Useless

POINTLESS1 modified

When my father bought a house in the Toronto burbs for $18,000 in the mid-1950s, it was about average. So was his salary as a school principal – just under nine grand. The prevailing mortgage rate was the same as now, about 3%, and my parents had to meet the minimum down payment to get one. That was 25%.

I’m sure it was tough to find five grand. After all, that would buy three new cars. But big down payments helped keep house prices reasonable, so that property cost just two times my old man’s gross.

By the 1980s, down payments had dropped to about 10%, and the average Toronto house was $109,000. The average income by the end of the decade was $58,700, so a house was about as affordable as it had been thirty years earlier.

In 1999, the feds started to allow 5% down payments. The average house cost $230,000, and it took three years of income to get one. Today, with financing incentives, down payments are even less and the average GTA home is $583,700. Family income has grown to just under $70,000, and it takes 8.5 years of average before-tax income to get the average house.

Obviously this sucks. Something is seriously out of whack. Income growth has stagnated while real estate has bloated. Low interest rates play a role, but there’s a strong argument for saying miniscule down payments are also responsible.

Ditto the US experience.

Thirty years ago the average US down was 20%, the homeownership rate was the same today (64%), but nine of ten houses were affordable. By 2011, despite the crash in American house prices, only 50% were affordable. Now the number has dwindled to 36%, with many American lenders adopting Canadian-style 5% down payments.

If a young couple in Vancouver can scrape together $50,000, they can buy a beater house for $1 million. If the minimum insurance down payment was 10%, they could afford a $500,000 home. And if that were the case, guess what would happen to real estate values?

Actually, we already have some evidence. In June of 2012, dearly-departed elfin deity F erased CHMC insurance for all listings of more than $1,000,000. Two years later the fastest-swelling price category in Toronto and Vancouver was the $700,000 to a million range. Houses listed for $1.25 million in North Toronto in the Spring of ’12, which routinely sold for 15% over list, one year later were worth less. Today they trade at 2012 prices, while CHMC-insurable semis have jumped 8-10% annually.

So, obviously, cheap down payments make for expensive houses. They penalize people with less wealth and income, and they encourage the virgins to take on vastly more risk. That risk is accentuated because we have the same mortgage rates as my parents paid in 1954. And we all know that won’t last.

Lilliputian downs have also skewed the real estate market as a whole, creating massively more demand and leading directly to the demise of the starter home. These days nobody wants a 750-square-foot bung with two bedrooms and one bathroom, unfinished basement and sheet flooring. So, no developer builds houses like that. Today first-time buyers often get a better-appointed, larger and way more expensive set of digs than their parents own, and think that’s normal. More debt. More risk.

Homebuilders and real estate agents love this. They’ve benefitted massively from the unprecedented inflation in real estate costs. The bankers and lenders are also juiced. They have long-term assets on their books that will throw off income for the next two or three decades, resetting at higher rates every few years, secured by real property plus a government guarantee.

This is how we got to the extremely unhealthy point of having close to a third of the entire economy dependent on residential real estate – building it, selling it and financing it. That whole structure rests on an historic mountain of debt owed by millions of people whose incomes have stagnated. By the way, did you get a raise this year?

Well, there’s absolutely no point to this post. There’s not a single politician in Canada with the stones to suggest the 5% down payment that CMHC requires be raised to 7% or 10%. Nobody is going to turn the clock back, even though that would give the best chance of restoring affordability. Today millions of families are so invested in their houses, shouldering a collective $1.1 trillion in mortgage debt, that any overall price decline would be utterly devastating.

They would destroy the political party suggesting it. Just as they’ve voted for the guys promising more breaks. It’s too bad a worse event, therefore, is brewing.

I remember how it felt when, as a Conservative MP, I opposed the Harper government’s 0% down payment plan. I was ostracized, and ultimately punted. When real estate prices went out of control and F desperately tried to reverse things, I was already out on my ass. I’m still grateful.

152 comments ↓

#1 ben on 11.02.14 at 4:41 pm

Good post. We have to stop the intergenerational wealth transfer but how? The olds are the ones voting for policies that boost house prices. Will they ever grow a conscience? No – that’s the point of “individualism”. Get a unique pair of trainers. Design your own kitchen. And stand on the throat of the young until they agree to work for you for free.

Democracy isn’t going to fix this.

#2 Yorkie on 11.02.14 at 4:46 pm

Good to have you back Sir!

#3 BillyBob on 11.02.14 at 4:46 pm

“It’s too bad a worse event, therefore, is brewing”.

Please clarify, is this referring to a specific event or speaking in generalities?

#4 mark on 11.02.14 at 4:55 pm

You might like this. A market correction chart with media headlines at each step of the way.

http://www.idiottax.net/2014/11/stock-market-corrections-investment.html

#5 Frustrated Kiwi on 11.02.14 at 4:56 pm

You don’t mention women entering the workforce, which has also undoubtedly pushed up the price of houses. As you point out, houses seem to cost what people can “afford” and with two incomes prices can be higher. Not that I’m suggesting a change to women working – just observing it’s an effect.

#6 Role on 11.02.14 at 5:04 pm

Real esate prices never gonna go down,, down down, only up up up!. Maybe down. No body can for not ever seen when coats are inflating, or oppisite!! If always and forever can maybe find most incomes or monies,, then we all can do, and should, find and vote any kind poletition who can do most of work for all peoples in Canada!! That would be swell!! 20% would be best!

#7 Cato the Elder on 11.02.14 at 5:09 pm

You’re a long term thinker Garth. You understand decisions we make today can have detrimental consequences in the future. You are a natural leader, that wishes to lead people into a more prosperous tomorrow.

Unfortunately, most politicians only care about today. By the time the consequences come, they will be out of office, and they won’t be punished.

I am in full support of hunting people down and jailing them for the decisions they made years ago to destroy our country. There should be no statute of limitations on criminal behavior in the public sector.

Maybe then they would smarten up because they’d know we’d be judging them for years to come.

#8 Mark on 11.02.14 at 5:12 pm

I think it goes without saying that the housing market will collapse on itself with all the excess supply stimulated and demand that has pretty much exhausted itself. This is why the past year and a half have been mostly price drops in most major Canadian cities.

Will we get back to that 2X ratio? Probably. Could even go to 1X as the homeownership base, so encumbered in existing debt, is unable to procure new debt to even buy at such depressed prices.

Fortunately for those who are smart, Canadian stocks are dirt cheap right now. In many cases, trading at less than depreciated replacement cost of assets. Especially in the mining and oilsands sectors. It is these individuals who are going to have the money to buy at the inevitable 1X income bottom.

#9 FormerSaskie on 11.02.14 at 5:14 pm

ABC 2015

#10 bill on 11.02.14 at 5:16 pm

their loss our gain ,eh Garth?
#1 ben on 11.02.14 at 4:41 pm
so a dictatorship of the proletariat there ben?or just a regular old fashioned bunch of fascisti getting those trains to run on time?

#11 yorel on 11.02.14 at 5:17 pm

#1
Yeah, it’s all roses in dictatorships.

#12 Cato the Elder on 11.02.14 at 5:20 pm

Re: #1 Ben

This is precisely the reason we shouldn’t have an interventionist government.

Governments are instituted to protect people from each other, enforce contracts, and protect individual liberty.

If someone makes a decision and it fails, only they should be punished. Inversely, if it succeeds, they should keep their profit. Unfortunately, if you alter that at all, it’s a slippery slope. And that means AT ALL – not even a little bit of justification can be made because government will use it to GROW. When income taxes were first implemented, it was only on the top 1% of the top 1% and it was meant to be tiny – look what has become of that monster!

Just look at what people cry out about when they hear about ‘unfairness’ in social benefits. Instead of demanding the government STOP ALL OF IT, they call out that they want some goodies too! This is unsustainable because of the perpetual demands placed on productive citizens, while their finances are limited.

Normal people just want to be left the hell alone and live their lives. Lunatics want special privileges to be stolen from others for them. This small segment of people have a disproportionate amount of power over our political system. We have to ignore them and regain the moral high ground.

Free-markets are moral. Impartial application of law is moral. Wealth confiscation is NOT moral, it is theft. Transfer payments are NOT moral, it is theft.

Our middle class is rapidly disappearing. Everyone that has maintained SOME semblance of a middle-class lifestyle is in some form of debt.

Communist China is more capitalist than we are. We are being strangled my massive regulatory burdens, taxation, and debt. Sure, China has debt, but their average incomes are rising faster than ours, they have massive trade surpluses, and a huge manufacturing sector that is becoming more productive by the day. And their debt is not on an individual basis – the average person there has a 20% savings rate!

#13 Strathcona on 11.02.14 at 5:22 pm

Home prices here in Edmonton are near their 2007 highs. Oil prices are nowhere near what they were then. The cheap money keeps on piling in to buy thse inflated assets. Not much talk of layoffs yet, but it can’t be far away if we have further weeks and months of cheap oil. A drop from today’s price would be particularly bad.

As tough as it is here, I wonder about Vancouver and Toronto. What do they actually produce there? What is the main industry? Housing, finance, and offices, mostly. They’re as exposed as we are to the same fundamentals.

#14 Larry Laffer on 11.02.14 at 5:23 pm

Ultimately, should things really go down, the banks may choose not to wait for government action and stop lending to any buyer puting up less than 20%. Well, if only we could get rid of CHMC first, of course.

#15 LJ on 11.02.14 at 5:27 pm

The way to secure a victory in the federal election next year: Bring back zero down, 40 year amortizations and throw around a bunch of tax breaks for select groups of voters. That would really stoke things up again and make us feel “rich”, especially now that we don’t have to spend so much on fuel.

However, the hangover will be EPIC!

#16 Randy Randerson on 11.02.14 at 5:28 pm

With 70% house ownership in Canada, no political party will dare increase the down payment from the current 5% to 20%. Canadians are too invested in RE.

