Blown away

SLEEP modified

All Jake Moldowan needs to know about improving the house-flogging business in Canada was published on this site. Actually, I’ve nothing further to add. I think he knows it.

“I have been on your blog last night and this morning and am blown away by the responses your readers have given!,” the housing exec just wrote.  “There is a goldmine of information here which just confirms the rational we have for you to participate.  In reading over 100 of the responses (I will read them all but have a video conference call in 10 minutes) I can also see the struggle in maintaining your credibility with your readership as there were a number of comments relating to mistrust or trickery.

“This project is genuine and we have been and will be totally open to receive all points of view.  The responses are invaluable to us in order to get a clear picture and understanding of the Consumers needs and wants.  Only then can we begin to deliver a product and service that will improve organized real estate.”

I believe the request from the BC Real Estate Association for expert input on the future of realtors is best satisfied with a full copy of yesterday’s blog and the ensuing gush of comments. What better focus group could these guys have than the thirty-nine thousand people who came here in the last 24 hours? They should pay us for such pith and verve.

In fact, Jake offered. A thousand bucks if I’d send him two lists of five items. Instead I’m sending tens of thousands of words, and accepting nothing. This is not a commercial site. It takes no advertising. And I’m not for sale. Of course, you can always buy me a scotch and rub my ankle.

***

Remember those 1.99% mortgages the boys at Investors Group rolled out a few days ago? Sure you do. They had every media headline-writer in the nation wetting their Stanfields in excitement, which was the point. Lost on the geniuses who inform the masses was the fact these loans are variable-rate (not fixed), have short terms (three years), are restrictive (you have to sell your home to get out) and were primarily intended to give IG much-needed free publicity (that sure worked).

Dawn was one of many mortgage-shoppers startled by the thought she could get financing for less than 2%, so she applied. Why not? See what happens, right?

“They took down my info and then took until today to get back to me with an approval,” she told me a few hours ago. “Meanwhile I renewed with my own bank at 2.5%. I figured that given what you’d said about IG, there would have been strings attached. Here’s what they offered. Just thought you might get some entertainment value out this.”

Indeed. Below is the actual email Dawn received from the mortgage officer, telling her the loan had been approved. I reproduce it in full not only to show you that the offer has more holes than emmental and 1.99% could actually be 3.75%, but that IG has yet to discover SpellCheck.

“First off the Commitment Letter is not in stone as we are able to change, Amortization , Payment schedule, and amounts but I Nicole was able work the numbers under your goals for this mortgage, being a amortization being 10 years as well as a payment of $997.63 .  the only issue we have is that we do not have a semi monthly payment schedule, so to ensure the 10 years based on the payment she went by weekly, To transfer the mortgage out there will be legal fees, as well as a discharge fee, which we have also put into the total mortgage amount, which means you do not need to have the cash for this, you’re looking at legal fees around 650 and a discharge fee of around 330.

“You will also notice the interest rate charge of 3.75% on the form, Nicole does this so you payment will not fluctuate during the 3 years , if interest rates go up normally the your monthly payment does as well,  in this case Nicole has prepared it so it will not, you are still charged on the 1.99% but he difference is going towards your principal.”

Got that? If interest rates rise over the course of the next three years (which is a 100% probability) payments remain the same, but the amount of your mortgage principal increases every month. That’s exactly what a variable-rate mortgage means. The lender risks nothing. The borrower rolls the dice.

***

Here’s a BMO-generated chart of Toronto real estate prices (seasonally-adjusted, in constant 2002 dollars). See that first arrow indicating a price bloat in the late 1980s? It was followed by a housing correction which obliterated a third of people’s equity. It took almost 20 years for average prices to reclaim the pinnacle that they’d achieved in 1988-9.

Now look at the second arrow.

We’re so lucky it’s different this time…

CHART modified

148 comments ↓

#1 girn jas on 05.21.14 at 6:41 pm

Love it!

#2 AngryMan127 on 05.21.14 at 6:41 pm

Yes Garth, the Can RE market is heavily manipulated by shady business practices.

Yes…price to income ratio is way out of whack compared to historical levels.

Yes the boomer buldge will put increasing downward pressure on prices for the next 25 years and personal debt levels are bad.

RE is not a good investment.

All good points but you have been certain that RE prices are unsustainable for around six years now, yet they have continued to climb and even you would have to admit that they will never return to the levels that they were at when you initially pointed out that they were unsustainable.

Natural cycles are cycles until there is a game changer…so surely we must look elsewhere for an possible explanations.

Two points before you dismiss my post as neo-yellow perilism…

The US tax system taxes foreigners who own real estate US tax on their worldwide income and estate.
My Vancouver neighbourhood primary school rate has an ESL level of 80%.

#3 Butch on 05.21.14 at 6:48 pm

Finally you admit – it’s different this time!

#4 Shawn on 05.21.14 at 6:51 pm

What Problem?

The chart shows the rise from ’85 to ’90 was much sharper than the recent more gentle rise.

#5 Markham Rental on 05.21.14 at 6:53 pm

Ladies and Gentlemen,

please fasten your seat belts for the next ride DOWN ;-()

#6 CPG on 05.21.14 at 6:54 pm

Garth for Prime Minister of Canada

#7 Shawn on 05.21.14 at 6:55 pm

Bacle and Debacle

The fall from ’90 to ’95 was a debacle. Therefore the rsie from ’85 to ’90 was the bacle.

Today we are in a long bacle phase. The debacle phase is perhaps pending.

It has been said that debacles in these cases can be expected to be in proportion to the shape of the preceding bacle.

This was all laid out in an article about the U.S. housing crisis years some ago. They may have coined the word “bacle”.

#8 Mishuko on 05.21.14 at 6:56 pm

Just curious how they extrapolated those arrows… what if they used the second arrow around the 2008/9 ‘dip’ similarly how they took the dip between 83/4… or start the first arrow from beyond the 80’s?

To me, I see a lack of acceptance that prices are following a similar trend to the mid 70s to 80’s. In fact I wasn’t even born then!

#9 Derf on 05.21.14 at 6:57 pm

Yeah, going up just like household income…no problem here.

#10 Shawn on 05.21.14 at 7:00 pm

No Risk to IG?

True, no risk. They are pretty well guaranteed to lose money they lend out at their prime minus 1.01%.

They can’t likely fund the mortgages that cheaply exspecially when their own admin costs are considered. So yes, no risk, it’s a guaranteed loss.

CMHC protects agaoins credit losses, not against stupid lemnders loaning money at less than their cost.

Banking 101 is money in the door at X%, money out the door at X% plus at least 2%. They don’t have much if any access to deposits at 0%.

They are not the low cost banker so competing on price is dumb for them, except for the initial publicity.

#11 Mike on 05.21.14 at 7:01 pm

I have once been young and foolish and had invested in IG Mutual Funds. What a scam … !!! All the fees, MERs, trailing fees … and the MFs lost money on top of that.
Never again.
So I hated IG for quite some time.
But now … well, I am simply disgusted !

#12 Vangrrl on 05.21.14 at 7:04 pm

Geezus, did the dog in the photo dictate that e-mail??

#13 shane on 05.21.14 at 7:04 pm

Garth, are you revising your housing price drop?looks like more then a 30% to me.

#14 gladiator on 05.21.14 at 7:05 pm

BMO’s chart in nominal terms would be even more drastic.

In this mortgage market a huge “caveat emptor” is due. The bad thing is that the little guy is always on the losing side. The house always wing.

“The table is tilted, my friends. The game is rigged” George Carlin

#15 gladiator on 05.21.14 at 7:05 pm

Re. the pic: “What flowers?”

#16 Porsche on 05.21.14 at 7:14 pm

Well if that was a stock chart… it looks like a house drop could find support around the 315K mark. I repeat “could”, as there’s no guarantee though.

#17 perplexed on 05.21.14 at 7:24 pm

It appears that it may truly be different here by YVR.
According to the New Yorker-
http://www.newyorker.com/talk/financial/2014/05/26/140526ta_talk_surowiecki

#18 shane on 05.21.14 at 7:25 pm

I agree with markham rental

#19 Ben on 05.21.14 at 7:29 pm

Porsche – 2008 didn’t bottom out before the CBs started printing. That’s no floor on pricing.

Garth – your boy Carney has been either pretending to have a scrap or really is the patsy. Not sure which yet.

#20 omg on 05.21.14 at 7:34 pm

THE CHART

TO prices were bubbly in 1989 at $350K average and they were bubbly in 2007 at when they finally recovered to 1989 levels.

We are not only going to see a retrenchment of prices back to 2007 levels but way beyond that.

