Deja vu

Twenty-seven years ago the average Toronto family had to spend 71% of its pre-tax income to carry a house. That was insane. So in 1990 the market started deteriorating. What followed was a painful, slow-motion gutting of residential real estate. Seven years later the bottom was hit – prices down more than 30%. It would take most of another decade to crawl back.

Hey, moisters, ask your parents how that felt. It seemed like everyone decided on a single day that buying a house was a real bad idea. Realtor phones went dead. Open houses emptied. Bidding wars stopped. Sellers were shocked. Just like now.

So here we are again. Same spot. Likely a similar response, perhaps more extreme given current epic debt levels. The Royal Bank says it now takes 72% of a family’s income to own, almost the same as Vancouver and “well outside rational limits… and our comfort zone.” It is a record level of unaffordability. But when it comes to real estate lately, everything’s a record.

Record high prices. Record low mortgage rates. Record amount of personal debt. Record levels of lines of credit. Record long bull market. Record number of realtors. Record influence of real estate on the economy. Record leverage. Record risk.

Toronto is skewing the numbers, but nationally real estate’s become a massive burden and sucker of personal wealth. The average family in the average place now commits 46% of pre-tax income to housing – or about two-thirds of take-home. That’s assuming you own a house with a big 25% down payment and a 25-year mortgage at current rock-bottom levels.

Here is RBC’s methodology:

The RBC Housing Affordability Measures show the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the average market price for single-family detached homes and condo apartments, as well as for an overall aggregate of all housing types in a given market.

So in Toronto (or Vancouver), when the index hits 72% (or 79%) it means that 100% or more of median after-tax income is required to carry the house. No money left for food, Fido, the streetcar, kids, investing, the car, retirement, ball games or beer. Because nobody can actually live like that, the number is just a way of expressing risk. Currently, it’s never been greater.

“Housing affordability in Canada’s most populated area has evaporated at a disturbing pace,” says the bank. “RBC’s aggregate affordability measure for the area surged by more than one-third since 2014 with most of this increase occurring in the past four quarters (a rise in the measure represents a deterioration in affordability). In the process, the measure skyrocketed to its highest level on record. And it is closing in on Vancouver as the least affordable market in Canada, which is very concerning.”

So what now?

Well, as this blog has been detailing since April, the great unwind has already started. The pattern is spookily similar so far to that of more than a quarter century ago. But with some details you should not ignore.

In 1990, the prime rate at the banks was 10% (down from 10.5% the year before). Today the prime’s 2.7%. In 1990 a five-year fixed-rate mortgage cost 12.3%. Today it’s just 2.5% (or less). Inflation then was 5.6%. Now 1.6%.

In other words, we have the cheapest money ever, the lowest down payments (5% down was created in 1992), scant inflation – and yet families have crippled themselves with $2 trillion in debt, while allowing an emotion-driven asset class to account for 20% of the entire economy. Worse, we’re about to enter an era of relentlessly rising interest rates, after nine years of virtually-free money.

In short, expect worse than in 1990. And that sucked.

Said an analyst writing for Stockhouse this past week:

There will be a crash in the Toronto housing market (and Vancouver). All that remains in doubt is when this crash begins, and how far prices crash. In terms of quantum, these historically overvalued markets are facing a price-crash somewhere in the vicinity of 75% — and likely even more over the shorter term.

Seventy-five per cent. Hmm. That would erase $1.2 million from the value of the average detached house in Toronto or Vancouver. It is, of course, an extreme view. But then, what isn’t extreme lately?

 

112 comments ↓

#1 For those about to flop... on 07.02.17 at 6:33 pm

Pink Lemonade stand in Coquitlam.

These guys, perhaps curiously to some ,decided to go in for this place in March 2017 and try and make a quick buck by putting it pretty much straight back on the market after paying 1.28.

The people before them got in and out with a little bit of profit for the effort, but it seems like these guys chose the wrong target as it is only assessed at 1.15 which they would have been able to look up themselves to see if it was ridiculously undervalued.

I guess the realtor gave them all their special inside information…

M43BC

819 Rondeau Street, Coquitlam

May 20:$1,375,000
Jul 1: $1,338,000
Change: – 37000.00 -3%

https://www.zolo.ca/index.php?sarea=819%20Rondeau%20Street,%20Coquitlam&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzWE5WTg==

#2 Rob Fortyyy on 07.02.17 at 6:39 pm

Here in North York there’s no shortage of teenie boppers driving Lamborghinis and bidding on large condos. I’m not saying it’s foreign money, maybe they all just won the lottery. In any event, I don’t see that train stopping anytime soon. At the end of the day, Canada has one thing that most other places don’t: clean(ish) air.

#3 I'M NOT POLOZ on 07.02.17 at 6:41 pm

Poloz bears expected the Loonie to crash to 60-cent levels by 2019, but Poloz changed his mind to increase interest rates this year, surging the Loonie from 73 cents to 77 cents in 1 month.

Will a housing crash satisfy Poloz’s former dream of a Canadian Peso? Or will Carolyn Wilkins prevent that by preventing pessimist Poloz from tanking the Loonie?

Ryan Lewenza was incorrect in his yesterday article that 99% of Canadians don’t know Deputy Governor Wilkins. I personally send fan mails to Wilkins which the RCMP & OPP warned me was on the threshold of Harassment (/sarcasm close).

By the way, that bear looks like Dr. Garth Turner, and Dr. Garth is Bearish on the Canadian economy in his article.

#4 Poncho on 07.02.17 at 6:42 pm

Garth. You tell me now what if i say no more but intrest rate inflation inna good house can no buy for lots toronto size lots in different place then Vancouver instead of calgary? When can anyone expwct to find atocks better price then now? Can we forget the 80s? Is it possible? High intret rates can naver been seen as bad nor good if anyone can come calling, specially bankers and real estate agent in a fool’s economy soon to expire.

Expect lots of time to focus on better thangs and to feel the pinch of lost generation if debt. If debt can go up how can any people pay off interest if its too high? BoC shouldn’t charge so much cause everything is goona repeat itself! BTW hows your store going?

#5 paul on 07.02.17 at 6:43 pm

The price melt is one thing, the marriages and relationships breakdowns will be massive.
In 1990 I sold 22 homes over split ups.
No Champagne or Single malt at the acceptance of those sales.

#6 Johnny D on 07.02.17 at 6:46 pm

“When day turns to dusk in the land of ice and snow, the house that fools built shall fall.”
– Winston Churchill

#7 Livin Large on 07.02.17 at 6:52 pm

Well, this Boomer didn’t make out too bad with the 1990 bubble burst.

In 1990 I had been a 1st time buyer for about 2 years. The wife was RE agent but we were getting divored and when all the dust settled on the house and divorce costs, I was out of pocket about $6,000.

I rented until the fall of 2007 when I found a power of sale semi for $95,000 and a 5 year fixed @ 8.75%(appraised at $105,000). Actually, I only bought then because I was facing the second move in a year due to landlords wanting their property for their children to move in to and I was too tired of forced moves.

Now almost 20 years later, after a minor kitchen remodel and basement finishing costing under $10,000 in total the mortgage has been paid off almost 5 years and because the house is still one of the smaller available properties, it still has some cache as either a newly wed or nearly dead property, I figure it’s more than tripled in price.

So, this is one Boomer father whos moister daughter doesn’t have to ask how it went.

Oh, and in those 30 years my 5 year fixed rate never exceeded the original 8.75%. A convergence of circumstances with depressed house prices and falling interest rates made all this possible but it doesn’t look like there’s likely to be the same “race to the bottom” in rates this time around.

#8 Even at a 75% Drop GDP Fine on 07.02.17 at 6:53 pm

April 2017 GDP growth rate y/y was 3.3%. If RE et. al. is 20% of that, then it contributed 0.7% of the 3.3% and balance, the rest of the economy.

If RE et. al. falls by 75% (assume drop proportional to economic activity), then its GDP contribution drops from 0.7% to 0.2%, leaving a y/y GDP growth rate of 2.8%, which is still very good.

Not dire to the economy; however, it will be the rates that matter and all these reports that most Canadians skating on thin ice when it comes to monthly finances.

In the next BoC rate increases, we’ll determine if all those reports are correct. Seems the rate increases will be slow and not that much giving people time to adjust.

Maybe not as bad as we all think.

Then there are external economic shocks…

#9 Freedumb on 07.02.17 at 6:55 pm

But then, what isn’t extreme lately?

————————————————-

Not me that’s for sure. I’ve mastered humility.

#10 Wrk.dover on 07.02.17 at 6:58 pm

Yo Henny Penny: for what it is worth, I endorse Welland, unless you are in the necktie league. Plenty of low life to take the attention off of yourself having fun, and near by every thing that is not right there. Plus right by the border.