#17 HJD on 11.02.14 at 5:31 pm

The planning done by some of the northern European countries can show us how to deal with our real estate mess. Politicians must use their brains and stop thinking only about the next election. We need intelligent long-term planning. Our real estate predicament (plus global warm, etc, etc) developed over a number of decades and can only be remedied by implementing gradual changes that will eventually get us back to a more healthy situation. Large and desperate steps are disruptive and politically suicidal. The only logical solution is to look a decade or two into the future and make sure that by the time we get there current problems have been finally solved.

#18 VanDammeCouver on 11.02.14 at 5:32 pm

Hi Garth,

The wife and I are in our thirties, and we want to buy a home sometime in the next 2-3 years. We won’t be doing that in Vancouver, its nuts and I think the bottom will drop out. We’re thinking more like Victoria or Halifax. We want to do it responsibly.

Any suggestions? Probably in the $250 – $400K range, depending on which city. Would you recommend we shoot for the full 20% down, or perhaps 10% and the other 10% into a nice juicy TFSA? We won’t plan on selling again after that, it’ll be the one and only purchase.

Just curious on what your thoughts are about the amount of downpayment, and any other suggestions.

#19 ben on 11.02.14 at 5:33 pm

hjd #3

Here’s what would happen:
1. party A comes up with a responsible long-term plan
2. party B says “we’ll give you more today, with jam
3. Boomers+ vote in party B

The change has to come from the voters. Right now politicians are giving them what they want.

#20 Mark on 11.02.14 at 5:39 pm

“With 70% house ownership in Canada, no political party will dare increase the down payment from the current 5% to 20%. Canadians are too invested in RE.”

Doesn’t really matter. The CMHC is effectively at the limit of its subprime guarantee authority, of $600B. There is minimal political appetite to extend that number further, and with house prices falling over the past year or two, claims are certain to start ticking up in a significant way over the next few years. Meaning that there will be even less than minimal appetite to increase that figure further.

If you look at the data, the real minimum downpayment required, without CMHC subprime insurance, is closer to 40-50%. That is to say, the threshold between prime and subprime is in practice set much higher than even the minimum set forth in the Bank Act. And as that $600B limit is hit, which it must in order for house prices to reverse their descent and start going back up, CMHC-insured subprime lending will have to stop once again. So the real lynchpin isn’t the downpayment requirements, but rather, the limits to CMHC’s subprime guarantee authority.

#21 A Yank in BC on 11.02.14 at 5:53 pm

Garth’s post today illustrates one of the recognized drawbacks to democracy. The ability of a society to vote itself into deep doo-doo.

#22 };-) aka Devil's Advocate on 11.02.14 at 5:58 pm

It is what it is.

Like you said in a previous editorial Garth; “…you can moan and dribble over things you cannot control. Or you can cede life is to be confidently embraced. You only get one.”

#23 shane on 11.02.14 at 6:02 pm

Garth, what worse event is brewing?

#24 Future Expatriate on 11.02.14 at 6:07 pm

#1. Of course democracy will fix this. True democracy can fix everything.

Once people get fed up with and quit trying corporate right wing fascism.

#25 JSS on 11.02.14 at 6:17 pm

I think the most important way of either staying out of massive debt, or getting out of it quickly — marry a good spouse that understands finances and frugality. If you and your better-half have been downsized from work, or lost your shirt in your business, you’ll know how important finances are.

We’re all adults. We can make decisions, and have to live with them. We all have access to information from the Internet like no generation has had before. If young couples want a $400K mortgage, then so be it. If some boomers nearing retirement want to work the rest of their lives to pay for their indulgences, then so be it. How much counselling can you give people, when they just don’t give a shit.

The sad thing is that Canadians will wake up one day, not wanting to live the rat race anymore. But they’ll realize that they signed over their lives for the debt they won and can’t get out of it so easily.

In other news, I see that the P/E for Canadian bank shares is hovering between 11 and 14, which indicates a pretty good deal…

#26 Republic_of_Western_Canada on 11.02.14 at 6:23 pm

#1 ben on 11.02.14 at 4:41 pm

Just don’t buy. That has amazing force to swing markets.

And it will hurt oldies much more than young people. That’s because young people don’t need some establishments’ financial sink which destroys mobility and blocks socialization.

If what you’re really hoping for is free capital/equity increases to subsidize a shakey outsourced career landscape, sorry, party’s over. Better to leverage the mobility and lower costs of youth to save and invest in the financial markets instead.

#27 crowdedelevatorfartz on 11.02.14 at 6:31 pm

Perhaps Mr Harper could hide an increase in down payments for CMHC insurance in one of those 600 page Omnibus bills he’s so fond of. Their poll numbers cant get much worse can they?
He could ram it through parliament just before the next election and let the ensuing mortgage rot stink up the economy for years to come.
A parting gift for whoever becomes leader after he’s gone.

#28 ben on 11.02.14 at 6:33 pm

How absurd to interpret my post as a call for a “dictator”.

Here is what I suggest. Right now we have “mob rule”. Yes it’s done at the ballot box but that’s still not ethical. People have forgotten what democracy is for.

Democracy is for:

voting for the best for your country for all

Democracy is not for:

a demographic bulk voting themselves unsustainable perks building up debt for later generations

We don’t need a dictator. We need the boomers to grow a conscience.

#29 Freedom First on 11.02.14 at 6:35 pm

Just love that last paragraph Garth. Says it all.

It is the reason I don’t talk financial management around the house worshiping over-leveraged 1 asset holding brainwashed masses, who, like their counterparts in the U.S., Japan, & Europe. etc., can only be convinced this is foolish to the nth degree when they are financially discombobulated. They are verbally abusive to listen to, and in many cases, like yours Garth, the whistle blowers who speak out against insanity are punished. Our society desperately needs more people in Power who will do the right thing.

Mind you, for myself, I always look after my own best interests, do what I can to help others, and always always always put my freedom first.

#30 Liquid on 11.02.14 at 6:35 pm

Raising the minimum downpayment of a CHMC insured purchase to 10% is a great first step to cooling this market. I think another policy that would help is to put a tax on foreign owned properties. Also making it more difficult to buy a third and fourth home is what some other countries have done to curb speculation.

#31 Villagemoron on 11.02.14 at 6:38 pm

When people wake up and start forking over stupid money for drywall and two by fours – the prices will drop.

#32 Pete in Barrie on 11.02.14 at 6:38 pm

Garth, your statistics are amazing. You said that the average income in the 1980’s was $58,700, while today in is at $70,000. Even if this number increased to closer to 80K that is still an abysmal increase in wages compared to the increase in everything else. No wonder I feel so much poorer:) Definitely a shift in power in the labour market!

#33 };-) aka Devil's Advocate on 11.02.14 at 6:41 pm

Buy within your means and factor in a mortgage rate of at least 7% when budgeting. Double up the payments while the rates are as low as they are. Buy location, location, location. You can change the house but you can’t change the location.

#34 ben on 11.02.14 at 6:43 pm

#30 Land value tax. But we are *so far* from the political will for this it’s incredible. Everyone wants to speculate on housing and keep “their” gains when the state builds a big road to their house in a field.

#35 Derek R on 11.02.14 at 6:46 pm

You got nearly all the causes, Garth.
Lower downpayments, lower interest rates, bigger houses. But there’s one more – lower property taxes.

I know everybody hates property taxes but higher property taxes mean lower house prices. And they also mean lower non-property taxes. Look at Alberta or Texas. So even if your mortgage is paid off, you still get some benefit.

#36 Harbour on 11.02.14 at 6:53 pm

#32 Pete in Barrie on 11.02.14 at 6:38 pm
Garth, your statistics are amazing. You said that the average income in the 1980’s was $58,700
………………………………………………………………………

No it wasn’t, the average income was more like $38,000. But I bought my first house then for $73,000

Average family income Canada, 1985: $53,472. — Garth

#37 Doug in London on 11.02.14 at 6:56 pm

Many times I’ve seen a bumper sticker that says: Out of a job yet? Keep buying foreign made goods. So, why are manufacturers moving to these foreign locations like Mexico (like the Ford engine plant going to somewhere in Mexico rather than Windsor), China, or India? The same reason the Kelloggs plant is closing down in London, or the Ford, Toyota, and Holden (GM) car plants are leaving Australia and going to cheaper places like Thailand. The cost of doing business in both countries is too high, and by strange coincidence both countries have outrageously high cost of housing which drives up the cost of doing business and kills jobs.

#38 Kenchie on 11.02.14 at 7:03 pm

Interesting (blog) read:

“Global imbalances and the Chinese economy
“…not with a bang but a whimper”

http://blog.mpettis.com/2014/09/not-with-a-bank-but-a-whimper/

#39 Mark on 11.02.14 at 7:04 pm

“Raising the minimum downpayment of a CHMC insured purchase to 10% is a great first step to cooling this market.”

The market is already cooling quite rapidly. Tightening credit would just be further nails in the coffin of a market that peaked a year and a half ago.

Canadian GDP is already shrinking. Even up to a year ago, nearly every economist (and RFD poster and Garth) said I was crazy for saying that the next BoC policy move would be downwards, and that domestic deflation is the biggest risk. Now I think nearly everyone acknowledges such as being mainstream. The next shoe to drop is likely the Canadian dollar, as it is likely going up quite dramatically over the next few years in response to deepening housing price reductions in Canada and an exhaustion in transitory USD$ strength.

#40 ex expat on 11.02.14 at 7:04 pm

Huge layoffs this year in my department, writing was on the wall so I bailed, took the same job in a different location with the same company. Performance review revealed I was now overpaid after years of being underpaid for the same job.

Hence, I see no raise for years to come. I won’t be buying any $999,999.99 houses ever, although I could well afford to.

Deflation is here and it is real.

#41 Harbour on 11.02.14 at 7:05 pm

Average family income Canada, 1985: $53,472. — Garth
………………………………………………………………………..

You talking household income (two incomes) ?

Of course. — Garth

#42 Smoking Man's Old Man on 11.02.14 at 7:13 pm

I think we need to step back more and examine the reasons why we are so driven to accumulate things that in the end will never lead to lasting contentment.

