The bubble

dog_bubble modified

Almost two decades ago I started a company making TV shows for the networks. We had an investment show (of course), a dog show (natch), a real estate show (long before house porn was mainstream), a motorcycle show (my fav) and even a show for hormonal, dope-smoking, skateboard-terrorist youth (the ad guys loved it).

We built a fancy studio in a downtown building and eventually I sold a big hunk of the operation to a mutual fund. But not before trying out Internet TV and pioneering in streaming media, which was cool at the time. We bought a truck, put a studio inside, screwed cameras on the roof and went live, wireless.

Not two days after the first broadcast (there were actual news anchors in the truck) I found myself at lunch in the King Edward hotel being wined by executives from the country’s biggest telecommunications conglomerate. We love it, they said. Let’s talk deal. So we did. And my investment of a hundred grand or so in the truck, the gear, the staff and bandwidth suddenly looked like it was worth millions. Many of them. Hoya.

That was 1998. Nortel was dominating the TSX and within two years would peak at an astonishing $124 a share. Dot-com start-ups were the stuff of legend, with companies like pet.com, Webvan and eToys juicing investors who pushed valuations higher and higher for companies that were throbbing, promising, visionary, but profitless. Like my truck full of servers and anchorettes in eyeliner.

Well, we know how that ended. The big dot-com guys flamed out. The tech-heavy Nasdaq lost 80% of its value. Nortel was trading at 39 cents nine years later and my zillion-dollar deal evaporated once the TV execs sobered up.

NORTEL 1

The point is, all of us were bewitched by a bubble. As markets, asset values and adrenalin shot higher, so many forgot the fundamentals of how money is made and things properly evaluated. Momentum alone was not enough to sustain markets as prices detached from both the economy and common sense. Looking back now, the outcome seemed so obvious. But it escaped an entire society.

The dot-com days aren’t that unique. Regard China. Market reform there caused the Shanghai exchange to record a 53% gain in 2014, followed by a 54% surge last year. You know what happened next – a riveting collapse that tanked global markets late last summer and autumn. Why? Investors jumped on a speculative bandwagon, forgot the nature of risk and bought assets because they were going up, not because they were worth it. They weren’t.

“Investors fail consistently to anticipate the top of any rapidly accelerating market,” says my colleague and portfolio manager Doug Rowat. “This is because markets almost always overshoot their historical valuation ranges and momentum becomes a very difficult factor to build into forecasts. To assume you’re gifted enough to repeatedly time a bubble’s peak is fallacious and dangerous. You’re just as likely to sell too early and miss considerable upside or buy too late and suffer the declines.”

Of course, this brings us to Canadian real estate.

“The price of real estate on the west side is starting to look like the Shanghai Composite Index,” says Linda in Vancouver.  “With the bubble on the bubble. A friend sold a renovated knock down on Blenheim (busier street) for $2.1 million (33 by 110 foot lot, smaller than average) which was $350k over asking.

“The entire lower mainland has gone parabolic.   30% gain year on year, lots selling in Burnaby for $1.4 to $1.7 million. Honestly, don’t know what to think anymore other than leaving Vancouver would be more attractive.  I don’t want to go to Toronto either. It’s more and more impossible to attract talent here. If and when it does blow, OMG, what are people going to do then?”

Van, and steamy parts of the GTA, are in classic bubbles. Houses aren’t rising because they’re more valuable to replace, but due to unbridled societal speculation. Valuations aren’t increasing because wages and salaries have jumped, the local economy’s buzzing, mortgage rates are dropping or credit is expanding. Nor are offshore buyers, flipping realtors or assignment clauses to blame for propelling crap houses over the $1 million hurdle.

Just as dot-com stock far surpassed justifiable levels based solely on sex appeal and demand, so has residential real estate become riddled with risk, ripe for revenge. Real estate’s seen as the elixir for the masses, an always-winning lottery ticket and a riskless play. Children expect better houses than their parents ever had. Renters are told they’re morons. Moms turn into banks. The herd moves as one. When numbed, brainwashed posters come here to predict single-family Van houses will average $5 million in five years because, you know, they’re going up, it’s clear where this is headed. The wall.

When prices flatline and fall – whether it’s a terrifying descent or a sickening grind lower – equity will be peeled back to reveal the largest pile of debt in Canadian history.

Later, it will seem so obvious.

232 comments ↓

#1 Steve on 02.18.16 at 5:34 pm

We the poor average canadian never wins at these games / the rich only do as now they are buying up all the real estate / it’s all a scam / to make the average Joe feel rich

#2 But... on 02.18.16 at 5:36 pm

But, but but but I ask: explain then why it is still going up?

#3 salonist on 02.18.16 at 5:38 pm

the bath
https://www.youtube.com/watch?v=V4LnorVVxfw

#4 Fort Mac bubble burst on 02.18.16 at 5:39 pm

First

#5 trollski on 02.18.16 at 5:40 pm

garth, you always say later
give us a date…

so we can pounce….

#6 Londoner on 02.18.16 at 5:41 pm

Despite the justifications provided for interest rate normalization and house price declines the reality is that neither of these things have occurred. Central banks and governments both understand that in western economies the path to continued economic growth will only come from consumer spending (as is evidenced in it’s contribution to GDP). Therefore incentives for credit expansion (e.g. via mortgages and loans) at low interest rates are promoted to encourage consumer spending. The policies aren’t designed to drown households in debt but rather to maintain a balance between credit growth and asset value increases so that consumers will continue spending at a rate which stimulates economic growth. This doesn’t mean that governments will step in to rescue indebted households, should they over extend themselves, but neither does it mean that they will introduce policies that will suppress asset values or risk their devaluation. Maintaining asset values, whether that be an investment portfolio or a house (or both), is a key driver of consumer confidence. The lesson learned by central banks and governments from the GFC is this: should consumer confidence wane then it could lead to severe economic contraction. And it’s for this reason that interest rates will remain at a low level for the foreseeable future. Whether these policies will prove successful or not is another story.

#7 James on 02.18.16 at 5:41 pm

So do we trust the latest data or is it still skewed because of the top end of the market?

Sure seems like the rocketing prices in the last couple of months is the hockey stick before the black diamond descent.

#8 MSM-Free Zone on 02.18.16 at 5:43 pm

Seems like Nortel and CREA have at least one business practice in common…….falsifying data to the general public.

I’m guessing only jail time will curtail this practice.

#9 MF on 02.18.16 at 5:47 pm

#203 Ronaldo on 02.18.16 at 5:13 pm

Yeah I saw how it went up last time. But remember back in 09 there was the China story. China was expanding like crazy and building all these cities and using all this material that companies like Teck were providing. That narrative is no longer here because we know China is slowing down and those cities are ghost cities.

MF

#10 everythingisterrible on 02.18.16 at 5:47 pm

Still waiting in YVR, people have only been calling this top for 6 years. Maybe in another 6 more we will actually see a correction materialize.

#11 Rick on 02.18.16 at 5:49 pm

First!

#12 paul on 02.18.16 at 5:50 pm

Later, it will seem so obvious
————————————————————-
Later is code for two years ago.

#13 Penny Henny on 02.18.16 at 5:51 pm

Today’s photo.
Dog bursts bubble. Within the bubble we see a image of a home. Therefore dogs will burst the housing bubble.

#14 Omar on 02.18.16 at 5:52 pm

On point

#15 Iza Dabiza on 02.18.16 at 5:53 pm

Hey Garth.

I bet you enjoyed The Big Short. I did.

Iza.

#16 Fzzzz on 02.18.16 at 5:54 pm

A motorcycle show? No Way!

Is it on YouTube as per reruns?

#17 be it as it may... on 02.18.16 at 5:54 pm

2006 sure looked like a good time to buy real estate
followed by 2007, 2008, 2009, 2010, 2011, 2012

and you know what comes next
2013, 2014, 2015,…

POP?

#18 Penny Henny on 02.18.16 at 5:55 pm

We built a fancy studio in a downtown building and eventually I sold a big hunk of the operation to a mutual fund. But not before trying out Internet TV and pioneering in streaming media, which was cool at the time. We bought a truck, put a studio inside, screwed cameras on the roof and went live, wireless.-GT

Garth, did you start naked news?

#19 Deadly Bird of Prey on 02.18.16 at 5:55 pm

House prices are going up in Calgary!
http://www.findcalgary.ca/listings?pathway=127&pageId=19

#20 Victoria Real Estate Update on 02.18.16 at 5:59 pm

CALGARY UPDATE

Calgary (median) detached house prices were down 4.3% year-over-year in January (source: Calgary’s R/E board).

Even the Calgary board’s frankenumber benchmark price for detached houses shows a 2.9% year-over-year decline.

Of course, many consider the frankenumber to be upward biased and that means the actual price decline for detached houses in Calgary was likely more than 2.9%.

The top is in and a down market has been established in Cowtown. A major price correction will take prices down further than any Canadian economist or housing “expert” has predicted.

As an up market turns into a down market there is a big change in the psychology/attitude of buyers and sellers.

Buyers back off while sellers begin to realize that holding out for a higher price won’t work. Sellers accept lower prices and this helps to bring the market down.

The behaviour of Canadians hasn’t been unique as house prices increased due to bubble-blowing policy. Buyer panic has helped push prices higher. In the same way, panic selling will pull house prices down. The negative effect of panic selling can be greater than the effect that panic buying had on the market. The result is a deep price correction that has devastating effects on the economy for years.

House prices have crashed before in Canadian cities and nobody can rule out a price crash for Calgary this time.

Hard lessons will be leaned in Canada. It’s inevitable.

#21 Londoner on 02.18.16 at 6:01 pm

There was an article on the BBC the other day about how the average first time home buyer in the UK will have a “£50,000 rent bill” before purchasing their first home. In fact one of the people they quoted stated how thankful they were that they had purchased a property as it meant that they had stopped throwing their money at someone else. The message is clear – the implication is that money is being wasted. Using the £50k figure is meant to shock people. Housing contrarians have to be aware that they’re facing a battle against a highly motivated and well financed machine.

#22 Tellmethetruth on 02.18.16 at 6:02 pm

When,exactly, will Burlington RE pop. I need to move; current neighbourhood is not good.

#23 MoneyDriven on 02.18.16 at 6:02 pm

Garth thanks for the blog.
Would you please give us even a RANGE of what you expect in terms of correction? You seem to throw the 7% return on ETF around confidently but not provide any quantified number regarding duration or severity of the YVR housing correction.
Do you expect the correction to go back to even Jan 2015 prices? ( -20%-30%)

Thank

#24 hope & ruin on 02.18.16 at 6:02 pm

Not sure where I saw this. May have been here.

US Millennials would rather rent than buy.

It’s like bizarro-Canada.

But US millennials got burned bad. Not sure a slow melt will have the same effect for Canadians.

#25 Peter on 02.18.16 at 6:04 pm

When U.S. interest rates went up, the Hong Kong R.E. market started tanking. Only low interest rates courtesy of the Bank of Canada, are keeping Vancouver and Toronto house prices afloat.

#26 OttawaGuyRenting on 02.18.16 at 6:05 pm

We all talked back in 97-2001 about “rebel.com” and “newbridge” here in Ottawa like I hear friends talk about “remodels” and “flipping” now

Funny what was left after all the “Silicone Valley” North hype here…
A few smart millionaires and most people “hedged” to the “upper chest” area in stock options and loans that both couldn’t be covered.

Tall tales of get rich schemes after a night of rubbing ecstasy on their gums at Ottawa night clubs turned to beating the pavement wondering how the river of money dried up. Long summer nights of partying and sleeping in open concept offices to grind out code the next day became the lore of yesteryear.

Nortel left a gaping hole of dreams and shattered expectations as big as the houses they built in Manotick and Rockland.

Poof the magic was gone.

Riding realestate like riding the dragon will leave you scraping the barrel and anticipating glory in the murkiest of all the markets. The drug is addictive and the end result could be the same.

#27 Penny Henny on 02.18.16 at 6:05 pm

Renters are told they’re morons.-GT

Sometimes you have to tell them twice cause they are dense.

#28 Fred on 02.18.16 at 6:05 pm

Brilliant post

#29 Rental Income on 02.18.16 at 6:06 pm

A simple question for blog dogs:

Is it true that rental deductions can pretty much offset rental income when in Canada you can deduct home insurance, mortgage interest, utilities, maintenance and repairs, landscaping, advertising, travel regarding the property, etc?

I have landlords that combined make 200k with a 600k house. They charge 2300 for the house (all in, utilities, cable, landscaping account for 650 of it).

On an ROI calculator, it looks like a crappy return. But since all of the above expenses are deductible, aren’t they making our like bandits – even with high marginal tax rates?

#30 Serena on 02.18.16 at 6:07 pm

Numero uno!

#31 VanRant on 02.18.16 at 6:08 pm

Housing in Vancouver as well as Toronto has gone mad. It will take up to 12 times (or more) the income to buy a house in Vancouver where the average household income is around $70,000. Where did the money come from?

#32 Balmuto on 02.18.16 at 6:09 pm

I remember guys talking up Nortel stock all the way down to zero. “Their cash holdings alone are worth more than the market cap of the stock! It’s oversold! It’s a screaming buy!” Any time you hear the “but the stock is trading below cash value!” argument, run for the hills.

#33 Lulu on 02.18.16 at 6:10 pm

All these 300k or more over asking clearly is not the local buyer can afford, it seems the off shore buyer are in power in those range, It’s horrific to see these price increase within year after year, 30% a year? And BC government can’t do anything about it, or can’t they?

Wanna bet how long this is gonna last? Oh! don’t forget all these high price real estate got no mortgage, all in CASH!!

#34 Chopper on 02.18.16 at 6:12 pm

Y’all listen to de man de man is right you no!!!

#35 RimJabba on 02.18.16 at 6:18 pm

Garth, looks like the central bankers are now toying with the idea of NIRP – negative interest rates. What are your thoughts?

I was reading an article about how this will oddly enough drive up consumer lending rates as the banks will now have to pay to keep their money at the central bank. This will also crush small banks.

Thoughts? Anyone?

Never NIRP in NA. — Garth

#36 Shaun of the dead on 02.18.16 at 6:21 pm

Interesting post today. Thanks. Begrudgingly (I hate the thought of encouraging SM), I suggest that the idea of momentum must figure strongly in Smoking Man’s herdonomics idea he’s been stumping for a couple of years now.

#37 greyhound on 02.18.16 at 6:21 pm

Two interesting quotes —
In today’s blog,
Doug Rowat: “To assume you’re gifted enough to repeatedly time a bubble’s peak is fallacious and dangerous. You’re just as likely to sell too early and miss considerable upside or buy too late and suffer the declines.”
And an old favourite —
Nathan Rothschild: “I never invest at the bottom, and I always sell too soon.”

Baron Rothschild thought it was good enough for him to “sell too early and miss considerable upside,” and he was one of the most successful investors who ever lived.

#38 sanddancer on 02.18.16 at 6:23 pm

You continue to underestimate the effect of foreign investment in the yvr real estate area !!
A large percentage of buying in the high end areas are allowing people to ” cash in “. These people are moving into the burbs, with cash, buying what they want and still putting money in the bank. This is why prices have moved out of wacky from economics.
To minimize this is doing a disservice to your readers….thus is happening and you really need to acknowledge it !

