The lobby

Allan Gregg interviews Garth on ‘Greater Fool’, here

MPs vote to probe wobbly housing market

A gaggle of realtors came to lobby me in my Parliament Hill office this week. Among the half-dozen was their superstar, Gregory Klump, chief economist for the Canadian Real Estate Association. In his hand was a worn copy of my latest book, ‘Greater Fool,’ which tears a strip off the guy for being a one-note Polyanna when it comes to market analysis.

“At least,” he said, holding the book out to me, “you spelled my name right.” And he asked me to autograph it. Nice touch. I secretly wondered if should edit him out of the third edition.

Well, the CREA people were hitting the Hill to make a few demands, including letting young buyers take $25,000 out of their RRSPs (up from the current $20,000 limit) for a real estate down payment. I gave my approval (even though I think RRSPs are for retirement – which is our next crisis), conditional upon the realtors taking back a message with them: The industry’s on the road to serious grief.

The reasons are clear. More and more couples are buying homes with little cash and mountains of debt. New homes can be purchased for 1.5% down, with a 98.5% mortgage. When prices flatline later this year, and decline next year, this could mean too many people owing more than their homes are worth.

Second, the use of 40-year amortizations is going wild. Almost half of all new loans have these lifetime repayment schemes, which can turn a $300,000 loan into a debt obligation of almost $900,000. Worse, they allow people to borrow more, pay more and gamble more in a Canadian equivalent of the subprime rot which infected American housing and is voraciously eating its way through the middle class.

As I have said, real estate becomes overvalued when average prices exceed the ability of average families to afford it. US realtors and lenders kept their party going by lowering the bar for home financing – which is precisely what our no-down payments and 40-year ams are doing here. And this ain’t just a real estate story. Look what the US housing bust has done to the entire economy of America, its currency, Canadian banks, stock markets and the global financial system.

I’m vitally concerned our nation not walk into a similar disaster. So I proposed a motion to the House of Commons finance committee – which passed this week – for hearings into the new mortgage products, our zero-down habits and the housing market itself. Just a day later, finance minister Jim Flaherty told reporters he, too, shares concerns about the new mortgages (which his own budget allowed for the first time in 2006) and is watching closely.

That’s okay, But preventing a spread of the contagion here will take more than watching. In fact, as my book suggests, it may already be too late. Home sales across Canada have taken a nasty plunge, the precursor to eroding home values a few months from now.

It’s sad indeed when Canadians were given a massive preview of how real estate can turn into a destroyer of wealth, and yet ignored it. We forgot that assets, even houses, do not go up forever. We ignored a truth, that all booms end badly. We tolerated changes that encourage the accumulation of new, perhaps unrepayable, amounts of debt. We watched too many episodes of Flip This House – real estate porn.

My meeting with the CREA folks was spirited, debate-filled and valuable. But when we gathered for photos afterwards, I couldn’t help but notice Mr. Klump slipping out of the shot.

Some moments are too graphic to record.


#1 Peter on 05.08.08 at 11:48 pm

To make the Bank and the Realtor’s going, I believe the govt want to see this grease keeping rolling on those wheels instead of stopping it by making new laws to prevent the downfall of the market. It will soon become a cash rich situation where the more cash you have on the left side and less debt you have on the right side tends to win..with more job losses and downsizing (what they call efficient management) I hear everyday, more people will be out of work and home really soon..and thats a really sad thing..!

#2 David on 05.09.08 at 12:58 am

At this point, the damage from these toxic mortgages is already done. The permabull culture of ever rising real estate prices and cheap easy credit meant that buying price was irrelevant and so to was the principal amount borrowed. The CREA lobbyists know full well that when lending standards tighten even slightly, the supply of greater fools will decline accordingly and start the market on the road to collapse. The CREA was never thinking about housing prices actually being supported by family incomes or unsustainable debt loads. People who bought a few years ago like in 2005 had the benefit of unrealised inflationary gains to reassure them. Anyone buying in 2008 with a 1.5% down payment on 40 year mortgage is already an at risk borrower. Even at 0% interest most of the houses being traded were completely out of line with fundamentals.

#3 EJ on 05.09.08 at 1:54 am

I was a bit surprised after checking the CMHC website this evening.