#43 West Coast on 11.02.14 at 7:15 pm

Maybe we need to stop thinking that our primary residences are assets. Are they not, in fact, liabilities? Certainly, wealthy people consider them to be so.
Those who buy property outright for their own use, will find that even though they have no mortgage, they are required to pay for the upkeep of the property. They are not receiving money from this ‘investment’. They are in fact losing money. Yes, they may (or may not) sell the property in the future. And yes when expenses, taxes, upkeep,inflation etc., are factored in they may come out ahead, but this is not an asset in the true sense of the word. A non-rent producing property remains a liability.

This is a machine translated excerpt (with my corrections) from a major daily newspaper of a southern European country (X):
“In X, real estate is the largest part of total household wealth. This is true, however, not of all people of X, but most. In the upper economic strata and especially the richest 10% of the population, real estate is the smallest part of their total wealth. As we descend to the so-called middle and lower income group, the greater the contribution of real estate in the calculation of their total wealth.

Thus, the sharp drop in real estate and the tax increases during the economic crisis hit more middle and lower class families.

By contrast, the richest 10% derives its strength mainly from shares in companies.
A wealthy person can have a fortune of 100 million dollars and an expensive property worth 4 million euros, pay a high tax rate, but still have this property constitutes only 4% of their total wealth. Even if the property disappeared, this person would remain wealthy. (Credit Suisse has observed that this is an international phenomenon).

The very wealthy generally see property as a ‘liability’, ie an expenditure such as an expensive trip or a boat, and not as “asset”, ie an investment.

In an average X household, the greater part of the family’s wealth comes from real estate. And in many cases, for many people of X, their only asset is property.
Therefore, the decline in property values by 35% during the past few years and the recent tax increases, combined with reduced incomes and soaring unemployment, caused the explosive mixture which bankrupted thousands of households during the crisis.”

Read the above as a cautionary tale. I’ve provided the translation as it’s not available in English. Let’s not pretend we are rich just because we own a house.There is a reason that Garth continues to try and educate us – we need it!

#44 Observer on 11.02.14 at 7:16 pm

I guess single Conservative voters don’t matter when it comes to recent tax policy…only married ones. I’ll remember that when I go to the polling station and my vote swings even further to the right. COUNT ON IT.

#45 ben on 11.02.14 at 7:18 pm

Mark #39

If the market is cooling and banks are lending less surely this depresses GDP considerably. GDP is a terrible measure of wealth. If real output stays the same but real-estate lending doubles we see more money pumped into the economy and imputed rents likely also rise.

GDP is up scream the papers! Yet all we did was commit our young to more debt for longer (and saw rents rise). Is that really good news?

Forget backing off if GDP drops. Let’s crush high housing costs. This will see disposable income rise even if wages don’t.

#46 Nemesis on 11.02.14 at 7:20 pm

#’SweetDreams’… #Vs.CivilSociety… #DiptychParablesFor… #InterestingTimes&SaltierDogz…

Door#1:

http://youtu.be/qeMFqkcPYcg

Or…

Door#2?:

http://youtu.be/x1rFAaAKpVc

[NoteToGT: “Can’t fight the future…”… Actually, it’s quite doable. More of an Art than a Science, though. Of course, a good StarMap is an indispensable prerequisite. Oh yes… Strictly between the two of us, I rather enjoyed my cameo in the DeLoreanDMC-12… That said, and notwithstanding the self-evident advantages of stainless steel – I’d wager that SnowBoid is still searching in vain for an IconicLincoln… AsideToSnowBoid: JackFrost was up to his old mischief in the OkieNogan this morning… Pretty as it was, though – how nice it must be to awaken to PricklyPears, Saguaros & OrganPipes… Even if you do have to fend off the FeralChiHuaHuas from time to time.]

#47 Linda on 11.02.14 at 7:32 pm

#1 Ben: I’m curious, where is it written that those who have wealth must give it to the young? Although if the young live long enough presumably they will inherit from ‘the old’. As for transfer of wealth, I’d not start pointing that finger were I you. The elderly you say have their feet on the throat of the young have paid for health care, schools, infrastructure etc. for decades. And will pay for as long as they live, unless their income is so minuscule that their effective rate of tax falls to zero (this is called living on GIS. Not fun). So unless you have paid your way from the day you dropped from the womb (I do trust your parents charge or charged you rent) you first have to tot up the cost of raising you to adult status (last time I saw a figure for that it was well over $200,000) plus the social cost, paid for by someone else’s tax dollars, for your health care, education & use of infrastructure from year dot to your current age. Bet you have not paid anywhere near as much in taxes as you have received to date……

#48 Stickler on 11.02.14 at 7:36 pm

Key here is:

– a house used to cost 2 times 1 person’s salary

– now a house costs 8+ times 2 people’s salaries.

#49 Common Sense on 11.02.14 at 7:39 pm

People are wringing hands about some magical, fair number that CHMC should consider for down payments and/or insurance.

So far, we have a limit of $1,000,000 to be insurable.

So far, we have 5% down.

Why not use common sense a bit and extend this further: just allow CHMC to insure the amount that is equal to 3 yearly salaries of an applicant.

Average double-income family in GTA is probably earning around $95,000. Insure them for $285,000 and be done with it.

Want a bigger house? Get a higher paying job or get a bigger downpayment. A house is not a God-given right.

Problem solved.

#50 calgaryPhantom on 11.02.14 at 7:45 pm

I have another suggestion. Why not decide the % of down payment based on one’s income? Just like a normal loan granting process. CMHC should look at a person’s tax statement from last year. IF in higher income category, then put down more down payment. If lower income category, reduce the % of downpayment.

Simple.

#51 Cow Man on 11.02.14 at 7:46 pm

Sir Garth:

Have you ever covered the fact that the Development Levee Charges assessed by most municipalities have had a significant effect on the cost of housing? Just like the land transfer taxes, governments at all levels rely on housing to support the “system”. In Halton a home owner has approximately $50,000 added to the cost of a single family home by Development Levee Charges at the Regional and Local levels.

http://www.halton.ca/cms/One.aspx?pageId=83354

#52 Mark on 11.02.14 at 7:48 pm

“If real output stays the same but real-estate lending doubles we see more money pumped into the economy and imputed rents likely also rise.”

No, rising lending would probably suppress imputed rents, as additional supply comes to market as high prices resulting from incremental lending stimulates the supply side.

At some point, increased lending ends up creating defaults though, in which case, you get lending contraction and full-fledged deflation. Of course, the typical ‘policy’ response to deflation is a lot of money printing, and, if not properly managed, the ultimate outcome can be hyperinflation. Hyperinflation being a condition which absolutely destroys imputed rents and house prices simultaneously.

#53 Calgarian on 11.02.14 at 7:54 pm

It’s so obvious isn’t it – the government is in bed with the banksters. They all win so long as people are paying their debt off even though it’s sucking the life out of most and will take half their life times. Just wait till we get to the point where the second generation will continue the mortgage payments.

The more things change the more they stay the same – meaning the rich get richer while the poor get poorer.

#54 Mark on 11.02.14 at 7:57 pm

“Maybe we need to stop thinking that our primary residences are assets. Are they not, in fact, liabilities? Certainly, wealthy people consider them to be so.”

Of course!!! A house, over the long term, at best, is an inanimate asset that requires a bunch of maintenance, and will, despite such maintenance, only keep up with inflation in the long term. While you can typically expect a 5-7% premium, over the long term, over and above inflation, as the appreciation on a stock (in addition to dividends!).

So the Canadian housing market will probably unfold in one of two ways — modest price declines on housing, but quite significant price increases on stocks. Or severe price declines on housing, and modest price increases in stocks. An example I like to give is that if one took their (25%) down-payment funds in 1990 Toronto, and invested them in the TSX — by the time the decade was done, they could have purchased 100% of their intended house. While their counterpart that went and bought on a mortgage in 1990 with 25% down was likely underwater for a year or two in 1994-1995, sweating bullets that the separatists didn’t win la Référendum de 1995 au Québec and basically made a decade worth of mortgage payments with only ~35% of the house paid off!

#55 ben on 11.02.14 at 8:06 pm

“You talking household income (two incomes) ?

Of course. — Garth”

Need to be careful here Garth IMHO.

Most figures on housing “affordability” gloss over the transition between pre 1990s where the sole income was used for calculating mortgage affordability and post this line they used “household income”.

This simple change allowed house prices to double without shifting the “affordability” measure.

#56 ben on 11.02.14 at 8:13 pm

Linda: boy where to start…

“I’m curious, where is it written that those who have wealth must give it to the young? Although if the young live long enough presumably they will inherit from ‘the old’. ”

Ok it’s exactly the opposite. Imagine a house built in 1940. Young now boomer buys for twice their salary. That person has to work for two years to own the house on a single income.

Now a young person has to work for 10 years on a single income to own the exact same pile of bricks.

In purchasing that house there is a transfer for wealth from young to old. You couldn’t be less financially literate about it if you tried.

The inheritance argument is so bad I can hardly be bothered but here goes: want to live in a dynastic country where hard work gets you nowhere and you inherit at 65 when your parents die at 90? Where it’s not worth people working hard in medicine because their fate is sealed from birth? Go live in the UK. It’s rubbish there.

We all pay our taxes. The point is the wealth transfer between young and old via housing. That’s what you’ve utterly missed.

#57 Vangrrl on 11.02.14 at 8:17 pm

The average wage by the end of the 80s was $58,700???
Wow. That was also around the time credit cards became more common in daily transactions. Funny that.

#58 ben on 11.02.14 at 8:24 pm

Mark – in the UK we saw imputed rent rise with lending. Largely rent tracks wages but it’s pulled up slightly as lending goes nuts which in turn stimulates the “economy”. As you note it’s a virtuous circle until it isn’t then it comes crashing down because people passing more and more promissory notes to each other isn’t wealth creation.

Until it does blow up it makes more sense for sharp youngsters to get into property than work hard. After all 90% of their parent’s friends who are well off will have “made” a significant portion of their net worth not through hard work but through riding the leveraged property game (and for some generous unfunded pensions schemes will also bolster them and burden the young).