There is no statistical evidence showing foreign buys exceed 5% of all trades. — Garth

#39 Bytor the Snow Dog on 02.18.16 at 6:23 pm

@Garth about my post- I could have posted something REEEEEEEEEEEEEEALLLLLLYYYYY stupid like “FIRST”!

#40 Panhead on 02.18.16 at 6:28 pm

Like Elton John once sang … we’ve all gone crazy lately …
Largest real estate transaction in BC history announced today … Bentall towers sold to the Chinese. I hope Barney made out like a bandit … saw him rockin’ at the Breakers years ago while drinking cheap Yankee beer … any of you dawgs know why drinking Yankee beer is like having sex on the beach? Cause it’s f—ing near water.

#41 espressobob on 02.18.16 at 6:33 pm

Us globally diversified investors have more upside potential than some realize.

Most professional mutual/hedge fund managers underperform. It seems it’s what they do best.

DIY stock pickers are another breed. Usually day traders in drag and generally suffer more. Pity.

#42 Mark on 02.18.16 at 6:35 pm

Shanghai Composite Index? When I look at, its down some 50% from its 2008 peak, and down 30% from a smaller peak last year. Although Vancouver prices haven’t moved much since 2013 (“averages” only going up on account of sales mix shifts), I don’t think comparing Vancouver RE to the Shanghai index really has any basis in reality.

For those who want to, take a look at the chart:

http://finance.yahoo.com/echarts?s=000001.SS+Interactive#symbol=000001.SS;range=my

Despite the people running around claiming a Chinese stock market bubble, that chart doesn’t look bubbly at all.

Wanna bet how long this is gonna last? Oh! don’t forget all these high price real estate got no mortgage, all in CASH!!

Not a shred of evidence to support such. The locals buying are mostly credit junkies. Such as that Realtor who was cited in the Globe and Mail owning some 15-20 Vancouver properties.

#43 acdel on 02.18.16 at 6:40 pm

I am conflicted on how to respond Garth; at least you tried and gave it a shot! C’est la vie! After all you have all of us following you.

RE, unfortunately for many (not all and kudos’s to you) is a Nortel or a Bre-X for many individuals who have not educated of the forgotten bubbles of the pasts ; it is down right depressing; after all we are all in this together! Sh*t!

#44 Snowboid on 02.18.16 at 6:42 pm

29 Rental Income on 02.18.16 at 6:06 pm…

We had an investment duplex which we rented out at $ 1200 a side – but only paid $195,000 for both sides, so the $2300 a month on a $600,000 home is pretty poor alright.

It’s true you can deduct most expenses from your rental income, but looking after our own home as well as the duplex took a lot of our time and finding good tenants was hard and they never stayed long.

We had one tenant that became the focus of a major Kelowna news story of the day for his scams (lengthy record and using false name plus phoney references) and we ended up on the short end.

Luckily when we sold we gained about $60K after realtor fees, lawyers and capital gains – but we had it for about 7 years.

I wouldn’t recommend considering a $600,000 home bringing in $2300 a month a good investment – even with the deductions there are much better options for better returns (and a lot less work).

BTW, we could rent out our Phoenix home for about $2500 CAD a month and it’s only worth about $300,000 CAD!

That would be a good return, but then we have to file US tax returns – too much hassle considering our past experience with renters – but the rent gives you an idea of how skewed RE prices/rents are in Canada.

#45 mitzerboy aka queencity kid on 02.18.16 at 6:42 pm

talk abouta bubble
we might have one out here

gonna be a early – dry spring to boot

#46 Mark on 02.18.16 at 6:43 pm

“Is it true that rental deductions can pretty much offset rental income when in Canada you can deduct home insurance, mortgage interest, utilities, maintenance and repairs, landscaping, advertising, travel regarding the property, etc?”

That’s only true if the rental income is low compared to the expenses. Which means that it really isn’t much of a viable investment. If a RE owner isn’t paying income tax on account of their deductions, it most likely means that they aren’t earning much of a return on their asset.

The whole point of an investment, including that of investment real estate, is to earn taxable cashflow. Indeed, the net present value of a property, in the eyes of an investor, is the value of those after-tax, after-expense, after-depreciation cashflows. If there’s no taxable earnings, the landlord isn’t making any money over the long term. And given that its trivial to buy, for example, a professionally managed REIT, or an index fund like XIU that has substantial positive earnings net of all expenses and taxes, an owner of such unit is also suffering significant opportunity costs on their equity.

Of course, a landlord can claim excessive expenses, but those will not likely be legally defensible when the CRA inevitably takes a closer look and starts asking questions. A strategy based on stretching the truth of reasonableness when it comes to tax deductions is most likely not sustainable in the long-term.

#47 salonist on 02.18.16 at 6:44 pm

There will be another financial crisis. The only question is when?

In Denmark and Switzerland, banks have to pay to place money on deposit with their central banks. Some are passing this on to customers by, for example, increasing mortgage rates. And why is that important? It means that central bank monetary policy decisions that have been designed to stimulate the economy are actually resulting in a tightening of credit. This is, needless to say, far from ideal. It could be among the first, faint signs that the world’s central banks are running out of room for manoeuvre.

http://business.financialpost.com/news/economy/there-will-be-another-financial-crisis-the-only-question-is-when

#48 MF on 02.18.16 at 6:45 pm

#35 RimJabba on 02.18.16 at 6:18 pm

“Never NIRP in NA. — Garth”

I hope so. If they implement this I-F’d up complete admission of failure policy I will be tempted to go tin foiler.

Here’s an idea for them: Raise- yes Raise- rates to give people some income to buy chit with, and at the same time inspire some confidence in the system again. How hard is that to comprehend for these idiots?

MF

#49 Godth on 02.18.16 at 6:54 pm

It’s all part and parcel of the same phenomenon. Financialization, credit bubbles, debt saturation – the stalling, range bound stock markets too (now that the Fed.has turned off QE and is trying to raise the dead). Capital in this environment is in flight for safety and everyone knows that real estate is real (whatever that means). To separate any one thread from the post glass-steagall, deregulated, financialized wild west speculative bubble world from all the other threads is folly. The whole world of economics and risk is madness. Of course it’s particularly mad in certain places where people compete for a place to sleep, shag, shit and shower but that’s still just a symptom of the larger insanity.

Meanwhile reality marches on relentlessly amidst the broken world of theory, ideology and delusion:
http://business.financialpost.com/news/economy/oecd-downgrades-global-growth-says-worlds-economy-needs-urgent-fiscal-response-from-governments

…and yet the rich get richer. I foresee utter chaos like rolling brownouts that turn black. It’s obvious this isn’t working nor will it continue to work. Some sort of debt jubilee may work in the short term to save this quasi-capitalism from itself but it’s obviously doomed.

Chaos; the mandate of heaven; the age of the artist and intellectual; the age of commerce, corruption and greed; chaos.

#50 paul a on 02.18.16 at 6:56 pm

some thoughts on bambo. i am thinking this one may be a keeper with some conditions attached to additional public funding T2 gang take note (1) some corporate governance
the public purse needs to have meaningful and enforcable representation on the board (2) there needs to be solid and enforcable job guarentes for Canadian employees (3)
fed funds should be granted only in return for class “A” equity positions in the company , similar to the auto shares for cash deal of the late 2000’s note the public purse won in the end on this one. also this method will provide a work around in the event of wto disputes
in short we have a history repeats in the aviation industry this is not unlike the avro arrow story, once again we have a world first in class aircraft in its application and potential market most experts describe as being some 7000 potential orders so in short this looks like a possible winner as for pledging the public purse.. only with very careful controls and conditions i fully expect the T2 gang will pony up here the question is will they demonstrate competent corporate governance whilst opening the public purse ……. comments please

#51 Vancouver Troy on 02.18.16 at 6:57 pm

“We the poor average canadian never wins at these games / the rich only do”

Steve

Why do people keep repeating this mantra? To let themselves off the hook for not investing?

I live in Vancouver, make a very average income and have slowly worked my way up the real estate ladder over the past 15 years.

You don’t have to invest in over priced houses. When they were cheap, I bought houses. When stocks were cheap I bought stocks.

#52 Nagraj on 02.18.16 at 6:58 pm

Why is that wonderful family business, TombaLaBomba Inc., at home in one of our prettier provinces, in trouble?

Answer: because youse people aint stockin up on skidoos or snowbomiles or little aeroplanes or what have you.
EVERY Canadian family should have a big house, and a huge garage with at least several gasguzzlers in it AS WELL as an assortment of skedaddle contraptions that go fast and make one hell of a racket. (Not to mention two chickens in every pot.)

What IS the problem? Here it is: youse people fail to grasp the importance of gazoline. Gasoline: the more you use, the better Canadian GDP.
THE MEN OF ALBERTA have done their utmost to demonstrate the importance of tanking up. They bought theyselves every conceivable sort of gasoline contraption – but did you people follow their brave example? No, you did not. Au contraire, in Ontario there’s HOV lanes now. So now look at the sorry condition of THE BRAVE MEN OF ALBERTA.

That sorry condition has now infected TombaLaBomba Inc. Think of all those brilliant engineers and computerers and organizers who now have NO reason to design things around a gas tank.

I mean if yer not gonna go snowmobiling or skiddoing or skedaddling or – come to think of it, mountainclimbing boating hunting scubadiving marathoning dirtbikeracin or [who said: “flyin high in the sky with some guy is my idea of nuthin to do”] the WHOLE COUNTRY WILL GIT LIKE ALBERTA!

The very least youse people could do to help, [if fer some reason yas can’t git a loan for a snowmobile or a FFCC (fancy flying chicken coop)] is git inna car and drive round and round for no reason to empty the tank so’s you can fill it up again.

I hope I’ve made myself clear.

#53 Victor V on 02.18.16 at 6:59 pm

http://business.financialpost.com/news/energy/finning-to-cut-up-to-500-additional-jobs-in-2016-on-top-of-2015-downsizing-of-1900?__lsa=9fb5-6973

VANCOUVER — Canada’s largest Caterpillar heavy equipment dealer says it will cut 400 to 500 jobs from its global operations this year, on top of 1,900 that were announced last year in two separate rounds of downsizing.

Vancouver-based Finning International Inc. — which also operates in South America and the United Kingdom — says about 200 of the latest cuts are in Canada and the rest will be spread across its international operations.

Finning is grappling with the downturn in the oil and gas and mining industries, which are major users of the heavy equipment sold and serviced by the company in Western Canada and abroad.

#54 tundra pete on 02.18.16 at 7:00 pm

Ambulance chasers I tell you. A two bit lawyer chasing an ambulance holding out a business card. Blood thirsty vultures. Don’t sweat it, you will get your “told you so” moment with that brainwashed brother in law or real estate expert mother in law who needs to be schooled in the rule of 90. And a pathetic blog.

It is all just a matter of time. Honestly, the longer it lasts and the higher it goes, the bigger the bang when it all erupts into a steaming pile of oh shit. Lets just hope it doesn’t spray all the financially literate balanced portfolio holders skulking around this site.

Now go out and buy that multi million Vancouver knock down if you still think it’s the way to go. Hurry before CMHC hemorrhages all over and T2 has to burden us with more tax to pay for all the no minds.

#55 45north on 02.18.16 at 7:02 pm

Lulu: It’s horrific to see these price increase within year after year, 30% a year? And BC government can’t do anything about it, or can they?

it’s 50% July 2015 to July 2016. now is the time to act. The Federal Government has the authority ( and responsibility ): increase interest rates, tighten CMHC regulations.

and what’s it gona look like when it pops:

When prices flatline and fall – whether it’s a terrifying descent or a sickening grind lower – equity will be peeled back to reveal the largest pile of debt in Canadian history.

#56 Victor V on 02.18.16 at 7:03 pm

http://www.theglobeandmail.com/report-on-business/economy/number-of-alberta-ei-recipients-doubled-in-2015/article28798847/

Albertans doubled their membership in an unenviable club last year – the employment-insurance recipients’ club.

Year-end figures from Statistics Canada showed that Alberta had 62,480 people collecting EI benefits in December, up from 31,220 a year earlier, as the fallout from the severe oil slump continued to swell the province’s ranks of unemployed. The December count was up 2.2 per cent from November, marking the 15th-straight month in which Alberta’s EI numbers increased.

#57 Siva on 02.18.16 at 7:03 pm

Today I was looking for rental properties in the US and this is what I found. In a city of one million people, in the most desirable neighbourhood with best of schools that gets 9/10 rating a two bedroom, two bathroom 1700 sq ft condo costs $1600/month to rent. Comes with two covered parking. Condo is less than 10 years old. Same condo is also on the market for sale and asking is $120,000. With 20% down carrying cost is 650/month. Renter pays utilities. Rental income will pay off the mortgage in 15 years max.

A condo that generates $1600/month in GTA costs $350,000. It will be at the most 600 sq ft. Second parking is additional $30,000. RE in Canada is in serious trouble.

#58 oceanviews on 02.18.16 at 7:05 pm

yeah ok, I wouldn’t listen to this guy. look, I own 2 houses in vancouver bought in mid 2000s. every year he tells readers to sell sell sell & rent rent rent. when vancouver prices reached 1 mil, there is no way this is sustainable, it is insane, obscene prices. my houses are worth 2.2 each now .. even if they fell 50%, which would be consider a major drop, depression, they will see be worth 1.1 mil .. 200k more than when he told me to sell at 900k. not saying i will not ever sell, but you have to take this doom & gloom posts with a grain of salt sometimes!

Is greed the reason you do not sell? It certainly isn’t wisdom. — Garth

#59 greyswan on 02.18.16 at 7:15 pm

My definition of Foreigner is probably different from
people like Garth and leaders in Provincial and Federal
government.
Old stock understand this and the politically correct who put us in this situation will do to deny the sell out!!

Sounds like old stock has discovered inbreeding. — Garth

#60 Bram on 02.18.16 at 7:19 pm

whether it’s a terrifying descent or a sickening grind lower

So this is new: Garth is now hedging his bets.
No more ‘there will be no crash, it will be a prolonged slide down.’

A slide is more logical. But, events happen. — Garth

#61 Babbler on 02.18.16 at 7:24 pm

The only way that houses in Vancouver or Toronto will crash is if interest rates go up and that is NOT (no F$#^&*@ way) going to happen. If it did would all be in trouble. We’ll be in trouble eventually anyway, but the governments of the world, and the central bankers that do their bidding, will not allow it to happen in the short term. Kick the can down the road is what they’ll do. So, the world (not just Canada) will continue to inflate the debt bubble until it no longer can. Then, watch out.

#62 Randy Randerson on 02.18.16 at 7:24 pm

#25 Peter on 02.18.16 at 6:04 pm

HK RE price isn’t tanking, yet. So far, it’s more of 10 to 15% decline since the top in Sept 2015. There are prediction of 30 to 40% drop from the top later this year, but it’s all prediction.

#63 TFSA inkind on 02.18.16 at 7:25 pm

Do I recall correctly that from a non-registered self-directed I can deposit shares inkind into a self-directed TFSA investment account?

Thanks!

Yes, but gains are taxed. — Garth

#64 Confused on 02.18.16 at 7:25 pm

There is no statistical evidence showing foreign buys exceed 5% of all trades. — Garth

Don’t know how to take this. Believe some realtor stats and not others? This is getting tiring.

