Garth

#71 Tri State Pat on 05.05.14 at 9:40 pm

For the ones who are curious on the state of affairs in the a Canadian city that starts with m and has a population of 3.8 million…

http://www.fciq.ca/pdf/bar/bar_20141_mtl_an.pdf

#72 WhiteKat on 05.05.14 at 9:44 pm

@Fox, #60. I didn’t pick the cause. The cause picked me.

#73 Be Afraid of Doing Nothing on 05.05.14 at 9:45 pm

#43 T.O. Bubble Boy

“2) While I agree that many could be paralyzed at the thought of Investing $1M+ in a diversified portfolio! I would think that the decision to sell would have to be combined with a decision to invest… maybe I’m wrong, but keeping $1M+ in cash seems even more insane than keeping a $1M+ house.”

Right now I’d rather have a million in cash than in a house. At least then you can move it to a smarter more profitable place. I have more than $14M in a diversified fairly conservative portfolio. I’m relatively new to this and it was scary at first (been 4 years now). But in 2013 my pile spit out $350K cash (interest and dividends) and the stock value went up $975K. 2012 was just a little worse. I paid 2 different guys (separate companies) a total of $86,000 in management fee’s (deductible) to look after it all and paid $76,000 taxes. Yes the stock market could crash (I’m only 55% in equities) …. but a housing correction in Canada is much more likely. If you are over 50 and your retirement is in question and you have most of your money in your house ….. I believe there is an opportunity to build a decent retirement future now … that might not come around again for 10 – 15 years. Think about that. Please.

#74 Andrew Woburn on 05.05.14 at 9:47 pm

#164 saskatoon on 05.05.14 at 5:33 pm
#145 Mark
-i have to disagree: gold does have utility.
– however, your second point is interesting: governments have no intrinsic business forcing public ownership of gold–otherwise, it is communistic.
– anyone out there care to retort this?
==================================

Whatever its ceremonial, decorative or speculative value may have been, gold has always been a form of currency. While all other currencies amount to paper IOU’s from the government of some country, gold is nobody’s promise-to-pay and, as such, is acceptable everywhere with no political strings attached, even between enemies. Gold has therefore been useful in government-to-government payments and probably will be again. IMO it is reasonable for governments to hold some gold for contingencies but if a strong international currency like the USD is available, holdings should be limited.

I’m not sure why a government’s holding of gold would be inherently “communistic” any more than its owning a railway, an airline or a broadcasting network.

#75 YEGRenter on 05.05.14 at 9:59 pm

@Macrath #45

Give me the HFT any day. If you are a buy and hold ETF investor that rebalances once a year what do you care if you get front run for a penny. If it really bothers you, put in a limit order that will fill at the price you want whenever it gets there.
HFT’s have reduced the bid/ask to a penny in most liquid underlyings. Would you rather go back to the days of .50C spreads and pay the ask on your market order?

Not me, HFT’s have made nice tight markets for everyone and if you aren’t competing in nano seconds for your trades then it really doesn’t affect your trading in a negative way at all, as a matter of fact it benefits most retail traders.

#76 saskatoon on 05.05.14 at 10:00 pm

#73 Andrew Woburn

government owning gold, trains, media, or planes is very left-leaning.

by the way, bill gates (since 2011) has controlled/owned the canadian national (cn) railway system.

apparently, he hates capitalism.

#77 Babblemaster on 05.05.14 at 10:07 pm

I have been hearing prescient stories of the demise of Canadian RE for the last 5 years. Especially on this blog. All based on anecdotal evidence. Well, I hate to say it, but Canadian RE overall is alive and well.

There is no Canadian market, thus that is a meaningless statement. — Garth

#78 Son of Ponzi on 05.05.14 at 10:10 pm

Reduction in cost base – also known as return of capital or ROC – requires a bit of an explanation.

When you receive ROC, you are not taxed immediately on the amount. Rather, you subtract the ROC from the adjusted cost base of your units. This gives rise to a larger capital gain, or smaller capital loss, when you ultimately sell your units. Because of the tax deferral, ROC is considered tax-efficient income.

There is no ACB adjustment taking capital from your own portfolio’s cash position. — Garth
———————
See folks now complicated this is.
That’s why I stick with GICs.
And sleep like a baby.

#79 Agnew Goodall on 05.05.14 at 10:12 pm

Ottawa real estate is a solid as Harper’s dedication to democracy – or so the Action Plan told me.

What could possibly go wrong with Steve in charge?
Seriously – Ottawa housing is as solid as the LRT plan.
IT starts No where and ends nowhere

#80 cowtown cowboy on 05.05.14 at 10:14 pm

#5 Finally on 05.05.14 at 6:51 pm

Well everyone is different. In my case, I am 45 with about 800k in net worth, about 360k of that in home equity, the rest in the market. All in all, it’s hard not to say we are doing ok when you look around at the rest of the world, but it seems the more you make, the more you spend, and more $$ means more problems…i’m hoping to get out of this rat race before 60 with a couple of mil in the bank to fund the golden years…we’ll see…but be prepared to have your kids start sucking the life and money out of you…

We have 2 kids, 7 and 4 and they take a lot of money and time, the 2nd one seemed exponentially harder than the first.

Van real estate appears insane, if i were you, just keep renting but get that 250k into some good dividend payers and get your money working for you.

CC

#81 Sebee on 05.05.14 at 10:17 pm

Happy Renting, what do you think this thing would list for? 2m?

#82 Andrew Woburn on 05.05.14 at 10:33 pm

Reading about FATCA,I feel like I am missing something. There has to be more than meets the eye. It reminds me of the long gun registry which seriously inconvenienced law abiding citizens without doing anything about gun crime.

Americans who hide cash offshore actually, well you know, hide. They don’t walk into the RBC in the Cayman Islands and pull out a roll of bills and their Texas driver’s licence. How is FATCA going to help [email protected] spot a professional money launderer if she can’t do it now? If you are somehow receiving illicit US source income directly into a tax haven, you have already been subject to 30% withholding anyway. Is FATCA going to make you come out with your hands up? How many senators will it catch?

I get the theory that FATCA is a financial gun to the head of other countries but you only get to fire it once. After that people rearrange their affairs to protect themselves. So where’s the win for Washington? Sure you net up a few hapless grannies and used car salesmen initially but the big fish stay on the bottom. Gradually a cottage industry develops to rent smokescreens to the gutsier small time evaders and we are back where we started except the US government looks like even more of an arrogant bully than before. Nice one, Obama.

#83 Renting Later in Life on 05.05.14 at 10:33 pm

Pete’s concern about renting from speculators is understandable – it can and does happen in this over-heated market. Still they may be better off selling the place, getting rid of a lot of stuff, seeking out the most stable situation possible, and then keeping their cartons “just in case.” Given some time and investigation, they can learn about who some of the serious landlords are in their desired area. If the market corrects, it may shake out the speculators and leave more of the serious landlords in it for income, not capital appreciation, but we’re not there yet. It’s going to be unpredictable a little while longer. Canada needs more institutional rental housing. Quality affordable housing is a serious and basic social need. Right now, where most of the people live – in our biggest cities – we’ve kind of blown it.

Meanwhile, learn the rental law of your provinces, folks. You’re not always at the mercy of the landlord.

#84 Smoking Man on 05.05.14 at 10:36 pm

On the train today, next to me two young female doctors. One was a shrink, other a trama emergency doc.

I pretended I was sleeping.. Listend…

They where talking about how retarded the school system is, who it favored girls, they both had sons…

If the shrink could only read minds…. She had a live one next to her….

But the significance here is…..

They got off at LongBranch…. $$$

#85 WhiteKat on 05.05.14 at 10:41 pm

@Fox, and just so there is no misunderstanding, I don’t fool myself. I realize I am a nothing person, just as you are….a pawn in a game with an ego that is painfully aware of that fact, and nothing more.

#86 Ontario's Left Coast on 05.05.14 at 10:42 pm

#34 – SM – I tried talking to a cow…

Sorry, but what does any of this verbal diarrhea have to do with the troubled future of real estate? Focus, Tokey, and try to remember it’s not your blog.

#87 Cory on 05.05.14 at 10:46 pm

Why do you keep pumping return of capital? It means a fund cant sustain itself. Sure its great to get your capital back tax free but this type of “yield” is also called a “grind on capital”. If the fund cant sustain itself it needs more capital inflows. Legal Ponzi.

And if you get all of your money back on ROC eventually, you do start to pay tax when your cost base is zero.

Your own portfolio is not a fund, has no units and no ACB adjustment. Pay yourself monthly from accumulated cash, and it us non-reportable. Your only tax is on returns actually generated by the portfolio, and with little such reported income, it can be minimal. — Garth

#88 Smoking Man on 05.05.14 at 10:49 pm

#85 Ontario’s Left Coast on 05.05.14 at 10:42 pmSorry, but what does any of this verbal diarrhea have to do with the troubled future of real estate? Focus, Tokey, and try to remember it’s not your blog.
………..

If you’re to stupid not to read between the lines, you know the herd….

Are you that two dementional that you can’t appreciate 3 dimensions….. I present every night…

Plus I don’t recall an election, did you just appoint yourself Sargent of arms..

Communists…

#89 Andrew Woburn on 05.05.14 at 10:51 pm

#57 Aggregator on 05.05.14 at 9:11 pm
That’s what they’ve been saying for the past few years, yet when one looks at CMHC and Genworth’s balance sheet, government backed insurance and guarantees continue to swell every year.
========================

How high’s the water, Poppa?

$1.3 Trillion and rising.

Looking at this chart made me suddenly understand what it must feel like to be married to someone who gambles the rent money at the racetrack.

#90 Shawn on 05.05.14 at 10:53 pm

Meaningless Fiction

McGrath at 36 and 45 worries about High Frequency Trading

what Nagy did know was that the simple retail stock market order was, from the point of view of the high-frequency traders, easy kill.”

