The coming crash in Cowtown

con-family.jpg A 40-year mortgage? Best call it ‘rent’


Also: How governments screw up; the 40-year failure

Hi Garth, I see a lot of information about Vancouver’s housing market on your blog, not so much on the Calgary market. I intend to buy a DT condo sometime in 2009 (thinking the fall 2009) when there’s a level of stability in the market – but the catch is how do I know that there’s a level of stability? What do I look for in the stats? Please advise, and thanks for reading,

Cheers! Rosanna

Well, Calgary is already falling into a funk, as you must know. Listings have mushroomed, and sales tanked. There’s now a nice five-month supply of homes on the market and speculators are getting their rumps BBQ’d, Alberta-style. What does this mean? Lower prices, of course. On the street, it is already happening, but you are not going to this in the MSM yet, since housing hucksters like Re/Max and Royal LePage use historical data in a falling market to delay as long as possible revealing the actual story. The fall of 2009 is a few centuries away at the moment, but odds are you will save a bundle over buying in the autumn of 2008. But check in here regularly.

Hi Garth, I sold my overvalued house last year and am renting a huge place for a fraction of the cost of ownership, never mind the carrying costs. Better yet, I am using the interest on my savings to pay the rent (locked in at 4.5% interest) . When the inevitable downturn happens I will buy a condo in downtown Vancouver for 50 cents on the dollar from some overleveraged and delusional sap. I will also consider a place in Costa Rice (the secondary home/cottage market is really crashing in the Caribbean). My partner has just sold 2 of her places and is putting her condo downtown up for sale. Hopefully she misses the crash, otherwise we will live in that one. She is holding on to her Whistler Place that she bought in ’78 for a while longer.

Your read on the situation is dead on and your predictions inevitable. Been there in the early 80’s and 90’s when the prices just got too high and were reined in by natural economic forces and a bit of interest rate intervention. My concern is that the insane economic premise, that it is consumer spending, that is driving the economy and must be stimulated, is being adopted by Governments to keep the economy afloat. Consumer spending is a bi-product of a healthy economy, not the driver. The consequences of this policy direction are dire and can be catastrophic, because you are tinkering with economic fundamentals and patching a huge leak with a stick of gum. Capitalism ,especially with the complicity of Government and Institutions, is ruthless and buyer beware. No wonder the rich are getting richer. The middle class are just a bunch of suckers and buy into the “Lives of the Rich and Famous” so that they can feel smug , no matter what the price. When you are taking on water then it is time to bail. Better yet , if you see the iceberg ahead , maybe it’s time to change your course. Otherwise you will go down with the ship and lifejackets will be scarce.

Regards, O Wise and Mighty Sage

Sounds like you’ve got this figured out. There is truth in the desperation of government market intervention at this point, especially from Washington. The Fed is crashing interest rates, which is precisely the action that launched this mess seven years ago. Cheap and available credit is not the solution to a debt-induced crisis, but there’s no telling that to a central bank addict. Meanwhile Washington is sending big cheques to all consumers, hoping they will spend the money and save the nation. Our course, people are saving this cash because they’re now freaked out by current events. At the end of the day, both actions will make things worse, and the debt of the USA will be even higher, exacerbating the global recession. Are you sure she doesn’t want to sell the Whistler place sooner? Like now?

Mr. Turner;
Your latest book is an excellent read of things past, present, and perhaps future. My wife and I were looking for a home, and we are 1st time buyers. Your book brought up questions about things we never would have thought about and how they affect the value of a house. We are currently renting and we pay very little compared to carrying a mortgage and the extra carrying costs.

We are double income and we will sit out the next few months and watch what unfolds here in Toronto, Ontario, and the rest of the country. The benefit of the stall is building up our emergency fund since we already have our down payment. It is so easy to get caught up in the real estate industry’s hype about home ownership. Your book made us step back a bit and think about the reasons behind wanting to purchase the home to begin with. Our original intention is to have a home to live in and enjoy, not to view it as some great financial asset.

Again, thanx for your enlightening book, and we wish you the best in your political future. Your book has reinforced our original reason why we want a home to begin with.


A good lesson, then. Far too many people have forgotten that residential real estate is primarily shelter, and not an investment asset. The costs associated with gaining it, and maintaining it, can be crushing – and easily destroy the long-term financial plans of many people who buy the wrong house, in the wrong location, at the wrong time. You are correct to wait and save now. The time to strike will come later.

