How low will it go?

Though the national real estate market remains bleak–in some neighborhoods vacant homes outnumber those that are occupied and sellers are being forced to lower asking prices in a bid to lure bargain hunters–it’s assumed that when housing dips to a point where buyers think it represents a bargain, they’ll buy back in.

The problem is many of the markets that experienced steep 2007 price drops are still a long way from recovery.

That’s based on a Moody’s report prepared for It predicts that 2008 isn’t going to be any gentler than last year on slumping markets like Los Angeles, Sacramento, Calif., Las Vegas and Tampa, Fla., where market weakness is expected to cause 10% to 25% drops over the next year.

Moody’s model incorporates inventory levels, job growth or loss, and the availability and cost of credit based on current mortgage rates and the Federal Reserve’s Senior Loan Officer Survey, which asks lenders about their mortgage standards.

The model also measures home buyer expectations on a market-by-market level, based on an 18-month moving average of home prices. The more sharply prices fall, the more likely buyers are going to stay out and wait for a bottom; in a quickly accelerating market, buyers are more likely to jump in, expecting future home price increases.

Falling Figures
Price drops result from a convergence of factors including overbuilding and speculating and rapid price increases.

But large-scale job loss has the most potent effect, note Eric Belsky and Daniel McCue, economists at the Harvard Joint Center for Housing Studies. Markets can overheat, overexpand and digest flippers and overexuberant builders, but housing prices are most likely to fall when people lose their paychecks.

Belsky and McCue studied housing downturns from 1980 to 2004 and discovered that the most likely cause of housing price declines were spikes in unemployment. Consider the industrial cities of Cleveland and Detroit, which have lost jobs steadily since 2000 and now post unemployment rates of 6% and 7.7%, respectively, well above the national average of 5.1%. Of the 10 cities on our list of cities experiencing the greatest price drops, they are the only two where prices are lower than in 2000.

Surprised? Don’t be. While prices are falling, they are, for the most part, higher than earlier this decade. In 2000, Inland Empire prices, for example, were $138,560. Moody’s has Riverside- San Bernardino, Calif., home values declining another 23% this year, to $291,590.

“In a normal housing market, we have ratios that you qualify for a certain amount of house at your income level,” says Anthony Sanders, a professor of finance at Arizona State University. “Since banks have tightened credit, we’re starting to revert back to those lending standards, and prices are going back to reflecting a ratio of income and median house value.”

Of course, these price increases are largely because of new development and bloated McMansions–and not necessarily of normal appreciation. Between 1980 and 2000, home values consistently ran 3.7 times the median family’s income in San Bernardino-Riverside, but by 2006 that figure swelled to a multiple of 7.6. If home prices return to the area’s historic growth rate, Inland Empire prices would balance at $200,000 in present dollars.

Bottom line: “The continued decline,” says Sanders, “is going to be very problematic for homeowners–but also for secondary investors.”


#1 $fromaSia on 05.05.08 at 10:33 pm

Thanks for the article but how will the down turn in U.S.A.’s R.E. Market affect Vancouver’s bullet proof boom?

Nothing is bullet-proof. — Garth

#2 $fromaSia on 05.05.08 at 10:37 pm

The comments from Mr. Cameron Muir. (May I add that he owns RE investments as well.) Has mentioned that prices will continue to rise.

Mr. Rennie of Rennie Marketing Systems has also quoted,” Vancouvers Downtown R.E. is bullet proof.”

#3 Cam on 05.05.08 at 11:10 pm

Oh… I get it now, Vancouver really is bulletproof. Our houses cost so much because the walls are lined with Kevlar. There’s 43% more kevlar in the valley and 25% in the GVRD this month over last year. No need to dodge bullets, plenty of kevlar to go around.

#4 vultur on 05.06.08 at 12:25 am

Well then we must believe Bob Rennie for his known the world-over as a man of ethics and honesty! lol!

Seriously though, the three ingredients that have roiled the US housing market- overbuilding, speculation and rapid price increases are a far more muted in Canada and will insulate this country from the kind of widespread wealth drain that we are all exposed to daily in the US.

Something to also consider though is how local real estate is- Manhattan, for example, is not experiencing much weakness at all. It is still in very high demand.

#5 sourgrapes on 05.06.08 at 12:55 am

$fromaSia, With all due respect, those 2 guys you quoted will soon eat their words. I actually feel better when the RE pumpers …’own RE investments as well’

Egg on their faces, less zeros in their bank accounts. Why should we care?

#6 patriotz on 05.06.08 at 2:09 am

how will the down turn in U.S.A.’s R.E. Market affect Vancouver’s bullet proof boom?

Collapse of BC forest industry?
Loss of US tourism?
Lower commodity prices due to US recession?
Secondary effects on Asian economies due to busted US consumer?

