In disguise

spot

Last year almost half of all the new jobs created in Ontario were in real estate. Agents, mortgage brokers, appraisers, sales assistants and the dudes who pound the signs in. There are 67,800 realtors in Ontario these days, plus 40 real estate boards. Across Canada more than 110,000 people work flogging houses. In Toronto alone there are 45,000. In Vancouver, 13,500 realtors toil the mean streets.

Housing activities directly account for about 7% of the economy. Add in the real estate financing component, and it’s double that. Manufacturing (all of it) comes to 11% of the GDP. Oil, gas, mining and pipelines (including the oil sands) is 8%.

Consumer debt is just over $2 trillion, with two-thirds of that being residential mortgages. Our loans are now greater than the entire Canadian economy. Never happened before. Just like the $1.51 million benchmark price for a detached in Vancouver. We’re breaking records all over the place.

By the way, did you catch this chart the other day in the MSM?

chart

The blue line is the average Canadian house price – now above half a million (a record, of course). The red line is the yield on a 5-year Government bond, which is used to set fixed-term mortgage rates. You can see that real estate spiked because money dropped in price – not because there’s less of it, or it became intrinsically more valuable. This chart also clearly suggests – through impressive negative correlation – that when rates rise, house prices will drop. The debt, of course, won’t.

This is the time bomb at the heart of the Canadian economy. Wage gains over the past year, as explained here last week, are non-existent (after inflation). But borrowing and real estate values have risen consistently. Household debt-to-income just passed 170%. Gulp. Yup, another record. (In contrast, Americans owe about 113% of their incomes.)

Meanwhile surveys show how bad we suck at finances. Over 80% of TFSA money is rotting in interest-bearing stuff like GICs and HISAs. A quarter of us couldn’t find a thousand bucks in a pinch. Half of Canadians could not survive one missed paycheque without angst. RRSP contributions have plunged. Legions of people live in giant houses with lawn chairs in the living room and obese monthly payments. Diversification and balance are unknown in most lives. The cult of the house has delivered us to this moment. And 2017 may be the tipping point.

Now, to be clear, there’s no crash coming in the way people think of equity corrections – ten, fifteen or 20% in the course of a month or two. Housing doesn’t work that way because, unlike stocks, you can’t get out in five minutes. Besides, real estate’s way more emotional than financial assets. Prices are sticky. They shoot higher on speculation, greed, euphoria, FOMO and delusion. They crawl back down on denial. Nobody these days can fathom taking a loss on a property, after seven years of madness. Many would rather suffer behind the drapes than make a rational decision to bail.

But a crash isn’t the threat, nor a wave of mortgage defaults (won’t happen). No US-style foreclosures with bailiffs hauling kids and mattresses out onto the lawn. No Canadian city will end up looking like Detroit. But still, there’s hurt on the way. A crash in disguise.

This year the cost of borrowed money will rise. Lending restrictions will have an impact. Even all those realtors are expecting price declines. The economy’s barely growing, and as housing goes mushy so does a lot more. So the heady combo of rising equity and falling debt servicing costs will reverse. How could it be otherwise?

The likely consequence, given real estate’s stickiness, is a long, slow and relentless melt. The listings drought will end. Price appreciation with it. The erosion will take time, but erode it will. Some people won’t care that they missed the moment to make windfall, historic profits. Others will be bitter they gambled and lost. Many more will end up with faint light showing between their mountain of debt and the remaining equity, knowing the next mortgage renewal could extinguish it.

This is what keeps economists up at night.

Not with a bang, but a whimper.

140 comments ↓

#1 Manderbomb on 12.29.16 at 4:59 pm

We are all doomed…

First?

#2 Ace Goodheart on 12.29.16 at 5:08 pm

True. So. Own your house. End of story. You live in it, right? You want to have somewhere to hang your hat? A place to put that king size bed (or if you’re in Toronto, Queen or double depending on how narrow your lot is)?

Just do it. Instead of the vacations, the expensive cars, the renos, the endless upgrades, the SUVs, the nights out, the visits to expensive stores to buy things you could get at a fraction of the price at Walmart, just pay off your house. Financial freedom through badassity. Be a stick in the mud. Don’t let the *&&hoies take all your money.

Remember, the people who run that expensive store you’re shopping at, don’t shop at expensive stores. They run them. They get their money from people like you, who pay them $90.00 for a t-shirt (that cost 50 cents to make in Bangladesh).

Pay your houses off peeps. That is how you get freedom, happiness and true fulfilment. You will all be dead soon anyway. You will live around 70-80 years, and the best years are between 20-50. After that health problems sneak in and you are hanging on with medical aid. Past 60 you can’t travel because no one will insure you. Pay your houses off, and enjoy your lives.

#3 Larry1 on 12.29.16 at 5:14 pm

Typo – Think if should be is…

“The blue line if the average Canadian house price”

Got it. — Garth

#4 The Technical Analyst on 12.29.16 at 5:16 pm

In technical analysis terms, any hockey-stick asset appreciation usually has a 66% retracement.

Realestate is a asset.

#5 Love this Blog on 12.29.16 at 5:19 pm

# 2 Ace – well said. Ideally you would have hour gh before the price jump and the follow your advice.

Pay hard on your debt, get out from under it

#6 steerage steward on 12.29.16 at 5:23 pm

Hopping everyone continues to have a relaxing holiday and hasn’t put a down payment on anything.

https://youtube.com/watch?v=mRFCOPae8Pg

#7 juno on 12.29.16 at 5:25 pm

Yes we all all Hollow men.

I like whimpering

#8 short term markets 'predictions' are a fools game.. on 12.29.16 at 5:27 pm

‘Now, to be clear, there’s no crash coming in the way people think of equity corrections – ten, fifteen or 20% in the course of a month or two.’

the market reaction post-Trump victory should have been a reminder. MANY pundits made a mess out of that…:)

#9 oncebittwiceshy on 12.29.16 at 5:30 pm

Hey Garth,

You have couched your position carefully regarding a crash but you should really touch on the obvious with Toronto and Vancouver.

When the house prices in these cities do crash, and a crash for some will only be the 10% already experienced in Vancouver, then unemployment is going to rear its ugly head quickly.

The F.I.R.E. industry has bought into their own housing meme, particularly in these two cities. When when they lose their jobs a lot more homes and 2nd, 3rd investment houses will be coming onto the market. The fact that so many in this industry are centered in Toronto and Vancouver will just exacerbate the situation.

As you have noted the F.I.R.E. industries comprise more of Canadian GDP then our commodity industries. Can you spell recession when this downturn hits. We don’t need to guess what Poloz will do at that point.

Do you want to venture a guess as to how quickly foreign bond investors pull out of Canada when they see all of this happening.

As you noted, the 5 yr. bond yield determines mortgage rates. Guess where that yield will spike to when the Government needs to attract those “bond vigilantes” back to support their infrastructure plans.

I’m afraid that 2017 will go down in history as Canada’s salute to their ignorance of the U.S.A. meltdown.

#10 TurnerNation on 12.29.16 at 5:38 pm

Hate to say it but appears Gold, JNUG will shoot the lights out, herein.

#11 earlybird on 12.29.16 at 5:38 pm

Lots of people are on the spend,renovate,debt buildup, refinance all into mortage cycle and don t know about the new rules or rising rates….it will be quite the shock, especially for those who have made this a lifestyle.

#12 When Will They Raise Rates? on 12.29.16 at 5:43 pm

Housing prices were sticky as rates were falling/stagnant. Let’s see what happens to housing prices in an environment of peak debt, falling loonie, zero/negative GPD growth, rising cost of living, rising municipal, provincial and federal taxes AND rising rates!

#13 Mark on 12.29.16 at 5:45 pm

“Meanwhile surveys show how bad we suck at finances. Over 80% of TFSA money is rotting in interest-bearing stuff like GICs and HISAs.”

This fact is truly remarkable. And probably equally bad metrics amongst those who self-manage their RRSPs. On the upside, however, it gives certain Canadians, who haven’t encumbered themselves with housing debt, an excellent opportunity to sell the over-allocated assets short (ie: borrow), and invest in the stuff that’s under-allocated. Reaping not only a huge return as things return to more historically normal ratios, but also picking up a significant chunk of taxation benefit as portfolio gains are taxed as capital gains and tax-preferred dividends. While interest is fully deductible against all income. A characteristic that even our investor friends to the south don’t enjoy fully.

I talk to a few young people here and there about the housing bubble, and for most of them its despair. But I think its better to view the bubble as an opportunity to pick up the out of favour assets on the cheap. The BoC will be forced, probably for the next decade, to run extraordinarily accommodative monetary policy (interest rate cuts probably down to ZIRP/NIRP!). The Canadian stock market indices are priced for total returns in the low double digits. Smart young people are staying away from the housing market at this point and are loading their portfolios with the ‘stuff’ that nobody else seems to want.

#14 Bram on 12.29.16 at 5:47 pm

Wouldn’t this be an easy fix for BoC?
Just lower rates. Lot’s of room to go before hitting zero percent.

#15 The Wet Coast on 12.29.16 at 5:50 pm

In New Westminster sales of detached houses have declined 95% from this time last year, only one detached house was sold. Coquitlam not much better with only 27 houses sold and sales are down 77% in the last month. Burnaby detached sales are down 72% and Vancouver is “much” better with sales only off 55%. If we have a lot of speculation going on then the possibility exists they’ll panic. On the other hand if many of the spec properties are sitting vacant it is possible the owners will rent them which will take some pressure off the rental market and rent prices which will force some to sell. I expect a full court press by the real estate industry in BC this spring and possibly a dead cat bounce. It will be complicated by the provincial election which I expect the NDP to win for the same reasons Trump did. Depending on the scope of their platform with respect to real estate it could be nasty out here next Fall.