Mark – the other point about putting 25% into TSX instead of housing. This I think misses the situation of the vast majority and strikes at the point about zero down vs 5 or 10%.

The vast majority are putting down very little. It’s not a choice – they aren’t putting the rest in TSX. They have *no money*. This is why banks and politicians love housing, loose credit and low rates 4 ever. Cobble together $20k and have the bank hand over $400K to the seller then that’s 400k straight into the economy to stimulate *today*.

Try going to your bank and asking to borrow $400K because “you think the TSX will go up”. They’ll laugh you out the door. For housing they roll out the carpet. It’s all about leverage – this is the only bet Joe Average has. And it feeds into GDP so the politicians can say we had “growth”.

#59 Vangrrl on 11.02.14 at 8:37 pm

#47 Linda:
‘So unless you have paid your way from the day you dropped from the womb (I do trust your parents charge or charged you rent) you first have to tot up the cost of raising you to adult status (last time I saw a figure for that it was well over $200,000)’.
Well no, I would argue that cost is a parent’s duty for choosing to have a child. Once an adult, it would be nice if the parents can help out, but up to the age of 18- that child didn’t ask you to spend 200 grand raising them.

#60 Kris on 11.02.14 at 8:39 pm

#6 Role on 11.02.14 at 5:04 pm
Real esate prices never gonna go down,, down down, only up up up!. Maybe down. No body can for not ever seen when coats are inflating, or oppisite!! If always and forever can maybe find most incomes or monies,, then we all can do, and should, find and vote any kind poletition who can do most of work for all peoples in Canada!! That would be swell!! 20% would be best!

@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@

SAY THAT AGAIN …..lol

What language was that? — Garth

#61 omg the orginal on 11.02.14 at 8:40 pm

#8 Mark on 11.02.14 at 5:12 pm
Will we get back to that 2X ratio? Probably. Could even go to 1X
———————
NEVER, EVER, EVER

Even of the days of 20% mortgages in the early 1980s did we get 1x.

Well, maybe if there is a zombie apocalypse that kills 50% of the population. But that’s about the only scenario. But even zombies would jump on 1X.

Lowest its ever likely to get is back to pre 2000 levels which was sustainable. Figure on 3 to 5 for big cities and 2 to 4 for smaller cities.

State of economy of Canada will have no major impact on prices – its all about interest rates, which is now the real price of housing.

#62 Cici on 11.02.14 at 8:41 pm

I agree.

Canadian real estate is a joke, and I for one don’t want in on the party.

If the economy slows or stops just as the boomers are trying to offload their digs, we could be in for a world of heartache.

And I hate to think of what us GenXers’ retirements are going to look like. Ditto for the millenial crowd.

#63 Mark on 11.02.14 at 8:46 pm


Until it does blow up it makes more sense for sharp youngsters to get into property than work hard.”

Of course! I have many a’friends in Calgary who bought with almost nothing down in 2003-2004, and have leveraged themselves into $500k houses with $300-$350k of equity. With, over the past decade, probably only around $50k actually paid into equity. In other words, the RE market showered $250k-$300k of unearned equity onto them. Many have used this equity to backstop additional borrowing for boats, quads, 4-wheel drive pickups, and RVs far in excess of the normal capacity of their modest middle class jobs to ordinarily “afford” such. The worst part of it all is that these friends believe that appreciation in such a fashion is a completely normal long-term thing for the market.

Now imagine the world of hurt they’ll be in as that whole cycle goes into reverse. As $500k becomes $250k.

Yes, it is true that a smart and savvy young person could have taken that equity, sold out at the peak of house prices, and gotten themselves into some very undervalued stocks. But it rarely happens. Just like the tech stock millionaires of the late 1990s — most of those who earned, at least temporarily, excess returns on housing will probably remain married to their position, even as its value collapses.

#64 omg the orginal on 11.02.14 at 8:46 pm

CMHC $600 LIMIT

For a government agency there are a myriad of ways around that limits like that.

If there is a political will to increase the amount of mortgages that CMHC backstops a way will be found.

And likely done in a manner that nobody knows about it until years later.

#65 Too Much Debt on 11.02.14 at 8:48 pm

“By the way, did you get a raise this year?”

There has not been raises at my company for over 6 years now. In that time several employees have had two kids and their expenses have skyrocketed. What was once a comfortable salary for two people is now extremely tight with two more mouths to feed and kids activities to fund. Luckily for me my home is almost paid off and I have a spouse earning a good salary as well. Just found out there will not be any raises this year either, better luck next year.

#66 van on 11.02.14 at 8:51 pm

Think outside the box people. You have choices. If you’re tired of that 2 hr commute from a tiny box on the 401, move to Winnipeg, where for the same money you could buy a new 3000 sq ft home 20 minutes from its city center, plus own a lakefront cottage about an hour or so away, plus a winter condo in Florida, plus season tickets for the NHL Jets, the Royal Manitoba Theatre and the Ballet.

#67 Mark on 11.02.14 at 8:54 pm

“NEVER, EVER, EVER
Even of the days of 20% mortgages in the early 1980s did we get 1x.

Lots of places in the United States hit 1X. Mostly characterized by lots of subprime debt (ubiquitous in Canada, with CMHC being the biggest insurer of such), adjustable rate mortgages (again, pretty much universal in Canada), and extremely stretched ratios relative to average cyclically adjusted income.

If anything, the conditions in Canada are ripe for an even more serious collapse in prices than experienced in the US.

As for the 1970s, there were actually legitimate housing shortages due to the boomers moving out. Its a totally different situation today demographics-wise.

#68 juno on 11.02.14 at 8:54 pm

So Garth you still think a soft landing is going to occur.

The Politicians are going to stuff the pig until it explodes a horrible death. They would kill the bubble but let the bubble kill itself. They will do what politicians are good at
point the fingers and wash their hands and probably blame it on the banks while hand the banks a golden parachute as a reward to take the bullet for them

#69 totalchaos on 11.02.14 at 8:56 pm

In my lower mainland neighbourhood, houses over a million now sit unloved but houses are snapped up in the 700,000 – 950,000 range. What is interesting is before the new owners move in there is a massive reno involving granite and stainless, potlights and new hardwood. Presto! We now have a million plus home and skirted CMHC. Nothing bad can come of that, right?

#70 Mister Obvious on 11.02.14 at 9:02 pm

#13 Strathcona

“I wonder about Vancouver and Toronto. What do they actually produce there? What is the main industry?”
———————–

I can speak for Vancouver. The main industry is bicycle lane construction. The main product is disgruntled hedonism.

#71 ben on 11.02.14 at 9:02 pm

Stickler: – now a house costs 8+ times 2 people’s salaries.

And that’s *with* the huge advances in tech since 1960. But the construction cost doesn’t matter. The land is the expensive part. Land *with* planning permission.

The state will continue to apply loose credit with tight planning laws to bid up land in the absence of true wealth growth in order to print money to paper over the cracks.

Don’t look down road runner. Keep running.

#72 Mark on 11.02.14 at 9:08 pm

“In my lower mainland neighbourhood, houses over a million now sit unloved but houses are snapped up in the 700,000 – 950,000 range. What is interesting is before the new owners move in there is a massive reno involving granite and stainless, potlights and new hardwood. Presto! We now have a million plus home and skirted CMHC. Nothing bad can come of that, right?”

CMHC will insure a $10M house. Just as long as the loan doesn’t exceed $1M against it. Obviously whomever bought that house had enough equity and/or savings to fund the renos. As most buyers in Vancouver driving the high prices are ‘move-up’ buyers, not first-timers.

Of course, taking a mostly paid off house, and “moving up” with an increasingly leveraged house, can be a recipe for financial disaster for many. Especially since we see so many boomers nearing the end of their working years, increasing their mortgage debt at a time when they should be hunkering down with investment assets for retirement.

#73 Mark on 11.02.14 at 9:11 pm

“The state will continue to apply loose credit with tight planning laws to bid up land in the absence of true wealth growth in order to print money to paper over the cracks.”

If there really was supply tightness, then imputed rents would be rising in lock-step with housing prices. We haven’t seen that (renting remains an incredibly affordable option, especially compared to owning!), hence, the only logical conclusion to come to is a (CMHC subprime) credit bubble being directly responsible for the elevated prices.

#74 Retired Boomer - WI on 11.02.14 at 9:11 pm

I say, if you WANT to buy a home guaranteed by federal insurance you need a minimum of 20% down both for US & Canadian buyers. Can’t ‘meet’ that standard? Fine, rent.

What I think is prudent, obviously isn’t what our collective bought elected officials want you to have in the manipulated market.

Hence, the problem of why you can afford to buy a home, but not make the payments over the life of the mortgage.

Whether 64 or 70% home ownership rates, we will never get to 100% nor should we. People are illiquid, unstable, and stupid.

Thus says the debt free geezer. I bought mine when you had to have 20% down to avoid insurance & the pricy premiums! Try this home prices will revert.

#75 Cato the Elder on 11.02.14 at 9:15 pm

One thing is certain – there is a lot of wishful thinking going on here.

The Canadian government has proven it will not do the right things in a financial collapse. The right thing being, letting those that took excessive risks go bankrupt.

No, the Canadian government is going to do all sorts of backroom, shady things to ensure these people get bailed out.

What that means is higher prices, more taxes, and more regulations, and less jobs for all Canadians.

Here’s how the structure works:

1. Banks
2. Big business
3. Big organized labour (unions etc.)
4. Average Canadians

That is the way their voting works. It’s based on influence. Banks exert the most influence because they control the money supply.

Make no mistake about it, higher house prices are NOT good despite what every economist, politician, and idiot neighbor brag about.

A house is needed to LIVE. It doesn’t generate income, in fact it COSTS money to run. Housing prices should DIMINISH over time as it depreciates due to wear and tear.

Why are we celebrating something increasing in price that is needed to survive? I will never understand this idiocy. It is not increasing in price because the VALUE has increased – it just sat there – what value has been added?