#21 Self-berated on 05.21.14 at 7:36 pm

I don’t understand your last point, Garth:

“Got that? If interest rates rise over the course of the next three years (which is a 100% probability) payments remain the same, but the amount of your mortgage principal increases every month. That’s exactly what a variable-rate mortgage means. The lender risks nothing. The borrower rolls the dice”.

I assume charging the higher rate is providing a buffer for any rate increase and that if the actual mortgage rate went above 3.75%, at some point after the buffer was used, the rate charged would have to be increased above 3.75% to maintain interest payments and payments against the principle?

#22 omg on 05.21.14 at 7:43 pm

THE DAYS OF WINE AND ROSES

For those of you who were mere toddlers back in 1989 let me tell you about Toronto way back then.

It was at once the self proclaimed “Centre of the Universe” and a “World Class City”.

People proudly claim how much key money they had to pay to get the right to rent an cool apartment downtown.

Everyone was buying RE and there was no possible downside. After all, the economy of southern Ontario was so diverse. There were factories that made bumpers for cars, and factories that made brakes for cars, and factories that made wheels for cars.

Then I moved to the West coast were Toronto does not even exist except occasionally on the Weather Network. Happy days.

#23 Pope SnugglyJigglyBums the 666ac (aka Nosty) on 05.21.14 at 7:44 pm

Well thank gdO that real estate tripe is done and dusted. Moving on to far more exciting trinkets to tickle our ancies with . . .

#252 Smoking Man on 05.21.14 at 5:19 pm — “Won’t happen with tree hugging Comunists in govt..”

Whisper quietly to yourself . . . “Communism is GOOD!”

Wed., Sept. 16, 1992 is remembered as Black Wednesday. V2.0 coming? — Soros One and Soros Two.

#24 Smoking Man on 05.21.14 at 7:47 pm

On the chart, 1986 to 1990 price doubled, massive hockey stick with a Batman… 4 years very fast assent.

In the USA the markets live Vegas and Florida doubled in 2 years before the crash.

On the chart from 1995 to today. Approx 20 years for prices to double.. Anyone notice the camel toe in 2009.

No damn way crash is coming in Toronto..

Not with out that line going vertical and doubling…

A damn insane lush, loony fringe in schooled UFO Hunter is ten times smarter in finance, real estate, and reading charts than you babbling schooled basement dwellers.

Sad… Is all I’m saying..

#25 I'm stupid on 05.21.14 at 7:50 pm

Good on the Realtors for trying to clean up their act. I’m not against owning Realestate, I do own. What I’m against is realtors trying to fool people into buying and in the process causing a lot of pain. If we had transparency, integrity and honesty in the industry, and it includes the lenders, our housing market wouldn’t be on the cusp of destroying the economy and gutting the middle class.

Sure it might not happen tomorrow or this year but how long can this go on for? Rising prices without rising wages is a recipe for disaster.

#26 Happity on 05.21.14 at 7:54 pm

Russia and China just signed a $400 billion energy deal, specifically NOT using the $US…

All the more $US for those who would so eagerly sop them up…

#27 OttawaMike on 05.21.14 at 7:59 pm

Jake the realtor head thingy is full of shit.

He really had to have the people of this blog tell him what is wrong with his industry?

#28 OttawaMike on 05.21.14 at 8:02 pm

I agree with Smokey on that chart.

I was an active participant in the late 80’s T.O. run up. Different animal this time, low interest rates and a gradual slope up.

Remember basement dwelling people: If you inhale small amounts of mold over a long period of time you can develop an immunity to it while you wait for the crash.

#29 Christopher Mewhort, EA on 05.21.14 at 8:08 pm

#2 “The US tax system taxes foreigners who own real estate US tax on their worldwide income and estate.”

This is not correct. Not even close.

Christopher Mewhort, EA

#30 I'm stupid on 05.21.14 at 8:08 pm

Smoking man

What was the inflation rate between 85-90? What was the wage growth in that time? Weren’t savings accounts paying 10%? So the 5 years between 85-90 saw the same inflation rate as 2004-2014 if not more. Just saying.

#31 TheCatFoodLady on 05.21.14 at 8:10 pm

It was heartening to see the many responses yesterday – most bang on point & I had nothing new to add. The Main Squeeze & I were at the bank yesterday picking up rolls of laundry coin. We happened to be yammering about RE on the walk down – loads of ‘For Sale’ signs everywhere; some so stale they were curdling.

The ATM lobby at the branch was still pushing RE with several listings on the walls, (sorry, should have checked which agency) & a sign saying something to the effect of: “Look What We Could Help You Own!” In line for [email protected], I chanced upon & picked up what appeared to be a locally printed sales pitch. I’ll reproduce it here verbatim. Know it’s all capitalized, underlined in strategic places & the font colour changes every few lines. It’s… interesting – here goes:

FIRST TIME BUYER AND I DON’T HAVE A DOWN PAYMENT

Borrow up to $25,000

Invest into RRSP for minimum of 90 days.

The $25,000 is tax deductible, (receive tax rebate), in the year that you borrow.

Repayment of the $25,000 is not required until after you have been in the house for two years.

Loan for $25,000 over 120 months, biweekly payments of $116,35.

Repayment of RRSP after 2 years of being in the home.

Minimum amount required to be paid back annually would be:

$25,000 over 15 years annual payment would be $1666.66 or a monthly payment of $138.00

Example:

$300,000 mortgage
25 year amortization
4 year term at 2.94%
Bi-weekly payment would be $648.65
Estimated annual taxes $3250.00
For total bi-weekly payment of $773.22

LET US HELP YOU GET YOUR DREAM HOME!

So, you don’t have a down payment or, (presumably), an RRSP. But CIBC can make it all better in this fashion. Judging by the house price exemplar – this has to be a local marketing initiative.

#32 Freedom First on 05.21.14 at 8:17 pm

Garth, reading your decision on how you are responding to Jake’s request was very heartwarming. You are a class act. However I won’t say anything about Jake’s handling of dealing with you. It would be DELETE anyways.

Nice of Dawn to share her experience in her dealings with IG. Another example that very clearly shows how the whole financial industry treats Canadian individuals as idiots. Mind you, Canadians are massively indebted in all areas of their lives and did so of their own free will. The wolves are going to eat the unsuspecting over indebted sheep alive. As history, even worldwide recent history shows, they always do.

Your Blog is a safe harbor in a corrupt world Garth. Nothing but the truth, eh Jake? Thanks Garth.

#33 mitzerboy on 05.21.14 at 8:26 pm

Garth … I know your not for sale but

I will buy you a scotch but I think my dog would have to lick your ankle instead of me rubbin it

#34 Bruno on 05.21.14 at 8:28 pm

Garth, your a Redittor right?

Of course not. — Garth

#35 Van Isle Renter on 05.21.14 at 8:36 pm

Re: Realtors happy to get input. My prediction? Circular file for all the comments. Why would they change a good gig? Until someones sues their a$$es off or somebody like Consumer Affairs takes them to the woodshed nothing will happen. All yap, no snap.

#36 Mark on 05.21.14 at 8:37 pm

“Got that? If interest rates rise over the course of the next three years (which is a 100% probability)”

Maybe on retail real-estate backed loans. But going into the deflationary abyss that we’re now posed on the precipice of, with falling RE prices and declining consumer confidence, not a chance for BoC policy rates in Canada. If anything, the BoC will be forced to drop to zero (as in, ZIRP) in an effort to revive the comatose Canadian economy.

Heck, as I posted the other day, credit is still quite abnormally expensive for businesses. CMHC subprime borrowers can borrow at 2.99% against residential RE collateral which eventually decays to worthlessness. While BCE, the company that, for most Greaterfool readers, lays the wires that makes the magic happen, paid 3.51% on a $1B wholesale 5-year finance deal. Until such is reversed, don’t look for any improvement to the Canadian economy. Especially now that RE prices are declining pretty much nationwide.

#37 Bob Rice on 05.21.14 at 8:39 pm

One thing that is CLEARLY different about house price increases when I look at your graph: The first rise was MUCH sharper… this time round it’s been more gradual… which cold indicate a more realistic increase that could be absorbed… maybe it is different this time?

#38 lee on 05.21.14 at 8:39 pm

Garth,

Should we be concerned the upswing in prices in the chart is lasting more than twice as long as in the late 80s this time?

#39 -=jwk=- on 05.21.14 at 8:42 pm

@ #2 “The US tax system taxes foreigners who own real estate US tax on their worldwide income and estate.”

Huh? This is wrong on so many levels. It’s U.S. citizens that are taxed on their ww income. You obviously don’t own any US properties…

@ #21

Your interpretation is correct. This does lower the risk for the bank as the principal is paid off faster – the delta between 3.75 and prime-1 goes to principal. Payment is fixed until rates go above 3.75.

#40 Roman on 05.21.14 at 8:44 pm

Garth, you’re about to get bunch of invites from following institutions that need a research “how did it happen” in their field.