#16 crowdedelevatorfartz on 12.29.16 at 5:54 pm

……and in the Lowerbrainland ….they just keep building condos………

#17 Bast on 12.29.16 at 5:55 pm

So here’s what I don’t understand. The price you pay for real estate is not the price you pay. When I was a lass, my father sat me down and showed me something called an amortization chart. This showed me how much interest we paid on the house we were in. I was suitably PO’ed. So should we all be. Let’s take a $500,000 mortgage as an example. At a 3.5% mortgage rate over 25 years, you are actually paying an additional $248,905 in interest (to the bank) on that property. That’s without taxes, any fees, utilities or maintenance. I think everyone should be shown this kind of calculation before they buy. Makes me happy I’ve rented all these years. Hoping to retire in a few more years – earlier than most of my friends.

#18 Digby Ditherman on 12.29.16 at 5:56 pm

Housing crashes, like when being thrown off a high cliff, doesn’t really hurt much … until you land. There’s lot of stomach butterflies on the way down, and it seems to take forever, but it does end. When you hear splat, well then its over. I’d guess “Splat” would be about October 2017 at this point when pencilling in the ‘death vigil calendar.’ My broker keeps reminding me that Canadian housing, like one’s good looks only goes goes up, and when it comes to sheetrock, invest aggressively, invest often.

#19 Jonathan on 12.29.16 at 6:05 pm

#2 Ace Goodheart
“Pay your houses off peeps. That is how you get freedom, happiness and true fulfilment.”

I would say not necessarily “pay off your house” but rather “live within your means, be content with what you have and who you are with, and happiness will follow”

Granted it is very very tough to do nowadays in this connected society as everyone wants to compare (in public or private) how they stack up against others, hence the relentless wheel of one-upmanship that just churns your money, time, and happiness away.

There’s always going to be someone that owns a bigger house or boat than you, more expensive car/watch/clothes than you, taller/younger/hotter than you, whose spouse/kids/partners accomplish more than yours, who has bigger genitals than you…

I’m not there yet but I constantly try to remind myself of the above so I don’t get sucked back in like before…

#20 Jerry on 12.29.16 at 6:11 pm

So housing has run up over 150% in major markets, but we are not to expect even a 20% correction in the next year?

#21 };-) aka Devil's Advocate on 12.29.16 at 6:14 pm

#2 Ace Goodheart on 12.29.16 at 5:08 pm

A lot of truth in what you speak

#22 Fish on 12.29.16 at 6:14 pm

Lovely, I’m glad I’m out of Ontario, starting over when you’re a puma, doesn’t get much more exciting than that

#23 the jaguar on 12.29.16 at 6:14 pm

GT:

I thought I read that Toronto real estate plummeted 35% in 1989 and Vancouver followed with a 40% drop in 1990. I was in transit at the time.
Can you provide some background on how long it took to reach those percentages and what precipitated it?

#24 Post on 12.29.16 at 6:18 pm

You know Garth, I’m not sure if you somtimes write this blog after a few single malts – geez, who would blame you.

Tonight’s entry was rational, explanatory, reasonable and probable. Well done.

But some nights, you make it sound like the sky is going to fall fast and hard. I like tonight’s, slghtly less armageddonistic version, better.

#25 ole Doberman on 12.29.16 at 6:19 pm

Gartho you promised blood in the streets

Now its just a slow melt.

#26 Alt old on 12.29.16 at 6:22 pm

Remember, the people who run that expensive store you’re shopping at, don’t shop at expensive stores. They run them.

Please… How many “expensive store” you owned?

#27 Mark on 12.29.16 at 6:26 pm

“Wouldn’t this be an easy fix for BoC?
Just lower rates. Lot’s of room to go before hitting zero percent.”

0.5% to 0% isn’t going to make much of a difference as the housing downturn really starts accelerating. As we’re already seeing, risk premia is rising And NIRP has its problems, namely, that it destroys confidence in lending (people tend not to like lending for less than zero! — they just stuff their mattresses with cash instead!).

A portfolio with at least some over-allocation to monetary instability hedges still isn’t a bad idea (though I wouldn’t touch that JNUG with a ten foot pole due to the ‘constant leverage trap’ it suffers!).

Let’s take a $500,000 mortgage as an example. At a 3.5% mortgage rate over 25 years, you are actually paying an additional $248,905 in interest (to the bank) on that property.

Very true, except that historically mortgage rates are closer to 7%, so the ‘math’ is even worse. The goal of the bankers, ultimately, is convert the labour and property of the borrowers, to their own. And I suspect they’re going to do a very good job of it in the coming years as risk premia rises substantially against housing-backed loans. Even if BoC policy rates remain low.

#28 1 out of 13,500 on 12.29.16 at 6:26 pm

December home sales in the Lower Mainland won’t be as bad as many have predicted. They will still be a bit down, but more in line with December 2015. There appears to be a bit of a rebound from the severe down turn over the last 3 months. There has also been a substantial drop of new listings. We’ll see if it continues.

#29 2017 The Year The Housing Market Crashed! on 12.29.16 at 6:30 pm

Let the melt begin. People have too much debt. Reality needs to return to Canada.

#30 Bram on 12.29.16 at 6:38 pm

#17 Bast on 12.29.16 at 5:55 pm
you are actually paying an additional $248,905 in interest

So do the comparison: is 25 yrs of rent more or less costly than $249K plus property taxes?

#31 nubbers on 12.29.16 at 6:42 pm

From personal experience, I would say house prices can crash significantly within a few years.

Many years ago, I found myself facing a loss of about 60% of my purchase price (after inflation), approximately 3 years after purchase. Of course, I did not sell at that point (couldn’t afford to), so that loss never made it into any official statistics.

So perhaps those waiting to buy don’t have too much longer to wait. You will just have to have the patience to find someone who can afford to sell (or is forced to) at the new lower prices.

#32 Damifino on 12.29.16 at 6:55 pm

#17 Bast

So here’s what I don’t understand.
————————————–

It sounds to me like you understand perfectly.

#33 BillyBob on 12.29.16 at 6:58 pm

#2 Ace Goodheart on 12.29.16 at 5:08 pm
True. So. Own your house. End of story. You live in it, right? You want to have somewhere to hang your hat? A place to put that king size bed (or if you’re in Toronto, Queen or double depending on how narrow your lot is)?

Just do it. Instead of the vacations, the expensive cars, the renos, the endless upgrades, the SUVs, the nights out, the visits to expensive stores to buy things you could get at a fraction of the price at Walmart, just pay off your house. Financial freedom through badassity. Be a stick in the mud. Don’t let the *&&hoies take all your money.

Remember, the people who run that expensive store you’re shopping at, don’t shop at expensive stores. They run them. They get their money from people like you, who pay them $90.00 for a t-shirt (that cost 50 cents to make in Bangladesh).

Pay your houses off peeps. That is how you get freedom, happiness and true fulfilment. You will all be dead soon anyway. You will live around 70-80 years, and the best years are between 20-50. After that health problems sneak in and you are hanging on with medical aid. Past 60 you can’t travel because no one will insure you. Pay your houses off, and enjoy your lives.

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

This is what might be referred to as “you suck at finances”. What a stupid comment. Missed the point completely.

Here’s a tip: if you eschew debt, you don’t have to worry so much about paying it off. It’s too late for those who already took on the big leverage. Good luck lump-summing your $900,000 mortgage down. It’s all about trying to warn those who haven’t yet done so not to blow their brains out on cheap money.

A rented home is exactly as good a place to hang a hat or stick a bed as a bought one. If you need to move for work, it’s a much better one actually.

But if you need to pay off a house to achieve “freedom, happiness and true fulfilment”, good god I pity you. I’m guessing this is one of those people like that poor girl who commutes 3 hours a day and sacrifices every other joy in life so she can make her mortgage. Ugh. Gives me the shivers. The definition of slavery, and voluntarily yet.

I buy things that give good value, not just because I can afford them. Housing included. Canadian real estate today? Not a chance. In a sucky, down-trending economy with zero good news on the horizon, let’s buy an inflated, poorly-constructed shack in a terrible climate with the money the cheapest it’s ever been in history.

What could go wrong? lol

#34 I don't know on 12.29.16 at 7:02 pm

#14 Bram on 12.29.16 at 5:47 pm

“Wouldn’t this be an easy fix for BoC?
Just lower rates. Lot’s of room to go before hitting zero percent.”

————————————————————–

Zero? Try negative.

#35 Rexx Rock on 12.29.16 at 7:15 pm

Something got to give.Either interest rates go down along with fixed rate mortgages or wages need to rise dramatically to keep up with annual house prices.20% or 30% price increases that happened in Toronto,Vancouver and Victoria in the last year is a real burden for first time home buyers.Not much money left over saving anymore,

#36 John on 12.29.16 at 7:22 pm

#2 Ace… indeed, the holiday week/airports are jammed with highly, house broke folks. Over 120,000 shoppers hit Yorkdale on Boxing Day for even more junk. If folks stopped subscribing to the HTV flipper stuff, 3000 sq footers, maintained their home structurally, paid off the house in double time and maxed out their TFSAs and so on.. they would be better off down the road. In a case close to us, the main prezzies in the stockings were cheques specifically directing the happy recipient to pay down specific debt. Big smiles and hugs. Etc etc

#37 Context on 12.29.16 at 7:36 pm

They are not building condos in Toronto for example, but rather the Real Estate cartel are building boxes that have no future real estate value for any astute buyer. Who in their right mind wants to sit in a tiny living room looking at a kitchen slapped on the wall with a tiny table and four chairs beside it called the dining room.

#38 Shawn on 12.29.16 at 7:37 pm

Is Canada the next Japan? Japanese real estate peaked in 1990 after a similar super bubble and has been in a slow decline ever since.

#39 praire person on 12.29.16 at 8:06 pm

Not sure how come but maybe wiser, more knowledgeable posters from the Wet Coast can explain. One member of my family was looking at lots in Victoria. 400,000. She can’t afford that. Another member of the family just bought a lot outside of Bellingham. 6000.00. Yup, as in six thousand. That’s not a typing error. He’s planning on building. The lot is already hooked up for utilities. When you pay pocket change for a lot, you can afford to build a house, say 300 to 400,000. I don’t get it. How can there be such a huge difference in property prices? Anyone in the area know the answer? I should add that around 2008, this lot was bought for 40,000.00. Then came the crash.