Highly doubtful that ETF`s are exempt from this fraud !

********************************************
I don’t think this is anything to worry about. I have many times used market orders on New York and generally it executes in seconds at the price I expected.

If HFT guys are picking up a billion nickels a month, That is only a very few nickels from any one of us.

It may not be fair but it’s nothing to worry about.

There is money to made buying holding good stocks.

Worrying about HFT is like worrying if you have to pay for coffee at your new job that pays you $100k or whatever. It’s diminimous. Fodder for doomers and conspiritists and nothing more.

As Garth said worry about the asteroid.

And on ETFs? As Garth said that should be an index ETF, buy, hold and rebalance occasionally. HFT is a non-issue there. Who cares?

#91 the jaguar on 05.05.14 at 10:54 pm

#64 Joe. I agree. Calgary is a very clean, mostly safe and well organized city. People go to Calgary for jobs. For sure it’s not for the weather. Fortunes come & go with the oil business, but the world is changing. Access to markets is changing, and nothing is assured.
It’s still a one industry town and that makes it vulnerable. Alberta is distinct from other parts of Canada in many ways, but none of them will insulate it from a major downturn in real estate values.

#92 Oakvillain on 05.05.14 at 11:01 pm

The couple in the article have a point about the instability of renting. I looked into it, because of your excellent site, and came very close to renting a nice house instead of buying, but in each case, the owners were overextended morons, and were only looking for a one-year rental. In one case, a $3000/mo rental became $3500 if we wanted a three-year lease. (You’d think the security of a longer lease would make it cheaper!) The other potential problem is repairs. If the owner is strapped for cash, having spent too much on a property and unable to unload it, they’re not going to be quick about fixing problems.

#93 ptbobman on 05.05.14 at 11:01 pm

anyone see the Toronto daytime fireball?
http://news.yahoo.com/brilliant-daytime-fireball-streaks-over-canada-york-video-190509302.html

#94 45north on 05.05.14 at 11:06 pm

Victor V CMHC said it would underwrite less mortgage insurance in 2014

aggegator That’s what they’ve been saying for the past few years, yet when one looks at CMHC and Genworth’s balance sheet, government backed insurance and guarantees continue to swell every year.

CMHC is protecting itself, by reducing the number of mortgages it insures, it can be a lot more selective.

#95 Doug in London on 05.05.14 at 11:18 pm

Pete and Joyce may be easy to hate by some people but others, myself included, admire their prudence for seriously considering selling the house, pocketing the money, and renting. Well, what are they waiting for? They won the grand prize in the lottery and staff at the Ontario Lottery and Gaming Corporation are going absolutely crazy trying to contact them! Between the winnings and other investments they could probably retire in some cheaper place to live.

#96 Nemesis on 05.05.14 at 11:23 pm

#JustForNosty. #VHF. #Badgers.

http://youtu.be/gx6TBrfCW54

#97 WhiteKat on 05.05.14 at 11:24 pm

@Andrew Woborn #81,

Great comment and questions. I wish I was smart enough to give you an answer. Like a lot of things that somehow snowball out of control, and whose original purpose or intent (if there even was just one) has morphed into something completely different, I suspect that FATCA has evolved into a train ride, careening out of control, and impossible to stop until it crashes.

#98 Brucey bonus on 05.05.14 at 11:28 pm

#5 Finally on 05.05.14 at 6:51 pm
Hi Garth, I rent and live in YVR. I have 250K in High Yield Savings Account(I know, I know, but this is supposed to be for downpayment), 300K in RRSP/TFSA. I’m 43, married to a 32 year old, 2 cars, no debt, have a 2 year old and another on the way. All my friends have houses and living it large, I feel like I’m broke and poor compared to others. I won’t ask when I should buy a place, because I’m trying to wait but there is so much pressure. I am going to ask, am I doing OK financially because I don’t feel like I am? – I’m being serious.

I can relate- i’m 44, 325k in savings (for a house), $225k invested in retirement assets. married to a 35 year old. no kids. one car. no debt. the guys i work with are like 30. atleast 4 of them have bought in last year. $450k – $750k prices. i wonder if i am doing ok but think probably am not.

#99 Lebowski on 05.05.14 at 11:34 pm

#86 Cory on 05.05.14 at 10:46 pm
Why do you keep pumping return of capital? It means a fund cant sustain itself. Sure its great to get your capital back tax free but this type of “yield” is also called a “grind on capital”. If the fund cant sustain itself it needs more capital inflows. Legal Ponzi.

And if you get all of your money back on ROC eventually, you do start to pay tax when your cost base is zero.

Your own portfolio is not a fund, has no units and no ACB adjustment. Pay yourself monthly from accumulated cash, and it us non-reportable. Your only tax is on returns actually generated by the portfolio, and with little such reported income, it can be minimal. — Garth

Garth, might i suggest you do a piece on this because like Cory, i don’t have a clue what you are talking about. Just a thought.

#100 winterpeg on 05.05.14 at 11:35 pm

Any data on Winnipeg?

#101 DAN on 05.05.14 at 11:50 pm

#91 Oakvillain

If they’re not quick to fix any problems then why should you be quick to pay your rent? Use your head.

#102 Pastbeyond60 on 05.05.14 at 11:59 pm

@Andrew Woburn
I do hope it is as inconsequential as you describe and goes away quickly. But it will be difficult to arrange your financial affairs if the banks close/will not open accounts for you. It will be impossible to visit family or holiday in the US. This is truly sad.

I have said all along, this is NOT about catching tax evaders, they are long gone. And if that indeed was the mission just ask for account info on foreign accounts with US addresses. I believe the US has another agenda. They will initially collect huge sums in FBAR penalties and with the PFIC rules basically mandate all investments be in US vehicles. They are effectively stealing foreign nations’ assets and making them pay for allowing them to be stolen via the banking tech costs to become compliant. For the icing on the cake…they will make foreign governments responsible for collecting and reporting this data. Quite brilliant I’d say. Some resort to theft when they can’t make it on their own. When you are a big dude biker type stealing is quite easy.

#103 Dr. R.E. Lief on 05.06.14 at 12:01 am

“You don’t know what ‘balanced and diversified’ means, do you? — Garth”

Oh oh oh I know this one. 1 Mophine pill and 2 Percocets, that’s balanced and diversified.

Hope you’re healing well.

#104 Cory on 05.06.14 at 12:04 am

“Your own portfolio is not a fund, has no units and no ACB adjustment. Pay yourself monthly from accumulated cash, and it is non-reportable. Your only tax is on returns actually generated by the portfolio, and with little such reported income, it can be minimal. — Garth”

This is interesting and not something I have heard of before other than roc from a fund. Id be interested in learning more detail about ROC from my own portfolio and would gladly pay for this service.

#105 T.O. Bubble Boy on 05.06.14 at 12:08 am

Hey – just noticed that AAPL hit $600/share again… almost time to short it!

#106 JL on 05.06.14 at 12:21 am

Silly comment. No bank will fail. — Garth

I generally agree, but Garth’s smugness always warrants a challenge. Simple question: IF banks will not fail why doesn’t CDIC just insure all deposits with no limits?? If the chances of failure are non existent – as Garth argues – then the cost of I using all deposits with no limit is negligible and demonstrates the confidence in our banks!

#107 lurker on 05.06.14 at 12:24 am

A question for all of you.

Do you think perhaps housing prices are where they are due to massive increase in the Canadian money supply over the past 6-7 years?

What about the fact that P/E ratios are at historic highs, so there aren’t a ton of sound places to invest?

For what it’s worth, I’m not looking to buy a house, I’m heavily invested in the market, but trying to make sense of these prices.

#108 juno on 05.06.14 at 12:32 am

Interesting topic, especially during tax time.

I know lots of people says low interest rates are good for real estate. Yeah it is. But its also good for corporations and companies,

They can borrow for low rates and reinvest. After doing my taxes I found that I can only pay myself 5K,because the investments did so well.

Goes to show if you get your money to work for you over 30 years, you can live off your savings comfortably. even in this low interest environment

#109 Mike T. on 05.06.14 at 12:42 am

‘Just save your self all the typing and tell the guy to go over to ING.’

ING = Tangerine these days

still the same orange guy’s shorts though

#110 Larry1 on 05.06.14 at 12:56 am

When do they want to retire? How much do they need to live off in retirement? Are they willing to move elsewhere, where they could live much more affordably? Important details in making a decision.

I’d…
– sell the haus
– build a nice fat portfolio
– retire early
– buy a nice place in small town ON (or even better BC) with fresh air, more land, and a good hospital nearby

#111 Dean Mason on 05.06.14 at 1:20 am

There are 15 year GIA’s, RIF’s and LIF’s that are paying 3.525% fixed, guaranteed rates out there which are Assuris backed.

#112 Jayson Kenney on 05.06.14 at 1:27 am

The Cons are suggesting that they end the TFW program and give the 500,000 or so here Citizenship.

That will send housing soaring as they will invite their families.

Was this preplanned?

That was not suggested. — Garth

#113 John Prine on 05.06.14 at 1:33 am

#85 Ontario’s Left Coast on 05.05.14 at 10:42 pm
#34 – SM – I tried talking to a cow…

Sorry, but what does any of this verbal diarrhea have to do with the troubled future of real estate? Focus, Tokey, and try to remember it’s not your blog.
______________________________________________

Just scroll past any of his comments, we do and I suspect most others do as well, it really takes away from this the spirit of Garth’s forum and likely causes new readers to not return

#114 Nemesis on 05.06.14 at 1:42 am

#Mientras tanto, de vuelta en México…

http://youtu.be/U3lA1kS-XKA

#115 souvereigninternational on 05.06.14 at 2:12 am

#91 Oakvillain on 05.05.14 at 11:01 pm
” If the owner is strapped for cash, having spent too much on a property and unable to unload it, they’re not going to be quick about fixing problems.”