Dudes from Insurance cartel will investigate 250$/mo auto insurance rates in Toronto.

Comrades from Telcos will explain what Netflix CEO meant saying about “human rights violation” for Internet access charges in Canada.

CEO golfers from BMW, Audi and MB Canada are wondering about 20% difference between US and CA prices. Where the hell did that came from? (Make sure you charge them appropriately).

Others are welcome to the show as well.

#41 Daisy Mae on 05.21.14 at 8:46 pm

Moldawan: “I can also see the struggle in maintaining your credibility with your readership as there were a number of comments relating to mistrust or trickery.”

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

Garth doesn’t have a problem maintaining his credibility.

However, realtors do. The ‘mistrust’ and ‘trickery’ is all theirs.

I don’t think realtors (without the precious little ‘r’) will ever recover from this…and that’s a good thing.

#42 devore on 05.21.14 at 8:47 pm

First of all, that email is an abomination of the English language. I know it’s an email, it’s still disgraceful.

Second, it’s actually ambiguous. By “by weekly” do they mean “by the week” or “bi-weekly”??? Good thing they note the email is not a legal offer to contract.

Third, someone explain this to me…

So this mortgage is actually 1.99, but the payments are as if it were 3.75, and the difference goes to principal paydown? Then, if rates go up, your payment stays the same, but the amount going to principal is reduced, and if they keep going up, the principal will actually increase?

#43 Smoking Man on 05.21.14 at 8:50 pm

rt, EA

 I’m stupid on 05.21.14 at 8:08 pmWhat was the inflation rate between 85-90? What was the wage growth in that time? Weren’t savings accounts paying 10%? So the 5 years between 85-90 saw the same inflation rate as 2004-2014 if not more. Just saying.
………

I’ve tried many times to teach you the difference between what you think inflation is, and what central bankers know what inflation is.

The schooled the brain trust believe when prices go up that’s Inflation and our scratching there heads today as things are a lot more today.

But like any commodity prices fluctuate. SUPPLY AND DEMAND.

When central banks talk inflation it really means wages are going up..

It’s hard to put that genie back in the bottle so they spike rates when it happens to slow economy till there is a nice pool
of slaves that will complete with each other thus keeping wages down.

The most horrible day for a central bank and government is to have full employment..

Prozac has openly said when the output gap shrinks, lots of dogs working, he’s not spiking.

But hey keep thinking when there is a shortage of coffee beans and the price goes up that’s inflation..

#44 Dwilly on 05.21.14 at 8:52 pm

I am slowly coming to realize that the prognostications that rates are “100% guaranteed” to rise in the next couple years is not something on which one should plan, in either direction. People have been saying this since 2010. I operate a balanced, diversified portfolio, and accept what is coming, no matter what it is. I would pay no attention to someone who says they know the direction the stock market will go next year, and starting to think these “rates must go up” certainties aren’t so certain either. I know, I know, history, mean reversion and all that. Things always repeat….Until they don’t. Just saying I wouldn’t plan on any certainties either way.

I said ‘probability’, not ‘guarantee’. There’s a difference. — Garth

#45 Nemesis on 05.21.14 at 8:53 pm

#ManyAnAuldDogHasSuccumbedToEartha. #WickedWednesday. #AuldFashionedGirls&DreamHomes.

http://youtu.be/UeRSqekHh1g

#46 Alberta Guy on 05.21.14 at 8:53 pm

Id like to see the chart show annual income … i doubt if the two align.

#47 Inflation on 05.21.14 at 8:58 pm

It’s important to keep the inflation stats low to service debt, save on obligations affected by CPI and juice GDP (as the real GDP deflator is less than it should be). Not a conspiracy, just good politics.

Otherwise, show me this magical basket of goods I can purchase that only increases ~1.5% per year; I want it. In a recent US poll the number one concern was rising prices, not jobs.

#48 Smoking Man on 05.21.14 at 9:02 pm

I know this pathetic blog is about treachey real estate, if you bastards only knew how far more despicable the other industries where you would be ten times more pissed.

Airlines, 1000 bucks to go to Vegas. Cost, 80 dollars a head.

Auto Insurance, pay 10 times more then someone in Florida and your claims are capped..
Bloody thieving bastards.

Telecommunications., I could go on.

Now you have a choice, you can buy a black tee shirt, get some card board, and protest on Bay Street…

Or you can open a trading account and take advantage of people’s stupidity.

#49 Yeah OK on 05.21.14 at 9:12 pm

Post 1 of 2

Admit it.

WHO was buying all that HXD today?

Did you know the JAPANESE were selling it to you? (http://www.nomuraholdings.com/company/group/)

#50 AisA on 05.21.14 at 9:18 pm

My patience will outlast the big five’s distribution of air generated debt.

#51 Snowboid on 05.21.14 at 9:22 pm

#2 AngryMan127 on 05.21.14 at 6:41 pm…

“…The US tax system taxes foreigners who own real estate US tax on their worldwide income and estate…”

Estate and inheritance taxes may be owing if your net worth ‘was’ over $ 5 million US.

There is capital gains owing, but most if not all is covered by the US/Canada tax treaty.

You also may pay higher property tax as a non-resident owner.

If you truly believe your statement, it certainly explains why you are angry!

#52 Kreditanstalt on 05.21.14 at 9:39 pm

“If interest rates rise over the course of the next three years (which is a 100% probability)…”

100% probability? Why?

Losing control of interest rates is the last, absolutely THE LAST thing any government wants to see. And if they ever dared to raise them even minimally, think of the hundreds of thousands of mortgage-holders who would shriek in terror, the leveraged stock punters, the insolvent financial entities and insurers who would, at the very least, zombify – if not implode.

This is *NOT* some kind of standard cyclical happening…

Never going to happen. Count on it.

#53 Smoking Man on 05.21.14 at 9:41 pm

In fact, Jake offered. A thousand bucks if I’d send him two lists of five items. Instead I’m sending tens of thousands of words, and accepting nothing. This is not a commercial site. It takes no advertising. And I’m not for sale.

Of course, you can always buy me a scotch and rub my ankle.-Garth
….
You are one insane bastard Garth, first off for not making a little lot on the blog.

But more importantly for not banishing me…

I was looking at my Jack Daniels posts from Vegas…

Deleted Deleted Deleted…

Then I caught the word, you Nazi..

Bahaha.

I’ll pay huge to know what the hell I said..

See you can make money….

Live to buy you a drink but I only rub ankles that have bunions and toes with bright red nail polish…

#54 Dean Mason on 05.21.14 at 9:45 pm

This Investors Group 1.99% mortgage with a growing principal mortgage balance seems to work the same way as negative amortization mortgages and home loans in the U.S. during 2006, 2007 and some of 2008.

These negative amortization mortgages and home loans were most popular in high priced real estate markets like California, New York, Arizona, Nevada etc.

When you look at the words, negative amortization which really makes no sense.

The whole purpose of the amortization of any mortgage, loan is to reduce the debt over many years and grow it but I know what they are saying.

#55 Slim Pickens on 05.21.14 at 9:45 pm

If the BC Real Estate Association wants to seek advice from the masses on ways to improve, then good for them. But really, all they needed to do was look in the mirror.

#56 Dean Mason on 05.21.14 at 9:47 pm

Correction to my last post, not grow it meaning the amortization.

#57 FinancialPoodle on 05.21.14 at 9:50 pm

“I can also see the struggle in maintaining your credibility with your readership as there were a number of comments relating to mistrust or trickery.”

That would be the RE trolls stirring the pot. They need a hobby, too.

#58 Herb on 05.21.14 at 10:07 pm

Great submission to Jake. Well done, Garth!

#59 KommyKim on 05.21.14 at 10:19 pm

RE: #24 Smoking Man on 05.21.14 at 7:47 pm
In the USA the markets live Vegas and Florida doubled in 2 years before the crash.
On the chart from 1995 to today. Approx 20 years for prices to double.. Anyone notice the camel toe in 2009.

I agree. These types of long term charts should be in a logarithmic scale.

#60 Dwilly on 05.21.14 at 10:21 pm

Maybe my math is rusty, but I figure 100% probability = guarantee :-)

I don’t guarantee anything. But I do give odds. — Garth

#61 KommyKim on 05.21.14 at 10:23 pm

RE: #25 I’m stupid on 05.21.14 at 7:50 pm
Good on the Realtors for trying to clean up their act.

They are not trying to clean up anything. They are doing marketing research trying to figure out how to get people like the Blog Dogs on here to buy RE.

#62 Chaddywack on 05.21.14 at 10:25 pm

Did Investor’s Group Outsource their mortgage emails? Or is that just from someone with a grade 2 education?

Who in their right mind would agree to do business with someone who writes like that!?

That first paragraph was two sentences!