#40 Nonplused on 12.29.16 at 8:09 pm

Well, I for one am not surprised there are so many real estate agents.

First, it’s a pretty low skill job. It’s harder to fix a modern car than conduct a showing.

Second, that’s where the money is. Whenever the banks start sending loan money to an area of the economy you see a short lived spike in activity. It’s similar to the shale oil boom that just collapsed in 2014. When the money was there, these companies expanded like crazy and now they are mostly all facing bankruptcy. People tend to gravitate to the jobs they can do that pay the most money.

Interestingly I coached soccer with a fellow who had previously been a real estate agent for years but went back to school to become a teacher. Was he prescient? Was he being smart? Was he looking at the long term trends in revenue and the juicy pension he wasn’t saving as an agent? I don’t know. Maybe he just decided he hated adults more than children. But in the end of the day it was probably economic, even having to work longer than his peers because he became a teacher later, his lifetime earnings would be more including the pension. Plus he doesn’t have to do showings in the evenings and on the weekends.

Little does he know of course that the pensions will not be paid out in anywhere near their current purchasing power. But that’s something we all face, even those in RRSP’s who can actually fund them. Down in Texas they have a bit of a crisis on their hands, they’ve had to suspend police officers from retiring and taking the lump sum because it’s turned into a bit of a “run on the bank”. Most pensions are severely underfunded, even government plans. So what is the solution? Well, either cut benefits, which won’t be very popular, or dramatic increases in property taxes and all other forms of taxes, which will be even less popular.

And that, folks, explains the carbon tax. It won’t do anything to fix the energy and ecology situation, but it will transfer a lot more money to an increasingly broke government. That’s why the government thinks it’s a good idea, not because they give a crap if the earth is 0.5 degrees warmer in 30 years when we run out of oil.

High income earners already pay on either side of 50% of their income depending on where they live, and then pay property tax, GST, PST, harmonized sales tax (doesn’t that sound good it’s “harmonized”) of up to 11% of what they have left after all the other taxes, taxes on fuel, licencing fees on everything from a business to your car to your fishing licence, etc. The effective tax rate is probably 70% already. The carbon tax will push it to 80% and I guarantee you that you were already spending as little on gas as you could because you had no money after all this tax.

So for a well to do person who only had 30% of his earnings left after his taxes, with the new carbon tax will only have 20% left even thought the tax is largely going to be embedded in the price of everything from beer to airfare. A less fortunate person will see less of a difference but it will still impact them because the price of Doritos is going up too, the manufactures of any product like that also have to pay the carbon tax and so do the farmers who use a lot of diesel. Even milk will be more expensive because there will be carbon taxes in that too.

So what do we get for it? This additional and proportionate to what we have left after all the other taxes fairly colossal reduction in lifestyle? Well, nothing we’ll be able to notice. A few people who live near the coast might have to move a few feet upland or install a small Dutch style dike, and plants will grow faster and bigger. So what we are trying to do is avoid bigger, more readily available tomatoes with a debilitating tax.

(For those who don’t know CO2 is plant food and all plants would die without it. Ya, they haven’t been telling you that and they also haven’t been telling you that in Earth’s early days CO2 was perhaps more that 10% of the Earth’s atmosphere, and there was very little oxygen, and it was plant life that changed that so there was enough oxygen for animals to breath and very little CO2 in the atmosphere by %. Understand even now were are at something around 380 ppm. So in percent terms I hope I get this right but it constitutes 0.00038 out of 1 of the atmosphere. That isn’t much. If you had a million dollars and you had to use the CO2 portion of that to buy lunch, you have to find lunch for $3.80. You, like plants if they don’t get enough CO2, would starve.

It’s just a tax scam.

#41 Smoking Man on 12.29.16 at 8:13 pm

DELETED

#42 InvestorsFriend on 12.29.16 at 8:16 pm

How Does the 5 Year Canada Determine 5 year Mortgage rates?

#9 oncebittwiceshy on 12.29.16 at 5:30 pm said to Garth:

As you noted, the 5 yr. bond yield determines mortgage rates.

*************************************
I don’t dispute that. But how does it do so?

Would the banks invest deposits in guaranteed 5 year Canada’s at 1.16% instead of investing in (loaning out) 5 year CMHC guaranteed mortgages at 2.5%? That is a lot of extra spread to give up. But they would avoid a lot of costs by investing in bonds. So perhaps as the 5 year Canada rises they cut back 5 year mortgages unless the interest rate there rises?

Banks no not fund 5 year mortgages by issuing 5 year Canada bonds, because they cannot do so as they are not Canada.

Do banks fund 5 year mortgages by issuing 5 year corporate bank debt? I don’t think they do as the spread would be rather low.

The essence of banking is to loan low-cost deposit money (not money obtained on the debt markets). This includes 5 year GICs. Has the 5 year deposit rate on GICs gone up with the Canada bond yield?

Are five year GIC rates in competition with the 5 year Canada? (I thought a typical GIC buyer would not have the ability to buy a 5 year Canada)

Is there a graph showing the tight correlation of 5 year mortgages to the 5 year Canada?

I just want to know what this claim that the 5 year Canada sets the 5 year mortgages is based on. Again, I don’t dispute it. I am curious to know exactly why it works that way. All interest rates tend to move together to some degree. I just wonder why the 5 year Canada in particular would be the driver.

#43 Nonplused on 12.29.16 at 8:17 pm

Sorry math corrections:

I did not put it in percent terms.

Also if you had a million dollars your CO2 dollars would give you $380 dollars, so that’s a pretty good lunch with friends. Still not a large portion of you net wealth.

#44 Tony on 12.29.16 at 8:18 pm

Re: #10 TurnerNation on 12.29.16 at 5:38 pm

Amazing how gold always shoots up exactly at 11:00am. That pattern when they pump gold has been intact for a long, long time.

#45 Felix on 12.29.16 at 8:22 pm

Too many dogs.
Too many realtors.

All of them sniffing each other’s butts with glee, humping for-sale signs with no sense of dignity.

We are doubly cursed.

#46 Kurt Edwards on 12.29.16 at 8:22 pm

To paraphrase (and perhaps extend), the real problem is the effect the real estate decline will have on the economy, and thence on real estate in a slow and ugly feedback loop. Perhaps not as nasty as Japan’s Lost Decade, but a lost decade just the same – unless you invest wisely.

#47 Warren - the lagging indicator on 12.29.16 at 8:25 pm

Merry Christmas everyone. I hope for all, a healthy and prosperous New Year in 2017, and a world at peace.

#48 InvestorsFriend on 12.29.16 at 8:26 pm

Do Canadian Banks fund 5-year mortgages with 5 year deposits of any kind?

In the U.S. I understand that the model has always been to take some interest rate risk, funding the 30 year mortgages with MUCH shorter term deposit money.

I am not sure how it works in Canada despite that I have recently read most of the Royal Bank’s annual report. It’s a huge beast so I did not read every single page. Nor would I claim to have absorbed all that I did read.

#49 Toronto house prices higher on 12.29.16 at 8:27 pm

Toronto house prices will NEVER fall. Toronto is one of the largest cities in the entire universe.
Toronto is a diverse city which no one is left behind. Women, LGBTQ2SICANON and members of the other sexuality community are treated with dignity and respect in our great city. Misogyny and homophobia are rare in Toronto because we teach school children at an early age that it is unacceptable to criticize a female teacher on the way she dresses.

Our city punishes those who engage in hatred of women and members of the LGBTQ2SICANON community to the fullest extent of the law. Dimitri the Lover and Roosh V are outlaws in Toronto that the law is not on their side. Canada Post banned publications from both misogynists that they are banned in Toronto from ever sharing hate of women.

Toronto is already featured in magazines like the Economist for #1 city in the world, greatest to live and find marriage to start up a family. There are social community services which teach immigrants to respect women, while immigrant women are taught that their cultures, values and lifestyle are not good for women in Canada. Teaching immigrants the right way, the Canadian way is the reason why the world respects Canada.

Toronto is a very good city to live. Real estate prices are only going to go higher and higher in Toronto.

You understand you’re being published only for comic relief, right? — Garth

#50 IHCTD9 on 12.29.16 at 8:27 pm

Like Ace said, pay that mortgage off asap, but even more important get out of any and all debt asap. Buy yourself some time to rebound with a plan if the SHTF at your house. 2017 in Canada will bring plenty to worry about even for those not paying the monthly anymore.

IMHO, we can look forward to faltering job security, our foolhardy leadership needlessly making Canuck life even more expensive than it is already, and all forms of energy going up in cost.

I’m not even factoring in the effects of a more serious and precarious downturn in our economy – which sure seems to be what is coming down the pipe…

#51 Holy Fart on 12.29.16 at 8:30 pm

Bring on the higher interest rates. The sooner the better. Then there will be less Canadians buying over the heads. Glad to hear lower brainland (borrowed that from #16 ☺) is deflating. No balloon bust…just a slow deflating…like Singapore when they introduced foreign buyer tax, prices will continually go down every year for years. At least us locals stand a chance to buy if we so choose! Affordability is critical for neighborhoods

#52 Don Der on 12.29.16 at 8:31 pm

I promise not to rant in a crack pot fashion like previous posts.

I’ve been dumping properties, slowly and surely over the last 4 years. All sorts of signals. My recent townhouse has a monthly condo fee of $375. Tsk tsk. That screams get out! Even being mortgage free, the profits were being eaten away.People…i’m sorry to say I found a greater fool.

I’m seeing weakness in attention to detail with some, not all, but some property management companies. Long story short – sold! (or fired..whichever way you look at it).

A very interesting article in today’s Province by Larry Jacobson. He says get out of apartment buildings. Sell your multi-family unit.

