Gas me up

GAS modified

It was only a few days ago that the feds tried again to douse the fire smouldering in the bosom of newbie house-buyers. Premiums for mandatory CMHC mortgage insurance went up sharply (it now costs 3.15% of the loan amount for 5%-downers). Coverage for second homes was eliminated. And loans to the self-employed and commissioned salesguys were punted, unless they can prove income.

But every time Ottawa tries to avoid the housing market train wreck, the bankers just make it worse. They’re at it again, and it almost makes you miss that little devil, F.

The latest gimmick comes from RBC, which is now pretending it sells SUVs and minivans, offering ‘employee pricing’ on mortgages. This is being extended to anyone qualifying for a regular fixed-rate, fixed term loan until the first week in June, and who doesn’t have horns. At 2.99% for a five-year mortgage it’s the same price BeeMo had until it bumped up to 3.29% last week. But while BMO had restrictive conditions on its deal, RBC does not.

Mortgages this cheap are available from mortgage brokers, too, with the actual money flowing from big banks, such as Scotia, then packaged under other names. Loans at prices like these have had a massive impact on house prices for the last four years, since bankers will loan to anyone fogging a mirror so long as CMHC eliminates their risk.

Cheap money has bred a new culture of debt, too. Talk to the kids today and most don’t even think about having a mortgage of $400,000 to pay back. It’s only about the monthly – $1,800 – and how that compares to rent. There’s no desire to actually repay the money, consequently zero interest in accelerated payments, weekly pay options, lump sum prepayment privileges or anything else to do with getting out of hock.

And how can you blame them? With loans costing 2.99%, and inflation at 1.5%, why the hell would you bother paying anything off? Besides, who’s got any extra money for saving and investing these days? Because houses and condos cost more than ever before, down payments suck off all available cash, with normal carrying costs chewing up earned income. In a real estate culture like this, most people have but one financial strategy – put it all into the property.

But these days will pass.

Smart people would be using 2.99% financing to power their way through mortgages, or to invest in financial assets they can use to trash loans when they come up for renewal. They know when an RBC ‘employee’ 2.99% home loan comes up for renewal in 2019 their payments will likely bloat. Five years is a long time, and those who believe rates will stay put for the next half-decade are in a trance.

The US Fed decided days ago it would cut its monthly bond-buying program for the fourth time. There are a few more cuts to come, then the stimulus spending will end. Over the course of one year, that’s an $85 billion-per-month reduction in bond demand. The long-term result (less demand means lower bond prices) is inevitable – higher yields.

At the same time, the slow-motion recovery in the US and global economies continues. American unemployment has gone from north of 10% to just 6.3%. Real estate values there grow by about 1% a month, the trade imbalance has shrunk dramatically and Washington is on track for the smallest budget deficit in six years. Even though the Fed will be insanely cautious about raising its own rate (it will still happen next year), the bond market marches to its own beat. More economic activity means more expansion and inflation, and investors demand a premium. So, up she goes.

Fixed-term mortgages are financed in the bond market. Variable-rate ones, on the other hand, track the prime rate – which is determined by the central bank. These days a VRM, at around 2.6%, is a slightly better price than a five-year fixed at 2.99%. But, if you struggle to make your monthlies, it’s also far more dangerous.

In 2019, an expiring fixed-rate mortgage will still be less than 3%. The variable could well be 5%. Could you cope with that?

If not, you know how to borrow.

213 comments ↓

#1 lol on 05.09.14 at 5:49 pm

wow, that was fast!

#2 DocInWaitingRoom on 05.09.14 at 5:54 pm

When Canadians have borrowed 50% of the total Helocs in the USA and it is 14% of our GDP (vs 2.9 of US before crash), and you add the costs of holding home and cars and highest storage rates in world for junk after the usa etc not only will they fall they will fall spectacularly in a few years.

Ill be enjoying trips around the world while they sweat over extended and over leveraged.

Great to have dual citizenship when the sthtf I am leaving with the family

#3 dangeresque2 on 05.09.14 at 6:09 pm

CMHC and/or the Feds make micro-adjustments to loan regulations; banks make corresponding micro-adjustments to compensate.

Doesn’t seem to be slowing the flow at all, or bringing prices back to sensible. Each minor change seems to barely make news, the house salesmen barely know of them, and it only spurs more creativity on the part of banks and mortgage brokers into finding some crafty new way of dancing around the numbers!

All that I see is a yearly “wave” from the ocean of houses, flooding out into farmland nearby, each year a few km’s further – seemingly self-replicating and washing up around the existing farm houses and newly-man-made lakes.

#4 Londoner on 05.09.14 at 6:24 pm

Changes to CMHC are only being made because the BOC’s hands are tied when it comes to the overnight rate. As I said before, they would rather overshoot the inflation target then risk losing what little growth they have. And that’s inflation calculated using their methodology, not yours.

Rates is 2019 may be higher or they might be lower. They might even be the same. Too early to tell. If rates go higher then real income will go along with it. Not everywhere but certainly in places like Toronto.

Kids entering the work force with no money are not thinking about saving. Their thinking about how to build their empire. They’re willing to take risks. As they get older and accumulate wealth they start to fear losing what they have and their appetite for risk falls. There are good trades and bad trades in every market. Not everyone will have the same result.

#5 lol on 05.09.14 at 6:28 pm

@ Old Man — ref Hooters Hotel and Casino.

So I see Nevada continues with its legal brothels model but is selling it as a ‘family friendly’ vacation destination.

Was your GF or wife also with you on that trip, by any chance?

#6 LH on 05.09.14 at 6:31 pm

Trend is my friend.

Like Smoking Man says, until “hockey stick” happens,
the game plan is to HOLD my SFHs in M5T M5S M5R.
Central urban houses in the most walkable, wealthiest and most worldly city in Canada are the new gold. Buy and hold and hold for generations. If you can, I suggest levering up at these nice floating rates and buying something real central, close to subway. Just don’t throw in the towel to buy the ersatz (condo, or suburbs). Condo fees are too high compared to freehold carrying costs, and in a world of very low interest rates, these monthly fees, where they to be capitalized, can sometimes approach the price of the condo! The spread between the central city and suburbs is still too tight in Toronto compared to London, Paris etc. As banieulization relentlessly proceeds (heck even Regent Park is gentrifying as I hear it), pay top dollar for walkability to the central core.

As Thomas Piketty suggests, within a decade or two, nice big house in the central areas of a top dog city (be it London, Paris, New York, Sydney, Seoul, Rome, Beijing etc) would only be accessible to a 1% wage earner, or a top 5-10% inheritor. Welcome to the 21st century folks!

PS:

Bob Rice and lookalikes:

Toronto is not perfect, but after having traveled, worked, and lived abroad extensively, I can say Canadians do have a tendency to sell Toronto short, to their obvious chagrin as the graph of SFH proceeds ceaselessly from “the bottom left to the top right”, as Dennis Gartman would say!

LH

#7 Joe on 05.09.14 at 6:41 pm

look what’s going on in Toronto….flippers getting rid of their homes … it is official….is not anymore only just a rumor….and still finding suckers…
in summer time could be over…
in Edmonton despite good job prospects…people became numb to the houses…..already….but
Torontonians believe in their happy star,,,,
They believe that they are in center of universe…”Dis is Kanada man..”

#8 Smoking Man on 05.09.14 at 6:48 pm

DELETED

#9 saskatoon on 05.09.14 at 6:55 pm

so…let me get this straight:

1. banks make loans
2. deposited funds result from these bank loans
3. banks use deposited funds to purchase gov. debt
4. banks collect massive interest on gov. debt
5. interest payments cause government to borrow more “deposits” from banks
5. banks make more loans

conclusions:

1. banks use their legal ability to create “loans” to purchase government debt.

2. interest owed to banks increases government demand for debt

3. government has mostly surrendered money creation power to private banks

am i missing something here!?!?

#10 Old Man on 05.09.14 at 6:56 pm

#6 lol – why would I consider taking a wife or gf with me when there were bunny rabbits hopping around; about 90 of them. It was an Easter parade and to relax went across the road to MGM, or nextdoor to the Tropicana with a bunny in hand.

#11 HAM on 05.09.14 at 7:02 pm

China is a big worry

‘Mr. Watsa is especially worried about the Chinese economy, and during his presentation he made some very interesting points.For example, the Chinese real estate market has added the equivalent of 50 Manhattans over the past five years. In 2012 alone, 20 million housing units were built, compared to 2 million per year by the United States at the peak. Home ownership rates in China are over 100%, compared to only 65% in the United States.

It is this building activity that has fueled China’s growth over the past decade, and many economists believe this has led to a severe property bubble. If the bubble pops, the whole country’s economy could be seriously affected.

Could this lead to deflation?

If China crashes, then that would lead to a steep drop in demand – and prices – for commodities. And this drop in commodity prices would lead to lower prices for goods and services in general, also known as deflation. Deflation is very rare, with Japan being a notable exception over the past 20 years.

But this exactly what Mr. Watsa is betting will happen. And investors should hope that he turns out to be wrong, because deflation can be devastating for both economies and stock prices.

What’s the best way to follow him?’ Beats me!? uhhh, don’t buy??

#12 Finally on 05.09.14 at 7:02 pm

Got married, I have net worth 600K, wife has $0. I just lost 50%. How did that happen?

#13 James on 05.09.14 at 7:09 pm

#7 LH

If the average home is only affordable to the 1%, then prices fall. Unless you see the 1% cornering the market on homes for eternity, reducing everyone else to renting.

I see no reason for that to happen. Given past data, the null hypothesis is a reversion to the mean.

#14 hohoho on 05.09.14 at 7:11 pm

> … The US and Canada can’t service its debt with higher rates same as the consumer …

isn’t gov debt mostly 5-10-30 year fixed rate? once the budget is balanced rate increases has minor impact.

in the last few years a bunch of 8-15% 30 year bonds just got re-financed (for 30 years) at 2-4% and 6% 10 year bonds got re-financed at 3% …

#15 Reasonfirst on 05.09.14 at 7:13 pm

Garth, do you think the fed will start unwinding their bond position once they have stopped buying?

#16 Slim Pickens on 05.09.14 at 7:19 pm

Feral cat attacks realtor

http://www.castanet.net/news/BC/114851/Feral-cat-attacks-realtor

Even real estate agents don’t deserve this!

#17 jess on 05.09.14 at 7:24 pm

geezzz

FOR IMMEDIATE RELEASEThursday, May 8, 2014
Real Estate Developer Pleads Guilty to $50 Million Securities Fraud Scheme

A commercial real estate developer pleaded guilty for his role in a $50 million securities fraud scheme, announced Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division and U.S. Attorney Laura E. Duffy of the Southern District of California.

Bradley Holcom, 55, entered his plea before United States District Judge Cathy Ann Bencivengo in San Diego, admitting that he committed wire fraud in connection with the sale of approximately $50 million worth of promissory notes which he sold to investors located throughout the United States.

According to court documents, Holcom solicited investors to provide funds for commercial and residential development through an investment program he operated called the Trust Deed Investment Program. Holcom falsely told investors who purchased notes through the Trust Deed Investment Program that they would receive a lien on a specific piece of property he was developing and that the lien would enable them to take priority over any other potential liens or interests in the property.

According to court documents, Holcom solicited investors to provide funds for commercial and residential development through an investment program he operated called the Trust Deed Investment Program. Holcom falsely told investors who purchased notes through the Trust Deed Investment Program that they would receive a lien on a specific piece of property he was developing and that the lien would enable them to take priority over any other potential liens or interests in the property.

http://www.justice.gov/opa/pr/2014/May/14-crm-485.html

#18 Joseph R. on 05.09.14 at 7:26 pm

“It’s only about the monthly – $1,800 – and how that compares to rent.”

That is the problem. Houses are now considered disposable goods, like a car. How many people in their 20s plan on living in the same house for the next 25 years? Staying with the same employer for the next 25 years?

In a country where 51 % of worker don’t plan to stay more than 2 years at same job:

http://www.ctvnews.ca/business/more-canadians-leaving-their-jobs-after-just-2-years-workopolis-poll-1.1779950

Why would you want to sign a 25 year contract with a bank with job-hopping plans?

#19 Londoner on 05.09.14 at 7:27 pm

#7 LH

As soon as you start comparing the drivers for SFH demand in Toronto to London, Paris, or any other “world class city” the basement dwellers will start getting their knickers in a twist. As you can see from my posts a couple of days ago. They don’t want to hear the objective opinions of anyone with real global experience if it challenges their wishful bias.

#20 213 fool on 05.09.14 at 7:35 pm

How come Canada doesn’t have a fixed 30 year mort. like here in the US?

#21 bigtown on 05.09.14 at 7:38 pm

It is official we were overcome with fear and loathing at the prospect of $1,500 plus gas plus hydro for a brand new RENTAL condo in Milton and we are humbled but grateful for our most modest jr. one bedroom in Etobicoke next to the 27…we must all accept small inconveniences to make it through our journey in the GTA.

The latest housing news out of the states is over 40% of all home purchases are CASH…no financing. Anybody have stats on CASH BUYS IN THE GTA?

#22 Daisy Mae on 05.09.14 at 7:38 pm

“They’re at it again, and it almost makes you miss that little devil, F.”

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

Not really…..

#23 Mark on 05.09.14 at 7:50 pm

Premiums for mandatory CMHC mortgage insurance went up sharply (it now costs 3.15% of the loan amount for 5%-downers). Covera

Well,thats only $5 per month more on the mortgage payment…….BELCH……..

It’s payable upfront. — Garth

#24 Renter's Revenge! on 05.09.14 at 7:51 pm

Based on Whitekat’s “investment advice” from yesterday’s post, I’d highly recommend drinking sun and sitting in the wine all summer instead of worring about the housing market… hiccup!

#25 Mihai on 05.09.14 at 7:53 pm

The employee pricing is bovine feces. I was attending a birthday diner and the couple in front of me had just purchased a house. One of them was working for a bank and they were getting 2% off the actual mortgage rate.