Show me ‘others’. — Garth

#65 WallOfWorry on 02.18.16 at 7:26 pm

Garth…if I am not mistaken you have called for a “melt” of the Canadian real estate market as opposed to a bubble bursting. If we do see a melt (say a 20% correction) which has been called for more than 6 years ago…while a concern it not really the end of the world? You would conversely argue that the stock market needs those 10% corrections to keep rally’s sustainable. I am more concerned about the macro economical factors that seem to me have a much higher risk profile and are outside of Canada (unlimited money printing, the out of control government debts that are not sustainable at current GDP levels etc). It confuses me that you focus so much on Canadian real estate yet also say that because of CMCH etc it will not be like the US housing correction. Therefore…who really cares?

#66 common sense on 02.18.16 at 7:33 pm

Garth is so right…

It’s not if of course it’s when….The same thing will happen to markets, etc the second government central banks stop talking up the markets, injecting more and more credit, and let markets take their natural course instead of mass manipulation.

Doom and gloom? No Reality 101. Garth said it best…too much debt in Housing here and in everything else most everywhere.

This year or next? It IS coming sooner than later. Be prepared and load up on shorts…if not, grab a 6 pack, sit back and enjoy the show…

Equity markets are reflect economic growth and corporate health. Real estate is a consumer item. The correlation is probably low. — Garth

#67 B riding dirty on 02.18.16 at 7:38 pm

Seems like all investors say the same thing. But I keep hearing a sink hole in what you say.

You cant time the markets.

But 6 Months later you claim the markets were over valued and set back to it historic level at 15 – 1 ratio.

Why did you not sell your clients out at 18 – 1 and re balance when it went back to the historic level?

Just saying!

Because it does not work. Refer to the recent post on this topic for proof. — Garth

#68 Bytor the Snow Dog on 02.18.16 at 7:40 pm

@59 greyswan-

HEY! Do I hear the banjo music from “Deliverance” playing in the background …

#69 YYZ on 02.18.16 at 7:43 pm

Stop asking Garth for when the correction will happen!

Have you not been reading what he’s saying, no one can time it. No one knows when it will happen, if Garth knew, he wouldn’t be here wasting time writing blogs. He would be buying or selling homes at all the right moments.

NOT POSSIBLE.

#70 acdel on 02.18.16 at 7:44 pm

#52 Nagraj

Ok, I’ll take the bait!

So you couldn’t make it in AB, people saw through your delusional crap and punted you, so sorry, grow up!

Oil still and will for many decades make the world go round; now, you condescending a* hole, do not take transit, no do not drive, not not fly, do not heat your home, do not buy groceries, do not buy cloths, do not see a doctor or dentist and all of many more, even your prescriptions that you should be taken is produced or transported by oil, and pay the wages for it. I would like to add many,many,many,many, did I say many, ok , maybe not enough, many, many, many more expletives you effing a****** but I would be sure that Garth would delete it or ban me!

#71 Jorge Pasada on 02.18.16 at 7:46 pm

I think a lot of people need to read this post again. In a bubble all bets are off. Garth can’t give how high a bubble will inflate nor can he give how low it can deflate. It’s a mania and no one can say how high or low the crowd will take it. Who would have thought prices would go this breathtakingly high? The slide the other way may just surprise the sh*t out of people – that’s the truth.

If you told anyone a few years ago that oil, which was $130 a barrel would see $30, they would think you’re nuts. Or that the Canadian dollar would go from $1.08 to .68 cents, or gold would go from $2,000 to $1,100…or my hockey card collection from when I was a kid would go to zero. Everything looks amazing and untouchable on the way up.

Let things happen. Stop breaking nuts. People called buffett an idiot when he said tech stocks were a bubble in the 90’s. He didn’t know how or when it would fall. Just remember not to try to catch the falling knife. Observe from the sidelines because when the trend reverses, it’s going to be ugly (in my opinion). I’ve never seen a bull market of 17 years before…

#72 Don Kreigan on 02.18.16 at 7:46 pm

30 year Canada bonds are now 1.91% and just 6 years ago they were 3.81%.

What happened to higher interest rates. This was the biggest mistake in forecasting by so called analysts.

A 50% drop in long term bond yields and people still are saying interest rates will rise.

Just like in November 30 year Canada bond yields looked like they were on an up trend at 2.45% from lows of 1.83% from Greece mess in January-2015 and we are back to square one again 1 year or so later.

Actually, they broker that low temporarily at 1.77% just last week.

The trend is lower lows and an rise, up movement is temporarily sustained.

#73 A belieber on 02.18.16 at 7:46 pm

the wise one, Godth

I foresee utter chaos like rolling brownouts that turn black. It’s obvious this isn’t working nor will it continue to work. Some sort of debt jubilee may work in the short term to save this quasi-capitalism from itself but it’s obviously doomed.
—————————-

oh wise one godth. Tell us what else can be seen in your crystal ball? for you foreshadow the TRUTH!!!!!!!!!

#74 sanddancer on 02.18.16 at 7:52 pm

By blindly relying on statistics the reality is being missed !
I have lived and worked in vancouver for over 14 yrs, the changes in the past 3 to 5 yrs has been unbelievable !!….I’m not saying this is right or wrong it’s just happening and in a significant way.
Vancouver is now the supercar capital of North America …a fact !, more sports cars are sold here than New York or L.A
The foreign $$ coming into this area is huge.

#75 the Jaguar on 02.18.16 at 8:00 pm

A slide is more logical. But, events happen. — Garth

….And one might add : The higher the descent, the harder the fall, and perhaps at warp speed.
The most fascinating aspect of waiting for the music to stop in Vancouver & the GTA is observing how seemingly intelligent people cannot see what is happening right in front of them and the impact it will have on their lives. To be fair I would throw in the Calgary oil & gas types who cannot see that their landscape has changed if not on a permanent basis at least for a significantly long cycle. All the evidence is there, just as Garth lays it out on the blog, but the failure to grasp the facts and deeper meaning is really something. No man is an island as they say, and everyone will need to adapt to the change in our standard of living in Canada. But the recklessness is really something if you are paying attention. Some of us more so because we have a ringside seat.
Guess I can only execute my own strategy for a wonderful life.

#76 greyswan on 02.18.16 at 8:02 pm

You and the so-called leaders have lost the trust of many
Canadians!
…time for a business leader to take over…not political class!!

Trump the excommunicate? — Garth

#77 Godth on 02.18.16 at 8:04 pm

#52 Nagraj on 02.18.16 at 6:58 pm

It was always a short term dream built on false hopes:
The End of Suburbia
https://www.youtube.com/watch?v=Zu3n2B4B5CQ

Whatchagonnado? We is what we is. I can’t blame people for living it up and having a good time, I love that shit…but, but too much of a good thing isn’t the same thing. Particularly when others have to pay the real costs, whether they be foreigners or future generations. Of course we’ve gone so far overboard it’s incomprehensible to most people. Gas is cheap!

Sing the national anthem, say a prayer for the troops, curse the evil brown or black people and party on dude!

The tar sands don’t even come close to having the EROEI necessary to maintain our dystopian dreamscape but it’s easier to just believe.

Apparently we need to shut in 90% of all remaining fossil fuels on the planet to have a viable biosphere for future generations. I don’t think these people have thought this through at all – plenty ‘o pixie dust though.

Meanwhile in the ball park of reality we’ve screwed ourselves either way. Party on dude!

Microbes in a petri dish.
http://www.vox.com/2016/1/30/10872878/world-population-map

https://www.youtube.com/watch?v=R_9WSnnBmS0

#78 MF on 02.18.16 at 8:07 pm

57 Siva on 02.18.16 at 7:03 pm

Wow what a difference eh?

Where were you looking if you don’t mind me asking?

MF

#79 sanddancer on 02.18.16 at 8:10 pm

On this you are wrong…dismissing it won’t change the reality

#80 Chris in Nanaimo on 02.18.16 at 8:10 pm

There is no statistical evidence showing foreign buys exceed 5% of all- Garth

…….We know…

..but something doesn’t add up for me. Look at all these insane biding wars, hundreds of thousands over the Asking price! To me that indicates these are buyers with access to easy cash….is the Bank of Mom coughing up these extra hundreds of $$$k at a moments notice? Or have we got buyers with pre-approved mortgages way larger than their initial bids?

Crazy.!….follow the money I say…..any stats on how these homes are being paid for?

#81 Julie K. on 02.18.16 at 8:12 pm

Ugh.

Dot com.

Flashback happening…

Bought Ballard @ $120 or so a share.

200 effing hun of them.

Inside my RSP.

Did not pay dividends either. It was all about the promise of a hydrogen fuel cells replacing fossil fueled engines inside all our cars and busses.

Still holding them so I haven’t lost a dam cent, right?

Right?

Around the same time picked up a few shares of 360Networks. You know, the guys that were going to run high-speed cable under the Atlantic Ocean. Or maybe it was the Pacific.

At least I can look back and laugh about it now.

#easycomeeasygo

#82 IKnow on 02.18.16 at 8:16 pm

Garth

You are still saying there will be no crash of the Vancouver house prices, right?

Nortel moment is not the same as Vancouver house price crashing, right?

Just checking

#83 Frank on 02.18.16 at 8:16 pm

Question: bubbles take 2-5 years to inflate and as many months to pop. How come Vancouver is 15 years in the making? It looks like no other bubble, if it is one.

#84 TQDNCC on 02.18.16 at 8:16 pm

That was 1998

Actually, it was spring of 2000.
WorkdayTV was but a brainstorm in the winter of 2000, and the truck was parked on Front Street (at Simcoe, I think…NE corner) in the spring of the same year. Yes, it uploaded a live produced wireless stream to a datacentre down the road. It was indeed a leading edge assembly of off-the-shelf components to do something which hadn’t quite been done before – cool stuff. Getting Stockwell Day in the truck for an interview was a good score.
Anchorettes in eyeliner? Maybe one…just HC. Not so much for DG and DG….good crew.

#85 Mike in Toronto on 02.18.16 at 8:20 pm

#5 trollski on 02.18.16 at 5:40 pm

garth, you always say later
give us a date…

so we can pounce….

The time to buy will be when people are sick to their stomach from real-estate. When people can barely find jobs to pay the rent, much less get credit to buy a home. When the sellers have held on through pointless showings, endless negotiations and years of drought. When the sellers begin to regret ever buying. After people get past being desparate and resigned to the albatross around their neck that is their hopeless mortgage and stupid overpriced house. You’ll know it’s time to buy when people say real-estate is the death of the middle class, a lie, a path to ruin…

In other words, the time to buy is 1996 or once again in 2010 in the U.S..

#86 Property Accountant on 02.18.16 at 8:20 pm

Real estate is not some Nortel stock, whose value is based on future earnings. They do not make land any more, so houses in cities with millions invested in infrastructure, roads etc. will keep their value as long as there are jobs around.

Japan or Euro economies (where real estate values depreciate slowly or remain stable) can’t be compared to Canada as well – Immigration rate is negative or zero, populations are diminishing. In east Germany they give out apartments to renters for free, as long as they maintain them.

Canada’s population grows 1% every year, so should be the housing market. If correction happens, it will be rather long and subdued (if ever).

#87 Godth on 02.18.16 at 8:21 pm

#73 A belieber on 02.18.16 at 7:46 pm

Well, bleiber it’s not so different than being inside a bubble looking out – you don’t realize you’re in a bubble.

It’s not hard to imagine what happens when we strip the natural world bare (externalities in economic theories). There’s nothing new about it it, we have the privilege to learn from past civilizations and their downfalls but it appears that’s really not possible.

Monkey hierarchies, power, privilege and myopia tend to produce very similar outcomes over and over. This time it is different though: we can now know, and the scope and scale is unprecedented. We are in for one hell of a good time.

When the oceans are kapput so is civilization as we know it: https://www.youtube.com/watch?v=qX9uvyF58U0

Good luck bleiber, may you not become lighting fuel.

#88 Paul on 02.18.16 at 8:25 pm

http://www.theprovince.com/business/chinese+investors+snag+vancouver+biggest+real+estate+prize/11725989/story.html

#89 Smartalox on 02.18.16 at 8:29 pm

Talking to my financial planner today about re-balancing and charting a course forward.

We’re down about 6% so far this year, but up a couple of points over the last couple of days.

A lot of the funds I’m in were underperforming last year, mostly because they were sitting in cash, looking for (but not finding) good opportunities to buy.

Those opportunities have arrived, mostly for US industrials and financials.

He suggested that while oil is down, oil COMPANIES are still priced to reflect oil at $55 a barrel, not $30. It looks like there may be quite a leg down to go there, yet.

All I can say is, Yikes.

#90 BUBU on 02.18.16 at 8:34 pm

Because CHMC is up to $1M, I don’t think there are too many Canadians who can take a loan for over $1M in Vancouver so this theory is not valid in my opinion… Everything is based on foreign money or big corruption…

#91 The bubble - Realties.ca on 02.18.16 at 8:36 pm

[…] Source: http://www.greaterfool.ca/2016/02/18/the-bubble/ […]

#92 TFSA inkind on 02.18.16 at 8:44 pm

Do I recall correctly that from a non-registered self-directed I can deposit shares inkind into a self-directed TFSA investment account?

Thanks!

Yes, but gains are taxed. — Garth

Thank you.

The stocks were given to employees at the IPO 10 years ago, at that time the market price of the package was about 6K, today 24K. Would it be cap gain taxed for the 18K gain, like any other case?

Does it make any sense to move it?

The price pulled back a bit and moving sideways lately, but the company is expanding aggressively and it is openly a potential takeover target for some global industry leaders, in that case the price might jump considerably.

On the other hand, my income is in a high income tax bracket, I am not in a rush to sell, either because I need the money or because I want to switch it into other type of investment.

If it makes sense to take cap gain tax pain now, do I have the option to gift the stocks to my grown up kid to establish her TFSA investment portfolio? I know you would probably recommend in this case just to sell it and get her a balanced ETF portfolio.

Thanks again!

#93 B riding dirty on 02.18.16 at 8:47 pm

Tell that to the 62 richest families in the world who are doing a great job of capturing the gains then buying back in when it “re balances” then sells off at a high.

2010 took 388 families to control 50% worlds wealth

5 years later

2015 it takes 88 families.

They are doing something right, and its not making excuses.

Just saying!

#94 Mark on 02.18.16 at 8:47 pm

“Do I recall correctly that from a non-registered self-directed I can deposit shares inkind into a self-directed TFSA investment account?”

Not only are gains taxed, but capital losses are denied as a TFSA (or a RRSP) is considered a related entity per the rules.

Do your calculations carefully *before* proceeding if the cost base on your shares differs significantly from current fair market value.

The only way that houses in Vancouver or Toronto will crash is if interest rates go up and that is NOT (no F$#^&*@ way) going to happen

What about the scenario that is currently unfolding, and that is, there’s simply less demand than exists supply on account of the extreme amount of building that has occurred over the past decade.

I don’t know why people cling to the concept that interest rates are *entirely* what drives housing prices. Sure, it can be a factor in the short term, but in a country like Canada with no legitimate land constraints nearly anywhere, eventually prices will revert to replacement cost depreciated accordingly.