Simple solution fix the problem yourself if they can’t do it in timely manner and discount the rent. Keep records of communication.

#116 Happy Renting on 05.06.14 at 2:34 am

#80 Sebee on 05.05.14 at 10:17 pm

Hey Sebee, I don’t have an educated guess (as a Leaside mansion is even out of my wildest fantasies’ league), but I found something similarly grand and same neighbourhood, listed for $2.15M.

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=14357669

Couldn’t tell you if the list price is close to actual market value, but say it is and this house is comparable to the rental house. Price-to-rent ratio of 28.67. DAMN. Wish I had a $6250/month budget so I could rent that sucker!!

#117 RHCP on 05.06.14 at 2:50 am

First time poster here, admittedly have only been reading your blog for a few days and trying to catch up with everything your saying.

Here in Surrey (right near Vancouver) housing prices seem to be still steadily rising, do we collapse with Vancouver? If so when?

#118 dosouth on 05.06.14 at 3:33 am

Vancouver Island Market update – 25% dip in sales but only temporary – really it is!

Summer to be better says Real Estate board

#119 jane24 on 05.06.14 at 4:16 am

Another demographic that my hubby and I age 59 and 63 are seeing more and more of, are late marriages and late children or even worse older folk starting second families. People have small children now at the same age that previous generations were grand-parents. This means that such parental couples will be shelling out for university and weddings well into the normal retirement age. Plus may never make it to grandparent status themselves.

Those heavy costs of family life never finish.

Further it mean that the years of caring for children is starting to collide with the years of caring for elderly parents, with no happy low cost years in between, so such late parents are losing both time and money at both ends.

Reports here in England is that the impact on RE is demand for more big houses as families become bigger and more inter-generational. Loss of market for some traditional smaller retirement housing options such as small flats.

I have friends in their late 40,s and early 50’s who truly have terrible lives running from the High School to the nursing home without a minute for a £ for themselves.

#120 Raven on 05.06.14 at 5:12 am

You Can’t Import Houses

Single family homes are one of the only material objects countries cannot control prices through importation.They are “unimportable”.(Probably not a real word…call Websters). Unlike cars or commodities that have short lived price spurts, houses are country and region specific, usually dependant on easy inexpensive credit. Cheap money is the supply that causes people to buy expensive things.

Gentlemen……It is time to get your balls out of your wifes purse, suck it up, and sell that lipstick covered pig.

Interest rates are definitely triggers for R.E. Both push numbers higher or lower depending on their upward or downward pressures. The R.E. market in the late Eighties early Nineties had rates of 12% and the market rose and crashed and the rates never moved? It seemed like a psychological switch went off in February 1990 and ninety days later…crickets….no spring market for five years.

Developer forward land purchases are way off from two years ago. With two to three year lead times to begin construction, there is very little coming to market next year.

Homeowners who wouldn’t buy their own house for what they expect to sell it for can’t find anything to move to that would justify all the costs and hassle. This alone could be the trigger to halt momentum?

Investment Capitol gravitates towards Markets or Mortar!
The consistent rise in the TSX is just another sign that Capitol is moving out of Mortar and into the Markets.

The slowdown in the remaining global R.E. markets is another sign of the impending global correction that easy money has wrought.

“The price of anything is the amount of life you exchange for it”

#121 Musty Basement Dweller on 05.06.14 at 6:06 am

Ended up getting fixated on HGTV porn for three hours last Sunday. The show about buy it and flip it. What’s the deal with the trophy contractor wife and baby in arms for EVERY scene shot on the show? More marketing I guess or they can’t afford a baby sitter with all of the flipping profits.

#122 I'm stupid on 05.06.14 at 7:03 am

Garth you just described my in-laws. The only difference is that they decided to downsize. After they did, they added an addition and total renovation. So now their new home cost as much as their old one. Why do you need 3000sqf when you’re almost 60?

Do they have the same last name as you? — Garth

#123 TheCatFoodLady on 05.06.14 at 7:09 am

A stupid housing question or three…

A very high percentage of Canadians own their own homes – it’s posited too many own & are desperately house poor. It’s argued many would be better not buying in the first place; at least not until various markets drop out of the stratosphere. Others with much of their assets in housing that is paid off or close to it, or who have a fair bit of equity in their homes & little or no diversification, should sell & rent.

Among those renting – we often read landlords are subsidizing their tenants’ housing costs – rents don’t come close to covering mortgage payment, taxes, repairs, etc.

Now, if more or us should be renting, freeing assets to invest in a liquid & diversified manner – WHO should own the homes we ‘should’ be renting? If one follows good fiscal logic, owners of rental properties should have a reasonable chance of getting a good return on the homes they are renting out.

So… who should own the homes many of us should be renting? Apartments – easy enough to answer – but what about SFHs? What would be the appropriate profile or profiles of folks owning those homes they rent out? What would be a reasonable rate of return for these folks?

TIA

#124 Realtor # 1 GTA on 05.06.14 at 7:13 am

I agree Garth,

In Toronto in particular, listing are on the rise.
Remember I never said there wouldn’t be correction just not a major one (2010 levels)

It was still better to buy and sell real estate- you would be sitting on at least 200-300k to invest.

#125 HogtownIndebted on 05.06.14 at 7:17 am

It was surprising to hear Armine Yalnizyan, usually a sensible voice, on CBC radio this morning talking about real estate.

She referenced the work of Robert Shiller, but hedged its relevance by saying there were no similar long term price studies in Canada. She implied that real estate owners could simply “liquidate” their asset to do something else with if they chose. She closed by saying that “real estate remains one of the best ways to hedge against the ups and downs of the markets”.

Really, when Shiller shows clearly how it remains flat over the long term, while other assets appreciate?

No mention of price to income ratios, overall indebtedness or anything else that Shiller points to.

Maybe she just bought a house..?

The denial happens in many subtle and not so subtle ways, it appears.

#126 Mel on 05.06.14 at 7:33 am

#85 Ontario’s Left Coast on 05.05.14 at 10:42 pm
#34 – SM – I tried talking to a cow…

Sorry, but what does any of this verbal diarrhea have to do with the troubled future of real estate? Focus, Tokey, and try to remember it’s not your blog.
______________________________________________

Just scroll past any of his comments, we do and I suspect most others do as well, it really takes away from this the spirit of Garth’s forum and likely causes new readers to not return
———————————————————–
I disagree and think his comments add colour to this blog and at times even make a lot of sense. You should expand your views

#127 Aggregator on 05.06.14 at 7:38 am

#93 45north CMHC is protecting itself, by reducing the number of mortgages it insures, it can be a lot more selective.

Actually they (CMHC + the Government of Canada) are increasing their liabiltiies by insuring second mortgages with guarantees. The scheme is: guarantees-in-force is a program by the Government of Canada, but its booked on CMHC's balance sheet, so it gives CMHC the right to say it's not our liabilitiy and claim to be reducing its exposure. Meanwhile, add IIF and GIF and total liabilities are past $1.2 trillion. And even if they say they're cutting back on IIF and GIF, that just means more lenders will use Genworth (General Electric), which is 90% backed by taxpayers.

Watch Genworth's next quarterly reports for new premiums written and total IIF (chart). They're likely to breach their $350 billion insurance limit sometime later this year or next as they intake excess demand. So rest assured, another government backed (or this time central bank backed) scheme is already ready to be deployed.

#128 Smoking Man on 05.06.14 at 7:58 am

#112 John Prine on 05.06.14 at 1:33 amSorry, but what does any of this verbal diarrhea have to do with the troubled future of real estate? Focus, Tokey, and try to remember it’s not your blog.
______________________________________________

Just scroll past any of his comments, we do and I suspect most others do as well, it really takes away from this the spirit of Garth’s forum and likely causes new readers to not return.
……………

Communist bastard…. I’ve here for around 7 years, and ya I’m a bit board listening to pink shirt, basement dwelling cowards moan and complain……

I love how you use the key words,
we, us, the others….

You’re a communist teacher loving apple boy….

Take off the dress and be a man,
use words like, I, Me, Myself….

#129 bigrider on 05.06.14 at 8:15 am

DELETED

#130 Nomad on 05.06.14 at 8:35 am

As much as we wish for prices to come down, the Toronto market is holding its ground. No waves of layoffs either.

I’m looking for real indicators of when the market will turn. Started with Genworth, a private residential mortgage insurer in Canada. According to TD Waterhouse, company insiders have been selling. No buyer. That stock has a PE of 10, when the average is around 15. Wouldn’t you be holding or buying if the business was looking good?

#131 NotAGreaterFool on 05.06.14 at 8:45 am

http://www.thestar.com/business/real_estate/2014/05/06/single_home_prices_in_toronto_shoot_up_13_to_965000.html

Average price of single home in Toronto shoots up 13% to $965,000

That’s down from $1,012,172 in the first two weeks of April. Year/year sales flat. — Garth

#132 no-Easy-TAX-Escape on 05.06.14 at 8:56 am

the ROC ( Return of capital ) payment received may not be taxed as income. Instead it may reduce the cost base of the asset. This results in higher capital gains when the asset is sold, but defers tax
http://en.wikipedia.org/wiki/Return_of_capital

Not from a self-directed (or professionally-managed) portfolio made up of many asset classes. ROC payments are not reportable. The tax on the portfolio is determined by the actual income earned, with the bulk lightly-taxed as dividends or cap gains. — Garth

#133 BG on 05.06.14 at 8:59 am

Garth – What does it take for you to give Montreal a little more love or at least attention?

