And baby makes… angst

Today’s latest housing news.

Hi Garth,

I could really use your advice on what to do with my current home. My wife and I bought our 975 sq-ft 2 br townhouse in Toronto’s Beach neighbourhood in Feb 2007. At that time we paid $265,000. In comparison to other properties of this size in the area, I still feel that we did alright in that market. A year later, we have recently found out that we’re expecting our first child in July. My wife will be off for 11 months on mat leave and we will be effectively losing 50% of our income. As you are aware, the maternity assistance from the federal and provincial governments is for a lack of better terms, minimal. Given our new economic position, we are debating selling our home and moving north of the GTA to a larger and cheaper home ($229,000 range). 2 units in our building sold last fall for $300,000 so I am comfortable with assuming that we will get near that value if we sell. I had predicted more as we have the nicest of the units, but am not feeling so positive now. My question is, should I sell immediately and buy in the more protected rural market? How much devaluation do you think we could face?


First, stop and assess why you’re taking these actions. Do you need to move because you are having a kid, or because you’ll be financially stressed staying where you are? After all, moving will cost you almost $30,000 – $18,000 in commission, plus legals, moving, land transfer tax etc. – and that’s straight out of your pocket. So, why are you doing it? Surely a two-bed townhouse is big enough for you and one six-pound baby. Do you have parental expansion disease? Second, why should your unit be worth this Spring what others sold for last autumn? Ensure you get a realistic appraisal (or three) before you make any decision to list. Third, research the market carefully before you take further action. Where are you going to get a bigger house for $229,000? North Bay? No further advice, without more info.

Hello Garth,

Only after putting in an offer on a house in Hamilton and having it accepted, did I read your book and discover that I may be heading into a world of hurt. The offer is conditional on financing and inspection. Short of losing my job, I doubt I would be denied financing. I hope to demand an unacceptable reduction due to any deficiencies, but if this fails what else can I do? Any advice would be greatly appreciated.

Finding Out too Late

If you have cold feet, don’t remove the condition. The home inspection results are confidential to you, and by not signing the waiver, you render the deal dead. What’s the problem?

Garth, I’ve just sold my house here in the Deep Cove neighborhood of North Vancouver. Paid $530,000 for it in November 2003 and put it on the market last month for $989,000. It sold in one week for $1,001,00 with three offers over asking. I had a great agent and with her help we listed it earlier rather than later – I wanted to do a major kitchen renovation before listing in the late spring. Thanks for the good advice in your book.


What advice of mine do you need, other than take the cash and run. You just found yourself a greater fool!


I don’t disagree with the basic premise of your argument that real estate is overvalued and at risk of a decline. (by the way in my opinion interest rates will be the biggest factor — if they increase substantially at some point, there will no doubt be blood in the streets)

Having said that, conventional wisdom says its foolish to think one can time the market with precision. Will prices increase this year in most markets? – perhaps. Will they fall in some? in most? — who knows? I’m sure you don’t have any special formula to predict this at better than 50% confidence.

So — isn’t it a bit irresponsible offer such definitive predictions to the folks that write in, seeking your advice? Obviously you’re stating a personal opinion, nothing more — clearly nobody knows if, and importantly when, the market may drop. Even you!

Peter in Toronto

Of course these are just my opinions and you can ignore them, follow them, or use them in the garden. Could care less. But, having said that, I am unfortunately correct, and the Canadian real estate market has just seen the best years it will have for at least a generation. The reasons are legion and if you read my book, you will see the inevitability of this correction. BTW, I hope you send the same email to all the bank-paid economists and CEOs and marketing guys from the real estate companies, plus the CREA experts, who have said – without reservation – that people should keep on buying. Now tell me about responsibility.


I was wondering what your thoughts are on the security of our Canadian banks during the hard times coming. We sold our house and have kept the cash for the hard times coming and they sit in short term deposits and in saving accounts in different banks in Canada. Do you think that the bank deposit guarantee up to one hundred is safe? Should we take the cash and put it in our sock?


If the banks fail, then you might as well get a gun, a cabin and a hound. There is no risk here, other than that which you are posing to yourself. Keeping bundles of money in savings accounts? You jest. After inflation and taxes, you’re actually losing money every single day that you keep this foolishness up. Get it invested!