#63 devore on 05.21.14 at 10:33 pm

#59 KommyKim

I agree. These types of long term charts should be in a logarithmic scale.

You use a log scale for a geometrically growing data series, such as compounding. This is not the case here, as inflation has already been stripped out.

The chart is fine as is.

#64 Joe2.0 on 05.21.14 at 10:37 pm

Seems to me the enemy’s in the camp.
Tell them to cut the BS and put the coo coo back in the clock.

#65 West Coast on 05.21.14 at 10:38 pm

http://www.canada.com/onlinetv/documentary/doc-zone/9198167/video.html?o=10

Let’s watch ‘The Condo Game’ one more time!!

#66 Smoking Man on 05.21.14 at 10:41 pm

#58 Herb on 05.21.14 at 10:07 pm

Thought you kicked the bucket you old fart.

Glad you’re still amongst us.. Can’t say the same…. Lol..

#67 Nemesis on 05.21.14 at 10:42 pm

“Live to buy you a drink but I only rub ankles that have bunions and toes with bright red nail polish…” – SM

You do realize those descriptors apply to virtually all HogRiders?

Right?

#68 devore on 05.21.14 at 10:46 pm

Is this for high-ratio mortgages? I can’t find any information on the IG web site. How would CMHC even insure this? They did away with interest-only HELOCs, and I remember seeing in the past insurable schemes where the mortgage is amortizing, but the first term is interest-only, and it seems like that would not be allowed after all the recent lending changes. This IG mortgage has a real potential to be not just interest-only, but negative amortizing.

#69 Mark on 05.21.14 at 10:48 pm

“Airlines, 1000 bucks to go to Vegas. Cost, 80 dollars a head. “

Really? There’s no airplane in existence, not even the A380 or that new fangled 787 Dreamliner, that can fly from even the closest point in Canada to Vegas for anything near $80. In fact, most airlines (especially Air Canada, and to a lesser extent, WestJet) aren’t even money-making ventures, so the cost they charge you is less than break-even.

#70 Smoking Man on 05.21.14 at 10:57 pm

#61 KommyKim on 05.21.14 at 10:23 pm #25 I’m stupid on 05.21.14 at 7:50 pm
Good on the Realtors for trying to clean up their act.

They are not trying to clean up anything. They are doing marketing research trying to figure out how to get people like the Blog Dogs on here to buy RE.
…..

For a kommy, you’re pretty Intuitive..

#71 Steve on 05.21.14 at 11:00 pm

http://www.vancouversun.com/business/Barbara+Yaffe+Globalized+real+estate+market+driving+Vancouver+prices/9860777/story.html

#72 Smoking Man on 05.21.14 at 11:02 pm

#69 Mark on 05.21.14 at 10:48 pm“Airlines, 1000 bucks to go to Vegas. Cost, 80 dollars a head. “

Really? There’s no airplane in existence, not even the A380 or that new fangled 787 Dreamliner, that can fly from even the closest point in Canada to Vegas for anything near $80. In fact, most airlines (especially Air Canada, and to a lesser extent, WestJet) aren’t even money-making ventures, so the cost they charge you is less than break-even.
………

My casino host is my buddy, we get way more than we deserve..

The charters we take to Laughin cost Ceasars, Laughlin is an hour drive to Vegas, 80 bucks a head is the cost.

We fly on a Embraer aircraft.

You don’t know shit, or you make loot from the current airline market..

One or two… I’m a smoking man you bastard, nice try.

#73 Emma Zaun - GreaterFool Unpaid Intern #007 on 05.21.14 at 11:08 pm

Garth, we could not be more furious with you, you jerk!!!!

Do you know how much all the interns at GF are suffering?

Did you not see this article today?

http://www.thestar.com/news/canada/2014/05/21/interns_are_mostly_female_underpaid_or_unpaid_says_upcoming_study.html

But this week we have to learn that you pay your stupid male proofreader $100K. He’s an undatable doofus who you only hired because he makes you feel so much cooler by comparison.

And tonight, we find out that you turned down $1000 from the BCREA for no good reason!!! Whaaatt!!??

Damn your selfishness, Garth! You could have given that cash to us, the interns who do everything for you here. We remove the crumbs from your beard, make those crank calls to 24 Sussex at 3 a.m., put on those Brad Lamb masks you love and give your tired shoulders a rub at the end of your exhausting 2 and 1/2 hour days.

And what do you do for us? Keep us hoping against hope for a first paycheque “someday”, and turn down free money that could have kept us all in nail polish and Value Village stilettos for weeks!!

Go rub your own damn ankle!

Emma Z.

#74 Inglorious Investor on 05.21.14 at 11:16 pm

Liars… damn liars… and bankers.

#75 Inglorious Investor on 05.21.14 at 11:27 pm

Log scale charts are used to show percentage increases, which is a better way of graphing relative price action. For example, on a log chart of a given stock, a price movement of $10 to $20 (a 100% increase) takes the same vertical distance on the Y axis as a price movement of $100 to $200 (also a 100% increase).

Linear charts do look better when you want the price action to look more dramatic.

#76 Inglorious Investor on 05.21.14 at 11:31 pm

“I can also see the struggle in maintaining your credibility with your readership as there were a number of comments relating to mistrust or trickery.”

Uh… I believe that mistrust or fear of trickery by readers was directed at the RE industry, not Garth. An attempt to conflate the two just proves these guys can’t be trusted.

#77 Inglorious Investor on 05.21.14 at 11:42 pm

#52 Kreditanstalt on 05.21.14 at 9:39 pm

“And if they ever dared to raise them [interest rates] even minimally, think of the hundreds of thousands of mortgage-holders who would shriek in terror, the leveraged stock punters, the insolvent financial entities and insurers who would, at the very least, zombify – if not implode.”

Yeah, except when push comes to shove, it’s not about mortgages, stocks, or the economy. It’s about the dollar. They’ll even sacrifice a few banks if necessary, the way they punted Bear and Lehman in 2008 (which was good for Goldman, by the way). They will do whatever it takes to at least try to ensure the dollar stays king. Including raise rates. But the setup has to be right. Up till now they’ve been able to weaken the dollar without really damaging its position because in a floating rate world all currency values are relative. So if everyone devalues at the same time, the dollar can look strong while behind the scenes it’s being eviscerated.

#78 Drunkenstupor on 05.21.14 at 11:51 pm

hey Smokey, so u sayin one shud get a trading account. isnt that what those hedgies are trying to do already? i.e. short Kanaduh? oh, wait, u r smarter and so u still keep playin the greater fool game?

#79 learningfromyou on 05.22.14 at 12:01 am

a few rules to the realtors.

-Their association should create strict guidelines for their work

-A certified course that includes these guidelines with their exam and signature that they are fully aware of all the clauses on it

-Jail time and high monetary penalties for those not acting as fiduciary for their clients with clear violations of their guidelines. Lifetime ban to work in any other public service profession if it’s proved right.

-Full regulated profession, with clear limits in what could be said or written and all data and statistics subject to a transparent verification.

-Elimination of all misleading statistic coefficients that say nothing about the markets

-Forbid all misleading sale practices, also the pressure tactics for sales must be avoided.

-Transparent statistics with quick feedback verifications coming from those with ability to do such kind of tasks.

-Jail time and high monetary penalties to the managers of these organizations if its proved that their performance included misleading the public.

-No golden parachutes for top managers of these organizations with total avoidances of indecent salaries and bonuses for them.

-Transparent sources of information physical or electronic with total avoidance of misleading practices like recounting the same property for sale or sold multiple times and jail time for those who approved these practices.

A few rules for politicians
————————–
Please Garth help me her copying and pasting some of the above rules that apply in this section, the words JAIL TIME must be included here as well.

So you concluded that you were born to be a public servant?, impose yourself to be honest first, otherwise look at the list of other professions available.

#80 Inglorious Investor on 05.22.14 at 12:25 am

Good comment on inflation by SM.

Prices for goods and services are determined by supply and demand, as he says. Most people seem to be under the impression that prices for all goods and services rise together at more or less the same rate. Like inflation is some inherent property of nature or something. But there is no such thing as universal inflation.

There are two aspects to the supply and demand dynamic.
One aspect is the supply and demand of the good or service itself. The other aspect is the supply and demand for currency (which takes into account velocity). Both will influence price.

The former is specific to the good or service in question. The latter affects the prices of ALL goods and services. Like waves, these two forces can either reinforce each other (up or down, but usually up) or counteract each other (like price drops for consumer electronics even while money loses value).

Today we keep hearing that inflation is low. Well let’s clarify:
• Monetary inflation is berserk. The Feds blew up their balance sheet. The banks are flush with reserves. New debt is issued like toilet paper at a Mexican restaurant.
• But velocity is low because the demand for money is very high. Not a lot of spending.
• Average wage growth sluggish.
• Prices for so many goods and services are skyrocketing.