So they were paying 1%.

Somehow though they were still worried about “everything being ok”.

I am surprised that banks don’t have BoxingDay specials as in 50% off our current 6% posted rate.

Some people buy anything these days including overpriced an over budget houses.

Mihai

#26 sciencemonkey on 05.09.14 at 7:54 pm

@13 James
I have nothing to gain like LH, but I agree with his assessment. The whole point is this: as population expands, there will only be enough central detached houses for perhaps 0.5% of the households in the city. Average people don’t need to be able to afford it. Whereas 50 years ago a Portuguese immigrant janitor found a nice house north of Eglinton accessible.

#27 Dean Mason on 05.09.14 at 7:55 pm

Even if there are 4.00% and 5.00% 5 year fixed rate closed mortgages and variable rates this will not be the only major financial strain for leveraged homeowners.

When their gas, electricity, water costs, home insurance, property taxes, repairs and maintenance costs, condo fees etc. are all 300% to 350% higher in 20 years then they will really see what financial pain looks like.

This is not mention all their gas, auto insurance, food, clothing, car repairs and maintenance, medical, higher and newer taxes will be in 20 to 25 years.

People live in fantasy land and when they see what it really costs to own and maintain a home or condo then they will be shocked.

Live and learn but the clueless get burned!

#28 sciencemonkey on 05.09.14 at 8:06 pm

@195 Shawn
I’m dual so I at least can pursue opportunities in the US.

That is a good question, why doesn’t all humanity have the freedom to move around the planet. The problem I see is that wage slaves in developed countries would suffer massively in that situation. If it were to happen, the slow normalization downwards of worldwide standards of living (that started with globalization) would instantaneously be completed. The arrival of 50,000 Chinese and Indian scientists to Toronto, ready to do my job for 1/3 the salary, would lower my standard of living to walmart greeter. (And I’d worry about the walmart greeters keeping their job.)

Is this a selfish response? Yes definitely. A broader question is this: is it possible for 7 billion people to live at a NA baby boomer level of opulence using the resources of one planet? It would be a wonderful thing, but I fear that even with technological advances, it’s impossible. This is why I’m such a proponent of reducing world population.

To get back to this scenario, I don’t think it would affect you. As one living off the proceeds of capital, more wage slaves can only bode well for stock performance through reduced salaries and greater demand for products. However, I should ask you, where were you able to accumulate your capital in the first place? Was it by diligently saving a lot of money from a decently paying job at the tax farm?

#29 Smoking Man on 05.09.14 at 8:10 pm

#19 Londoner on 05.09.14 at 7:27 pmAs soon as you start comparing the drivers for SFH demand in Toronto to London, Paris, or any other “world class city” the basement dwellers will start getting their knickers in a twist. As you can see from my posts a couple of days ago. They don’t want to hear the objective opinions of anyone with real global experience if it challenges their wishful bias.
……..

Wishful bias? Basement Dwellers?

Finally having an impact….

Good post LH….

#30 Vangrrl on 05.09.14 at 8:14 pm

Americans shunning ownership:

http://www.marketwatch.com/story/many-renters-have-enough-money-to-buy-homes-2014-05-02?mod=wsj_share_tweet?utm_medium=Newsletter&utm_source=Personal%20Finance%20Reader&utm_type=text&utm_content=PersonalFinanceReader&utm_campaign=116416558

#31 Daisy Mae on 05.09.14 at 8:14 pm

#12 Finally: “Got married, I have net worth 600K, wife has $0. I just lost 50%. How did that happen?”

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

Dunno. But next time you’ll be alot smarter….

#32 Don on 05.09.14 at 8:14 pm

Living in the USA and watching Canadians taking enormous levels of debt is funny. Canadians tell me they are smarter than Joe America. Canadian’s appetite for debt is super sized and crash could be a super sized when the gas runs out. Oh I forgot you are superior to Americans because you make 10X the salary we do and your banks are perfect. Don’t expect America bail your sorry behinds out when it goes “pop”

#33 Larry on 05.09.14 at 8:14 pm

A bank offered to give me a better rate than RBC. Unfortunately, I no longer need a mortgage.

“More economic activity means more expansion and inflation, and investors demand a premium. So, up she goes.”

But can the US fed afford to raise rate given the US massive foreign debt?

The ECB will be cutting rate to negative in June.

http://www.reuters.com/article/2014/05/08/us-ecb-rates-idUSBREA4614O20140508

#34 Joe on 05.09.14 at 8:19 pm

#26
Who told you that population expands…??
Misleading information…Our paradise life made new generation not really fertile….our western “nutrition” food make us less fertile….so we are not growing….like you think…..
demographics are not that great…..so don’t worry real estate prices are not for ever high…. and believe me…
you are not taking your house to the other site..

They will take you from your million house to the other site in 2X8 particle board……..that is your investment….

#35 mark on 05.09.14 at 8:19 pm

Amazing you can replicate the same behaviours from real estate boards and journalists no matter where you are in the world. Lies and no fact checking.

http://www.idiottax.net/2014/05/on-level.html

#36 Nemesis on 05.09.14 at 8:21 pm

#’GasMeUp’-ABriefHistoryLesson #Phan Thi Kim Phuc & Nick Ut #RescueDawn #ItDoesn’tAlwaysEndWell #Don’tSpoilYourFridayNight-JustSkipThisOne

Apologies, AuldPol/Dogz… Blame it on today’s ‘Pageantry’… an ElephantineMemory… or, if you must, the BudVars.

But I had to post this.

#StartsLikeThis:

http://youtu.be/rp-NAkZNHBc

#LooksLikeThis:

http://tinyurl.com/ld8zzkw

#SometimesYouGetLucky

[ABC] – The Historic ‘Napalm Girl’ Pulitzer Image Marks Its 40th Anniversary

http://abcnews.go.com/blogs/headlines/2012/06/the-historic-napalm-girl-pulitzer-image-marks-its-40th-anniversary/

#ButEvenWhenLucky-KarmaCanBeARealBitch:

http://youtu.be/UNm9Tzo5rvI

#Phan Thi Kim Phuc AsylumSeeker – An Ajax, ON MapleLeaf HappyDenouement:

http://en.wikipedia.org/wiki/Phan_Thi_Kim_Phuc#Adult_life

#37 Old Man on 05.09.14 at 8:23 pm

#28 science monkey – did you know that one can take all the humans on earth and park them in the Grand Canyon?

#38 Dual Citizen In Canada on 05.09.14 at 8:33 pm

#2 DocInWaitingRoom on 05.09.14 at 5:54 pm
Dude, I’m with you. Being an opportunist, I will live where it best suits me. Right now, it’s Canada, because of work and family. The way I look at it, I just got kicked in the nuts for working in Canada as my pay, compared to US $$$, just decreased 9%. I came back because the CDN$ was higher than the US$. So much for my faith in hoserville. When the time is right, the brain drain to the south will happen again. Rent on, Garth!

#39 BG on 05.09.14 at 8:35 pm

#7 LH

“Central urban houses in the most walkable, wealthiest and most worldly city in Canada are the new gold.”

I hate to break it to you but Montreal is more walkable, more remarkable and more remarked internationally for its particular identity.

As an immigrant coming to Montreal, all I knew about Toronto is “go there if you can’t visit New York”.

Still a nice city though.

#40 Joe on 05.09.14 at 8:35 pm

Total fertility rate: 1.59 children born/woman (2013 est.)

Definition: This entry gives a figure for the average number of children that would be born per woman if all women lived to the end of their childbearing years and bore children according to a given fertility rate at each age. The total fertility rate (TFR) is a more direct measure of the level of fertility than the crude birth rate, since it refers to births per woman. This indicator shows the potential for population change in the country. A rate of two children per woman is considered the replacement rate for a population, resulting in relative stability in terms of total numbers. Rates above two children indicate populations growing in size and whose median age is declining. Higher rates may also indicate difficulties for families, in some situations, to feed and educate their children and for women to enter the labor force. Rates below two children indicate populations decreasing in size and growing older. Global fertility rates are in general decline and this trend is most pronounced in industrialized countries, especially Western Europe, where populations are projected to decline dramatically over the next 50 years.

Source: CIA World Factbook – Unless otherwise noted, information in this page is accurate as of December 6, 2013

#41 Andrew Woburn on 05.09.14 at 8:37 pm

#195 shawn on 05.09.14 at 5:08 pm

At what point will humans have the right to move to any place on earth? Why are immigration barriers (to law abiding people able to support themselves) not considered an affront to basic human rights?
======================

Passports are a recent invention. Before World War One, people moved around pretty much at will.

#42 Nomad on 05.09.14 at 8:59 pm

As painful as it is for those of us who are debt-free and save, I can’t see the US would increase rates more than 0.1% next year. Same with Canada. Governments want to keep their voters and so will help the majority, and the majority is taking on large mortgages. Canada could even use debt to subsidize Canadians in the event of trouble, to help them stay above water.

Still, I refuse to give my money to a flipper or investor. Instead I join the 2.99% lending legions with $XFN or $CEW.

#43 Ralph Cramdown on 05.09.14 at 9:00 pm

“You’ll regret paying $500,000 for that tract house in Edmonton. Maybe not now and maybe not tomorrow, but soon and for the rest of your life.”

“I came for the jobs.”
“But Rick, there are no jobs being created here, and one guy’s threatening to fire one in eleven civil servants.”
“I was misinformed.”

“We’ll always have Toronto. We didn’t have, we’d lost it until you came to Peterborough. We got it back last night.”

#44 gladiator on 05.09.14 at 9:05 pm

@9 saskatoon
Government having to borrow money is by far the biggest issue we Canadians have. Housing or stock market bubbles are peanuts compared with this.
Unfortunately, this will never change – the populace is deeply asleep on this matter.

#45 Andrew Woburn on 05.09.14 at 9:06 pm

From Garth’s post yesterday:

As you may know, the average SFH in Van is changing hands these days for $1,198,828, which is down from close to $1.4 million a few months ago. This drop has been driven substantially by declines in the tonier areas, like the Westside and West Vancouver. In fact, since the Immigrant Investor program was punted by the feds, traditional in-demand hoods have seen an 11% price reduction.
———————————
#99 P-gizzlee on 05.09.14 at 12:50 am
I thought foreign money had no effect on housing prices? Have you finally seen the light?

#155 G DAWG on 05.09.14 at 11:07 am
And btw….you attacked anyone who suggested that HAM even existed…. I remember being branded a racist for the mere suggestion that you might look at the facts. So why the about face and no apology?

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

I agree that Garth tends to see racism behind every bush but I am not sure he has anything to apologize for. What he has said consistently is that HAM is not driving prices in most areas of Vancouver or Toronto just like rich Arabs are not pricing Englishmen out of the suburbs of London. HAM has obviously driven prices in specific neighbourhoods, just not all of them.

What is fascinating is that if average prices could fall so fast, it must mean that the sales mix was unusually weighted with high price homes. It is hard to imagine that high end homes would normally count for even 10% of total sales in any time period, so what has happened to the volume/pricing of ordinary homes that expensive homes now weigh so heavily in the average.

#46 Pope CoconutVeryCreamyThighs Snugglebums the 666lf (aka Nosty) on 05.09.14 at 9:20 pm

#164 Old Man on 05.09.14 at 12:13 pm — “This war was sponsored by USA based upon a hidden agenda of three items which was never to capture Bin Laden. This cost Canada 158 lives, and approximately $12 billion and nothing was accomplished; just name them.”

ObL moved into the next worlds in 2001, and was used as a convenient tool by the CIA until a couple of years ago. There are a few versions of ObL’s death are shown here (not m$m).

One of the main reasons for the invasion of Af’stan was the trillions of dollars in underground minerals, and dubya was just following his master’s orders, that’s all. The next major one will be the invasion of Africa, incl. Monsanto and Africa which will be interesting as China and Russia have been involved for a short time already.

It is plausible that the invasion of Iraq in 2003 was because Sadaam was debating whether to run with the Euro or Yuan after ditching the petro-dollar. However, it appears that BRICS now has eighty countries associated with them, most of whom are looking further afield than the US$.

Remember MH 370? The NSA has now classified all info., plus Ignore Dr. Phil and shrinks — they’re all whacknuts!

#38 Old Man on 05.09.14 at 8:23 pm — “. . . did you know that one can take all the humans on earth and park them in the Grand Canyon?”

Or Texas. Let each family / couple / singletons have an acre or two to grow their own food, then ferget about Monsanto.

#47 Inglorious Investor on 05.09.14 at 9:22 pm

#15 hohoho on 05.09.14 at 7:11 pm

“once the budget is balanced rate increases has minor impact.”

Even if the gov runs a balanced budget, they still have all the outstanding accumulated debt to finance. Right now the US is rolling over debt with more debt, i.e. borrowing new money to pay back old borrowed money. Rising rates will have an impact.

I did an LOL when, during the stupid budget crisis theatre when Congress threatened to not extend the debt ceiling, Bronco Bama said the US cannot be a deadbeat and it must be allowed to borrow more. Sorry, but if you need to borrow money to pay back old debts, you already are a deadbeat.

#48 Brian Ripley on 05.09.14 at 9:28 pm

The Vancouver high end houses are selling on average at last year’s prices and in some cases at prices from 4Q 2011.
Average Strata prices are still rangebound (since 2007); and Sales and listings remain seasonal. It’s calm like the stock market; only a few clouds in the distance.

http://www.chpc.biz/vancouver-housing.html

#49 Fed-up on 05.09.14 at 9:30 pm

“They’re at it again, and it almost makes you miss that little devil, F.”
—————————————————————————-

May God rest his soul, but the dude who caused most of this damage with his pal H in the 1st place?

Nahhhhhh

#50 Inglorious Investor on 05.09.14 at 9:35 pm

Liquidity in the real economy has been drying up for over twenty years as consumer debts have ballooned and savings rates declined. This was partially responsible for the financialization of the economy, e.g. borrow money to fund EVERYTHING.