Hi Garth

My husband and I are looking to purchase a home in St. Catharines, Ontario, and are followers of your blog. We appreciate the advice you have given to others!

We are having a terrible time trying to find a nice home in our price range of $225000-$250000. We are adamant that we want to have a 20% downpayment but it is so tempting to raise our range a bit more to get a nicer house in the end.

Do you think we should hold off on buying a house until the prices drop? Will it be a waste to buy into this market now? The most difficult part is watching our friends (we are late twenties) buy these huge homes!


Stick to your price range. Buy the worst house on the best street. Buy a home below its potential and make it into what you want. Eschew debt. Real estate values will be flatlining, then declining, while mortgage amounts stay constant. Your friends will view you with wistful jealousy when the weather hits.

Garth, I have just finished reading your book and believe it is very prescient. The ducks are in a row for a real estate collapse.

I own one twelfth of a vacation residence in the Okanagan (which is achieving its objective precisely: providing affordable and delightful vacations for myself and my family) and first realized that a bubble was afoot last summer, when the final fraction sold for 150% of what I had spent two years before, and when I saw dozens of wealthy boomers from Calgary camping out prior to early release of yet another upscale development (not even on the lake!). Already, the signs are there: the Westin Kelowna is not being built “due to rising construction costs”. And this week twenty something Jerome Aginla closed on a $7.2 m home on Okanagan lake. Oh, to be young, rich and ill advised!

I live in Winnipeg where I own a modest, mortgage free home which I bought at the last price nadir in the early 90s. I also own investment property in Ontario which is paying for itself and which will generate retirement income for me in due course. But in total, real estate is approximately 15% of my net worth and will never be more than 20%. In
fact, I am considering selling my Winnipeg house now while the market remains vigorous. I am considering a move to Vancouver which would most certainly mean becoming a renter again while I watch the purchase price graph go down…….

I see my friends at home and abroad caught up in the property craze and keep saying, like a broken record: “it’s just a place to live”. Fast forward five years and we’ll see who’s ahead!


Who’s Jerome Aginla?

Garth, I just finished reading your book — it was great, although you were preaching to the converted as my partner and I have divested ourselves of all real estate and are patiently renting until the market turns. We probably sold too quickly and left some money on the table, but better early than late right?

My question relates to real estate east of the Greater Toronto area. What do you think of places like Ottawa, Kingston, Montreal, and Quebec City? As a Vancouverite, when I see listings in Montreal for 1500 square foot condos overlooking the Lachine Canal in new buildings for $500,000 I am often lured to move to the once-vibrant city of Montreal. Your book focuses on Toronto, Calgary, Kelowna, Vancouver and occasionally Saskatoon. What are your thoughts on the market east of Toronto?

Thanks again for a great book.


All real estate is local, in the final analysis, and the markets you mention have their own complexities. In general, Ottawa has seen a price appreciation akin to Toronto, especially for condos, and has sprouted meadow after meadow of Mattamy homes in the last few years. Prices there will hold better than in TO, because values are lower and the federal government still has a pervasive influence. Kingston has some great bargains, but not near the water. The real gems are north of the 401. Montreal remains a strong market, because prices have been far more moderated than in the rest of Canada. This is due, in part, to a higher tax regime which has actually discouraged migration into the province.


#1 Alex on 04.21.08 at 9:10 pm

Aaron is writing that “maternity assistance from the federal and provincial governments is for a lack of better terms, minimal”.
Why every Canadian government be it Liberal or Conservative (but mostly Liberal) prefers importing people from the troubled part of the planet, with questionable tolerance to our values rather than incourage financially Canadians to have more babies?

Why should people shopping for bigger houses be paid more by the taxpayers for having a baby? Just wondering. — Garth

#2 vultur on 04.21.08 at 9:43 pm

Darth, for once I agree with you. Alex is a racist and your response was quite appropriate.

There’s no room in this country for people who judge others based on race or religion. It is a crime against humanity.

Now I’m worried. — Garth

#3 Al on 04.22.08 at 2:42 am


#4 patriotz on 04.22.08 at 6:23 am

Having said that, conventional wisdom says its foolish to think one can time the market with precision.

Absolutely right – one cannot call market tops or bottoms.

You can’t time the market, but you can price the market. If prices are higher than traditional multiples of incomes and rents, they must fall. Exactly when cannot be known, but it will happen.