Hello Mr. Turner,

Thank you for having the fortitude to state what needs to be stated when the banks, brokers and economists are telling us the party is just beginning. I’ve seen our friends get into homes to see them appreciate 50% in 5 years. A relative just foreclosed on a home in Brampton for which they initially could afford on paper only but not so in reality.

My wife and I are in our mid 30’s, stable professionals making a combined income of 185 K. We are renting on the cheap and saving for our down payment, waiting until late 2009/early 2010 to get into our first home in the Stoney creek/Grimsby Ontario area. I expect to have about 250 K in savings at that point and hope to get into a home currently valued at about 500 K.

What year do you foresee the real estate market normalizing to indicate true home values in the Stoney creek/Grimsby area? (i.e. when should I buy in, or is it just too early to make such a prediction). In the past, how long have these downturns lasted? When we do make our purchase, do you recommend only putting in the required 20% down payment to avoid paying insurance or should we sink in the the bulk of our savings?

I’ve toyed with the idea of a 40 year mortgage, thinking I could still have some cash on hand in the event of hardship or contribute any yearly excess towards the principal. Would you advise against this in favour of the traditional 25 year mortgage given our situation?

Thank you for your profound insight,

That market is relatively stable, since the demographics are older and the homes generally larger with less turnover than to the east in Burlington/Oakville. So I’d expect sales activity to decline gradually this year, and prices to follow in 2009. As for your purchase, put the full amount of your savings against the home, then borrow back $50,000 or so and invest it in a well-managed portfolio of financial assets, like mutual funds. That way you’ll have some diversification, keep the principal mortgage amount low, and create a tax-deductible home equity loan which will reduce your income taxes and increase cash flow.

Forty-year mortgage? Forget it. They are for losers who are buying beyond their means. You do not need this, and such an amortization would only slow down paying off the mortgage, and add about $200,000 to the overall debt to be repaid. Duh. You sounded like a smart boy until then.


#1 Another Albertan on 04.06.08 at 4:54 pm

Lest I be branded a Garth apologist, please remember that, for all intents and purposes, the average person is essentially innumerate. Yes, they can probably balance a cheque book and estimate tip on a restaurant bill, but the skill really ends there.

I am surrounded professionally and personally by numerous individuals with MBA, CA, CFA, and P.Eng. credentials. These arguably make up some of the top shelf of world-class designations for “numbers people”. I would have to say that the majority of these people have some form of numerical or financial “model impairment” or bias. In other words, they still make very imperfect decisions from contorted models and still require an incredible amount of contrary evidence in order for them to abandon their tactics. Factor in emotions and you can reduce the most intense quant into mush. I see this all the time. People who successfully direct multi-million dollar projects, investments and companies abandon all discipline when it comes to real estate.

In some cases, very diligent and intricate methods can create a financial advantage, hedge risk and increase returns. But if you are at a point where you can start to use these techniques in a real estate or capital market, you are clearly not “average” and won’t be asking a blog for help.

Thus, readers who feel overwhelmed by the current events or the postulated ideas should not feel bad about those feelings or about the tone in some of Garth’s comments.

If anything, ambiguous situations are a perfect time to assimilate new information and ideas in order to chart a new course of action. Gather as many opinions and perspectives as possible and start to develop your own conclusions. No one knows exactly how things could play out for your own specific situation except you.

#2 vultur on 04.07.08 at 3:52 pm

Garth’s opinions are free and truly worth the same.

#3 danny on 04.07.08 at 4:13 pm

lol Garth has everyone running scared. the sky is falling the sky is falling sell sell sell your house will be worthless.
People wake up the housing market in Toronto is not over baked as Garth seems to suggest. The prices have went up gradually and are sustainable at these levels.
The sky is not falling !!

#4 outtacontrol on 04.07.08 at 7:36 pm

The prices have went up…

Oh, danny boy. At least Garth uses the right past participles (go look it up). But thanks for your insightful analysis.

But seriously, the world-wide credit collapse is documented and discussed in great detail at

#5 Sam on 04.07.08 at 7:44 pm

Danny boy,

You must be a Remax agent or a 5th grader with no sense of economics. Garth speaks 100% sense , whereas you….

#6 Ken on 04.07.08 at 10:19 pm

If I didn’t read your book today I would have bought a million dollar home in Calgary this week. Now I am gonna stay put in my current, over priced, half a million dollar home and put my money in investment instead. I almost forgot that the same thing had happened in Hong Kong before where a lot of people, including some of my colleague were forced into bankruptcy because of the housing bubble. Thanks a million!

