Prelude to crisis?

Four days ago the Bank of Canada torpedoed its estimate for economic growth. The bank boss, Mark Carney, has changed his tune dramatically. The US will not recover for two years, he says.

Others aren’t so cheerful. Yale economist and real estate guru Robert Shiller says the American housing disaster is only half done. In fact, late last week the Canadian Real Estate Association shocked the industry by reporting house sales in Canada this year have fallen off a cliff. Around the entire world, there is nothing so devastating, far-reaching or destructive to wealth as a real estate meltdown. I can only imagine the effect on my street.

No wonder a new poll Sunday shows a majority of Canadians – for the first time in more than a decade – now worry we are sliding into recession. Over half of those surveyed say the Canadian government does not offer confidence or inspiration.

It’s hard to understate the importance of this, since the current government came to power promising competent economic management, lower taxes, trustworthy government, a better deal for families, and hope. Some two years later, families struggle with an identical personal income tax load, pay the highest energy prices in history, see job losses thanks to a runaway dollar and now worry about the value of their homes, where 80% of all net worth resides.

The fear is fear. Mounting fear of the times to come already has people second-guessing real estate purchases, which is why sales are down 22% in Toronto and 36% in Calgary. As sales drop off and sellers outnumber buyers, prices follow. And as housing values decline, so does the equity owners have – a serious issue with mortgage debt at the highest level in history, and the national savings rate at zero. After all, it was a real estate bust which made middle-class Americans feel stressed, which soon sank car sales, Bear Stearns and Home Depot earnings.

Does the Canadian minister of finance understand this?

Apparently not. If he did, he’d have cut income taxes, not consumption taxes. He’d not have approved 40-year mortgages, our own subprimes, in his first budget. He wouldn’t have talked up the dollar like a cheap sideshow barker. He would not have jacked federal spending to an unheard-of level, or squandered a $14 billion annual surplus.

I’ve said it here for months. The nuke waiting to go off is the housing market. The finger on the button’s attached to the minister.



#1 Vancouver realtor on 04.28.08 at 5:51 am

That`s undoubtedly a difficult period fro the real estate market in Canada. As working for a Vancouver real estate company I think that the fear however is unfounded. In the US the economy is not stable, in addition it`s obsolete so the recession in real estate is not surprising. However in Canada the situation is different and I can`t understand why we are in panic instead of thinking about some reforms and innovative ideas we could use to improve our conditions.

#2 Robert B. on 04.28.08 at 7:06 am

Hi Garth, I’ve just finished reading your book and agree with everything you’ve said. I’m writing though to let you know that your website and this article are linked at

Along with and Jeff Rense’s site is my 3rd source of news.

Finally, I personally think you’ve missed out on one more torpedo that will help sink the Canadian housing ship and that is foreigners will begin returning home and leaving real estate here. Why would someone from say India or China want to live in Canada with a shrinking economy and high taxes when they could go home to booming economies and lower taxes? Flame suit is ON.


#3 Ron on 04.28.08 at 8:22 am

The Toronto Public Library has ordered at least 28 copies and 15 people are waiting for it.
The tip of the iceberg.

Cheapskates. — Garth

#4 Marko51 on 04.28.08 at 9:39 am

Big money and government has worked tirelessly at sending 70,000 factories and millions of jobs overseas…. The economy was effectively gutted. Add the wage repression via mass immigration and you have the total destruction of the western standard of living… What fool is expecting a recovery?

#5 Dom-GTA on 04.28.08 at 9:40 am


i guess you need to pad your war chest as well for this “upcoming” crisis, hence the cheapskates comment. I bought the book and thought it was worth it.

I’m just getting really tired of people telling me how wrong I am because Toronto is different.

It takes a lot of energy and conviction to keep thinking prices are going to retreat when everybody around you is saying hahahaha……

Here’s hoping prices drop sooner rather than later.

#6 Edward Mandel House on 04.28.08 at 10:01 am

It’s all part of the plan. Unfortunately the illuminati are succeeding.

#7 MWJ on 04.28.08 at 10:50 am

Speaking of missed torpedoes, another dawned on me as I read Greater Fool. Canada has an additional trap waiting for homeowners that Americans don’t get hit with.