#95 Big Dipper on 02.18.16 at 8:55 pm

The Bubble

“Valuations aren’t increasing because wages and salaries have jumped, the local economy’s buzzing, mortgage rates are dropping or credit is expanding. Nor are offshore buyers, flipping realtors or assignment clauses to blame for propelling crap houses over the $1 million hurdle.”

——————————————-

I doubt the part about the off-shore buyers having no impact very much. Other commenters have observed similar. You’re sticking with your story.

However, other than strong indicators there is no direct proof because government is either too lazy or incompetent to collect the data. It also seems that government is reluctant to find out what’s really happening.

The latest BC plans to “get at the bottom” is flawed as it seems to include, “tens of thousands of wealthy “investor immigrants” from China who have arrived in B.C. over the years, and continue to arrive, on government programs are formally permanent residents under the current system”.

“They would count as purely Canadian in the government’s analysis, despite earning all of their income abroad and, in some cases, continuing to live abroad while owning properties in B.C.”

The brainchild of this idiotic, “buying your way to permanent residency status”, was – of course, you guessed it – the ReformaCons.

http://www.theglobeandmail.com/news/british-columbia/bc-governments-plan-to-collect-data-on-foreign-homebuyers-draws-fire/article28792724/

#96 TFSA inkind on 02.18.16 at 8:59 pm

The Ultra Rich Asian Girls of Vancouver – and their YouTube channel.

… And their 1%-er problem:

http://www.businessinsider.com/chinas-wealthy-are-sending-their-kids-abroad-for-good-2016-2

https://www.youtube.com/watch?v=BI56XotU8OQ

#97 Greed is God on 02.18.16 at 9:08 pm

@ #26

Nobody in their right mind would rub ecstasy on their gums. You’re thinking of cocaine.

#98 Godth on 02.18.16 at 9:14 pm

#93 B riding dirty on 02.18.16 at 8:47 pm

It’s called the golden rule or in other words POWER. They don’t have to make excuses, they just have to pay a percentage in fines.
https://www.youtube.com/watch?v=xm_RMtD66z0

#99 Dirty Debtor on 02.18.16 at 9:15 pm

B riding dirty

asking the questions that matter

In my opinion, bubble on bubble in YVR is the honest truth. People there are living in houses they bought a year ago that they couldn’t afford today. What is driving the prices up? And when the middle class is being priced out of Langley, where will the working people live?

#100 Heisenberg on 02.18.16 at 9:21 pm

“There is no statistical evidence showing foreign buys exceed 5% of all trades. — Garth”

Totally agree with that statement….
But what if the published stats are twisted on purpose? As a statistician, I can make legitimate numbers tell a lie. Why would the BC government confirm the dirty truth about what is propping up the BC economy?

What if the exact opposite is true? Wouldn’t that exactly explain the logic-defying meteoric rise of Vancouver prices?

Factors:
-Canadian economy tanks, so the CDN peso drops = This makes our properties cheaper to foreign investors.
-Asian stock exchange tanks = This makes our city a more attractive place for investment.
-Recent anti-corruption measures in China = More reason for investors to come here.

My opinion is that this isn’t a bubble. This is the new normal. Vancouver has been transformed over the last 30 years to be the new Monaco.

Entire city blocks are being bought up only to be replaced with high-density units for the landless serfs that insist on renting.

Condos and townhouses will take a price dive, as supply will saturate the market. But land is scarce and cannot be increased vertically like condos. Detached houses will keep going up and up.

#101 AACI Home-Dog on 02.18.16 at 9:26 pm

Nice photo. Wish my teeth looked that good.

#102 A belieber on 02.18.16 at 9:33 pm

godth, is this you?

#103 Nelson on 02.18.16 at 9:38 pm

The suspense is killing me.

#104 DON on 02.18.16 at 9:48 pm

#9 MF on 02.18.16 at 5:47 pm

#203 Ronaldo on 02.18.16 at 5:13 pm

Yeah I saw how it went up last time. But remember back in 09 there was the China story. China was expanding like crazy and building all these cities and using all this material that companies like Teck were providing. That narrative is no longer here because we know China is slowing down and those cities are ghost cities.

MF
****************************

I have a buddy that works for Tech…not going well for the company – major loans coming due in 2017-2020. He’s looking.

#105 Mark on 02.18.16 at 9:50 pm

“They are doing something right, and its not making excuses.”

Or maybe those people just happen to be highly allocated to certain sectors which have done the best.

Railway, oil, and steel barons used to rule the world a hundred years ago. Today most of the wealthiest got that way through finance. The next batch of “the wealthiest” will probably get there through some other means. History tells that us that extreme wealth rarely lasts more than a generation or two until supplanted by something else. The super-rich did not get to be super-rich through diversification, and the nature of their wealth usually precludes diversification.

What is driving the prices up?

The shift to the sales mix. Its not so much that individual houses have appreciated in Vancouver, but rather, that the houses that are transacting are increasingly very high end relative to the mix that was transacted in years prior.

Typical behaviour at the end of any bubble, that the breadth of transactional activity collapses. And signs are abundant that such is characteristic of the Vancouver market.

#106 TRT on 02.18.16 at 10:24 pm

C$ just formed a double top at 73.21 cents several days apart.

Now is time to short it.

#107 Bottoms_Up on 02.18.16 at 10:27 pm

#57 Siva on 02.18.16 at 7:03 pm
——————————–
I think your example highlights what happens when there is unrestricted access to funds. Canadian banks are 100% off the hook for making mortgages, guaranteed profit by lending really. Prices go up. In the US, very, very difficult to get the money to buy. Hence, your vast differences in what it costs to buy.

#108 DON on 02.18.16 at 10:33 pm

#81 Julie K. on 02.18.16 at 8:12 pm

Ugh.

Dot com.

Flashback happening…

Bought Ballard @ $120 or so a share.

200 effing hun of them.

Inside my RSP.

Did not pay dividends either. It was all about the promise of a hydrogen fuel cells replacing fossil fueled engines inside all our cars and busses.

Still holding them so I haven’t lost a dam cent, right?

Right?

Around the same time picked up a few shares of 360Networks. You know, the guys that were going to run high-speed cable under the Atlantic Ocean. Or maybe it was the Pacific.

At least I can look back and laugh about it now.

#easycomeeasygo
*******************************

Ballard was our client back then…supposed to have fuel cell vehicles for fleets in 2010. That came and went. Then there was Vengold – I doubled my investment in 2 days, sold then bought the next stock tip. African Sky (telecommunications across Africa) Ya I know. I still have a 1000 shares – a 1000 of something else. Just glad they were penny stocks to start with.

#109 A Canadian Abroad on 02.18.16 at 10:37 pm

Canadian Housing Bubblerama:

I am a very caring person, I don’t want to see people hurt financially, but playing with RE fire and buying in today’s market, that’s just dumb and foolish.

If home buyers today have that much risk tolerance, I would suggest buying some x3 hedge funds.

Let’s see if they can even stomach a LIGHT 10% decline in their home price! (which isn’t even a Balanced fund risk)… $2 million = $200k lost plus selling fees, property tax, upgrades, etc.

$2 million @ 30% = $600,000 LOST.

Good luck sleeping at night.

#110 Briana on 02.18.16 at 10:44 pm

Great post today Garth. I’m with you on the YVR/YYZ RE bubble. Looks like this is the blip before the dip, ppl rushing to buy houses as money is cheap and before they think prices go higher. The herd mentality for sure.

I watched “Hot Property” on CityTV in Toronto this evening. Al Sinclair has been saying for the last seven years home prices will keep rising while many analysts or economists predicted corrections. We all know that has not happened… YET!! Well, Al was on tonight discussing a possible bubble and he clearly said he did not see it… according to him still lots of bidding wars on homes and even bidding wars on condos. He said every year about 100k to 125k moving into GTA and it will continue to support housing growth.

What do you and everyone think about this statement? Many other developed cities with little land and growing poplulations have undergone major housing corrections over the years. Why is Toronto immune?

Garth, I have followed your blog for years and postponed a home purchase as a result. At the same time I see my peers incur gains on their home prices. I have been renting and yes, I come across as the moron amongst the majority herd. Not the greatest feeling.

#111 MF on 02.18.16 at 11:01 pm

#102 A belieber on 02.18.16 at 9:33 pm

HA I love it.

Someone’s been on certain online forums other than this one.

Mirin’ brah

MF

#112 45north on 02.18.16 at 11:06 pm

WallofWorry: If we do see a melt (say a 20% correction) which has been called for more than 6 years ago…while a concern it not really the end of the world?

Therefore…who really cares?

the collapse of real estate in the US was only 30% but a significant portion of middle class USA was wiped out.

I believe it will be worse in Canada because

– Canadians do not have the market information that Americans have. In other words do not expect the real estate to announce the collapse of real estate.

– the US was able to cushion the collapse by lowering interest rates from 5% to 0%

– half the mortgages in the US are 30 year fixed term as opposed to the mortgages in the US which are 5 year fixed

#113 45north on 02.18.16 at 11:06 pm

as opposed to the mortgages in Canada which are 5 year fixed

#114 BS on 02.18.16 at 11:09 pm

Back in 1999 Warren Buffet was being called a washed up old guy who didn’t understand the new economy. He didn’t invest in tech stocks which were grossly over valued. Of course Buffett was one of the few people that realized it was a bubble and didn’t put one dime towards any of the bubble stocks. He did invest in what made sense even though for quite a while it looked like he got it wrong. Year after year he underperformed those who were buying into the bubble. Then within a year everyone else looked like fools. Buffet was right.

A few Buffett quotes worth noting for those bullish on real estate. They all still apply.

“When you combine ignorance and leverage, you get some pretty interesting results.”

“The investor of today does not profit from yesterday’s growth.”

“You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.”

“After all, you only find out who is swimming naked when the tide goes out.”

“If past history was all there was to the game, the richest people would be librarians.”

http://moneymorning.com/2015/02/09/the-25-best-warren-buffett-quotes-of-all-time/

#115 MF on 02.18.16 at 11:11 pm

I had just started work in 1999 as a busboy in a Toronto area restaurant. Place was rammed all the time. I remember hearing about Nortel and had no idea what it was being 15. One day I remember they reserved 3 rooms for their huge Christmas party and the server taking care of them said they come every year. I remember thinking these guys have lots of money.

Fast forward to 2002 and those parties, and the money they brought, were gone. In fact, I stayed at the restaurant for many more years and 1996-2000ish was always referred to as its heyday.

Just an example of how far reaching that tech bubble popping reached. When GVR and GTA real estate slows and drops there will be long standing implications.

MF

#116 Smartalox on 02.18.16 at 11:14 pm

@Julie K.

Ha! I worked for that company for five years during the post peak decline, from $80 to less than $5.

A year or two before I arrived, when the share price was at $120, they rented BC Place Stadium for their Christmas party. I remember people used to show up at the office, demanding their money back, or harassing employees for their lost share value.

A few employees cashed out their options at the peak, and bought West side real estate in their 20s.

The smart ones retired at that point.

Those that stayed in, convinced they could recapture the ‘glory days’ of the triple-digit share price.

But because those valuations were driven by hype, and not actual achievement, success has proven elusive.

Yet still they wait, like cargo-cultists, hoping that if they chant the buzzwords, recite the acronyms, and drink the kool-aid one more time, it will all come back again.

#117 MF on 02.18.16 at 11:14 pm

#104 DON on 02.18.16 at 9:48 pm

Yup. That is what I have read too. The recent pop is speculation and not investing (which Garth has spoken about). Not saying buying at 4.90 was a bad move but I don’t think Teck is looking too good moving forward long term. I definitely don’t think there will be another commodity super cycle like the one that rose from the ashes in 09 either.

MF

#118 Ronaldo on 02.18.16 at 11:14 pm

#104 Don

”I have a buddy that works for Tech…not going well for the company – major loans coming due in 2017-2020. He’s looking.”

I suspect that once again the Chinese will come forward as they did before with another billion to bail them out again and increase their stake in the company.

#119 ROCK BEATS PAPER on 02.18.16 at 11:16 pm

Never NIRP in NA. — Garth

It will never happen in my city. It will never happen in my neighborhood. We are special here. Also, Trumo won’t let it happen.

__________________________________________

The markets cannot reflect the economy with ZIRP because the hurdle rate for projects is close to zero. Misallocation of capital is widespread.

Housing bubbles are much more dangerous than stock market bubbles, because even though you cannot time the market, you can average down when assets become extremely cheap and rebalance when they run parabolic. Like selling some gold stocks right now (but not all).

#120 Ronaldo on 02.18.16 at 11:23 pm

#116 Don

Here’s a link on what happened with Teck back in July 09. CIC would be getting a much better deal today than they did back then if they were to buy in now. But given how they have done with previous investments in the oil and gas area, they may be a bit reluctant. Will be interesting to see what happens this time around.

http://www.cbc.ca/news/business/chinese-government-company-spends-1-74b-on-teck-stock-1.816581

#121 MF on 02.18.16 at 11:27 pm

#110 Briana on 02.18.16 at 10:44 pm

Toronto isn’t immune. We had 125k immigrants from india/pakistan/russia/sri lanka coming to the GTA in the 90’s and RE languished.

The immigrant angle is realtor bullshit and they love harping on it. What about people leaving the GTA every year? Everyone I talk to who owns a home here is looking to retire and move somewhere quiet miles away from the traffic and noise. Add to that Canada’s demographics mean a horde of boomers will be looking to retire in the next decade (or be forced too for health issues).

That leaves the shady lending practices by scummy mortgage brokers/realtors , bad government policies like ZIRP the failure, and RAMPANT speculation for whats holding up this gas bag.

MF

#122 kommykim on 02.18.16 at 11:30 pm

RE:The point is, all of us were bewitched by a bubble.

Not me. I remember seeing a news story about some startup tech firm where all the employees were on bouncy balls. It reminded me of an episode of Romper Room. No way was I going to lend my money to companies like that. I renewed my GICs at 5% instead.

#123 Smoking Man on 02.18.16 at 11:31 pm

Have no idea how I ended up in St chathrins tonight watching a chic Roller Derby tryout. Don’t worry I wasn’t driving.

#124 zudnic on 02.18.16 at 11:40 pm

Foreign investment has very little direct impact on the BC economy long term, most are in China. Why do you think the province wants to tax vacant housing?

Second these foreign buyers are not buying leaving it empty to wait for it too go up in value and then sell it. Most are buying a place here because they can’t get into the U.S., Canada is and always will be the second choice for immigrants. Like the Hong Kong Chinese who bought here before the hand over they wanted an escape.

Most wealthy, even Americans and Canadians, don’t move money offshore just to avoid current taxes. Most move money they’ve paid taxes on offshore, just in case, the government may go after saved cash! Interesting both Hillary Clinton and Sanders have mentioned taxing millionaires passive income tools. That’s socialist speak for taxing saved wealth! Smart money is prepared to move! Even former PM Martin had an offshore company that received $100 million of Canadian tax payers money, but that’s another story.

People seem to think their is an infinite amount of buyers, both local and foreign. Just like people thought a lot of tech companies had an infinite amount of users. And the biggest myth of all Vancouver and the lower mainland is running out of land. Ever drive around just the outskirts of Vancouver? There is actually a ton of land. Granted most of it is in the farm land reserve or turned into parks. Lots of vacant industrial as well. The government could cool the lower mainland market tomorrow. South Delta and most of Tsawwassen can be taken out of the land reserve and suddenly 1,000 of acres becomes available for housing.