#7 SMWhite on 04.07.08 at 10:45 pm


You shouldn’t group 5th graders in the same category as the real estate shills, I’ve seen 5th graders on that “Smarter than” TV show and I can tell you they would at the very least be able to do the P/E math on “investment” properties, you know the properties that everyone started buying up because you can never lose in real estate.

Where does Garth say housing will be worthless?

Nowhere. Over valued, yep and he’s not the only one saying it, there are many reputable persons stating that claim, Canada is the last of the Anglo countries to hit the bubble and if your saying that we are immune then go sell crazy some where’s else. In a lot of the urban centers rent is more feasible.

In Ottawa(which has less risk then any other major Canadian city because of government) for instance I negotiated a cheaper price on my rent as the place empty for 3 months. 10 years ago that would have never happened as the vacancy rate was at less then 1%. To buy a similar home in the downtown area we are in would cost $1000 more a month; plus taxes $250; plus maintenance $100 – $300. The extra cash flow has down better in equities then the gains in the housing market over the past 7 years.

Will housing collapse and be worthless, no, will it stink as an “investment” for the next ten years, yes. The speculative condo market is putting a knife in all housing.

Buying today solidifies the fact that you’ll be in that property for a minimum of 10 years. From 1990 to 1999 housing under performed inflation. Not only that if you had bought in 1989 it wouldn’t have been until 2003 to get back to the 5% yearly average housing has provided since World War I.

Here’s a price history for the city of Ottawa from what I would consider a very reputable Ottawa agent:

Remember kids, the best time to have $ is when nobody else does. And I think the state of the GLOBAL credit problem solidifies that. There are going to be very few buyers that WANT to afford housing in the coming years and very few CAN afford housing. You can only play the house trading game for so long.

Never buy at or near the top of a market and never sell at or near the bottom at lest thats what that Buffet guy keeps saying. Follow the smart money or follow the herd.

“Paying rent is no more throwing your money away than buying food or clothing is. You need shelter. It’s one of the three basic necessities of life. Renting is one way to acquire that shelter and, in some cases, it’s a very intelligent way.” -David Chilton-

PS Moo!

#8 Keith in Calgary on 04.08.08 at 10:01 am

There are roughly 11,000 +/- properties for sale in Calgary at a time when there are usually 3,500………houses have doubled in price in 24 months and people are terrified, thus the spike in listings………

There are 9,000 condos under construction at present. High rises that have just been recently completed are almost totally vacant… can look at them at night and there are no more than 25-35% lit up because no one is lives there. Flippers own them…….one newly completed complex “Arriva” has over 20 units listed at $400K ++ for sale and no takers. The rest of the lights are out. We are going to be like Miami except for the beachs.

The “REIC” (Real Estate Industrial Complex) is struggling to sell 1,700 units a month……..

Sales are down between 30-40% for each of the last 3 months…….worse than Phoenix and Miami. This month they are also flatlining.

I am renting for $1,125……why buy for $3,500 ?????

#9 Stoneleigh on 04.08.08 at 10:18 am

Think of rent as paying someone else a fee to take the property price risk for you. Considering that risk is currently very high, it’s money well spent. The supply of greater fools is drying up very quickly, and not just in the real estate market. The Asset-Backed Commercial Paper (ABCP) debacle is a good illustration of what happens when confidence is lost and takes liquidity with it.

#10 shoutoutoutout! on 04.08.08 at 11:45 am

Garth, I am reading your book, almost done, and have enjoyed it. I was on the page 171, where you talk about Mattamy-the home builder. I put the book down for a break, surfed over to the Calgary Herald site to check the news and guess what I saw? An add for Mattamy homes linking to their website were they proudly proclaim they are coming to alberta to build! Oh great, we REALLY need more Mcmansions…Well, builders build right? I wonder if they know new builds are down here…

#11 Brian Poncelet, CFP on 04.08.08 at 9:42 pm

Hi Garth,

I have tried to call the end of the housing market for about two years! All I can say is bubbles can last longer than even the experts call for!

In the London, (UK) home prices came down about 2.5% in March…the most since 1992. Some one said “real estate prices go up only for 11 years, but our memories only last 9 years”!