Likewise, when prices return to historical multiples, it’s a good time to buy. No you don’t know if it’s the bottom of the market, but you are paying a reasonable price and have little downside risk.

#5 Dom-GTA on 04.22.08 at 7:12 am

Aaron, aside for Gath’s North Bay comment, I think north of the GTA, if you are looking at Keswick, Sutton and the lower Georgina region, you could get a 1250-1500 sq ft house for a little more that $229K. I only say that because as a recent arrival in the city from Montreal, I have been searching high and low and have found some reasonable deals in that area.

We are now actually considering Oshawa or even Grimsby and Stoney Creek as I find that you get a lot of house for the money. We are still trying to time the market and waiting for the other “shoe” to drop and for prices to retreat a little.

Maternity issue aside, having kids is the best thing we can do to counter some of the issues that Garth brings up in his book. We need to fundamentally change and shift the demographics in order to bring more buyers into the housing market- 3 to 5 kids per couple would be a start in the right direction :-)

#6 curious to know on 04.22.08 at 9:39 am


would you care to explain what are the traditional multiples of income & rent referred to in one of your answers.

I have read of 3 to 1 multiples for the US but since Americans get income tax deductions for mortgages, I think Canadian traditional multiples might be different.

#7 Dom-GTA on 04.22.08 at 9:55 am

Curious, I believe the traditional income vs affordability is 2.5 times gross annual income (household) That is the number I see thrown around most.

As for renting income ratio’s etc….I was recently talking to some banks about these and the one metric they always used was keep total housing costs to less than 33% of net monthly income.

Can’t say this is written is stone, just my experience and research

#8 vultur on 04.22.08 at 1:03 pm


Allow me to qualify your statement by adding that rental yields can reasonably fall in line with the falling cost of capital, but absent other factors that may contribute to a rise in rents in the short term, implied rental yields on property should either meet or exceed the cost of long term financing otherwise you are paying your investment and not vice versa.

Toronto condos have been sold on the basis that investors have to absorb operating rental losses throughout the holding period (or artificially create a cash flow positive situation through large equity investments and low debt) but significant capital gains can be realized on the sale. This trend has persisted for the past 6 or 7 years as prices continue to escalate.

I submit to this forum that such a practice operates on the Greater Fool theory that Darth Bubble is referring to in his book. However, that behavior does not define the majority of the Toronto/Ontario/Canadian housing and is thus not a major concern across the board. It is a problem in certain pockets of the housing market but not everywhere by any stretch.

#9 Lance Naismith on 04.22.08 at 2:15 pm

I’m glad to see some of the buyers have gone and hired a housing inspector. I bought a new home from Mattamy Homes and felt that a good advertised reputation and government inspectors would protect me. My new home did not have electrical power and the furnace was illegally (code) wired to the vacant house next door. Mattamy Homes donates large sums of money to Oakville interests… mmm… That is why I strongly recommend that one hire a housing inspector for new and old homes… Protect your investment.. no one else will…

#10 Re-diculous on 04.22.08 at 3:21 pm

Here’s an article for your news file:

U.S. Housing slump may exceed Depression

#11 Alex on 04.22.08 at 6:07 pm

“Why should people shopping for bigger houses be paid more by the taxpayers for having a baby? Just wondering.” — Garth

Garth, it is not about houses.
Western civilization seems to have forgotten what every primitive society understands; you need kids to have a healthy society. Children are huge consumers. Then they grow up to become taxpayers. That’s how a society works, but the post-modern secular state seems to have forgotten that. If U.S. birth rates of the past 20 to 30 years had been the same as post-World War II, there would be no Social Security or Medicare problems.

The world’ most effective birth control device is money. As society creates a middle class and women move into the workforce, birth rates drop. Having large families is incompatible with middle class living. The quickest way to drop the birth rate is through rapid economic development.

After World War II, the U.S. instituted a $600 tax credit per child. The idea was to enable mom and dad to have four children without being troubled by taxes. This led to a baby boom of 22 million kids, which was a huge consumer market that turned into a huge tax base. However, to match that incentive in today’s dollars would cost $12,000 per child.

So, what is preferrable: to give families tax credit of $12000 per every baby, or to import immigrants, which in turn costs taxpayers more hardwork of Police Departments, RCMP and CSIS ? Still remember debates you initiated about who is going to pay the cost of bringing back Lebaneese-Canadians two years ago during the Middle East conflict?