#125 Keith in Calgary on 02.18.16 at 11:40 pm

The Keynesian fools trying to run the world’s economy for the sole benefit of a very few people have run out of ammo.

All their economic models predicted something that obviously did not happen. There are only two outcomes now for them to try as a last gasp……

NIRP or HELICOPTER MONEY.

NIRP will be first. But in order to have some semblance of control, cash and bullion will have to be restricted or banned. But, NIRP will not work……..people have already lost faith in bankers and the politicians who work for them.

Helicopter money brings with it hyperinflation.

Either way, we’re screwed. It is just a matter of time. The French did it right during their evolution…….we need to do the same.

#126 Shawn on 02.18.16 at 11:41 pm

Why U.S. Home Prices Are Lower

#107 Bottoms_Up on 02.18.16 at 10:27 pm said to Siva: (apologies for eyesvdropping)

#57 Siva on 02.18.16 at 7:03 pm
——————————–
I think your example highlights what happens when there is unrestricted access to funds. Canadian banks are 100% off the hook for making mortgages, guaranteed profit by lending really. Prices go up. In the US, very, very difficult to get the money to buy. Hence, your vast differences in what it costs to buy.

**************************************
Do you have data or facts to back that up?

U.S. has mortgage insurance and I don’t see a limit on it in the Wikipedia entry but there might be.

U.S. banks have an even easier time to securitise and sell their mortgages scooping instant profit rather than waiting for interest profits over the years. Fannie Mae and Freddie Mac however will only buy mortgages under the jumbo limit of $625,00 according to Wikipedia. (So that may be a factor in the lower prices, though I believe there are many other buyers that will go above that limit)

The legal requirement in the U.S. that mortgages be 30 years fixed but also OPEN upon payment of modest fees would normally make them too risky for banks due to the interest rate risk (Too risky to fund 30 year loans with short term deposit money). It is the ability to easily securitise loans that allows this to work. Investors in Mortgage Backed Securities are in a position to take on the risk that the borrower will opt to refinance which basically pays off the loan early.

My sister who makes 100% Commission income in Florida recently got a mortgage on her second investment property. She did have to shop around because of the commission income but got the loan. So that is one example.

In the last few years U.S. home price have risen a LOT from the lows. The population there is still shell-shocked about the earlier losses in value and THAT may explain the lower prices.

But I am not sure lack of mortgage availability explains the lower prices. If you have facts and data or even anecdotal evidence, do tell.

#127 Suede on 02.18.16 at 11:50 pm

I’m seeing a lot of blaming Garth today.

Guess what, it’s valuable information available for free.

He doesn’t share in your profits. He doesn’t share in your losses.

You’d pay a proper financial adviser 200/hr for sound financial advice on how to shelter in an rrsp or how to properly use a tfsa.

“I listened to Garth and didn’t buy”. Well, that’s your problem. Dammed if you do, and dammed if you don’t.

And the kicker in this blog is smoking man’s priceless advice for real life. Be your own boss, hire slaves (I mean employees) to do your work while making money off their back, is the way to get paid and laid.

Life is about the hand you’re dealt and choices.

Most people suck at choices.

Or avoid making them, preferring to blame others instead of looking in the mirror and growing a set.

Letting your mother in laws chirp you, your wife call the shots for a house. Grow up people.

Garth said loud and clear to look at Arizona RE two years ago. If you bought you’d be up 35% plus 40% currency difference. Triple the Vancouver return on the same time.

Now… Hit my music

#128 No Canada, No on 02.18.16 at 11:54 pm

So Van’s Re in bubble but stocks are not? (not to mention bonds)

#129 Capt. Obvious on 02.18.16 at 11:55 pm

If you don’t think history rhymes, search for “tronics bubble”. Same plot, different decade. Then search for “south seas bubble”. Same plot, different century. People get enamoured with ideas. It’s just what we do.

#130 Shawn on 02.18.16 at 11:56 pm

Give us 25 or 30 Year Fixed Rate Mortgages with OPEN prepayment privileges, please.

Canadian banks could offer 30 year fixed mortgages that were OPEN upon payment of a modest fee (just like the U.S.) if there was a securitisation market that allowed the mortgages to be sold to get the interest rate risk off the books of the bank. No problem with the Bank Act that requires it to be OPEN after five years, these mortgages would have a fixed interest rate for the borrow for 30 (or 25 years if you prefer) but allow the OPEN option to refinance or pay off early. Just like in the States.

Today this is prevented by laws or regulations that require banks to securitise insured mortgages ONLY through CMHC or a related entity (Canada Housing Corporation, I believe) and there is simply no ability to securitise a 25 year fixed rate but OPEN mortgage.

If Canadian homeowners are at vast risk of an interest rate rise (as suggested by many) then facilitating the same long-term low rate fixed but OPEN mortgages that the U.S has would allow those homeowners to LOCK in the rate for 25 years and possibly avert disaster.

And before someone mentions it, NO the 30 year fixed but open deal was NOT the cause of the financial crisis. That deal still exists. Rather it was weak lending standards. CMHC would still be free to enforce lending standards as now.

Whoever facilitates this could end up being a national hero if rates rise. But as far as I know no one bothers to try they just say it can’t be done in Canada or the investors won’t buy the securitised mortgages which I doubt is true. Pension funds would lap them up.

Who will step up and be a national hero?

And who believes it can’t be done and it’s not worth trying?

#131 poundingsand in peachland on 02.18.16 at 11:56 pm

steamy parts of the GTA…you funny

#132 Mark on 02.18.16 at 11:57 pm

“Just an example of how far reaching that tech bubble popping reached. When GVR and GTA real estate slows and drops there will be long standing implications. “

Good story. And in the grand scheme of things, Nortel was just small in comparison. There were what, 100,000 Nortel employees at the peak, and barely more than half of that in Canada (the rest in Dallas, the Bay Area, Alpharetta, RTP, and elsewhere overseas). Most of the mega-riches created by Nortel were vested with the engineers and salespeople who plowed money into the stock and got options. The average man on the street did not own a meaningful amount of Nortel shares, and didn’t particularly care when the bubble burst because they didn’t own any. Canadian Airlines went bankrupt because Nortel no longer was lavishing its staff with business class airfares, but other than that, the contagion of Nortel was relatively limited to its employers, its supplier base, and the academic R&D community. Much of which, even 15 years later, still has come nowhere near recovery.

Contrast such with housing. 70% of Canadians own it. Its bought with large amounts of credit. The RE supply sector and its direct spinoffs in finance, transactional support, legal support, etc., employ literally millions of Canadians. When it goes down, its not just a bunch of nerds which can be marginalized and relegated to the dustbins of society — its a dramatically larger chunk of the population. And Nortel did not have ~$1T of government loan guarantees backing the sale of its product (although Nortel, like Bombardier, do and have received export assistance through BDC/EDC).

The markets cannot reflect the economy with ZIRP because the hurdle rate for projects is close to zero.

Technically I’d have to disagree. Debt may be cheap in ZIRP, but equity is not. That’s a big problem in the Canadian context — equity is so expensive that debt isn’t even available (as nobody provides credit without equity!). So hurdle rates remain high in many sectors except for the ‘chosen ones’ which receive government backing, such as RE through the CMHC system of subprime mortgage guarantees.

#133 Mark on 02.19.16 at 12:01 am

“Canadian Airlines went bankrupt ….”

Sorry, I mis-spoke. Canadian, a company with a history of financial weakness in the 1990s, was mortally weakened so much by the loss of business from tech companies like Nortel and big business class-authorized travel expense accounts that they were forced into an “acquisition” by their major domestic competitor.

I apologize. I did not mean to mis-lead anyone.

Livent went belly up around the time as well, which was unfortunate because it introduced an entire generation of Canadians to live theatre at very affordable prices. But the issue there was fraud, and the valiant attempts of Drabinsky and Gottlieb to sell an uneconomic dream to the public. A pity they stripped Drabinsky of the OC, he did so much for the country’s arts scene, even if he had to be a bit of a crook to make it work.

#134 Bram on 02.19.16 at 12:10 am

#81 Julie K. on 02.18.16 at 8:12 pm
Bought Ballard @ $120 or so a share.

Ouch! Yeah, future tech is a dangerous play.
Your case reminds me of the time that I put $9K into Arise Technologies, a solar panel manufacturer from Waterloo, ON. That went to $0 pretty quickly.

I learned that when it comes to emerging tech, you better bet on the market leader, or not at all.

#135 james on 02.19.16 at 12:13 am

Good timing in mentioning pets.com. Right now money is starting to leave Silicon Valley. I’m seeing daily reports of layoffs and difficulties in attracting investment dollars.

Sad to say, but (as our CEOs said a few years back), there is another bubble in Silicon Valley. The firms that have no revenue are about to get squeezed.

#136 james on 02.19.16 at 12:16 am

One thing I find funny about the discussion about ‘talent’ in Vancouver is that I am not sure what the ‘talent’ is supposed to be used for.

There are few jobs requiring talent in Vancouver. Few jobs in engineering, science, architecture, etc etc. I can see the Universities having a talent problem, but I don’t see a ton of employers who require high skilled employees.

Vancouver (even moreso than Toronto) has turned into a service economy. Some tourism, a tiny bit of industry, but a ton of consumption based endeavours that don’t produce wealth. Mining and resources are in the toilet, a lot of software firms are gone, etc etc. There’s little venture capital to start businesses.

Do real estate agencies require ‘talent’? Subway? Safeway? Your local ethnic restaurant?

#137 Funky on 02.19.16 at 12:21 am

But Garth, it seems so obvious now!

#138 Entrepreneur on 02.19.16 at 12:40 am

The stats can easily be changed with a stroke of a pen to make it look like a Canadian citizen but in reality not. The 3%-5% stats that are reported are the truthful ones. If our leaders do not look into it then who do we turn to & get to the bottom of this? I, myself, would like to see the truth, even out of curiosity.

Fluoride does not need to be put into our water. Too much fluoride can cause bones to soften. One can get fluoride through black tea. I do not use fluoride toothpaste, drink 1-2 cups of black tea and have no cavities. Knock on wood.

#139 nonplused on 02.19.16 at 12:40 am

No Adele comments today? Well here’s another one:

https://www.youtube.com/watch?v=WZOYG9Fz0as

Personally I wouldn’t kick either of them out of bed for eating crackers.

#140 waiting on the westcoast on 02.19.16 at 12:40 am

In Victoria for a tech conference…. Chatted with a bright ambitious young guy who works for a venture debt fund. He currently lives in Calgary but works throughout Western Canada. He said about two years ago his girlfriend and his own father pressured him into buying a house… Needless to say, he is already underwater. His job is not in jeopardy but he says the fear in Calgary is tangible.

#141 rentin on 02.19.16 at 12:46 am

Garth,

So apparently I am a 1%er based on my income. Just for fun I punched in some mortgage variables into:

http://itools-ioutils.fcac-acfc.gc.ca/MQ-HQ/MQCalc-EAPHCalc-eng.aspx

I put in 2.4mill purchase price with 40% down. Yeah, I have more to put down, but how many people even have a million cash? – OUTCOME: LIKELY DENIED…..

So Mr. smarty pants, who are the people buying these houses?

WAIT!!! Just found my solution:

https://www.realtor.ca/Residential/Single-Family/16542670/522-E-18-AVENUE-Vancouver-British-Columbia-V5V1G3

Man, wouldn’t it be nice to make as much money as everyone else so I could afford something nicer?

#142 BR on 02.19.16 at 12:53 am

Hey Garth – yesterday, in response to where to put 3K, you said ” Inside the TFSA, in three growth ETFs. One Canadian, one US and one world. — Garth.

I thought you could only keep maple in there? Does this change if using an ETF? Because that would be awesome.

Thanks
BR

#143 Leo Trollstoy on 02.19.16 at 12:55 am

vancouver and toronto will see their real estate prices come down some day. prices can keep going up forever.

#144 pwn3d on 02.19.16 at 1:07 am

Listen up people, I have figured out the cauliflower phenomenon. I have been studying the numbers the last few weeks, and I can tell you that the price of cauliflower never actually went up. What happened was, the stores were only selling expensive cauliflower and not the cheap stuff. So the cauliflindex number flouted by big cauli (R) was rigged. What you saw in stores was just a result of the sales mix and if you had actually tried to buy one, the price would have rang through a lot lower because the girth of the stem was only an illusion. And that’s what happened to bring the prices back down again. Simple as that. And since I’ve shown you the proof of this so many times before I won’t bother to now. But I probably will mention in about 50 million more times, because I’ve already done all the research and now have a lot of time on my hands. Pwn3d really got it right this time.

#145 Colin on 02.19.16 at 1:23 am

Last year I thought Vancouver was going to hit a wall. My good friend bought a crappy house in Quilchena for $2.4M and I thought he was done for. He did jack squat all year then sold it last week for $3.8M (and no capital gains tax). I bust my ass working all year and barely clear anything. It’s depressing – it’s the fourth friend of mine who became a millionaire in the past few years simply by buying then selling a house here. I’m jealous as all hell to be honest. And every year for the past five years I keep thinking it will go down and do nothing. I’m far from alone. Vancouver is literally off the charts bananas.

#146 Sheane Wallace on 02.19.16 at 1:25 am

DELETED

#147 JWD on 02.19.16 at 1:54 am

#81 Julie K.

Nortel, Ballard, JDS Uniphase, 360 networks, PMC Sierra, Level 3…. Stings the nostrils!

I haven’t had the courage to look that deep into my account history. One day, with a 21 year bottle of something special. I do remember being up about 30% short term at some point about April 2000, and thinking, maybe it’s time to get conservative and buy some Berkshire Hath? Nahhh! I’ll wait for another 20%….bye bye. Watching in disbelief all the way down. Gone forever.

About the same time, I’ll never forget calling my on line broker at TD and asking him to buy some George Weston. His response was classic. Ok, no problem, we can do that – I haven’t bought any of that company for awhile chuckle, chuckle….an old stalwart. That was my sell, sell everything moment.

I currently know someone that heads up a graphite company on the venture exchange. Kinda brings back similar memories….no real business, no cash flow, no earnings. All based on investor funding. Always talk of a new “find” or drilling results but you “dig” a little deeper – he would sheepishly admit, there is no real chance of an actual mine with land in nowhere Alaska with no road access. Ah…. good memories. Buy the dream.

I now buy ETFs with a cross section of balance. 20 years late, but it’s a start….there is still time people.

Someone posted earlier comparing Vancouver to Monaco? Really? I think that’s a sell sell moment. How many days of rain in the last month? Monaco tax rate is what? YVR rent yields? Horrible. Vancouver is a large coffee shop. I lived in Kits from ’99 -’02 – great relaxed vibe, city culture with no speculation. With the changing landscape of the city, who wants to live there now? Think Richmond. When realtors and developers with support from self serving politicians run the city – look out. House of cards. It’s California 2005, but without the sun.

#148 Surely Fame on 02.19.16 at 2:26 am

But Garth

““The entire lower mainland has gone parabolic. 30% gain year on year, lots selling in Burnaby for $1.4 to $1.7 million. ”

“Valuations aren’t increasing because wages and salaries have jumped, the local economy’s buzzing, mortgage rates are dropping or credit is expanding. Nor are offshore buyers, flipping realtors or assignment clauses to blame for propelling crap houses over the $1 million hurdle.”