#12 Lawrence on 04.09.08 at 2:00 pm

I certainly concur that new multi-family housing construction in Calgary is accelerating just as the number of listings have doubled and the prices have fallen off from the peak in July 2007. As I walk around downtown, I see nothing but cranes, mostly on condo towers, coming on the market at approximately the same time. Spring 2009.

Hmmmm, me thinks an opportunity awaits in 2010. If you have something to sell in Calgary, especially a condo, sell it now. It will only fall in value in the next 24 months.

But this is no different than the real estate market has always been. Garth proclaims this “insight” with the ferver of chicken little, as if he has an original idea and has identifed a brand new phenomenon.

The cycles are relatively easy to predict in various markets. Even Garth will get a few right from time to time.

“Yikes, the sky is falling – you heard it hear first!!”

Have the read the book? — Garth

#13 Lawrence on 04.09.08 at 3:18 pm

Yes, I am happy to say that I have read Chicken Little several times – to my kids – did you mean your book? Not yet. Good try though!

I have surfed your site for hours and read your blogs and excerpts and reviews of your book by others and your replies to the panting queries of your fans.

You foretell a major depression that will decimate the entire economy and real estate will only recover after a correction of 30 percent across the nation. All this despite low inflation, low interest rates, declining government debt, record low unemployment, excellent balance of trade with the world, record high commodity prices for such things as Gold, Oil, NG, Potash, Coal, Uranium, Diamonds, Wheat and Oil Seeds.

We have excellent trade with NAFTA and growing trade with China, India and SE Asia. Our former PM Paul Martin predicts that the 21st Century is Canada’s!!

Winnipeg?? A stable but perky real estate market at this time. Houses are selling at or over the list price but you (no surprise) have only one mantra. “The market is falling everywhere!!!”

Kelowna??? Are you kidding? What a safe and stable long term investment opportunity. They stopped making warm lakes and four seasons resort locations some time ago. My 1999 investment has more than tripled and shows no signs of slowing.

Garth, what is your motive? Is it envy? I wonder sometimes about the Eastern thing. The west has had five solid years of growth and has flourished while Ontario has struggled and their place in the confederation has become a little tarnished. The leadership doesn’t come from Ontario like it once did.

The west beckons and I think there is a deep seated (even sub-conscious) anti-western bias that says we (Ontarians) should be the barometers of the economy of the country. If we are suffering it is only a matter of sheer luck. Eventually everyone will suffer.

Welcome to the 21st Century and the new West. This isn’t Kansas anymore Toto.

You said, “You foretell a major depression that will decimate the entire economy and real estate will only recover after a correction of 30 percent across the nation.” That is patently false. Read my book, and you will know what the premise is – a flatlining market, followed by declines which will vary in length and degree according to local conditions. Some will be modest, some disturbing. And it’s not just Canada. You think the West is immune? When did I hear that before? Read the book, cowboy. You sure need it. — Garth

#14 Dom-GTA on 04.09.08 at 4:31 pm

Garth, Lawrence is so typical of what I am hearing as well. None of us can get it right. The only smart people are those buying now and those that have bought already.

How does this stick your head in the sand work? You just bury everything including eyes and ears and hope for the best?

I would rather be on of those who listened and sold now making my money (equity) then one of those who ends up crying ” I should have looked at the signs and listened to someone like Garth” Even if the market goes up a little more and still peaks the upside seems a lot less to me then the Everest of a slide waiting on the other side.

As for your legion of fans and followers, I can see from the number of posters that we are still in the minority, oh well, it will be interesting to see what happens in the next 6 months….

#15 Keith in Calgary on 04.09.08 at 5:17 pm


Why should I buy for $3,500 in Calgary when I can rent for $1,125 ?

The buy is calculated on a $400K mortgage amortized over 30 years (!!!) with a rate of 6.5% and $1,000 of condo fees, insurance, utilities, etc, included each month. All this on top of giving $50K away up front as a downpayment.

In 5 years the mortgage is paid down to $378K, so you are still $28K in the hole when you consider the down payment you made……..

Had you rented, you would have saved $142K + $50K ($192K total)……..assuming you had banked the difference………which the wife and I are.

There is no way in that condos are going up 43% anywhere in the next 5 years.

What do you think……heh.

#16 Lawrence on 04.09.08 at 10:45 pm


Why don’t you read post #12 about Calgary. The buying opportunity will come in 2010 or later and not now. Duh.