It looks like Conservatives going to introduce changes to the immigration law, and this gives me partial hope.
Partial, because the appropriate “babies” tax credit has not yet addressed.

#12 Dom-GTA on 04.22.08 at 8:15 pm

Garth- I know you are obviously a busy man, but I would hazard a guess that if you had some sort of bot that checked the content of the comments instead of you having to do it when you get to your computer, this blog would be even much more active.

Obsessive and extremist people like myself do not like to have to wait a few hours to see what other people are commenting, yes even Vultur.

Just an observation because I enjoy your site so much.

#13 Alex on 04.22.08 at 8:23 pm

“That is why I strongly recommend that one hire a housing inspector for new and old homes… Protect your investment.. no one else will…” – Lance Naismith

It is good idea to have an inspector!
But keep in mind the following:
Home inspector is not a regulated profession in Ontario. That means that everyone can practice home inspection: you, me, your grandmother etc… I would rather advice for hiring a Licenced Professional Engineer (P.Eng.) who has experience with home inspections. If you are not satisfied with the service at least you can complain to PEO – Professional Engineers Ontario.
Second, to have an inspection is better than not to have. However, contractors do not allow home inspections during construction (check your purchase agreement). Formal reason is construction site safety. Real reason is that home built contractors are the least experienced among all types of contractors and violate Ontario Building Codes on every step (without even knowing it). Coordination between the trades is not adequate and quality control is absent.
Cities Building Departments know that. But in nine cases out of ten municipal building departments take contractor’s side if you complain. In your message you gave us the tip as to “why”.
The only option remaining is to inspect the house during the pre-delivery inspection at closing. Superintendent will give you only two hours. It is better than nothing but how much can be seen through installed drywall? All can be checked are scratches, paint defects, electric switches, taps, leaks. Serious structural problem, if present, are hidden behind the drywall.
As to mandatory “government” inspection, there is no such a thing in Canadian Laws, building codes and in life.
Commission which investigated the collapse of overpass in QC recommended to introduce requirement for mandatory government agency inspection in the laws.

#14 Thomas on 04.22.08 at 9:26 pm

Hi Garth,

I currently live in a 2-year old 1740 sqft corner townhome. I’m potentially looking to purchase a 4 bedroom 3000 sft detached in a development that won’t be ready till summer 2010 but that I would have to put a deposit down this summer. The real risk is that I would be locked into a 2008 purchase price but wouldn’t be selling my home till 2 years from now.

After reading this I’m seriously reconsidering this decision. Is it your recommendation that I instead invest the money I was going to put towards the home and then buy and sell in the same time period so that even though I might be selling at a lower price I will be buying at a lower price?

#15 vultur on 04.22.08 at 11:24 pm

>>So, what is preferrable: to give families tax credit of $12000 per every baby, or to import immigrants, which in turn costs taxpayers more hardwork of Police Departments, RCMP and CSIS ? Still remember debates you initiated about who is going to pay the cost of bringing back Lebaneese-Canadians two years ago during the Middle East conflict?<<

I suppose all ‘imported canadians’ are criminal and terrorists, right?

Alex, what are they calling the fascist party nowadays anyway?

#16 SMWhite on 04.24.08 at 12:48 pm

Vultur, its called the CREA…

#17 Lance Naismith on 04.24.08 at 8:52 pm

Alex… your totally right in your comments regarding inspections. Regarding Mattamy Homes… I complained to the Town of Oakville – had the complaint go through committees and finally to Town Council.. their way to solve this complaint – pass it on to the Province, who through various Ministers, has sent it back to the Town of Oakville who refuses to deal with it now. Yes, your right, the Town takes the side of the developer – who just happens to donate lots of money to local hospitals, etc… I can’t fight city hall and I can’t donate enough money to get heard. I only asked that they pass a law that lets a homeowner, if they choose, hire a housing inspector – the province’s response is that it won’t work as the consumer would have to pay for the inspector – hmmm, well, they already do for resales and since it would be optional, the cost is optional… Oh well, I guess my children’s lives being put to risk by Mattamy is small potatoes compared to the money Mattamy donates to hospitals. At least my kids had somewhere to go if they had been injured…

#18 Arriving in Victoria on 04.24.08 at 9:31 pm

A question for Garth or anyone here who cares to offer an opinion about housing market in Victoria, BC.