Woodstock is much nicer, but close to nothing there to eat out. Really really, really bad in that respect, and the nearby towns are of no help at all.

Welland would be my go to choice in Ontario.

#11 Saint Herb on 07.02.17 at 7:06 pm

“In terms of quantum, these historically overvalued markets are facing a price-crash somewhere in the vicinity of 75% — and likely even more over the shorter term.”

Unbelievably that is what needs to happen for this market to make sense again. I have been thinking this but would never say it out loud because it would show how far the housing market has moved against me. Since deciding not to buy, I have seen house prices literally triple.

#12 Andrew Woburn on 07.02.17 at 7:09 pm

When Donald Trump was elected, I predicted that within six months he would essentially be isolated in the White House tweeting spasmodically while adults did the real work and mopped up his messes. Now Quartz, a leading US news website agrees.

“At Quartz it’s already our policy not to write stories about how crazy the latest crazy thing he said is. But even the not-crazy things he says are increasingly irrelevant. The president has essentially ceded foreign policy to his generals and his son-in-law, and when he does speak on such issues as NATO or Qatar he only creates confusion. His staff manage him like a child. Foreign governments go around him (paywall). NATO has learned to look like it’s doing his bidding, increasing its budget just slightly faster than before. State and local governments set their own policies when they don’t like his. When he promises to build a wall with Mexico, punish China, or cancel Nafta… well, we don’t need to tell you.”

“A normal US president is like a creature in the middle of lake, his every move creating far-reaching ripples. This one is like a rock in a stream; he creates turbulence and is to be avoided, but everything flows on around him.”

My prediction was based on the simple fact that there huge tectonic plates of political interests grinding against each other in Washington and not even a veteran House-of-Cards operator like Lyndon Johnson could change their trajectory quickly, let alone with a few vacuous tweets. The other immutable fact is that the Constitution predates organized political parties as Canadians and Europeans have come to know them. The terms Republican and Democrat are just labels attached to free agents who are far more beholden to their home electorate than to the party. Party leaders simply cannot bribe or threaten them enough to keep them in line. Thus a Republican majority does not mean an agreed GOP policy platform will be enacted even if they talk a good game. Few will be surprised if the attempt to roll back Obamacare fails. Even God fearin’, gun totin’ Muricans like health coverage.

So it is useful to remember the media is always in a state of self-induced hysteria in order to snag eyeballs. I try to be aware of the stronger lasting currents that underlay the 24 hour news cycle.

#13 jay on 07.02.17 at 7:10 pm

Millennials are buying cottages ,whats up with that Garth. http://www.cbc.ca/beta/news/canada/toronto/home-ownership-cottages-popularity-1.4185793

#14 Andrew Woburn on 07.02.17 at 7:15 pm

Sometimes, even after all these years, I can still be shocked.

“More U.S. mothers die in childbirth than in any other developed country, Vox reports. The maternal mortality rate in the U.S. — 26.4 deaths per 100,000 births — is three times higher than in the U.K., Germany, or Japan. It’s eight times higher than the rate in the Netherlands and Sweden, two countries known for successful health care systems. And Texas has the highest maternal mortality rate in the developed world, with 36 mothers dying per 100,000 babies born”

https://www.axios.com/maternal-mortality-rates-in-the-us-compared-to-other-countries-2450914861.html

#15 Freedom First on 07.02.17 at 7:17 pm

Yes, the bust starting in ’90 was hard on many families.

I also saw the earlier bust happen when mortgage rates peaked around 20%. And I watched my fellow boomers take out 2nd mortgages of around 27% to afford a house.

I saw the pain. And it was similar to now. Only people then took on debt levels at record high interest rates.

Different circumstances, same idiocy. Debt can, & does, destroy lives.

Not everybody of course, as there was people who bought after the busts, like me, and people who could afford to buy a house as a place to live, not as an investment.

You know, as Garth has been teaching people here for years, the rule of 90, as well as all the other financial Principles.

Any anything else is gambling.

For myself, I want to be paid, for everything I do.

Freedom First
Master of Freedomonics

#16 chopstix on 07.02.17 at 7:17 pm

no slowdown in Scamcover as condos know no limit in going upwards…up to $1500/sq ft. (telus gardens, wall centre, the new joyce stn)
from steve saretsky:
”Vancouver condo average sales price $860,049. Up 14% year over year.”
https://twitter.com/SteveSaretsky/status/881613854656012289

#17 AB Boxster on 07.02.17 at 7:25 pm

So if housing now makes up such a huge part of Canadian GDP,
(http://business.financialpost.com/news/economy/life-after-oil-makes-real-estate-the-new-crutch-of-canadas-economy-and-its-huge/wcm/928cfb57-0901-43be-87c2-c65f93963c8d)
and this industry is about to seriously decline, and the people who owe massive amounts on these homes will soon have to pay a ‘higher’ percentage of their income to service this debt, how is this not going to have a tremendous effect on GDP and economic growth?

And while Canada’s growth in the past has been carried by energy (which now sucks and is so 80’s) and recently housing (which is soon to suck) and no one in Canada has any disposable income left, or debt capacity remaining, to spend the economy back to growth, where is all of this recently predicted Canadian economic growth supposed to come from?

Are we going to sell off Canada to foreign interests?
Are we going to increase the size and taxing authority of all levels of government so growth is done through government bloat?
Are we hoping that wealthy immigrants will replace spending of ordinary Canadians?

Love to hear where this mysterious growth is supposed to come from.

#18 Wrk.dover on 07.02.17 at 7:30 pm

The loonie did not move four cents on the UK Pound in June.

More like a half cent.

Healthy much?

#19 T on 07.02.17 at 7:32 pm

#2 Rob Fortyyy on 07.02.17 at 6:39 pm

Of course. The air in the gta is pristine. The brown smog clouds surrounding the ‘golden horseshoe’ is a great example of this clean air.

#20 young & foolish on 07.02.17 at 7:36 pm

My Grandad told me about the early 90s and of how he went on a buying spree. He bought slanted semis and other butchered rental properties. He said: “Toronto is going to grow, in population and in jobs, and there will always be demand for housing. Buy cash flow positive properties and rent them out”

It was a successful strategy in the 90s and it may be again soon enough?

#21 chopstix on 07.02.17 at 7:38 pm

even in china it seems that many middle class mainlanders have their own bubble to deal with (read how many non rich locals are also choked they can’t get into the housing market due to speculators etc driving up the prices)
excerpt:
”Since President Xi Jinping said at the annual Central Economic Work Conference in December that “houses are built to be inhabited, not for speculation,” the central government’s plan to get housing under control has been strong and clear. The consensus among decision makers is that without curbing speculative activities, driven by both home buyers and developers, the stability of the economy and the society will be endangered. Stabilizing the housing and financial markets has been elevated as a national security issue.”
https://www.bloomberg.com/view/articles/2017-06-12/chinese-efforts-to-stem-housing-bubble-shows-promise

#22 JSS on 07.02.17 at 7:43 pm

If prices drop by 75%, what will be impact on Canadian big bank profitability?

#23 Michael Francis on 07.02.17 at 7:46 pm

75% falls. That a a bit Automatic Earthy.

#24 Smoking Man on 07.02.17 at 7:53 pm

Thinking of going up to the general store tomorrow, got a new toy called periscope. Live camara on twitter. I’ll be live tonight at Seneca already posted one. On globalists.

@smokingman.

Garth put on some make up. My camara ages you by 20 years.

#25 Spectacle on 07.02.17 at 7:56 pm

#9 Freedumb on 07.02.17 at 6:55 pm
But then, what isn’t extreme lately?

————————————————-

Not me that’s for sure. I’ve mastered humility.

————————-

Oh man , I have so-way-more humility than you. : )

And to keep it related, there are so many HELOCS deeply tied to that real estate. Ugh, I feel the pain, the pain, such Spectacle!

Happy Canada Day weekend Dogs, M

#26 Tony on 07.02.17 at 7:57 pm

Re: #13 jay on 07.02.17 at 7:10 pm

Remember the one about hot Montreal real estate? This article one-upmanships that line of baloney. I can’t believe some of the garbage I read on the internet. Any sane person thinking about buying a cottage would consider Nova Scotia, certainly not northern Ontario.

#27 UpDate on 07.02.17 at 8:04 pm

#10 Wrk.dover Penny was curious to know more. Its old news that Welland is in a major flood plain, and the booklet is now available from the city hall with emergency instructions on what to do when the basement becomes flooded. The last documented flood plain study was done in 1986, and a new one is being prepared. Thousands of citizens were notified and numerous meetings have been held with the last being in December 2016. Of course Penny would have gone as its all on the net. Nobody buys a home in the middle of a serious flood plain, and the pictures are up to view. The Welland River is very nasty, so checked the quality water reports too. The residential and commercial listings are on MLS, but are also on other systems, so why are so many leaving? My money is going elsewhere and not to Welland.