I knew they were offering insurance on 0% down, 40yr mortgages, but I had no idea they offered interest-only mortgages as well. When did they start this? As a taxpayer who will likely wind up eating the cost on these turkeys, I’m very concerned.

We follow the US like lemmings, and even after watching them march off a cliff, we keep trotting along, parroting the “we’re different” mantra.

#4 Larry Yatkowsky on 05.09.08 at 2:19 am


It’s always so nice to feel the broad brush of the omnipotant.

The “gaggle” as they are now known, are defacto painted as the scurge, the cabal, responsible for creating the real estate dilema and being now righteously dismissed and “on the road to serious grief.”

Omnipotents under pressure of the right to own a home mantra, created through various agencies, the tools to unlock the protected flood gates of borrowing. Therein the method of assisting the marginal consumer to acquire that which they seek was born. Be it the young couple or the wise sage, the opportunistic gaggle flew with it. The facilitation delivered the young couple their home and the omnipotent their votes. All good so far!

Garth, please let’s not forget that at the outset it was the “gaggle” of omnipotents who devised the laws that commanded the agencies to open the flood gates to easy money. Reason suggests the assumption that it is they who need to be painted as the true scurge. While realtors, the financial institutions, the buyers and sellers of real estate used the tools delivered from the mount to expidite the process, it is the omnipotents, the true cabal on the hill, who in isolated offices devised and created the untempered tools that now serve the dilema.

Put down the brush. Take ownership of the creation. There is much work to be done. Modify, improve, temper or just close the gate, but please, I beg your omnipotence, stop splattering paint.

your humble peddler

#5 Keith in Calgary on 05.09.08 at 8:59 am

It’s too late as the damage has already been done.

2/3 of new mortgages in our province are for 40 years and are CMHC insured (which means little or no down).

That is some 50,000 homes just from last year alone, which are probably currently underwater or will soon be, it’s that close…….

All we need is our own made in Canada “trigger event” that starts a very big ball rolling down a very long hill…….

Letting RRSP holders take an extra $5K out of what is supposed to be their retirement money is the stupidest idea I have ever heard, in fact, taking money from your RRSP for a piece of real estate is just plain stupid period. But I don’t expect more from those in the RE industry.

An extra $5K doesn’t matter when the property you are buying is over valued by $200K……..

#6 Doug in Calgary on 05.09.08 at 9:55 am

Garth, I appreciate and agree with the message in your book and on this website, but I don’t understand… Why did you vote to approve the $5k increase in RRSP withdrawal?

Surely the correct message to the industry is to say no to proposals that allow buyers to over-extend themselves?

It was not a vote, but rather an expression of support – conditional upon the industry taking a position against zero down payments, plus an examination of the effects of 40-year mortgages. Actually, buyers who use RRSPs to fund real estate are a huge cut above who work exclusively with somebody else’s money. — Garth

#7 BearClaw on 05.09.08 at 11:10 am


I don’t think taking money out of RRSPs for a downpayment is a bad thing.

Me an my wife having been saving for a downpayment and contributing to RRSPs for this purpose. We are in our mid-20s and would most likely not be putting in the same amount if it were not for this program.

Also by the time we save up an extra $10,000 ($5,000 each) prices may decrease even more in Edmonton.

I think 40-year is the real insanity. The sell I get is ‘it gives you greater flexibility’. No thanks.

#8 WaitingInToronto on 05.09.08 at 12:28 pm

To those opposing the increase in amount available to take out of an RRSP under the HBP – while I generally agree with not over-extending yourself, I don’t feel this really belongs in the same boat.

I am a current renter with about $50k in my RRSP. The $20k limit has caused me to stop contributing to my RRSP entirely over the past few years, as any contributions I make now directly translate to an increased mortgage when (if) I eventually buy a home. I completely get the benefits of investing in an RRSP (tax refunds, deferred taxes on gains, etc) – however, I feel the individual should be allowed to choose between potential future gains in a tax-sheltered RRSP, vs. a guaranteed cost now in after tax dollars in interest on a larger mortgage.

Personally, I’m entirely against 40-yr AMS and 0% down, but would welcome an increase in the HBP limit. Obviously, those who this would benefit have been responsible enough to make large contributions to their RRSP – the exact opposite of those resorting to 40-yr AMS and 0% down. After all, isn’t $0 debt better than a $50k mortgage and a $50k RRSP? To some (like me), yes!