For the local board to report data. — Garth

#134 Peter on 05.06.14 at 9:01 am

#121 TheCatFoodLady,

I have been involved in purchasing SFH for rentals and I can tell what I shoot for when buying ,

Location , more rentable when it is close to things (obvious)

Function, does it divide nicely to rent out legally
(including renting out a detached garage)

A Landlord does subsidize the tenants (especially for the first five years). When you add up what you think you can rent out the house for, being able to pay the mortgage, PT, hydro, gas ,water,maintenence and insurance. I try to collect enough to pay those for the first five years (not easy).
It starts to improve (% interest dependant) in the next five years. I try to borrow against the house to make improvements which increase value , and make the house more rentable and functions better( not easy).

Finding good tenants is the key , reasonable rents and reliable service keeps good tenants but it usually means subsidizing longer, again not easy.

Finally , you hope the value increases, making banking easier and being able to make more improvements and charge more rent (not easy)

My advice is if you do not have to skills and tools to fix them properly then do not buy a house to rent. Stick to REITS. The longer you can hold it the easier the month to month balance sheet changes for the better (hopefully). A competent lawyer and accountant help a lot. Hope that helps CatFoodLady, it works for me MOST of the time , it is definitely not for everyone.

Take care

#135 The end of bubble 2.0? on 05.06.14 at 9:11 am

The events Garth has been describing in the Canadian property market seem to be mirrored at this precise moment in key US markets: “… rising inventories, rising new listings, soaring prices, and plunging sales. Something has to give.”

Some more details:
“In Southern California, the median price soared to a six-year high of $400,000, up 15.8% from a year ago, as San Diego-based DataQuick reported. It was the 24th month in a row of price increases, 20 of them in the double digits, maxing out at 28.3%. Ironically, prices per square foot are increasing fasted at the bottom third of the market (up 21%), versus the middle third (up 15.9%) and the top third (up 14.3%).

Ironically, because at the bottom 65%, sales have collapsed.

People, wheezing under the weight of their student loans and struggling in a tough economy where real wages have declined for years, hit a wall. Private equity firms and REITs, prime beneficiaries of the Fed’s nearly free money, gobbled up vacant homes sight unseen in order to convert them into rental housing, and in the process pushed up prices – exactly what the Fed wanted. But now high prices torpedoed their business model, and they’re backing off. So sales of homes priced below $500,000 plunged 26.4%, and sales of homes below $200,000 collapsed by 45.7%.

These aren’t poor people who stopped buying them but two-income middle-class families who’ve been priced out of the market. Thanks to the Fed’s glorious wealth effect, however, sales of homes ranging from $500,000 to $800,000, increased by 2.9% from a year ago, and sales of homes above $800,000 increased by 5.4%. In total, 35% of the homes sold for $500,000 or more. But combined sales, due to the collapse at the low end, dropped 14.3% from a year ago to 17,638, the worst March in six years, and the second-worst in nearly two decades.”

================
The full article is at:
http://www.testosteronepit.com/home/2014/4/17/housing-bubble-20-veers-elegantly-toward-housing-bust-20.html

#136 Cow to Smoking Man on 05.06.14 at 9:13 am

#34 Smoking Man on 05.05.14 at 7:52 pm

I tried talking to a cow this week. It lifted it’s head while chowing grass in orbital bights. I said to the bastard, tomorrow your going to be stake on my barbecue. No reaction.

;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;

Mooooooo, mooooooo

#137 Smoking Man on 05.06.14 at 9:31 am

Man can I pick a good hood…

W06 AK Long Branch

109% above asking, an incredible only 9 days on market…

Price Catching up to other hoods rapidly…

#138 Victor V on 05.06.14 at 9:38 am

#105 T.O. Bubble Boy on 05.06.14 at 12:08 am

Hey – just noticed that AAPL hit $600/share again… almost time to short it!

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

Had a GTC order for months now at $600. Sold off 3/4 of my position yesterday.

#139 Victor V on 05.06.14 at 9:47 am

Your own portfolio is not a fund, has no units and no ACB adjustment. Pay yourself monthly from accumulated cash, and it us non-reportable. Your only tax is on returns actually generated by the portfolio, and with little such reported income, it can be minimal. — Garth

Looks like a few people did not understand Garth’s reply regarding return of capital, so let me take a shot at it.

It’s been posted before that for those that have portfolios with dividend paying blue-chips, that in the absence of other income, you could reasonably expect to pay zero tax on $50,000 of annual income (more here: http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/dividend-investing/you-do-the-math-almost-50000-in-earned-dividends-0-in-tax/article4599950/).

So imagine you have a $1 million dollar portfolio that yields you 5% in dividends. You’re effectively not paying any tax on your $50K annual income.

Now, your cash is sitting in your account, so all you need to do is set up a sweep so that the funds are moved from your brokerage account to your chequing account automatically every 2 weeks.

Voila, you’re a millionaire with a 7 figure portfolio and you’ve paid zero tax.

#140 Macrath on 05.06.14 at 9:51 am

#75 YEGRenter
Give me the HFT any day. If you are a buy and hold ETF investor that rebalances once a year what do you care if you get front run for a penny.
——————————————————-
Thanks for the input,

I remember the days before the $9.99 or less trades the brokers would rob us mercilessly. Once I was charged 10 % to dump some worthless Stelco shares.

I always use a limit order, trade only when necessary and look for a good price along the 200 day moving average as Garth suggests.

#141 disgruntled tax slave on 05.06.14 at 10:03 am

DELETED

#142 Daisy Mae on 05.06.14 at 10:06 am

#43 TO Bubble Boy: “2) While I agree that many could be paralyzed at the thought of Investing $1M+ in a diversified portfolio! I would think that the decision to sell would have to be combined with a decision to invest… maybe I’m wrong, but keeping $1M+ in cash seems even more insane than keeping a $1M+ house.”

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

If the $M+ is ‘balanced and diversified’ what’s the problem? It should have a calming effect. It’ll fluctuate as it always does…but in the long run, values will increase by an average 7%-8% per year.

Holding GICs in any amount is ridiculous.

#143 Just the facts Ma'am on 05.06.14 at 10:17 am

#113 John Prine on 05.06.14 at 1:33 am
#85 Ontario’s Left Coast on 05.05.14 at 10:42 pm
#34 – SM – I tried talking to a cow…

Sorry, but what does any of this verbal diarrhea have to do with the troubled future of real estate? Focus, Tokey, and try to remember it’s not your blog.
______________________________________________

Just scroll past any of his comments, we do and I suspect most others do as well, it really takes away from this the spirit of Garth’s forum and likely causes new readers to not return
—————————————————–
These type of unsolicited responses just crack me up.
Seriously John, you don’t think that he knows he can just skip the SM posts. Maybe you wife tells you to skip them because she reads quicker than you.
Sheeesh.

#144 Son of Ponzi on 05.06.14 at 11:35 am

#139

Voila, you’re a millionaire with a 7 figure portfolio and you’ve paid zero tax.
—————————
Just forwarded this comment to NDP head quarters.

#145 Son of Ponzi on 05.06.14 at 11:54 am

No chance of a meteor strike – Garth.
——————–
That’s what the Dinosaurs said.

#146 Ralph Cramdown on 05.06.14 at 11:56 am

#107 lurker — “What about the fact that P/E ratios are at historic highs, so there aren’t a ton of sound places to invest? For what it’s worth, I’m not looking to buy a house, I’m heavily invested in the market, but trying to make sense of these prices.”

It’s never easy. When ratios are low, it’s usually because people are too scared to invest. That said, I think P/Es are lower than they were in 2000 or 1929 (faint consolation though that may be), and interest rates were higher then. It isn’t like P/Es are high and we’re at the peak of the economic cycle with everything priced for perfection forever. We’re in a slow-growth global recovery, and inflation isn’t anywhere near the level where central banks are going to take away the punchbowl.

I do find US valuations to be mostly high, excepting some areas (telecoms and large-cap tech?). Canadian valuations are lower, except in some of the big names. Russia is stupid cheap, with other places cheap as well.

Value is hard to find, but hasn’t it always been? The Financial Post reminds me today that I’m not Warren Buffett, which is good, because it means I can look at small- and mid-cap companies like the ones he got rich investing in, instead of the large-cap ones he’s now limited to because of his size.

#147 WhiteKat on 05.06.14 at 12:01 pm

@Wallflower re: #170 from yesterday’s post:

You said:
“so sick of whitecat
Ultimate Whiner
Issues are one thing.
Whining is another.
At any rate, easy solution.
Skip the Whitekat posts and pray Whitekat does not change monikers. Enjoy Garth’s blogs and his posters, elsewise, even Smoking Man, even opaque Nemesis.

Boycott Whitekat.
Like it.”

If I am getting under your skin, I must be doing something right! I was thinking I was getting pretty much done here, but you’ve inspired me to carry on. Feel free to skip my comments as you usually do; I’m cool with that. P.S. Why would I want to change monikers? I like my moniker. Its the same one I use at isaacbrocksociety.ca

@ Anyone else, who hasn’t boycotted me – yet.

In other FATCA related news today, it looks like FATCA is being legally challenged in both Canada and now also in the USA. Superlawyer Jim Bopp takes on McCain-backed tax act that targets Americans overseas: http://www.washingtontimes.com/news/2014/may/5/superlawyer-jim-bopp-takes-on-mccain-backed-tax-ac/#ixzz30uZESpud

#148 Ralph Cramdown on 05.06.14 at 12:07 pm

#142 Daisy Mae — “If the $M+ is ‘balanced and diversified’ what’s the problem? It should have a calming effect. It’ll fluctuate as it always does…but in the long run, values will increase by an average 7%-8% per year. Holding GICs in any amount is ridiculous.”

The problem is simple psychology. Repeated studies have shown that losses pain people more than an equal gain pleasures them, they check their investments and trade them too often, they gamble, exhibit recency bias, defer to experts with high fees and poor track records, and a million other bad habits. Everybody seems to know or have heard of an uncle Fred who “lost everything in the stock market.” The media stresses bad news over good, because they know their audience.