#28 Tony on 07.02.17 at 8:17 pm

If Trump keeps on raising interest rates in America I have to believe the odds of Canadian real estate prices following American real estate prices downward are good.

#29 Andrew Woburn on 07.02.17 at 8:18 pm

Apart from the requisite Nanaimo bashing, at least one recent poster commented on the sheer awfulness of having to take ferries to Vancouver Island. Since quite a few people are looking at retiring to the Island, I thought I would share my experience of the ferry system.

The cost of taking a car has risen to about $100 return so it has changed the way many people use ferries especially for day or overnight trips. Many people simply walk on, often with wheeled luggage and grab the bus into Vancouver. This is less convenient in some ways than driving but you don’t need to show up more than 20 minutes ahead of the sailing unless it’s a holiday weekend. I believe you can rent a car for the day in Vancouver for about $50 but if you are only going downtown or anywhere accessible by Skytrain, there is not much point given the sheer hassle of parking. For seniors in the week, the round trip walk-on fare is under $20 so there is no real cost obstacle to visiting Vancouver as much as you like.

On a day trip, we generally take the 8.30 ferry arriving downtown around 11 am. I have a laptop and a smart phone wifi hot spot so I might as well be sitting at home for most of the trip. The only dodgy part is the 40 minute bus ride into Vancouver because, for some inexplicable reason, in a province where you can’t ride your bicycle in a park without a helmet, you can be permitted (forced) to stand in an overloaded bus hurtling at highway speeds until the turnoff to West Vancouver. However as we are not in a rush, we just wait for the next bus if we can’t get a seat.

Most of the year you need to leave downtown around 6 pm to catch the last ferry home but that’s plenty of time to browse, shop, visit galleries whatever. There is a decent selection of restaurants at Horseshoe Bay if you want to eat while waiting for the ferry and this is one of the prettiest spots in BC. We saved so much money moving to Nanaimo that we have no hesitation in taking a hotel if we want to stay for the night.

I agree that waiting in endless ferry lineups and paying a small fortune to cross with your car is a big hassle but most new Island retirees soon find there is less reason to go to the Mainland than they thought. The way we use the ferry there are no waits and a round trip in the week including ferry parking and Vancouver buses costs less than $40 per person. Busing around Vancouver is a breeze with the new Compass charge card and the excellent Translink information website so we don’t miss the car at all. We love Nanaimo but one of its less obvious joys is you don’t have to give up the fleshpots of Vancouver.

#30 Fiendish Thingy on 07.02.17 at 8:22 pm

Garth,
Regarding the RE correction of 1990, were subprime/liar/ghost mortgages rampant then as they are now?

#31 Smoking Man on 07.02.17 at 8:24 pm

Humans, generally OK. It’s when they go tribe when shit gets ugly.

Thats why I dont have friends and drink alone in the gazibo.

I love my life. Trying to figure out the big puzzle, where did I hide the JD the most pressing question after the wine is finished.

I love humans, I hate tribes.

#32 nick on 07.02.17 at 8:28 pm

Great work by RBC in those reports. really tells the story.

#33 Smoking Man on 07.02.17 at 8:34 pm

Globalists teet suckers. Just for you.

https://youtu.be/agwMwbmMNbk

#34 MSM-Free Zone on 07.02.17 at 8:35 pm

A major Canadian bank, making record profits on record consumer debt, showing ‘concern’ about the current financial health of Canadians.

That’s rich, really rich.

#35 Irent2017 on 07.02.17 at 9:00 pm

Garth sir,
Could you let us know which historically was the biggest housing bubble burst/adjustment and when and where on this planet. Any estimates to how big is ours in comparison to that.

Great article as usual. My daily dose of sanity.

Thanks always!!!

#36 Joseph R. on 07.02.17 at 9:00 pm

#28 Tony on 07.02.17 at 8:17 pm
If Trump keeps on raising interest rates in America

———————————————–

Donald Trump has no authority when it comes to the Federal Reserve’s interest rate. Janet Yellin (chairwoman), along with the Board of Governors, chooses to raise or lower the benchmark interest rate.

One might argue that Trump’s antics, both on Twitter and real life, can have an impact on Yellin’s decisions and that he should pay attention to his behaviour.

However, that would require an amount of self-awareness that is not found in the current resident of the White House.

#37 Mark on 07.02.17 at 9:03 pm

“If prices drop by 75%, what will be impact on Canadian big bank profitability?”

A severe acceleration in profitability as risk premiums will grow to be extremely wide. Basically a large swath of mortgage borrowers who currently enjoy mortgages at relatively low spreads will end up paying subprime rates, even as the Bank of Canada is forced to run NIRP to keep the economy reasonably liquid and GDP from collapsing. Defaults, of course, will be taken care of by CMHC subprime mortgage insurance.

Remember that Canada’s banks quadrupled their stock prices in the 1990s when prices in RE went down.

Credit should also loosen for successful businesses in the Canadian economy not leveraged to real estate. And with speculative capital liberated from RE, we might see speculation elsewhere. The precious metals miners, for instance, are long overdue for a good speculative cycle, and much of the industry can be bought quite a bit beneath long-term replacement cost.

#38 TWO FINGERS WATSON on 07.02.17 at 9:03 pm

Twenty seven years ago there was no internet to advertise to the world our tax free capital gains, easy financing, government enticements, and low interest rates. Foreign money at the margins will keep the price pressure on, and unless the whole system changes it will be at least a generation (if ever) until the average working family can afford the average home again.

Not exactly. Immigration in 1990 was about 250,000 – essentially unchanged from today. Reference. — Garth

#39 Mark on 07.02.17 at 9:06 pm

“Could you let us know which historically was the biggest housing bubble burst/adjustment and when and where on this planet. “

Probably have to go to the Weimar Germany hyperinflation for that, ie: a total and utter collapse in RE prices. Entire apartment blocks traded for a mere ounce of gold. Imagine that, trading a single ounce of gold for an apartment block.

#40 Tony on 07.02.17 at 9:12 pm

Re: #30 Fiendish Thingy on 07.02.17 at 8:22 pm

They didn’t exist or were non-existent then. It was high mortgage rates that finally crushed the housing market in Ontario with rates peaking around the fall of 1987.

Nope. Rates peaked north of 20% in 1982, then started to decline steadily. They had fallen by almost half by 1990. The market died because people could no longer afford houses, given a sharp increase in prices. — Garth

#41 Happy Housing Crash Everyone! on 07.02.17 at 9:44 pm

The huge bubble is bigger and worse then 1990. Garth you forgot an inportant point and that is Interest rates went down from 10.5% to a low of 4% and prices still CRASHED 33%. What do you think will happen when Interest rates go UP? You realtors and mortgage broker shills need a history lesson or maybe a college education. Oh yeah look at interest rates. https://tradingeconomics.com/canada/interest-rate

Happy Housing Crash Everyone! :-)

#42 Sir James on 07.02.17 at 9:46 pm

#27 UpDate – The Welland river was very high this spring, up to the road in some places. Lake Erie too. But the Welland river mostly goes around Welland so does not really effect the city, and where it does go through it crosses the Welland canal. My home is 100 years old and shows no signs was ever flooded. Welland has issues, but mostly due to the decline of Canadian manufacturing that is slowly returning. People seem more real here. I bailed to here from The Hammer last year and never regretted it for a minute, especially when I go back to visit. No mortgage and cash in the bank is the way to live life. I highly recommend folks look at Niagara, especially if you are starting out or retiring.

#43 Victoria the original on 07.02.17 at 9:53 pm

So I wonder how this stands for Victoria….

#44 TnT on 07.02.17 at 10:01 pm

#31 Smoking Man on 07.02.17 at 8:24 pm

Humans, generally OK. It’s when they go tribe when shit gets ugly.

Thats why I dont have friends and drink alone in the gazibo.

I love my life. Trying to figure out the big puzzle, where did I hide the JD the most pressing question after the wine is finished.

I love humans, I hate tribes.

**

OK SM – listen up – this could be the one and only point that reaches your brain.

You want a wakeup call? You want honesty? Can you handle this Truth.

Here it is….

You say you love humans and hate tribes

Progressive Liberals, George Soros’s Open Society love humans. This is why Progressive Liberals force change for the betterment of Humans.
All the decisions are based on making a better world for Humans.

Hungry people get fed regardless what Tribe they belong to.

LGBTQ community get acceptance regardless which Tribe they belong to.

Donald Trump and the “Deplorables” is a Tribe. Tribes are nationalists.
They don’t care about Humans. They care about the
Tribe.