This is why the FIRE sector tried to convince everyone to throw tried-and-true prudence out the window and where the only figure that mattered was the monthly payment. People, especially the young, forgot the actual price of goods like cars and houses and concentrated on the payment.

They keep rigging the game to make it appear as though things are more affordable (such as bi-weekly payments), when in fact the biggest result of these games is that things have gotten more expensive PRECISELY because of the switch in focus away from price to monthly payments. They can hide the true cost of something more that way, and extract money from the uninformed consumer. Cheap cell phones on multi-year plans are a prime example.

Cheap credit causes things to get LESS affordable, not more affordable. It’s a paradox people should learn well.

#51 Inglorious Investor on 05.09.14 at 9:40 pm

#28 Dean Mason on 05.09.14 at 7:55 pm

“People live in fantasy land and when they see what it really costs to own and maintain a home or condo then they will be shocked.”

Tsk, tsk… Don’t you know that all that matters is the monthly? ;) And stainless steel––don’t forget the stainless steel for God’s sake!

#52 Inglorious Investor on 05.09.14 at 9:46 pm

#44 Ralph Cramdown on 05.09.14 at 9:00 pm

Ah… I love that movie. Play it again, HAM.

#53 Inglorious Investor on 05.09.14 at 9:53 pm

#34 Larry on 05.09.14 at 8:14 pm

“The ECB will be cutting rate to negative in June.”

The gods of global finance actually want to start charging depositors to keep their money in the bank. Check this one out…

http://www.businessinsider.com/in-the-future-you-may-have-to-pay-the-bank-to-hold-your-money-2013-11

Our economy is being completely rejigged.

#54 Shawn on 05.09.14 at 9:55 pm

How I Accumulated Capital

ScienceMonkey at 29, thank you for your thoughtful answer to the questions as to why humans do not have the freedom to move anyplace on this planet (providing they can support themselves and are law abiding)

And he asked:

However, I should ask you, where were you able to accumulate your capital in the first place? Was it by diligently saving a lot of money from a decently paying job at the tax farm?

*******************************************
Actually I am still farming at a quite decently paying job.

Part of accumulating capital was frugality. Our RRSP contribution limit was always low because we have pension plans. But I maxed those out and maxed out RESP.

I have a side business that has generated a decent side income the last six years or so.

After 25 years of investing I found that compound returns really started to kick in around year 20. Suddenly a return of 10% was approaching what an average person makes in a year. And I was doing an average closer to 15%. I have dedicated much of the last 15 years to intensive study and selection of stocks.

Overall I have worked very hard. I gave up frugality at around age 40 and we spend a lot. But the RRSP and RESP money grows steadily and is untouchable. The side business income I leave in the corporation to avoid much tax and it is invested and grows as well.

It takes decent contributions, good returns and at least a couple decades but with that a decent amount of capital can be built up.

Possibly I got lucky in buying my house well before the prices took off. I paid off the mortgage in eight years. That could never happen with today’s prices.

#55 Drill Baby Drill on 05.09.14 at 9:59 pm

Dear Pathetic blog : Calgary is showing once again it’s boomtown tendencies in a big way. The younger new home buyers (and less young but more affluent) are buying houses based on ability to make monthly payments rather than what the homes are actual worth. The 40 & 50 somethings are plucking down big buck downpayments on 1.0 MM $ upscale homes. Calgary has been absorbing new-comers from all over Canada for the past several years. This is an indication of the poor state of the overall economy in the rest of Canada. As a long term Albertan (40+yrs) I can tell you this will not end well. I am in the engineering biz and a major engineering firm Meg Worley just layed off 350 people this week. This is on top of major layoffs by Meg and Jacobs and AMEC and Fluor and Wood Group Mustang and on and on . The health of the engineering firms in Calgary is very much like the canary in the coal mine. If these firms are laying off now as they have been over the past 16 months (due to Keystone P/L) then it is only a matter of a few months before the fabrication and construction shops start laying off. This is the story of Calgary. Look out below.

#56 hohoho on 05.09.14 at 10:10 pm

> … Even if the gov runs a balanced budget, they still have all the outstanding accumulated debt to finance …

as I mentioned, government has been able to re-finance at a much lower cost for the last few years, and most likely for the next few years as well

#57 Mark on 05.09.14 at 10:12 pm

What people seem to consistently miss is the whole idea that housing loans, expressed as a spread against risk-free interest rates, are still abnormally and unusually inexpensive.

Meanwhile corporations, the people who actually (or don’t) employ us, with cleaned up balance sheets and productive income-producing assets, are still paying big bucks for credit.

Those 2.99% specials, by the time that the bank pays the commissions to the mortgage brokers and/or pays its own origination staff, likely come out to a yield on the order of 2.5%/annum, give or take.

BCE recently paid 3.513%/annum for 5-year credit, a billion dollars worth (source: http://www.bce.ca/news-and-media/releases/show/bell-announces-offering-of-mtn-debentures-2). Yes, that’s right, 3.513%/annum. It is less expensive for someone in a single shack in one of Canada’s major cities, with credit so dodgy that the CMHC has to be involved to insure their subprime loan, to borrow, than it is for one of Canada’s largest corporations and employers with a presence coast to coast to borrow.

This, folks, is why the economy is in trouble. Why job creation has sucked. Housing, by way of the CMHC’s credit preference, has effectively squeezed corporate/employment sector borrowing out.

However, the tables can easily turn, and likely will in the next few years. BCE borrowing at 2.5%. CMHC subprime home-borrowers borrowing at 4-5%. And just maybe the economy will actually recover and start to organically create more jobs.

#58 Nemesis on 05.09.14 at 10:13 pm

@Ralph; Inglorious; OldMan; SnugglyPapalBustyNosty; et al…

http://youtu.be/YGBsV6APjLY

[NoteToGT: I don’t use them often… but the Semicolons were for SM.]

#59 Shawn on 05.09.14 at 10:16 pm

Bank Profitability

So how much money can RBC make on a 5 year mortgage at 2.99%?

They are paying 2.2% on five year GIC, so that leaves 0.79% gross profit. That’s really very little. On Average the big banks make an average spread or gross interest margin of 2.41% so this 0.79% on the mortgage loan would be thin gruel and probably not cover administrative costs.

If they fund the 5 year mortgage by issuing a five year bond they are paying 2.40% and so now the gross profit is even worse at 0.59%.

So how are the banks making a profit? Are they in fact funding five year mortgages with five year GICs or five year corporate debt?

No, probably not, they may be funding 5 year mortgages with short term deposits on which they pay about 0%. Now the spread is at or close to 2.99% and they can make good money especially with no credit risk thanks to CMHC.

But they do in fact face a BIG risk if this is the case. If interest rates rise within the five years they might have to pay a lot more for deposits, while still collecting the fixed 2.99%, and this could hurt them big.

I believe they are taking that chance and riding the yield curve to make money. They borrow short (via deposits) and lend long. Same thing that caused the savings and Loans crisis in the U.S. years ago. But if interest rates remain low they are fine.

They have complex models that tell them they are not taking on too much risk doing this. If rates rise we shall see. No CMHC insurance protects them from higher interest rates.

Yeah, I have to admit a sharp rise in interest rates would harm a lot of people. All those who lent long term (bought long term bonds) will be hurt as the market value of their loan or bond receivable will plummet. Those who borrowed short term will face renewals at higher rates.

Banks have a habit of blowing out about half their brains every few decades. Regulators fight the last war and make sure the last crisis is not repeated but then a new one fools them.

Loan defaults may not be the issue next crisis it may be variable and rising funding (deposit) rates in the face of fixed mortgage interest income.

Or maybe rates will never rise?

#60 Smoking Man on 05.09.14 at 10:16 pm

Today I was called insane by a young lad.

And he’s right… Maybe..

Perhaps I’m beyond ambition, done it all, seen it all. Experienced it all.

Lacking ambition, and the record is playing in my mind the famous tune..

I give no shit…

Just got to say…

I know you know, but you didn’t that I know you know… And now that you know that I know you know..

You’re right, certificated insane..

The Smoking Man….

But then, that little definition of insanity..

It’s up for debate…..

#61 Mark on 05.09.14 at 10:17 pm

” am in the engineering biz and a major engineering firm Meg Worley just layed off 350 people this week. This is on top of major layoffs by Meg and Jacobs and AMEC and Fluor and Wood Group Mustang and on and on . The health of the engineering firms in Calgary is very much like the canary in the coal mine. “

I bolded your comment as it bears repeating. Literally dozens, if not hundreds of tradespeople are needed to implement the designs and plans of each individual design engineer. If the design engineers are being laid off, that is profoundly bad.

Of course, Calgary got itself into quite the pickle over the past decade, as the high costs chased out a whole multitude of non oil and gas-related engineering businesses. At least in the 1990s, firms like Nortel were able to pick up some of the slack when the Calgary economy went into the toilet due to the weak oil sector.

#62 Bottoms_Up on 05.09.14 at 10:18 pm

#199 Daisy Mae on 05.09.14 at 8:02 pm
—————————————–
You remind me of my wife. LOL

‘Condescending’ over a blog? Just trying to help, as I stated. And, also as stated, it was information meant for ‘others’, not for you.

Project much? Geez….

#63 Nemesis on 05.09.14 at 10:20 pm

#Addendum. #BetterIntro. #BetterSound. #MorePixels.

http://youtu.be/xB_jKu6qWM8

#64 Mark on 05.09.14 at 10:23 pm

“Loan defaults may not be the issue next crisis it may be variable and rising funding (deposit) rates in the face of fixed mortgage interest income.”

Then the banks just ratchet up the rates on the 40% of their mortgage base that is adjustable rate. Problem solved. The term stuff is all duration/maturity matched with deposits, so no risk there.

The real ‘problem’ for the Schedule I banks is political — the public is likely to become extremely grumpy when headlines “CMHC: Paid $20B to RBC” are front and centre at a time when people are under severe financial distress. The people who are the most vulnerable to rising interest rates and foreclosure, generally aren’t those who will benefit by owning RBC stock in such a scenario.

#65 Mark on 05.09.14 at 10:25 pm

“No, probably not, they may be funding 5 year mortgages with short term deposits on which they pay about 0%. “

Go look at the annual reports for the Canadian big-5 banks. None of them run any meaningful duration gap. In other words, deposit maturity is matched with loan maturity across the portfolio.

How RBC justifies it is through the fact that they can leverage the loans 10-20X, collecting a multiple of that mediocre spread and eeking out an acceptable return on capital. With potential future upside as housing loan spreads widen from historically abnormally low levels. Effectively, RBC is sacrificing current profit, for future profit. This is in contrast with the US banks which used securitization to book current profit at the expense of future profit.

#66 Junior Juice on 05.09.14 at 10:27 pm

Garth, been reading the blog for a while now and am on board with the GreaterFool movement. So much so that I began looking for hedge funds to short the Canadian real estate market this week. I know it’s probably not smart given I have only approximately $100k in total investments, but I can’t resist the thought. I came across the one offered by Spartan Fund Management Inc. but it looks like I need a $25k minimum initial investment. Is there anything out there that you know of for the smaller guys, and if so, would you recommend a small allocation to see what happens?

#67 Smoking Man on 05.09.14 at 10:28 pm

DELETED

#68 JOE on 05.09.14 at 10:29 pm

#56
I wouldn’t be surprise….the rush for homes in Edmonton for me just ended
Spec homes are not selling they are still on the market…
…..Calgary will be the next Big City….to fall…..very soon…..whatever the REAL ESTATE KINGDOM says….(right now is so obvious what lying RE propaganda does….)
Engineering jobs disappearing…and blue collars will follow…
Soon will be price reduced house for sale all over the place…Probably you don’t believe….so listen to your REALTOR….and buy with your friend CMHC mortgage broker with anticipation of big profit……
buy also 1% lease rate reduction at Mercedes Benz …they want you too….soon will be together with CMHC companion…
and buy diamond ring for your wife………..
and golden plate for you dog…………………
and do everything possible at work to not offend your boss…..and keep your job….behave….work overtimes….
take a lot of coffees…….don’t sleep to long…..
stay longer at work,………and be happy …
you achieved so much……………in your life…..

#69 Nemesis on 05.09.14 at 10:29 pm

#Bonus

#70 Bottoms_Up on 05.09.14 at 10:32 pm

#176 frank le skank on 05.09.14 at 1:50 pm
———————————————-
One has to ask themselves ‘what sustains prices?’ Well obviously demand….but where does demand come from (aside from low interest rates and willingness of lenders to lend)?

Here’s the thing — there’s lots of money out there. People that have paid off their homes long ago; people with inheritances; people that have made tons of money in the stock market, or that work in the right field at the right time etc. There are the regular property ladder people, for example that might currently owe 200k on a 1.2 mill house because they bought in 1998….these people can (and do) sell their homes, and have hundreds of thousands of dollars to put toward their next “move-up” home.

It really is a ‘ladder’. In markets such as the GTA, average first time buyers shouldn’t be looking at SFHs…that’s just reality.

And in considering the ‘average’ family income, remember that there’s likely a huge cluster with incomes around the poverty line, and a huge cluster well above 100k. So while average incomes can give an overall picture of the general direction of income over time, it doesn’t really tell us anything about real household income and ability to afford to buy.

If I were looking to buy in the GTA right now, I wouldn’t touch a condo that’s for sure.

Just buy when the time is right, when it’s affordable for you and makes sense to put down roots.