I agree – no crash – a soft landing in Canada in general. But I still laugh that I’m supposed to see relief when a 2 bedroom home for $900K is now listed at $775K – there is no stinking value there.

Chilliwack and Abbotsford are on the rise. My suggestion? $400K homes in chill/abby today will be worth $1 million in 20 years.

Otherwise this country in general, like real estate , is extremely overpriced. I’m talking to friends about communal living in our 60’s and 70’s – to cut costs and beat the system.

Fidel Castro is an icon, a martyr, and a legend for our times. He died on his feet while Canada continues to live on its knees.

Rant on Big D rant on….

#53 Tony on 12.29.16 at 8:33 pm

Re: #10 TurnerNation on 12.29.16 at 5:38 pm

Technically it’s nothing but month end profit taking on the run-up in the U.S. dollar. The same can be said for gold month end profit taking after getting slam dunked the entire month. Someone has a large short position on silver. On any strength in the U.S. dollar silver will fall instantaneously back down to exactly 16 dollars U.S.

#54 Hotdogs from Heaven on 12.29.16 at 8:39 pm

#17 Bast on 12.29.16 at 5:55 pm

So here’s what I don’t understand. The price you pay for real estate is not the price you pay. When I was a lass, my father sat me down and showed me something called an amortization chart. This showed me how much interest we paid on the house we were in. I was suitably PO’ed.
—————————————————-
I remember when my father did the same thing by showing me a few pages in an old math text book that contained amortization tables at various interest rates.

I too was astounded at all the “wasted” money as I recall. Today people can calculate this easily with all sorts of apps, but I just don’t think it has the same dramatic effect (or is it affect?) as watching the interest grow on the chart like a snowball rolling downhill.

Maybe that’s why young people have lost their fear of debt? They can’t visualize it long term they way we could.

#55 Peter.Engy on 12.29.16 at 8:40 pm

I look at this from a purely trading point of view, since real estate is not my forté, I usually defer to this blog.

Did it occur to anyone that if interest rates goes to 0 and below, the price of a house can technically go to infinity, bounded only by the 5% RE commission. At -5%, it is truly infinity.

So looking at that scenario as impossible, it makes perfect sense to sell now.

#56 Happy Housing Crash Everyone! on 12.29.16 at 8:45 pm

Canada is a house of cards based on lies propagated by realtors and other vested interests. Lots of financial pain is coming to EVERYONE in the fire industry and that financial pain will be welcomed by many. Happy Housing Crash Everyone! :-)

#57 crowdedelevatorfartz on 12.29.16 at 8:46 pm

@#45 Felix
“All of them sniffing each other’s butts with glee, humping for-sale signs with no sense of dignity”
********************************************

Your observations about Realtors and Canines are very amusing, disturbing, but amusing all the same.

#58 Andrew Woburn on 12.29.16 at 8:51 pm

– A plan to make America 1953 again.

George Will is one of America’s most prominent columnists. He is generally considered to be right wing and is a Republican. This is his account of what actually happens in the US economy when tariffs are introduced to save jobs as The Donald plans to do.

“Levinson notes that Ronald Reagan imposed “voluntary restraints” on Japanese automobile exports, thereby creating 44,100 U.S. jobs. But the cost to consumers was $8.5 billion in higher prices, or $193,000 per job created, six times the average annual pay of a U.S. autoworker. And there were job losses in sectors of the economy into which the $8.5 billion of consumer spending could not flow. The Japanese responded by sending higher-end cars, from which they made higher profits, which they used to build North American assembly plants and to develop more expensive and profitable cars to compete with those of U.S. manufacturers.”

https://www.washingtonpost.com/opinions/a-plan-to-make-america-1953-again/2016/12/28/7f3e6a54-cc4c-11e6-a87f-b917067331bb_story.html?utm_term=.7b62dab7ce31&wpisrc=nl_most-draw8&wpmm=1

#59 Context on 12.29.16 at 8:52 pm

#47 Warren:- War is Peace in our time.

#60 45north on 12.29.16 at 8:53 pm

oncebit: When the house prices in these cities do crash, and a crash for some will only be the 10% already experienced in Vancouver, then unemployment is going to rear its ugly head quickly.

Will Dunning: “If I have a mortgage for 95 per cent of the value of my house, and the value of the house falls by, let’s say 10 per cent, I have a big problem. It affects the way I act in the economy. If that happens to enough people, there is an enormous problem,”

http://news.nationalpost.com/news/canada/canadian-politics/ottawa-scorecard-2016

is “oncebit” Will Dunning?

#61 cramar on 12.29.16 at 8:54 pm

Paying down debt No. 1 priority for Canadians

TORONTO — A new report from CIBC says about half of Canadians aren’t taking sufficient steps to stay on top of their financial priorities in the coming year.

A poll conducted this month for the Toronto-based bank found that 48 per cent of respondents didn’t plan to cut back spending on non-essential items in order to meet goals that include eliminating debt, keeping up with bills and growing their investments.

Coming in at 28 per cent, debt repayment was the top financial priority of those surveyed — with the vast majority saying their biggest concerns were credit cards and lines of credit.

More . . .

http://www.hamiltonnews.com/news-story/7041333-paying-down-debt-no-1-priority-for-canadians/

Let’s see. . .we want to pay down debt, but not cut spending!??

Duh!! No wonder the average Canadian is a financial nincompoop!

#62 bigtowne on 12.29.16 at 8:59 pm

I am encouraging the grandkids to get a college degree that will allow them to work in countries that have opportunities and strong currencies like America or the Caribbean countries that use the greenback or even Europe.

#63 Andrew Woburn on 12.29.16 at 9:03 pm

“If the dam ruptured, it would likely cause a catastrophe of Biblical proportions, loosing a wave as high as a hundred feet that would roll down the Tigris, swallowing everything in its path for more than a hundred miles. Large parts of Mosul would be submerged in less than three hours. Along the riverbanks, towns and cities containing the heart of Iraq’s population would be flooded; in four days, a wave as high as sixteen feet would crash into Baghdad, a city of six million people. “If there is a breach in the dam, there will be no warning,” Alwash said. “It’s a nuclear bomb with an unpredictable fuse.”

This is the Mosul Dam in Iraq which is under constant threat by ISIS. The article is a long read so the gist of it is that the dam was built on an unstable soil base which keeps washing away as fast as engineers can try to repair it. At some point, the whole dam could collapse without warning. The Iraqi government apparently refuses to recognize the problem.

The potential impact on the Middle East is incalculable and could make Syria look like a picnic.

http://www.newyorker.com/magazine/2017/01/02/a-bigger-problem-than-isis

#64 Hotdogs from Heaven on 12.29.16 at 9:10 pm

There are a few posts about all the hurt that will come to the FIRE industries. Since the I is for Insurance maybe it should be noted that all houses, condos and apartments MUST be insured to get any kind of mortgage no matter what the interest rate is. And if you don’t have a mortgage then there’s no way any non insane homeowner would risk the loss of their property by not having a policy.

Also, the insurance industry also includes auto, commercial, life, health and all sorts of other insurance besides property.

Only the RE part of FIRE is really going to get hurt by the slow deflation of this bubble.

#65 Andrew Woburn on 12.29.16 at 9:11 pm

This chart shows that $3 trillion has left the bond market and gone into equities. You would assume that if there are less bond buyers around, bond issuers will have to pay a higher interest rate to move their product.

https://gallery.mailchimp.com/451473e81730c5a3ae680c489/images/90b13227-a990-4555-a5fa-a21a31e33b69.png

#66 Pete on 12.29.16 at 9:13 pm

“So what we are trying to do is avoid bigger, more readily available tomatoes with a debilitating tax.”
———————————
That’s what the people don’t understand. Global Warming is a scam. Global Cooling is where were really headed, but since the best way to have control over people is to have them always looking the wrong way ( and misidentifying real the foe) it’s not a surprise that all of the books from the 1970’s explaining why the earth was cooling and what a disaster it will be have been removed from bookshelves. Read what Robert W. Felix has to say on the subject.

#67 Smoking Man on 12.29.16 at 9:20 pm

Carp, last time I was this sick I ended up in a hospital, almost died.
Last April I think.

Got to hang in for New Year eve.

I see I got a delete up there, don’t remember posting anything. If did. oh shit . Not good.

#68 skidMark on 12.29.16 at 9:20 pm

Weather the coming storm. Get into the IT sector. Automakers will soon bid up IT salaries even more!

https://www.bloomberg.com/news/videos/2016-12-30/automakers-face-big-pay-hikes-to-lure-it-talent

#69 Pete on 12.29.16 at 9:21 pm

“Dimitri the Lover and Roosh V are outlaws in Toronto that the law is not on their side. Canada Post banned publications from both misogynists that they are banned in Toronto from ever sharing hate of women.”
——————————–
I urge everyone to read the articles at returnofkings.com. That’s Roosh’s site. Judge it for yourself. I’ve typed up small cards that I carry in my wallet with that web address and I hand them out to college kids whenever I encounter one. They’ll learn more from an evening of perusing that site than they have ever learned from society.
Yeah, “Toronto Punishes”; what a great way to ensure that RE there will always go up.

#70 TurnerNation on 12.29.16 at 9:30 pm

Speaking of wearing disguises… as this is a Boomer music blog, addition to ‘best 10 seconds of opening guitar’ list:

This opening downbeat! ! ZZ Top Jesus just left Chicago:
https://m.youtube.com/watch?v=vMjqgIZ1_YM

(This is a blues tune really).

– also Back in Black; The sky is crying; No more Mr. Nice guy already on list.

#71 cowtown cowboy on 12.29.16 at 9:35 pm

Still shook up about Retired Boomer, that sucked. Great tribute Garth. I’ve mentioned before, save a little, spend a little, and try to leave the planet better off than you found it.
Spent 4hrs this morning writing another exam to certify in another discipline, all to chase the all mighty dollar. But then again Audi’s and Les Paul’s aren’t cheap. Have a great new year blog dog’s!