Ya think?

#7 Keith in Calgary on 05.06.08 at 8:54 am

Manhattan is getting killed and property values are dropping. It is in the news…….

Alberta, as well as other parts of Canada, have massive overbulding…… Calgary for example, we have roughly 10,000 new condos coming online in a matter of a year………yet we currently have 4,000 for sale at this time as well, and that number is growing. Builders have cut their new home starts by 40% because they see it coming…….

Tell the truth Vultur. It improves your image when you do.

#8 SMWhite on 05.06.08 at 10:01 am

There were people in the UK, USA and Australia that are a hell of a lot “smarter” then Bob Rennie (And just as ignorant) and have been recently proved VERY wrong.

Vulture, if a tree falls in the forest and nobody has their eyes or ears open, does anybody see or hear? If the media only reports “happy” get rich stories thats all that’s happening right?

We are 1.5 to 2 years behind the USA’s housing cycle, we have hit the equivalent of their summer 2006. The major metros, Vancouver, Calgary, Toronto have massive spec buying and building happening and Bob Rennie, vulture, Santa Claus and Snufalufagus can deny what the outcome of over paying for a major asset like a home will be all they want, it won’t change destiny.

Physcology in the market is switching and that’s been the primary driver, getting free money for doing nothing, those days are dead. When the potential for quick pay-offs goes away people will turn their interest to the next ponzi scheme albeit tech stocks or tulips.

And New York, the big City that WOULD NEVER GO DOWN in price is down 6% this past year. And if anyone even questions that Vancouver is a more stable market or more “special” then New York you need a head check, NY will go down another 5 – 10% this year.

So if your theory is Vancouver is bullet proof, others theory was that New York was BALISTIC MISSILE proof, and that’s what is going to hit Vancouver, a big nasty real estate missle.

Better buy one hell of a bullet proof vest.

#9 Andrew on 05.06.08 at 10:29 am

Building permits fall unexpectedly

Globe and Mail Update

May 6, 2008 at 9:02 AM EDT

Building permits fell unexpectedly in March, dropping 4.5 per cent from a month earlier, Statistics Canada reports.

Economists had projected a rebound in March, but instead total permits registered their fourth decrease in five months, with both residential and non-residential sectors declining to $5.6-billion.

“Construction intentions in Canada continued to cool,” Statscan said.

For the first quarter of 2008, the total value of permits was down 8.2 per cent compared to the fourth quarter of 2007. It was the third consecutive quarterly contraction, Statscan said.

Most of the weakness stemmed from Alberta. Both residential and non-residential sectors fell there, for an overall drop of 32.9 per cent on the month – the largest among Canada’s provinces.

Excluding Alberta, building permits would have climbed 5. 1 per cent nationally, instead of falling 4.5 per cent, Statscan calculated.

For the first quarter of 2008, Alberta’s permits were down 3.8 per cent from the previous quarter, and down 19.2 per cent from a peak reached in the second quarter of 2007.

Nationally, the value of residential building permits slid 5.7 per cent to $3.6-billion – the second lowest value in 13 months. Permits for both multi-family dwellings and single-family homes fell.

Non-residential permits fell 2.4 per cent from a month earlier, to $2.0-billion – a level not seen in almost a year. Industrial permits plunged 21.9 per cent, and institutional permits also slid.

Ontario, however, showed some signs of strength. Permits rose 7.3 per cent in March, with multi-family dwellings offsetting a string of decreases in the non-residential sector.

By city, the biggest monthly declines were in Calgary, Edmonton and Montreal. Kitchener, Ont., however, surged to a record high value of permits worth $144-million, despite being a manufacturing hub.

Building permits numbers are notoriously volatile, and analysts warn about reading too much into one month’s data.

“Despite the overall softness in this report, the Canadian housing market remains in reasonable shape, though housing activity is expected to moderate in 2008,” said Millan Mulraine, an economics strategist with TD Securities.

what exactly is meant by moderate?

#10 Andrew on 05.06.08 at 10:32 am

Per the above report .. it states

Ontario, however, showed some signs of strength. Permits rose 7.3 per cent in March, with multi-family dwellings offsetting a string of decreases in the non-residential sector.

So Garth does this mena ontario will not drop as much or take longer to drop as the climb upwards was not as pronouced as out west.. even in the u.s it seems only certain pockets have taken hits florida, calfornia , arizona , but other areas have faired well?

#11 Cam on 05.06.08 at 10:43 am

Manhattan is the world’s largest financial hub after London. The cash flow in that city dwarf’s Vancouver and yet their homes require only 56.5% of household income and sell at a ratio of price to income of 9.3. Most recently Vancouver’s average home price is over 13:1 and typical home price 11.5:1. Household income required is over 70%, 56.5% would be a steal in Vancouver.