Our entire country is owned by the banks. When you have a mortgage, YOU DON’T OWN YOUR HOUSE.

This is the consequence of inflation. Sooner or later, everything will be owned by the monopoly issuers of credit. If we took back control over every resource from them, but left them this power, they would own it all again within a generation.

We must demand gold and silver money again. Then our middle class will start to come back. It’s really quite simple.

#76 Daisy Mae on 11.02.14 at 9:33 pm

#5 Frustrated Kiwi: “You don’t mention women entering the workforce, which has also undoubtedly pushed up the price of houses. As you point out, houses seem to cost what people can “afford” and with two incomes prices can be higher. Not that I’m suggesting a change to women working – just observing it’s an effect.

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

Well, of course. Whatever the market will bear…and with dual incomes, it can bear alot. We’ve screwed ourselves. But good. All levels of government have benefited with increased income taxation and we’re too stupid to realize. The losers are families.

#77 Mark on 11.02.14 at 9:34 pm

“I say, if you WANT to buy a home guaranteed by federal insurance you need a minimum of 20% down both for US & Canadian buyers. Can’t ‘meet’ that standard? Fine, rent.”

Why have the government involved in any purely private sector transaction, such as RE lending?

Its pretty much a rule of thumb that almost any time government offers a loan guarantee, eventually such loan guarantee is defaulted upon or otherwise not repaid in full. Why? Because if government offers it, its unlikely that the private sector, people using their own money, would have never offered such.

The CMHC is at least $160B under-capitalized relative to the normal private sector requirements for the activity it engages in. And that’s a pretty conservative estimate.

#78 Keith on 11.02.14 at 9:36 pm

@Mark #73

Check out this rental http://vancouver.craigslist.ca/van/apa/4710308761.htm

It’s a 790 square foot box on an alley in a distinctly untrendy area of east vancouver, not too far from the border with burnaby. Not the drive, not main street, not even mount pleasant and a long way from the west side where the price would be considerably higher.

Certainly more than two dollars per square foot per month once utilities are paid, compared to local incomes renting in Vancouver is not incredibly affordable. Ownership is not even a consideration for the young.

#79 Rainmaker on 11.02.14 at 9:40 pm

Garth, I think you need to turn your blog clock back 1 hour.

#80 Kenchie on 11.02.14 at 9:53 pm

“How much longer can the global trading system last?”

http://blog.mpettis.com/2014/09/how-much-longer-can-the-global-trading-system-last/

#81 kg on 11.02.14 at 9:54 pm

You did your bit, you can sleep easy.

How’s the recovery coming along.

#82 nonplused on 11.02.14 at 9:57 pm

And let’s not forget tax creep. Another reason houses and everything else is so expensive and also the reason the gov. loves high asset prices including houses, is tax creep.

Here is what I mean. House builders right now are making out ok on a house they build, 10% profits lets say but they pump almost half of that to the gov. You can’t replace a new house for much less than it’s selling for, builders aren’t reaping 50% or anything like that on their cost. But the cost of putting the plumbing in has gone way up. Why? Well the plumber makes $50 an hour so he’s got a big tax bill. If he buys a fitting for the house he gets 7% on that. The electrician has to pay all that as well. All the way down the line there is a tax on a tax on a tax.

#83 Ben on 11.02.14 at 9:59 pm

Mark – you clearly have to have, for rising prices:
1. loose credit (as you note)
2. demand above supply

Rent doesn’t rise in lock step with buying prices (imputed rent is a different thing btw) because credit gets looser. We don’t pay rent with credit but rather with wages. Wages aren’t rising – so we have a ceiling on rent.

Prices are up as you note due to looser credit but I disagree on your conclusion on supply. We have a supply problem but not because there aren’t enough homes.

On the owning side supply is under pressure due to multiple owners who are buying to let. If the govt simply taxes property “investors” until they squeaked we’d see a big ramp up in supply that would not be met by demand and therefore prices would fall even if credit remained loose. Of course the govt knows this so won’t regulate at all.

Again on the bigger picture we are getting a confusion between credit and wages. Prices have detached from wages because credit bears little relation to wages in a ZIRP world. This is why we are in such a mess. People can borrow what they don’t have at many times leverage and ride the debt wave. The workers (mostly the young) pay for that through rent by earning a wage doing actual work. Lots of them have to work very hard to enact these vast transfers.

That’s what the whole 2008 crisis was about. People thought that $1 of debt was worth the same as $1 of credit. It’s not when we add leverage into the mix pumping up assets to be paid for by growth that isn’t coming because all our rocket scientists are working on arbitrage opportunities in the banks.

#84 PeterfromCalgary on 11.02.14 at 10:04 pm

Certainly less down payment requirements has raised the demand and thus price of houses. However, I wondering if the smart growth movement paid a part too. By putting land off limits to development they have lowered the supply increasing prices as well.

#85 Happy Renting on 11.02.14 at 10:07 pm

Houses for 2x annual household income seems a distant fantasy.

I guess the politicians will keep things so that overextended mortgage owners can keep their heads above water, as long as they continue to tread furiously. Hope they never notice us renters, unobtrusively sitting on a flotation device (bought with money saved by not buying overpriced RE.)

#86 OttawaMike on 11.02.14 at 10:14 pm

#6 Role on 11.02.14 at 5:04 pm

One of the best posts here in many months.

“Smoking Man on Acid” should be your handle instead of
Role.

#87 Ben on 11.02.14 at 10:16 pm

Cato – great post. Not sure about the need for gold backed money I’d be happy with properly regulated fiat. The rest of it *was* gold ;-)

#88 Timmy on 11.02.14 at 10:18 pm

RE#27: Harpo is too busy selling us out to China…He ratified the investment treaty with China, and of course they got a better deal than Canada did.

#89 TEMPORARY® Foreign Prime Minister on 11.02.14 at 10:36 pm

Probably one of the most insightful and truthful posts ever written that will never to be acknowledged by the very same groups that who have lobbied and benefited the most from this self-serving ideology.

Then again, given the current trend for hiding in broom closets when a crisis occurs, I wouldn’t’ expect any courageous policy making from the the current government anytime soon.

#90 Banjopete on 11.02.14 at 10:46 pm

Mark, did I miss the contest announcement for most responses to un-asked questions?

Please bold and summarize your response please to this asked question with a summary and brief history of this question and response in the form or a summary response.

#91 45north on 11.02.14 at 10:54 pm

There’s not a single politician in Canada with the stones to suggest the 5% down payment be raised to 7% or 10%.

well not across the board but Flaherty did sneak in the cap at $1 million. Not a peep out of the Liberals or NDP. One thing I didn’t know:

Mark: CMHC will insure a $10M house. Just as long as the loan doesn’t exceed $1M

so bids for houses above $900,000 are supported by real wealth rather than by a willingness to sign a mortgage. I guess.

my idea is to require 10% down payment for houses over $900,000 but less than $1 million.

Today millions of families are so invested in their houses, shouldering a collective $1.1 trillion in mortgage debt, that any overall price decline would be utterly devastating.

I’m thinking it would be so devastating that the political system cannot tolerate any increase in interest rates at all. I mean not at all.

It’s too bad a worse event, therefore, is brewing.

let me guess, loss of manufacturing jobs, loss of resource extraction jobs, aging workforce, falling Canadian dollar

I remember how it felt when, as a Conservative MP, I opposed the Harper government’s 0% down payment plan

It’s time to kiss and make up!

#92 Steve French on 11.02.14 at 10:59 pm

From his blog, Smoking Man’s mom passed away.

It’s been a tough couple weeks for Smokey.

“As for man, his days are as grass: as a flower of the field, so he flourisheth. For the wind passeth over it, and it is gone; and the place thereof shall know it no more.”

– Psalm 103:5

I’m sure he’ll be back in the saddle again soon though. Back at his perch at Seneca Casino.

I don’t know about you but I take comfort in that. It’s good knowin’ he’s out there. Smokey. Takin’ ‘er easy… for all us sinners.

Just one thing Smokey… Do ya have to use so many cuss words?

#93 wthisgoingon on 11.02.14 at 11:02 pm

Hi Garth,

Thank you for standing up for the common Canadian and for writing this pathetic blog as you refer to it.

It’s disappointing what the money changers have done to the once liberated nations of this world. Billions and trillions in debt since it all started in the 1900s. And the citizens are all too familiar with debt and are slowly accepting it as their new way of life.

Too brainwashed, too emotional, too hormonal.

#94 45north on 11.02.14 at 11:03 pm

VanDammeCouver : We’re thinking more like Victoria or Halifax.

your dreams won’t survive a 2 week vacation in either place. Let me know if I’m wrong.

#95 Mark on 11.02.14 at 11:06 pm

“Mark – you clearly have to have, for rising prices:
1. loose credit (as you note)
2. demand above supply”

Agree.


Rent doesn’t rise in lock step with buying prices (imputed rent is a different thing btw) because credit gets looser.

Of course. But credit ‘looseness’ is cyclical. While rising rents tend to only be as cyclical as wages broadly. Which don’t tend to be all that cyclical for the broader economy. Of course, individual sectors can have cyclical wages, such as oil and gas, but the economy broadly is comprised of many countercyclical sectors.

“We don’t pay rent with credit but rather with wages. Wages aren’t rising – so we have a ceiling on rent.

Well if Vancouver RE was so crazily in demand from factors other than extremely loose credit, such as the hypothesized land constraints, then we would see rising rents. Rising rents would squeeze the low income people out of Vancouver, and would effectively ‘ration’ living in Vancouver only to people/families engaged in high value activities.

No evidence of this happening, as wages are not meaningfully rising in Vancouver either. And wages tend to be an indication of the relative value of work. Bottom line in Vancouver seems to entirely point to a credit bubble, coupled with a bubble in optimism. In other words, a classic credit-driven speculative mania of the worst kind. Which eventually will go bust in quite a severe fashion.