I can remember travelling to Kelowna and touring a very nice condo right on the lake in 1985. It would have been my first “investment”. Things went crazy soon after and I missed my opportunity. But, eventually, Kelowna settled back down. In 1999 I made my purchase and it has more than tripled since then. The real estate market has always had cycles.

You say A flattening market? Then why, Garth, does every one of your “headlines” and replies say the same thing. Kelowna will crash, Winnipeg will crash. Toronto will crash. The bubble is bursting etc etc. The subprime crisis is coming to CANADA!! Head for the hills Wilma!!

Toronto real estate is gradually becoming more affordable. Lower interest rates are helping alot. The manufacturing sector in TO and Southern Ont. continues to be a cause for concern but if the Canadian currency falls back to .90 cents as it is predicted to do, the US economy and currency regains strength in 09, then Ontario will finally get back on track. They will have an uptick in real estate too. Two to three years from now.

The smart money says buy real estate right now if you live in the GTA. Or look at an immediate purchase in the US and make a currency play and a smart 2-3 year investment. Sell Just in time for a similar venture in the Alberta market.

Markets to avoid right now?? Calgary and Edmonton. These markets are correcting now, despite $110.00 Oil and rising NG prices. Calgary in particular is over built. 2010 will be an interesting buying opportunity however.

#17 Keith in Calgary on 04.10.08 at 7:28 am

I did.

My point is that the disparity is so great, that prices here have to crash in order to make anyone want to buy……, in 2010 as you said, or later.

There is no buying opportunity unless things come down 50%.

#18 vultur on 04.10.08 at 8:58 am


The only reasons to for you and wife to buy instead of rent are to protect a tenure of residence. Your landlord can kick you out on a whim if he decides to sell the unit, move in himself, or put his nephew in there. Also, you won’t want to be making any big improvements to a unit that you rent.

Other than those considerations, I agree that renting is much cheaper. Keep on renting- you’re probably paying off my mortgage ;)

#19 Dom-GTA on 04.10.08 at 9:02 am

Keith, doesn’t all this feel a little like talking to 4 year olds? It seems you (I) have to really repeat yourself to make a point.

I know Lawrence/Vultur are in the minority on this thread simply because of the nature of Garth’s book, those reading it are believers and concerned, those unwilling to read it are typical RE boosters.

My concern is when does it become immoral for people like the CMHC, RE companies, Mortgage brokers etc…to keep pounding us with this rhetoric? When the market actually falls can we hold any of these people accountable?

I am very happy for this forum, because let me tell you if we were posting on the G&M site we would be called all kinds of names and be labelled “chicken little”

I am definately a RE buyer in the near future (no real choice with 2 dogs and in-laws) and only hope that I can find something this summer that won’t tank by this time next year, my biggest problem is having moved to the GTA recently is that I really don’t know where to buy in order to insulate myself from the downward pressures we are facing.

Good luck to all!

#20 Keith in Calgary on 04.10.08 at 10:16 am

And so can a bank refuse to refinance me, or maybe raise my rate and/or modify the mortgage terms, making the home suddenly unnaffordable and causing me to move. I can also get hit by a bus tomorrow…’s a non-issue.

It won’t happen though…..I only ever rent from companies that are in the business of doing rental property ownership. national companies that own large high rises for decades, and are not the same as some flippers with a condo in the aforementioned “Arriva” complex for example. I do this purposely to not reward flippers with my rent…….and to assure stability of my acommodations.

#21 vultur on 04.10.08 at 10:18 am


Why are you so concerned with the minute-to-minute ticks of the real estate market? Go buy the nicest house you can afford, lock-in a long term mortgage rate and you’re off to the races. You don’t need to view your primary residence as an investment, that’s not the reason why you are buying it. It is shelter and I can virtually guarantee you that in 20 years you can look back and see a 5%+ appreciation all the while you’ve had the discipline to amortize a mortgage and build some equity through forced savings.

Is that really so awful? What part scares you?

As far as areas go, try and stay south of the 401 in the 416 if you can as land costs there are always going to be feeling upward pressure by new condo development.

Don’t listen to Darth, he’s a scaremonger looking to pitch his horror stories. I agree that the bloom is off the rose in the GTA- definitely- and you can’t count on big appreciation over the next couple years- but that shouldn’t matter much to you if you’re building a nice nest for your family.

#22 Lawrence on 04.10.08 at 12:20 pm


I have one question for you. How many people do you know who have established their long term financial security from their savings?

I rest my case.