For many the thought of investing a million and logging in the next day down by $20,000 would feel just like an uninsured car being stolen from their driveway. So they flock to ‘guaranteed’ investments and complain about low interest rates, or accept it as their lot in life. I’m glad, because it means less competition for me. God help me if everybody with a spare $10,000 was insisting it work as hard as I make the money I manage work.

#149 BCD on 05.06.14 at 12:13 pm

From yesterday:

#167 Smoking Man on 05.05.14 at 6:34 pm
#160 BCD on 05.05.14 at 5:21 pm

Just Two, ha

I’m a writer you buffoon…
____________________________________________

You aren’t much of a writer if it is that easy to figure out at least two personas that you post as.

Honestly, I know you fancy yourself as some sort of Hunter S Thompson, but really, no one reads your comments. Since I discovered that you are posting as “Joe” and “Joe 2.0” and “Old Man” and “Smoking Man” I just avoid those posts entirely. Makes reading the blog more rewarding and less time consuming.

My question is why is Garth not editing these posts and instead letting one person railroad this blog in a schizophrenic manner. He seems very eager to delete some of my posts (my guess is he won’t post this one).

#150 chapter 9 on 05.06.14 at 12:16 pm

#98 Brucey bonus
Stay the course!! Making financial plans based on what other people are doing is very foolish. I could write pages about people I know who are in dire financial straits because of the herd mentality thinking. They are literally debt slaves!!!

#151 Bottoms_Up on 05.06.14 at 12:19 pm

Pete in Ontario you do not have to declare if you own pets. That is, legally, landlords are not allowed to discriminate against you as a potential tenant due to your pets.

Do not disclose. May literally open up some doors for you.

#152 Son of Ponzi on 05.06.14 at 12:25 pm

#146
Russia is stupid cheap, with other places cheap as well.
————————–
Reminds me of my friendly Credit Union financial adviser who told me to move all my GICs into a BRICs based product. He said he had 90% of his portfolio in it.
That was in June of 2008.
Sad story, not for me. For the adviser.

Never trust [email protected] — Garth

#153 Dr. Wu on 05.06.14 at 12:27 pm

Re Meteor strikes.

There’s a new psyop about every six weeks, so at this rate a meteor psyop is INEVITABLE.

‘Over to you Wolf’
‘Thanks Anderson’
‘Luckily Geraldo Rivera witnessed the whole thing’

#154 GMP on 05.06.14 at 12:27 pm

I’m confused.
Either this guy has very high tastes or he hasn’t looked very hard as there are tonnes of very nice rental houses in the core (S of 401, 8 mile radius of Yonge) ranging from $2500 – $3500. Am i missing something here?

#155 Iso-Classical on 05.06.14 at 12:28 pm

#106 – JL

For you to even write that comment shows your level of incompetence. Go read a book, or in any case, eat one at least!

#156 Bottoms_Up on 05.06.14 at 12:30 pm

#6 WhiteKat on 05.05.14 at 6:52 pm
————————————–
You might not want to bet against Ottawa.

Historically prices are stable even in the most severe downturns. Remember there are over 500,000 employed, 150,000 of which are feds.

Historical prices since ’56:

http://www.agentinottawa.com/1956_-_Present_Prices/page_491704.html

Condos may blow up a bit, but wouldn’t hold your breath on SFHs.

#157 calgary on 05.06.14 at 12:31 pm

very relevant post (to me). though i am in early 30s single income household.
i am renting right now as anyone in Calgary should. but now property manager/owner wants to bump the rent up by 15%, for this old leaky house. rental market is tight and there is not a significantly better alternative when i factor in the cost and effort of moving to a different part of the city (with newborn n toddler).
clearly it does not make economic sense to buy a overpriced $400k+ starter home just because there is no equivalent rental available!
but then what should i do? overpay for this old leaky house? or downgrade a bit to a smaller rental in a cheaper part of the city? or just give in and buy at market top?
i am leaning towards overpaying for the current rental. oh well.

#158 Aggregator on 05.06.14 at 12:31 pm

#146 Ralph Cramdown

That said, I think P/Es are lower than they were in 2000 or 1929

It all depends on what you're measuring prices against. When I look at stocks vs commodities, all I see is a stock bubble about to pop, or commodities about to soar. Either one will unfold soon enough.

Below are ratio charts plotted with Wilshire 5000 Total Market Index vs World Bank's commodity indexes.

Wilshire vs Commodities Multi-Charts
Wilshire vs Commodities All Indexes

#159 Ralph Cramdown on 05.06.14 at 12:37 pm

#152 Son of Ponzi — “He said he had 90% of his portfolio in it.”

It’s OK to give a financial tip TO the shoeshine boy, but you should probably never act on one FROM the shoeshine boy, unless it’s about shoes.

And I’d rather be in Russian equities than Israel government 10 year bonds… But that’s what makes a market.

#160 sciencemonkey on 05.06.14 at 12:42 pm

@23 Ben
I’ll tell you how youth can save for retirement, although I don’t know how many take this route: lowered expectations. Beyond basic necessities, there are 4 desirable things that cost money: house, children, fun (toys, hobbies, vacations), and retirement savings. If you are a dual income couple, choose 2-3, if you are a single income couple, choose one. We are stuck in SINK hell so we don’t even get to have fun…

The last time I was discussing this here, fixieguy asked how Canadian companies are supposed to remain competitive with a millennial cohort demoralized by lowered expectations. (Granted millenials are only a fraction of the workforce, but still.)

I think this question is very insightful. My life expectations have relentlessly marched downwards the last few years. In that context, I find it difficult to find motivation to tackle my difficult and complex work.

Expectations are a funny thing. We millennials wouldn’t have this problem if we hadn’t grown up in the Western World.

———-

Is waiting for low buying points a case of timing the market? I feel that I could wait for a low buying point and see my desired ETF climb 4% in a quarter without purchasing it. I’d rather buy to establish my percentages and have it done. I do my yearly rebalance and my quarterly extra purchases by waiting until I have the money, looking at the bid and ask prices and volumes, and putting in a reasonable limit order that will get filled that day.

It does suck that I pay $90 a year in commissions to RBC, but I do like the convenience of instant transfers to and from my bank account. I wonder if the big direct investing brokerages will lower prices further to compete with the better priced brokerages.

#161 BCD on 05.06.14 at 12:49 pm

#148 Ralph Cramdown on 05.06.14 at 12:07 pm
God help me if everybody with a spare $10,000 was insisting it work as hard as I make the money I manage work.
____________________________________________

And therein lies a tidbit of the other MORE important reason people don’t invest in the market–it takes a lot of WORK to make your money work hard for you. Most people are too busy working at actual jobs to actually produce things in this world that people need (goods and services) to worry about playing financial voodoo (read here: manipulate airy fairy fluff that moves wheels that turn nothing). Someone in this world has to do the actual work of producing things that people need–we can’t all be 7% liquid super heroes patting ourselves on the back all day. We are the serfs, call us the middle class. I work my day job, I invest in GIC’s like many other honest people.

Non-productive GICs are ‘honest’ and investing in companies is ‘airy fairy fluff’? This post told us all we to know to ignore you. — Garth

#162 Son of Ponzi on 05.06.14 at 12:53 pm

#148
#I’m glad, because it means less competition for me. God help me if everybody with a spare $10,000 was insisting it work as hard as I make the money I manage work.
—————–
exactly, when you sum up all the investments in the world, you’ll end up with a zero sum game.
Also, making more money than a passive investor the active investor spends many hours “of work”, which should be considered opportunity cost.

#163 Avg. Guy on 05.06.14 at 12:54 pm

#87
#99
#104
#132
#139

To those of you curious about Garth’s ROC comments, I agree with Victor (#139). Garth makes it more complicated than necessary, but basically, he is referring to withdrawing the cash generated by your investments in your brokerage account and depositing that money to your bank chequing account, so that you can pay your bills, such as rent.

To use the example from today’s post, Garth recommends that Pete and Joyce sell their house and then rent. For simplicity, let’s say that Pete and Joyce get $1 million for their house. They would open a brokerage account, either at a full-service brokerage, where they could work with Garth, or if they had the knowledge to do it on their own, at an online discount brokerage.

Garth is always preaching a balanced and diversified portfolio of ETFs. Again for simplicity, let’s say Pete and Joyce purchase an ETF for each of the following ten sectors and split the money evenly between each ($100,000 x 10 = $1,000,000):

(This is not Garth’s portfolio, but just an example)

Gov’t Bonds
Corp Bonds
REITs
Pref Shares
Cdn Dividend Paying Stocks
Cdn Stocks overall
U.S. Dividend Paying Stocks
U.S. Stocks Overall
International Stocks
Emerging Markets Stocks

Going forward – the market value of their brokerage account would fluctuate on a daily basis because all of these ETFs trade on a stock market. However, this is irrelevant to Pete and Joyce because they are long-term investors who can ride the ups and downs of the market.

More importantly, on a regular basis, these ETFs will pay cash distributions, which will be deposited to their brokerage account. As Victor wrote, Pete and Joyce will withdraw this cash and deposit it to their chequing account to pay rent (and other bills). Pete and Joyce have not sold any shares of their ETFs, so their ACB does not change on their investments. They are simply withdrawing the cash from the account.

They will receive a tax slip every year (T3, maybe T5) from their brokerage firm that provides a breakdown of the distributions received from the ETFs (return of capital vs. interest vs. dividends vs. capital gains). If the T3 includes return of capital (likely for the REIT ETF), this will change their ACB for that ETF only.

We also know that Garth believes in rebalancing, so they will have other capital gains from selling winners, but let’s keep this example simple.

We know that Pete and Joyce are still working, so they have employment income, so they will like pay taxes on this investment income. However, if they were retired and had no other income. as Garth and Victor wrote, they would pay little tax, if any.