No wonder so many people debate: Inflation or deflation? Both? Neither?

While there may be tons of moneydebt in the system, it’s not flowing freely into the economy. So why are so many prices (food, electricity, insurance, education) going up like a bad redux of the Welcome Back Kotter years?

Demand for stuff is high due to all those Asians and other Others acting like Oliver Twist and asking: “Can we have some more?” Actually, they are not asking. They are simply buying. Then there is government, hunting for every dollar they can get so they can live up to unrealistic expectations, pay for neglected infrastructure, and skim as much as possible for those in the fold.

Imagine if demand for money declines, velocity picks up, and banks unleash their reserves? It could be a big bang. And Wal-Mart greeter may be making $100,000 a year. But a bag of milk will cost $100.

Supply and demand. It’s so simple. Yet complex. Like Garth.

#81 Dman on 05.22.14 at 12:49 am

Anyone have a link to a historical P/E ratio chart for the TSX?

#82 takla on 05.22.14 at 1:02 am

Re#67 nemesis
“you do realize those descriptors apply to vitually ALL Hogriders…right”
What would you know about Hogriders?…pretty lame generalization,
Wish there was some way I could get you out for a few stiff whiskeys and we could talk about it…

#83 cynically on 05.22.14 at 1:21 am

Thank you #17 perplexed. The New Yorker article, Real Estate Goes Global, states exactly what a few of us living in Vancouver were saying as to why the local RE market was going through the roof and were being classified as racists when the nationality, Chinese, was used as the catalyst to the astronomical house prices in certain sections of the city. We were termed racist for pointing out a truthful occurrence and I know for one I’m not or ever have been a racist. The article points out how the great amounts of money concentrated on the one objective, housing, tends to raise the price levels of all housing in that limited area, not just the mansions.
The Conference Board of Canada bears this out when in its report it found that “Vancouver’s RE market is tightly connected to what happens in the Chinese economy.”

#84 Confused on 05.22.14 at 1:36 am

Could you explain what they (and you) mean by: “If interest rates rise over the course of the next three years… payments remain the same, but the amount of your mortgage principal increases every month”? Your principal grows larger? How is that possible? How does this work? I thought it implied a greater proportion of your payment goes to cover interest rather than building equity. Please clarify.

#85 juno on 05.22.14 at 2:30 am

Kyle Bass video- the hedge fund manager which predicted the downfall of Greece.

At the end talks about Canadian real estate at about 30 minutes in the lecture

https://www.youtube.com/watch?v=VBPZ58dzjfE&feature=player_embedded

#86 Exurban on 05.22.14 at 3:35 am

#69 Mark

I’m not sure what that poster was referring to, but it’s quite easy to fly from Bellingham, WA, 20 miles south of the border, to Vegas for less than $80. Click on this Allegiant Air link and then the Search button.

#17 Perplexed

Very good article at the link. Required reading.

#87 Londoner on 05.22.14 at 4:24 am

#43 Smoking Man

Spot on regarding inflation. It’s surprising how many people can’t understand this even when the central banks spell it out for them.

#88 Stupesing in Cabbagetown on 05.22.14 at 5:16 am

From Manitoba – See http://winnipeg.ctvnews.ca/new-legislation-aims-for-more-transparency-in-real-estate-industry-province-1.1830042

#89 BillyBob on 05.22.14 at 6:21 am

I can scarcely believe I have to explain that an $80 ticket from Bellingham to Vegas is not the true cost to the airline. And not all tickets on the flight are $80. If they are, there will be other flights and other routes that will need to pick up the slack. $80 doesn’t begin to come close to covering even the fuel cost.

Airline revenue management is one of the most complicated, sophisticated areas of finance, worthy of much more than a blog comment. Suffice to say, if you think the price you pay is the same thing as what something costs to produce, please Google “Loss Leaders”.

SM is just plain wrong on this one. Adjusted for inflation, airline travel is far cheaper now than it was 30 years ago. Airlines have razor-thin margins and the vast majority operate at a loss, and then go under. The few that have survived have done so by enjoying the “new airline” advantage of lower costs, (i.e. WestJet) and then grow into legacy carriers with the same bloated costs (i.e. Air Canada). Did anyone notice how WestJet’s ticket prices now pretty much match Air Canada’s exactly? That’s what happened as WestJet has been forced to deal with rising costs, and Air Canada has been forced to compete with the lower costs at WestJet. Now the “new airline” cycle is repeating with low-cost variants for both (Encore and Rouge). At the expense of the employees, mainly. All so people can fly cheaply to Saskatoon.

#90 Sean on 05.22.14 at 7:22 am

#63 devore on 05.21.14 at 10:33 pm

——-

You use a log scale for a geometrically growing data series, such as compounding. This is not the case here, as inflation has already been stripped out.

——-

Thank you!! It seems a few too many posters, including the illustrious SM, can add innumerate to illiterate on their list of skills and talents.

The chart should actually be rangebound, like an oscillator, under normal circumstances.

One caveat would be poor data quality… you would have to de-trend for square footage and quality of finishings… you would also have to trust the inflation numbers. With bogus inflation numbers, you would indeed progress from lower left to upper right, over time.

#91 maxx on 05.22.14 at 7:38 am

“They should pay us for such pith and verve.”

They are already paying but not enough. Business is in decline and not just because of the horrid state of the real economy.

An increasing number of people have experience of how greedy, meddling, manipulating and untrustworthy this industry is. The stories one could tell……not to mention the arrogance!

I’ve bought re privately and nothing could be simpler. Get your own great inspector (not a realtard referral-ever!), an even better lawyer/notary (not a realtard referral) and get your own financing because a- you can do just as good a job, if not better and b- realtards get commissions for referrals to the finance industry.

Whenever a fsbo decides to list with a realtard, I remind them to retain their right to sell privately to those they’ve shown the property to prior to listing and get that written into the contract.

My wish is that there will soon come a day when people realize they don’t need this commandeering, interfering, parasitic lot and that they become totally obsolete.

#92 GenXer on 05.22.14 at 7:42 am

– “Linear charts do look better when you want the price action to look more dramatic.”

It’s not about drama, it’s about absolutes. The average price has climbed much higher than the previous peak in adjusted dollars. That is a very telling statistic.

The fact that the slope of the curve in the recent run up is not as steep can be viewed two different ways. Those who think quick run ups in prices cause crashes will feel like it is different this time.

I’m more of a believer in the boiling frog theory. People aren’t aware that the heat has been slowly turned up on them over time. By the time they figure out the water is boiling, it will be too late to jump from the pot.

Does that mean we have a sustainable market going forward, or everything is set for the worst correction in modern history? It depends on your point of view and beliefs.

The absolute mathematical truth? Renting is half the price of owning today in most cities, and stocks are performing better than housing. So who cares?

#93 Herb on 05.22.14 at 8:04 am

#66 Smoking Man,

nice of you to miss me, Dear Boy, but silence does not imply death. I’ll be around for a few more years.

#94 Herb on 05.22.14 at 8:14 am

Discount brokers …

apocryphal observation from a number of discount listings in our neighbourhood and a hint from a trusted agent:

real brokers and agents are letting discount-listed properties wither on the MLS vine. Reduced incentive to show them to clients, and no point to letting cheaper competition prosper.

#95 Mr. Frugal on 05.22.14 at 8:23 am

We’ve lost sight of the fact that a house is a home – a place to live. The value of a house should remain roughly constant once you factor out the impact of inflation. It stands to reason that house prices cannot increase unless wages increase or interest rates drop. What are the odds of either of those two happening?

#96 JL on 05.22.14 at 8:31 am

i’d turn down that mortgage based solely on grammar and spelling!

#97 Calgary Boomer on 05.22.14 at 8:58 am

Garth, you should ask the BC real estate association to donate the $1000 to your favorite charity.

#98 Rational Optimist on 05.22.14 at 8:58 am

Good on you for mentioning Stanfield’s. For those unaware, this is one of the few male undergarment manufacturers who still makes many of their products in Canada.

#99 Holy Crpa Wheres The Tylenol on 05.22.14 at 9:06 am

#30 I’m stupid on 05.21.14 at 8:08 pm
Smoking man
What was the inflation rate between 85-90? What was the wage growth in that time? Weren’t savings accounts paying 10%? So the 5 years between 85-90 saw the same inflation rate as 2004-2014 if not more. Just saying.
_____________________________________________
The chart says it all. You are 100% correct the banks were paying 10% + in interest back then. I recall when I bought my first home back in 1973 inflation was off the wall.

http://www.inflation.eu/inflation-rates/canada/historic-inflation/cpi-inflation-canada.aspx

#100 Nemesis on 05.22.14 at 9:29 am

@Takla/#82

I know. I know… bordering on hyperbole.