Vancouver is a special place in Canada. You’re never going to see Winnepeg prices for Vancouver homes, there will always be a premium here. That premium is well out of line with fundamentals and overdue for a correction.

Here’s the numbers on Manhattan:

#12 Andrew on 05.06.08 at 10:57 am

Are interest rates heading higher?
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Economic predictions include sharply higher inflation

May 06, 2008 04:30 AM
Dana Flavelle
Business Reporter

From the economist who is forecasting sky-high oil prices by 2012 comes a new and frightening prediction – sharply higher inflation and higher costs of borrowing next year.

Citing rising costs for food and energy, CIBC World Markets chief economist Jeff Rubin said yesterday that Canadian consumers should brace for higher interest rates as well.

“Unrelenting pressure on food and energy prices will see a material acceleration in inflation over the next 12 months,” Rubin wrote in his monthly Canadian portfolio strategy outlook.

While the Bank of Canada may still cut its trendsetting rate one more time this year, Rubin said he expects rates will climb a full percentage point next year, to 3.75 per cent. That would raise the cost of borrowing to buy big-ticket items, such as cars and appliances.

The bank’s overnight lending rate target is currently 3 per cent, but the central bank is widely expected to cut that one more time, by a quarter of a percentage point, at its next meeting in June.

Rubin’s latest forecast comes four days after the U.S. Federal Reserve Board signalled it would pause before its next rate cut. The U.S. central bank has cut rates seven times since last September in a bid to boost a slowing economy and troubled housing market.

The U.S. key federal funds rate is now 2 per cent.

Rubin, who last week predicted oil would rise to $225 (U.S.) a barrel by 2012, said higher energy prices would be good for investors in Canadian stocks.

The TSX composite index will hit 16,200 points by the end of the next year, he said, rising 14.1 per cent over this year, and outperforming the U.S. market for the fourth year in a row.

Energy, materials and agricultural chemicals will do well, while utilities and consumers staples, such as food retailers and producers, will fare poorly as rising grain prices squeeze margins and higher bond yields make utilities less attractive.

Rubin’s commentary was released as the price of a barrel of crude oil cracked the $120 (U.S.) level yesterday for the first time.

In the short term, investors could see more market volatility as Canada’s banks report their latest quarterly performance, Rubin said. Several Canadian banks have suffered from their exposure to the U.S. subprime mortgage fiasco.

He said the U.S. Federal Reserve Board has “done a good job of calming some of investor’s deepest fears.” However, even worse inflation in the U.S. is likely to mean fewer rate cuts there as well, he said. He expects the Fed to stop cutting at 1.5 per cent, rather than 1.25 per cent as previously predicted.

U.S. inflation is currently rising at the rate of 4 per cent a year, compared to just 1.4 per cent in Canada.

The rapid rise in the value of the Canadian dollar against the U.S. greenback last fall helped temper inflation by keeping the cost of imports in check. But there are signs the dollar’s moderating effect may be coming to an end, according to the Bank of Canada.

Since the middle of last year, core inflation has declined dramatically, mostly due to lower prices for motor vehicles as the Canadian dollar hit par with the U.S. greenback, the central bank noted in a recent monetary policy report.

Bank of Canada deputy governor John Murray said the “pass-through” from exchange rates to consumer prices has declined in recent years, citing “improved monetary” policy and increased trade as reasons. Pass-through refers to the impact of the dollar on the price of imports; when the dollar rises imports become cheaper, when it drops, imports are more expensive.

The central bank responds more swiftly now than in prior years to changes in the inflation rate, using its benchmark interest rate to boost or dampen spending in response to rising or falling prices, an official later explained.

The central bank sets interest rates to keep inflation at 2 per cent.

another surre sign things could be slowing in the realestate sector

#13 Jace on 05.06.08 at 11:09 am

Was offered a $33,0000 discount on a $390k home from Jayman Homes in Edmonton this weekend.

Same house was 430k in February.

Panic has struck out west. By fall, no one will be able to claim that things are different here with a straight face.

#14 John on 05.06.08 at 11:26 am

All you have to do is walk around downtown Victoria to see what’s coming. New condos here used to sell like hotcakes but they’re not moving anymore. A few developers have pulled the plug here and there and others are still building. Most have signs that read “units still available!!!”. Search for a 3 bedroom home in Victoria and you get over 40 pages on the mls site. I’ve never seen that many.

Look this thing is done. I knew it was done when I met a bucktooth 23 year old at a party who claimed he was in the real estate investment business. Does it make sense that me and my wife who make over 120K a year can’t buy a dumpy house in Victoria without resorting to a 40 year amortization?