#164 joblo on 05.06.14 at 12:57 pm

Smoking man for Mayor!

#165 BCD on 05.06.14 at 12:59 pm

Non-productive GICs are ‘honest’ and investing in companies is ‘airy fairy fluff’? This post told us all we to know to ignore you. — Garth
_____________________________________________

Don’t twist my words. None of it is honest. My point is the honest people are too busy working for a living to care, so they accept what they are given as long as it is guaranteed.

Just as I said. — Garth

#166 Big Brother on 05.06.14 at 12:59 pm

#137 Smoking Man on 05.06.14 at 9:31 am
Man can I pick a good hood…
W06 AK Long Branch
109% above asking, an incredible only 9 days on market…
Price Catching up to other hoods rapidly…
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
MKULTRA REPORT
toronto real estate board overview
located in sector: W06
average 2012 sale prices
all homes: $408,830
detached houses: $528,300
semi-detached houses: $362,000
townhomes: $381,247
apartments: $326,355
neighbourhood map: see map

An early incarnation of cottage country, Long Branch was a popular destination, with Etobicoke Creek and its attractive shoreline keeping city folks cool in summer months. Houses south of Lake Shore Boulevard are more expensive than those to the north, where the landscaping and general maintenance tend to be better. Bungalows are the most common form of housing, but the region has its share of low-rise apartment buildings, a handful of new lakefront condos and mega-mansions along the water. Lake Promenade, which follows the shoreline, is the most upscale street, though a good number of the houses on the south side (their backyards directly on the shore) are quite modest. Despite the growing number of amenities (which include an extraordinary density of churches), the Lake Shore commercial strip has lagged over the last few decades as industry moved out of the area. But like other South Etobicoke ’hoods (Mimico, New Toronto), the area’s affordability has piqued the interest of young families, and the street’s showing signs of progress.
And………………..ladies & gentlemen………….Drum roll please………. Home to Smoking Man!
There goes the progress part.

#167 Dual Citizen In Canada on 05.06.14 at 1:25 pm

Pete and Joyce need to ask themselves why they want to move. I think they are pretty well set in their current home. Greed may take hold and coax them out, I fear. If you are comfortable in your home, what do you care if it appreciates or depreciates? Forget the lateral moves to a $6000/month rent, Garth. Tell them to sell, flee Canada and go live like kings elsewhere. Well, at least away from the markets that are obscenely overvalued.

Talk out of both sides of your mouth much? — Garth

#168 devore on 05.06.14 at 1:27 pm

#78 Son of Ponzi

See folks now complicated this is.
That’s why I stick with GICs.
And sleep like a baby.

The discussion is about squeezing every last drop of tax efficiency from a particular class. And once you figure it out once (or your accountant does), you get to sleep just as peacefully as someone paying 50% taxes on table scraps. I think it’s worth the 15 minutes of educating yourself.

#169 Smoking Man on 05.06.14 at 1:27 pm

#149 BCD on 05.06.14 at 12:13 pm

You forgot, Beach girl, LaughingCon, Blithe Barrington..

OK I’ll admit, I have posted as Barrington…

But that’s it…..

Old man care to comment.

Sure just hit the submit button
and I’ll take over smokey.. – Old Man

Seriously dude, get over your
obsestion with me, I know celebrity worship is all the rage these days….

But I do understand..

I’m better than Hunter S

#170 Dual Citizen In Canada on 05.06.14 at 1:31 pm

Pete and Joyce need to ask themselves why they want to move. I think they are pretty well set in their current home. Greed may take hold and coax them out, I fear. If you are comfortable in your home, what do you care if it appreciates or depreciates? Forget the lateral moves to a $6000/month rent, Garth. Tell them to sell, flee Canada and go live like kings elsewhere. Well, at least away from the markets that are obscenely overvalued.

Talk out of both sides of your mouth much? — Garth
__________________________________________

Yes, the angel and devil on both shoulders. They need to hear what’s up!

#171 tkid on 05.06.14 at 1:36 pm

Yo! Smoking Man!

I have a link, and a book recommendation for you:

Psychopath @ Daily Mail

#172 devore on 05.06.14 at 1:38 pm

#90 Shawn

It may not be fair but it’s nothing to worry about.

The perceived unfairness of it I think is clouding the issue. It seems like free money for HFTers. Yes, they might be skimming fractions of a penny on your trades, maybe (HFTs are hardly universal) but you would be losing more than that on the spread if they did not exist. There is a definite benefit to retail traders. There is a very robust market with tight bid-ask spreads.

Yes, everyone knows if the market goes hyper volatile those bids will be pulled instantly, but that is probably not the time you want to be selling anyways, and in any case, you’d just be back to the old status quo in that situation.

#173 BCD on 05.06.14 at 1:40 pm

#169 Smoking Man
Seriously dude, get over your
obsestion with me, I know celebrity worship is all the rage these days….

But I do understand..

I’m better than Hunter S
___________________________________________

You, sir, show signs of mental illness (illusions of grandeur)

Apart from that you are officially the one on this board that I regard as “speaking for Buncombe” (i.e., BUNK!)

http://en.wiktionary.org/wiki/bunkum

#174 BCD on 05.06.14 at 1:43 pm

Smoking Man, Old Man, Joe, Joe 2.0 = Buncombite

#175 sciencemonkey on 05.06.14 at 1:54 pm

It’s a conundrum. On the one hand, there should be a future reward for saving instead of spending. On the other hand, does it make sense that a liquid super hero can amass enough investments so that they live a life consuming goods and services, without contributing anything to society? Eating subway sandwiches that only exist due to the pimply subway worker, the farmer, the john deere engineer who designed the tractor, etc.

I don’t see how investing actually contributes anything to society. I’ve heard the explanation that investing gives good companies the money to carry out business, but is that what is happening when you buy a Turkey telecom at low P/E? In that case isn’t it simply buying something when the herd shuns it, and selling it later when the herd loves it? Like house flipping? I know it takes a lot of hard work to learn what companies are a value buy, but I don’t see how the act of buying shares of an established business actually contributes anything of value.

#176 Mark on 05.06.14 at 1:55 pm

“I work my day job, I invest in GIC’s like many other honest people.”

The problem with GICs is that the banks who use them to borrow put the money disproportionately into housing loans.

I tell people that if they’re saving for a downpayment on a house, the last thing they want to be doing is lending the bank money, so that the bank can inflate the price of the asset they’re looking to buy.

The response I have received on message boards with this view is “you’re irresponsible, there’s too much risk on buying XIU for a downpayment”.

My response: XIU is dramatically less risky than housing leveraged 5X with a 20% down loan. So if a person is risk-phobic, they shouldn’t be investing in housing either.

Some people will never learn, eh?

#177 Godth on 05.06.14 at 1:56 pm

bye-bye American pie…
The Post-Constitutional Era
http://www.truthdig.com/report/item/the_post-constitutional_era_20140504

#178 Dean Mason on 05.06.14 at 2:26 pm

To Son of Ponzi #152

The BRICS are Brazil, Russia, India, China, South Africa.

Investing money in foreign countries either equities, bonds etc. means that there is currency risk.

A good reason and possibility that your so called credit union financial adviser but really a salesperson is telling you to put 90% of your GIC’s into BRICS equities is because there is a big, fat commission and ongoing fees paid to him or her.

If someone really wanted to make a relative much higher interest rate than Canadian, provincial bonds and equities then you could just buy there respective country bonds.

Brazil 10 year 12.29%, 8 year 12.26%, 5 year 12.23%

Russia 10 year 9.37%, 15 year 9.54%, 25 year 9.80%

India 10 year 8.778%, 12 year 9.09%, 15 year 9.08%, 19 year 9.04%, 24 year 9.05%

China 10 year 4.35%, 15 year 4.62%, 20 year 4.78%, 30 year 4.90%

South Africa 10 year 8.21%, 15 year 8.34%, 20 year 8.84%, 30 year 9.015%

Depending on the maturity dates, an average 8.75% to 9.00% annual simple yields would be achieved from BRICS bonds.

This about 2.3, 230% to 3.5, 350% times more annual simple interest than Canadian, provincial bonds and GIC’s.

And guess why? — Garth

#179 Dean Mason on 05.06.14 at 2:30 pm

Correction, just buy their respective country bonds, mistake, sorry!

#180 MTL on 05.06.14 at 2:31 pm

A couple of people asking about Quebec and Montreal …

Here are a few observations:

#1 Massive inventory for sale throughout the province … the listed SFH are > 55K whereas the total inventory of SFH is 1562K, that is, 3.5% (in US at the peak we observed about 2% listed inventory). The situation with condos is dare – Montreal is severely overbuilt relative to all other cities considering the local demographics.

#2 Taking the longest available multi-city price series, since 1999 Montreal recorded a 151% increase in prices, making it one of the leaders in Canada. On a relative base it is better to own ROC.

#3 QC is the first province hit by the baby-boomers wave, which on average has its wealth locked in the house. RE was a great investment over the past 15 years, so people put all in it. Cannot blame them. But how would they finance the snow-bird activities?

#4 The 3 years of 2.99% 5-year fixed have sucked-up the medium-term natural demand, which compresses the poll of buyers, while sellers increase by 10% since 2012.

#5 Montreal topped in May 2013 and since then it is 3.2% down (Teranet Pair Index). RE trends are sticky … once they turn …

#6 QC Q1 Sales are 18.4k (17.4K in 2009), while active listings are 76.6K (59.9K in 2009), i.e. supply-demand ratio is up 21%, that is, situation is much worse that beginning of 2009 when world was falling apart.

#7 We have been hearing about RE bubble in Canada since 2010. All these calls were wrong. That created the typical new paradigm, which usually falls apart in about 3-4 years after the first bubble calls. Only 11% think RE can ever go down (Nanos).