Take a deep breath, plan and time a smart purchase, be diligent and use accelerated repayments and get started when your employment situation and the local markets look right to you. If you live in Calgary, waiting makes sense.

The most irresponsible aspect of the current situation has very little to do with the Real Estate market in Canada. This is interesting enough but cycles come and go and there is no major threat to Real Estate valuations in Canada, notwithstanding Garth’s prophetic utterances.

The real issue is fraud and the cost of fraud in the “securities” market and to every tax payer with an RRSP. You would think that Garth Turner MP would champion major securities reform and regulation, would advocate the prosecution of the perpetrators, would finally address the conflict of interest of “financial planners” who represent funds, often unbeknowst to their clients, and sell products that help them selves not help their clients.

Go after the scammers Garth. Represent the folks whose retirement security has been undermined by an industry that is rift with conflict of interest. Go after the fraud artists who sold “AAA” paper to retirees only to find that they bought ABCP toilet paper. Help restore confidence in our financial institutions.

Haranging about real estate at this particular time is as useful as combing your hair during a blizzard. Speaking of which, we got a ton of snow this morning in Calgary.

The blizzard is “securities” fraud. Do your duty.

#23 Keith in Calgary on 04.10.08 at 2:55 pm

Lawrence said…….”How many people do you know who have established their long term financial security from their savings ?”

Me and my wife have……does that count ?

$250K in the bank…….and it’s all because we didn’t buy RE here.

Oh……..we do however own a condo 4 blocks from the beach in Rio de Janeiro. Our retirement place. It’s a condo that cost $60K in 2003 anad is worth the same today……….up here it would be $350K and there’s no beach !!

Now, before you or one of the RE boosters here start in about crime down there…….5 people have been murdered within a 5 block radius of my downtown west end Calgary high rise in the last 24 months……..whereas no one has been killed within a 5 block radius of my condo in Rio…….and as for Edmonton… has just been named the crime capital of Canada.

The fraudsters involved in the RE market are the realtors who said “houses only go up in value”…….so I agree with you……..we should prosecute each and evry one of them.

#24 Lawrence on 04.10.08 at 5:36 pm


I rest my case.

At a healthy 5 percent average annual return, not adjusting for inflation, you will have an annual income of $12,500 from your savings. Considering inflation at 3 percent per year, $12,500 becomes $10,099.00 in about seven years in real dollars.

#25 vultur on 04.10.08 at 6:56 pm


Here’s the irony- if you had bought any condo in calgary in 2003 it would easily have doubled in value by now and if you had used traditional 75% leveraged on the deal you would probably be looking at a 400%+ return on your investment not including the rental income that you would be deriving from it. I know, I know, the market has peaked, you’re still be WAY ahead.

Instead you turned $60k into $60k in a politically unstable 2nd world county.

Way to go genius!

#26 SMWhite on 04.11.08 at 12:42 am

DOM, vultur is right, everyone needs shelter and most likely in 15 years this housing insanity will start again once the market purges the over-priced condos out of its system and takes down a few wanna be moguls. But for now, that ship has sailed in most real estate markets. Condos in Ottawa this spring are popping up like tulips…

If your planning on moving in five years your probably going to take a hit, so getting into the market today grantees you 10 years in that residence before you’ll see things “smooth” out, and it won’t be 2010 when things are rosy.

From what I’m seeing a typical condo is a terrible buy either as “shelter” or as an “investment” at this point; property taxes, condo fees then your mortgage.

If your having a baby or starting a family get yourself a detached bungalow/ranch, keep out of the stainless steel appliances and the granite counter tops and any other luxury items. Why in the world people put these in entry level homes is beyond me; or get a duplex, check the rents in the area first and do a P/E calculation to see if its going to cause more trouble then its worth.

People over extend and buy the big house in the burbs but if there is a recession of any magnitude and they can’t keep up with it, some will have to foreclose and rent or downsize, maybe even move into one of those empty condos(did I just say that?).

Being in a entry level home at this point is the only way to go if your going to jump in the market because if prices do drop, you’ll not lose as big of a % if you are forced to sell, new families, which there will always be, will be able to afford your bungalow over the McMansion.

The bond rate is terrible right now as vulture stated on another post and there is risk of the stock market taking a good bath this summer when the USA finally admits they are in a recession. I’m renting but getting to the point where I’m running out of places to put my money. There is the possibility of rates going lower and bonds will suffer even more. I think if you read between the lines even the experts aren’t sure where things are headed, hence the run up in precious metals, especially copper, silver and gold.