#96 Mark on 11.02.14 at 11:17 pm

“Check out this rental http://vancouver.craigslist.ca/van/apa/4710308761.html

I looked at it, although I’m in no position to comment on whether it is a representative sample or not. $1500/month to rent a brand new house, with commensurately low energy costs and reasonably good proximity to the city core, isn’t a lot in a major city.

Easily within range of a single working professional or tradesperson using the recommended less than 1/3rd of household income spent on housing.

Net taxes, property management/insurance, and maintenance capex out of that $1500, and the net rent is dirt cheap, IMHO.

#97 young & foolish on 11.02.14 at 11:35 pm

People don’t get smarter from one generation to the next. Why expect today’s government to do the right thing? The elites have always sent the masses to slaughter.

It’s back to a rentier friendly structure, where those owning the debt profit off those who shoulder it (and even guarantee any losses will be socialized).

#98 M on 11.02.14 at 11:45 pm

Beautiful history lesson Garth mano !! I enjoyed every word of it.

I will bother you with an old time story happened at a far -and-away latitude.
My grandpa was born in 1907. After I graduated the naval academy he lectured me about “the price of having a roof above your head”. I always applied it and I will always look back in time with a gratitude tear in my eye when I think of the old man which influenced my life in so many ways.

“The roof above your head should not exceed 1/4 of your monthly net income”

So how much a house should cost, say in Toronto ?

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/in-2024-all-homes-will-be-dream-homes/article16246770/

https://www1.toronto.ca/City%20Of%20Toronto/Social%20Development,%20Finance%20&%20Administration/Shared%20Content/Demographics/PDFs/Reports/nhs-backgrounder-income-shelter.pdf

http://blog.mississauga4sale.com/2011/04/toronto-and-gta-historical-house-prices.html

In 2010, median household income in Toronto was $58,381. Say is around 65k today.
Toronto’s average personal income for men was $52,716, 42% higher
than that of women at $37,015 in 2010. I’ll take a ball park of 90K/yr per dwelling which is not off by much.
I’ll take avg mortgage rate since 1950 around 8.5%.
For the ease of calculation I will consider the gross income as shown above. I divided the gross incomes above on monthly basis.
I considered 20% down and rate of inflation 3% and 25 years amortization. I’ve got:
– Average house should be around 270 K
– Median house should be no more than 200 K

In TORONTO !!!

When was the last time that an average price for a house in GTA was 270k ? 1989 and 2002 (for Mississauga)
200K in 1995
both for lower incomes than today.

I know it sounds nuts, but this is where we’re going. If a scorched hole in the ground is called “soft landing” then we will have a soft landing :)
Recession included.

As a scientist gun for hire, 1/4 of monthly net income would put me just north of 1600 dineros monthly which according to my rules would give a price for a dig just north of 225K (for the numbers assumed above).

These are WTF numbers but they come a hell of a lot closer to what most people REALLY can afford (if they want to also have a life) than the mirage we have now. The problem with “tza people” is they go nuts in herds while they wake up slowly and one by one.

Is a recession on horizon ?
Are 8% mortgages a thing of the past ?
Ditto for 20% down payments rules to GET an 8% ?
HINT: just a few years ago some were laughing at the thought that 40 yrs mortgages will be a thing of the past :)

Cheerio !

#99 M on 11.02.14 at 11:49 pm

correction:

265K (not 225K) is what my rule of thumb above would allow me to live at peace with my conscience :)

not that it matters much

#100 Sheane Wallace on 11.02.14 at 11:50 pm

DELETED

#101 Cato the Elder on 11.02.14 at 11:51 pm

If you REALLY challenge the shadow government (corporate controlled public policy) you get the Dealey Plaza treatment.

#102 Sheane Wallace on 11.02.14 at 11:52 pm

#16 Randy Randerson on 11.02.14 at 5:28 pm
With 70% house ownership in Canada, no political party will dare increase the down payment from the current 5% to 20%. Canadians are too invested in RE.

The MONEY markets will slap them in the face. We will see then.

#103 Mark on 11.02.14 at 11:54 pm

“my idea is to require 10% down payment for houses over $900,000 but less than $1 million.”

That idea would make sense. A lot of sense, that CMHC “premiums” be aligned to the real risk. However, that would expose a lot of ugly realities, and pretty much defeat the whole ‘purpose’ of the CMHC — a tool of the central planners/”social engineers” to somehow make all borrowers equal.

Its a giant travesty, for instance, that a newly minted dentist, with millions worth of earning power ahead of him and a 5% downpayment — pays literally the same CMHC insurance premium as a hairdresser. CMHC’s underwriting and fee structure is a complete joke.

If the CMHC can’t be abolished outright, I would support a cap on CMHC insurance to no more than 2/3rds of the median Canadian house price. So effectively a limit of approximately $250k today. Anything more than that should be supported through real wealth and savings. I know a lot of people claim the US system was worse than the Canadian system, but at least Fannie Mae/Freddie Mac had a $450k limit to their ‘insurance’ products during the bubble build-up period. With amounts above that entirely being underwritten by the private sector.

#104 Renter's Revenge! on 11.03.14 at 12:09 am

“…all our rocket scientists are working on arbitrage opportunities in the banks.” – Ben

That’s what happens when you cut funding to NASA!

#105 Keith on 11.03.14 at 12:09 am

#96 Mark It’s not a house, it’s a lane way house … a shed in the back yard of a single family home. In Vancouver, a single family home will be on a standard lot – 33 x 120 feet, the “lane way house” is where the two car garage used to be, back when one income could afford a house with a garage. It’s so great to live in someone’s back yard, while facing the view of the back alley in direct view of half a dozen neighbors or more.

No self respecting “single professional” which is not a representative category of renter would be caught dead in this neighborhood.

I could have thrown out a basement suite in the commercial drive neighborhood, at 2k per month. 2k per month to live in a basement in rainy Vancouver, but I was trying to be representative. Vancouver does not represent value for renters, period, full stop.

#106 Snowboid on 11.03.14 at 12:10 am

46 Nemesis on 11.02.14 at 7:20 pm…

“…how nice it must be to awaken to PricklyPears, Saguaros & OrganPipes…”

Indeed, we have about forty different cacti in the backyard, including a couple of 30 ft saguaros – and although they may have snow in the Okanagan, we are glad it’s cooling down a bit in the coming days after a solid ten days of 34C+ temps.

No feral puppies to fend off this year, unless we head farther south for a few days!

The search for the classic suicide door Lincoln continues, but the nicer ones are all over my $ 30K budget.

Maybe I will get lucky at BJ next year!

#107 Frustrated Kiwi on 11.03.14 at 12:19 am

Interesting recent research article on house prices around the world (since 1870):
http://www.voxeu.org/article/home-prices-1870

By the way, Steve Keen has an interesting idea on controlling house price inflation – make the amount you can borrow dependent on some multiple of what the property could be rented out for (estimated in a similar way to government valuations now). Then the person who can pay the most is the person who has the biggest deposit, not the person who borrows the most. Not sure if it’s practical but it would mean that house price inflation would track rents, which broadly track incomes.

#108 Renter's Revenge! on 11.03.14 at 12:20 am

“Our entire country is owned by the banks.” – Cato the Elder

The banks are public corporations. This is your opportunity to own the country! Go now, buy bank shares at 11-14 times earnings. Carpe diem and whatnot.

#109 M on 11.03.14 at 12:39 am

Quod licet Iovi, non licet bovi

In terms of “size”, Canada is the proverbial pimple on the camel’s derriere.
US, can dictate interest rates (up to a point). Canad can not.
Ergo, no matter what the Gov-Central Bank arrangements are, time comes when continuing printing will become impossible because of:
– destroying the Canadian peso
– losing the grade quality of Canadian owed debt
Both of the above will result in higher interest rates required on Canadian debt, ergo increase in the yield of Canada T-Bill. Game up.
Canada’s ability to dodge the financial market is much more limited than US’s. Market will devastate either the currency or the bond prices. In both instances gov issued paper will go to much much bigger yields than we have now.
Game is up. At some point interest rates in Canada must go up. Very much up. No matter what the politicians do to get votes.

#110 Fuzzy Camel on 11.03.14 at 12:41 am

To get rich in Ontario, buy as many houses/condos as possible, highly leveraged, and rent them out to break even. In 10 years you can sell them for a fortune.

Because, there are no other ways to make money in Ontario. Real estate is so expensive, companies are closing down, selling the land to condo developers and moving out of country where it is affordable still.

How the heck can we compete with China/India when a factory worker in Ontario has to shell out $300k for a house? Sort of drives wages way up. Then, we have this bloated top heavy government skimming 50% of peoples wages, so an employer has to pay even more to attract talent.

The only way to get Ontario back as a manufacturing powerhouse, is to crash the housing market, clean out the government, and get rid of the debt. If a house was $100k, and low taxes, you could pay your guys globally competitive wages.

We are going down the wrong path, inflating the housing market is the stupidest way to run an economy. It is short term gain for longterm pain.

#111 joblo on 11.03.14 at 1:22 am

#6 Role on 11.02.14 at 5:04 pm

ROLE FOR PRIME MINISTER in 2015!

#112 kommykim on 11.03.14 at 1:48 am

RE:That risk is accentuated because we have the same mortgage rates as my parents paid in 1954. And we all know that won’t last.

I know this isn’t 1954, but it took a long time for rates to rise appreciably:
http://www.ratehub.ca/prime-mortgage-rate-history

Maybe someone here knows the history, but I doubt central banks (If they even existed) were engaging in QE or interest rate manipulation in 1954. This can take a long time to unwind.

#113 Juno on 11.03.14 at 3:58 am

#96 Mark on 11.02.14 at 11:17 pm

That ad has been there for a bit. What he the owner is contending with is rental units surrounding that 790sqft unit, asking for 1300 dollar for at 1200 sqft (reno and including utilities or 50%)

Renters don’t care about how new a unit is. Its all about square footage.