#9 SMWhite on 05.09.08 at 1:39 pm

By using the RRSP as a mortgage tool you are taking away the #1 benefit of the RRSP, the power of compound interest, paying it back over time kills the growth of that 20K. I’m easily amused and really enjoyed witnessing my RRSP snowball over the past 6 years, although recently markets haven’t performed the magic they have from 2003 to mid 2007 lately, we’re finally back to where we were last summer. Maybe a little less factoring in the production of more money from the Bank of Canada.

However, considering all factors and large possibility of recession in North America, pumping that money into your first PRIMARY residence might make sense, especially if your living in a “bubbly” area with a high possibility of an RE decline provided you can get an “affordable” home.

Something I never really considered or plotted, I’ll have to get the loose-leaf and calculator going this weekend and compare the last housing recession versus the TSX(I’m assuming the TSX out performed housing during the 90’s ).

Of course there is the possibility of future rate hikes as well, aren’t these uncertain times? Thoughts anyone? Mr. Turner?

Anyone know of any reliable websites with historical TSX data? I’d like to find a chart from the mid to late 70’s on…

#10 David on 05.09.08 at 2:15 pm

The whole housing boom was a complete fraud. The false prosperity was fueled by cheap money and ultimately was funded by marginal buyers who probably should not have been buying homes in the first place. Instead of affordable decent family housing, the real estate industry and banks offered hypertrophied 40 year nothing down mortgages. All part and parcel of the great home ownership wealth creation machine which took on all the characteristics of commodity fetishism in its latter stages. There is no shortage of available land for housing in Canada, Canadian family incomes in inflation adjusted terms have not grown in the past 30 years and old housing stock did not experience an increase in its economic usefulness. The whole Canadian real estate bubble was totally irrational.
Talk of reform seems academic, at this point, with so many thousands of these at risk sub prime mortgages extant in the market already waiting to default at the first sign of a slight market dip. At this point most of us will be reduced to the status of spectators watching a slow motion train wreck.

#11 Leah on 05.09.08 at 2:26 pm

Wasn’t it a BC real estate cheerleader (head of the BC Real Estate Association or something like that) who said earlier last fall that everyone should try and get into the market – even if they have to use a credit card for a down payment.

Does anyone remember that?

(I think so many people are going to end up with egg on their face)

#12 Crikey on 05.09.08 at 3:13 pm

“everyone should try and get into the market – even if they have to use a credit card for a down payment”…

Ohh, that is just so wrong on so many levels, I’m not sure I can contemplate that again without gagging.

Here are some other gems from the past (and present, sadly):

“They’re not making any more land!”
“If you don’t get in the market right now you’ll be priced out forever!!”
“Real estate never depreciates in value”.

The last quote in particular tends to be spouted by real estate agents who are too young to remember the last “bust” cycle.

Hey… where’s Vultur? I miss his “caring” comments….

#13 Rob M on 05.09.08 at 4:07 pm

And there we have it – so those of us who weren’t stupid enough join the bubble party get burned anyways :

“The longer amortizations and the 100 per cent loan-to-value products have been relatively popular,” Vukanovich said.

But what if Canada’s economy flattens out? How will this affect highly leveraged buyers?

It’s not only CMHC, Genworth and other mortgage insurers on the hook if there’s a rash of defaults.

Taxpayers will also be liable for losses.

Few people know that Ottawa guarantees 100 per cent of CMHC-insured mortgages and 90 per cent of privately insured mortgages (up to $200 billion).

Because of the federal guarantee, mortgage insurers don’t have to carry capital on their books to match their potential risks.

In recent months, the finance department has been holding secret talks with mortgage industry players. “

#14 David on 05.09.08 at 4:12 pm

There is a big qualitative and quantitative difference from these idiots having egg on their faces and families facing the real life prospect of mortgage delinquency and foreclosure. Alan Greenspan has much egg on his face and seems to be spending his latter golden years in mea culpa denial and blaming others. Did it ever occur to the nincompoop promoting credit card cash advances for down payments that everyone whether a renter or owner is already participating in the housing market? For that matter people sleeping under bridges are participating in the housing market. People with free and clear title to properties are renting from themselves, mortgage holders are renting money from the bank and people with a landlord are paying economic rent to owners of capital property. Duhhhhhhhhhhhh. The sun is about to set on the Realtor gods.

