Step 3: Mainstream media gets it

Red-hot housing market loses its heat


As a flood of sellers sent home listings to their highest level on record last month, at the same time sales slowed as wary buyers remained on the sidelines.

This shift in dynamics suggests a marked change is taking place after the frenzied bidding wars that characterized the country’s housing boom, providing good news for buyers who want to make less pressured purchase decisions.

“For the first time in a long time, sellers are not in the drivers’ seat any more. I’m not necessarily saying that buyers are in the drivers’ seat either, but what we’ve seen truly is a return to a balanced market,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.

Resale home listings across Canada rose by 17.7 per cent last month from the year before, putting them at the highest level on record, according to data released Wednesday by the Canadian Real Estate Association (CREA).

In the same period unit sales dropped by 6.1 per cent from the year before, although they edged up slightly from a weak March.

Listings in Saskatoon rose by 121 per cent compared with the year before, and by 18 per cent in the country’s largest housing market, Toronto, which makes up about 18 per cent of all resale housing activity on the Multiple Listing Service.

CREA’s data came on the same day as a survey suggesting two-thirds of Canadians are either negative or neutral about the prospect of buying a home right now. The other third said that now is a good time to buy a home.

The results are similar to a study last fall, and this consistency suggests Canadians haven’t been too shaken by the U.S. subprime mortgage crisis, said Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals (CAAMP) and author of a report released Wednesday that included the housing survey.

Canada’s strong economy, primarily the high rate of employment, is helping maintain confidence in the housing market, Mr. Dunning said.

However in regions where prices escalate quickly, sticker shock can trump economic fundamentals in the short term, he added.

This was demonstrated by CAAMP’s survey, in which residents of Saskatchewan were the most leery about buying a home, with 70 per cent saying it is not a good time. Home prices rose 32 per cent in the province last year and are expected to rise by 19.5 per cent in 2008, compared with the forecasted 5.3-per-cent national average, according to CREA.

Despite the glut in supply, there have been no economic reports forecasting a drop in home prices this year, merely a cool-down from the double-digit gains of the past.

So far the data bear this out, with none of the cities included in CREA’s report showing a year-over-year price decline in the first four months of 2008.

Prices are very “sticky,” they are one of the last things to adjust when the market cools and it takes a great deal to drive them down, Mr. Porter said.

Perhaps one of the biggest signs that sellers may have to lower their expectations can be found in CREA’s press release referring to the data.

“This means buyers face less competition in their search for a home. It also means more competition among home sellers, so presentation factors such as prudent pricing are necessary for faster sale,” said Calvin Lindberg, president of CREA.

This, Mr. Porter said, is “a polite way of saying: ‘If you’re looking for double-digit [annual] price gains, dream on.’”

A return to balance in the market has been a welcome relief for Jim Sparrow, a real estate agent with Calgary-based Keller Williams Platinum Realty. He remembers the peak of the market last year as an agonizing time for some of his clients, who were making and losing hundreds of offers as they desperately tried to crack the Calgary housing market.

Perhaps the craziest situation he witnessed was the bidding for a small, no-frills condo unit which just months earlier would have sold in the $90,000-range. With an unconditional, cash offer at $30,000 over asking price, Mr. Sparrow’s client figured she’d finally put up enough to break a string of lost bidding wars. She lost the 21-buyer race to someone willing to pay nearly $200,000 for the tiny unit.

A year and a half later you won’t find situations like that in Calgary any more, Mr. Sparrow said.

“We’ve been in a buyers’ market for the last three or four months here. What’s unfortunate is that a lot of sellers don’t realize that yet,” he said.


#1 patriotz on 05.14.08 at 11:12 pm

“We’ve been in a buyers’ market for the last three or four months here. What’s unfortunate is that a lot of sellers don’t realize that yet,” he said.

Au contaire, it’s not a buyers’ market until prices stop falling. Until that happens the seller is making a smarter decision than the buyer.

We’re three or four years away from that at least.

#2 David on 05.14.08 at 11:43 pm

check for 1 and 2 bedroom condos that alot of people are trying to rent in Toronto. 1br condos for over 1200? and the 2br prices are just crazy.

some crazy prices on craigslist also

Are these people on crack or high on life?

The last condo(2yr old in Toronto) I rented took the owner 4 months to rent after I left last yr, and that was $1200, I moved to another brand new condo where the rent was cheaper and a better view.