There’s are many of these small units trying to get renters to pay a premium to break even on their mortgage, but for each month of rent they lose, leave a big red blotch on their balance sheets

#114 RealistvsExtremist on 11.03.14 at 6:33 am

DELETED

#115 Won't end well... on 11.03.14 at 8:59 am

Canadians spend more of their income on housing
Canadians spend a higher percentage of their income on housing than almost any other nation according to a new poll. A study by BlackRock found that for every dollar of income Canadians pay out 43 cents on housing-related expenses. That includes mortgage or rent and utilities. The US was around the same level and the Netherlands and Sweden spend more on household costs. The rest of the 20 nations polled though pay less with China spending just 15 per cent of their income on their home. The cost of living was highlighted by 68 per cent of respondents as being the biggest risk to their financial future. One of the reasons for Canadians spending more on household costs is a wish to pay down mortgages quicker.

#116 the Jaguar on 11.03.14 at 9:21 am

#3 – Billy Bob

I think he refers to the inevitable rise in mortgage rates which the feds cannot control. All that mortgage and consumer debt. People robbing Peter to pay Paul. That sort of ugly mess. Big Oil has suffered a setback and there will be fallout.

#117 Herb on 11.03.14 at 10:05 am

#98 M,

had business at a cemetery in Scarborough yesterday, and the wife and I took a long drive back to our west end rental. Saw a lot of houses in older parts of the city along the way, and the prices you deduced are what houses in Toronto actually are worth, considering the condition of older ones and the curb appeal and quality of construction of rebuilds.

If the nearly-free mortgage money disappears for whatever reason, that is what they will be worth. Buyers must be mad to consent to being had to this extent!

#118 Daisy Mae on 11.03.14 at 10:05 am

#106 Snowboid: “Indeed, we have about forty different cacti in the backyard, including a couple of 30 ft saguaros…”

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

Far more interesting that great expanses of costly-to-maintain grass?

#119 Sideline Sitter on 11.03.14 at 10:36 am

#115 – “Canadians pay out 43 cents on housing-related expenses”

Thankfully, we rent and are at 11% of pre-tax income… yes, we do well — but we also live quite inexpensively — albeit in a very well-to-do area of central Toronto.

Even if I lose my job, we’d still be at 27% of pre-tax.

It IS possible folks. Don’t let “keeping up with the joneses” get in the way of your financial freedom!

#120 ben on 11.03.14 at 10:40 am

Renter’s revenge:
> The banks are public corporations. This is your opportunity to own the country! Go now, buy bank shares at 11-14 times earnings. Carpe diem and whatnot.

Yeah I think it was Ghandi who said:

“If you can’t beat ’em join ’em…and don’t forget the dividends”, right?

#121 Bottoms_Up on 11.03.14 at 10:54 am

We may owe 1.1 trillion on houses, but in the USA students are more indebted than that:

http://en.wikipedia.org/wiki/Student_debt#United_States

“The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion”

#122 Jonathan on 11.03.14 at 11:10 am

Just heard on radio CBC The Current a three-way panel talking about architecture, with focus on buildings and especially condos in Toronto.

All agreed new condos are terrible. But Lloyd Alter, journalist and architectural professor at Ryerson really set a frightening tone with his well-researched insight.

“….all those glass claddings will need to be replaced in 15 years, maximum…..it’s a disaster…”

http://www.cbc.ca/thecurrent/episode/2014/11/03/frank-gehry-most-architecture-today-has-no-sense-of-design-no-respect-for-humanity/

(Garth, I think Frank Gehry is giving you the finger, but I am sure it’s not the first time and you can handle it)

Here’s another piece Lloyd Alter wrote, cleverly pointing out that while condo victims and Brad Lamb Lovers say they like all the glass for the views, most never even open the windows!

http://www.treehugger.com/green-architecture/seduced-view-new-report-finds-people-who-live-glass-houses-dont-look-out-windows.html

Oh my, this really looks like we are in a for a shitstorm of a condo crash in this city.

If there is any good news in this, it may only be that condos in Toronto will soon be actually affordable at only 1-2X average household income. If those people can afford the massive maintenance assessments

#123 rosie "moving forward" in the knowledge that, "this won't end well" on 11.03.14 at 11:11 am

We just need more cheap credit and lax lending.

http://www.marketwatch.com/story/first-time-buyers-share-of-home-sales-hits-27-year-low-2014-11-03

#124 ozy - LONG GONE, baby on 11.03.14 at 11:19 am

those times are like, LONG GONE, baby! and never coming back

EXPECT to work for food. repeat it. EXPECT to work for food. ok, kids of today, adults of tomorrow, EXPECT to work for food. Lie, cheat, deceit, steal or inflate money (open a bank). Or die / suffer in misery…

only 10% will make it nice, the rest….well, that’s natural selection folks in a globalized world

#125 Kenchie on 11.03.14 at 11:50 am

“Snake oil salesman have called 14 of the last 2 bear markets” lol

“Selling Fear”:

http://theirrelevantinvestor.tumblr.com/post/101419474783/selling-fear-as-we-make-new-all-time-highs-bear

#126 AB Boxster on 11.03.14 at 12:02 pm

#12 CATO

——————————————————
Free markets have no morality.
Morality is a human attribute.
Your comment makes about as much sense as describing the climate as moral.

“My it’s so immoral that it’s raining in Vancouver today!”

Capitalism is about self interest and greed.
‘More’ is always better.
‘Enough is not an option.

Morality from the Latin moralitas refers to “manner, character, proper behavior”.

Most people define would define Fair as:
“Just, equitable, honest”
or perhaps
“without cheating or trying to achieve unjust advantage”

Some people think self interest and greed makes for more efficient allocation of capital and resources. Perhaps.
It most certainly has nothing to say about morality and fairness.

Capitalism speaks to none of these concepts.

Your continue quoting of Ayn Rand ‘BS’ demeans any meaningful commentary you write.

#127 Son of Ponzi on 11.03.14 at 12:58 pm

#126
Morality is a Judeo-Christian concept.
Ten Commandments etc.
Confucius did not care about it too much.
As long as you’re looking after your parents and obey the authorities, you’re doing o.k.

#128 Retired Boomer - WI on 11.03.14 at 12:59 pm

#12 Cato The Elder

Saving rate for any “fool” in north america should be near 20% if you expect to live decently when you hit geezerdom. That includes the wife’s (discretionary??)
income. How? Simple, scale dreams to realty, kill the debt. I know it is tough to do, but not impossible to do!

We can only expect government to change slowly by our vote. What YOU decide to do, where you live your life, and how, and where you spend / save your money will have FAR more impact than any government’s policies.
Free, or not FREE!

#129 Renter's Revenge! on 11.03.14 at 1:15 pm

“Yeah I think it was Ghandi who said: “If you can’t beat ‘em join ‘em…and don’t forget the dividends”, right?” – Ben

Correct, and I believe it was John Wayne who said: “Life is hard; it’s even harder when you don’t own bank shares.”

#130 NoName on 11.03.14 at 1:53 pm

funny this thing is.

“Perhaps the idea of slapping a fresh logo onto the foreground seemed a harmless move. But history is history. Falsifying it does a disservice to everyone.”

http://www.cbc.ca/news/technology/canada-accused-of-boasting-with-doctored-photos-of-canadarm2-1.2820042

#photoshop

#131 NEVER GIVE UP on 11.03.14 at 2:16 pm

#24 Future Expatriate on 11.02.14 at 6:07 pm
Once people get fed up with and quit trying corporate right wing fascism.
———————————————————
Many call it Crony Capitalism.
Gov working hand in hand to give preferences to some and eliminate others from the game.

When I was 18 years old I worked on a Liberal campaign for a woman I knew who was very involved.
She told me at the end of the campaign (the Libs lost in Edmonton Center) They had a meeting to inform the Federal Gov (The Libs won the Country), Which companies should get preference to Federal Government contracts. It was almost a reading of the campaign donors list and the largest donors were at the top of the list.

If Mulroney could actually get caught with a $300K bag of cash. That being the most private and simple of transactions to hide. One would have to be very naive to think the practice is not rampant.

#132 bill on 11.03.14 at 2:32 pm

#106 Snowboid on 11.03.14 at 12:10 am
#118 Daisy Mae on 11.03.14 at 10:05 am
and when they flower they will look magnificent!

#133 deaner on 11.03.14 at 3:03 pm

Re: #5 Frustrated Kiwi: “You don’t mention women entering the workforce…

Women entering the workforce has occurred at the same time as a reduction in family unit size. Since millenials are less likely to get married, I bet the boomers are more DINKy than millenials.

Thomas Sowell on stagnating family income an economic myth:

https://www.youtube.com/watch?v=WrtoSx-NbLQ

#134 devore on 11.03.14 at 3:15 pm

#5 Frustrated Kiwi

You don’t mention women entering the workforce, which has also undoubtedly pushed up the price of houses. As you point out, houses seem to cost what people can “afford” and with two incomes prices can be higher.

Household income is household income, regardless of how many of your children are slaving away in the sweatshop.

#135 Snowboid on 11.03.14 at 3:26 pm

#118 Daisy Mae on 11.03.14 at 10:05 am…

It’s definitely different than the average Canadian yard, but we don’t miss the massive lawn (and associated work) we had in Victoria, and rather enjoy the desert landscaping.

Some folks down here are adamant it’s their right to have green grass, despite the fact we are in a desert – but most have adopted xeriscaping landscaping methods.

Our water bill down here averages $ 18 US a month averaged over the year. We do have a few plants that need water (pineapple palm, fire bush, bougainvillea, etc) but they are on a drip system – minimal water usage.

Another benefit, when one accidentally gets bitten by a cactus (as I do fairly regularly), there are many aloe vera plants within a few feet to sooth the wound!

#136 Holy Crap Wheres The Tylenol on 11.03.14 at 3:34 pm

#92 Steve French on 11.02.14 at 10:59 pm
From his blog, Smoking Man’s mom passed away.
It’s been a tough couple weeks for Smokey.