#15 Jace on 05.09.08 at 4:32 pm

I’m planning on using a portion of my RSP’s for first home purchase.

I am 25 and only began contributing to my RSP’s 2 years ago after I finished college. The home buyers plan is the fastest way for my wife and I to save up our down payment on our first home. Yes, we’re going to be missing out on a couple years of compounding interest while the funds are being repaid, but does it really make sense to use only after tax dollars for our down payment and make significantly smaller contributions to our RSP in the meantime?

Saving for our downpayment outside of the rrsp will result in 25-35% of the funds being lost to income tax and also paying full taxes on any interest or capital gains the savings receive while we wait to purchase.

That would also result in either waiting another 1-1.5 years to purchase the home which would mean an extra 10-15k spent on rent. Or if we were to purchase the home earlier with a smaller down payment, an extra 4.5-6% interest compounded over the life of the mortgage on that $10-15k.

#16 David on 05.09.08 at 5:29 pm

The Great Canadian Real Estate Bust is still in its incipient stages and bargain hunting is a few years off at best. Overpaying in a declining market makes no sense. Real estate is done.Period. Put a fork in it and see if it is done.What price ownership for ownership today when there will be multiple bargains tommorrow? Prices are reverting to their historical means.

#17 David on 05.09.08 at 6:39 pm

I am willing to tell a true tale here, back in 1985 when I was young and still happily married I bought a house in South Edmonton. That was at the height of the oil crash. I needed 25% down on a fixer upper. My funds were held in term deposit by the now long defunct Nothland Bank. My 25 % down payment cheque cleared the bank less than 24 hours before the Federal and Alberta governments froze the assets of Northland Bank and would not clear any more cheques. My mortgage terms were 15 year open weekly amortistation. Lots of skin in the game. My skin. I ran the risk of my 25% down payment deposit cheque never even clearing the bank and going back to ground zero savings wise.
The whole real estate industry is based on non sense and hyperbole. Wealth creation comes from being able to draw air in to the lungs, not from hard work. Wealth creation is shielded from international competition. There is always someone even more stupid than yourself that will pay a huge premium on a 65 year year old house. Money is free and we all can get something for nothing. The best form of family wealth generation is investing in real estate. The cliches are endless.
Yes, I have been bashing the real estate industry ever since and I refuse to stop till my coffin gets nailed shut. Evil Socialists like myself are not going to heaven anyways to experience the rapture, so no amount of nails will help.

#18 Dawn in Calgary on 05.09.08 at 7:13 pm

Another article today on the Calgary housing market;

MLS home for sale inventory hits record high
Mario Toneguzzi , Calgary Herald
Published: Friday, May 09, 2008

CALGARY – Calgary’s MLS listings are currently “totally out of whack” surpassing the 10,000 mark in April and growing by the day while at the same time sales are slumping.

Listings are at an all-time high for single-family homes and condominiums and they are being described as “extraordinarily high.”

April MLS sales for single-family homes (1,363) in Calgary metro were the lowest for the month since 2000 while condo activity (581 sales) was the slowest since 2003 – even before the years immediately leading up to the city housing market boom in 2006 and 2007

#19 Jeff Riverdale on 05.09.08 at 7:58 pm

For Leah on Post # 11;

From the Vancouver Sun on April 19/08 page K14

It was a panel of ‘experts’ (brokers and RE agents) that were holding a seminar for 1st time home buyers in the Vancouver area.
My favorite bit of advice they gave:
‘Delaying a purchase in order to save more money for a down payment might not be prudent’ & ‘prices are still rising so get in quick’

Yeah, I guess for hundreds of years of experience and people putting down payments on properties just isn’t needed anymore. Especially in a city where affordability is at the lowest level ever and it is way cheaper to rent. Great Advice.

I know the quote isn’t as good as the credit card downpayment but the same theme is at play ‘Get in now or you’ll never be able to own a house for all of eternity’

#20 Gabby on 05.09.08 at 8:26 pm

Back in 2005 my girlfriend and I used our RRSP’s to put down $40k on a $390k house (sold 3 years later for $670K). We don’t even bother paying it back into our RRSP’s and simply add the $1,333 onto our taxes each year as income (offset by other write-offs). So we made more money via real estate than by keeping that $40k in the RRSP.