#71 Nemesis on 05.09.14 at 10:34 pm

#FatFingerTruncation. #DiptychParables. #ToHave&HaveNot.

http://youtu.be/MTaWCaSdmmY

http://youtu.be/EBM5Bte4ltg

[NoteToSM: Paying attention?…]

#72 hohoho on 05.09.14 at 10:36 pm

> as I mentioned, government has been able to re-finance at a much lower cost for the last few years, and most likely for the next few years as well

and as the rates normalize in the next few years, we will also be moving towards the time frame to re-finance the democrat/liberal balance-budget/debt repayment years, with a significant larger economy

#73 Assquatch on 05.09.14 at 10:36 pm

I just watched an excellent documentary that I highly recommend about the economy, consumption, and designed obsolescence. It is called the light bulb conspiracy

Before watching this, I never knew there was a light bulb cartel, nor that there is a light bulb that has been on continuously for over 100 years…

#74 Realtor # 1 GTA on 05.09.14 at 10:38 pm

2019??
Three years ago people warned of higher interest rates in 2015.
Low interest rates are here for a long time.
Poloz has indicated that a small increase in interest rates is all he needs to do.

He did not. — Garth

#75 ozy - WATCH OUT on 05.09.14 at 10:43 pm

WATCH OUT, some RE is gonna burn your LIFE – yet some RE will help you cruise, baby

I won’t say more, for I have seen the future

http://www.phrases.org.uk/meanings/a-fool-and-his-money-are-soon-parted.html

#76 Smoking Man on 05.09.14 at 10:44 pm

DELETED

#77 Dean Mason on 05.09.14 at 10:48 pm

The total monthly mortgage, insurance, property taxes, utilities etc. is $18,000 a month in 2034.

This $18,000 total monthly financial drain is for a $750,000 house in Toronto bought in 2014.

Yes, the monthly only matters and it is a big monthly indeed.

#78 hohoho on 05.09.14 at 10:49 pm

> … I believe they are taking that chance and riding the yield curve to make money. They borrow short (via deposits) and lend long. …

renewals rates will probably raise in lock step with the deposit rates, by the time savings rate got anywhere close to 3% the fixed mortgages will be 6%

and tons of people are on variable in any case …

#79 Smoking Man on 05.09.14 at 10:49 pm

DELETED

#80 Smoking Man on 05.09.14 at 11:00 pm

DELETED

#81 Dean Mason on 05.09.14 at 11:17 pm

They already did negative returns(interest rates).

They are called annual MER’s or RRSP and other administrative fees.

Don’t forget those equity indices and darlings called the Japanese Nikkei 225 -63% since 1989, Hong Kong Hang Seng -33% since 2007, Shanghai composite -60% since 2007.

Taiwan Taiex -12% since 2007, Brazil Bovespa -20% since 2007, Nasdaq -19% since 2000, TSX Venture -69% since 2007.

#82 Victor V on 05.09.14 at 11:30 pm

http://news.nationalpost.com/2014/05/09/tim-hudak-vows-to-cut-100000-ontario-public-sector-jobs-if-he-wins-election/

Ontario Progressive Conservative Leader Tim Hudak said Friday he would get rid of 100,000 public sector jobs if he wins the June 12 election to reduce the size and cost of government and help create new private sector jobs, something Liberal leader Kathleen Wynne called “disastrous.”

Hudak said eliminating the $12.5-billion deficit by 2016 — one year ahead of the Liberals’ schedule — is the best way to convince businesses to invest and create new positions, which would clear the way for his plan to create one million new jobs over eight years.

“If I have to trade off 100,000 jobs in the bureaucracy for one million new jobs in the private sector creating wealth, that’s a tradeoff I would do any second,” he told a town hall meeting in Barrie.

#83 Spectacle on 05.09.14 at 11:30 pm

Thanks “Garth” .

Trust progress on your leg is picking up some momentum.

Re: #10 saskatoon on 05.09.14 at 6:55 pm
so…let me get this straight:

1. banks make loans………………

conclusions:

1. banks use their legal ability to create “loans” to purchase government debt.

2. interest owed to banks increases government demand for debt

3. government has mostly surrendered money creation power to private banks

am i missing something here!?!?

Reply: Yes, Sask, but you ask the right questions!

Research Agenda-21 , Rosa Koire Behind the Green Mask. You will be shocked, amazed, angry, and ……enlightened as to what is really going on at the macro world politico/economic level.

Where’s Aggregator when we need his input?

Regards all, M

#84 Mark on 05.09.14 at 11:32 pm

Nemesis ….

I never ever read your posts.

#85 Got out in time on 05.09.14 at 11:52 pm

#7LH
“Central urban houses in the most walkable, wealthiest and most worldly city in Canada are the new gold.”

How did polar vortex work for “most walkable city in Canada” this year. Heck you can walk it at best 5 months in a year and the rest of time you gotta do what Smoking Man does: Get blissfully drunk and dream of warmer places while being a legend in your own mind.

#86 Sherwood Park on 05.09.14 at 11:59 pm

We are all doomed!

http://www.businessinsider.com/personal-finance-ignorance-2014-5

#87 Nemesis on 05.10.14 at 12:32 am

#ItDon’tRepeat. #ButItSho’NuffDoesRhyme.

http://en.m.wikipedia.org/wiki/Seducing_Ingrid_Bergman

#88 Workin man on 05.10.14 at 12:47 am

Shawn, banks lend multiples of their customer deposits, so if you deposit 1M into a 5 yr GIC at 2.2% they create 10M in mortgages at 2.99% backed by your deposit. they pay 22K interest to you and generate $300k from their mortgage loans. so their profit is huge which is why they are a cartel sucking the lifeblood out of the working man.

#89 TRT on 05.10.14 at 1:37 am

Inglorious Investor:

We may see 1.99% 5 year fixed rates in Canada during the next downturn.

Wait and see. Rates are not going up.

#90 Nemesis on 05.10.14 at 2:44 am

#AccessGranted. #AlwaysBeInvisible. #FromTopGunsToRevolutionaries. #TruthIsStranger. #MondayMonday[WithLuck].

Angels: http://youtu.be/jj7BRKHml8g

LateBloomingRevolutionaries: http://youtu.be/1xDkBPnZPdc

Mamas&Papas: http://youtu.be/h81Ojd3d2rY

[NoteToDogz: HaveSomeFun. EvenALittleCounts. I really should get a new keyboard. Right?]

#91 Lobster Man on 05.10.14 at 2:49 am

CPR plans to reactivate its 11 km rail track along the Arbutus Corridor on the Vancouver West Side. I have never seen people so upset on an announcement similar to this!

#92 Castaway on 05.10.14 at 3:11 am

Garth, another independent report showing Canadian RE being overpriced can be found on FrankNightblog.com. Using rent to price ratios were #2. Maybe if the house horny continue we can pass Norway and finally become #1 at something. You know, just like a hockey game “Were #1, Were #1, ……!!

#93 rob in Munich on 05.10.14 at 3:38 am

Ha Ha speaking of cheap money, just got a quote over here in Euro land 10 year fixed 2.75%!!!!!

Insane

we are in the process of purchasing two investment properties, yield 5.5% and tenants pay most of the running costs!

Now this is what I’ve learned from reading your blog is that emotions play no role in investing. So numbers rule but having said that there is an intangible to owning property. It’x exciting we’re diversifying out of the CND dollar and getting more Euro investments (kind of important as we plan to retire here)

#94 jane24 on 05.10.14 at 3:55 am

The best laugh is the new ‘forever home’ concept. Jobs change, kids are born and leave, income goes up and down, family needs you or employer moves you. There are a hundred reasons why in life you move on and need to sell.

Over-invest in a ‘forever home’ and you will lose big in life, especially if you do it more than once.

Only buy what you need now and if young then rent to ensure maximum employment opportunity.

Strange how the second largest country in the world in size has such expensive housing as obviously no shortage of land.

#95 Buy? Curious? on 05.10.14 at 4:34 am

#7 LH on 05.09.14 at 6:31 pm

That was the best comment on this blog ever! I’m going to get that book, Capital, by what’s his name today!

Here’s a clip from Bill Moyers talking about that.

https://www.youtube.com/watch?v=QzQYA9Qjsi0

My house feels a little more special today than losing my virginity.

Rent and invest in a diversified portfolio, Pfft! I’m Rick James!

#96 Phil Indablanque on 05.10.14 at 4:46 am

Story from the front line … West Coast Island suburb, built 1986, on the market for 2 days… first timer encouraged to bid 7k OVER asking which is 20K over assessment. Secondary suite mortgage helper needs a kitchen to be installed. And for some reason the carpet has all been pulled up in the basement. And the baby is due in a few months. 5% down on 420k. The Real estate lady and The Mortgage broker lady and the wife ALL are telling buddie to sign. The guys on the shop floor tried to talk to him but he aint listening to us. Live and let live I guess.

#97 Tony on 05.10.14 at 5:16 am

America will end up just like Japan only worst. I’ve been buying strip bonds and select corporate bonds with maturities in the 2040’s. Interest rates will fall to zero then flat line like Japan seemingly for eternity. The smart money is all moving out of stocks and into long term bonds and precious metals.

#98 Sean on 05.10.14 at 7:12 am

#60 Shawn on 05.09.14 at 10:16 pm
Bank Profitability

So how much money can RBC make on a 5 year mortgage at 2.99%?

=========

C’mon guys.. Money and Banking 101… they don’t need to fund the mortgage… they create the money thru an offsetting transaction. It’s an illusion to look at the asset mix, deposits on hand, short term holdings, etc… and assume a correlation.. i.e. that they are “funding” the mortgage using bond issuance, or deposits.

While the good citizens don’t want to believe it, and relegate the “printing money” theories to the realm of crackpots, banks DO IN FACT “create” money. And without any reserve requirements.. IT REALLY IS THAT BAD!

#99 yorel on 05.10.14 at 7:22 am

Young people worried about money? I know a young lady who didn’t realize she pays $1400 a year in union dues.

#100 sheane wallace on 05.10.14 at 7:24 am

Things got overblown way out of proportion.

It seems the point of no return for the things to get back to normal was somewhere around 2008, but the people in power got afraid to pay the price.

Now is too late.

Rates will not go up in any meaningful way, they will be negative for at least the next decade. Savers would be wiped out. Inflation will soar once the reserves are released, velocity of money increases and most importantly when people realize that their savings are worth close to nothing.

I am afraid houses will not be allowed to collapse as there is hardly anything else left in the economy other then resources and some services.

A house/crappy in To/Vancouver is worth 45 kilos of gold, 40 kilos of platinum, 1.5 tons of silver, 10 000 barrels of oil. Really?

Banks would have never given majority of the mortgages in the last decade if it was not for CMHC, the politicians got it wrong. Idiots should not be allowed to guarantee stupid loans with the public money.

Steve would be the last choice for my money’s manager if I have a voice.

#101 sheane wallace on 05.10.14 at 7:29 am

#98 Tony

correction: get out of North American stocks.
I see no reason to sell my European, Brazilian, Australian, Asian stocks. The normal world is growing and fast.

#102 Stickler on 05.10.14 at 7:59 am

@ #29 sciencemonkey on 05.09.14 at 8:06 pm

@195 Shawn

A broader question is this: is it possible for 7 billion people to live at a NA baby boomer level of opulence using the resources of one planet?

———————————–

And the answer to that question is no. The whole world could not even eat like the average American / Canadian.

This is why the standard of living in developing countries is headed lower, while the developing countries climb higher…to meet somewhere in between.

Water, energy & productive farmland will win.

Hey gal/guy living in the developed world -> its cool to live in a micro home and be a vegan. Don’t think too much about it…just keep playing with your i-thingy.

The truth is the world can not support everyone living in a detached house, eating the typical Canadian diet, using the typical amount of fresh water, heat / AC, driving 2 new cars every 3 years, etc.

#103 aaron on 05.10.14 at 8:10 am

Variable rates will almost certainly not be 5% in 2019 because Yellen won’t start raising it until maybe 2018-2019. Hence, BoC won’t most likely raise rates until she does. Japan is showing the Feds way.

That is what my model is forecasting.

The model you made up? — Garth

#104 Dean Mason on 05.10.14 at 8:20 am

To Tony #98

We have been doing the same thing and telling people to buy long term strip bonds Canada, provincial etc. since 1995.

Back then 9.25% to 9.75% government strip bonds were easy to find.

There were quite a few in 1995 that were 2036 and 2038 maturities at 9.5%+ that we bought.

We kept buying them for years decades now and have many strips in the 5%, 6%, 7%, 8%.

Now, you will be lucky to find 4.00% to 4.15% yields but at least the principal and interest is compounded for decades, protected from lower bond yields.

We always have thousands of extra money a month to invest or bank away so if or when interest rates, bond yields rise we have plenty of a financial cushion so we will not need to sell any bonds, strip bonds being held until their maturities.

Also by us having 18 months of living expenses in short, liquid investments does protect us as well.

#105 Stickler on 05.10.14 at 8:28 am

@ #67 Junior Juice on 05.09.14 at 10:27 pm

Garth, been reading the blog for a while now and am on board with the GreaterFool movement. So much so that I began looking for hedge funds to short the Canadian real estate market this week. I know it’s probably not smart given I have only approximately $100k in total investments, but I can’t resist the thought. I came across the one offered by Spartan Fund Management Inc. but it looks like I need a $25k minimum initial investment. Is there anything out there that you know of for the smaller guys, and if so, would you recommend a small allocation to see what happens?

——————————–

Easy & cheap way to short Canada is to take your Canadian $ and either:

1. Exchange them to USD
2. Buy USD denominated ETF (un hedged to CAD)

Example

Oct 2013 1 USD = 1.03 CAD
May 2014 1 USD = 1.085 CAD

5.5% gain (in CAD) just by exchanging & sitting in Cash.

#106 sciencemonkey on 05.10.14 at 8:59 am

@35 and 41 Joe
I am aware of the demographic transition:
http://en.wikipedia.org/wiki/Demographic_transition

However, big cities like Toronto have increasing populations due to immigration:
http://en.wikipedia.org/wiki/Demographics_of_Toronto#Population

@55 Shawn
Thank you for the description of how you built your capital. That is essentially my plan as well, save a lot of my slave wages and try to start a side business. I’m sure you got my point, however, that joe blow (in a developed nation, and lacking significant entrepreneurial ability) can only transition from wage slave to equity participant if they have access to a decent job, which they no longer would in a system of worldwide freedom of movement.