I recently arrived in Victoria after a stay of some years overseas and started a professional job in Victoria with, let’s say upper moderate income. I am sleeping on a friend’s couch for now and will need to provide housing by July/August when my family of 2 kids & wife arrive.

Given cash down payment that I have on hand I can afford to buy in about the low-mid range of housing. I can also rent however the rental market in Victoria is very tight and costs for rent and mortgage differ only by a couple of hundred dollars monthly PLUS many homes here have basement suites as mortgage helper so net costs are lower to buy, even at these insane prices. This does however involve dropping a substantial cash down payment to make it so.

I face a situation:

1. Buy now at likely overvalued prices and watch the market potentially fall in the medium term. This would provide stability for my family so they can build relationships with friends & school.


2. Rent which is undesirable since it involves yet another relocation (tough on kids) PLUS I risk that the market does NOT indeed fall and I spend even more money when I do finally get in later.

My employment is stable and I plan to stay here for as many years as I can – e.g. retire here in 30 years time and I am not interested in flipping houses for profit. This will be a long term buy.

My personal sense is that Victoria will always be a desirable destination given the lifestyle and climate so the long term prospects (15 – 30 years) are strongly positive irrespective of the immediate situation.

So… do I buy over the next few months and potentially overpay or do I rent at 1500-1700 monthly (risking yet further house price inflation) and hope the market cools to my advantage??

I do NEED to have something to live in by latest August as my family will be arriving and will need a home.

Insight from the forum is kindly appreciated.


#19 Dom-GTA on 04.25.08 at 7:07 am

Arrived in TO, I understand completely what you are going through as I am in a similar situation in TO, the difference is I mad a choice to rent short term and am now trying to decide when to buy.

If you don’t mind playing one of my favourite games it might help, it’s called the what if game. But first let’s make some assumptions, when you talk about downpayment, we are talking 20% and not 5%. Mid range in Victoria? 500K? I am not sure as I am not from that area.

So let’s say you buy at 500K and put 100K down. If as Garth predicts there is a flattening and slight decline over the next years, let’s say in 5 years your house is still worth only 500K, no decline but no appreciation, In the first 5 years you have paid only about 50K in principle off the mortgage that gives you an equity of $150K if you have to sell and get your price. Every net $1 drop in value would $1 less if you had to sell. So if you didn’t like your house and wanted to change for any reason you would be almost exactly where you started after commissions, fees and inflation. What happens if for any number of reasons the price drops by 20% over 5 years? You would have not much left.

30 years is a long time and if you plan on staying in the same house for that long then there is little downside as you are providing shelter you can afford. Can afford being the key words.

Garth would say if you have to buy, buy the worst house on the best street and fix it to your liking over the next years, but if you didn’t have to buy, mortgage rates will be lower and prices as well.

I would suggest personally that you get into a short term rental with a 60 day out clause and if you see in 6-12 months that prices are still appreciating then you can revisit your decision. I think risking an appreciation of 2-3% over the next year is a lot safer than risking a 20% decrease.

#20 Alex on 04.25.08 at 1:44 pm


This are my recommendations to you:
Hire Civil Structural Engineer if the problem is of structural nature, Electrical Engineer for electrical problems, Mechanical engineer for HVAC and plumbing problems.
Ask them to give you report indicating violation of specific clauses of the Ontario Building Code. It would cost you about $500-$800.
Make sure the engineer’s report is stamped with engineer’s seal, signed and dated. It is good idea to incorporate dated photos of deficiencies into the report.
Send this report to the city, copy to the Ministry of Municipal Affairs and Housing, another copy to your councillor.
The government job is to enforce the Building Code Act. If they do not, sue them.

#21 Another Albertan on 04.25.08 at 5:33 pm

As a P.Eng., I can say that I wouldn’t even contemplate writing a report and stamping the results, opening up unlimited long-term liability, for a $500-800 fee. Try 5x to 10x that price as a start.

Friends in Victoria spent almost $25k for a structural and geotechnical firm to re-engineer their deck’s supports on a sea-front property.

If you use a Professional Engineer to check on many aspects of your home, you better have deep pockets…