“As for man, his days are as grass: as a flower of the field, so he flourisheth. For the wind passeth over it, and it is gone; and the place thereof shall know it no more.”
– Psalm 103:5
I’m sure he’ll be back in the saddle again soon though. Back at his perch at Seneca Casino.
I don’t know about you but I take comfort in that. It’s good knowin’ he’s out there. Smokey. Takin’ ‘er easy… for all us sinners.
Just one thing Smokey… Do ya have to use so many cuss words?
_____________________________________________

My sincere condolences to Smoking Man on the loss of his mother.
Although you may not have faith in a greater being Smokey please take comfort in the fact that some of us do. We send our prayers for you and your family at this time.
Psalms 23:4
Psalms 23:4

#137 Ry YYZ on 11.03.14 at 3:36 pm

http://www.greaterfool.ca/2014/11/02/useless-2/#comment-332330

It’s not just the boomers who are selfish in their voting, it’s almost everyone voting for whatever they think will benefit them the most in the short term – my parents’ generation (pre-boomers), their parents’ generation (what few are still with us), GenXers like myself, GenY/millenials. Also, IMO, people in big urban areas seem to be entire ignorant and apathetic about anything that affects the country outside their urban area.

I don’t know how to fix that, it seems to be the eternal problem of democracies, especially ones with universal sufferage – although I’m not at all certain that restricting voting to just, say, property owners, or people who are net contributors to the country’s coffers, or whatever, would help at all.

#138 T.O. Bubble Boy on 11.03.14 at 3:52 pm

“my idea is to require 10% down payment for houses over $900,000 but less than $1 million.”

I’d go even further… stagger it from 5% to 20% as the prices get up to the $1M mark.

e.g. something like:

$500k and under = 5%
$500k-$600k = 7.5%
$600k-$700k = 10%
$700k-$800k = 12.5%
$800k-$900k = 15%
$900k-$1M = 17.5%
$1M+ = 20%

#139 Herb on 11.03.14 at 5:15 pm

#127 Son of Ponzi,

you’ve obviously never heard of ancient Greek philosophy, or read any Confucius.

#140 45north on 11.03.14 at 5:39 pm

M : After I graduated the naval academy he lectured me about “the price of having a roof above your head”.

the thing that’s wrong with “M” is that it’s not searchable

“the naval academy” Annapolis?
http://en.wikipedia.org/wiki/United_States_Naval_Academy

At some point interest rates in Canada must go up. Very much up. No matter what the politicians do to get votes.

I very much feel like we’re in over our heads. If the US raises interest rates we have two options: bad or worse.

Fuzzy Camel: inflating the housing market is the stupidest way to run an economy. It is short term gain for long term pain.

short term gain for long term pain – I’m afraid you’re right

Jonathan : Loyd Alter: all those glass claddings will need to be replaced in 15 years, maximum…..it’s a disaster…

He also said “the glass clad buildings have the insulation value of a sheet of cardboard”

Loyd Alter, Don Smidt and Elsa Lam appeared together on The Current. Don Smidt seemed to support Loyd Alter’s statement. I’m worried that glass clad buildings will impoverish the people of Toronto – I hope I’m wrong.

#141 Cato the Elder on 11.03.14 at 5:43 pm

Re: #126 AB Boxster

Then you don’t understand free markets.

The only way to acquire wealth in a free market is to provide a good or service to your fellow man that they VOLUNTARILY purchase.

This makes both parties better off, or they wouldn’t do it.

How can this be immoral? This is the greatest system ever devised by man to advance their standard of living.

Prior to the acceptance of this mechanism which worked IN UNISON with the inherent HUMAN NATURE of pursuit of self-interest, there was rampant poverty.

The only way to acquire great wealth in the past was through THEFT. General, dictators, and organized syndicates would extract great fortunes through plunder, manipulation, and violence.

Why do you think it took us millions of years since the first human, and thousands of years since the advent of agriculture, to get to where we are today? The only real progress human kind made was really in the past few hundred years after these free-market policies of contract rights, impartial law, individual rights and property protection were instituted.

The problem is we’ve been devolving back into that system of government confiscation that was relatively restrained in our early history.

Human liberty is a YOUNG concept. It hasn’t been around for long. Yet you owe EVERYTHING YOU HAVE IN LIFE to it.

I can’t stand people like you not understanding the role real freedom has in providing us with everything we have.

What we have, and what you are probably advocating for more of, is crony-capitalism/fascism. Big government and big business working together in concert to limit competition, rescind civil liberties, rewrite contracts, and confiscate wealth through taxes and burdensome regulations.

Shame on YOU. I will not allow people like you to continue to tarnish the reputation of free markets. Free markets are the only moral system devised by man.

#142 Soon in Canada on 11.03.14 at 5:47 pm

The National Association of Realtors (NAR) today reported that first-time homebuyers plunged to the lowest level in 27 years.
Solution:
A U.S. housing regulator plans new steps to encourage banks to lend to buyers with less than-perfect credit scores, according to two people with direct knowledge of the matter.
Watt will also discuss an effort that would allow borrowers to put down as little as 3 percent of the purchase price on loans backed by Fannie Mae and Freddie Mac, the people said.

#143 Maywood Oracle on 11.03.14 at 5:49 pm

Hey Garth,
looks like you and BOND KING (Bill Gross) are having the same thoughts: https://www.janus.com/bill-gross-investment-outlook

#144 Ken Nash on 11.03.14 at 5:58 pm

It is such a relief to be able to read Garth’s posts now. No more where’s the antacid like before. I used to be affluent and didn’t get there being lazy. 9/11 took out my main finance business partner. I carried my staff for a year, hoping to restructure. Enron trashed my dot.com balance sheet customers. Cost to me about $800,000 carrying staff. Stuff happens. Because of this blog in the past 5 years I have sold: 1,300′ condo Front&George (loved that place, a rental house in Scar ( fear of the self-declared mortgage types) and 2,500′ Edwardian house over looking the Rouge Park (too car dependent). Bought a small bung close to a transit hub three years ago. Three months ago, reading this blog, sold it too. All the real estate I made good returns own. But also know that doesn’t it will always be so. It was costing $2,000 a month. Now I rent for $1,300. No debt, money to reinvest for when I can’t work. I’m 58 and starting over again. Which is okay it’s way better than the alternative. Thank you Garth Turner. I still laugh over “Safe word Yellen” lol

#145 Dr. DoLittle (I'd arther talk to the animals) on 11.03.14 at 6:10 pm

“Shame on YOU. I will not allow people like you to continue to tarnish the reputation of free markets.”

There you have it all. He feels powerless so he will rail pointlessy on the internet and attempt to exert his non-existant power (he won’t allow you). Circurlar, conspiratorial, nonsensical, simplistic arguments by an envious little person who thinks he is much smarter than he is. Sadly as long as he continues this thinking he will always wonder why he is without power or wealth but continue to blame everyone else he can point to for his own shortcomings. What a shame.

#146 Dr. DoLittle (I'd rather talk to the animals) on 11.03.14 at 6:12 pm

arther rather I never could type.

#147 Mike S on 11.03.14 at 6:24 pm

“I’d go even further… stagger it from 5% to 20% as the prices get up to the $1M mark.”

I believe the government would be going slowly in this / similar direction, in order to reduce CMHC risk overtime (to maybe manage a soft lending somehow)

However, the elections seem to get in the way.

#148 Mike S on 11.03.14 at 6:54 pm

Oil price don’t matter anymore, Calgary just discovered a new type of economy. They are going to sell each other houses until everybody gets rich, just like us here in the GTA

#149 Doug in London on 11.03.14 at 6:58 pm

Sooner or later, this housing Ponzi scheme will end. Let’s hope it happens before the next election, so the next government (if the Conservatives don’t get back in) won’t get wrongly blamed for it.

#150 Josh in Calgary on 11.03.14 at 7:34 pm

#18 VanDammeCouver,
From the sounds of it both you and your wife have jobs that offer the flexibility to work in any city you chose. My recommendation would be to chose the city you want to live in, not based on the housing prospects, but many other reasons. First of all try landing a good job in one of the cities you want to live in. Once you’ve landed that job then move there and rent while you test it out. If you love it and your job seems steady (solid chance of not moving on for 5 + years), then buy a house.

Otherwise hold onto that flexibility. It can be as valueable as any asset. My rule of thumb is not to buy a house until you are confident you will remain in one place for over 5 years. Otherwise your realtor fees alone will eat into any financial benefit of buying vs. renting.

#151 AB Boxster on 11.03.14 at 8:36 pm

#142 CATO

Then you don’t understand free markets.
____________________________________
Actually for once you are correct.
But neither do you.

Free market theory is just that ‘a theory’.

There are many theories in the world that man uses to explain his systems and processes.

Ever wonder why the stock market is never perfectly valued or perfectly priced?
Theory explains that it should be.
Reality is that stock markets are driven by ‘imperfect information’, emotions such as ‘illogical exuberance’, fear, greed as much as they are governed by any theoretical pricing models.

There has never in the history of mankind been a free market, and there never will.

Free market theory is a great tool to understand the concept.
But in reality, since economics it is a system of mankind, then the same emotions and human foils that have existed since man started to barter and trade, influence this system.

Yes, free market theory can be used to describe many of mankind’s economic successes.
There are other circumstances where free market theory has no relevance and where the theory is essentially useless.

Your error is in continuing to expound that this ‘theoretical model’ that describes an ‘idealized view of the exchange of goods and services’, is somehow a solution to all of the worlds problems.

Your other error is in assuming that any others, who disagree with you, must therefore, as you say

.. “probably be advocating for more crony- capitalism/fascism”

While many may not believe that the nice little theory of ‘free market capitalism’ is that solution to all of the world’s ills, to suggest that we must all be happy with the current state of things is misguided on your part.

I suspect that most people understand that in a complex world, where there are complex relationships between very different individuals, all with complex and competing goals, to suggest that all can be solved with your simplistic :

“Free markets will save us all”

solution ultimately fails the test.

Reminds me of a movie where the only answer to all serious world problems was:

“Cause Brawndo’s got electrolytes”

#152 What Could Go Wrong? on 11.05.14 at 12:14 pm

[…] Garth Turner explains it this way: […]