#107 T.O. Bubble Boy on 05.10.14 at 9:15 am

$900k House of the Day for Saturday, May 8th.

Finalists:
1) $899,900 19.7ft wide skinny house
2) $900k semi-detached “builder’s dream” near Bayview/Sheppard
3) $938k “Charming” house for builders near Bayview/Sheppard

WINNER
Tough call again… I’m calling a TIE between #1 and #2. #1 is the stereotypical “every detached house should be $1M” listing, and #2 is a semi-detached dump that can’t be torn down for land value.

#108 OttawaMike on 05.10.14 at 9:25 am

The Realtor Bubble: One “professional” for every 245 people in Canada.

http://business.financialpost.com/2014/05/09/canada-housing-bubble-agents/

Same thing happened in the GTA in the late 80’s, everybody with a pulse was getting their realtor license.

#109 frank le skank on 05.10.14 at 9:51 am

#71 Bottoms_Up on 05.09.14 at 10:32 pm
I’ll probably rent for the rest of the time I’m in Toronto, which could be the rest of my working career. As much as I’d like to think that one day I’ll scoop up a kick ass deal on a SFH in GTA, its highly likely that its wishful thinking.

#110 SofaKing on 05.10.14 at 9:51 am

@ workin man

what or who tells you the banks are rehypothecating at 10x the collateral?

It’s way higher. In fact, I believe it’s in Lehman territory. That’s the only way our chief dimwit economist in ottawa is able to keep this ponzi scheme going.

#111 crowdedelevatorfartz on 05.10.14 at 10:02 am

@#62 Mark
While I agree with you that the laying off of hundreds of engineers does not bode well for the future of the construction.
I would like to point out that the reason engineers “create” dozens or hundreds of trademens jobs is due to the simple fact that each trade has to point out all the design flaws an engineer has created…. it keeps us busy :)-

@#92 Lobster man

I rented a basement suite about 100 fat away from the Arbutus corridor in the early 1980’s when Burlington Northern still ran their trains along that track….1 locomotive. Once per day. Merely to exercise their “right” for the train track.
As anyone who lives next to a train track knows. Its very disruptive. The suspicion then, was that BN did this in the hopes that eventually the govt would buy the land ( some of Canada’s most expensive) and either develope it into more housing or turn it into a commutor route( either bike or Skytrain).
I suspect that CN is merely using the same tactic.
When CN starts running a locomotive down the track . Go stand a block away and see how much fun it is……

#112 Mr. Reality on 05.10.14 at 10:05 am

#109 OttawaMike on 05.10.14 at 9:25 am

Its the same thing with medics in the oil patch, a dime a dozen and in it for cheap, easy money.

One thing i can say for sure. I would never hire someone with a resume that said they were a realtor………

Mr. Reality

#113 the jaguar on 05.10.14 at 10:15 am

#56 Drill Baby Drill
Nailed it. Exactly as I see it.
Also, 20,000 jobs lost in Canada according to the latest stats released. Yes, part-time jobs created, but in low paying service sector jobs. Likely filled by FWP.

#114 High Plains Drifter on 05.10.14 at 10:23 am

The firms listed by Drill Baby are Calgary and they are quite adept at misinfo. Anybody familiar with Alberta knows it runs on stealth. In the oil bizz shuffling the labour is good because seniority issues are cut off at the knees. I should mention a thank you to that very selfsame gang of companies for setting up the policies that removed me from their clutches. Re jection was tough at the beginning but soon I realized I would live longer and Just maybe find a way to profit from my intimate knowledge of their morals.Mission Accomplished.

#115 Inglorious Investor on 05.10.14 at 10:27 am

There are four detriments to paying for goods on a monthly basis:

1) Most people will likely pay a higher price for the product in question than they should because focusing on a monthly shifts the focus away from the actual value of the product to the buyer’s cashflow. And sellers can hide the true cost of the product. As one example Karl Denninger had done some analysis of the cell phone industry and he has showed that people who purchase cell phones that are ‘subsidized’ by long-term contracts are paying multiples of what the phone is actually worth.

2) Buyers are tempted to purchase ‘more’ product than they need or perhaps even want. Buyer’s who look only at the monthly will tend to push the payment to the max of affordability by adding more and more features. Rather than looking at what they need, they base the purchase on how many goodies they can cram into their maximum affordable monthly payment. Salespeople, of course, are only too happy to oblige them.

3) When you pay on a monthly basis you are, by definition, paying with borrowed money. Assuming you are paying interest on that money, then, again, you are paying more than necessary for the product, while you are borrowing from your own future cashflow, thereby putting additional strain on your finances.

4) When everyone moves to monthly payments because credit is cheap, this artificially drives up demand for the product/service in question, and over time this will push up the cost. The current best examples are probably Canadian housing and American college tuition.

As a corollary, most people don’t really understand the concept of affordability, because they focus on current operating costs without giving enough consideration to future needs (e.g. retirement, eduction, etc). Therefore they tend to inflate how much monthly they can really afford.

Low interest rates can dampen the above effects somewhat. But if you really want to take advantage of low rates and high inflation, then the smarter thing to do would be to borrow lots of money for some enterprise that will liquidate the debt via profit, rather than through your current income.

As for low rates, high inflation, mortgages and housing prices:
You are not further ahead financially when the asset that you purchased goes up in price if EVERYONE has the same asset. You are only further ahead if you have more actual money––adjusted for inflation.

Now, I believe in free market capitalism, so if a buyer agrees to being hosed by a seller––for whatever reason––then so be it. Somehow though I think most buyers today are really aware of how much they are actually paying.

#116 Realtor # 1 GTA on 05.10.14 at 11:07 am

I don’t think he is allowing people to get 2.99% and four years hit them with high rates. He would be setting them up for failure and the economy would suffer.

BoC knows a 1% increase in the overnight rate is enough to slow consumer spending and thus the economy.

Four years later we are talking about the same thing..

Low interest rates (but in the four years interests it be higher)
hoarding of consumer debt
impending housing crash

Its all about debt -service ratio

#117 Ralph Cramdown on 05.10.14 at 11:08 am

#116 Inglorious Investor — “There are four detriments to paying for goods on a monthly basis”

And one big plus; it keeps almost everyone pulling at the oars that propel the great ship GDP. Back when it was work or starve, the incentive was obvious, but we had an economy little above subsistence. What keeps the masses working? Many haven’t internalized the drive to work hard and save (what used to be called the “Protestant Work Ethic”), so offering them life’s necessities and little luxuries on payments, showing them through advertising how they are supposed to live, and threatening them with the repo man if they don’t keep up does the trick.

https://www.youtube.com/watch?v=bz9OcRHumAg

#118 Daisy Mae on 05.10.14 at 11:12 am

#85 Mark: “Nemesis ….

I never ever read your posts.”

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

Neither do I.

#119 YoungCoupleNeedsGuidance on 05.10.14 at 11:29 am

My spouse and I are 26 years old with stable government jobs making a combined $120,000 a year. We have been renting for the passed 5 years and are really tired of throwing money out the window every month in rent. We pay 1350$ a month plus utilties for the small townhouse we are renting now. We don’t have much of a down payment and find it hard to save with the expenses we have now. Co-workers and family members we know have mortgage payments less than we are paying in rent and our money is just going into our landlords pockets. We could possibly get help with a downpayment from family or borrow. What do you suggest for people in our situation? We understand interest rates can change and go up; we aren’t looking for a $400,000 house, just something to get us started. Some people we talk to tell us to buy as soon as possible as the housing market is going up in our area and unlikely to drop (Orillia, Ontario). Others we talk to say to wait as when interest rates do go up current home owners won’t be able to afford the homes they have and there will be an influx of properties for sale.
Please help

#120 Drill Baby Drill on 05.10.14 at 11:43 am

#115 are you a party buddy of Rob Ford ? Your comments are very opaque and wandering.

#121 Shawn on 05.10.14 at 12:01 pm

Get Educated About Banks

Workin Man and Sean responded to me.

Guys I know you are well intentioned and trying to understand banking but you have been mislead by extremists when it comes to how banking works.

If it works as you say, why do banks offer 2.2% interest on GICs? Why do a good number of banks go broke each year in the United States?

If you really want to learn then download the Wells Fargo annual report and study it. Look very closely at the tables where they show in great deal what they pay on deposits and what they earn on loans and on money invested at the Fed.

People either want to learn or they don’t.

People either find my posts credible or they don’t.

As I have mentioned, I have had great success in investing, I have spent many many thousands of hours learning how and I enjoy sharing my thoughts.

To each his own.

I trust you tow are 100% invested in bank shares given your (badly flawed) views that they are a pure money creation machine?

#122 Londoner on 05.10.14 at 12:05 pm

#117 Realtor # 1 GTA

BOC will raise rates to curb inflation if we are in a period of economic expansion. If this happens then households should be able to handle a rise in interest rates, as they have done in the past. They would not be setting anyone up for failure.

#123 Shawn on 05.10.14 at 12:08 pm

ScienceMonkey at 107

I get your point and agree, we Canadians, for example, jealously guard entry to our HUGE slice of the earth and largely deny the inhabitants of the world the basic human right to move here (even if they have the means to support themselves and are law abiding). Every other wealthy country does the same thing.

I question the basic morality of it. It seems an affront to natural justice. Why should all the people of the world not be allowed to compete for my job and yours?

Actually, jobs are not finite and more population brings more jobs.

We are treating all of Canada like it is our collective private property. Is it really?

If billions of the world’s inhabitants are held back do they have a moral right to storm our borders? I think they might.

#124 BCD on 05.10.14 at 12:16 pm

Garth:

With loans costing 2.99%, and inflation at 1.5%, why the hell would you bother paying anything off?
___________________________________________

1.5%? You always tell me my GIC at 2.5% isn’t keeping up with inflation?

The interest is fully taxable, and you are locked in for years. Bad choice. — Garth

#125 Ralph Cramdown on 05.10.14 at 12:19 pm

#120 YoungCoupleNeedsGuidance — “[…] stable government jobs making a combined $120,000 a year. We have been renting for the passed 5 years and are really tired of throwing money out the window every month in rent. We pay 1350$ a month plus utilties for the small townhouse we are renting now. We don’t have much of a down payment and find it hard to save with the expenses we have now.”

You don’t have a housing problem (unless your utility bills are really, reallyhigh) you have a savings problem. It isn’t the money going out the window to your landlord, it’s the money going on everything else. Two expensive cars? $2,000/month in student loan repayments? Whatever it is, you should know that there’s lots of households feeding multiple kids while paying similar rents at similar incomes. Spend some time at “Mr. Money Moustache” and Gail Vaz-Oxlade’s blogs and come back to ask again when you’ve saved a 20% downpayment plus closing costs.

#126 Panhead on 05.10.14 at 12:20 pm

#112 crowdedelevatorfartz on 05.10.14 at 10:02 am

I rented a basement suite about 100 fat away from the Arbutus corridor in the early 1980′s when Burlington Northern still ran their trains along that track….1 locomotive. Once per day. Merely to exercise their “right” for the train track.
———————————————————-

This track has always been owned by the CPR but BC Hydro (who used to have a railway until Vanderzalm privitized it in the mid 80’s) ran trains on it as they had a 100 year lease on it. When the lease expired Hydro did not renew it as most of the business around False Creek was gone. Can’t see why CPR would want to run freight trains on it again, must be looking at a different angle. Imagine what that land would be worth if zoning could be changed.

#127 Aggregator on 05.10.14 at 12:21 pm

Canada’s next housing bubble: real estate agents

I thought I'd revisit these numbers to see if the dilution of an agent's value is still declining despite rising home prices. Let's see what the numbers say:

First, we look at members per population ratio. Chart No peak bubble here

Second, sales transaction per member. Chart That's ugly

Lastly, the average buy-sell side commission per member. Chart

No average income per member growth on the last chart, however, if I had the data and could adjust it for high end sales, I'd bet the average annual nominal income is probably back to mid 2000 levels around $68-74K.

So for all you agents reading this who keep cheering higher home prices, what you're really cheering the demise of your service's value as the marketplace becomes more competitive with dual-citizen agents engaged in what I call SIno-sales. Read foreign news because organized real estate, the big five banks and the government are making sure what they're doing doesn't get out there.

#128 Smoking Man on 05.10.14 at 12:30 pm

Holly crap garth, don’t even remember posting those deletes.

#129 Old Man on 05.10.14 at 12:35 pm

#120 YoungCouple – you have a combined income of $120K, and rent a townhouse for $1,350 plus utilities a month but cannot save money because your expenses are too high. I needed a good laugh today, and suggest formulating a budget for starters; something is very wrong with this equation.

#130 Joe on 05.10.14 at 12:38 pm

#120…Dear young people ….you should buy a house….with CMHC help and wait for inflation….
you will find a lot of help from the bank, RE agent and mortgage broker…you are in good hands…

#131 Shawn on 05.10.14 at 12:59 pm

How Fractional Reserve Works

Workin Man at 89 said:

Shawn, banks lend multiples of their customer deposits, so if you deposit 1M into a 5 yr GIC at 2.2% they create 10M in mortgages at 2.99% backed by your deposit. they pay 22K interest to you and generate $300k from their mortgage loans. so their profit is huge which is why they are a cartel sucking the lifeblood out of the working man.

*******************************************
To respond to this, yes there is a multiplier effect but actually each new loan if backed by a new 2.2% deposit.

Say $1 million new money was found buried and deposited in the bank and earned 2.2%. Say the bank holds back 10% of that for liquity. Then it can lend out 90% of that at 2.99%. That will end up getting redeposited back into the banking system and earn interest as well.

If 5 year mortgages at 2.99% are financed with GIC money then the 2.2% needs to be paid ont he total amount loaned out.