#72 oncebittwiceshy on 12.29.16 at 9:37 pm

InvestorsFriend:

I don’t dispute that. But how does it do so?

http://www.bankofcanada.ca/wp-content/uploads/2013/12/fsr-december13-crawford.pdf

#73 InvestorsFriend on 12.29.16 at 9:49 pm

Remarkable Mortgage Profits

It is remarkable that there is much profit to be made in loaning out money on five year CMHC guaranteed mortgages.

A loan of money would seem to be the ultimate commodity. A borrower does not care who she borrows from (with the exception that you want the lender to be there at renewal time, but very few borrowers would stop to worry about that.) The borrower will tend to take pretty much the lowest interest rate offered in the market. Brokers and rate comparison web sites make doing that easy.

There are numerous competitors in the market.

In such an environment the interest rate should tend to be set by the most aggressive competitors. In commodity markets only the lowest cost operators tend to make reasonable profits except in times of shortages.

Enormous leverage is part of what allows lending to be profitable. But all the competitors have access to the enormous leverage.

Yes, there is no risk involved due to CMHC but all the competitors get that same advantage.

I cannot therefore explain why mortgage lending should be a highly profitable business for all the big banks and also for most of the other competitors.

Collusion or a quiet refusal to compete aggressively in rates could explain it. But I am not sure that is the case at all.

It is possible that mortgages are in fact not all that profitable and the banks make their enormous profits (think 20% ROEs) on their retail operations in other ways.

#74 Long Branch Apprentice on 12.29.16 at 10:02 pm

#40 Nonplused

Bravo, bravo. Well articulated. You connected the dots in a way I only hope more can before it’s too late.

I have learned more from this comment section than almost anywhere else on the web.

Always wondered where the smart people hung out.

#75 InvestorsFriend on 12.29.16 at 10:02 pm

No, money did not flow from bonds to equities

#65 Andrew Woburn on 12.29.16 at 9:11 pm said:

This chart shows that $3 trillion has left the bond market and gone into equities. You would assume that if there are less bond buyers around, bond issuers will have to pay a higher interest rate to move their product.

https://gallery.mailchimp.com/451473e81730c5a3ae680c489/images/90b13227-a990-4555-a5fa-a21a31e33b69.png

**************************************
No, the price of bonds was bid lower and the price of equities was INDEPENDENTLY bid higher. Not a single dime escapes from the bond market when bond prices are bid down since each dollar sale of a bond is matched by a purchaser for the same dollars.

There is nothing to stop both bond and equity prices from rising at the same time and they sometimes do. Or both fall together as they did in the financial crisis (corporate bonds and equities both declined).

Just because analysts talk about a rotation out of one asset into another does not mean that any money actually flows from one market to another, as that is in fact impossible. (I am talking about the trading markets. It is true that there may be less new money raised in bonds and more in equities). How much money left the coffers of the entities that issued the bonds as their prices recently fell? Right, not a dime.

And yes, bond interest rates are higher because with bonds the interest rate and the bond price are mathematically perfectly inversely correlated. The price of existing bonds can’t change unless the market yield on those bonds changes.

#76 Keith on 12.29.16 at 10:03 pm

#40 Nonplused

Your math sucks, along with your knowledge of our tax system. Straight from a doctor only yesterday:

“You’ll need to get aggressive with saving in your last decade of practice. I practiced the “rule of 1/3s” with my income over the year. 1/3 of what I make gets spent now. 1/3 gets saved and invested for retirement. The final 1/3 gets set aside for the CRA. So with a decade to go, you should be able to set aside another million. That should get you to $3M plus some (current investments $1M, invest proceeds of home sale $1M, new money $1M) as your pot grows and compounds.”

Canadians at almost all income levels pay 1/3 to the government. The working poor, because of fees and sales taxes on a low income and the wealthy, due to legal tax avoidance. Don’t cry for the 1%, they’re doing nicely.

#77 prairie person on 12.29.16 at 10:05 pm

Further to Garth’s comments: reading the Driftwood, Salt Spring’s newspaper, I saw an article on low income seniors being afraid of being pushed out of the modular home park where they live. The reason? The park has been paying 595.00 for water. The rules are being changed. The new fee per year for 137 homeowners? 90,000 dollars. People retire with incomes that allow them to manage if everything stays the same but it doesn’t. Cost escalate. These are seniors who have been just getting by, living modestly, watching every penny. It’s not enough. They have no opportunity to increase their income. They are not alone. I see more and more retired people working at low paying service jobs. They aren’t doing it because it is fun. These people are worse off than home owners who can sell and live off the money they got for their house. Or they already have sold some years ago and the money they got is gradually being used up. At one time, I worked for a credit rating agency. If you want to see desperation, try a job like that. Suicides were not uncommon.

#78 toronto1 on 12.29.16 at 10:08 pm

2017 will be the year of the credit crunch. Lenders are already tightening up available credit- everyone thinks this will impact the mortgage markets, but will impact business more, no credit means no expansion.

Im still holding with prices reverting back to 2011-2012 levels in 2 years.

170% debt level is insane, people are on a wire- when the first waves of refi go bad in the first six months, word will be out- then deals will start to fall through because of financing- not much from Jan-Mar but by June, it will be in the common knowledge.

mini recession hits and some people start to sell- forced to sell- then the cracks appear– will start outside the GTA at first, Brampton/Ajax etc.. then move its way inside

the trajectory on the 5 year worries me, its been moving fast and if it continues, it will get ugly real quick– faster then most people think.

#79 IHCTD9 on 12.29.16 at 10:18 pm

#64 Hotdogs from Heaven on 12.29.16 at 9:10 pm
There are a few posts about all the hurt that will come to the FIRE industries. Since the I is for Insurance maybe it should be noted that all houses, condos and apartments MUST be insured to get any kind of mortgage no matter what the interest rate is. And if you don’t have a mortgage then there’s no way any non insane homeowner would risk the loss of their property by not having a policy.

Also, the insurance industry also includes auto, commercial, life, health and all sorts of other insurance besides property.

Only the RE part of FIRE is really going to get hurt by the slow deflation of this bubble.
——-

What about new business? If new construction slows, so will the F and I. Like you say every current owner already has a policy, new owners of new builds is where the new business comes from..

… unless they want to start competing on price for current owners having current policies with their competitors.

Heaven forbid!

#80 Smoking Man on 12.29.16 at 10:20 pm

When I was a kid building rc aircraft including sodering the motherboard heath kit radio.

My teachers failed me. Attitude. I’m smarter thañ you . Thay could not handle it .

Gluing , sodaring. Servos.

This song was on my record player.

https://youtu.be/hHRNSeuvzlM

#81 Smoking Man on 12.29.16 at 10:32 pm

Memory of South east Asia in the early 90s. Gilmore and Clark, missed it.Was hastiling. My first million.
But this tune was everywhere.

https://youtu.be/BzG4lj0FkHQ

#82 Jamal on 12.29.16 at 10:39 pm

“But a crash isn’t the threat, nor a wave of mortgage defaults (won’t happen).”

Really? No Crash, No Wave. That’s an anti-climax

#83 Smoking Man on 12.29.16 at 10:51 pm

https://youtu.be/tBu-ewMRhkA

Stay away from pat pong street.

#84 Mark on 12.29.16 at 10:55 pm

“I just want to know what this claim that the 5 year Canada sets the 5 year mortgages is based on. Again, I don’t dispute it. I am curious to know exactly why it works that way. All interest rates tend to move together to some degree. I just wonder why the 5 year Canada in particular would be the driver.”

The spread between risk-free debt at a given point on the yield curve, and that of retail mortgage debt is based on a number of factors. Namely:

Cost of equity capital to backstop loans — a function of the sort of leverage the banking sector feels comfortable with and what is permitted regulatorily.

Default risk premia. A certain number of retail mortgage loans will default, resulting in losses.

Pre-payment risk. Minimal, since interest rate differentials take care of this.

Origination expense. Amortized over the term of the loan. The in-branch mortgage consultant or an external mortgage broker needs to be paid.

Servicing expense. They need to collect something to pay for statements to be sent out, and whatever other administration needs to take place through the life of the loan.

Some of these expenses are relatively fixed, and their contribution to spread is relatively fixed. But the cost of equity capital, for instance, is directly a function of the market for bank equity securities. Risk premia associated with default tend to rise when collateral goes into physical oversupply (as it has been recently). Origination expense can fall if the bank manages to squeeze its mortgage broker/in-house staffing expense, but that has its limits.

To answer your question specifically, the 5-year GoC bond, for Canadian mortgages, is, with minor adjustment for actual duration, the risk-free reference against which the spread, as described above, is applied. After all, an investor has a number of options, and they need to weigh whether investing in a mortgage, with its spread and increased risk, is an acceptable value proposition — the 5 year GoC bond having guaranteed sovereign repayment, no servicing outlay, and negligible capital requirements (ie: risk weight is near zero for regulatory purposes!). The market makes thousands of these individual decisions daily, and such decisions collectively, averaged, represent the average retail mortgage rate.

#85 Context on 12.29.16 at 10:56 pm

Even the Nuns at this Convent in Mexico are having a hard time making ends meet. They established a still at their residence and are bottling tequila for all the snowbirds at a discount price. Just go to the back door and knock three times and a bottle is at hand for an exchange of pesos. The best clients are from Canada especially the women who claim its a donation for a good cause.

#86 PawPatrol on 12.29.16 at 10:57 pm

#2, Ace.. seriously man? Is your advice for real?
I had typed out my counter advice but then read Jonathan #19 and BillyBob #33, you couldn’t have said it better.

#87 PawPatrol on 12.29.16 at 11:00 pm

Yes Ace pay down your debt but don’t take on so much debt in the first place, that’s what I would say.

#88 Rainclouds on 12.29.16 at 11:01 pm

Overheard today at a San Fran Costco “I dont want to be embarrassed when your credit card is rejected at the cash register” Poor bastard put the Red Lobster biscuit mix back……this in Code Monkey Central around the corner from Airbnb HQ.