But here’s the thing… I knew something was up when HarleyDealers started awarding in-store concessions to manicurists:

http://tinyurl.com/phts3az

Although, to be fair – I never said Harley riders were sissies. AuContraire!:

http://tinyurl.com/onzhpj4

#101 Capt. Obvious on 05.22.14 at 9:54 am

In our area just south of Ottawa proper, sale prices are down about 6% from middle of last year. Listed price reductions are becoming common.

#102 Jeffs in Moose Jaw on 05.22.14 at 10:02 am

“Meanwhile I renewed with my own bank at 2.5%.”

Is this natural? There must be some mistake?

Have I been living under a rock for the past 6 years, how is money so cheap to borrow?

If the financing was north of 5% interest, maybe it wouldn’t be so alarming……

#103 Bargains everywhere on 05.22.14 at 10:18 am

In this tight market, FSBO is actually quite safe and easy for the seller. We watched with interest as a house we had sold 10 years ago was listed by the family we sold it to with the Realty Toronto Inc Brokerage. It’s a FSBO that gives the seller access to listing it on MLS for a small fee. They got full asking price for the house in a couple of weeks and it was listed at a price similar to others in the neighbourhood. I don’t know what their total fees were but they would have to be way cheaper than a typical 5% agent fee.

I wouldn’t want to try it when there is a glut of listings, but when there are so few houses available for sale, it seems to make a lot of sense to go this route, at least for the seller.

And not for the purchaser, as I have spelled out. Never buy FSBO. — Garth

#104 Daisy Mae on 05.22.14 at 10:36 am

#11 Mike: “I have once been young and foolish and had invested in IG Mutual Funds. What a scam … !!! All the fees, MERs, trailing fees … and the MFs lost money on top of that.Never again.So I hated IG for quite some time.
But now … well, I am simply disgusted !”

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

Exact same scenario. And, disgusted? Me, too! Hard lesson well learned. My son dropped them many years prior and I should have asked him, at that time, just why. :-(

#105 Buy? Curious? on 05.22.14 at 10:48 am

Here’s an interesting article in Gawker as to why subburbs suck and how cities are where it’s at.

http://gawker.com/cities-still-kicking-suburbs-ass-1580027663

Um, what is Toronto? That’s right, A CITY! And where are people with half a brain moving to? A CITY! And where is my house located? A CITY! And do I rent? Nooooo! Simple economics of Supply and Demand. Or as my smart ladies like to describe me as, “De Man!”

https://www.youtube.com/watch?v=knWnMKKEt88

#106 Old Man on 05.22.14 at 10:49 am

I had a bit of an emergency as now need to change all my old ways of banking and paying bills, so had to buy some time without touching my main investment account. Yep, need to do everything on the net, so systems have to be put in place which means getting a debit card too. What now? I decided to cash in a mutual fund which have had for many years as a forced savings account with monthly payments.

It has a nice sum to last a year and emailed the VP who is my contact person, and he just left my residence so assumed would be getting a check in a couple of weeks. Things have changed over the years as just signed a form, and the total amount will be in my bank account tomorrow morning.

#107 Daisy Mae on 05.22.14 at 10:56 am

#60 Dwilly: “Maybe my math is rusty, but I figure 100% probability = guarantee :-)

I don’t guarantee anything. But I do give odds. — Garth”

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

No one can ‘guarantee’ anything with regard mortgage rate fluctuations.

#108 Silent the people on 05.22.14 at 11:17 am

Garth,
You mention IG and the mortgage stuff but nothing about the rest of the company. Are you biting your tongue!

#109 John Prine on 05.22.14 at 11:24 am

It’s interesting seeing what some people think of realtors, we live in a smaller centre and I know 4 realtors quite well. They work far too many hours and spend a lot of money in fees and advertising, not a career for the faint hearted or financially challenged, none driving new German cars…

Someone stated they didn’t like realtors “fooling clients” I haven’t seen any of that but here out west we are bombarded by endless ads encouraging people to take out home loans and HELOCS…..”Do you need $20,000, $30,000, $300,000?” This seems to be endemic.

Biggest challenge to realtors in our area is convincing sellers what their homes are worth, the market is cluttered up with places that are listed for sometimes hundreds of thousands more than they would ever hope to sell for resulting in listing being on the market for hundreds of days and many multiple years, this is the greed factor in our area.

We have been looking for a home for quite awhile and these listings are all to familiar “Wasn’t that one listed last year?”

#110 Sam Goldbright on 05.22.14 at 11:34 am

The Canadian government is watching the housing and mortgage market carefully, but does not see a crisis, Finance Minister Joe Oliver said on Thursday.

“We’re going to monitor the market, but we don’t think we’re confronting a crisis at this point,” he told CTV News.

https://ca.finance.yahoo.com/news/canadas-oliver-does-not-see-212522520.html

Maybe he needs better glasses.

I would like to see their risk analysis. I would like to see the guy medical record as well. Looking and seeing are two different things.

He is 74 after all and delusion is one of the symptoms of dementia; many people start developing dementia at this age, it is nothing personal and it is very natural after all, simply the brain functions change with age.

Causes of dementia depend on the age at which symptoms begin. In the elderly population (usually defined in this context as over 65 years of age), a large majority of dementia cases are caused by Alzheimer’s disease, vascular dementia, or both.

But to leave this nation’s financial affairs with a person who cannot see the obvious is dangerous. He is either not qualified or is lying, which is even worse.

It takes 9 average yearly incomes to buy average house in Canada according to Kyle Bass, a much younger person who actually has to make money for his clients to stay in business, while in US at the top of the housing bubble it was 7. Maybe the old owl can at least hire experts on the subject; I would whole heartedly recommend Garth.

BTW Kyle Bass made tons of money shorting the US mortgage markets at it’s peak so he should know something on the subject; Kyle definitely has much better practical experience than the one mastered at the Parliament washrooms.

#111 Ralph Cramdown on 05.22.14 at 11:35 am

#101 Buy? Curious? — “Um, what is Toronto? That’s right, A CITY! And where are people with half a brain moving to? A CITY! And where is my house located? A CITY! And do I rent? Nooooo! Simple economics of Supply and Demand.”

One of the things I find funniest is that today’s young’uns assume, implicitly or explicitly, that their parents were idiots. Was Toronto not a city back in 1989 (see figure A)? Was it not full of real estate-loving Italians in 1989? Did it not have the most head offices in Canada? Were rush hour traffic jams to and from the ‘burbs not a problem?

Do you think people buying at the peak in 1989 were saying to themselves “this market is due to take a huge dump, but I’m buying anyway”? They were not. They sounded just like you. And twelve months later, in an economic slump, they voted the the Bob Rae NDP into office.

#112 overskooled1 on 05.22.14 at 11:36 am

Garth,
My humble suggestion: take the $1,000 that’s being offered and transparently donate it to a charity of your choice that needs it (I know, so many of them do).

#113 Castaway on 05.22.14 at 12:20 pm

#26 Happity on 05.21.14 at 7:54 pm
Russia and China just signed a $400 billion energy deal, specifically NOT using the $US…

All the more $US for those who would so eagerly sop them up…

So you seriously think the international markets are going to be pricing natural gas in Rubles or Yuan? Or that the USD will be replaced as the world reserve currency?

Right then! BTW, Zero Hedge called and reported you missing. Hurry back.

#114 David McKenna on 05.22.14 at 12:21 pm

The English in the email is atrocious, but I think you’ve misunderstood the 1.9% vs. 3.75%

“You will also notice the interest rate charge of 3.75% on the form, Nicole does this so you payment will not fluctuate during the 3 years , if interest rates go up normally the your monthly payment does as well, in this case Nicole has prepared it so it will not, you are still charged on the 1.99% but he difference is going towards your principal.”

I’d interpret that as:
-You are only being charged 1.99% interest
-Your payments are calculated on a 10 year amortization with interest at 3.75%
-So your amortization is effectively LESS than 10 years if rates continue to stay as is
-If rates go up, normally your payments would go up, but because we calculated payments on 3.75%, your payments will not go up if rates go up (presumably provided the rate stays below 3.75%)

This provides a built-in cushion should rates increase and decreases risk to the customer. It actually gives a customer a lower amortization than what they came in for, quietly forcing them to pay down the mortgage faster.

#115 Hulot on 05.22.14 at 12:22 pm

RB reported today. Big beat on profits…plus the lowest provision from loan losses since 2006.

Where is the indebted Canadian consumer Garth?

Indebted. Just as the banks wish. — Garth

#116 BigD on 05.22.14 at 12:23 pm

Garth,

If I have $50,000 in cash, should I max out my TFSA first and put the rest in a Non-registered account to invest?