Stop and think for a second.

Who helps humans regardless of which tribe they belong to and who hates humans because they belong to another tribe?

Check in on your UCC and think. Humans vs Tribes and which side you want to help.

#45 BS on 07.02.17 at 10:11 pm

Andrew Woburn on 07.02.17 at 7:09 pm

When Donald Trump was elected, I predicted that within six months he would essentially be isolated in the White House tweeting spasmodically while adults did the real work and mopped up his messes. Now Quartz, a leading US news website agrees.

You have been sucked in Andrew. While Trump has spent about 10 minutes in the past week tweeting while the media has spent 24/7 freaking out over the irrelevant tweets. Mean while we have Obama Care getting repealed, an unprecedented travel ban, massive deregulation and expansion plans for US energy policy along with an upcoming meeting with Putin and North Korea becoming increasingly unstable. Yet the media is showing a 10 year old WWE video to lead the news. Once the media is done with that video Trump will send out a new tweet to distract them for another few days. Hilarious. Trump played the media in the election and he is playing them again.

#46 Smoking Man on 07.02.17 at 10:26 pm

When roger waters takes the wrong fork in the road.

https://youtu.be/cvChjHcABPA

#47 SpeedWeasel on 07.02.17 at 10:31 pm

“Could you let us know which historically was the biggest housing bubble burst/adjustment and when and where on this planet.”

Weimar? Pffft; that’s nothing. The biggest bubble (and surely the most bizarre) was the great mid-1600 craze in Holland in mid-1600’s. Speculation was rampant on new varieties of this strange new thing called a ‘tulip’. Whole farms were traded against a few tulip bulbs. (Remember, in Holland a farm has to be created by pushing the Atlantic ocean away: farmland is precious).

Then one day, some Dutchman woke up and said: “Wait a minute…these are just f*&^ing flowers, right?”. You can imagine what happened next.

The authoritative book on the history of speculative bubbles is “Popular Delusions and the Madness of Crowds”, written over 150 years ago. A fantastic read.

Plus ca change…

#48 Happy Housing Crash Everyone! on 07.02.17 at 10:31 pm

Freedom first #15

That’s what these high school drop out realtors and mortgage brokers either don’t understand or don’t want to understand. People are MAXED OUT on a crazy amounts of debt at the LOWEST interest rates in history. Now rate will ONLY go UP and UP and UP!. If RE prices CRASHED in the 1990’s while interest rates went down what do they think will happen now? Realtors and mortgage brokers stopped using numbers to justifying buying six years ago because the numbers don’t make any sense. Any “professional” realtor who doesn’t advise their clients to not buy in this market is nothing but a horrible shill.

#49 Freedumb on 07.02.17 at 10:34 pm

#25 Spectacle on 07.02.17 at 7:56 pm

#9 Freedumb on 07.02.17 at 6:55 pm
But then, what isn’t extreme lately?

————————————————-

Not me that’s for sure. I’ve mastered humility.

————————-

Oh man , I have so-way-more humility than you. : )

—————————————————–

Oh yeah…well I’m the master of Freedumbonics. I made that up myself. Well, I actually ripped it off from Smokey who called himself the master of Herdonomics. I am so original. My insights are amazing. Thank you for being my imaginary friend who I’ll never meet or know anything about. You help me to stay insulated from ever being hurt again…because you’re not real, you’re just some random stranger on the internet. I’ll never even know you’re real name. How safe it is to not have to open up to you and risk more rejection. I love you imaginary friend. Sweet dreams.

#50 chopstix on 07.02.17 at 10:39 pm

Scotiabank
Popular commercial mantra
“You’re richer than you think!”
Vs reality
“You’re dumber than we thought!”

#51 Mark on 07.02.17 at 10:52 pm

“Weimar? Pffft; that’s nothing. “

Perhaps so. But in Weimar, rents (imputed or actual) went from ~30% of household incomes down to 0.2%.

http://www.doctorhousingbubble.com/wp-content/uploads/2011/11/german-hyperinflation.png

If RE prices CRASHED in the 1990’s while interest rates went down what do they think will happen now?

Rates didn’t exactly go down in the 1990s (there were periods in the mid 1990s, corresponding to the trouble with Quebec referendums, constitutional reform, etc.), but the 1989/1990 peak wasn’t exceeded until rates went down in the wake of 9/11 and SARS, ~2003 or so.

It’s interesting reading tales from Japan, where house prices in many cases are still at levels similar to those of 30 years ago. A real culture shock, indeed, if that were to be the case in Canada, that people actually had to live within their means and pay off every cent of their housing loan instead of trading up and refinancing every few years into something bigger.

#52 Jim G. on 07.02.17 at 10:52 pm

#15 Freedom First on 07.02.17 at 7:17 pm

————————————————————

Look sweetie. You sound pretty hot, so don’t go beating your chest about how much you know and stuff. It’s just a chromosome that you didn’t get. Move on with your life. Post a picture so we can see what kind of hottie you really are!

#53 The Limited Sage on 07.02.17 at 10:54 pm

Perhaps buyers woke up and realized buying a house in Toronto came with the reality of having to be a lifetime social justice warrior.

I wouldn’t even wish that punishment on my worst enemy.

#54 Doug t on 07.02.17 at 10:55 pm

Dominoes

RATM

#55 Smoking Man on 07.02.17 at 11:04 pm

Trump vs MSM

https://youtu.be/92cwKCU8Z5c

#56 Raj on 07.02.17 at 11:07 pm

Garth,

What would the average price of a home have to come down to be in line with current household income in the GTA? Any graphs or links?

#57 Nonplused on 07.02.17 at 11:45 pm

I remember the housing crash of the early 1990’s quite well, but my family was more impacted by the oil bust of the 80’s and the resulting housing bust in Calgary that ensued. It was especially hard on our family because my dad was a house builder and small developer and highly leveraged, so he lost everything but his tools and a van. He recovered nicely though as the economy turned around and is doing quite well at this point. He seemed to entirely shake it off, I guess he figured you had to gamble on the market to win big so if you lost big you just bet big again the next time you could. Worked for him.

It had the opposite affect on me though, I can’t implement Garth’s strategy of mortgaging my house to buy equities because I can’t bear the idea of losing the house in a stock market correction. It’s not that I don’t have money in stocks, but I am not betting the house. I consider the avoided rent to be return enough for that part of the portfolio. And avoided rent is tax free avoided rent. So are avoided mortgage payments, which are also tax free. I don’t know about you, but if I have to come up with $2500 in rent or a mortgage payment, I need to “earn” about $3500. That’s a lot of doe. Still have to pay the property taxes though but they are only $350 a month. Well I guess that’s not cheap either but my kid’s schooling is in there so I suppose I get something for it, even if it’s highly overpriced.

Speaking of schooling, my wife was asking how much we should spend on a gift card for the teacher this year. I was like, “really?, she makes more than you and logs about 2/3’s the hours. I don’t think you should be buying anybody gift cards.” A teacher in Alberta makes $92,300/year after 10 years and gets the summer and Christmas and Easter off. Plus a pension after 25 years.

http://www.metronews.ca/news/calgary/2015/03/10/alberta-teacher-wages-too-high-too-low-or-just-right.html

Most of the families paying that salary are not making $92,300 year and don’t have a pension. If we say that the average class size is 25, that’s

#58 Nonplused on 07.02.17 at 11:48 pm

oops $3692 per child per year but there is also a pension contribution so let’s say $4400 per year but this is all from after tax money for the parents so it’s closer to $6000 per year the parents have to earn. This is before we pay for the damn building and caretaker. I know Alberta used to be a rich province but this sort of spending is no longer sustainable.

#59 Looney Baloney on 07.03.17 at 12:00 am

Is Trump waging a war on the poor, and is Canada getting sucked into it? The rise in interest rates seems to be having a profound effect on democratic strongholds (i.e., states with the highest number of welfare recepients per capita) like Illinois, maime, Vermont, etc. These states seem to be on the brink of collapse. Will Ontario and Winnipeg be next?

If the states and provinces go belly up, who will feed the b*st*rd kids of the single moms, and pay the fat pensions of triggered cat ladies indoctrinating young kids in school with the liberal agenda? Is Trump so heartless he would make the gravy train stop and make the poor yet able bodied starve? Is dear leader T2 being forced into this atrocious act of raising interest rates on the (house) poor?

And what really happened to interac?

#60 Looney Baloney on 07.03.17 at 12:04 am

Does Jim. G need sex therapy? Sounds to me he’s sniffing up the wrong back door..