People divorce and die everyday, that market doesn’t have the same kind of patience to wait as a real estate speculator. They will be the ones to put the downward pressure on prices, and force the hand of the jack-asses that are buying additional properties into the strength of the market thinking its going to provide those big gains of the past 7 years, for the next 7.

The currency play is also a good point from Lawrence although its a gamble that ours will drop, there is talk from a couple of the banks that our dollar could go lower, and its probably my biggest concern right now, but I wouldn’t be buying real estate in the USA anytime soon, that market isn’t anywheres near about to stabilize, largest year over year decline in history via Case/Shiller index, 12% in one year, biggest before(or as long as the index has been around was 6% after the late 80’s falter). I see bigger down arrows when Bernake says the “R” word.

I’ll stick with European based companies(blue chips) at this point as an inflation hedge on the Canadian dollar decline, maybe a little bit of those metals that we as a country are so lucky to be sitting on, equities aren’t guaranteed either but I think if just goes to show how hard it is to earn money as well as make it on gambles and guesses on which way the pendulum will swing.

Money can be made in any situation you just have to do a lot of homework, and don’t copy of other peoples for goodness sake! To many are chasing guys like Lawrence who’s been around long enough to know when the getting is good, and bad.

Garth, I’m a fan of the topic but this is the real scam, our CPI numbers:

The Consumer Price Index excluding eight items which the Bank of Canada has deemed to have the most volatility from month to month. The goods omitted tend to fluctuate idiosyncratically and may distort CPI data. The headline figure for CPI is the percentage change in the index on a month to month and year to year basis.

Note : These Eight items include: fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transportation and tobacco products. Changes in the CPI Excluding the Core 8 are recognized as a better indicator of inflation than the regular CPI. The headline figure is reported as a percent change on both the month to month and year to year basis.



#27 Lawrence on 04.11.08 at 11:05 am


First you say the issues are development and zoning and now CPI methodology??

Stats Canada has a solid reputation for very reliable data collection and analysis tools that meet or exceed any other national system out there. It is not the bank of Canada that determines the methods to calculate CPI numbers.

#28 Keith in Calgary on 04.11.08 at 1:06 pm

Doing some math this morning. My rent is $1,125. That is $13,500 per annum. A condo the same size as mine with UG parking, located in the west end of downtown Calgary costs $475K +/-.

My rent is 3% of the cost of that condo…….a mortgage to buy it would be 6.50% +/-……and the cost of ownership, that is, the taxes, utilities, insurance and repairs adds another 1-2% on top.

Man I am bitter……!!! I am so damn mad at myself for not seeing the light, and going out there right now and doubling or tripling my cost of shelter !!! How could I have been so foolhardy……..??

#29 Re-diculous on 04.11.08 at 7:32 pm


Expressed another way, the ratio of Price to Monthly rent of your apartment (assuming your apartment is also valued at $475K) is 475K/1125 = 422 ! Someone posted on the Vancouver Condo blog a few months ago that P/E’s > 200 are not sustainable over the long term.

#30 wealthyrenter on 04.11.08 at 10:44 pm

Lawrence said…….”How many people do you know who have established their long term financial security from their savings ?”

Count my wife and I as well: mid 30s, modest lifestyle, 65K/Y in savings, 400K in safe investments, pensions, rent at 10% of NET income, pay cash for cars, and once in a while blow the dust off credit card (singular) to see if it works.

For somebody with a finance degree, I can’t believe you wrote that statement. Most people establish financial security by working hard, getting an education (trade, college or university,) saving, having a pension, and investing in a diversified manner. I would agree that housing fits into the mix, but only as a means of forced savings over the long term.

I know plenty of people in retirement that are “house rich,” and will never see the returns in their lifetime. My folks live in a beautiful home in Garth’s riding. The gap between condos and homes is so narrow, that downsizing will not result in substantial profits unless they move to Eliot Lake or Thunder Bay! I also know plenty of older folks, including family that are pretty close to eating dog food because they lived high off the hog, and didn’t save. House ownership != financial security.

Lawrence said…….” As far as areas go, try and stay south of the 401 in the 416 if you can as land costs there are always going to be feeling upward pressure by new condo development.”