Or should I max out the RRSP and take the proceeds from the tax deduction and then max out the TFSA?

#117 Old Man on 05.22.14 at 12:54 pm

#110 Sam Goldbright – the Olive Man is clueless and must be given a pass. He has become a Caesar lackey just like the rest of these nitwits, and there was a big story on the Port Man a few days ago. Where was the MSM about this crook buddy of King Caesar who pulled off a huge fraud? Now who removed the licence plates as all are in denial?

#118 Ralph Cramdown on 05.22.14 at 12:57 pm

#116 BigD — “If I have $50,000 in cash, should I max out my TFSA first and put the rest in a Non-registered account to invest? Or should I max out the RRSP and take the proceeds from the tax deduction and then max out the TFSA?”

This is not a question with a simple answer.

Contributing to an RRSP means deferring tax on the contribution, at your marginal rate this year (and possibly partly at the rate of the next bracket down if you’re contributing a big enough lump to put you in a lower bracket this year).

The tax you eventually pay on those withdrawals depends on a) how much other income you’ll have in retirement b) how much per year you draw from the RRSP and c) what the tax rates are in those years, including OAS clawbacks if your income will be in that ballpark.

You have to estimate/guess at all of these. It’s complicated. Also, there’s the consideration that some foreign investment dividends, interest and capital gains are untaxed (or taxed at favourable rates) by foreign governments and our very own CRA, but taxed at higher rates or as income if held in TFSAs or unregistered accounts, which can change the calculus depending on your foreign/domestic allocations.

This is not easy and research is required, but for people of some means, it’s definitely worth it to plan a strategy to minimize tax while meeting your other investment objectives.

#119 Doug on 05.22.14 at 1:20 pm

Garth:

The NYTimes has posted this rent vs. own calculator that is fairly detailed and looks kind of useful. It is a US perspective, but not too far from the Canadian lens. Maybe it’s worth people playing with:
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?hp

#120 Holy Crap Wheres The Tylenol on 05.22.14 at 1:23 pm

Here’s a BMO-generated chart of Toronto real estate prices (seasonally-adjusted, in constant 2002 dollars). See that first arrow indicating a price bloat in the late 1980s? It was followed by a housing correction which obliterated a third of people’s equity. It took almost 20 years for average prices to reclaim the pinnacle that they’d achieved in 1988-9.
Now look at the second arrow.
We’re so lucky it’s different this time…

_____________________________________________
So the slew rate is not as sharp as before so do we anticipate a reciprocal down flow, essentially a mirror image of the upswing?
Is that where the “luck” comes into play?
A slow death as opposed to a a quick one.

#121 Holy Crap Wheres The Tylenol on 05.22.14 at 1:26 pm

#114 David McKenna on 05.22.14 at 12:21 pm

The English in the email is atrocious, but I think you’ve misunderstood the 1.9% vs. 3.75%

_______________________________________________

Obviously you have never read one of Smoking Man’s posts here, or perhaps you can not read UCC. Don’t worry I can’t read UCC either.

#122 Buy? Curious? on 05.22.14 at 1:27 pm

#111 Ralph Cramdown on 05.22.14 at 11:35 am

(Gah! Why must I reply to this moron?)

Back in 1989, weren’t people moving out to the Burbs in droves? How do you think the people who bought in the city back in 89 are doing? Now people are moving back to the city because nobody wants to live in the barren hell that is subburbia. Except for, hmmm, what’s the word I’m looking for? Oh, that’s right, morons. As Supply dwindles, Demand goes up. Have you ever ridden the GO Train from Oshawa to Union on a weekday morning? You can actually see the despair of people driving in on the 401 numbing it with a Timmie’s double-double and a glazed doughnut.

Subburbs are the slums of the future.

https://www.youtube.com/watch?v=87V7qRpIVlk

#123 gus on 05.22.14 at 1:35 pm

No one can spoil this blog , if RE people trying to fool us , will keep saying the truth in the face of the kingdom of lies.

#124 Randis on 05.22.14 at 1:41 pm

Ok Garth the BC thing is genuine but I am still coming. You still need bodyguards. BC-ers don’t like you that much in general because of your view on real estate anyways.

#125 NotAGreaterFool on 05.22.14 at 2:05 pm

Race to the bottom continues. Scotia now trumps BMO with the lowest 5 year fixed rate.

https://businessincanada.com/2014/05/22/scotiabank-five-year-mortgage-rate-below-3-percent/

In other news, CMCH forsees higher home prices

http://business.financialpost.com/2014/05/22/cmhc-expect-higher-canadian-house-prices-but-fewer-starts-in-2014/

#126 White Russian on 05.22.14 at 2:17 pm

Hi Garth,
Back on March 31 you posted an example portfolio. I reprinted it below based on what you said. It still only adds up to 93 and wonder where am I supposed to invest the other 7%. Help?

Cash 5%
Canadian equity 12%
US equity 18%
International equity 10%
Emerging Markets 8%
Real estate investment trusts 5%
Real-return bonds 6%
Canadian bonds 8%
Prefs 18%
High Yield 3%

93%

#127 WhiteKat on 05.22.14 at 2:27 pm

@Capt. Obvious re: #101

Where are you getting your stats from? Or is this just a personal observation?

#128 Ralph Cramdown on 05.22.14 at 2:35 pm

#122 Buy? Curious? — “Back in 1989, weren’t people moving out to the Burbs in droves? How do you think the people who bought in the city back in 89 are doing? Now people are moving back to the city because nobody wants to live in the barren hell that is subburbia.”

I think you’re projecting your own feelings onto the population at large. Prices are high and rising in the ‘burbs.

People have been moving to the suburbs for decades for the same reasons as they do now: Lower house prices, a bigger lawn to mow and better schools. Builders are still building lots and lots of what is now referred to as “ground oriented housing” at the edges of the GTA, and selling them.

And people have been moving downtown for decades for the same reasons as they do now: Closer to the action, shorter commute. People spent the same amount of time bitching about gas prices, commute times, crime and poor schools in 1989 as they do today, and used the same reasons to convince themselves that they got a great deal on the real estate they bought, and that trends, logic and common sense indicated that prices could only go up.

#129 Blacksheep on 05.22.14 at 2:45 pm

“Now look at the second arrow.”

“We’re so lucky it’s different this time…”
————————————–
This chart is not helping the “It’s a bubble, camp”.

I know, it’s never different, but it sure does look, different.

First arrow, trough to peak, 160K to 350K in four years, averaging 47K annual gain.

Second arrow, trough to peak, 220 to 440K in eighteen years, averaging 12K annual gain.

Does it seem unreasonable for a countries largest city’s home cost, to double in a 18 years period? Does it seem unreasonable for a countries largest city’s home cost, to triple in 34 years? What did vehicle costs do over the same period?

Remember in 71 Nixon removed the US $ from the gold standard and opened the flood gates. The stimulus implemented post 9/11 and pre / post GFC leads me to believe, debt saturation is the only reason prices are not higher.

http://www.shadowstats.com/alternate_data/inflation-charts

The cult of RE ownership providing gains to the common man, is generational and will not be easily exorcised.

#130 sciencemonkey on 05.22.14 at 2:47 pm

The discussion of inflation is useful. My thoughts are that houses, gasoline, and food are expensive because there’s simply more people chasing after the limited supply available on planet Earth. The fact that electronic gadgets are deflating is only because our gains in production efficiency outstrip the losses in affordability of input materials (copper, plastic, etc.)

It’s not monetary inflation; rather, we all become a little bit more poor whenever a new human is born, or more importantly, when a human living at a third world level strives to consume like a first worlder.

I wonder if the asset supply demand can drive general monetary inflation, however. Consider the typical Canadian wage slave, telling their boss that a house in the GTA is almost as expensive as one in San Francisco, and they need a big raise. The driver for inflation is the asset, but once the salary is increased, doesn’t that lead to general monetary inflation?

#131 Slim Shady on 05.22.14 at 2:51 pm

The english in that letter is APPALLING. Nevermind any of the other details, it boggles the mind how the mortgage flogger wouldn’t or couldn’t organize the information they were trying to get accross, write proper complete sentences with correct spelling and punctuation, or make any sense. It took your explanation Garth for me to understand what that email was trying to say.

Like I said, irrespective of the details of this offer, that email screams SCAM and would be more than sufficient for me to look elsewhere.

This says a lot about the bloat of hangers-on that has accompanied this housing bubble. Garth has written multiple times about how there’s a glut of real estate agents and mortgage brokers, but it really takes emails like the one featured today to see how the real estate industry as a whole is scraping the very bottom of the barrel with its choice of employees. In what other industry would it be acceptable to communicate officially with your customers via an email like that?

#132 Daisy Mae on 05.22.14 at 2:56 pm

#110 Sam: “He (Oliver) is 74 after all and delusion is one of the symptoms of dementia….”