#61 Dee on 07.03.17 at 12:09 am

Gta over valued by 45%-60% imo. That doesnt mean it will correct that much – correction could be deeper. People are irrational on the way up and on the way down. Dont be fooled by places & people in vaughan. People refinance mortgages like mad. They roll their debts into their mortgages. Even a simple stagnant housing market will cause problems as it stops that borrowing binge. Maybe the core of toronto is safer. That has nothing to do with it being closer to downtown, great soil, bigger properties or whatever fairy tale is spread. The fact is: the older the area the more likely there are people that bought decades ago. Those people dont have as much as a debt strain as the new entrants. There’s obviously a lot more weaker chain links in newer areas.

This is a complete shit show for all of the gta but I think it can get downright scary. All areas & segments will be impacted. If places like newmarket take a 60% haircut for example, guess what, those looking in the toronto core will be more inclined to have a look at the periphery – thus bringing down prices in the core

#62 Long-Time Lurker on 07.03.17 at 12:13 am

#88 jas on 07.02.17 at 12:44 pm
Friends,

Can you list (symbols) some of the broadly diversified and liquid preferred ETFs on TSX?

#138 Jesse Wierz on 03.21.17 at 2:19 pm
Sample Garthfolio?

ZAG 7% (federal bond etf)
ZPL 7% (provincial bond etf)
ZHY 16% (US corporate bond etf)
*** ZPR 20% (preferred share etf)

VTI 20% (Total market etf in US$)
VCN 15% (Canada equity etf)
VRE 5% (Canada REIT)
VXC 20% (World ex-canada equity etf)

#27 Martha on 03.23.17 at 7:13 pm
Newbie’s DIY sample Garthfolio. Lookin’ for feedback in all the wrong places. Pleeeeeeeze and

thanks.

XIU – 16% Cdn equity
ZRE 5% Cdn REITs
21% Total Cdn Equity

VTI 13% US equity (USD)
VBR 6% US small-cap (USD)
19% Total US Equity

XEF 16% Itn’l Equity
VEE 3% Emerging markets
19% Total Itn’l Equity

ZFS 6% Gov’t bonds
CBO 8% Corp bonds
VSB 9% Short-return bonds
*** XPF 18% Preferreds
41% Total Fixed Income

#140 Waiverless on 03.24.17 at 1:42 pm
#27 Martha

“XPF are primarily perpetual preferred shares. In a rising rate environment ZPR (rate reset) or HPR are probably a better bet”

Correction 45% preferred in the PFF-US component. But that’s till a reasonable component.

Again in a rising rate environment as Garth has said before the rate-resets are better.

#63 Shaun of the Debt on 07.03.17 at 12:50 am

#8 Even at a 75% Drop GDP Fine on 07.02.17 at 6:53 pm

The only flaw in your analysis is that Real Estate is 20% of the entire GDP not 20% of GDP growth.

#64 Eyes wide shut on 07.03.17 at 1:01 am

Rob Fortyyy is bang on. You have to connect the dots with what you see on the street.

This blog relies too much on the hypothesis that the current environment is the same as the late 80s/early 90s scene. This is terribly flawed because much has changed in the world. For better or for worse, capital flows between countries easier than ever in recorded history.

Newly minted Canadian citizens who earned the bulk of there net worth outside of Canada are setting the high water mark for house prices.

Prices in Toronto will not decline in any significant way. At the very least they will remain floating at the current levels. So you might not see a 5% price gain in Toronto this year, but even if they stay flat, most of the people reading this blog are still prices out of the market. Too much wishful thinking on this blog, and too little observation. Eyes wide shut.

#65 jane24 on 07.03.17 at 1:44 am

In the 1990 housing downturn, you couldn’t give away cottages. When someone is in a financial crisis the first home they wish to sell is the holiday home and not the main house. Toys go first. If kids now are buying them because they want any house and can’t afford one in the city then they are going to get burned very badly. Every generation learns this lesson and I think that sadly the kids are going to learn it now.

#66 Fake News on 07.03.17 at 1:48 am

RBC telling us we should be concerned now is like Goldman Sachs telling people to be careful about housing – Goldman being the creators of CDOs and whom shorted them in 2008 –

#67 T on 07.03.17 at 3:22 am

#48 Happy Housing Crash Everyone!

It’s always a good time to buy!

It’s always a good time to sell!

Said every realtor, ever, always.

#68 Smartalox on 07.03.17 at 3:33 am

75% decline from current prices is about what it would take for me to buy in Vancouver. Those prices are consistent with my rule of 90, and a mortgage equivalent to three times my household income.

Of course, it may not get that bad until the banks start calling in HELOCs.

But I remember 1990 pretty well; my mom was a Realtor then in Toronto, when the market turned. Went from a sale every other week, to one or two in a year, and those were estate sales. She had a pretty hard time trying to make ends meet. I recall our having to sell our car, and having to dodge bill collectors, and having to answer the phone all the time and put up with the abuse of collection agents trying to reach her for bills that were past due.

Not fun memories for me.

#69 SimplyPut7 on 07.03.17 at 5:19 am

A drop of 75% is possible in the GTA, especially in homes that were flipped or developed by speculators. I will give an example using Richmond Hill, Ontario. The following homes are listed for sale:

* 6 Roosevelt Drive – $5,700,000
* 41 Roosevelt Drive – $2,098,000
* 46 Roosevelt Drive – $4,498,000

The income for this street according to Realtor.ca is $146,553.

We know low interest are part of the problem as to why the house asking price is so large in comparison to the household income. However, the house price is also large because many speculators are novice developers and don’t understand how a real estate market works when the market is normal or slowing.

In a hot housing market, people would knock down old homes sell them for twice the price of older homes in the area because they had to cover:
* cost of purchase the old home at asking price, prior to mid-April 2017 many speculators bid over the asking price by $50,000 – $100,000 or more to ensure they get the home when supply of homes was low
* costs of building the new home
* commission for the realtors buying old home/selling new home

For many years in the GTA that worked for many small developments.

In a cooling housing market, that idea just sounds dumb. Who buys a house for twice the asking price just because the new house may have some better upgrades? It would be more practical to buy the house selling for $2 million and make the upgrades yourself in the existing home.

And that’s the problem many of these developers and flippers are facing now. For developers in older neighbourhoods, that means being unable to recover the cost of knocking down an old house and building a new one in it’s place, when the rest of the homes in the area are selling for 50% – 75% less.

For flippers, they made upgrades in the kitchen, bathrooms and basements as well as used certain finishes that cannot be recovered by raising the asking price of a home in the slowing housing market – even before considering several interest rate hikes. Some also have the problem of home values falling below the price they paid for the home before starting any renovations. Flippers could easily lose 30% – 75% depending on how much they bid over the asking price to get the home they wanted to flip.

In a slowing housing market, with ample supply of flipped, new and older vacant homes, there are not many speculators left and people are more careful about how they spend their money. Buyers are no longer going to pay twice the price of older homes in good condition, selling on the same street. They will go buy the older home and make the upgrades themselves.

Lastly, contrary to what realtors will tell people, in this new housing climate, very few homes sell for over $2 million in the GTA. I don’t know how long the homes listed above have been trying to sell, because Zolo and Zoocasa do not state how many times a home has relisted to appear like a new listing on mls. In the US this information would be provided for free on Zillow.

#70 I'm stupid on 07.03.17 at 8:38 am

#5 Paul

Relationships are already starting to fall apart, at least with the people I know. 4 friends are headed for divorce and too much debt was a contributing factor. Like Garth said, if you can afford a home and want one buy it. If you can’t don’t gamble your relationship and future on it. Having debt stress is a relationship killer.

#71 Ronaldo on 07.03.17 at 9:01 am

#69 SimplyPut7 on 07.03.17 at 5:19 am

I totally agree with your analysis. I saw the same thing happening in Vancouver. The reversal is going to be incredible. Count on it.

#72 crowdedelevatorfartz on 07.03.17 at 10:10 am

I’m starting to see more and more “unexplained” fires in businesses and the odd house here in the Lowerbrainland….
Just like the early 80’s and 90’s.

I’m wondering how long after the July interest rate hike will reality sink in to the great unwashed that the house of cards is an unaffordable nightmare that they should unload
3 months? 6 ? 12?
Or will the next rate hike really start the panic?

#73 crowdedelevatorfartz on 07.03.17 at 10:16 am

geez.
i just noticed.
Mr “Problem Bear” in the photo has a “yellow card’ stapled to each ear…..One wonders if the “red card” was nailed between his eyes….. 3 “strikes” yer out

#74 Toy Story Joke on 07.03.17 at 10:24 am

Buzz Aldrin’s Toy Story joke hilariously soars over Trump’s head.

Donald Trump: We know what this is, space. That’s all it has to say, space. There’s a lot of room out there, right?