Stop giving daft advice about areas you clearly know nothing about. Large swaths of neighbourhoods south of the 401 and north of Eglinton are blighted, gang-infested shitholes. If you live in the west end, you can add constantly having your teeth rattled by airplanes as a good reason not to live in the part of Toronto you are selling. Thankfully, it is mostly the working poor and immigrants that live near the airport. (said with tongue in cheek)

The desirable areas south of the 401 have long been unaffordable to first-time, middle class buyers. Even with our family income over 200K, and substantial savings, Toronto is out of our reality unless we want to be house poor.

The massive flight of people to the 905 burbs only serves as a reminder that most folka don’t buy the (oh-so-affordable) dream of a condo utopia. How uppity, wanting a house and piece of land!

#31 Lawrence on 04.12.08 at 7:35 am

Wealthy Renter;

I think you have confused me with DOM or someone else’s post. I made no recommendation about south of the 401.

Glad to hear that you like being a tenant. I manage a few properties and there is nothing better than a long term tenant who has no desire to move into a purchase. We can do business together!! You carry my costs of purchase, maintenance, taxes and interest, and I pocket the capital gain. If I put 25 percent of the purchase price into the property my return on my capital has been over 100 percent per year. I need you and others like to be satisfied with renting. We are both happy. Yeah!!

#32 Lawrence on 04.12.08 at 8:00 am


Don’t be too smug about your rent because that can change in an instant. If you are in a tower with UG parking and a 2 bedrm suite, you should be paying 1500.00 per month. Your costs can escalate overnight, sometimes when you can least afford it. So let’s take a more typical rent and use that for our analysis.

1500 X 12 = 18,000 per annum

Rent is simply an expense or cost of living in Calgary.

With a little shopping you can find a five year mortgage a 6.0 percent so can finance about 250,000 mortgage, locked in for five years.

From your savings you take 100,000 and use that for a downpayment. You make a purchase for 350,000.00. From that point on, you can expect a reasonable return on both the 100,000 invested and your cost of living has remained constant. If the market maintains an appreciation rate of 10 percent per year for five years 350,000 X 1.10 X 5 =$565,000

If you feel that ten percent per annum is too optimistic try a very conservative five percent and you get to a value of $450,000. In other words, taking a very conservative approach, you still doubled your initial investment of 100,000.

On the other hand, let’s assume that at the end of five years, your rent is now 1750.00 per month. Oops. No tax free capital gain, rising living costs and eventually you find out that you don’t have the time to let inflation help you build up a nest egg in retirement.

Now five years is a pretty short time horizon for a healthy return on real estate. Ten years is more reasonable. The numbers only get better.

#33 Another Albertan on 04.12.08 at 2:35 pm

Lawrence –

Not meaning to nit-pick, but for the sake of clarity to the readers, you have the simple interest formula listed but sums that were created with a compounded formula. Some readers may not understand the difference.

But for me and likely a lot of others, I’d prefer to not have to use inflation as the scaling factor for determining my NAV. I’d prefer to solidly beat the inflation rate for my returns and I’d prefer to have the assets diversified (in type and geographical location)

It is disingenuous, though, to assume that everyone who is renting is making a mistake. The corollary to the Jefferson/Lincoln statements that “all men are born/created equal” is that not all people are equal at all times. People have reasons – some good, some bad, some smart, some irrational and dumb (all relative to points of view) – for doing what they’re doing. Some will profit handsomely and some may pay dearly for their choices. The marketplace will ultimately determine everyone’s fate [barring government intervention or a giant meteor strike ;-)]

#34 Lawrence on 04.12.08 at 10:46 pm

Another Albertan;

Yeah for satisfied renters!! Heck, three cheers for smug self satisfied tenants, for students, for Garth “Turnertighties”, for people who chose to reliquish the responsibility of home ownership for whatever reason. Yeah Tenants!!

Varied types of investments and locations. Of course.

But working a Jeffersonian Quote like that? Very impressive. Yup. Impressed. Very.

#35 SMWhite on 04.13.08 at 1:36 pm

$350,000 X .95% X 5 =$270,850.00

#36 SMWhite on 04.13.08 at 3:03 pm

Lawrence, there are many methods to calculate CPI as you state, calculators, an abacus, fingers, beans, etc can all used to calculate the numbers.

The Bank of Canada “defines” what CPI is not Statistics Canada. If your missing the point its this, there shouldn’t be two numbers, Core CPI(leaded) and CPI(unleaded). Because energy “fluctuates” is no reason to disregard it because it won’t give you prettier numbers.