In the US, mortgages are for 30 years typically – as long as you can make your mortgage payments, you keep you house.

In Canada, our mortgages last 5 years at which time a new mortgage must be negotiated. Low down payment mortgages combined with decreasing property values means that when mortgages expire, many Canadians may find that the bank won’t renew their mortgage as the debt is greater than their now deflated collateral (their house). Instant foreclosure.

#8 Outlaw on 04.28.08 at 12:44 pm

“It’s all part of the plan. Unfortunately the illuminati are succeeding.”

You are 100% correct. Elimination of middle classes in the Western world is one of the main goals.

#9 Mike from Kanada on 04.28.08 at 1:18 pm

the decline of Ontario is the end of the Canadian Federation!!! Ontario will ask oil-rich Alberta to pay for its social welfare programs and equalization payment,whereby Alberta will give use Americn Sign language to tell Ontario where to go, and,therefore Kanada is will break apart!!! Shades of the War of 1812 all over again!!!

#10 Leah on 04.28.08 at 1:26 pm


No you are wrong sir! Victoria is different. But then again they say Vancouver is different. But I also heard Kelowna is different. I am sure Winnipeg is different too.

Now in Victoria people are talking neighbourhoods – James Bay is different. Next it will be streets.

#11 redshirt on 04.28.08 at 1:33 pm

Good point MWJ, which is why whenever people say that renting is just “throwing money away”, I point out to them that a mortgage is like buying a house on margin. Whether it’s stocks or a house, when the margin call comes, it won’t ben pretty.

#12 Rick on 04.28.08 at 1:53 pm

Can you imagine a Canada where the banks own more RE than private citizens because of a situation where they won’t renew these mortgages, foreclose and then get stuck with these unsellable properties?

#13 douglas gray on 04.28.08 at 2:54 pm

Many Canadians are not aware that during the Clinton Adminstration, they quietly changed the way that unemployment statistics are computed here in the States, by taking those who had been looking for work for over a year off the charts.

If this is taken into account, the actual figures for U.S. unemployment are much higher than the 4-5% that is normally quoted, most likely around 10-12%.

#14 Bruce on 04.28.08 at 4:56 pm

Garth makes sense–as always.

As far I’m concerned, Flaherty knows as much about economics as the moon is made of cheese… It’s nothing but a big game of Monopoly that’s controlled by a select few. Winner take all. Anyone with even half a brain knows that our entire economic and financial system is a gigantic smoke and mirrors ponzi-scheme that will come to a screeching halt once people begin to realize that their so called “money” is nothing but a worthless piece of paper…

If the current crisis proves anything, it’s that nobody knows exactly what’s going at all. Conflicting information is coming from all directions, while our political leaders continue to look at everything through rose-coloured glasses, telling us to relax and take a deep breath cause it’s all going to be OK in the end(yeah right). I wouldn’t believe these clowns if they told me the sky was blue.

I guess you’re either a realist, or dismissed as a pessimist. I too have seen this coming, I’ve been saying that it’s coming, but more often that not, my warnings sounded like the ravings of a demented lunatic. Nobody’s laughing now, and we haven’t seen ANYTHING yet. There are strong similarities here to the “roaring 20’s” and the “great depression” of the 30’s. Fasten your seatbelts.

#15 Rob M on 04.28.08 at 5:31 pm

Robert B.
Thanks for the joke sites.

PS. Your tin foil hat is slightly off center, might want to fix that.

#16 Powell Lucas on 04.28.08 at 7:20 pm

Just as long as the media and opposition politicians keep screaming that the sky is falling people will jump on the hysteria bandwagon. The “big lie” theory is alive and well. Use some common sense people, we keep hearing how the Tories have left so little in the kitty that they will either run a deficit or cut programs. When was the last time that a Minister of Finance didn’t end up with more money at the end of the year than was predicted? What makes you think Flaherty has given up this little tactic? Canada will get bruised, but we won’t get bloodied.

#17 Future Expatriate on 04.29.08 at 2:17 am

Robert B.

Joke’s on you, sheep.

#18 Future Expatriate on 04.29.08 at 2:19 am

Oops, I meant Rob M. is the head-buried sheep.

Sorry Robert B. I get all MY news from those websites as well.