#15 frustrated in saskatoon on 05.06.08 at 12:32 pm

Do you guys agree that if prices in Ontario, Alberta, and BC fall it will ultimately drive up the demand for housing in Saskatchewan as people seek to leave these areas for more opportunities in the booming Saskatchewan? A couple of different realtors have said that this is the new place to be, and people around the world are currently looking at relocating to Saskatchewan with its red hot economy now in gear. The thing that baffles me, is that even though we are supposedly this new economic powerhouse and popular destination for people around the world, our economic growth was a mere 2.8% last year, a far car from these same realtors guesstimates of 5% only some time ago. Add to this our somewhat stagnant income growth, which still falls behind these other so-called “busted” provinces, our record crime levels combined with a poor education report card, toppped with our extremely harsh weather and I can’t for the life of me figure out why people in areas such as Australia and Victoria are in such a hurry to relocate to our small little city. I am just having a hard time getting my head around what has changed to make Saskatoon’s housing take off as much as it did, and why it will continue to rise to ultimately surpass properties in BC, AB, and ON as predicted by realtors? My paycheck certainly hasn’t changed to reflect this, but according to people in the city, this shouldn’t stop me from buying now as if I don’t I’ll forever miss the opportunity to invest in the the up and coming Canadian city to be in. Can someone explain to me why Saskatoon is impervious to any sort of housing crash? What makes us different from these other centers?

#16 Eric on 05.06.08 at 1:15 pm

First time in years that Mattamy is now offering discounts on their houses.

#17 Crikey on 05.06.08 at 2:38 pm


I’m also in Saskatoon, and believe me, this city is no different from any other. Like Albertans, real estate-hype types like to spout that our “commodity-richness” makes us special, but how it makes us any more special than any commodity-rich and real-estate crashed place in the US or UK is beyond me. Would anyone care to explain?

There was a real estate puff piece in the Star-Phoenix last week about a young couple in their 20’s who had just bought a “dump” a crappy neighborhood for 225K with a 40-year amortization. I suppose they did not stop to think that by the time they are finished paying for the dumpy house in the crappy neighborhood (hopefully just before they retire), they will have spent over 660K (principal + interest). This does not, of course, include upgrades, property taxes or maintainance on this place. This also assumes that interest rates will not rise by the time the rates reset. HA! These 40-year amortizations are financial killers, and most people do not even stop to think about the financial ramifications of them. I don’t think this couple has any CLUE what they are doing.

As it has been well stated on this blog, if it takes you 40 years to pay for something, you shouldn’t be buying it. These ridiculous amortization periods are putting “homedebtors” into a market they should not be in, and driving up costs for everyone else.

Most people forget that losses get amplified as well as potential gains. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he’s bankrupt in the real world. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that’s $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.

Salaries here CANNOT cover current house prices. This means house prices must keep falling or salaries must rise much faster. You probably noticed that your salary is not rising much, and that inflation in food and energy has been very high. This leaves less money available to pay for housing. A safe mortgage is a MAXIMUM of 3 times the buyer’s yearly income, but most mortgages are well beyond that. Anyone who buys now will suffer losses immediately, and for the next several years at least, as prices keep falling.

#18 Leah on 05.06.08 at 2:51 pm

John, what is going on with the Hudson in Victoria?

Frustrated in Saskatoon – That is just total spin. That is all we heard in Victoria, all they heard in Calgary and all I heard when I was living in Toronto 5 years ago.

Don’t do anything foolish. Just my 2 cents.

#19 David on 05.06.08 at 3:55 pm

All those bubbles in the Canadian market have yet to start popping. The signs of the perfect storm are, however, all in place and there will be an awful storm that will last for a very long time. When homes sell for 15 times annual income or 30 times annual rent something awful will eventually go through the fan.
There is already a huge imbalance in the listings to sales ratios. This imbalance is likely to grow rather than shrink in the coming years as the post Ponzi scheme bubble bursts. The paper gains of real estate will turn into real life bankruptcy from these upside down mortgages over the next few years. In a few years time there will be thousands of surplus rotting McMansions and condos waiting for bidders who never show up and who will not buy at any price. This process has already started in the USA where there are currently 18 million such unoccupied residences and believing that Canada has been immunised against the same fate is sheer and utter stupidity.
The 0% equity 40 year mortgage has all the charm of a suburban IED waiting to go off in the neighbourhood. And go off they will, in succession until whole neighbourhoods have more unoccupied homes with for sale signs than occupants.
There are some differences between Canada and the USA real estate bubble. In the USA the banks and Wall Street were able to offload all that bad paper to return hungry hedge funds and banks in other countries. In Canada the banks themselves will wind up eating all the mortgage losses directly as the originators and holders of all this worthless commercial paper. In Canada, we skipped all the collateralised debt obligation offloading and “pass the parcel” gaming the system. Canada did not bother with all the CDO mezzanines and tranches but the outcome will be much the same. With declining asset values the commercial paper backing up these dubious mortgages will have to be marked to market and the results will not be pleasant.