You can’t have it both ways. If you insist there is no HAM and at the same time acknowledge that wages haven’t gone up nor is business profitable yoy, you can’t insist the valuations have popped because local buyers are ‘borrowing like crazy’. No local persons have the ability to borrow in the multi millions, zero. The speculation is in fact fueled by offshore money masquerading as ‘something else’. As crazy as our banks have been there isn’t a single one who loans 2 million to a family with a $150,000 year income. The buyers have to be coming from somewhere, but it ain’t Canada.

#149 Frank on 02.19.16 at 2:29 am

What about the scenario that is currently unfolding, and that is, there’s simply less demand than exists supply on account of the extreme amount of building that has occurred over the past decade.

Oh can it Mark. Sometimes you’re so frustrating it hurts. Vancouver sales-to-listings ratios are at records. The demand is so high compared to supply that 91% of listings sell within a month.

It’s like you look at the latest numbers and say the exact opposite of what’s happening.

#150 TheAwakenedOne on 02.19.16 at 2:56 am

Let’s assume Garth could be wrong about Vancouver RE… and ya’all could be right (key word: “Could” – nothing is absolute in the financial & RE world… can’t surely predict their peak & trough)

A crisis is driven by many complex factors… some clear, some not (like trying to find out who’s really the “foreign” Chinese here in Van: mission impossible…)

But when in doubt, get back to the basic check-list:

1. This fire is surely fuel-fed by Human Perception and Emotion: Greed & Fear = 2 biggest.

2. And man… this economy and atmosphere can (and will) mess around with human emotions. Seems like all the ducks are lining up perfectly for the big blown-up… one duck at a time…

Let’s wait and see, what’s the rush, heh? :o)

In the mean time, me still swim naked weekly at Wreck beach… waiting for the tide pulling out: we’ll see more who’s been swimming naked too!

#151 Hope & Change (Canada) on 02.19.16 at 7:47 am

working all year and barely clear anything. It’s depressing – it’s the fourth friend of mine who became a millionaire in the past few years simply by buying then selling a house here. I’m jealous as all hell to be honest

I’d like to know how your friend got someone to bankroll him for 2.4M$.

I wonder if any of his speculating, houseflopping buds are realtors, or Chinese? — Garth

#152 hope & ruin on 02.19.16 at 7:52 am

#110 Briana on 02.18.16 at 10:44 pm

He said every year about 100k to 125k moving into GTA and it will continue to support housing growth.

At the same time I see my peers incur gains on their home prices. I have been renting and yes, I come across as the moron amongst the majority herd. Not the greatest feeling.

80k laid-off in Alberta. Bank lay-offs, newspaper lay-offs, bell, telus, bombardier. I don’t think a lack of immigrants will be the problem. It’s the lack of jobs I worry about.

Look like a moron amongst my friends too. Then my company asks me to relocate.

I would have gone from being a home-owner because “rent is wasting money” to a reluctant landlord 4 hrs away. I battle real estate indoctrination everyday.

Maybe Garth can start a support group for millennials. “Overcoming your Real Estate Addiction”. Repeat after me: “rent is not wasting money”. “house prices don’t always go up”.”mom & dad aren’t a lending institution”.

#153 fancy_pants on 02.19.16 at 7:56 am

#148 TheAwakenedOne on 02.19.16 at 2:56 am
Let’s assume Garth could be wrong about Vancouver RE…

It has at least doubled since he started this blog, what’s there to assume? but the odds are definitely in his favor now. I assumed the same, even sold a condo expecting to hop back in after it reset. It never did.

We underestimated the lack of intelligence on the hill (the peckerettes who punted Garth) and the BofC, and the motivation of those at the levers to refuse a healthy correction.

now look where we are. The longer and higher this climbs, the faster and steeper it will fall. fear’s descent is most often steeper than greed’s ascent.

but damn, how many more false summits can one expect?

#154 fancy_pants on 02.19.16 at 8:08 am

#125 Keith in Calgary on 02.18.16 at 11:40 pm

thanks for sharing. spot on. I fully agree

#155 fancy_pants on 02.19.16 at 8:11 am

Fractional reserve banking and Keynesian economics will be our demise. just like cancer to a body. just give it time. in the meantime, party rages on.

enjoy your dog, family, freedom and health while there is still light.

#156 crowdedelevatorfartz on 02.19.16 at 8:13 am

…..and last nights 6pm “Gobbel” News ( brought to you by Remax natch).
“Downtown Vancouver business district”…. the 4 Bentall Towers to be sold to an obscure mainland Chinese company for 1 billion dollars…….

One realtor speculated they’ll eventually convert the office towers to residential…..

Would the last person with a job here please turn out the lights when they leave?

#157 Noel on 02.19.16 at 8:20 am

Just like all the other real estate crashes in Canada over the last 10 years, they all seemed so obvious.

Wait…

#158 jess on 02.19.16 at 8:29 am

rock beats paper?

“How much of that shitty deal did you sell to your clients?”

https://www.youtube.com/watch?v=whlzFWwVv98
============
Senate Hearings of Stock Exchange Practices, 1932
http://www.theatlantic.com/past/issues/87jan/parallel.htm

=======
AIG paid out $170m in bonuses to its employees in March 2009 with its top executives receiving bonuses in the hundreds of thousands of dollars.”

“As one analyst from S&P said in an e-mail, they would rate a new MBS if it “was structured by cows”.

http://www.alternet.org/economy/aig-execs-got-bailout-bonuses-blowing-economy-american-workers-get-their-pensions-cut

#159 Q1 Duplex Drive 4-6-4-4 Type on 02.19.16 at 8:51 am

Garth –

You keep predicting a housing correction in YVR and YYZ – a correction you’ve been predicting for all the years I’ve read your blog. As evidence, you point to corrections in Calgary and Winnipeg and Halifax and, therefore, corrections will eventually come to YVR and YYZ. It’s a reasonable assumption, one that I’ve agreed with for many years but ya know what? It ain’t happening!

Like it or not, people want to live in Toronto and Vancouver because, with the former, it’s where things are happening and, with the latter, it’s a gorgeous place to live. Anywhere else in Canada is just a flyover backwater. I say that with due respect, as a Montreal native, because for any ambitious young person, Toronto is the place to be. Even you had dreams of mega-wealth after setting up a TV station in – you guessed it – the Big Lemon.

So people want to live in these two major cities. Anywhere else is oil or wheat or nothing. Small wonder there are currently seven or eight condos going up at Young & Eligible and I’m dodging dumptrucks and steam shovels every day – because there is a huge demand for living space. Any price correction in these two cities will be a moderation in annual price increases. Outright price declines? Very doubtful. JMHO

#160 Leo Trollstoy on 02.19.16 at 8:52 am

. I don’t think a lack of immigrants will be the problem. It’s the lack of jobs I worry about.

nothing to worry about in ontario. lots of jobs there

#161 Nat on 02.19.16 at 8:55 am

Just about to sell my home in the Beaches area of Toronto. We decided to rent a detached 3 plus 1 bedroom in Buttonville area (Markham) The home is valued at just over a million dollars! However, we are renting this 2500 square foot home for 2100$ to a investor who doesn’t live in Canada. It seems rather odd for anyone to own a property at this price to get only 2100$ in rent. If we were to own this with 20% down our mortgage would be a lot higher.

#162 Noel on 02.19.16 at 8:56 am

http://www.bbc.com/news/business-35604331

It is different this time.

#163 TurnerNation on 02.19.16 at 8:58 am

Ontario’s leftist-marxist govt allowing wine sold in supermarkets. Easy win with Bread and circuses.

#164 Leo Trollstoy on 02.19.16 at 8:58 am

if a person hasn’t yet recovered from their involvement with nortel, they were either near retirement when it went down or they have no life skills. seriously

#165 H on 02.19.16 at 8:58 am

Ok Garth

So inflation is now ticking up large and the unemployment rate is down.

This is pushing the fed to raise. I agree now as the DATA is here. Pressure on Canada too.

So will this push us equities down? Based on the financial engineering tools being taken away?

the ability to shrink the “share pool” for free evaporating?

I would think you would agree as the other 2 ways to make money, ie raise prices or sell more are in question.

#166 Leo Trollstoy on 02.19.16 at 9:00 am

I own 2 houses in vancouver bought in mid 2000s.

cha ching! canadians hate him. see how he spends his millions! hehe

#167 Leo Trollstoy on 02.19.16 at 9:02 am

in addition to being right on the rise of the usd against the cad (and pocketing a nice profit), it seems that i was right about deflation. that is, there’s no deflation. haha

http://www.cnbc.com/id/103401924

#168 Bottoms_Up on 02.19.16 at 9:03 am

#126 Shawn on 02.18.16 at 11:41 pm
——————————————
My apologies, I thought this was common knowledge.

http://mobile.nytimes.com/2008/01/17/business/worldbusiness/17iht-lend.4.9295180.html?referer=&_r=0

http://abcnews.go.com/Business/story?id=3475233&page=1

#169 Rational Optimist on 02.19.16 at 9:08 am

What’s the story for those Canadians who live outside of the largest cities? In the Kitchener area, for instance, the median household income is a little over $80,000 and the average detached home is a little less than $300,000. That’s 3.75 times gross, so the average household is reaching a bit to buy the average house, but it’s hardly Vancouverish. In London, the median household income is around $75,000, and the average detached home is more like $270,000. In Windsor, the average home (this is according to the realtors) is $130,000.

So real estate is over-valued in these cities, but nothing like in the GTA. Is it due for a crash or even a decline that most owners would notice? Will those in the hinterland overreact to headlines of carnage in Vancouver and Toronto and send their markets way below what incomes could sustain? I’m really asking here; I don’t know anything.

#170 cramar on 02.19.16 at 9:10 am

#121 MF on 02.18.16 at 11:27 pm
#110 Briana on 02.18.16 at 10:44 pm

Toronto isn’t immune. We had 125k immigrants from india/pakistan/russia/sri lanka coming to the GTA in the 90’s and RE languished.

The immigrant angle is realtor bullshit and they love harping on it. What about people leaving the GTA every year? Everyone I talk to who owns a home here is looking to retire and move somewhere quiet miles away from the traffic and noise. Add to that Canada’s demographics mean a horde of boomers will be looking to retire in the next decade (or be forced too for health issues).

. . .

————-

Please, please, please. . . tell them to come to Leamington—and buy a yacht. The marina has room. If they do, the demand would drive up the price of houses so that when I sell I win again! Like to see the base price of starter bungalows get above $200k. That would put a modern brick two story with double garage well above current $300k-$350k range.

And this house I posted months ago is still on the market. Maybe it is waiting for me. Wonder if they would accept a cash offer of $450k? But that would kill my conforming to Garth’s Rule of 90. Besides my un-house-horny wife would not go for it. Too much to clean, too much lawn to cut, and too much money tied up in RE. Still, I’m tempted. It is the 5-car garage that has me:

https://www.realtor.ca/Residential/Single-Family/16100876/458B-MERSEA-RD-21-LEAMINGTON-Ontario-N0P2P0

Anyway, we have far better weather than Elliott Lake. Double digit temps forecast for today and tomorrow. Woohoo! Saw some white forest flowers starting to bloom yesterday in Point Pelee National Park.

But thinking about it. . . it might add congestion. I like going from one end of the city to the other in less than 5 minutes. But unfortunately you do have to add two or three during rush hours (actually rush minutes). Hate to see traffic get worse.

#171 Bottoms_Up on 02.19.16 at 9:11 am

#121 MF on 02.18.16 at 11:27 pm
————————————
You’re wrong. Garth has previously cited research that 20% of immigrants buy real estate. With 100,000 people settling in Toronto per year, that’s a million people influx per decade.

#172 Noel on 02.19.16 at 9:11 am

#144 Colin

Being smart and doing the right thing has little correlation to how much money you make or have.

#173 A box in the sky on 02.19.16 at 9:14 am

GT:

I hate to be “that guy” but I remember you doing a session for your new book at the Chapters at 401/Kennedy winter of 2009 or 2010 and saying then that housing in the GTA was overvalued. Anyone heeding that advice paid a huge opportunity cost.

Not that I’m calling you out – we all have to make our own decisions with the info we have at the time.

There’s not a lot of data to put a timeline on how long a housing bubble can run … I mean I don’t really have an argument against ppl that say houses will go up for another decade in Toronto other than to say “it doesn’t make any sense”.

That’s the same argument I made 5 years ago!

Long winded way of saying price is truth, markets aren’t efficient, etc

#174 Bottoms_Up on 02.19.16 at 9:21 am

http://www.fin.gov.on.ca/en/economy/demographics/projections/#s3d

Regional population growth

“The GTA is projected to be the fastest growing region of the province, accounting for almost 70 per cent of Ontario’s net population growth to 2041. The GTA’s population is projected to increase from 6.5 million in 2013 to 9.4 million in 2041.”

#175 TQDNCC on 02.19.16 at 9:29 am

Here’s the post-mortem from the Globe on the truck!

http://www.theglobeandmail.com/report-on-business/workdaytvcom-off-the-air/article1178818/

#176 Balmuto on 02.19.16 at 9:58 am

So much for deflation:

http://www.bloomberg.com/news/articles/2016-02-19/canada-consumer-prices-rise-fastest-in-a-year-on-food-transport

#177 Rick on 02.19.16 at 9:59 am

45north, The Canadian mortgage market is nothing like the US; before the bubble burst. The reason I say this is because the US had “interest only mortgages”. People could get into new homes with nothing down; “no skin in the game”. Their “mortgage”; interest only, was the equivalent to “rent”. These new “home owners”; were nothing more that glorified renters. That is the main reason the US housing crashed. I don’t see any interest only, no down payment mortgages in Canada. That is why I do not believe there will be a “crash” in Canadian Real Estate.

#178 Josh in Calgary on 02.19.16 at 10:08 am

#29 Rental Income on 02.18.16 at 6:06 pm,
I think you need to check your math (or typing). At $2300/month it works out to $27,600 per year. After all the throw ins plus maintenance costs there’s probably not a lot of return left over at the end of the day. And people often confuse write offs as being a good thing … it means you had those expenses to begin with. So if you can write off enough expenses so you pay no tax, it means you’re not making money.

I have a similar story to the one told by #44. I moved out of a duplex I owned and decided to rent it instead of just sell. The rent covered my costs and MAYBE a bit more. For that “bit more” I had to chase down rent checks and worry about fixing minor problems and lining up plumbers and furnace repairmen (bye bye to the “bit more”). At least I was gaining equity … WRONG. I happened to try this experiment during a dip in property values. Had I just sold when I moved out I would have caught a nice high in the market and been way better off. On the bright side at least I learned something.

Bottom line is becoming a land lord is not the “easy money” some people think it is. The return on investment is minimal unless you leverage the crap out of it (in which case it becomes risky) and hope for big capital gains (which as this blog points out is not a sure thing by any stretch).

#179 Caught In The Grip on 02.19.16 at 10:35 am

I agree 100% that we are in the greatest real estate bubble of all time for this country.