I am arguing here with people who have already made up their minds. At the end of the day banks earn a certain return on shareholder equity. Its about 15% and its not infinite.

If you buy bank shares you will neded to pay about 2 times book ans so initially you aern about 7.5% on your investment. But as earnings are retinaed you will eventually see your return move slowly towards 15% if the bank keeps earning that.

Anyhow banks earn a fair return in an a relatively open market the same as we all do.

To be against banking is to be uneducated about economics and implicitly against free enterprise in general.

And once again, it’s best to work on building your own wealth and not whining about what others have.

Are you committed to being the workin Man forever? Don’t you want to invest some money and eventually be an owner with people working for the companies you own. Or do you find that immoral?

To each his own.

#132 Shawn on 05.10.14 at 1:09 pm

Banks Create Money

Sean at 99, you are correct that banks (together with their customers) create money.

And it is a wonderful thing for the economy. IT REALLY IS THAT GOOD. The economy needs money.

If I get a loan for $100k and it deposited that is new money. The bank has a receivable from me of $100k and they owe me the $100k as my loan is on deposit with them. No new net worth for me or the bank. But I have $100k to spend which helps the economy but I have to pay it back later. It is not necessarily inflationary either. That is whole ‘nother topic.

You are wrong that loans do not need to be funded. Banks have been paying interest on deposits since banks were invented. Again, recall the GIC at 2.2%

Read the Wells Fargo annual report closely. Then read it again. (like I did except I read it every year and the quarterlies too) Study the table where they list what they pay on deposits and earn on loans (it’s Table 5, page 38) Then get back to us.

P.S. Yes, I own Wells Fargo shares. You bet I do.

#133 Shawn on 05.10.14 at 1:27 pm

Bank Duration Gap

Mark at 66 said:

Go look at the annual reports for the Canadian big-5 banks. None of them run any meaningful duration gap. In other words, deposit maturity is matched with loan maturity across the portfolio.

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

Mark give me a page reference and a table where one of the banks clearly lay out deposit and loan duration by year. I have not looked for this but give me the page reference.

I recall seeing assurances that a 1% rise in rates would only harm them a bit based on some arcane model. But do they show clearly that they back 5 year loans with 5 year deposits?

I was taught in school that they should and do.

But I read a lot that they don’t they in fact back 5 year loans with short term deposits and earn the spread that way.

I have read that this is the modus operandi of banks and has been since time immemorial. How else to explain that the likes of Wells Fargo earned an average spread of 3.39% in 2013. No way to do that if duration is matched. Wells in fact funds at an average 0.34%. There ain’t much long term deposits in that mix. They lend at an average 3.73%. Lot’s of long term loans in that mix.

I believe I need to worry about my Wells Fargo shares if interest rates rise quickly. But over time it won’t matter they will without a doubt grow their earnings over the long term. My shares may fall but they would rise again.

#134 Mark on 05.10.14 at 1:44 pm

“Mark give me a page reference and a table where one of the banks clearly lay out deposit and loan duration by year. I have not looked for this but give me the page reference.”

http://annualreports.rbc.com/ar2013/PDFs/RBC_English_AR13_English.pdf

Page 72

As you can see, things are fairly well matched.

Keep in mind that the way that most Canadian banks manage themselves is dramatically different than experienced in the United States. In the United States, banks explicitly take significant interest rate risk, borrowing short, lending long. While in Canada, they don’t.

Similar data also exists in TD, CM, BNS, BMO’s financial reporting although the presentation is often different.

#135 High Plains Drifter on 05.10.14 at 2:04 pm

Drill baby.You sure you are a real Albertan?

#136 sciencemonkey on 05.10.14 at 2:24 pm

@120 Couple
I agree with others, you have a budgeting problem. You should have around $6000-7000 after tax monthly. Its probably $2100 for all housing costs and groceries. Be generous and say $2000 monthly for cars and other expenses. Where is the rest going? I’m a single income earning 75k, with similar rent, and I can save 2k a month in RRSP and nonreg funds.

@124 Shawn
More population brings some more jobs, but not enough to match the increase. Else why such a bad employment landscape in Toronto?

On the question of moral right to exclude everyone, it’s a tough question. Certainly the most populous countries have themselves or their past history to blame for being so perilously crowded and with a large divide between the haves and have nots. Granted that new world countries have had less time to overpopulate themselves, but what of all the old world developed countries (Germany for ex) that don’t have those problems?

Consider this analogy. If your neighbor is struggling, you help them with grocery money till they get back on their feet. If you then tell them that they probably shouldnt buy a Harley and have two more kids, and they do, and fall on hard times again, do you really have a moral obligation to help again? Its their own mistakes. On the other hand, the children of this guy suffer.

#137 Setting the Record Straight on 05.10.14 at 2:26 pm

“At what point will humans have the right to move to any place on earth? Why are immigration barriers (to law abiding people able to support themselves) not considered an affront to basic human rights?”

A very practical answer–as long as the welfare state exists.

But your premise is flawed. There is no basic human right to move into another person’s or group’s territory.
This is another made up right.

#138 april on 05.10.14 at 2:31 pm

#31 – yes realtor……….but no, not the time to buy.

#139 NS in Calgary on 05.10.14 at 3:12 pm

#133 Shawn on 05.10.14 at 1:09 pm
It is not necessarily inflationary either. That is whole ‘nother topic.

Can you please explain more about this?

#140 Blacksheep on 05.10.14 at 4:10 pm

Forget wells fargo, this is the way things work.

“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

“Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.”

The above quotes are taken directly from the bank of England’s 2014 pdf. opening page.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf

Anybody that understands banking, understands the global cost of central bank expansion for the past 100 years. The pain and suffering inflicted on untold masses continues as central bankers are now on the verge of a complete strangle hold, globally. Only three to go.

“Buy banks stocks and go back to sleep…” # 28 Shawn on 03.14.14 at 8:19 pm

As long as your making money, right shawn?

#141 Dean Mason on 05.10.14 at 4:38 pm

To BCD #125

Do better and get 3.05% for 5 year GIC’s. Compare GIC’s at http://www.cannex.com.

#142 Old Man on 05.10.14 at 4:49 pm

Does wars influence the markets, as geo-political moves are often hidden from the public? Keep you eyes on the Ukraine as what we are being told might not necessary be the truth. I received detailed info last night which leads me to believe Putin has no choice but must take back a much greater area as a matter of Russian national security from Odesa to Kharkiv; this has nothing to do with the pipelines. This surprised me greatly, and Nato knows what is at stake here too.

#143 Setting the record straight on 05.10.14 at 5:12 pm

@#46

I agree that Garth tends to see racism behind every bush but I am not sure he has anything to apologize for. What he has said consistently is that HAM is not driving prices in most areas of Vancouver or Toronto just like rich Arabs are not pricing Englishmen out of the suburbs of London. HAM has obviously driven prices in specific neighbourhoods, just not all of them.

Not at all logical. A pst some time ago explained why in a common sense way. Obviously it didnot attact your attention so let me try.

Think of a city composed of neighborhoods. Pretend there are homogenous houses within each neighborhood but each neighborhood is diffferent The price in each area is a function of the type of house, location and the price of houses in the other areas. Thats because housing in one area is a substitute for housing in another.

Now introduce a new outside source of demand HAM for some neighborhoods. This will drive up the price in that neighborhood. This will increase the demand at any given price in neighborhoods that are the closest substitutes. With a given supply, the equilibrium price in other neighborhoods will increase. Over time the effect travels through the city.

#144 Mark on 05.10.14 at 5:15 pm

“I believe I need to worry about my Wells Fargo shares if interest rates rise quickly. But over time it won’t matter they will without a doubt grow their earnings over the long term. My shares may fall but they would rise again.”

Lots of people have said that about, among other sectors, the precious metals mining sector. Yet when we look at the charts, they have gone 20-30 years without creating anything in terms of meaningful shareholder value. It has been well established that banks that “borrow short, lend long” suffer greatly when interest rates rise. If we eventually see the rates go back to the double-digits, this could mean literally decades of no earnings growth and minimal profitability for banks that are positioned accordingly.

I personally don’t know if Wells Fargo is more, or less efficient than its peers. Personally I don’t believe any of the large banks, those that pay their executives outlandish compensation packages, are going to survive in their present form so long as their employees are effectively usurping most shareholder value.

#145 Aggregator on 05.10.14 at 5:19 pm

So far not one person on this blog knows how today's money is created. Gone are the days of capital ratios and deposit requirements as profligate schemes like rehypothecation and reverse repos now stand where deposit requirements once stood. 

Fixed-Rate Reverse Repo Amount ($B) Chart (TD Securities becomes U.S. primary dealer Link)

Video: Rehypothecation (Simplified)

It's not about the amount of deposit held for an outstanding loan anymore, rather how many parties have a claim or obligation to that same deposit, and if too many parties claim that deposit at once and the initial lender is short of cash or collateral, then that's where the repo market come in to play as central banks standby to provide infinate funding to primary dealers.

In layman's terms, it's like depositing $1 in Bank A and obtaining a $10 loan. Then you go to Bank B for a second loan and pledge your $1 is already deposited in Bank A. Then again you go to Bank C and repeat the same process over all with that $1 deposit.

This is how banks "fund" their operations. They don't hold deposits anymore. Those days are long gone.

#146 Smoking Man on 05.10.14 at 5:21 pm

http://www.zerohedge.com/news/2014-05-10/bizarro-housing-bubble-spills-over-overbid-madness-10-million-flips-24-hours

Think the Vancouver market is insane… Try San Francisco.

Real Estate is Golden

#147 Renter's Revenge! on 05.10.14 at 5:46 pm

Well, it does seem like Shawn is banging his head against the wall arguing with the doomers, but you guys are missing the point:

Banks provide an extremely efficient way of matching borrowers with lenders (probably the best we’ve come up with so far), which has helped our society progress immensely since the dark ages. The banks have to be capitalised by someone (enter the shareholders), and these shareholders expect a return on equity, otherwise they would invest their money elsewhere. Hence bank profits. It’s a fair deal and everyone benefits.

See, everything is OK. Now go and enjoy the sunshine or get laid or something.

#148 Andrew Woburn on 05.10.14 at 6:04 pm

Generation rent: who’s listening?

The number of UK private renters has now surpassed those in social housing for the first time, making them a political force to be reckoned with. But not everyone is convinced

http://www.theguardian.com/money/2014/may/10/generation-rent-whos-listening-private-rental-market-ed-miliband

#149 Andrew Woburn on 05.10.14 at 6:07 pm

I think Carney has seen this movie before:

George Osborne: Bank of England can act to cool housing market

Chancellor says it is up to the Bank to make judgment over property prices as concern grows over housing bubble

http://www.theguardian.com/money/2014/may/10/george-osborne-bank-england-act-cool-housing-market

#150 brainsail on 05.10.14 at 6:33 pm

“Why your home is not a good investment”

http://www.usatoday.com/story/money/personalfinance/2014/05/10/why-your-home-is-not-a-good-investment/8900911/

#151 Victor V on 05.10.14 at 6:39 pm

Carrick on money: Condo living is hell in the sky

http://www.theglobeandmail.com/globe-investor/personal-finance/carrick-on-money/carrick-on-money-condos-living-is-hell-in-the-sky/article18508329/#dashboard/follows/

#152 Shawn on 05.10.14 at 6:53 pm

Banking…

Mark at 135, thank you for the link. Not sure it is all that well matched. For 3 – 5 year at table 59 they show $98 billion in loans and at Table 60 $49 billion in 3-5 year deposits so not all that well matched.

The comment that U.S. bank are more aggressive at lending long with short deposits is useful I will keep that in mind.

Blacksheep at 141, agreed banks together with customers create new money as each loan is made. That money ends up as deposit in some bank or other after it is spent. The loan equals the deposit and the two offset. No wealth created or transferred there. (Wealth may be created with the proceeds of the loan and the bank grows wealth as interest is paid that exceeds the interest on the deposit and all their other costs).

Those educated in such matters know that banks create huge benefits and every modern economy has and needs banks. I certainly make no apologies for owning bank shares.

I thought the goal of most of us on this site was to increase our wealth such as by not buying a house at the wrong price and such as by investing. If that is not your goal fine, to each his own.

Renters Revenge at 148. Thank you for the excellent comments. Especially the last sentence, good ideas there.

Aggregator – stop visiting zero hedge, see Renters Revenge. The required equity ratios for banks (capital ratios ) are much increased in recent years. In Canada we have no set law about cash they need on hand but they self police that because it is king of embarrassing for a bank to run out of cash.

It is not a requirement to know how money is created. It is enough to know how to make your share of the stuff.

NS in Calgary at 140. My apparent fellow Nova Scotia native (or fellow non-smoker) I will leave that for another day.

#153 Shawn on 05.10.14 at 7:07 pm

Aggregator, looked at your video. It’s about multiple claims on the incoming stream of loans and on the collateral for the loan. Not multiple claims on a single deposit.

I I lend you a $1000 I can turn around and borrow a $1000 on the security of you paying me. ANd my lender can repeat.

Nothing nefarious here.

Is your “revelation” that money and loans get passed around in the economy.

I have belabored this enough. I must go spend some dividends money now. (Thank you borrowers and especially thank you tot hose who deposited you funds in GICs at tiny interest rates allowing banks to lend at a profit so that I might get a share of that as an owner. thank you all.

But don’t forget to thank the bank because you all got what you wanted as well.

That is how the economy works. Don’t like it? Then go move off grid someplace and grow your own food and such.

#154 Nemesis on 05.10.14 at 7:17 pm

#ViennaCalling. #EuroVision2014Winner.

…after 10 GutWrenching pages and as many JD’s, Smokin’Man wiped the tears off his keyboard retired to the ShowLounge… Whereupon he fell instantly and TrulyMadlyDeeply… in love.

http://youtu.be/K77u3VSPxpQ

#155 TurnerNation on 05.10.14 at 7:19 pm

Very few places in Canada would you pay as little as $1350/mo for a townhouse. At any house price over $200,000 its owner is subsidizing you.