#20 Jim on 05.06.08 at 4:37 pm

Frustrated in Saskatoon – People follow jobs that’s why you can buy a house for 10K in Michigan.

Leah, Victoria, Calgary & Toronto had huge appreciations over the last several years. I don’t think they are good examples for NOT buying.

I wouldn’t want to have been renting in Calgary for the past 4 years. Bordwalk is renting for 1400$ the same appartment that was 850$ in 2005.

Of course, I wouldn’t want to be a buyer right now either but I am starting to see some nice properties coming on the market.

#21 John on 05.06.08 at 6:33 pm

The Hudson is still being “built”. They’ve been busy demolishing the inside of the building for quite some time that’s why it looks like no progress is being made. Watch for some major exterior work in the coming weeks.

#22 Another Albertan on 05.06.08 at 6:55 pm

One of my colleagues must have the stupidest landlords in Canada then…

750 sqft 1BD+den in the Beltline south of downtown in Calgary. Prices include water, heat and secured underground parking.

May 1999 – $725/mth
May 2008 – $1040/mth

He had a 5 year window from 2001 to 2006 where the rent didn’t budge a cent.

Arguably it would have made sense at some point to have bought a place, but factoring in various “life circumstances”, it didn’t happen.

An article was on CBC Calgary’s website (I believe – can’t remember exactly) in the last week or so. The real estate board was quoting somewhere around 1 to 1.5% rental vacancy in Calgary, but the apartment owners’ association was saying their membership was reporting closer to 4% vacancy.

It would also seem that 40% of the condos that hit the market in the past 12 to 15 month were never occupied by the owner and were either left empty or were put onto the rental market.

I would hazard a strong guess that the rental market is actually becoming more fragmented right now because you have professional operators controlling entire buildings and a significant influx of single units controlled by individual “owner-operators”.

If the RE sector is quoting 2% lower than the apartment owners’ numbers and the condo owners don’t report any numbers because they aren’t organized and thousands of net-new condo units potentially hit the rental market in the next 12 months, is there a market discontinuity in the works? (By discontinuity, I mean that there are a number of large professional operations controlling thousands of units in an organized manner meeting head to head with thousands of single-unit owners with no group coordination. The net result is that information on pricing is inefficient until the market shakes out the weaker players.)

#23 David on 05.06.08 at 7:13 pm

Jim take your Boardwalk in Calgary example with its $1400 per month rent. That is the financial equivalent of making payments on a 6.25% mortgage for 40 years with $0 down on a $250K principal. At the end of year one a grand total of $1325 will have been applied to principal with a total of $17K cash outflow.
Actually $1400 per month does not sound so bad when looked at this way. A family would be hard pressed to find a home for $250K in the absolute worst neighbourhood in Calgary.
A family that predicates its financial future on home ownership based on ever escalating asset inflation is really asking for trouble and a whole lot of hardship down the road.

#24 Jim on 05.06.08 at 8:54 pm

>>750 sqft 1BD+den in the Beltline south of downtown >>in Calgary. Prices include water, heat and secured >>underground parking.

>>May 2008 – $1040/mth

Yeah that’s cool. My mortgage is less than that in Calgary on a single family house in NW (paid 190K in 2004) close to all buses, schools downtown, huge back yard and great views.

Why would I want to live in a 750sqf coffin?

#25 Jas on 05.06.08 at 9:03 pm

Now I’m confused.
I have investment property with slight +ve cashflow.
Keep it or sell it?

#26 vultur on 05.06.08 at 9:47 pm

Do you guys agree that if prices in Ontario, Alberta, and BC fall it will ultimately drive up the demand for housing in Saskatchewan as people seek to leave these areas for more opportunities in the booming Saskatchewan? A couple of different realtors have said that this is the new place to be, and people around the world are currently looking at relocating to Saskatchewan with its red hot economy now in gear.
No offence, but I’d rather live in a cardboard box in Toronto than move to Saskatoon and I suspect that 99% of Torontonians would agree.

I’m thrilled that your economy is booming because the whole country benefits as a result of the increased tax revenue but the reality is that your entire population could comfortably fit inside in the Skydome without adding any additional seating.

Let’s be realistic.