Buzz Aldrin: Infinity and beyond. (Laughter)

Donald Trump: This is infinity here. It could be infinity. We don’t really don’t know. But it could be. It has to be something, but it could be infinity, right?

It starts around 10 minutes in, if you want to watch the latest reminder for yourself that this man is President of the United States.

http://io9.gizmodo.com/buzz-aldrins-toy-story-joke-hilariously-soars-over-trum-1796573118

Trump is the gift that keeps on giving!

#75 chopstix on 07.03.17 at 10:31 am

http://www.macleans.ca/economy/realestateeconomy/canadians-of-all-income-levels-are-panicked-about-house-prices-poll/amp/
”Canadians of all income levels are panicked about house prices: poll
In Canada’s hottest housing markets, only a small sliver of respondents said they believe homes are affordable.”
Jul 03, 2017

#76 MF on 07.03.17 at 10:41 am

#64 Eyes wide shut on 07.03.17 at 1:01 am

I agree with this analysis. I live and work in the GTA and let me tell you not one person has changed their mind about housing during this supposed “correction”. Even if they notice the increased in listings, or the slight slowing of sales, it’s all viewed as temporary with prices still way too high. Housing is still viewed as the only investment and nobody cares about debt. Slimy mortgage brokers everywhere still. Very few people trust stocks and bonds for large investing. Maybe 3k here or 2k there, but not for big money.

Just a slight hiccup, then prices will march higher again. The teeny tiny interest rate increase will be so small it will go unnoticed. More importantly, it will erase the “fear” of increasing rates. Poloz and the BoC can also pretend they care about prices and debt levels and “warned us”.

The only thing to stop this train is:

-Big economic slowdown for the country (not happening, even with oil collapsing in price).
-Spike in interest rates (not happening)

MF

Your (misguided and ill-informed) opinion is exactly why so many moisters will suffer as real estate corrects. It’s not different this time. — Garth

#77 chopstix on 07.03.17 at 10:46 am

#55 Smoking Man on 07.02.17 at 11:04 pm
Trump vs MSM

https://youtu.be/92cwKCU8Z5c
———————————————–

pretty frickin’ sad the shitshow that is the USA….
and with this overgrown orange oompa loompa who’s probably experiencing early dimentia at the helm.
never has the US presidency fallen to such gutter-like depths.

#78 MF on 07.03.17 at 11:02 am

Your (misguided and ill-informed) opinion is exactly why so many moisters will suffer as real estate corrects. It’s not different this time. — Garth

Wrong, perhaps. But not misguided or ill-informed. My boomer parents who lived through the previous crashes warned me about buying years ago. I remember reading on here that RE would correct and interest rates would rise in 2011. It WAS different that time (and 2012, 2013, 2014 etc.).

MF

#79 DW on 07.03.17 at 11:04 am

Re: #64 “So you might not see a 5% price gain in Toronto this year, but even if they stay flat, most of the people reading this blog are still prices out of the market.”

You sure about that :)?

If a detached house in Richmond Hill is worth $2mill and it stays flat for the foreseeable future, those that follow Garth’s advise wins big time.

@ $2 mil and even a 5% return per year, a home owner gives up $100k opportunity cost + taxes + maintenance just to live in a home. In GTA where median family income is 85k, what is the incentive to give up more than the family earns to simply live in a detached house?

If the houses are not going up more than 7% year after year, there is simply no point engaging in purchasing one in the GTA.

#80 TurnerNation on 07.03.17 at 11:06 am

#61 Dee “the fact is: the older the area the more likely there are people that bought decades ago”

You mean those people set to downsize their homes into retirement? As, no one retires into a downtown core.

Who then will buy their houses out in this ponzi scheme? Gen X, Y are tapped out already.

Met someone looking to buy in “investment condo” [sic] new. It would be a tiny shoebox affair, likely 350k in after closing.
Good news for renters! Landlords will subsidize all yearly hikes of condo fees, insurance, property taxes and now…drumroll…interest rate hikes? Gulp. New to them.
A tiny almost one bedroom rents for $1800 in downtown TO. No longer will wages support any more hikes of rental costs. That’s the max right there.

This debt ponzi is over. Best job will be as a Repo man taking back all those MB AMGs.

#81 Livin Large on 07.03.17 at 11:07 am

“Very few people trust stocks and bonds for large investing.” Are you drunk at 10 AM or is your only frame of reference the “old dudes” killing their day at Timmies?

#82 Penny Henny on 07.03.17 at 11:18 am

#27 UpDate on 07.02.17 at 8:04 pm
#10 Wrk.dover Penny was curious to know more. Its old news that Welland is in a major flood plain, and the booklet is now available from the city hall with emergency instructions on what to do when the basement becomes flooded. The last documented flood plain study was done in 1986, and a new one is being prepared. Thousands of citizens were notified and numerous meetings have been held with the last being in December 2016. Of course Penny would have gone as its all on the net. Nobody buys a home in the middle of a serious flood plain, and the pictures are up to view. The Welland River is very nasty, so checked the quality water reports too. The residential and commercial listings are on MLS, but are also on other systems, so why are so many leaving? My money is going elsewhere and not to Welland.
////////////////////////////

Thanks for responding and providing more info. I’m always looking to learn. Thankfully I’m not in the floodplain. As for all the recent listings my thought is that many are seeing the crazy prices and are also trying to cash in. I’m not surprised by that, the area was very depressed economically for a long spell. There has been some growth over the last while, the 2016 census shows growth of 3.3% and GE is opening a big plant soon. You are right about many places being run down but that is also changing as it is out with the old and in with the new.
I think the future is definitely looking brighter.

#83 SimplyPut7 on 07.03.17 at 11:27 am

#2 Rob Fortyyy on 07.02.17 at 6:39 pm

That’s not a reflection of all of North York – nice try. I live in Toronto and never noticed that North York had more luxury cars than any other part of Toronto. I have seen more uncommon foreign luxury vehicles in Thornhill and Vaughan, but not that many. North York is becoming more diversified as more first-generation Canadians finish university and college and become high income earners and want to live in affluent neighbourhoods. I have noticed the change in the clientele at the Shops at Don Mills and Bayview Village.

Many first-generation and immigrant families live in multi-generational households, even if all of the individuals/families make a lot of money and can afford to live on their own. Sharing the household expenses allows everyone to have more money to buy luxury goods and services, than people of similar income levels living on their own or as a single family.

As for the condos, yes, many young people bought condos as a way to “get into the market” as they were told by the media, realtors and mortgage brokers that home prices rise indefinitely; and they can use the equity from the small condo to help pay for the home they really wanted but could not afford, in a few years. They bought the 0 bedroom or 1 bedroom units with 500 sq ft or less, which have been having trouble selling in the softening housing market.

I have noticed over the past 20 years, condos in the GTA do not increase in value as much as similarly priced townhouses and detached houses, as the maintenance fees rises above $500 a month. Many do not cover all condo expenses and some older condos in the GTA, have maintenance fees of $1,000 or more a month. Condos with runaway maintenance fees are harder to sell as the condo gets older, even if the unit is well maintained.

Large building expenses are not talked about much by realtors when selling condos to naive first-time homeowners or older adults who think downsizing to a condo is cheaper than renting a condo or living out their years in their larger but mortgage-free detached homes.

—————————————————-

#6 Johnny D on 07.02.17 at 6:46 pm

Love the quote, but can’t find it anywhere, is it real?

—————————————————-

#13 jay on 07.02.17 at 7:10 pm

I think it’s realtor propaganda, like foreigners buying homes in Montreal.

Some young adults are obsessed with the tiny house movement experienced in the US after the housing crash in the late 2000s, that left many people homeless and/or in jobs that could not support their high housing costs as mortgage rates started to rise. Many people in the US blog about living off the land and off the grid, reducing their expenses so they can freelance, take lower paying jobs or work less hours and vacation around the world without worrying about large housing expenses.

Most larger cities in Canada have bylaws that make it difficult to do many of the things these off-grid homeowners in America can do, such as having backyard chickens, cows, goats, collecting rain water and building a tiny house or larger house that does not meet the city’s housing code as well as rent out a part of their backyard to allow a tiny house to be set up.

I find the idea of the completely self-sufficient home fascinating but not practical for most people – you give up being completely dependent on capitalism and large corporations to support your family, to be dependent and a captive on your own property to support your family. The movement will probably die down once housing costs become more affordable again.
—————————————————-

#22 JSS on 07.02.17 at 7:43 pm

Banks for the last 2 years have been positioning themselves and stress testing their mortgage portfolio for the inevitable rate hike. Many banks have given teaser mortgage rates to homeowners which they knew would not be around when they renew their mortgage in several years. Also, the new mortgage rules introduced in 2016, have made it difficult for homeowners to go to another lender offering a lower rate, as they don’t qualify for that loan at the competing mortgage lender under the new mortgage rules.