#21 Terry on 05.09.08 at 9:02 pm

My parents bought there house in 1965 for $15,000 with a CMHC 35 yr mortgage at $500.00 down plus $500.00 grant from the federal government. These programs at the time made sense as the Alberta economy was in the dump. I for the life of me can not understand why in times of low interest rates, low unemployment plus a hot real estate market why the market needs 40 yr mortgages and 0 down. It seems to me the government is the one actually pushing for a higher housing prices. We now find ourself in another bubble with the Canadian taxpayers exposed to billions in CMHC insured mortgages. I guess it is time Gen X generation learns about financial responsibility.

#22 Micheal on 05.09.08 at 9:04 pm

I just sold my house in March and I’m renting. I’ve never slept better. I agree housing prices are unrealistic and anticipate a decline next year. I know of to many people just living off of credit most of it unsecured. When I heard of the brewing housing crisis last June on CNN I knew I had to sell. Now is the time to be liquid, own metal and be debt free.

#23 David on 05.10.08 at 12:54 am

Pretty laughable and pathetic, “experts” in real estate investment fishing for the few remaining gullible mullets remaining in the pond. $600K is a “steal” for your 800 square foot fixer upper starter home with $0 down and 40 year amortisation. That home will be worth at least $800K in one year. In two years maybe a cool $1 million.
There seems to be no limit to the idiocy of the real estate industry.

#24 Larry Yatkowsky on 05.10.08 at 1:39 am


In a previous comment it was suggested that ownership of the problem be accepted by the omnipotants who from the outset, created this financial dilema via sub-agencies such as CMHC .
Yet, in your response to Doug in Calgary, your words acknowledge that as one of the cabal, you abidecate responsibility, choosing to do nothing. Instead crafted words are proffered as a decree of an “expression of support.” You’ll give them support if they take back a message that they are in trouble and fly the banner of “no more zero downpayment mortagages” on the basis of your expression? In most dealings, verbal agreements mean nothing. Does one assume this applies to your words?
With every opportunity presented to stop the madness, those who created the problem volley it to others through meaningless babble crafted to disclaim ownership.
EJ asks; “When did they start this? As a taxpayer who will likely wind up eating the cost on these turkeys, I’m very concerned.”

The abdicated response is – we will “condtionally” encourage the disparaged “gaggle” to “examine the effects”. Romans delivered such messages with clarity, they simply fed Christians to the lions.

To examine an “effect” is to exam the end result. The people commenting here are saying – Take ownership – deal with the problem now before the anticipated result reaches epic proportions!

Be a Roman!

Doug in Calgary concurs saying “Surely the correct message to the industry is to say no to proposals that allow buyers to over-extend themselves?”

At the risk of being shot, perhaps the true message is to the omnipotents. It is they who are in trouble. It is they who are “on the road to serious grief.” Ironic that the Christians survived whereas the empire is history.

Keep selling your book Garth. I sense it is your life’s canvas on which you have used broad strokes of bovine excrement.

most respectfully,

your humble peddler

#25 Dom-GTA on 05.10.08 at 9:19 am

Ooof Larry! Easy guy, a lot of verbiage but little substance.

At least Garth, speaks clearly and not in tongues. Obviously this book is self serving but it also sends a clear message and comment, which is more than I can say about your post.

Time for obfuscation and useless verbiage is done…

#26 Brent on 05.10.08 at 10:43 am

Can anybody figure out what Larry’s trying to say? To funny.

#27 Crikey on 05.10.08 at 1:07 pm

Larry- just a quick note… “omnipotants” is not a word. Omnipotent, however, is a word.

However, as I was perusing the “urban” dictionary, I came across this:

1.big larry

n. someone who always has to run to pass gas; or someone who uses your restroom and then proceeds to relieve himself uncontrollably all over the floors, tub, sink, hand towels, etc.

I like the first definition, personally- it’s very fitting. You’re passing a lot of verbal gas, there, Larry.

#28 lor on 05.10.08 at 1:38 pm

I think Larry’s trying to say that the romans did not like the christians. I guess I should be thankful that I wasnt around to be fed to lions? or am I being stroked with bovine excrement? help me I am lost and beyond confused now. can we please talk about real estate facts and news?