#27 Previously Saskatoonian! on 05.06.08 at 10:31 pm

Frustrated in Saskatoon,

What I saw while in Saskatoon last year was the following:
– Young rich workers who migrated to Alberta 5 years before, returned to their motherland with pockets full of oil cash… Don’t be amazed to see a 25 yr guy carry 1 milion $ cash just by working on oilfield… .
– Extreme price differnece between Edmonton/Calgary and Saskatoon was obvious in Dec 2006. prices were somewere like half of what you had to pay in calgary for a similar townhouse.
– City didn’t release any lot for construction untill late 2006, as far as i remember. City released lots later on, but it takes 1 – 2 years to develop number of RE products, considering shortage of skilled workers in Saskatoon.
– Condo conversion was a natural solution to all the above as short term solution, many of which we saw after 2006 which dropped the rental vacancy rates to extreme lows.
– Saskatchewan Immigration Nominee Program has very lucrative program allowing residents of SK to sponsor large group of family and relatives, that also boosted immigration to the city
– Oil, potash, Uranium high demand is also the story that you and i both heard at the time

I am no professional, but as a person lived in Saskatoon for couple of years, I believe supply of home development will slack the demand until new products are finished and hit the market and that could have a flattening effect. I also think that there will be no major extreme jump in prices as Saskatoon homes cannot logically be more expensive than Edmonton and Calgary and they are already priced very closely.

When I bought a property (pre-sale) in Jan 2007 before I move to East, my co-worker was nagging about the price jump being speculation and not real… he ended up paying way more than what he originally budgetted for a very crappy property 3 – 4 months later. As an investor, I would not buy in Saskatoon now, but if I had to live in Saskatoon, there is not too much rental opportunities there either, so i would buy if I know I stay there for 10+ years. I don’t believe Saskatoon home prices have over shoot. They just have been adjusted to their market average compared to other major cities. If they go above Calgary prices, then that is a very scary sign for anyone who plans to buy. But at the end, I am no professional/Economist. And I know Gurth would not agree with the “Buying suggestion” part :).

#28 David on 05.06.08 at 11:33 pm

Vultur, I think you make a fatal error in your concept of Western Canadian cities. For the most part they are great communities with strong local traditions and quite livable locales. If you had an opportunity to live or work in most of the communities you sneer at, you might come to the same conclusion, that they are decent humane communities suitable for raising a family.
Funny that you should bring up fitting people into the Sky Dome. That is a good real estate example. Completed in 1989 at a cost of half a billion dollars and declared obsolete in 2004 and sold for a whopping $25 million, which is about the same price as a mediocre 17 story apartment block in Toronto or Vancouver. It must be great living in city full of geniuses holed up in 750 square foot apartments.
The bubble issue should only be viewed in the context of the general insanity that overtook most of North America.

#29 vultur on 05.06.08 at 11:36 pm

Since when is Saskatoon a ‘major city’?

#30 Crikey on 05.06.08 at 11:42 pm


#31 Crikey on 05.06.08 at 11:45 pm

Sorry about that last post… trigger finger.

Speaking of once “bulletproof” housing markets… hot off the press:

Bulletproof housing markets get hit:
The mortgage meltdown has finally gotten to Seattle, Charlotte and and other cities where prices had been holding up.

All Mr. Rennie and Mr. Muir have to do is keep smiling until it hits.

#32 patriotz on 05.07.08 at 12:07 am

My mortgage is less than that in Calgary on a single family house in NW (paid 190K in 2004) close to all buses, schools downtown, huge back yard and great views.

Well that’s nice to hear Jim, but this blog is about whether it’s a good idea to buy NOW at today’s prices.

The point is that if prices are unaffordable now, they are going to have to go back down to affordable levels. It was a good time to buy in 2004, nobody is claiming otherwise, and it will be a good time to buy when 2004 prices return.

In Canada the banks themselves will wind up eating all the mortgage losses directly as the originators and holders of all this worthless commercial paper

Wish that were so David, but all high ratio mortgages (i.e. almost all mortgages today) are CMHC insured, so the taxpayers not the banks are going to eat the losses. Aren’t you grateful that Harper let them insure 40 year amortizations and 0% down?

#33 Jim on 05.07.08 at 8:21 am

>>Well that’s nice to hear Jim, but this blog is about >>whether it’s a good idea to buy NOW at today’s >>prices.

Well that’s pretty simple. It depends on what, where how much for how long and finally, your personal financial situation.

Clearly, some people on this board have been waiting for many, many years to buy and they have been wrong. (As demonstrated)

Now they are reduced to hoping for a big financial or economic meltdown to bring real estate down to their ‘buying’ level. Pretty sad state of affairs actually, when you are eager for your country to go to hell so that you can buy yourself a house on the cheap.

#34 m. on 05.07.08 at 8:37 am

Jim, I don’t think anybody in their right mind would hope for a financial meltdown. What people worry about is the current situation (40 year am, 0% down) will *cause* a financial meltdown when the prices correct.

#35 vultur on 05.07.08 at 9:32 am

Sorry David, but I am a culture junkie and appreciate seeing people from all walks of life in Toronto. No other city in Canada approaches Toronto from that perspective and only New York exceeds it in North America.