#8 The household creation in QC has just entered a multi-decade decline according to Stats QC. This is the main factor determining the demand for additional housing.

#9 Most public budgets are in deficits, while the infrastructure requires significant investments. This will lead to much higher property taxes (tax the rich), which will undermine the investment appeal of the RE.

Giving it the benefit of the doubt … could someone put some positive observations … Please?

#181 devore on 05.06.14 at 2:35 pm

#175 sciencemonkey

I know it takes a lot of hard work to learn what companies are a value buy, but I don’t see how the act of buying shares of an established business actually contributes anything of value.

You just answered your own question. It takes a lot of work.

There will always be a secondary market for business ownership, whether that is fractional shares in a multi-national conglomerate, or the corner mom&pop store. If one buys a fractional stake in IBM one contributes nothing to society, but if I buy a Subway franchise or the proverbial corner store I’m suddenly a pillar of society?

There is proportional reward for risk; a $200,000 small business purchase can provide income for my family, same purchase of equities doesn’t even pay the grocery bill. Companies raise further capital based on valuations established on the secondary market. Original investors can move their capital somewhere else, fund a new business, allow another company to expand and grow more aggressively, or make promising R&D a marketable reality.

There are always fly-by-night operations and leechers looking for short term profits, whether they’re consumer scams or day traders. Relative to the volume of legitimate and productive business, it’s nothing to lose sleep over. You might say technology has allowed the flippers to flourish out of proportion, and that their profits come too easy, but that always leaves that one nagging question: if it’s so easy, why is everyone not doing it? Why am _I_ not doing it? Right. Regular investors have benefited at least as much from the transparency, wealth of information, variety of opinions and discussions, and all the other tools that did not exist a generation ago.

#182 Dean Mason on 05.06.14 at 2:39 pm

Higher interest rates in the 8.00% to 12.00% like those that were being paid in the 1980’s, 1990’s in Canada was bad for equities because there was real competition.

Don’t tell me that inflation is very low now. They changed the calculations and metrics of how they report it.

Most people’s living expenses and costs are made up of housing, utilities, food, gas and transportation costs, insurance, clothing, medical, taxes etc.

These are all higher than 1.5% to 2.0% a year. We all know it.

#183 Trading Naked on 05.06.14 at 2:40 pm

#175 sciencemonkey on 05.06.14 at 1:54 pm

I would LOVE for somebody to pay me a fair price to use my brain and do something useful. But maybe in an era of outsourcing and automation, we need fewer workers. I hate it when I go to a job interview and the bubbly human resources girl coos “ooh, you’re really smart!”…right before her face falls because I’m “not a good fit”. Yeah, and I’m a trader, and no, I’m not “productive”, but after I lost my job, I followed the money…and found it in the stock market. My job history is one big lemon and I choose to make lemonade.

#184 WhiteKat on 05.06.14 at 2:42 pm

@Bottoms_Up #156,

Yeah, I hear you about the history of Ottawa prices. I wonder if it could be different this time.

Anyway, I don’t think I am losing by sitting out of the market for awhile – prices are not going up, my rent is reasonable, the landlord takes excellent care of our place, the VISA bill has gone down dramatically without all the Home Depot purchases hubby used to make, there are no more property taxes to pay or unexpected maintenance bills, and I like having the flexibility of being able to pick up and go should we need to.
Added bonus: the landlord and his wife have become great friends, live on the same street, and invite us over regularly for dinners and drinks after which we can stagger home and not have to worry about driving.

#185 Daisy Mae on 05.06.14 at 2:42 pm

#78 Son if Ponzi: “That’s why I stick with GICs.
And sleep like a baby.”

*********

And that’s why financial institutions love you….

#186 lol on 05.06.14 at 3:00 pm

@#34 Hey smoking mann, (lol,lol,lol…) I can’t stop laughing, but, who’s really more dumb? The cow or you for trying to talk to the cow?!

#187 WhiteKat on 05.06.14 at 3:00 pm

Re: #24:

” “plus you no longer have to worry about property tax, insurance or maintenance costs.”

Still need to worry about insurance – tenant insurance.

Cheap. — Garth”

I beg to differ. I pay more for tenant insurance than I did for house insurance dealing with the same insurance company I dealt with as a homeowner for many years.

I thought it was ridiculous, so I shopped around and still couldn’t get anything less. When I asked the various reps I spoke to about it, the answer I got, was that renters are considered riskier than home owners which apparently is not compensated by the fact that with home insurance you are covering both home AND contents.

Interestingly, I spoke with my landlord/drinking buddy about this just the other day, and he said that all his other tenants were being gouged as well, but he found one insurance company that charges significantly less. I am going to call them this week and get a quote. I am embarrassed to say here how much my current insurance company is charging me.

#188 Ralph Cramdown on 05.06.14 at 3:03 pm

#158 Aggregator — “Below are ratio charts plotted with Wilshire 5000 Total Market Index vs World Bank’s commodity indexes.”

My first reaction was “too hard to see the trend; plot them on a log scale, please,” But then I thought “shouldn’t these both be growing exponentially in nominal terms?” so now I’m thinking either there’s something wrong with the data (one’s nominal and the other’s real?) or I’m stumped. Many commodities have been getting somewhat cheaper to produce over the long term due to human ingenuity, but this looks too wrong. Ideas?

#189 BCD on 05.06.14 at 3:07 pm

#183 Trading Naked on 05.06.14 at 2:40 pm
#175 sciencemonkey on 05.06.14 at 1:54 pm

I would LOVE for somebody to pay me a fair price to use my brain and do something useful. But maybe in an era of outsourcing and automation, we need fewer workers. I hate it when I go to a job interview and the bubbly human resources girl coos “ooh, you’re really smart!”…right before her face falls because I’m “not a good fit”. Yeah, and I’m a trader, and no, I’m not “productive”, but after I lost my job, I followed the money…and found it in the stock market. My job history is one big lemon and I choose to make lemonade.
____________________________________________

Huh? Eulogy of someone who jumped of the Golden Gate Bridge???

Get a job at Subway and be a sandwich artist. Seriously, you basically said you can’t do anything useful so you are a trader. What are your expectations for employment? Starting salary of $80K?

I have 6 years of post sec and I hardly make that. What are your qualifications?

#190 miketheengineer on 05.06.14 at 3:20 pm

All this talk about RE, got me curious again…once again I open up the MLS….and there are like thousands of properties up for sale in GTA, around GTA etc. Everyone on every block looks like they are looking to sell their home.

And still the home that I want is still way out of my reach….UGGHH!

Am I destined to be trapped in my particle board, drafty, falling apart Mattamy built Shack for ever….

Sorry, I am just really really fustrated right now. I am alot like the people you talk about in your blogs….caught like a rat in a trap…no way out.

Still praying for better times.

#191 Shawn on 05.06.14 at 3:32 pm

The Fair Wages of Capital

BCD said:

Most people are too busy working at actual jobs to actually produce things in this world that people need (goods and services) to worry about playing financial voodoo (read here: manipulate airy fairy fluff that moves wheels that turn nothing). Someone in this world has to do the actual work of producing things that people need–we can’t all be 7% liquid super heroes patting ourselves on the back all day.

And son of ponzi said investing is a zero sum game

****************************************
Quite wrong. To produce things takes capital (land and machinery and software for example) as well as labour.

Think about a farm with an owner and a tenat farmer.

Both deserve part of the profits.

Capital is needed and deserves its reward.

We all choose, be the tenant farmer forever or invest and own the farm. Self-funded retirement requires us to invest capital and then we collect our wages of capital.

My money makes more than I do…

To each his own…

#192 TheCatFoodLady on 05.06.14 at 3:35 pm

#134 – Peter:

Okay, I get that much. If you’re trying to rent a house that’s poorly located for the demographic(s), you may be stuck. It helps tremendously if you can handle basic repairs & know enough about the bigger stuff so that contractors don’t rip you off. As a landlord, you know the risks involved in trying to screen tenants & the problems lack of rent payment can bring.

What still leaves me confused is why, especially now in some of the markets looking to flatten out or drop, would anyone think RE for rental purposes is a viable risk? In many if not most markets, is the cash flow good enough, (compared to other investments), to take that risk? Capital appreciation – always going to depend on the market but that alone is looking increasingly sketchy in many markets.

What I’m looking for is a rationale for becoming a landlord – not for me but in general. Because if more of us should rent to free up assets, somebody has to do the renting & no one is going to get into that unless it’s got a good chance of offering a decent return… or they shouldn’t be. Lord knows we’ve all seen otherwise.

#193 sciencemonkey on 05.06.14 at 3:46 pm

@181 devore
A small business is different, since in a textbook small business (if my first year economics taken 12 years ago suffices) competition means there isn’t profit, but only the wage the entrepreneur draws for their work in the business.

Not everyone is doing it because it’s really hard; however, just because something is really hard, and pays a lot of money, doesn’t mean it represents a contribution to society. You could describe bank robbers the same way.

Can you go into more detail about this sentence?: “Companies raise further capital based on valuations established on the secondary market.” Does that mean that if the stock price goes up, a company can HELOC itself for more money, or issue more bonds, to engage in more business ventures? If this is true, then I at least see some societal utility in the herd chasing stocks higher.

#194 Mark on 05.06.14 at 3:51 pm

“What still leaves me confused is why, especially now in some of the markets looking to flatten out or drop, would anyone think RE for rental purposes is a viable risk?”

Nothing wrong with owning rentals. The problem is when one pays too much.

Canadian RE, even after the recent price drops, is still trading in excess of a P/E ratio of 35. Its trivial to buy the Canadian stock market at a P/E ratio of 15 or less.

The stock market traditionally can grow its earnings faster than inflation (but slower than nominal GDP). RE typically can only grow at a rate resembling inflation. Plus there is huge single-property risk.