#29 Crikey on 05.10.08 at 1:55 pm

Ahh, I get it. Larry’s a real estate agent in Vancouver, the bubbliest market in N. America.

The link is to Larry’s website, where he stands to gain a nice commission for selling a 740 sq. foot house for $1,200,000.

Nice. No more need be said about Larry.

#30 Brian on 05.10.08 at 2:08 pm

What Larry is saying is that, ultimately, the politicians are responsible for this unfolding mess, and the Canadian taxpayer will be left holding the bag. Mr. Turner is holding himself out as one crying in the wilderness, when he should have been crying out in Parliament.

Did you read the post? I am. — Garth

#31 wealthyrenter on 05.10.08 at 3:41 pm

According to Larry: The “omnipotants” have “abidecated!”

Just having some fun with you! I have a master’s degree and reasonable level of literacy, but I can’t figure out what the heck you said! :)

In the interests of clarity, could we have a poll on what he was saying?

A) In real terms, the price of housing was cheaper in Rome because cabal fed the Christians to the lions, thus precipitating glut of supply on the market.


B) Specuvestors & exploitive housing “professionals” should be fed to the lions?*

*the humble poster does not endorse or condone any such action, but would favour 40 year prison sentences. **

** unless said action brings sanity to the mortgage market, and lowers house prices to affordable levels.

#32 Larry Yatkowsky on 05.10.08 at 6:21 pm


Words without substance is the point. Garth brushes it on at every opportunity. He has plenty and he’s good at it. It’s the politician’s sword. Swallow it, you have.

Reflect for a moment. Do you really think the lending institutions, and the real estate estate industry have the ultimate power to implement a 40 year mortgage? Isn’t that why we have a govenment of responsible people who take charge in order to protect the public.

Brian: Thank you – a light in the darkness.

Crikey – omnipotents –
I know but, there are is so much eco-friendly paint splattered on the hill its tough finding the one who is truly omnipotent.

As for the commission bit – it’s a well worn trail.
BTW that’s lot value. They are giving away the house if you need one.

As for being a Realtor sure I am and proud of it.
Note: I don’t hide behind an alias.
To the rest, sleep easy in knowing that none of my clients are on the 0 down and 40 plan.

As for Big Larry – I love it! – equals the paint splattered by Garth. “Is there anything else to be said?”

#33 Brian on 05.10.08 at 6:37 pm

Did you read the post? I am. — Garth

I read your post several times. You are now talking about it. I wrote that you should have been talking about it. That means before now.

From your post:

“It’s sad indeed when Canadians were given a massive preview of how real estate can turn into a destroyer of wealth, and yet ignored it. We forgot that assets, even houses, do not go up forever. We ignored a truth, that all booms end badly. We tolerated changes that encourage the accumulation of new, perhaps unrepayable, amounts of debt. We watched too many episodes of Flip This House – real estate porn.”

You forgot that assets, even houses, do not go up forever? You ignored a truth, that all booms end badly? You tolerated changes that encourage the accumulation of new, perhaps unrepayable amounts of debt? You watched too many episodes of Flip This House? How much money has all this forgetting, ignoring, tolerating and watching earned you over the life of the Real Estate boom?

Actually, literalist one, the use of “we” was used in a societal fashion. I wrote a book on this, after raising such issues repeatedly in Parliament. And you? — Garth

#34 Dom-GTA on 05.10.08 at 7:46 pm

Just went house shopping again today, went to a number of open houses in the East end of GTA, Oshawa, Whitby, Brooklin…you can start to smell the fear on the part of some owners and most RE agents. This actually looks like it might start to be fun again.

I still got some of the typical “you better lock it up now,” but I got more “Owner wants to see offers…” Looks like it is going to soon be an exciting time to buy. Most of the new development areas only has 1 or 2 cars in front.

It still amazes me to see these beautiful 3500-4000 sq ft homes on tiny little lots.