(In Soviet Kanada…)

#156 Mark on 05.10.14 at 7:35 pm

“Mark at 135, thank you for the link. Not sure it is all that well matched. For 3 – 5 year at table 59 they show $98 billion in loans and at Table 60 $49 billion in 3-5 year deposits so not all that well matched.”

Of course, there’s minor mismatch. But nothing that’s too serious. Contrast this against the US banks that, pre-2008, routinely had large amounts of loans in the >10 years category (non-existent within the Canadian banking system pretty much), but were absolutely and utterly reliant on short-term funding.

When the yield curve inverted due to the Federal Reserve increases in 2006-2007, the US banks came up short, started to burn equity, and the rest is history as the long end of the curve blew out violently.

#157 Daisy Mae on 05.10.14 at 7:36 pm

#74 Assquatch: “I just watched an excellent documentary that I highly recommend about the economy, consumption, and designed obsolescence. It is called the light bulb conspiracy…”

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

Yeah. Womens’ nylons — remember the lengthy nylons with the stitching up the back, attached to garters? Of course, you don’t — but it’s another well-known example. Today they ‘run’ before you get out the door.

#158 Ralph Cramdown on 05.10.14 at 7:48 pm

How to fight central bank inflation:

Buy yourself a quarter section of bush with road frontage and clear a nice level area, or an inexpensive lot in a place with employment opportunities. Build a house, drill a well and put in a septic field if necessary. You can build from logs, buy a mini sawmill and do it over a few years (have to wait for the wood to dry) or buy at the lumber yard and truck it in.

If you build a reasonably desirable house in a reasonably desirable area, you will be able to sell it for more than it cost to build. Unless you’re bad at it, the property value will have grown at a higher rate than the economy and money supply over that time period. Same amount of money chasing more goods = deflation.

#159 Smoking on 05.10.14 at 8:12 pm

What are the mathematical odds of winning 3 tractors in a row…

One to go…….

15 min to post…

Last night, pre drinking for a night in Toronto with fellow tax farm slaves…. Which I never made.

I’m told, my when my wife and son came back from woodbine, just the dog home, and an empty 26 ounce bottle of JD was empty on the coffee table… With weird sketches….

Wife says to son, your dad never made it downtown… Go pick him up at South Side Johnnys.

I awoke on the sofa, blanket and pillow with a empty puke bucket.

This is not going to end well fir me….

Back to the race….. I’m picking them by talking to them based on UCC, horse dialect…

#160 Daisy Mae on 05.10.14 at 8:19 pm

#125 BCD:

The interest is fully taxable, and you are locked in for years. Bad choice. — Garth

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

Alot of people make this bad choice. Seniors. Barely scraping by…paying tax on their GICs.

#161 Daisy Mae on 05.10.14 at 8:33 pm

#151 brainsail:“Why your home is not a good investment”

http://www.usatoday.com/story/money/personalfinance/2014/05/10/why-your-home-is-not-a-good-investment/8900911/

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

So what? It’s my humble abode. It’s where I feel safe. It’s where I’m comfortable. So….shoot me.

#162 Smoking on 05.10.14 at 8:45 pm

#155 Nemesis on 05.10.14 at 7:17 pm#ViennaCalling. #EuroVision2014Winner.

…after 10 GutWrenching pages and as many JD’s, Smokin’Man wiped the tears off his keyboard retired to the ShowLounge… Whereupon he fell instantly and TrulyMadlyDeeply… in love.

http://youtu.be/K77u3VSPxpQ
…..

Cool, is that a chic or a guy.. Who cares, great song…

I only respect creatives and people that can split atoms…..

Everyone else…. Loathing with a capital L…

.

#163 sciencemonkey on 05.10.14 at 8:54 pm

An investing question:

I am young, and I want to go HAM (not hot asian money, but hard ass mofo, ie go all out) with a 100% equity portfolio. A while back I drew up this couch potato portfolio for myself:

ZDV 20% CDN dividend equity
XRE 10% CDN REIT
ZCN 20% CDN equity
XEF 20% Non-US Developed Equity (un-hedged)
XEC 10% Emerging Markets Equity (un-hedged)
VUN 20% US Equity (un-hedged)

However, now I’m thinking that I should put 20% in emerging markets, and 10% in CDN dividend equity. This would give me 20% each in US, emerging, developed ex-US, and CDN equity, with a total international exposure of 60%.

What are everyone’s thoughts on 10% vs 20% emerging markets?

#164 Andrew Woburn on 05.10.14 at 8:57 pm

For those who think interest rates can never rise again, here’s some thoughts from Alan Blinder, professor of economics and public affairs at Princeton University:

“Speaking Sunday in Boston at the Investment Management Consultants Association’s annual conference, …. he detailed the fallout from the winding down of quantitative easing and the looming interest rate hikes …. On Federal Reserve policy, Mr. Blinder said the message is clear that the eventual target is for a short-term interest rate in the 4% range, which compares to the current overnight rate of between zero and 0.25%.

The tapering program is on track to end the Fed’s bond-purchasing program in October or November. Fed Chairman Janet Yellen has made it clear she would like to start raising the short-term borrowing rate about six months after the conclusion of the quantitative easing program, and that means the Fed could start raising rates by this time next year.

Mr. Blinder believes that is too soon. He thinks the U.S. economy will need closer to a year after the end of QE to be able to absorb higher interest rates.”

“Don’t hang around with bated breath waiting for the Fed to start raising rates, because it’s not happening for a while,” he said.

http://www.investmentnews.com/article/20140505/FREE/140509968&issuedate=20140506&sid=INTEL&utm_source=MarketIntel-20140506&utm_medium=in-newsletter&utm_campaign=investmentnews&utm_term=text

#165 Mark on 05.10.14 at 9:04 pm

“How to fight central bank inflation:

Buy yourself a quarter section of bush…

Why are the business owners rich, and the bush dwellers poor? After all, the bush-dwellers adopted your proposed strategy.

A much more prudent strategy is to buy a decent balanced portfolio, one that provides protection and growth. Hedge it with a few gold coins, guns, and ammo if you have to. But turning to the sort of lifestyle you propose is not at all necessary to protect oneself against modest inflation or deflation. And if there was hyperinflation, good luck defending yourself!

#166 Nemesis on 05.10.14 at 9:06 pm

#Germino #RexRob #SaturdayTrax #PrimarilyForTheCKLWRadioRefugeeGabledBill

http://youtu.be/uY7VNjCLsO4

[NoteToBill: Seriously, Bill… you golf? The very thought practically makes me shudder. Still, I suppose if it’s good enough for AliceC… then why the f*** not.]

#167 Mark on 05.10.14 at 9:10 pm

“Unless you’re bad at it, the property value will have grown at a higher rate than the economy and money supply over that time period.”

Impossible. Property can’t grow in price faster than the money supply over the long term. This fact has nothing to do with being good or bad at something, its a simple mathematical truth.

#168 Smoking on 05.10.14 at 9:16 pm

Humans, programmed to think they’re not animals…

An other pal, busted. An other 50 year old, goes for what he thinks is a free be…

Men are so stupid…

Renting a second property is forgivable…

But ownership of two addresses has hidden costs on both
properties..

Why did God give me a brain..

The bastard don’t give two poopoos about the missing girls.

He’s to busy stocking me, his nightly entertainment…

Go away God, till you can figure out how to land a lightning bolt near my boat…. Get out of here..

Go save the girls….

#169 JO on 05.10.14 at 9:32 pm

120-Orillia is reasonable, why wait ? With your incomes, save 10% or more and buy but make sure u still save in tfsa and have money to live.

98-Tony- although u might be right, you sound like u have made your mind up. The smart money is not buying gold and long bonds. The smart money is buying top quality RE in US cities with good prospects. It is also buying blue chip stocks in the US. Yes we will have a nasty correction this year but you are very likely to see 2040-2100 on SP500 by late July, then sharp correction between late Aug and mid Oct. If SP500 holds above 1570 area on weekly close, it remains likely we will see SP500 explode to 2500 or even higher. USD and US long rates will rise over next 3-4 months. Gold likely to see 1140 and possibly 900s this year. Call it the black hole bull market. ECB and BOJ printing increase will cause flood of capital into us assets and maybe a little here although Canada likely to severely underperform for next 12-24 months. Good luck.
JO

#170 Smoking on 05.10.14 at 9:57 pm

DELETED

#171 Old Man on 05.10.14 at 10:04 pm

#169 Smoking Man – John Baird hears you loud and clear as is worried about the hundreds of girls who were kidnapped in Nigeria. He wants to find and save the girls. How ironic is that? I am still laughing as he is being reformed by Caesar LOL.

#172 Andrew Woburn on 05.10.14 at 10:18 pm

People who ball their fists in anger every time they hear the words “fractional reserve banking” are almost certainly dupes of some goldhumper website. FRB has been a vital tool of western economies for at least a
century and without we’d still be living in sod huts on the prairies. People seem to believe that banksters create money out of “thin air” which they then get to spend on bling and hookers while somehow stiffing you and me with the tab.

The Bank of England has recently pointed out that banks don’t specifically lend out depositors cash so even FRB is passe. But banks still want their money back even if they created it by a keystroke. Loan defaults come straight out of their capital which costs them a portion of their ability to lend, even if today’s cushion of capital is alarmingly thin. The essential point is these loans are, or should be, made to businesses or individuals that can pay them back. The loans are not made out of nothing, they stem from and facilitate the economic potential of the borrower which would not otherwise be developed. The rapid development of emerging economies has been mainly spurred by introducing modern banking.

The focus of concern should not be how loans are created but the credit quality of the collective borrowers and the ability of the bank to withstand
financial shocks like a recession. Personally I am a lot happier with the idea that most of the money supply is generated by bankers who actively want their cash back than by governments who seem much more relaxed about it .

Unlike the straitjacket of the gold standard, bank money supply expands and contracts to fit the state of the economy. The gold standard created constant inflation/deflation as gold flowed between countries and was unable to deal effectively with a sudden demand for development financing as happened after WWII.

In my view, the bigger financial issue in Canada is not the ordinary loan operations of the banks but their use of their power and reach to create and sell off toxic bundles of mortgage and high rate consumer debt. They victimize financial illiterates at no risk to themselves.

#173 Smoking on 05.10.14 at 10:26 pm

Gartho, you’re the spirit, the reluctant gate keeper. I know you secretly want to do a smoking man…

But you got to eat….. I understand…

Still love you, you piece of shit..

It’s a bit of a problem at the tax farm, knowing how reputation and image is all that matters..

Then they discover me….

What to do…..
?

Ha

#174 aaron on 05.10.14 at 10:30 pm

The model you made up? — Garth

Nope. The same one I’ve been using the pst for years. So far so good. I see stocks and RE continue to rise. No crash. No major correction.

#175 Shawn on 05.10.14 at 10:32 pm

JO at 170

Did you forget to predict that Toronto will get between two and three inches of snow on December 1 with a temperature between minus 3 and minus 5, unless, that is, it breaks the “resistance” at minus 6 in which case minus 15 is likely.

You’ll need more than good luck if this is your approach to investing.

“Respectfully” I would say that prediction is about as logical as all that garbage you just wrote.

#176 Shawn on 05.10.14 at 10:34 pm

Andrew at 173… on Fractional Reserve

Excellent post…

#177 Wait, What? on 05.10.14 at 10:34 pm

When did this transform to banking blog?

#178 Aggregator on 05.10.14 at 10:41 pm

#154 Shawn

As I expected, you're still a baffled muppet trying to interpret and at the same time trying to explain how the banking system works when you don't even know what rehypothecation means and how repo markets function.

Nobody can explain how the banking system works today because it is literally being made up on the fly. Who knew Canadian banks were self-securitizing collateral (mortgages) until the FSB disclosed the scheme in its recent shadow banking report? You won't find that scheme in today's Harvard textbooks because the banks just invented it off their balance sheet.

Then you said capital levels are higher. According to what? Tier 1 capital is just another accounting gimmick that weighs equity by liquidity (as if regulators know or can even decide what assets are liquid when markets are in turmoil. Look what happened to covered bond ratings), in effect, making equity-to-asset ratios appear higher then actual tangible equity. TCE is still the best measurement of leverage. Even Warren said so if that's all you listen to. And if you calculate Canadian banks TCE ratios, no bank has a higher ratio then 6.5%. That's $6.50 of equity held for every $100 in assets, or better said, if assets depreciate by 6%, the bank's shareholder equity would be wiped out.

But of course, that's not allowed to happen according the central planners. So accommodative central banks shall be. The question is: What are the consequences of ultra easy monetary policy and at what point does it start hurting the economy rather then doing good? And when it does start hurting the economy (as it is now), what monetary tools are left with rates at zero and more printing equals more drag on the economy?

What lies ahead is great uncertainty, but one outcome that is guaranteed is central banks will never defeat the business cycle by printing more money. It has never worked. Nor will it ever.

#179 Andrew Woburn on 05.10.14 at 10:42 pm

144 Setting the record straight on 05.10.14 at 5:12 pm
@#46
Now introduce a new outside source of demand HAM for some neighborhoods. This will drive up the price in that neighborhood. This will increase the demand at any given price in neighborhoods that are the closest substitutes. With a given supply, the equilibrium price in other neighborhoods will increase. Over time the effect travels through the city.
=========================

I totally understand this concept,and it appears to make sense, but I don’t agree that this is how things actually work. It is easy to see that real estate markets are local when comparing one city to another, but there are pronounced local markets within cities surrounded by psychic fences. For a while people were paying more for festering fleapits in East Van than the price of a shabbily genteel bungalow in the downmarket end of West Van. They wouldn’t make the logical substitution probably because thirty-somethings wouldn’t be caught dead in West Van. Similarly Richmond was cheap before the Chinese discovered it because real Vancouverites wouldn’t go there.