#19 Jeff on 04.29.08 at 3:52 am

I’m a Realtor in Vancouver and people here, like anywhere, are saying ok prices will fall in Toronto or Calgary but it ain’t gonna happen here… we got the Olympics and the mountains. People come up with so many laughable reasons why their city is different.

#20 Keith in Calgary on 04.29.08 at 11:30 am

Calgary had the Olympics too…….back in 1988……and I have lived here ever since.

The Olympics did nothing to affect our house prices back then…..and the mountains are still here…….doing nothing.

#21 Bank of Canada: US Economy in R-Mode for Two More Years (Canada to Follow Shortly) « Your Daily Dose on 04.29.08 at 12:34 pm

[…] Canada, Canada, Canadian Real Estate Association, economy, Garth Turner, Mark Canada, real estate [MP Garth Turner’s Blog] Prelude to crisis? ” Four days ago the Bank of Canada torpedoed its estimate for economic growth. The bank boss, […]

#22 Robert B. on 04.29.08 at 3:53 pm

@Future Expat, the other sites I get my info from are: (listen to the Big Picture). I’ve been listening for 2 years and almost everything Jim Puplava has said has come true. He’s predicting a hyperinflationary depression in the US in 2010. and Ted Butler’s silver articles are great, too.

Rob M. has the right to express his opinion. It doesn’t bother me at all. Yes, my tin foil hat off center but so am I. When houses go for 20 cents on the dollar I’ll be in the market buying from the sheep like Rob M.

20 cents on the dollar may be too low from today’s perspective but in some places in the US the prices of homes are down 50% and are still declining. The bubble there has a long way to go before hitting bottom and THAT’s the point Garth makes. What is happening there will happen here. It is just a matter of time.

#23 Brad on 04.29.08 at 7:56 pm is another good site.

#24 Sandy Canchuk on 04.30.08 at 8:23 pm

Gee, what could Dimwit Jim do redeem himself? He looks and acts life a real ‘goof’.

What’s the definition of a ‘goof’?

The Con PitBulls and their minions.

Sad day for democracy Canada has been so proud of debuting.

Guess that was too simple for the Harper Con’s.

What’s up with Elections Canada anyways? Seems like Harper forgot to tell some of his running MP’s the so called ‘in and out’ scheme wasn’t legal? Was it?

#25 David on 05.01.08 at 1:16 pm

Most of the overmortaged McMansions are so poorly constructed the 40 year mortgages will long out last the economic usefulness of the house. It is quite common to see McMansions built during the boom showing early signs of aging and decrepitude. Aesthetic issues aside, the mortgage will long outlive the house. Even after 10 years of diligent payment little if any equity will be built up and those leaky windows and mould and bowed roofs will be in desperate need of repair. It seems almost impossible to envision a happy future for Canadian real estate.

#26 Another Albertan on 05.01.08 at 5:52 pm


My cousin is a civil engineer whose practice is principally restoration and insurance claims. He wouldn’t consider living in any wood-framed structure built in western Canada in the last 10 years. It’s all junk.

#27 David on 05.01.08 at 8:10 pm

Albertan you are correct. Most of those 700K clapboard palazzos in Calgary and Edmonton could barely withstand a mild chinook.
The worst apartments in the former Soviet Union were called “Khruschev Slums” and these slums of concrete and steel are still standing.
Most of the the shabby new developments in Alberta wont be standing up in the next five years. Only 35 years left to pay right?

#28 Burnaby Real Estate Agent on 08.18.09 at 8:18 pm

Well, the US is still suffering, but Canada has bounced back quite strongly. It does concern me, though, that things are so strong so quickly. We have a new Harmonized sales tax on the way, which will increase the burden on buyers, and interest rates are likely to rise soon, so we may have some serious cooling effect on our markets.

With regard to our economic relationship to the US, I would hope we could diversify more so we do not rely on their well being so much. We have been at their mercy, which they have take advantage of in the past.

About the house qualities, i am not sure about the accuracy of the statements above. Although i do agree there are some crappy houses now, there actually have been for a long time. Even a crappy house will last the life of the mortgage, i think, although it may need some extra work along the way. It will still be better than an old house with single pane glass and serious ventilation all over the place. Hopefully it just does not leak.