I think big banks want a fall of 50% or more so borrowers in the shadow banking/private lending industry can default on their loans not protected by CMHC or Genworth, crushing their competitors in this industry. A fall of that size does not automatically mean the bank will refuse to renew the homeowner’s mortgage but it does mean they can offer any mortgage rate they want to the homeowner without the fear of the homeowner going competitor if they don’t like it.

Where there could be a problem is many investors who funded syndicated mortgages used their home equity line of credit (HELOC) to fund purchases made by high risk borrowers. Home prices have been increasing so much, banks did not ask too many questions about what was being put on HELOCs. If home values fall and banks ask for some of the HELOCs to be paid off, they may find out they were indirectly exposed to the shadow banking sector because of their lack of due diligence on HELOCs.

#84 MF on 07.03.17 at 11:43 am

1 Livin Large on 07.03.17 at 11:07 am

The heck are you talking about?

I’m 34. My “frame of reference” is older millennials in prime family formation age…you know, the traditional house hunter/first time buyer/probably most important component of the market?

Do you live in the GTA? Do you have friends? Do me a favour, go ask them what they would do if they had a large sum of money to invest. Do it.

MF

#85 saskatoon on 07.03.17 at 11:46 am

going back to 2001 prices boyz!

like i’ve been sayin’ all along :)

#86 Asterix1 on 07.03.17 at 12:21 pm

#64 Eyes wide shut:
-“Prices in Toronto will not decline in any significant way” – “Too much wishful thinking on this blog, and too little observation. Eyes wide shut”
———————————————————-

Wow! Prices are already going down fast, just the start. Its funny that you mention that this blog has “too little observation”. Could you please elaborate?

This blog (Garth and guests) are all about analyzing data, charts, historical precedents, government policy, USA interest rate policy, bank/international financial institutions reports etc..

There are no “Eyes wide shut” here! What I do see in your comment is an ostrich sticking its head deep in the sand trying to avoid the upcoming correction/crash.

#87 TurnerNation on 07.03.17 at 12:40 pm

This trading desk is open holidays.


Where are the SJW protesting this one? Oh I get it , poor men only. Not a protected flavour du jour.

https://nowtoronto.com/news/think-free-blog/touring-what-remains-of-the-palace-arms-one-last-time-photo-/

“The curious pink building at the corner of King and Strachan is about to be turned into a condo. Since the 19th century, it’s been known as The Palace Arms, and for years it has served primarily as a 91-unit rooming house for poor men.”

#88 July12th on 07.03.17 at 12:48 pm

Poloz will cut rates on the 12th to compensate for the overall drop in RE sales in Canada, which should cause Ontario GTA buyers to bid on stagnant listings. Sellers will relist lower and ask for offers dates and the Summer2017 GTA RE market will recoup all lost value and restore prices to April2017 levels. Government will have successfully cooled the price appreciation and claim this win.

#89 DON on 07.03.17 at 12:59 pm

#64 Eyes wide shut on 07.03.17 at 1:01 am

Rob Fortyyy is bang on. You have to connect the dots with what you see on the street.

This blog relies too much on the hypothesis that the current environment is the same as the late 80s/early 90s scene. This is terribly flawed because much has changed in the world. For better or for worse, capital flows between countries easier than ever in recorded history.

Newly minted Canadian citizens who earned the bulk of there net worth outside of Canada are setting the high water mark for house prices.

Prices in Toronto will not decline in any significant way. At the very least they will remain floating at the current levels. So you might not see a 5% price gain in Toronto this year, but even if they stay flat, most of the people reading this blog are still prices out of the market. Too much wishful thinking on this blog, and too little observation. Eyes wide shut.

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

Eyes…wide shut – Brain half on and readily cherry picking?

How do you explain, Ireland, Spain, US housing troubles in the last decade. Human nature has not evolved…greed and fear, with bouts of sanity and happiness in between.

#90 Damifino on 07.03.17 at 1:00 pm

#80 TurnerNation

You mean those people set to downsize their homes into retirement? As, no one retires into a downtown core.
————————————-

I retired into Vancouver’s downtown core seven years ago. Everything is nearby, medical services, groceries, entertainment, restaurants, all of it within short walking distance or a quick ride on frequently running transit.

Agreed, I still have to deal with hedonists who think the city is their personal ash tray, Lamborghini owners who think Granville Steert is the Indy 500, panhandlers to whom you owe a living, not to mention a tedious, pseudo-green, bicycle worshipping mayor and a council largely in the pocket of big developers. But hey, what city is perfect?

It’s still a great place (I was born here) and you can make the best of it by operating in the off hours and renting high end accommodation that provides good insulation from antisocial behaviour in the street.

Living in the heart of the city means learning to work around things, choosing your battles, and deflecting rather than confrontation negative influences. There’s lot of good reasons to be here. I concentrate on those.

#91 Joe2.0 on 07.03.17 at 1:07 pm

75% crash.
Not sure what buddies smoking but I’m sure it’s not legal.
Vancouvers housing market will continue to be a trendy hedge or investment for many of the hundreds of thousands of global millionaires out there.
Taking advantage of the Cdn peso and loopholes.
Denile isn’t in Egypt.

#92 DON on 07.03.17 at 1:09 pm

#72 crowdedelevatorfartz on 07.03.17 at 10:10 am

I’m starting to see more and more “unexplained” fires in businesses and the odd house here in the Lowerbrainland….
Just like the early 80’s and 90’s.

I’m wondering how long after the July interest rate hike will reality sink in to the great unwashed that the house of cards is an unaffordable nightmare that they should unload
3 months? 6 ? 12?
Or will the next rate hike really start the pani

**************
I noticed more fires lately also…at least enough to spark curiosity. Also hearing about financial stress and marriages faltering. Not a lot of people talking about going on expensive vacations. Change is in the air and this time it is an uneasy feeling. I say within 9 months to a year once the toys are sold.

#93 DON on 07.03.17 at 1:34 pm

#78 MF on 07.03.17 at 11:02 am

Your (misguided and ill-informed) opinion is exactly why so many moisters will suffer as real estate corrects. It’s not different this time. — Garth

Wrong, perhaps. But not misguided or ill-informed. My boomer parents who lived through the previous crashes warned me about buying years ago. I remember reading on here that RE would correct and interest rates would rise in 2011. It WAS different that time (and 2012, 2013, 2014 etc.).

MF

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

My younger siblings are 35 and 36. I am a decade older and provide them with perspective. I remember the mindset of a low – mid 30 yr old. I recently explained to them that your 30s are a grind (time to establish yourself, career, family etc). You are at an age when you can start to put things together and the glue is experience, observation and reflection. Nothing lasts forever and as you age you will become more aware of this.

Things can change over night just like they did back in the 80s and early 90’s. You can see interest rates are starting to tick up. Your friends look like they have the high life – but like an volcano about to burst we have reached critical mass debt. Houses can’t go up – or nobody will buy. Interest rates haven’t gone up and yet the CDN real estate market has stalled. The next shoe that drops will change the perspectives of a lot of your friends. Patience and enjoy the life altering learning experience.

Chill for now man! Being frustrated is alright…but keep your eye on the ball. Enjoy the roller coaster ride.

History repeats/rhymes, technology advances…doesn’t mean humans become more sophisticated.

#94 Fish on 07.03.17 at 1:58 pm

All muscle that gentle Ben

#95 AGuyInVancouver on 07.03.17 at 2:12 pm

#2 Rob Fortyyy on 07.02.17 at 6:39 pm
Here in North York there’s no shortage of teenie boppers driving Lamborghinis and bidding on large condos. I’m not saying it’s foreign money, maybe they all just won the lottery. In any event, I don’t see that train stopping anytime soon. At the end of the day, Canada has one thing that most other places don’t: clean(ish) air.
__________________________________________
Yes, there are still a lot of people who underestimate the foreign buyer, and why 2017 won’t be a repeat of 1990. In 1990 most Chinese were riding bicycles and recovering from the upheaval following the Massacre at Tianenmen Square. Even if it is only 5-10% of the Vancouver and GTA market, it’s enough to stop a real estate rout, unfortunately.

#96 T on 07.03.17 at 2:16 pm

#64 Eyes wide shut on 07.03.17 at 1:01 am

Do all the xenophobes whom have never left the country come to this blog to spout points they have no data to support? Sure seems like it.

#97 Prince Polo on 07.03.17 at 2:32 pm

#84 MF on 07.03.17 at 11:43 am
Do you live in the GTA? Do you have friends? Do me a favour, go ask them what they would do if they had a large sum of money to invest. Do it.