Since it is trivial to buy a broad index fund like XIU at 1/2 to 1/3rd the price, investment RE doesn’t look even remotely interesting at this point.

#195 Vamanos Pest on 05.06.14 at 4:06 pm

BCD

6 comments today, nothing positive or even provocative. Your vitriol is unbecoming.

#196 I'm stupid on 05.06.14 at 4:07 pm

Do they have the same last name as you? — Garth

Not exactly, it’s dumbasses.

#197 Son of Ponzi on 05.06.14 at 4:11 pm

#185 Daisy Mae on 05.06.14 at 2:42 pm
#78 Son if Ponzi: “That’s why I stick with GICs.
And sleep like a baby.”
********
And that’s why financial institutions love you….
————————–
Then why do they constantly remind me that I should transfer my GICs into one of their fancy investment products.
Remember, fee and commission income is gravy to them.
And, BTW I worked for an financial institution for over 30 years.
So I know how it works.

Sounds like you were good at it. — Garth

#198 Ralph Cramdown on 05.06.14 at 4:28 pm

#192 TheCatFoodLady — “What still leaves me confused is why, especially now in some of the markets looking to flatten out or drop, would anyone think RE for rental purposes is a viable risk?”

1) leverage 2) cult characteristics

The appeal is in buying a house at 20% of cost and finding a tenant who’ll pay expenses and the mortgage. In 25 years you own the whole thing, and you’ve quintupled your (nominal) money, plus whatever you get in higher house prices.

The cult characteristic is that there’s a lot of self-interested people (real estate agents, lenders, book and seminar sellers, and all those people on TV) whose pitch is that it’s a relatively easy way to get rich… even though many of them seem to be getting rich by convincing others, rather than being quiet landlords. People would rather brag about their successes than their failures, so the world is rather more full of people bragging about owning ten houses and on their way to financial security than people baring all about buying three places at high leverage at the wrong time, or picking bad tenants, and ending up foreclosed and broke.

Those are my theories, anyway.

#199 Son of Ponzi on 05.06.14 at 4:34 pm

#191
I suggest that profits are too high because depreciation of the environment is not being taking into account.
We set profits aside to replace tangible assets as they depreciate.
Any commercial activity use environmental resources (clean air, water etc) that eventually will have to be restored.
Therefore, our current profits come at the expense of a depleting environment.
As the auto repair man said:
“you can pay me now or you can pay me later”.
later meaning at much higher cost.

#200 hp on 05.06.14 at 4:35 pm

This couple shouldn’t be worried about renting with their cats. Renters in Ontario are defacto allowed to have pets even if they sign a “no pets” clause in their lease.

Expand your rental options! Don’t worry about ‘no pets’ in rental listings.

#201 Happy Renting on 05.06.14 at 4:51 pm

#175 sciencemonkey on 05.06.14 at 1:54 pm

Even if living off investment proceeds, the investor still pays income, consumption, gas, property taxes (there’s definitely more types of tax you pay if you’re more than a rock sitting by the side of the road, I just can’t name them all right now.) Those taxes fund government spending (some of which is productive.)

The government spending and investor consumption means workers have jobs that pay wages. Enabling people to live, eat, and raise families is a contribution to society, and gives them the chance to improve their productivity (e.g. Subway sandwich artist finishes post-secondary and invents a more efficient machine to produce widgets.)

I would posit that anyone hardworking, smart, and disciplined enough to live off income from a sustainable portfolio isn’t going to be happy sitting on the couch eating subs all day. They work for passion, volunteer, go to school for the love of learning, find other occupations that support and enrich society.

The secondary investment market is necessary because people need a way to not only provide capital to businesses and governments, but also a way to get it back. Just like you’d want the option to sell your share of the mom and pop corner store because it’s time to buy a house/retire. Day traders provide market liquidity, arbitrageurs contribute to market efficiency (what they do may be, overall, sort of ridiculous, but they are not without contribution to the whole.)

#202 BCD on 05.06.14 at 4:53 pm

With my hand firmly on the pulse of the world financial zeitgiest I am sensing a correction is in the works by the end of the week.

#203 Happy Renting on 05.06.14 at 4:54 pm

#183 Trading Naked on 05.06.14 at 2:40 pm

Capital is consuming more and more of the income pie than labour, that’s for sure. Better to be a shareholder than an employee (if you can help it at all!)

Do you mind divulging what field you are in? My impression is that the number of “money” fields is continuously shrinking.

#204 Trading Naked on 05.06.14 at 5:03 pm

#189 BCD on 05.06.14 at 3:07 pm

Why would I want to be a sandwich artist when trading pays me at least double?

My qualifications and job history are a mess anyway. I lived at home during university and was expected to complete a computer science degree but was forbidden to hook up Internet to do homework (my parents deemed it unnecessary). I barely passed my classes. Some days I wish I’d failed instead. I didn’t have the guts to switch majors. Then I spent the next 10 years jumping from one entry-level job to another according to my family’s whims about what company/job will not bring shame to the family. Throw in some caregiving duties so I could never commit enough time to a job to get a “career” off the ground. On paper, I have vague qualifications in customer service and pushing paper…as does everybody else in the job market. And you’re probably going to ask, so: my capital comes from 15 years of scrimping, saving, and investing the money from those entry-level jobs.

#205 Spaccone on 05.06.14 at 5:08 pm

Garth is a professional as compared to me, so I’m not 100% sure of what I’m saying here…I think his use of the term “Return of Capital” here and in past posts is a bit slippery compared to what the layperson/average poster here is thinking (the tax nature of the cash a portfolio dishes out). I deal with this stuff regularly and if I have to stop and think about it then the layperson/average poster here is sure as hell going to be confused.

I think he means dipping into the cash that an investment portfolio dishes out. Obviously that cash that the portfolio dishes out has to be taken into consideration as taxable income…but dipping into the cash itself doesn’t create any taxable event.

#206 ozy - CALL TO STOP DEBT MADNESS on 05.06.14 at 5:22 pm

CALL TO Stop the DEBT MADNESS – and implicitly, high food and house prices. Repeat it on every posting, no copyright needed.

The only way to stop the fractional-reserve orgy is to drastically and on-purpose limit financial products. SELL all stocks, bonds, cash RESP, RRSP, etc – in the same amount you have a mortgage and pay the DAMN mortgage. This will reduce the DEBT BUBBLE to manageable levels and economy will not suffer.

Or sell and find a business, commercial activity to run yourself. hands on exposure for the children = invaluable

Here’s for simplicity to a nicer life. Don’t be greedy. Be honest. Stop the DEBT madness. Cheers.

#207 garden gnome far from home on 05.06.14 at 5:33 pm

I agree with Garth’s concept of not tying up all a large portion of your net-worth in RE but I think he oversimplifies how easy it is to find acceptable rental housing in YVR area. Specifically *where* you want/need to live in the YVR area.
I just did the calculation for us; we would need a minimum of a 3 bedroom house/townhouse within 3.5 K of Deer Lake Burnaby, on the south or south/west, southeast side so my spouse could cycle to work, our daughter could get to her classes and I could run. Even if we are willing to pay $ 2,500 a month there is nothing available. When I check on line, there are basement suites, a non starter, or if above ground, the rentals have electric stoves and top loading washers. I would be more than happy to sell and rent but I am not willing to live in those conditions. Before anyone complains we are being snobbish/elitist, cycling is the only fitness activity my husband enjoys and I am selfish enough to want to keep him around and in good health so we can have time together. Why should I sell my mortgage-free house in this area to rent a basement suite?
To repeat, I am sold on concept, but there is no way to execute the plan.

#208 Shawn on 05.06.14 at 5:54 pm

Stop The Madmen

Since Ozy 206 brought it up.

Yes we need to stop the madness of misguided people who have read that fractional reserve banking is bad. Basically, there IS no other kind of banking. Every country uses it.

You would hate to live in a world without fractional reserve banking (which pretty well means without banking)

To lend is to share (but with a requirement for paying back). Why are madmen against sharing?

If there is excess debt then there is also excess savings.

One man’s debt is another man’s savings.

Yes the bank can create a loan for you from nothing by putting it into your account. You then have savings plus a loan. Soon as you spend the money loaned to you, the bank needs to have another saver to replace that deposit.

Please do not be misled into thinking loans are not backed by deposits (someone else’s savings).

Many owe and many are owed. People today metioned GICs. Yes the very savings that fund many loans.

Why do madmen think banks pay any interest at all if they truly can conjure up loans from the air? They can’t really because once you spend your conjured deposit that they loaned you they need a GIC or something to replace it.

Stop the madness indeed.

#209 JRH on 05.06.14 at 6:09 pm

Good Comment JL #106 I think us Canadians are getting a bit smug.

#210 Aggregator on 05.06.14 at 7:15 pm

#188 Ralph Cramdown

Those charts show an index-on-index ratio, which is basically a comparison of cumulative percentage returns. You can think of it as comparing, say, CPI shelter divided by CPI transportation. Indexes that are rebased to 100.

You might be asking why you'd want to look at it this way, and the reason is because the Wilshire 5000 Total Return Index is calculated with dividends reinvested, so in sense, it would imply how quickly, not how much, dividends plus stocks prices are running relative to commodity indexes.

#211 OneMoreThing on 05.06.14 at 8:48 pm

Sell in May, Go Away!

To a tropical destination perhaps!

#212 Mr Happy on 05.07.14 at 10:53 am

“#8 Istabraq1000 on 05.05.14 at 6:58 pm
Sell it Pete, wait 5 years and buy it back for half the price when the new owner defaults…Simple”

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

Ya…simple…. That’s what they were saying in 2010…didn’t quite work out that way….

Review that in 2015. — Garth

#213 Jason on 05.09.14 at 9:07 am

Sell Pete! Sell!
P.S. I hate you