There are plenty of mistakes and criticism to point to in Toronto but there are more examples of unique and very enviable accomplishments, in medical research, in the arts, in architect, in science, academia, culinary, etc. Toronto is a booming city of tremendous progress and the litany of challenges faces any large metropolis including fiscal problems and homelessness but I believe that ultimately it is the city’s ability to attract people from all different walks of life that give it a very special feeling that doesn’t exist elsewhere.

#36 Rob M on 05.07.08 at 1:07 pm

I’ve got it!
vultur is really Richard Florida!

PS. at last check, we had lost Susur Lee to NYC so the culinary ‘brain’ drain is still very much in effect.
BTW how many Michelin starred restos do we have in the city ?

#37 David on 05.07.08 at 4:59 pm

The ultimate loser will be, as pointed out earlier, will be the Canadian taxpayer and CMHC. The insurance rate of 3.7% is tacked onto the already hyper inflated price of homes. Bankers do not bother to price risk anymore.
There is little cause for glee in the impending bust, contrary to what some may think. The disconnect from economic reality happened in 2005 and there were only a tiny minority of anti-bubble dissenters, like myself, who took a dim view of the speculative orgy in housing.
Money that could have been used for legitimate entrepreneurial activities or enhancing productivity and wage growth instead was misapplied to financing jumbo mortgages on homes worth about 20% of the sales price at best.
The unwinding of the Canadian real estate bubble saga will take a long time to play out and there will be many financial casualties along the way. Schadenfrude hardly!
Vancouver and Toronto were perhaps the bubbliest cities in North America compared even to Orange County California. People expecting a soft landing are living in a fools paradise.

#38 $fromaSia on 05.07.08 at 8:37 pm

Look at Bush going after the lenders in the states for their credit crisis!!!

Whow’s me, lets blame the lender and governement because the general sheep population has just signed their lively hood away.

Sure thats it, blame everybody else but you signed on the dotted line!

#39 Timmer on 05.07.08 at 9:22 pm

I too am in Saskatoon, and have been told that at the absolute worst prices will level off for a year or so before prices increase at their hectic pace. Like Frustrated said above, housing prices have really shot up over the past couple of years, and realtors say that our boom is just now in its infancy, and that come next summer we could see another full 50% appreciation in housing prices. This is not good news for me and my wife, as we have been waiting on the sidelines for sometime now for some balance to be restored to the market. Our problem is, if we decided to buy right now we would be really financially stretched as simply put our incomes haven’t changed enough over the years to keep up with these new prices. My biggest fear, however, is that if we wait any longer that further housing price increases will nullify any additional savings we put towards a down payment. Realtors we have spoken to are very optimistic about the local housing market, and say they are confident the Saskatoon market will continue to grow even if other markets begin to cool. By their estimates, entry level condos will be situated somewhere between $300,000 to $325,000 by next summer putting them even further out of reach. One agents suggestion was to get in on the speculation train ourselves, and buy a couple of sketchy fixer upper condo units and turn around and sell them in a couple of months time. He said he was confident that one could make $40,000 profit per each unit which would allow one to use that money to put towards buying a good starter home. Is this now the only way for a first time home buyer to get into the home market? From what I have heard, our city is rapidly becoming one of the most desireable centers in the world, but even so, how can prices continue to rise in such a fashion when the the working class can no longer afford to buy into the market?

#40 David on 05.07.08 at 9:49 pm

With respect to the USA, the blame clearly does belong on the shoulders of the government and Wall Street. The banks issued millions of NINJA loans (no income, no assets, no job). Wall Street hedge funds repackaged these loans and sold them planet wide as collateralised debt obligations. These funds were given a clean bill of health by Standard and Poor’s. These asset pools became so convoluted that even the high priests of finance could not assign vaguely accurate market values. Banks did not care since they would not be at risk of holding this worthless paper to complete discharge. Wall Street did not care either, since there were banks all over the world eager to participate in this profitable and seemingly risk free industry. There were a host of innovative financial products like ARM’s, negative amortisation loans, 2/28 mortgages and sweet teaser rates. Best of all Alan Greenspan was giving away free money! The urban poor and minorities were specifically targeted in this predatory lending environment.
The personal responsibility hypothesis is a very popular mantra among the acolytes of what passes for conservatism these days. The fact that there was a total breakdown of regulatory oversight and financial institutional responsibility borne out by mountains of empirical evidence should be proof enough.

#41 Jim on 05.08.08 at 10:49 am


I would never buy a condo (not even in TO) much less in Saskatoon. Buy a single-family home in an older neighbourhood, that has not been upgraded, trim the grass, put new flooring (carpet or hardwood from an auction, not laminate), new counters, new fixtures, paint & appliances and flip it if you can. Most of the above you can do yourself and it will make your house look like new.