But I think 17% TSX exposure for the average investor is far too much. I would limit Canadian exposure to 5%. US exposure should be >60% and the rest emerging markets & Europe.

#180 NoName on 02.19.16 at 10:38 am

#173 Rick


US had “interest only mortgages”

Not exactly same as us version, but interest only mrtg (no principal repayment required, with 20% downpayment).
https://www.superbrokers.ca/products/mortgages/interest-only-mortgage.phtm
————————

People could get into new homes with nothing down; “no skin in the game”

http://www.vickiborenstein.com/mortgageshoppping/nomoneydown.html

http://www.huffingtonpost.ca/2016/01/14/condo-no-down-payment-port-moody_n_8974598.html
———————–

These new “home owners”; were nothing more that glorified renters.

I am renting a mortgage, so i/we can “own” our house, but if i stop paying bank can kick me out from my/our house. isn’t that funny.

#181 Nobody on 02.19.16 at 10:59 am

@Rational Optimist only for a couple of decades out of history has it been normal for someone with an “average salary” to buy a single detached home.
There is no fundamental law that houses should cost 3x average household income.

#182 Billy Joe McAllister on 02.19.16 at 11:08 am

#144 Colin

“He did jack squat all year then sold it last week for $3.8M (and no capital gains tax).”
————————————–

Actually, he did do something for the money. He took an absolutely colossal risk.

#183 Ret on 02.19.16 at 11:09 am

“Also, if U.S. Steel Canada is liquidated and falls off the list, its replacement as a top Hamilton employer will be Walmart.” That can’t be good.

Seven of ten of Hamilton’s largest employers are taxpayer funded hospitals and educational institutions. One guess who is paying for that.

http://www.thespec.com/news-story/6314301-aging-boomers-immigrants-will-reshape-local-economy-mac-prof-says/

Ontario is doing better than which other provinces???

#184 kommykim on 02.19.16 at 11:18 am

RE:

#141 BR on 02.19.16 at 12:53 am
Hey Garth – yesterday, in response to where to put 3K, you said ” Inside the TFSA, in three growth ETFs. One Canadian, one US and one world. — Garth.

I thought you could only keep maple in there? Does this change if using an ETF? Because that would be awesome.

I run a mix of 20% ZLB, 40% VXC, and 40% VSB in my TFSA. They all trade on the TSX, but VXC gives me exposure to world markets and world currencies.

#185 For those about to flop... on 02.19.16 at 11:31 am

For the three people that enjoy reading my posts ,I apologize for not writing this week as I wrestled with personal conflict on foreign investment.
I have written on here before how I am a sub contractor that works on high end housing on Vancouvers Westside,and reside in East Van.
I deal with HAM weekly on the Westside,they bring them through in tour groups when the house is approximately 3/4 finished to try and create a buzz and to get the investors competitive spirits flowing.
I do not work on houses on the eastside so I have not seen any evidence of Ham here.
I had heard about HAM expanding but I had not witnessed it,until this week.
This is what happened,I was asked to help out a contractor that had a family emergency.
The house was in White Rock,nicest house in the area ,about 3/4 done.
Chinese developer, Chinese carpenters ,electricians and all other interior trades.This has nothing to do with Ham but I thought it was the reason random Chinese people kept pulling up trying to buy the house .There is no For sale sign out front yet.
I thought the reason they kept turning up was to meet the developer ,but It turned out they did not know about the Chinese connection and were simply driving around the neighbourhood looking for investment properties to buy.
There was a language barrier but I played the game and after they asked me how much it would go for and such I asked some of them when would they be looking to move in….” I not move in ,just buy” was one answer.
I went to get something out of my truck and I seen some of them walking down the middle of the road( no footpath) scouting out other houses and the area I guess.

Thanks for the work,I am grateful but this is really ruining this city.
I do not see the Ham as competition as I would never be able to afford the houses I work on,but it is definitely skewering the market.
I am very mad at myself as I forgot to ask them what is Cantonese for ” sales mix” ,ah well next week…

M41BC

#186 zudnic on 02.19.16 at 11:33 am

Hate to break it, Canada didn’t bubble with cheap money until the U.S. fell apart in 08. Once we couldn’t ride the coattails of the U.S. economy, the government bet heavily on oil and cheap money. Zero down became the norm, tapping borrowing the equity, etc. Then oil collapsed. The real reason the dollar collapsed, Canada needed back on its bread and butter, riding the coattails of the U.S. economy. Produce everything from resources to manufactured goods in low Canadian dollars and sell it for much higher U.S. dollars, make an extra 30% on the currency exchange. Blame the rising cost of living on foreign investors. When Clinton did this in the 90’s, to fix first Bush recession, it ended in the dot com bust. Clinton was the era of why rent when everyone in America can buy a home. Suddenly money became very cheap and people needed more of it to maintain their standard of living. People turned to the stock market to make better returns. Clintons party led to the Dot com bust. Then Bush did the same thing, the banks needed more returns on their investment, people needed more returns on their cash. They both turned to the stock market. Bush’s party ended in the biggest economic crisis in history. Canada borrowed the American bubble playbook and bet on natural resources to pay for it, mainly oil. Just as Clark bet on high prices LNG to support BC’s party, now its not paying for the cheap money, the riding the American coattails is also failing.

Some say Canada has more millionaires today, then ever before. Well most are tied to their house mixed with savings. Many are without pensions. Back in the 80’s, teachers would say to us in high school, save, put some money into a mutual fund every year and by the time you are 40 and close to retiring you’ll have a million dollars. Well to bubble up the economy, we’ve made a million dollars near worthless. You now need to do earn triple rate of return to live off a million comfortably. Money might be cheap but the cost of living isn’t.

Truth is the foreigners are not buying every house on the market to the point of there will be a shortage of houses. The growth rate of people moving into Vancouver isn’t that big either. Real estate isn’t a short term investment, nor is it a high return mechanism. When people start treating the real estate market like the stock market, real estate is broken. People that don’t get it can’t make it work. The fact a large numbers of foreign buyers are leaving the property empty, shows they don’t know how to make money in real estate. They don’t know how it works.

Lets see my Dad became a stock broker in 73, by 79 he was making a million per year. Think he did that trading stocks with clients, some of it yes. But it was mostly doing private placements. Think Warren Buffett made billions buying and selling stocks retail, think again. The foreign buyers, don’t understand the basics of real estate, they are dumb money. The smart money bought cheap locked in the farmland trust land, decades ago. Smart money bought the cheap mansions with acreage in the 80’s around the Dunbar/Southlands area. We are not Asia, we don’t need a cheap food supply to feed a majority of the population in poverty. We already import most food items. We have lots of land! Dumb money never makes real money, they always lose.

In fact Langley and the Fraser Valley could support 80 million people! What’s happening now, the stock market hasn’t built a large nest egg for most retiree’s, a large number have no pensions. They need cash to generate a modest income. Greed mixed with a need for cash, kills markets.

#187 Mike in Toronto on 02.19.16 at 11:34 am

#173

“I don’t see any interest only, no down payment mortgages in Canada”

There’s plenty of no-down-payment mortgages. Tricks like “cash back” (use the cashback as your downpayment) or “developer discounted” (developer claims to be selling the property for 95% of its value), seem to be used to squeak past the rules.

Searching for “interest only mortgage canada” took me straight to a website for albertaequity:

“Interest only mortgages are common in Canada. They have become more mainstream in the last 5-7 years since the Prime lending rate in Canada has been undeniably low. ”

This stuff has been going on for YEARS. Check out the skip-a-payment mortgages, or the “extended skip-a-payment” option. Somehow I don’t think skipping a payment on a 25 year mortgage and adding it to your mortgage is all that different than interest-only.

#188 B riding dirty on 02.19.16 at 11:52 am

Suede, advise is never free. There is always a hidden agenda or a 3 – 1% fee. Or a sales pitch sign up letter for membership!

This blog is designed for complaining. A place you can hide from your mother in law and your wife. You should of bought that home 2 years ago and not rented. You could of been saved from reading this blog by now! And not priced out of Burnaby Houses, at least without being owned by you mom in law! Choices! Jack Daniels! Golf! greaterfool

#189 bdy sktrn on 02.19.16 at 11:54 am

#142 Leo Trollstoy on 02.19.16 at 12:55 am
… prices can keep going up forever.
————————–
Freudian slip?

#190 Deryk Houston on 02.19.16 at 12:13 pm

I would have agreed with Garth but for the past five years I’ve been proven wrong. The prices keep going up. You have to ask yourself if there is something new going on and I believe there is. Rich people in China are unloading their wealth out of that country for a reason. The corruption and the lack of freedom in China frightens them. Canada and other western countries offers a life raft to their families. And their are millions of them in that position. They can buy property here easily with no restrictions and that is what they will keep on doing. And why wouldn’t they? So….my point is that it is a new world. The old rules don’t apply.
Having said that….I was wrong before. My gut feeling says that it will crash. Know one knows.

#191 45north on 02.19.16 at 12:13 pm

Rick: I don’t see any interest only, no down payment mortgages in Canada.

not on paper you don’t but as Mark Hanson says a rising market hides all faults. Well words to that effect. Let’s see what happens when CMHC off loads risk to the banks.

#192 Captin Obvious on 02.19.16 at 12:21 pm

#123 Smoking Man on 02.18.16 at 11:31 pm

Have no idea how I ended up in St chathrins tonight watching a chic Roller Derby tryout. Don’t worry I wasn’t driving.
___________________________________________
That’s because you drove there, booked a seat and entered your wife into the lineup.

http://www.ispot.tv/ad/7c1U/hotels-com-the-crazy-guy-trying-to-redeem-hotel-points

#193 45north on 02.19.16 at 12:21 pm

my last ditch effort to save the Liberal Party of Canada:

Vancouver is gona collapse, so’s Toronto and take the Liberal Party with it. The last election, the Liberals and the Conservatives were agreed on one thing: their future depended on the continued levitation of the real estate market. The third rail of Canadian politics.

https://en.wikipedia.org/wiki/Third_rail_of_politics

So the answer: raise interest rates and tighten lending standards. Paradoxically. These measure will stop the rise in prices and add structural stability which will make the market more attractive to foreign investment.

or you could just wait

http://www.greaterfool.ca/2016/02/07/its-obscene/#comment-430825

#194 bdy sktrn on 02.19.16 at 12:22 pm

The buyers have to be coming from somewhere, but it ain’t Canada.
————————–
there are only 45k detached houses left in van (city)

take out east van (mostly local money)and maybe less than 20k desirable houses for foreign cash.

attrition/conversion will take out a thousand more over ten years.
many, or most, would rather die slowly and painfully than move to the burbs.

this has little to do with nortel (sold all mine at 119 btw to put in riskier CRAP!)

is has to do with BC kicks ass and the supply is quickly going to zero.

intl’ cash keeps pouring in.
prices will double again in 10 yrs.

same situation for seattle and SF.

west coast cities are the worlds most lusted after.

#195 family beagle on 02.19.16 at 1:08 pm

#157 Q1 Duplex Drive 4-6-4-4 Type on 02.19.16 at 8:51 am
Garth –

Like it or not, people want to live in Toronto and Vancouver because, with the former, it’s where things are happening and, with the latter, it’s a gorgeous place to live. Anywhere else in Canada is just a flyover backwater. I say that with due respect, as a Montreal native, because for any ambitious young person, Toronto is the place to be.

….

Yes, all else is tundra, wolves and banjos. And boring. Stay close to the city. You made a smart move and a good call for ambitious young beavers. Nothing else to see here. After I bought my ranch for $0.22 sqft, I immediately ran back to YVR and explained to my peers it was the stupidest thing they could do, but I’ll be gone this weekend. Leave message.

#196 Shawn on 02.19.16 at 1:31 pm

OLD NEWS IS NO NEWS

#166 Bottoms_Up on 02.19.16 at 9:03 am replied to my request for any proof that it is tough to get a mortgage in the U.S.A. as follows:

#126 Shawn on 02.18.16 at 11:41 pm
——————————————
My apologies, I thought this was common knowledge.

http://mobile.nytimes.com/2008/01/17/business/worldbusiness/17iht-lend.4.9295180.html?referer=&_r=0

http://abcnews.go.com/Business/story?id=3475233&page=1

******************************************
One of these links was from 2008 and said only people with good credit could borrow at that time.

The other link was undated.

So, no evidence has been provided that it is harder to borrow for a house in the U.S.A. versus Canada.

House prices continue to recover in the U.S.A. If interest rates stay this low they probably have a LOT higher to climb because they are so affordable.

My close relatives have bought two houses in Florida. One at the very bottom in a “short sale” from a Bank and one just recently. One close relative is now a U.S.A. citizen. They know the market. In fact one relative sells new homes in Florida for a home builder and business is strong. But others can believe what they want.

In fact people almost always believe what they want. People (including certain notorious posters here) seldom let mere facts and evidence get in the way of what they want to believe.

#197 cramar on 02.19.16 at 1:33 pm

#121 MF on 02.18.16 at 11:27 pm
#110 Briana on 02.18.16 at 10:44 pm

Toronto isn’t immune. We had 125k immigrants from india/pakistan/russia/sri lanka coming to the GTA in the 90’s and RE languished.

The immigrant angle is realtor bullshit and they love harping on it. What about people leaving the GTA every year? Everyone I talk to who owns a home here is looking to retire and move somewhere quiet miles away from the traffic and noise. Add to that Canada’s demographics mean a horde of boomers will be looking to retire in the next decade (or be forced too for health issues).

. . .

————-

Please, please, please. . . tell them to come to Leamington—and buy a yacht. The marina has room. If they do, the demand would drive up the price of houses so that when I sell I win again! Like to see the base price of starter bungalows get above $200k. That would put a modern brick two story with double garage well above the current $300k-$350k range.

And this house I posted months ago is still on the market. Maybe it is waiting for me. Wonder if they would accept a lowball offer of $450k? But that would kill my conforming to Garth’s Rule of 90. Besides my un-house-horny wife would not go for it. Too much to clean, too much lawn to cut, and too much money tied up in RE. Still, I’m tempted. It’s the 5-car garage that has me:

https://www.realtor.ca/Residential/Single-Family/16100876/458B-MERSEA-RD-21-LEAMINGTON-Ontario-N0P2P0

Anyway, for a retirement community we have far better weather than Elliott Lake. Double digit temps forecast for tomorrow. Woohoo!

But thinking about it. . . an influx might add congestion. I like going from one end of the city to the other in less than 5 minutes. But unfortunately you do have to add two or three during rush hours (actually rush minutes). Hate to see traffic get worse.

#198 zudnic on 02.19.16 at 1:57 pm

For all you real estate is doing nothing but going up from here people. Read this:

http://www.vancouversun.com/Delta+council+approves+controversial+development+Tsawwassen+Southlands/9143786/story.html?__lsa=5d9c-46d1

With that kind of development, does a crap house at $1.2million make sense in Tsawwassen? Does a $600k townhouse? No because that 217 hectares is only a sliver of the land around Tsawwassen that can be developed. Its supply and demand. I grew up in Tsawwassen. In seven years of elementary school, we only received two new kids the whole time. Not much has changed, not a ton of people rushing to move there, even if there was, the Spetifore land development supply will out way the demand.

The people including the 4% of foreigners have no idea how real estate investment is done. Its dumb money buying now. The problem with dumb money is they don’t realise they are dumb until its too late. The herd jumps in and the herd jumps out.