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

I’m a year older than you, and I’m probably an outlier here, but when I moved to GTA in mid-2014, I quickly realized housing prices (to purchase) were insane! I took what I had and invested instead. Some quick back-of-the-envelope calculations show an annual return in Garth’s sweet-spot: 6.5%/yr. Yes, there have been ups-and-down, but there is no way I would cash it all in for a pile of slanted bricks in today’s market (unless those bricks were made of gold).

Yes, Garth – I would convert said gold bricks to cash and drop by your office…..we can dream, can’t we?

#98 Shawn on 07.03.17 at 2:33 pm

A 75% housing correction would be “healthy”.

#99 Wrk.dover on 07.03.17 at 2:38 pm

The difference between Smoking Scam and Justin Bieber?

Only one of those two juveniles posts links to bubblegum music on to this site.

Ya know?

#100 Entrepreneur on 07.03.17 at 2:45 pm

Record breaking on a lot of manipulation by bankers, realtors, government and so much as to cause record breaking leverage and risk.

But people have to work to pay bills, save house and marriage, to keep this record breaking manipulation alive. Work that is far away, ugly, distasteful, stressful, and knowingly not fit for them or earth. But bills have to be paid and to eat. And who cares about the destruction of the earth as long as I can survive attitude.

What was not mentioned as record breaking is our weather pattern (another topic but important one). And the First Nation style of living should be the barometer for respect and correction, asap. Even the courts way of thinking like in Site C situation.

“If you can afford it buy it” #70 I’m stupid but one has to be careful with that statement. This young guy down a few houses was approved by the bank up to $500,000. so he “feels” that he can afford it. He even said hard to believe but that is what the bank said. I think a lot of people “feel” affordability. And realtors even say that mortgages are not the same as credit/debit.

And now buyers have to be careful of declining equity when house prices go down and stuck with the difference. And with this difference the bank will want their money up front.

#101 Lahdeedah on 07.03.17 at 3:20 pm

#13 jay on 07.02.17 at 7:10 pm

I know a 30-something Gen-X-er who bought a cottage for a paltry $200,000 approx 2 hrs drive from Toronto, and rents a humble apartment above a store in the city for $900/mo with her common law b/f. In this case, they’ve decided that owning property in Toronto is besides the point, when what they really want to do is enjoy themselves on the weekends, and when they retire, at a cottage up north. They are proud “reducitarians”.

#102 A Reply to #88 July12th on 07.03.17 at 3:40 pm

“Poloz will cut rates on the 12th….”

Will you take even odds? Any other takers? Mark?

Now, Garth, tell me how arbitrage? ;)

#103 Happy Housing Crash Everyone! on 07.03.17 at 3:43 pm

Lol. Do you speculators know that in 1990 there were young people who had 3,4,5,6 or more investment properties? You know how many of them lost it all? Lol many of you have no idea whats coming. You think the elite will let financial idiots become rich? You are going to see the RE crash like no other. Happy Housing Crash Everyone! You can talk and hope but its coming for you!:-)

#104 Mark on 07.03.17 at 3:43 pm

Do all the xenophobes whom have never left the country come to this blog to spout points they have no data to support? Sure seems like it.

Yeah its kind of bizarre. A week or two ago, I used data from the IMF and from Statistics Canada to basically prove that it was impossible for foreigners to be bringing meaningful amounts of money to Canada on the balance. More CAD$ was being accumulated by foreign central banks and as foreign reserves offshore, than actually was being exported to pay for Canada’s trade deficit. The implication being, capital was leaving, not entering Canada.

The “Chinese with suitcases of money” theory has been thoroughly debunked through various studies and the simple fact that the extremities of Canadian house pricing can be fully explained through the amounts of leverage/credit emitted by Canadian banks to Canadian borrowers.

Even anecdotally, shows such as “Border Security” couldn’t find any examples of meaningful amounts of currency coming into Canada. Illicit outbound currency movements appear to be far more of a problem, with friends of mine reporting a significant number of people being subjected to outbound currency checks at the YYZ/YVR gates on flights outbound to places like China and India.

The peak of the RE market, in 2013, also corresponds very well with the tightening of CMHC subprime credit in 2013. Adding yet another data point. Furthermore, the cadence between the peak, and sales mix adjustments running out of steam and prices collapsing in the US was around 3-4 years. In Canada, it is also proving to be 3-4 years.

#105 south burnaby gardener on 07.03.17 at 3:45 pm

As a long time blog reader and infrequent blog poster. We took Mr Turner’s advice last year and cashed out, selling our house in Burnaby last spring. Currently renting, I am looking ahead to when we won’t have the desire to travel as much and/or won’t be able to afford the heath insurance premiums. At that point I would like to buy a townhouse, and go back to having a (small) garden.

There are advantages to renting such as being able to just pick up and go, but when I can’t travel, I will want to garden again. Will need a very large, structurally sound balcony with a 5 year lease or to buy a townhouse for the sort of garden I am interested in. Think Thomas Hobbs/”Quatre Vents”, not kale, community gardens or petunias.

Garth/Doug/Blog dogs, I have two questions: 1 ) Do we retain a portion of our net worth in cash, so that in say 10 years time, we can go back into the market? If all of our network is invested, I would think we would take a hell of a tax hit having to sell ~ 750, 000 in investments to buy a small townhouse.

2) How do we calculate the 90-minus-your-age=target-value-of-RE, as you get older and your are drawing down on your network? Do you use a target age in the future?

#106 Howard on 07.03.17 at 3:58 pm

#64 Eyes wide shut on 07.03.17 at 1:01 am
Rob Fortyyy is bang on. You have to connect the dots with what you see on the street.

This blog relies too much on the hypothesis that the current environment is the same as the late 80s/early 90s scene. This is terribly flawed because much has changed in the world. For better or for worse, capital flows between countries easier than ever in recorded history.

Newly minted Canadian citizens who earned the bulk of there net worth outside of Canada are setting the high water mark for house prices.

Prices in Toronto will not decline in any significant way. At the very least they will remain floating at the current levels. So you might not see a 5% price gain in Toronto this year, but even if they stay flat, most of the people reading this blog are still prices out of the market. Too much wishful thinking on this blog, and too little observation. Eyes wide shut.

—————————-

In other words, “it’s different this time”. Brilliant analysis there.

Garth, I’m going to start saving these RE shill comments. I’ll send to you a year from now nicely organized and maybe you could make a daily blog entry out of them, to howls of laughter?

#107 T on 07.03.17 at 4:06 pm

#84 MF on 07.03.17 at 11:43 am

I’m about the same age, and I see everything you see with regards to our generation. You are spot on for 90% of us.

Now, you need to stop blaming this blog for its market predictions and your actions being influenced by those predictions. You often come off as whining; it’s not great representation of our generation.

I have purchased and sold 3 properties in the gta in the past decade and am now renting. There is more data out there to help make investment decisions than this blog alone. As great as this blog is, and I do mean great, it needs to be a part of a diversified group of resources used to make informed investment decisions.

#108 Tony on 07.03.17 at 4:25 pm

Re: #88 July12th on 07.03.17 at 12:48 pm

The odds of a rate hike July 12th as of today are 84 percent and remember America is going to lie about their 2nd quarter GDP as seen today a continuation of banks shares up and gold and silver down. From what I’ve seen the past few weeks it should be a doozy of a GDP report probably double the consensus. I’m a U.S. dollar bull for the next three weeks. Looking for a break above the 102 mark on the U.S. Dollar Index (DXY) this month.

#109 Smoking Man on 07.03.17 at 4:27 pm

Garth, download periscope and do live broadcasting from the General Store. Would have come up today but did a little to much JD last night that I didn’t realize I was going the wrong way till I hit the Pensilvania NY boarder.

#110 Tony on 07.03.17 at 4:31 pm

Re: #100 south burnaby gardener on 07.03.17 at 3:45 pm

Did you go senile? $750,000 buys fifteen townhouses in America. People on minimum wage in America buy detached houses. You don’t want to buy a townhouse that cost $30,000 to build and pay $750,000 for it.

#111 Tony on 07.03.17 at 5:10 pm

Re: #92 DON on 07.03.17 at 1:09 pm

I think all the interest rate pressure to the upside is going to come from America this month. I see flashbacks of the racetrack where the worst horse on the program took all the money and won by 20 lengths yet was 20-1 on the morning betting line. When you see the mirror image of reality you don’t bet against it. The U.S. dollar will rocket higher, much, much higher this month.

#112 Steven Patterson on 07.04.17 at 2:01 pm

Although I share all of your views about the absolute insanity of the housing market the big fat white elephant in the room is that there is simply not enough supply over the demand.

We can yammer all we want but nothing will change that until developers want to develop more and with money getting more expensive I do not see that happening any time soon.

Upwards and onwards we go.