Avg 1 bed rental in SF ? $3300 US. Beats Vandelusional hands down. Not so sure about housing tho.

#89 Mark on 12.29.16 at 11:02 pm

” Since the I is for Insurance maybe it should be noted that all houses, condos and apartments MUST be insured to get any kind of mortgage no matter what the interest rate is. “

That’s true. *But* if house prices fall due to rising interest rates (ie: higher discounting of future rents/cashflows), then wouldn’t the need for insurance also fall?

Can the same not also be applied to lives? Usually we buy life insurance to protect our loved ones against loss of our personal income. So they can carry on, raise the children, keep the big house, etc., if the life of an insured person unexpectedly came to an end prematurely.

If interest rates rise, it seems logical that the demand for life insurance would fall as you simply wouldn’t need such a large payout to cover off a given risk.

Also, the stable of insurance company portfolios tends to be longer-term bonds. If the rates rise, insurance firms are likely to suffer significant losses. Losses that are likely to be more significant than a reduction in the PV of liabilities, since insurers have, by regulatory requirement, assets in excess of actuarially calculated present value liabilities.

So yeah, these two factors are not good for insurers at all. Which is why they will perform very poorly as long-term interest rates rise. Quite the opposite of insurance outperformance in the falling/low rate environment.

#90 Victor V on 12.29.16 at 11:13 pm

New mortgage rules good for banks, costly for borrowers: RateSpy

http://www.bnn.ca/new-mortgage-rules-good-for-banks-costly-for-borrowers-ratespy-1.640549

#91 InvestorsFriend on 12.29.16 at 11:42 pm

So, Mortgages are financed by retail deposits

#72 oncebittwiceshy on 12.29.16 at 9:37 pm responded to me:
InvestorsFriend:

I don’t dispute that. But how does it do so?

http://www.bankofcanada.ca/wp-content/uploads/2013/12/fsr-december13-crawford.pdf

*************************************
So the link confirms that mortgages are financed by retail deposits.

“Traditionally, Canadian deposit-taking institutions have
relied primarily on retail deposits to fund mortgages.
Many of these deposits are insured by the Canada
Deposit Insurance Corporation, making them a stable
and cost-effective source of funding.13

13 Indeed, rates on 5-year guaranteed investment certificates (GICs) have
generally been lower than the rates on 5-year Government of Canada
bonds.”

So this seems to say they use 5 year GIC rates. It is entirely possible too that those rise in lock step with the five year Bank of Canada bonds and if so that is the link between the 5 year Canada bond and 5 year mortgage rates.

Some mortgages get securitised. But given the volume of outstanding mortgages in Canada there must be some HUGE pile of money in five year GICs.

People here lament all the money sitting in low interest GICs and other bank deposits. That HAS to be the case to fund all the low rate mortgages. If people would only stop putting money into GICs and the like, mortgage rates would HAVE to rise as the funding cost would rise.

#92 Nonplused on 12.29.16 at 11:48 pm

#66 Pete,

Thanks for quoting me but no I won’t re-read those books from the 70’s and I am aware of the contents. For the most part they were looking at long term cycles primarily from the sun but also ice cores and stuff and concluded that a “mini ice age” was possible, but certainly not with the urgency and disastrous predictions we now have from “global warming”.

Other people please don’t call me a denier. I would never argue that CO2 is not a greenhouse gas, as is nitrogen (close to 80% of the atmosphere despite what those clowns charging you $7 to put nitrogen in your tires are implying). Water vapour is too. Thank Dog the atmosphere has greenhouse like functioning or it might be as cold here as it is on the moon. Might additional CO2 make it a little warmer? Yes. Will it destroy the planet? No.

And remember we’ve taken it from 280 ppm to around 380, might be 400 ppm now since the start of the industrial revolution. Nothing has happened. We can’t take it higher than around 500 ppm and we will be out of fossil fuels.

500 ppm is using my dollar analogy from previously $500 CO2 dollars out of $1,000,000 air dollars you have (it is part of the air). So if raising the CO2 level from $280 air dollars out of a million to $500 air dollars out of a million will destroy the planet, this stuff is powerful indeed.

And we know from science that in the earth’s early days it was CO2 that was more abundant by far than oxygen, and it was plants (or something like early plants) that converted all the CO2 into fossil fuels in the ground and oxygen in the air.

#74 Long Branch Apprentice

Thanks, but I think Garth considers me one of his “deplorables”. Oh well I still like him and his blog and would go riding with him if I was in the area and he could put up with a guy on a cheap but better V-Star.

#76 Keith

My math numbers on taxes were approximates but I can tell you I spent a little time in the 1% and my effective tax rate including all taxes and fees was well north of 50% even in Alberta. Especially on any incremental earnings. The only way to avoid these high taxes is to get your income from capital gains not employment as Garth has often suggested. However that is not going to save you from the “tax on everything” (carbon tax). There is nothing we do in the economy that isn’t heavily dependent on carbon base fuels. Not even the internet so be prepared to pay more to read Garth’s blog. Oh and if you live in BC or Ontario the top rates are already well higher, although I think Nutley will be fixing that (if that’s how it can be described. Her idea seems to be a 100% tax rate.)

#93 hope & ruin on 12.29.16 at 11:54 pm

13 Mark on 12.29.16 at 5:45 pm
most of them its despair. But I think its better to view the bubble as an opportunity to pick up the out of favour assets on the cheap
_________________

I hear the same thing all the time. “Blah blah blah I will never afford a home”. Who cares, means something else is on sale.

@ felix

Lol. Best novelty account of the year.

#94 NoName on 12.29.16 at 11:56 pm

when someone talks records and no mention vacum tube amp, that doesnt take his music siriusly…

https://youtu.be/sN01FjYQVHk

#95 Ronaldo on 12.30.16 at 12:13 am

#17 Bast on 12.29.16 at 5:55 pm

So here’s what I don’t understand. The price you pay for real estate is not the price you pay. When I was a lass, my father sat me down and showed me something called an amortization chart. This showed me how much interest we paid on the house we were in. I was suitably PO’ed. So should we all be. Let’s take a $500,000 mortgage as an example. At a 3.5% mortgage rate over 25 years, you are actually paying an additional $248,905 in interest (to the bank) on that property. That’s without taxes, any fees, utilities or maintenance. I think everyone should be shown this kind of calculation before they buy. Makes me happy I’ve rented all these years. Hoping to retire in a few more years – earlier than most of my friends.
——————————————————————
I would guess that for ‘most’ people if it were not for them buying a house, they would end up at the end of their working years with nothing. They would spend any savings (if any) on renting on something else like travel, cars, etc. etc. so for them buying a house is a ‘forced saving’. Most are financially illiterate when it comes to investing in anything else. Just my honest opinion.

#96 Newcomer on 12.30.16 at 12:24 am

You understand you’re being published only for comic relief, right? — Garth

—-

You understand that the poster is an older man trying to be funny/critical of what he perceives some women to be like, right?

Just a troll. — Garth

#97 crowdedelevatorfartz on 12.30.16 at 12:37 am

@#51 Holy Fart
“Glad to hear lower brainland (borrowed that from #16 ”
********************************************

Borrow any time my brother, just dont steal my “thunder”

#98 Nonplused on 12.30.16 at 1:35 am

A final thing for tonight. 17 US security agencies are sure the Russians manipulated the election according to Hillary. Now, there is the CIA, the FBI, and more recently the NSA and Department of Homeland Security, whom we all meet at the airport. Apparently there are 13 more organizations that I missed, who are doing the same thing, and none of them were able to prevent the interference only conclude on it afterwards.

17 security organizations my ass, there are 4 and that is already too many.

#99 Greater Fool on 12.30.16 at 2:00 am

You wait 5 years for the crash and now it will take another 10 years… Maybe I will wait until I’m 45 to buy a place…. Living in a 1br old basement and paying 1400/month for it is awesome! All that money in the bank does not make my life better, but you know… It’s nice to have a balanced portfolio and no windows!

So move to a better rental with daylight. If you can’t afford a house, well, you can’t. Live with it. — Garth

#100 mouldyinYVR on 12.30.16 at 2:20 am

#33 BillyBob
“Canadian real estate today? Not a chance. In a sucky, down-trending economy with zero good news on the horizon, let’s buy an inflated, poorly-constructed shack in a terrible climate with the money the cheapest it’s ever been in history.

What could go wrong? lol”
________________________________________
No kidding……what could go wrong??….. bring on the
faulty plumbing, cheap siding, crappy windows, building codes from Hell and MOULD…….living the life in YVR !!

and #39 prairie person…….
“I don’t get it. How can there be such a huge difference in property prices? Anyone in the area know the answer? I should add that around 2008, this lot was bought for 40,000.00. Then came the crash.”
____________________________________________
I think you answered your own question…….as in ‘then came the crash’ …….Here in BC we are suffering from a kind of real estate mania………lots of offshore investment/ easy money for locals/ never-ending (?) real estate appreciation/rampant speculation/ very restrictive land use codes/ and no 2008 crash……….

#101 jane24 on 12.30.16 at 2:23 am

Garth if you add in all the folk that work at building and renovating houses I would bet that RE is closer to 25% of the Canadian workforce. This is creating no real value, just folk selling houses to each other for bigger and bigger prices. This does meet the definition of a ponzi scheme.

If people were happy to stay in one house and then pay it off then yes life becomes cheap and less stressful. The problem is that everyone seems to get tempted into bigger and bigger houses so the debt in life never goes down but up. I have had a big Canadian house in my past. My own experience was that big houses have big bills, especially heating and aircon. I am now in an English paid-off small bungalow. I spend the ££ difference traveling. We live in a wonderful world. Please readers go and experience our wonderful world.