People are acting like a never ending supply of buyers is in the market and a limited supply of houses. Truth is the lower mainland land is not all waterfront. Speculators that don’t understand the market, well they always get killed.

#199 Victoria Real Estate Update on 02.19.16 at 2:02 pm

# 173 Rick

Canada had zero-down mortgages. They helped inflate Canada’s housing bubble but were taken away around the time that interest rates were dropped from near-normal to emergency levels.

Apparently you didn’t read my recent posts that addressed this.

I’ll put together more information for you and post that. I don’t mind at all.

#200 Chris on 02.19.16 at 2:27 pm

# 175 Caught In The Grip on 02.19.16 at 10:35 am
” I agree 100% that we are in the greatest real estate bubble of all time for this country. But I think 17% TSX exposure for the average investor is far too much. I would limit Canadian exposure to 5%. US exposure should be >60% and the rest emerging markets & Europe.”

I don’t understand why you people limit Canadian exposure based on this argument. Invest in Canadian companies that operate globally. Look at banks that operate in the states and elsewhere, at utilities like Fortis, look at insurance companies that operate globally, look at tech companies like Open Text or CAE who sell to the world. And as a bonus, a lot of these companies can be purchased with Canadian dollars and pay dividends in US funds. My equities are probably 90% TSX based but I look at them as global holdings.

#201 understood by few on 02.19.16 at 2:28 pm

All this talk of Nortel. I have to recommend the book “The Bubble and the Bear”. As someone with both a technical and business background I found it quite interesting (read it on a flight).

Anyone who took the time to actually read Nortel’s financials (not the non-GAAP shiz they were presenting quarterly) would have seen them for what they were. Yeah, they had some innovations that started the initial upswing, but then they moved into acquisition over innovation (trying to hide their cash acquisitions through sketchy accounting).

As with most books of its type, it’s a little dry.. definitely not for everyone, but a nice little history on the Nortel bubble.

#202 A Yank in BC on 02.19.16 at 2:34 pm

#144 Colin on 02.19.16 at 1:23 am

Perhaps a simple explanation. Capital is now fleeing China at a rapidly increasing rate because the wealthy fear devaluation of their currency (the renminbi). Here is a NY Times article on “Smurfing” to get the money out. It would appear that the U.S. and Canadian Real Estate markets are the direct beneficiaries, with the largest impact by far occurring in west coast cities.

http://www.nytimes.com/2016/02/14/business/dealbook/chinese-start-to-lose-confidence-in-their-currency.html?_r=0

#203 mark on 02.19.16 at 2:50 pm

About canadian exposure. Garth you argue 17% allocation of preferred shares(i assume canadian).
That will comprise all asset allocation for the canadian component.
ZPR Rate resets have 150 or so issues in that etf but when you really look there all held by less than 20 companies not great diversification?
Do you look at preferreds as a separate entity, i look at them as a stock there hybrid not fixed income. Bottom line is preferreds inclusive in the 17% or so canadian allocation exposure?

No. — Garth

#204 bdy sktrn on 02.19.16 at 2:54 pm

Still, I’m tempted. It’s the 5-car garage that has me:

https://www.realtor.ca/Residential/Single-Family/16100876/458B-MERSEA-RD-21-LEAMINGTON-Ontario-N0P2P0
———————
not bad , that much land in van west would be 25mil.

#205 Smartalox on 02.19.16 at 3:00 pm

Looks like the beginning of the end for the ‘sharing economy’ business model.

With over 5400 properties on Air Bn’B in the lower mainland, I’m astonished that revenue ministers aren’t all over these companies to have taxes deducted at the point that payments are collected, instead of having property owners ‘volunteer’ to report that information.

http://www.cbc.ca/beta/news/canada/toronto/ontario-pilot-project-airbnb-taxes-1.3455377

Of course BC’s finance minister owns 8 investment properties himself, so maybe that’s why he’s not too serious about cracking down on rentals in the unserground economy.

#206 MF on 02.19.16 at 3:07 pm

#193 cramar on 02.19.16 at 1:33 pm

Lol I’ll pass on the message. I’ll let them know my inside sources say Leamington is hot property and they better buy now or priced out soon as well!

MF

#207 MF on 02.19.16 at 3:12 pm

#168 Bottoms_Up on 02.19.16 at 9:11 am

Explain how real estate went sideways in the 90’s then.

Don’t tell me the new brand of immigrant is different. In the late 80’s – early 90’s there was the Japanese scare. We also had lots of southern Asians moving here as well.

How am I wrong? What other factors can you think of that I did not mention?

MF

#208 MF on 02.19.16 at 3:21 pm

http://www.statcan.gc.ca/pub/11-630-x/11-630-x2014001-eng.htm

Flop,

Here’s a chart showing population growth as a whole for the country. Notice the down trend. Notice the slightly higher uptrend in the 90’s when RE flatlined.

I went to school with many Indians, Pakistanis, Sri Lankens and Russians who immigrated in the 90’s. I grew up in the GTA and so the ones I know settled there. About half have moved to other countries to work, or for University in the 2000’s and stayed there. I have not heard any realtor cite net migration out of the GTA because it does not support their interests.

MF

#209 MF on 02.19.16 at 3:23 pm

Last message was meant for Bottoms_Up

Used to typing Flop I guess!

MF

#210 Rental Income on 02.19.16 at 3:35 pm

Thanks for taking the time to respond to my question Mark, Siva and Josh! I appreciate you sharing your insights and experiences.

#211 zudnic on 02.19.16 at 3:43 pm

People who believe low interest rates equals banks being able to loan unlimited funds. Don’t understand banking. In fact I believe the big Canadian banks are already in the danger zone. I’ve moved all cash to a 100% insured deposit credit union!

Banks need cash reserves, to get cash, they pay interest on large deposits. Sure interest rates are low for the bank, but to take on more risk, they need more deposits. The banks are not going to give the money away free, they can’t lower interest paid to depositors or the depositors will leave. Japan entered a collapse spiral under much the same conditions, this occurred in the 1990’s and they haven’t recovered today, even with negative interest rates, the government paying the banks to take their cheap printed money.

#212 Shawn on 02.19.16 at 3:44 pm

#196 Chris

I agree that buying Canadian companies that operate globally is effectively “less” Canadian exposure. CAE is actually not a bad choice. I think despite the fact that Canadian banks (i.e. TD & RY) operate internationally remain heavily exposed to the Canadian economy. The Canadian banks are overvalued when compared to their US and European counterparts when using basic PE, PB & PEG metrics.

However, I was speaking in general in terms of ETFs, etc. For example, I think 17% XIU or an equivalent Canadian equity fund or ETF in a portfolio is too much Canadian exposure.

Most Canadians are very exposed to the Canadian economy already in the form of their jobs and homes – they already have too much exposure based on these things alone. 2000-2012 were great years for Canada due to the commodity bubble. 2012-? will not be great years as Canada will likely suffer rolling recessions and very low GDP growth (i.e. 1%).

Stock picking is not appropriate for most investors.

#213 A belieber on 02.19.16 at 3:55 pm

Direct Godth Quote

https://imgflip.com/i/zhpqu

#214 Victoria Real Estate Update on 02.19.16 at 4:01 pm

# 183 zudnic

You have been misinformed or you haven’t done any research.

Canada began lowering its mortgage lending standards
around 2000, at approximately the same time as the US.

This started the inflation of Canada’s housing bubble. As I recently wrote, by 2006 Canada and the US had housing bubbles of equal size.

Different (but equally powerful) bubble-blowing policy changes in Canada and the US brought about the formation of housing bubbles of similar size by 2006.

Among other things, Canada completely removed the limit on CMHC- backed mortgages early in the 2000s as part of its bubble-blowing policy changes.

Although not exactly the same as CMHC, the limit for Fannie Mae and Freddie Mac in the US has remained at just over $400K to this day. CMHC’s current limit is $1m.

Afte 2006, Canada added zero-down, 40 year mortgages, etc. to blow the bubble bigger.

Even as late as 2015, more policy was changed in Canada as 100% of rental income was allowed to be used on mortgage applications.

I’ll post more information for you.

#215 Victoria Real Estate Update on 02.19.16 at 4:03 pm

Addition: for most mortgages in the US, Fannie and Freddie’s limit is around $400K.

#216 Rick on 02.19.16 at 4:34 pm

Dear NoName: Thanks for the links, I read them.
1. 20% down, is no the same as nothing down.
2. In order to qualify for the 100% mortgage”:
“You must have a clean credit history
(No previous bankruptcies and any late payments in the last two years).
You must have good job stability (two years in the same line of work is preferred).
That’s it. ” This was not the case in the US. People with 570 credit scores and no job history were being given zero down mortgages.
3. If you don’t pay rent, aren’t you evicted? The only place you can stay for free is a paid home or prison:)
Seems fair, no pay, no stay:)
Again, the Canadian mortgage market is NOT the same as the US. Over valued in some places? Yes.

#217 Ronaldo on 02.19.16 at 4:35 pm

#210 Victoria Real Estate

”Although not exactly the same as CMHC, the limit for Fannie Mae and Freddie Mac in the US has remained at just over $400K to this day. CMHC’s current limit is $1m.”

And had they left it at 500,000, things would be a lot different today in the bubbly zones. I believe this was the major cause of what we are experiencing today. The banks had no incentive but to lend and main cause of the escalating prices. Governments, cities and municipalities of greatly profited from all of this. Why would they not want it to continue. And of course Christy doesn’t want to lose any of that illusionary equity does she?

#218 For those about to flop... on 02.19.16 at 4:38 pm

#207 MF on 02.19.16 at 3:23 pm
Last message was meant for Bottoms_Up

Used to typing Flop I guess!

MF

////////////////////////
Hey brother , I started reading it and I thought what does this have to do with my post?
You made me laugh,hope your well.

M41BC

#219 Godth on 02.19.16 at 4:38 pm

#102 A belieber on 02.18.16 at 9:33 pm

Well, beleiber, it doesn’t require sage wisdom to see what’s in front of our eyes. History is cool but if you want to huff hairspray that’s up to you.
https://www.youtube.com/watch?v=Q2CCs-x9q9U

It’s fairly clear that the Empire of Chaos is in fact in growing chaos. You’re of course free to ignore history and it’s lessons, play three monkeys with the present and generally plead ignorance to awareness but that won’t change anything at all. The least you could do is change your own mind, painful as that may be.

#220 Chris on 02.19.16 at 4:39 pm

“For example, I think 17% XIU or an equivalent Canadian equity fund or ETF in a portfolio is too much Canadian exposure.”

Hey Shawn – I don’t think there is a right answer, depends on risk tolerance, what you hold etc so on. I just wonder why you think 17 % is too much, as opposed to say 25 or 12 or any other percentage? Seems arbitrary. Personally, I live in Canada, and understand our laws/banking/economy better than I understand those in other countries. Therefore I am comfortable holding the vast majority of equities in Canadian companies, just venturing out for a few areas where we might not have choice – ie healthcare (though I do own some Canadian Healthcare stocks as well). I just think the percentages thrown around 3% or 17% have absolutely no reason – they are just made up like drink 8 glasses of water – great myth, no science.

#221 bdy sktrn on 02.19.16 at 4:48 pm

#206 MF on 02.19.16 at 3:21 pm
http://www.statcan.gc.ca/pub/11-630-x/11-630-x2014001-eng.htm
——————————-
nice chart. shows the highest growth rate over a 30 yr period of about 2%. when the pop was 15m.

or avg growth of 300k/yr
..
today at our low growth rate of just over 1% and 35m

pop, we now get about 350+k/yr.
..

somebody better keep building those condos!
canada has very little usable/livable land. bc the least.

prices ain’t coming down meaningfully.

#222 Godth on 02.19.16 at 4:57 pm

#211 A belieber on 02.19.16 at 3:55 pm

lol, is this you?
http://i67.tinypic.com/ipa07m.jpg

#223 Nass on 02.19.16 at 5:00 pm

Would you please explain how do they calculate the inflation in Canada?
They say the inflation is 2% but just the grocery has gone up more than 40% in past few months and the house price in my neighborhood increased almost 30% since DEC 2015!
I think they lie about real percentage of inflation!!!

#224 For those about to flop... on 02.19.16 at 5:46 pm

Vreu ,here is a graph showing the quality of your post.
O.k……..*……….
…………………….
Poor………….*
……………………
Crap……………..*
Jan 2015-Jan 2016

As you can see by the state of the art chart, your posts are the only thing that has gone down.
I know this chart might seem confusing to some but if you look closely you will see that it is actually very detailed.

M41BC

#225 GTA Girl on 02.19.16 at 6:03 pm

A Toronto based developer is building homes in Texas. Bought out a Texan developer who went under (yeah these Toronto Bentley-loving guys aren’t that smart).

The Toronto developer has been complaining that Americans expect too much in their home designs and quality materials. “These Americans feel we owe them” makes you wonder what crap they’ve been building in the GTA.

Anyways the Texan development construction site had a massive fire last week….does someone want out?

#226 Jimmy on 02.19.16 at 6:13 pm

First for Friday!

#227 The greatest fool.ca on 02.19.16 at 6:14 pm

It’s so obvious

#228 Shawn (Allen) on 02.19.16 at 6:14 pm

Hey other Shawn, just because you use the proper spelling for your name does not mean you can use your name here.

I was here first, by a long shot.

#210 Shawn on 02.19.16 at 3:44 pm who responded to Chris is not the “real” Shawn

If this persists I will be forced to ban myself from this site.

#229 Ronaldo on 02.19.16 at 6:27 pm

A CLIP FROM THE VANCOUVER SUN RECENTLY:

”While density has its challenges in terms of congestion, parking and noise, it is worth noting that the region is a virtual nature preserve by international standards. As of 2011, Metro Vancouver’s population per square kilometre totalled 802.

By contrast, Paris’ population per square kilometre is nearly 3,550 people, while the per square kilometre density in New Dehli is 11,300 people, and in Manila, 43,000.

Nothing like comparative data to put our challenges into proper perspective.”

#230 koenig on 02.19.16 at 11:05 pm

Now we have most of the lower mainland asking over a million for a crap house. So buyers can afford them and keep the illusion Canadians are wealthy because they own a guaranteed lotto ticket called a house. The banks have to lend a million like its $600k. Now all the people in Victoria that bought a $600k crappy house in Sidney, will want to refinance and tap some of that equity that makes Canadian home “investors” rich. Then they discover the house lottery isn’t guaranteed, their crappy house $600k house is now worth $570k.

#231 Doug in Varanasa (the holy city), India on 02.21.16 at 7:55 am

I still find it odd there isn’t a mad panic flood of people selling to take advantage of a once in many lifetimes lottery winning of housing. Earlier on my trip I was on a bus to Mumbai, descending the steep grade of the Western Ghats. I could hear the engine screaming at high RPM (transmission in lower gear) and I’m sure the governor had shut of all the fuel injectors so the engine was putting out no power, not even a milliwatt. Instead it was using compression and internal drag to absorb power and provide braking. Why ins’t the housing market in Toronto and Vancouver behaving in a similar manner? Why aren’t more people selling, trying to lock in their gains spectacular forever and ever?

#232 HARRY fred on 02.22.16 at 3:03 am

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