*******

Priceless! LOL ALL the feds are delusional!

#133 Daisy Mae on 05.22.14 at 3:03 pm

#112 overskooled1: “Garth,My humble suggestion: take the $1,000 that’s being offered and transparently donate it to a charity of your choice that needs it (I know, so many of them do).”

**********

Garth isn’t accepting the moola ’cause he’s not participating in this little scheme.

#134 Sam Goldbright on 05.22.14 at 3:04 pm

It is mind-blowing how these guys are playing with hundreds of billions, perhaps trillions of other people money and it looks like they don’t even have decent formal risk analysis in place (I would like to see it if they do). I would like them to be audited by external auditor like Deloitte who could assess their risk management framework and then would be looking for some explanation. They actually think house prices will go higher! The fact that these people think that they can do whatever they like with no consequences and can put me on the hook with my taxes drives me nuts. Do we really need federal government? What if all the provinces decide to become independent and refuse to respect the CMHC liabilities? I certainly do not want to have anything to do with it, or to accept any liability associated with it. Let the Queen pay, I am sure she has some money to spare.

#135 E.F. Hutton on 05.22.14 at 3:17 pm

#126 White Russian on 05.22.14 at 2:17 pm
Hi Garth,
Back on March 31 you posted an example portfolio. I reprinted it below based on what you said. It still only adds up to 93 and wonder where am I supposed to invest the other 7%. Help?

The missing 7 % is your average return silly.

#136 Ralph Cramdown on 05.22.14 at 3:25 pm

#122 Buy? Curious? — “How do you think the people who bought in the city back in 89 are doing?”

The chart that Garth provided tells you: 1% per year above inflation. Minus taxes and maintenance. Some neighbourhoods did better and some worse, and maybe that chart needs to be adjusted somewhat for hedonic changes. People who used leverage and were smart picking mortgage terms and rates did better, I guess. But nothing to brag about.

People who bought in 1995 made 3.7% per year above inflation. THAT’S something to be happy about.

If you don’t think that the average person’s retirement isn’t going to be SIGNIFICANTLY different if he gets a real 3.7% rather than 1% over twenty years on his biggest asset, you just don’t get it.

#137 devore on 05.22.14 at 3:44 pm

#75 Inglorious Investor

For example, on a log chart of a given stock, a price movement of $10 to $20 (a 100% increase) takes the same vertical distance on the Y axis as a price movement of $100 to $200 (also a 100% increase).

Certainly, you tailor your method of visualisation to what you want to show. However, this graph is in constant dollars, and its point is to show the ridiculousness of recent price movements. A rise from 150 to 350 in the 80s looks no less dramatic than today’s rise from 250 to 450.

#138 Mark on 05.22.14 at 4:19 pm

“I would like them to be audited by external auditor like Deloitte who could assess their risk management framework and then would be looking for some explanation. “

CMHC is audited. The problem at the CMHC is mainly in the actuarial assumptions and the terms of reference used for the actuarial calculations which effectively direct the actuaries and auditors to ignore the significant probability (if not certainty in light of recent price declines) of a correlated down-turn in housing prices.

Basically similar to the situation in the USA, where bond rating agencies in the mid 2000s rated MBS and CDO’s on the theory that the collateral could never lose a substantial amount of value. This proved to be quite foolish in the US, and will likely prove to be quite foolish in Canada.

#139 Mixed Bag on 05.22.14 at 4:27 pm

CMHC probes how much Bank of Mom and Dad may be skewing real estate market

http://www.thestar.com/business/real_estate/2014/05/22/gta_housing_market_remains_resilient_cmhc.html

#140 Setting the record straight on 05.22.14 at 4:37 pm

@130

The discussion of inflation is useful. My thoughts are that houses, gasoline, and food are expensive because there’s simply more people chasing after the limited supply available on planet Earth. The fact that electronic gadgets are deflating is only because our gains in production efficiency outstrip the losses in affordability of input materials (copper, plastic, etc.)

It’s not monetary inflation; rather, we all become a little bit more poor whenever a new human is born, or more importantly, when a human living at a third world level strives to consume like a first worlder.

I wonder if the asset supply demand can drive general monetary inflation, however. Consider the typical Canadian wage slave, telling their boss that a house in the GTA is almost as expensive as one in San Francisco, and they need a big raise. The driver for inflation is the asset, but once the salary is increased, doesn’t that lead to general monetary inflation?
**

My answer is no. Without an expansion of the money supply, relative prices would change but the overall price level would not.

Changes in relative prices up or down driven by demand or supply are not usefully characterized as inflation or deflation.

#141 Aggregator on 05.22.14 at 4:43 pm

Charts like that are misleading because the CPI is more distorted today then it ever was throughout history. The most accurate way to measure relative price is by ratios, i.e., Home price versus stocks, gas, food, rent, vacations, internet service or whatever. You just need historical data to compare different periods.

You can't rely on CPI anymore. It's rigged. Governments have to lie for financial repression to work.

#142 White Russian on 05.22.14 at 5:15 pm

135 E.F. Hutton on 05.22.14 at 3:17 pm
#126 White Russian on 05.22.14 at 2:17 pm
Hi Garth,
Back on March 31 you posted an example portfolio. I reprinted it below based on what you said. It still only adds up to 93 and wonder where am I supposed to invest the other 7%. Help?

The missing 7 % is your average return silly.
.

EF Hutton is that a serious answer or are you on crack?

#143 Smoking Man on 05.22.14 at 5:21 pm

Everyone debating an insignificant chart, CPI

It’s means nothing when it comes to rate hikes.

BOC always talks the output gap… Hallarious.. It can’t actually be measured accurately..

Only gap is the on between people’s ears who believe it.

Chart interest rates vs unemployment…

You will be amazed how coordinated they are..

The banks job is to make sure slaves competent with other slaves… While maintaining a surplus repository of slaves.

Otherwise it would be corporations competing with
other corporations for slaves…

Driving up wages, and burning
wealthy share holders..

Debating the CPI chart for rate movement, ridiculous..

#144 captian weed on 05.22.14 at 6:19 pm

CANADIAN REAL ESTATE IS PONZI scheme
GOVT CHEAP MONEY–>BANKERS–>AGENT–>FOOLS->LTTax–>GOVT

cycle of the greater fool

#145 maxx on 05.22.14 at 8:02 pm

#25 I’m stupid on 05.21.14 at 7:50 pm

“Good on the Realtors for trying to clean up their act.”

Altruism? HAhahahaahhahahahhahhahahhahahahahhahahahhahahahah…………………………………………………………………………………………………………..Hahahahhahahahahhahahah

#146 Nuke on 05.22.14 at 11:21 pm

Flew into Vancouver on Business for two days last week. Went out at night and found the town boring and provincial. It is still an outpost with no character.

I normally Skype with associates in Van but this time they insisted I visit. We were flying back on the red eye but when our meeting finished early the three of us all had the same thought – get to the airport and book an early flight home. Two days were enough. Skype from now on. Last visit was 1978, nothing changed. Next visit I will be 90 maybe the city will appeal to me then.

#147 AB Boxster on 05.23.14 at 10:30 am

Garth,

I think you are confusing racism with class.

The reality of the global economy is such that there is far more wealth in the world today than there was even 30 years ago.
The rise of the uber-affluent class especially in countries that in the recent past (China, Russia) were economic basket cases.

The newly uber-rich in these pseudo capitalist countries, are looking for safe havens to store their newly found wealth as well as building a hedge in case these countries turn back into authoritarian basket cases.

Canada, as a stable, multicultural and immigrant friendly country is an obvious solution to them. No one can blame them.

The fact that this influx of cash wealth is parked in real estate and plays some (perhaps significant) part in driving up real estate prices is the issue.

For certain markets to be more affected than others, and for this to cause concern to ‘average’ Canadians whose economy (and hence wages) has not grown at 10%+ per year, is hardly racist.

It is a frustration of the massive wealth being generated from other nations, having a direct impact on the economic success of Canadians.

Yes, we live in a global economy, and yes Canada’s demographics require immigration.

But if the impact of foreign money is truly having an impact of the affordability of a basic need (housing) for the average Canadian family, the easiest way to shut down any substantial discussion, review or commentary, is to describe anecdotal or personal experience as ‘racist’ and adds nothing to the discussion and mostly just makes people mad.

Until Canadians began speaking out loudly and describing their personal experiences to someone who might listen (media not government) the TFW program was a great boon to all Canada, and anyone who spoke against it was just racist towards the TF workers.

#148 Jake Moldowan, President, BCREA on 05.23.14 at 11:01 am

Thank you for the hundreds of comments. We appreciate the opportunity Garth has given us to hear from so many people who are passionate about the real estate industry.