If it doesn’t sell right away live in it and enjoy it for a couple of years until it does. Congrats on your tax free capital gains at that point. Rinse, repeat. Enjoy life. Stop worying.

#42 David on 05.08.08 at 1:26 pm

Taking advice like that is what precipitated this mess in the first place. There is the prospect of the potential property flip turning into a real life financial flop with a submarine mortgage. Did it occur to you that the fixer upper special might already be vastly overpriced and putting in granite counter tops and laminated flooring will only add to the financial burden and risk especially if the intent is a quick flip in an already overheated housing market?

#43 lor on 05.08.08 at 2:16 pm

timmers, your description of saskatoon being one of the most desirable places in the world really just shows you havent been out of saskatoon that much or you believe everything real estate agents tell you. second highest crime rate per capita in canada, lowest economic growth of all the western provinces according to stats canada, proving all those bank and real estate economists wrong who predicted saskatchewan as some kind of economic powerhouse, wages behind all the western provinces yet now it costs more to live here now than alberta and manitoba. listings in saskatoon are starting to build up substantially week after week as this sellers market here loses its steam. why? because almost half the listings are for unoccupied or rented units. the speculators are trying to move their inventory as quick as they can before the losses set in.

#44 Jim on 05.08.08 at 2:28 pm


You don’t put granite counter tops in starter ups and you never use laminate. Shows what you know, which is nothing.

I am speaking from real life experience and I’ve done pretty well doing just what I have mentioned above accross 3 different Canadian provinces and 1 U.S. state.

And it’s actually what Garth recommends in his other books.

#45 lor on 05.08.08 at 2:36 pm

I read in another blog somewhere that saskatchewan is like that kid in grade school that thinks he’s cool and of course he’s not. had to laugh. all the rhetoric from the real estate and bank economists proved so wrong by actual facts on stats canada’s most recent fgures on actual economic growth.

#46 Crikey on 05.08.08 at 2:41 pm


Couldn’t have said it better myself. There are a GLUT of listings on the market in Saskatoon that are just not moving. If you look on sell-it-yourself sites, many listings have ben on there for months, many have reduced in price by $20-30K, and still are not selling. Just relax and wait, Timmers. Buying and flipping now would be pure financial disaster.

#47 David on 05.08.08 at 9:00 pm

Jim thanks for enlightening me. I too bought houses and was foolish enough to put down 25% and 55% respectively on my purchases. I also took out 15 year open weekly payment amortisation. With that type of financing usually most people do not elect to flip properties.
On the contrary Las Vegas circa 2006 was full of wannabe flippers who has 105% LTV mortages with the median down payment being around 2%. You can examine the massive default statistics for Las Vegas currently and draw your own conclusions about the wonders of flipping.

#48 Lboogie on 05.19.08 at 11:45 pm

Timmers, Most (but not all) real estate agents are sacks of poo. They will lie to you without a thought. I found black mold in a house in Kelowna, and opted out of a deal. My agent told me the dangers of black mold were over exaggerated and that it was as harmless as asbestos. She said all this while I stood there in scrubs and a stethoscope because I just got off work. $300,000.00 for a starter condo in Saskatoon? I have a 1477sqft condo in Kelowna for sale. 2 balconies, 3bath, 2 bedroom, top floor, 2 parking stalls, 2 km from wood lake that has a canal to Kalamalka. All this for $296,000.00. Why would anybody move to Saskatoon when they can live in Kelowna for the same money?

#49 Faz68 on 05.25.08 at 1:46 am

Okay so why did Garth post this on his blog? Obviosly to bolster his hypothesis of an impending similar Canadian crash and deflation of 10-15 % in resale home prices.

While some contributors have given examples of new condo prices being slashed, increased inventory and decreased sales no one yet has really shown that there is any evidence that resale home prices have dropped or will drop in any major Canadian city backed up with evidence. Not happening where I am in Burlington.

CMHC’s 2008 Second Quarter Report indicates
resale prices in every province will continue to rise for 2008 and 2009 (see below):

So why is the thread called “how-low-will-it-go”? Please provide me with hard facts and figures from a credible source that we’re actually going to see the bubble burst. Sounds like it will be more of a ‘pop’.

There are a lot of compelling arguements being posted on this blog about an impending crash. However, I hope before people consider taking action based on this information you get as much info from as many sources as you can.

Final word. Canada’s economy is rocking, unemployment is at historical lows, interest rates are at historical lows, the TSX just hit a new high of 15,000 and plans on going to 16,200. Canada is in a very very good place right now.

While Vulcan makes some very off the wall statements I have to agree with him that based on what we’ve seen so far Canada housing market is in for a soft landing. Please prove me wrong as I’m dying to buy an investment property somewhere!!!!!!!!!!