Lowball is the word of the day when making offers, of course we are in a good position as we just sold and are in a short term rental, so no chain…

Good luck and enjoy the hunt

#35 David on 05.10.08 at 8:31 pm

As far as Larry goes, his use of diction leaves much room for improvement. More disturbing is that it looks like he can not calculate cap rates either. The listings shown on the web site are well beyond the realm of parody. The virtual tours do not exactly make one think of Frank Lloyd Wright or Thomas Jefferson’s Monticello architectural genius.
MP’s like Garth are omnipotent? Can’t wait to hear them chanting Confiteor Deo Omnipotenti for 40 year mortgages.
The real estate industry wanted 40 year mortgages. Period. The Canadian public certainly did not. There certainly would not be many buyers for a 740 sq. foot 80 year old urban cabin if the potential buyer needed 25% down and 15 year open weekly amortisation. No sane investor would spend $1.2 million for the rental income on that property either and 30 plus years of negative cap rates.

#36 Larry Yatkowsky on 05.11.08 at 12:13 pm


Diction – as a humble peddler I never claimed to have Garth’s talent for painting.

Strange irony: if the “Canadian public….did not” want 40 year mortgages they certainly are taking advantage of this feature.

How do you explain that using proper diction?

Re: “no sane investor” and cap rates – brilliant! Nice that you provide answers to your own questions. Who said purchasing real estate required that element? If that was a condition of purchase, this conversation would end.

What do you think David, should I add the “I Told You So” clause in purchase agreements. Would the following be acceptable to you?

By accepting this agreement you acknowledge that you are of sound mind, have calculated the cap rate and fully understand that by purchasing this property with 0 down with a 40 year mortage there isn’t a hope in hell of you ever digging your way out of this mess and are “on the road to serious grief.”

Sign here: _____________________

#37 WetCoaster on 05.11.08 at 1:53 pm

Ahh, I get it. Larry’s a real estate agent in Vancouver, the bubbliest market in N. America.

Thanks for link, Crikey. That would certainly explain the monsoon of crapola coming from this guy. ‘Nuff said about Larry.

#38 David on 05.11.08 at 3:00 pm

Even with 15 year open mortgage amortisation, a 1.2 million shack with 780 sq. ft. is a rotten deal.
Assume 25% down payment and 6.25% financing. PIT and utilities and general upkeep will run at well over $8000 per month. A family would need a pretax income of well over $200K just to live there and do nothing else with their lives. Comparable rents for such a place might be a maximum of $2000 per month at the very best. Depending on which cap rate formula is used the results will exceed negative 7% and upwards in a best case scenario. For $ 8000 a month a family could rent a really nice place in Beverly Hills, California.
There are better bargains out there. I found this priceless architectural gem listed for the bargain price of $359K. The kind of place any ambitious businessman with a young family would love to own. The details are pretty sketchy, but it does have a fireplace and a partial lawn.

#39 Crikey on 05.11.08 at 3:07 pm

No problem, WetCoaster. I spent most of my life in both Vancouver and Victoria, and sadly had to leave to escape the insanity.

“Big” Larry, you claim a 66 x 146 lot ALONE is worth $1.2 million, and “they’re giving the house away”? You can’t actually believe what you’re spouting, can you? I’m very familiar with that neighborhood, and there’s no way that the “worth” of the lost is even one-third that much. I suppose as long as you can find an endless supply of fools to pay those prices, you can keep sucking them dry with impunity, no?

As for being “proud” to be a realtor (oh, excuse me, Realtor – get over yourselves), consider what you’re doing on a daily basis.

If a stock broker were to charge 6% on the sale of stock, he would quickly go out of business. Real estate brokers don’t do much more than stock brokers, so why should you give up nearly two years of your working life earning money to pay a realtor for the few hours they may put into helping you buy or sell a house? 6% of the approximately years it takes to pay off a house is nearly 2 years of donating your working time to your realtor. Nice way to serve the public, Larry.

There are good buyer’s agents who really believe they are helping the buyer, but they’re in denial about their conflict of interests. Author Upton Sinclair had a great explanation for this: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”

Worse, realtors have a near-monopoly on sale price information, and newspaper reporters never ask realtors hard questions like “how do we know you’re not lying about those prices?” The result is an endless stream of stories reporting that the CREA says it’s a good time to buy. Asking the CREA about housing is like walking into a used car dealership and asking the salesman if today would be a good day to buy a car.