#102 steerage steward on 12.30.16 at 3:51 am

79% want to own homes..

https://www.youtube.com/watch?v=WFTP4Xj9Q-s

#103 Not all is sticky... on 12.30.16 at 4:53 am

2015 GDP was abysmal, going back to 2008 GDP levels (2009 GDP excluded). GDP has been diminishing since its peak in 2013. We will probably beat 2015 GDP this year, but not by much.

An economy that regresses 7 years in $ terms cannot sustain current job levels – why I suspect there has been no wage growth for many years; people are borrowing, as if possessed, to maintain lifestyle and to make up lost income, are investing in “get rich quick” asset bubbles such as RE.

1 economic shock will bring down our fragile, sputtering economy to create a job loss recession

or,

real wages will have to fall even more to divide up the ever diminishing pie.

Either way, 2017 does look good if current GDP performance continues equal to that from 7 years ago and with that will go jobs or wages will drop and with that your RE “stickiness” will go out the door (and quickly so if past recessions have taught us anything).

I am not as enthusiastic as you are Garth about 2017 and I see no “miracle cure” on the horizon.

bsant

#104 Stock Picker on 12.30.16 at 5:04 am

The real estate cycle in Canada goes like this…up for 7 to 9 years…peaks for 2 to five years, and then down for 7 to nine years before bottoming for two to five years….remember the 80s and the 90s?

This time around we had the government interfere with the buisiness cycle and elongate the peak…. but the rest is all downhill…. because instead of central bank coordination of lower rates globally the banks are flopping on the floor in an uncoordinated lump. There will no more effective govt intervention.

I agree with Garth for once, there will no crash, there will an extended cascading swoon of 10 to 15 years while the govt inflates out the excess, and cause house to do nothing but suck peak mortgage payments out of the pockets of regretful homeowners whose lives have past them by .

#105 Wrk.dover on 12.30.16 at 7:15 am

#41

My nephew, a drinking buddy, was on full scholarship until age 35 becoming a DND chemist with lots of letters behind his name.

He says one part/billion carbon dioxide is a big deal.

It acts as a prism reflecting the suns rays. Blah blah blah, it really is a problem.

Meanwhile the ocean absorbs carbon dioxide and becomes acidic. Soon shell fish will have no shells.

the guy has credentials, I believe him.

#106 Wrk.dover on 12.30.16 at 7:28 am

edit each one part per billion

edit any increase over the long time ( 35,000 year 200 part per billion norm ) is catastrophic, sooner than later.

#107 Reply to #2 Ace Goodheart on 12.30.16 at 7:38 am

Of course you can travel past age 60. I just came back from a month in Tokyo. I am 61. Blue Cross said I was good to go.

All of your points about conspicuous consumption are well taken but even so, I still believe Garth Turner’s thesis is the correct one – it is much more important to have financial assets that can pay me. Nothing wrong with real estate but as in all things, moderation is best.

#108 crowdedelevatorfartz on 12.30.16 at 8:13 am

@#63 Andrew Whoaburn
““If the dam ruptured, it would likely cause a catastrophe of Biblical proportions”
********************************************

Sounds almost as bad as THIS Dam being built right now by our govt in BC.

http://www.google.ca/url?url=http://www.cbc.ca/news/canada/british-columbia/site-c-primer-amnesty-trudeau-1.3754463&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjxjPmx_pvRAhXLxlQKHVMhDpIQFggnMAE&usg=AFQjCNGRzze73PR4UgzX252cDHUut1jmeQ

BC Hydro has a surplus of electricity
The Dam is unnecessary with solar and wind as an alternative
They ignored geolgical concerns about soil stability.
They have allowed fracking in the same area.
They started the project without an environmental review and ignored one from 30 years ago saying “dont build” due to soil concerns
They didnt have a set budget or a signed contract.
Its not even 1/4 complete and its over budget.
The “temporary” workers camp has cost $475 MILLION dollars to build.
Farmers and Ranchers that protested this boon doggle have had their land( outside and above the flood zone) expropriated, they farms bulldozed, their 5th generation lands turned into “access roads”
Free speech meets big govt

ISIS arent the only “terrorists”

We have an election here in 5 months and the Premier will be front and center in a shiny new Hard Hat to pat her self on the back with a $10 billion dollar White Elephant paid for by taxpayers future decades of fiscal obligation.
A project she has repeatedly vowed to “get the Dam to the point of no return” even if she loses the election.

Greed, stupidity, hubris dont even begin to decribe a politician so self absorbed and vacuous she makes Justin Trudeau look like a Rhodes Scholar.

And she’ll probably be re-elected because our population doesnt vote and the “alternative” is an invisible NDP leadership in the back pocket of the unions…..
Rock meet Hard Place

#109 Ontario's Left Coast on 12.30.16 at 8:16 am

So proud to be able to say my house is my third largest asset; i.e., I bought a comfortable, reasonably sized house in a non-insane market years ago and stayed put. All these paper millionaires can keep their debt, traffic, granite and stainless – I’ve got my peace of mind.

Not trying to come off braggy, but when did things get so out of control? I was in consumer finance in the 90’s and our company’s cut-off for debt-to-income was 140%! I wouldn’t touch these borrowers with a proverbial 10-foot pole.

#110 crowdedelevatorfartz on 12.30.16 at 8:17 am

@#103 Wrkdover
“Meanwhile the ocean absorbs carbon dioxide and becomes acidic. Soon shell fish will have no shells.”
*******************************************

Or they just die for “no reason”
This has been going on in Nova Scotia for months.

http://www.google.ca/url?url=http://www.cnn.com/2016/12/30/world/canada-massive-fish-kill/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwidvrGtgJzRAhWHgVQKHf86As4QFggdMAM&usg=AFQjCNE0OtuM8bxmM-R4hZMtzUjpGDzMcQ

#111 Olive on 12.30.16 at 8:46 am

Garth,

No crash, no significant correction…Garth please stop hanging out with your real estate friends…they are a bad influence !!

No crash is not the same as no correction. Of course prices will correct. But it will not happen in 90 days. — Garth

#112 traderJim on 12.30.16 at 9:13 am

Rates go up and Ace from last thread RE: the doc making $300k.

“lol He only makes $300,000. Not $3,000,000.”

hehehe touche! I was getting carried away. Thinking about my old boss at the bank. Man he had an expensive lifestyle, but he was a 7 figure earner and stock options must have made him a zillionaire.

Still, on $300k a year you should be able to do a bit better than a bungalow and a VW. Unless of course you are saving/investing like a madman, good for you.

But remember, you have to live too. I’m a car guy but sold my expensive toy long ago (too bad, it has since quadrupled in value : ( )

Cars have to be one of the biggest wastes of money there is.

I do spend a fortune travelling though. I’ll die poor, greatly disappointing my heirs. But I’m sure enjoying it.

#113 traderJim on 12.30.16 at 9:24 am

Climate change:

Again, I trust scientists, and I am not one, so I have a vague belief the climate is changing. Maybe getting colder, warmer, wetter, dryer. Like it has done for the last billion years.

The hysteria over ‘global warming’ is just a big version of the way media and interest groups take a bit of ‘science’, such as that, say, Coca Cola is carcinogenic, and then they doomsters go crazy saying Coke has to be banned.

Then an even cursory glance at what the scientists actually said goes like this ‘if you drink 5 gallons of coke every day for the next 40 years you will increase your chances of getting cancer by .0001%’

So, I keep hearing that the arctic ice is all but gone now, polar bears are in dire straits and moving south, etc etc.

Well, if that’s true, and water levels have risen dramatically because of all that melted ice, then where’s the disaster? I haven’t heard of anything actually happening as a result that harms human life.

So, either the ice has melted dramatically and nothing bad has happened, or the ice has NOT melted dramatically.

So which is it?

#114 traderJim on 12.30.16 at 9:31 am

Maybe people would not be so skeptical of climate change alarmists if they had not cried wolf 100 times in the past.

Club of Rome and all those morons for example. Could not have been proven more wrong than those guys.

And the people who think the earth’s resources are finite. Well, once the sun dies out I guess that will be true.

Meanwhile, technology will keep improving.

The end is NOT near, sorry doomsters.

#115 d'Edmonton on 12.30.16 at 9:51 am

The MSM is coming around to what Garth has been saying for years:

http://www.cbc.ca/news/canada/edmonton/edmonton-housing-1.3914034

#116 traderJim on 12.30.16 at 10:20 am

#99 jane

While I completely agree with your lifestyle, and I am a big believer in downsizing and owning as few things as possible (unless they produce an income), you are wrong to say that building and selling houses does not create real value.

Building shelter is a very good example of creating value.

And the RE industry does not even remotely resemble a ponzi scheme.

The problem is that central banks have interfered with markets, flooding the world with liquidity and forcing down interest rates to abnormally low levels, which is causing a distortion leading to far too much investment in the RE sector.

Still bad, but not a ponzi scheme.

CPP, OAS and other government schemes to pay current beneficiaries with payments from new contributors, now THOSE are ponzi schemes.

#117 CL on 12.30.16 at 11:02 am

These household debt numbers are hard to determine. We hear “of disposable income” all of the time….a nicely designed term to imply people’s money is disposable so go spend it…..but the 1.7x you quote, is this of pre-tax income? if so the multiple is much higher if it is based on net income.

#118 She Wynne, we lose on 12.30.16 at 11:07 am

Let’s take a $500,000 mortgage as an example. At a 3.5% mortgage rate over 25 years, you are actually paying an additional $248,905 in interest (to the bank) on that property.

Very true, except that historically mortgage rates are closer to 7%, so the ‘math’ is even worse. The goal of the bankers, ultimately, is convert the labour and property of the borrowers, to their own. And I suspect they’re going to do a very good job of it in the coming years as risk premia rises substantially against housing-backed loans. Even if BoC policy rates remain low.

*****

Except that at 7% no one will be paying $500,000 for an average house

#119 SWL1976 on 12.30.16 at 11:33 am

#112 traderJim

Well, if that’s true, and water levels have risen dramatically because of all that melted ice, then where’s the disaster? I haven’t heard of anything actually happening as a result that harms human life.