There never were enough HAMsters to really spin the real estate wheel but they were effectively used to scare the rest of the buyers into jumping high.

#180 WhiteKat on 05.10.14 at 11:23 pm

@Smoking

Whooooo are you? Who? Who? Who? Who?

#181 READ: Fractional-reserve banking in Kanata on 05.10.14 at 11:24 pm

While all of Canada’s money is created by the government through deficit spending, if “money” is thought of as the combination of issued money and bank-created credit, then presently, the Bank of Canada “issues” less than 5% of Canada’s money, with the remainder (95%) being “created” by commercial banks through the process of fractional-reserve banking.[19]

http://en.wikipedia.org/wiki/Bank_of_Canada

#182 WhiteKat on 05.10.14 at 11:34 pm

@Smoking

You are a fake! The real SmokingMan should be so PO’d.

As for me, I am just the Whiner WhiteKat.

#183 45north on 05.10.14 at 11:44 pm

Mortgaging your home to pay for a cottage

http://www.ottawasun.com/2014/05/07/mortgaging-your-home-to-pay-for-a-cottage

if you are determined to mortgage your home to buy a cottage then you should definitely talk to Bob LaBreque. In fact I’m sure that Bob can guide you through all the paperwork, a few signatures and you could be entertaining from the deck of your cottage.

give your head a slap

#184 Andrew Woburn on 05.10.14 at 11:50 pm

Why Was Canada Exempt from the Financial Crisis?

Interesting read for banking wonks courtesy of the Richmond Federal Reserve. Compares and contrasts the history of banking in the US and Canada.

http://www.richmondfed.org/publications/research/econ_focus/2013/q4/pdf/feature2.pdf

#185 Blacksheep on 05.11.14 at 12:06 am

“Blacksheep at 141, agreed banks together with customers create new money as each loan is made.”
# 153 Shawn on 05.10.14 at 6:53 pm
————————————
Ding…ding…ding!

This IS the only statement that matters to me when discussing banking.

I have no issue that 95 % of the money is created this way, I just don’t like it when others endeavour to keep this relevant truth from the Cattle.

Repeatedly.

If discussions shift to interest rate drivers, debt saturation or inflationary pressures, but one lacks a basic understanding of something as fundamental as banking and money creation, how does said party ever hope to grasp the big picture and make sound investments?

This former miss truth ranks right up there with: Fear of sovereigns in control being forced to default on debts owed in their own currency. It can not happen, unless done by choice, but that’s a discussion for another day.

#186 Andrew Woburn on 05.11.14 at 12:13 am

#169 Oceanside on 05.09.14 at 12:36 pm
Yesterday in our popular seaside towns on Vancouver Island there were 9 sales single family homes, all were under $330,000. Anything over $500,000 with very few exceptions just languishes on the market, a lot of retired people moving here from other parts of Canada and they want small, one level homes…Lot of people from the lower mainland, Victoria and Alberta.
===========================

Strangely, the opposite is happening in North Nanaimo, only 30 minutes south of Parksville. Houses over $500K languished for the past couple of years and then started taking off last fall. Sales this year in my area between $450K and $650K have been steady with significant bumps over assessment. Sales cooled down in April perhaps because of sticker shock. Municipal assessments have been a reliable benchmark for the past few years but many new listings are $50K+ over.
Last year there were about 20 listings in this price zone in this area but now there are 35 of which 24 exceed $500K.

As I have noted before, I think there is a generational shift at work here. When we were looking in Qualicum, we felt as if the realtors were marketing to our parents’ concerns. We found there was a greater diversity of housing available in North Nanaimo with plenty of options for ocean views and much greater access to amenities and shopping.

Probably what it happening is if your budget is $350K, it’s hard to beat Oceanside for easy care bungalows in a pleasant neighbourhoods but if you can spend $500-600K, North Nanaimo offers a wider range of choices.

#187 chapter 9 on 05.11.14 at 12:39 am

The number of people selling real estate in the first quarter of this year 108,706 that works out that for every 245 Canadians over the age of 19 you have one realtor. No bubble here!!!

#188 High Plains Drifter on 05.11.14 at 12:50 am

Just when you think, you’ve got it made in the shade, somebody changes the rules.%[email protected]!

#189 maxx on 05.11.14 at 7:04 am

#33 Don on 05.09.14 at 8:14 pm

Agreed.

I’m sorry you feel that way- but no need, really.

What’s mind-bogglingly, profoundly stupid is the boundless arrogance of some Canadians- a brand of hubristic superiority which makes my toes curl with embarrassment and results in Canada appearing immature and shallow on the global stage.

During and post the GFC, in particular, some leaders donned a mantle of fiscal pontification, swanning across the globe and doing the laying on of hands thing. Yikes. All the while, interest rates were being squashed and consumer debt amped to insane levels, crippling the economy at large.

Fortunately, it’s a minority.

Don’t give it a second thought.

#190 trackpants on 05.11.14 at 8:51 am

I dragged myself out last night. The Joe Beef wanna be here in town.
Talented hack has foie gras added to the steak and anything else on the menu that is hip

“food becomes one thing once consumed” the wandering eye lardo once said (paraphrase/Bourdain was there)

The houses do as well.

Every hip a55Hat parked outside “Eat like ur going to the chair” except me had a Infiniti or some Audi. My rust bucket was spreading the disease.

Wine. Food. Back to the house for a romp and this morning exodus of Tapas and Duck.

This is it really. A place to come home and squat.

I would guess the couple sitting next me last night with their collective faces rammed into their own cell phones all night really didn’t get it.
Her ankles looked fat and swollen. She pushed child recently.

The house.

The RE

I just want good food and retirement. Easier to rent the place I call home.

The roof is leaking.

Landlord has the bill.

And this used to be such an erudite blog. — Garth

#191 Smoking Manz Man on 05.11.14 at 9:47 am

Hey Man,

Just saying hello, introducing myself as the one SM is always describing.

Once SM took a look at me he had his realization. This is the dude all should look & behave like.

Smoking Man has described me several times over, perhaps he’ll do it again shortly.

It begins with bucking the trend, even if it is the wishful trend on this blog.

#192 Smoking Man on 05.11.14 at 9:53 am

#183 WhiteKat on 05.10.14 at 11:34 pm

Imitation is the highest from of flattery….

Tractors?
But come on, who does this Bastard think he is….Me.

When I bullshit, at leased it’s somewhat posable…

Lmao at Smoking…

#193 "Vendor says: 'multiple offers!'" on 05.11.14 at 10:13 am

I think this was 895k last week, offers held off till a few days ago, listing terminated, now 100k less, holding off offers for a week.

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=14407309

#194 Daisy Mae on 05.11.14 at 10:45 am

Re #191 Trackpants: “And this used to be such an erudite blog. — Garth”

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

If it’s too unrelated, I generally scroll thru…..

#195 Old Man on 05.11.14 at 11:07 am

This is not a good day, as my new stainless steel boiling tea pot made in China will whistle no more. The little lid on top to fill it with water broke off with a bad rivet. I now have an open ended broken down piece of junk. Should I send it to Caesar and gift it to him for a tax write-off?

#196 Shawn on 05.11.14 at 11:29 am

Bank Capital Levels

Aggregator at 179 I totally agree with your point that total common equity is the ratio to look at. I pay no heed to risk-weighted capital.

I have studies two banks for many years, Canadian Western Bank and Wells Fargo and also for a couple years Bank of America.

In general I know the U.S. bank equity (i.e capital) ratios are higher. Buffett has said higher than ever. I don’t follow any big Canadain bank so don’t know.

I agree as well as that the common equity ratios seem very thin, certainly they are compared to normal corporations.

I have always said banks can be risky because they have only a sliver of equity.

They work because their assets are generally very liquid and they can get liquidity support from central bank if needed. They work because they have been careful to lend only to people who pay back, as someone mentioned above. Loan losses need to be and have been low.

The main point was that banks are not evil and while they do create money (together with borrowers) there is NOTHING nefarious about that. They do rely on government support, no denying that. Overall the system seems to benefit everyone and certainly bank shareholders have done extremely well despite the risks and the highly leveraged balance sheets.

Borrowers who blame banks for their debt should grow up. Savers who blame banks for low interest rates should look to other investments.

#197 trackpants on 05.11.14 at 11:34 am

And this used to be such an erudite blog. — Garth
_______________________________________

The world used to be a place that Developers honed their craft at building beautiful homes.
The world used to be a place that you could buy a home and live there for 20 years plus.

Hipsters all around me shuffling along bearded and book smart have no sense of “home”

Just consume

#198 juice box on 05.11.14 at 11:45 am

“American unemployment has gone from north of 10% to just 6.3%.”

But the back story was that 750,000 people had dropped off the face of the earth. You’re not counted as unemployed if you’re on welfare. Just like ‘8 million’ people signed up for Obozocare.

#199 Andrew Woburn on 05.11.14 at 12:20 pm

Rich Buy Real Estate, Poor Want Gold

http://www.bloombergview.com/articles/2014-04-22/rich-buy-real-estate-poor-want-gold

#200 Derek on 05.11.14 at 12:42 pm

Garth wrote: And this used to be such an erudite blog

Oh, it still has its moments. The comments on banking by Shawn, Andrew W, and Co . are pretty good today. Anyone who pays attention is in serious danger of learning something.

#201 Derek R on 05.11.14 at 12:46 pm

Oops, missed the R off my signature. That should have been “Derek R”.

#202 World Traveller on 05.11.14 at 1:03 pm

#191, it looks like everyone is catching Smoking man’s disease.

#203 Andrew Woburn on 05.11.14 at 1:41 pm

Brave Moo World

With Farm Robotics, the Cows Decide When It’s Milking Time

(So much for the Milkmaid’s Pension Fund)

http://www.nytimes.com/2014/04/23/nyregion/with-farm-robotics-the-cows-decide-when-its-milking-time.html?hp

#204 Aggregator on 05.11.14 at 1:42 pm

#196 Shawn – Loan losses need to be and have been low.

Loan losses have been low because regulators are not forcing banks to write down impaired loans. Chart

#205 Old Man on 05.11.14 at 1:57 pm

I made myself some popcorn as am watching the civil war in the Ukraine on a live link. Caesar is sending up to 500 Canadians on the 25th of May to supervise the elections there. Will Caesar go into battle and fight for the Ukraine with John Boy or just blow smoke as always?

#206 Dude Duderson on 05.11.14 at 2:53 pm

Did someone really compare the SFH sprawl fest that is the GTA to real world class cities like London or New York???

Sigh… there really is no hope.

#207 HD on 05.11.14 at 2:57 pm

#200 Derek on 05.11.14 at 12:42 pm

Garth wrote: And this used to be such an erudite blog

Oh, it still has its moments. The comments on banking by Shawn, Andrew W, and Co . are pretty good today. Anyone who pays attention is in serious danger of learning something.

————————————

I second that.

Killa discussion today. Very interesting.

Best,

HD

#208 devore on 05.11.14 at 4:05 pm

#162 Daisy Mae

So what? It’s my humble abode. It’s where I feel safe. It’s where I’m comfortable. So….shoot me.

Right. A place to live. Not an investment.

#209 Kreditanstalt on 05.11.14 at 4:07 pm

There is NOT going to be a 180-degree turn in Keynesian thinking. The notion that cheap government money creates economic growth, thoroughly discredited among many of the public, will be tested to failure by governments.

Let’s suppose, then, that the #1 objective of governments and their central banking arms is to at all costs continue to manipulate “interest rates” so as to keep them at near-zero.

And let’s suppose they do this as long as they are able to do so, in perpetuity if possible…if rates ever rose large swathes of the “perpetually-roll-over-cheap-loans”-dependent private and public-sector economies would collapse. Housing chief among them.

Something somewhere has to give. Will we see price inflation spreading from housing and artwork to the grocery store? Will we see a plunging currency vs. those of economies with tighter money? Will we see higher public sector interest expenses? Or widespread layoffs as businesses unable to pass their higher input costs along are forced to close?

One thing is sure: we have ROCKETING monetary AND price inflation now and the latter WILL spread.

#210 triplenet on 05.11.14 at 4:48 pm

#178
It didn’t. They know not of what they speak.

#187
Municipal assessments…….geez man!!!!

#211 brainsail on 05.11.14 at 6:02 pm

#208 devore on 05.11.14 at 4:05 pm

“Right. A place to live. Not an investment.”

Thanks for closing that, I wasn’t sure how to respond.

#212 Zodiac on 05.12.14 at 9:03 am

2019 fixed rate will still be less then 3%?! I think your dreaming.

#213 Soylent Green is People on 05.12.14 at 3:56 pm

Way to go financial man of Harperland!

I can’t think of a more undeserving family in Canada.

Is this perhaps a way for the wealthy corporate elite to pay Jim Flaherty’s familly back for all the back scratching Jim did favours for them while in “office.”

This guy’s wealthy… why is this happening… getting the public to pay for his disabled son? He didn’t put funds away for this day? His entire career as a Provincial and Federal “finance ministerl” and there are inadequate funds for his son? Unbelievable and disgraceful. He had more wealth than I ever will and his estate wants more? I hope this isn’t some kind of ‘corporate pay plan’ for all the favours he did during his term as finance minister? The man who refused the AG a detail of his expenditures.. now is getting cash put into a “trust”?
This is totally wrong.

http://www.cbc.ca/news/politics/friends-of-jim-flaherty-setting-up-trust-fund-for-his-son-1.2635367

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snip snip: Flaherty has been either a lawyer or a senior politician his entire adult life. His wife, Christine Elliott, will also have a political pension.

In short, this family is set. Flaherty and Christine will have a household pension income in retirement of at least $310,000, indexed and never-ending. Plus Jim Flaherty is part owner of one of the biggest, most prestigous law firms in Whitby, Ontario. Also, they are silent owners of deer creek golf and banquet hall in ajax, Ontario.

http://www.greaterfool.ca/2012/03/30/geezer-dole/

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