#40 Crikey on 05.11.08 at 3:44 pm

Just to head Larry off at the pass, let me clarify: realtors say the 6% commission comes from the seller, but think about it. Where does the seller get the money for the commission from? That’s right, the buyer. No buyer, no money, no sale, no commission.

#41 David on 05.11.08 at 4:49 pm

The home that sold for $1,079,000 is a little better. Only $7500 per month, again assuming 15 year open with 25% down. Small change to keep the roof over the family. Great buy too, an 83 year old home at a measly $1312.65 a square foot. Only about $90K per year to live in this Every man’s castle complete with turrets no less. It brings back fond memories of watching the Friendly Giant on CBC.

#42 Jonesy on 05.11.08 at 10:17 pm

On the subject of taking the downpayment out of RRSPs. My wife and I did just that. I balked at the idea at the time, 2003, and I always had a niggling feeling at the back of my mind about doing it. Talk about stealing from your future a la baby boomer style. I watched as the rampant development took hold in my area, eastern Fraser Valley, and set my sights last year to sell. We recently sold in March 2008, literally a week before the market was flooded in the area with listings. Funnily enough this was based on my own observations of past trends, not on Garth’s book. My wife brought the book home a couple nights ago and all points were exactly like my own reasoning and thoughts on the boom/bust. This is from a person who has owned only one home and is not a speculator at all. Goes to show, even if one doesnt know what a storm is, rumbling thunder in the distance catches your attention, and you batten down the hatches. I consider ourselves lucky we didnt lose that RRSP down payment with a market correction. Now we will rent for a bit and buy in a couple years when the market no longer has ADHD.

#43 Larry Yatkowsky on 05.11.08 at 10:24 pm

Boys, boys, while I thank you for the attention and the site hits let’s not digress into Larryisms.

Attacking the profession is such an old story. Been there, done that, heard it all and it’s boring.

But it’s hard to resist a slap. The following is the counter which no doubt you’ve heard and which I stoop to include as it’s measure is equal to some things said here.

It’s a free country. Get your license and you too are welcome to join the throngs of bankrupt “I thought it would be easier” X-realtors or, if you are lucky and work at it, you too can make a comfortable living.

Attacking the price levels or the cap rates is such a waste of time on residential homes.
People not numbers buy these properties. The math is the last thing on their minds. Think about the Why?
Are they a good deal relative to your experience and terms of reference? Based on comments – No.

Are they happy with their purchase? Unless they are financial masochists – the assumption is yes.
Do they lie – possibly but, who are we to judge?

Are they selling – some yes, some no. Reasons, most don’t say and does it matter in the scheme of things.

From time to time I post the highest and lowest price homes in the city. Picking the highest priced home in Vancouver for sport, do you think the people buying in at $19 million give a damn about ROI on their residence?

David et al, shout all you want about cap rates, ROI etc.. You are not wrong but, are you right? Ultimately, what you or I think about the residential house values and the ROI on residential properties doesn’t matter squat to people buying at these levels. If you know one, dare to ask. Point out the mathematical truth of their purchase. The responses should be interesting if you live to tell them.
A simple uncut version is that people continue to buy high or low and at prices that are astonishing. While some it may view it as insanity, they see it as the best thing they have ever done. Who is right? Some make money – some lose their shirt, some live happily ever after in their new home.

Where is it written that we have the right to say – No don’t buy?

#44 Peter on 05.12.08 at 12:40 am

To be very honest, I live in Toronto, I really dislike these pathetic people flipping houses, doing all those smart tricks (Take out RRSP money to flip and thought they are Mr.Donald Trump), go 0% 40 years, wait for a needy couple to hook on to that mortgage and those who buy it suffers), call their friends in china, korea, india, europe and sri lanka and wire them nice hard cash to flip houses and makes homes not affordable for our decent people to buy in and grow our family. I really like to see these people holding these units to stuck with it during the price drop and let them eat their profit thru their roof….

#45 John P. Gorman, B.A.,LL.B. on 05.14.08 at 8:43 am

Right on, Garth, as usual. As a lawyer, realtor,property manager, and crusader for thirty years, I have read your columns and books with admiration. You are always on point, and Canadians from Coast to Coast should know you better. Visit, and consider running for the leadership of the Canadian Action Party this year. You speak their language and the other parties are in the hip pockets of our enemies: The BANKSTERS.
CAPtain Canada