—————

Where’s the disaster???

You’re obviously not looking. We are only just beginning to reap what we have sown. You’re knowlegde, or lack there of on the subject shows huge recency bias. Past performance will not dictate future results. Yes CO2 is plant food, but having hockey stick levels that the earth has not seen in 800,000 years is quite remarkable

Balance. You’re a trader, you should know this

#120 Context on 12.30.16 at 12:07 pm

#115 traderJim :- Who do you think are the biggest speculators in Real Estate promising the greater fools high returns in a very short period of time? Well its the carnival barkers who sell Real Estate that is who, as they are the flippers when all is said and done, along with lawyers and others who buy for speculation profits.

#121 Wrk.dover on 12.30.16 at 1:08 pm

for the more advanced reader, the prismatic nature of the carbon molecule REFRACTS the suns WAVES amplifying them and their width. The more molecules there are, the more the rays get to multiply and transfer heat to the atmosphere. The increased volume of molecules is near logarithmic in its ability to affect the end result.

Picture Lucy in the sky with diamonds. Or deny and carry on.

#122 mootown boyaz on 12.30.16 at 1:45 pm

No Canadian city will end up looking like Detroit. ”

Garth a few already do…Windsor, Jane-Finch, East Van etc

You have not been to D lately. — Garth

#123 Context on 12.30.16 at 1:58 pm

My interpretation of the caption picture. This is your realtor in disguise; not all, but most of them do not have your interests at heart. They are worse than a used car salesman and their main concern is making a commission at your expense. Making money fuels their egos day and night; ethics means nothing to them. I had to deal with these guys over the years who have a street mentality, and would rather deal with a Don who had more respect and business dignity in any legal transaction.

#124 Ronaldo on 12.30.16 at 2:29 pm

#119 Context on 12.30.16 at 12:07 pm

#115 traderJim :- Who do you think are the biggest speculators in Real Estate promising the greater fools high returns in a very short period of time? Well its the carnival barkers who sell Real Estate that is who, as they are the flippers when all is said and done, along with lawyers and others who buy for speculation profits.
————————————————————-
Absolutely true from what I have seen happening in the Mt. Pleasant area of Vancouver. Totally the realtors creating these artificial prices. This area is ripe for an investigation.

#125 Greater Fool on 12.30.16 at 2:38 pm

Thanks for answering my post, Garth!
I agree with everything you say and yes, I can afford a condo here in Victoria, 100% down payment, but I just don’t think it is worth that much money, it is great to have money working for you! What makes me sad is the rental prices here and all this real estate insanity. Realtors making more than 500k/year here and price of condos doubling in 3 years…. I was always waiting for a crash but it never happened, the opposite did.

#126 BillyBob on 12.30.16 at 2:43 pm

#106 Reply to #2 Ace Goodheart on 12.30.16 at 7:38 am
Of course you can travel past age 60. I just came back from a month in Tokyo. I am 61. Blue Cross said I was good to go.

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

Yeah I thought the comment about traveling over 60 was silly too.

There’s a good chance the pilots of the plane you flew on were over 60. I brought my parents over to the Middle East for a visit when I worked there – they were in their 70’s.

So much nonsense, so little time to debunk…

#127 maxx on 12.30.16 at 3:15 pm

#17 Bast on 12.29.16 at 5:55 pm

Your dad is amazing.

#128 bdwy sktrn on 12.30.16 at 3:31 pm

#120 Wrk.dover on 12.30.16 .
….the carbon molecule REFRACTS the suns WAVES amplifying…

………….,.
More global warming bullshit from a physics flunkie trying to sound smart but clearly wildly ignorant of the meaning of ‘amplify’ and ‘refraction’.

That statment is an offense to science and the truth.

#129 Context on 12.30.16 at 4:06 pm

We will be getting carbon taxed to death with cap and trade nonsense which will become a casino on steroids filled with fraud. Just think that Canada’s total share of worldwide air pollutants amounts to 2% and we as a country have an emergency with carbon? Let’s clean up our waterways first as a priority.

#130 InvestorsFriend on 12.30.16 at 5:11 pm

The 2% excuse is lame

Context said:

Canada’s total share of worldwide air pollutants amounts to 2%

**************************************
I find that to be a very weak excuse for inaction.

Keep in mind that with 200 countries in the world Canada is polluting four times what an average country does. Yeah that is a dumb statistic. The Canadian government as well as most of the provinces have decided that Canada will do it part to reducer carbon. Get over it. You pollute or emit carbon and you pay. What could be more fair?

#131 Tony on 12.30.16 at 5:12 pm

Sometimes it ends in a bang. Two dead due to housing bubble. Old news but confirmed today it was intentional. Harper, mortgage brokers and realtors have blood on their hands.
http://www.theglobeandmail.com/news/toronto/a-house-explosion-has-turned-mississaugas-hickory-drive-into-a-ghost-town/article31700417/?service=mobile

#132 Metaxa on 12.30.16 at 5:28 pm

Some random thoughts.

In my hood you can buy a condo for $90,000
Might not want to live there but folks do.

A townhouse can be had for under $200,000

3 bed, 1.5 bath box for under $300,000

My property would hold three Vancouver homes, it backs onto a year round salmon stream in an acre of mature woods. I have a linear park that follows that creek and 20 minutes walking later I’m on the ocean.
$400,000 and its yours, fully modernized 3 br, 2 ba but no granite, no stainless. Soapstone and commercial grade kitchen, enamel appliances.
Smoke house for salmon in the back yard.
I just put $15,000 into that back yard…its beautiful and I’m happy I live where I am able to have choices like that.

And you can buy a house for a million just down the road a bit.

Choices are nice to have.
Life is good.

Basement suites rent for $800 inclusive and up.
That condo above rents for $950 plus utilities I bet and that 3 bedroom box rents for $1,200 plus.

Its not all about Van or TO.

And there are plenty of millionaires around too…except they don’t think or talk the way a lot of your blog dogs do…its more like “well Wednesday is my food bank day and Thursday I’m taking the Junior Stream-keepers group I sponsor to the hatchery but Friday after you finish skiing I’d love to golf with you”

just saying.

#133 Wrk.dover on 12.30.16 at 5:31 pm

#127 You just shot the messenger trying to relay the much simplified explanation he got from a scientist .

#134 Fed-up on 12.30.16 at 5:37 pm

103 Stock Picker on 12.30.16 at 5:04 am
The real estate cycle in Canada goes like this…up for 7 to 9 years…peaks for 2 to five years, and then down for 7 to nine years before bottoming for two to five years….remember the 80s and the 90s?

This time around we had the government interfere with the buisiness cycle and elongate the peak…. but the rest is all downhill…. because instead of central bank coordination of lower rates globally the banks are flopping on the floor in an uncoordinated lump. There will no more effective govt intervention.

I agree with Garth for once, there will no crash, there will an extended cascading swoon of 10 to 15 years while the govt inflates out the excess, and cause house to do nothing but suck peak mortgage payments out of the pockets of regretful homeowners whose lives have past them by .

————————————————————————-

So even if that does hold true, the smart plan for anybody who wants to buy a home at a decent price in one of the few major cities we have needs to wait the better part of 30 years until this all plays out? In the meantime they have to rent and move at least a half a dozen times in and out of overpriced dumps in those 30 years if not more and deal with stock market crashes and corrections? Talk about cold comfort.

Whose life is passing them by again?

#135 Bram on 12.30.16 at 6:05 pm

#124 Greater Fool on 12.30.16 at 2:38 pm
What makes me sad is the rental prices here

You can’t have it both ways: either RE prices are too high, or rents are too high.

(It’s the former, btw, because cost of ownership exceeds rental income.)

If the yield on rental properties is small, it means that rent is relatively cheap.
(relative to ownership.)

In absolute and historic terms: sure, rent may be really high, but in investment terms, rents are low.
Getting $4k rent out of a $2m house makes little sense economically, but that’s what it is, at the moment.

Another way to look at it: There have been years where BC real estate did +30%, but never will you see rents doing +30% in a year.

Bram

#136 jess on 12.30.16 at 6:06 pm

Kansas gov. hired Laffer @ 75 + tax cuts

http://www.kansascity.com/opinion/opn-columns-blogs/yael-t-abouhalkah/article96635857.html

http://www.cbpp.org/research/federal-tax/kansas-tax-cut-experience-refutes-economic-growth-predictions-of-trump-tax

http://www.kansascity.com/opinion/opn-columns-blogs/yael-t-abouhalkah/article104171736.html

https://www.thenation.com/article/just-how-bad-are-taxes-for-business/

NOVEMBER 2016 Release Date: December 21, 2016
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November2016. In the past month, the indexes increased in 43states, decreased in three, and remained stable in four, for a one-month diffusion index of 80. Over the past three months, the indexesincreased in 43states, decreased in five,and remained stable in two,for a three-month diffusion index of 76. For comparison purposes, the Philadelphia Fed has also developed a similar coincident index for the entire United States. The Philadelphia Fed’s U.S. index rose 0.2percent in November and 0.7percent ove rthe past three months.The next release date of the state coincident indexes will be on January 27, 2017.

https://www.philadelphiafed.org/research-and-data/regional-economy/

https://www.philadelphiafed.org/research-and-data/regional-economy/indexes/leading/

#137 bdy sktn on 12.30.16 at 6:23 pm

125 BillyBob 

Yeah I thought the comment about traveling over 60 was silly
………
Agreed. Some people are so completely terrified of life they won’t cross the street without insurance. Sad really.

Tell us about your daily driver a320? 737? Or a really big one? I’m jealous of ur job.

#138 Smoking Man on 12.30.16 at 10:14 pm

https://youtu.be/1dAwI_jqcFQ

#139 Smoking Man on 12.30.16 at 10:19 pm

https://youtu.be/1l0xpkk0yaQ

#140 Smoking Man on 12.30.16 at 10:33 pm

Closing out a drunk on the budss

https://youtu.be/YrLk4vdY28Q