#3 David on 05.15.08 at 12:44 am

Using terms like buyers market or sellers market are nice and nifty pieces of shorthand, but really do not help paint an accurate picture of the housing market. According to the apologists for the real estate industry there never was a bubble and it follows there will be no bust either.
As a general rule when housing inventory on the market is less than 30 days available supply it is a sellers market. If turnover and supply runs around 6 months it is considered a buyers market. Those are pretty crude yardsticks and might be appropriate when applied to non bubbly markets. In some of the most afflicted communities in the USA surplus inventories of houses and condos are running well above 2 years of surplus inventory. That is well beyond what would be defined as a buyers market. A buyers market implies that there is at least someone out there willing to buy.
Articles like this merely point out that currently there are some imbalances between the number of listings to the number of sales that have as yet to result in significant price reductions.

#4 jrochest on 05.15.08 at 1:31 am

There are now 1037 properties for sale in Saskatoon: half of them are either tenanted or standing empty (and presumably owned by speculators).

I’m looking forward to the next few months.

#5 Dom-GTA on 05.15.08 at 6:50 am

Patriotz, That is exactly right, why wouldn’t a buyer sit it out and wait for the prices to keep falling. That is actually pretty smart from my perspective. Better to let the current owner take the equity hit and I will buy when that person is desperate.

Good luck

#6 Brent on 05.15.08 at 7:24 am

CREA is “sticky”

“This was demonstrated by CAAMP’s survey, in which residents of Saskatchewan were the most leery about buying a home, with 70 per cent saying it is not a good time. Home prices rose 32 per cent in the province last year and are expected to rise by 19.5 per cent in 2008, compared with the forecasted 5.3-per-cent national average, according to CREA.”

How can home prices in Saskatchewan be expected to rise by 20% in 2008 when 70% of the people there wouldn’t touch a house now. Come on CREA, your about as sticky as it gets when it comes to living in the past tense. Sheesh!

#7 Dom-GTA on 05.15.08 at 9:30 am

Sticky?? That’s what my daughter leaves behind after she makes her peanut butter sandwiches, “Sticky” certainly isn’t going to be the term of the day moving forward.

Walking wounded, “underwater” mortgages, desperation those are going to be the watch words in the next 2 years.

“Sticky” just got to love the spin, tell that to the guy who has to sell his house because of a divorce, transfer, death etc…the only offers will be those at 30% below list…Don’t believe it?? Wait 18 months and we I will apologise if I have been an alarmist and wrong…

#8 Chris Ariens on 05.15.08 at 9:44 am

A warning to those considering condominium purchase…foreclosures may cause much more to worry about, even if you are 100% able to make your mortgage payments.

#9 SMWhite on 05.15.08 at 9:52 am

I had seen this video on youtube when it first came out and thought it might be an appropriate time to relay the message on this blog, Blonde the real estate agent versus Peter Schiff…

#10 Andrew on 05.15.08 at 9:57 am

I wonder how much food will have an impact on home prices as priorties start to shift , I’ve garned some information below on some of the staples that are rising and will continue to rise.

• Wheat has almost quintupled, to as high as $13.49 per bushel.
• Corn has jumped more than 238% to a high of $6.48 per bushel.
• Soybeans have tripled in price, soaring from $4.98 to $15.86 per bushel — a record high.
Taken together, food prices are now at their highest levels since 1845 — that’s 162-year highs — according to the widely respected Economist magazine and its food price index.
At the heart of rising food prices is the same phenomenon affecting the price of oil, gold, gas, copper and practically everything under the sun: The Federal Reserve’s determination to devalue the U.S. dollar and inflate the economy.
So in large part, the weak dollar is why food prices are soaring. Wheat, corn, soybeans and even meat products are priced and traded in dollars, so when the dollar falls, the prices of these commodities typically rise in value to compensate for the weaker dollar.
But the weak dollar is not the only reason food prices are rocketing higher.
then there could also be
Exploding World Population Driving
The Unprecedented Demand for Food!
seems the strongest demand for food is coming from Asia.

then there ‘s the biofuel dilemma causing corn to be used as fuel due to the high cost of oil..

speculation seems to be running rapent by the looks of it we have another bubble as one deflates another one rises..

This will not be a nice picture in a few years

hum granite counter top or food at the dinner table.

Food for thought.. no pun intended

#11 Leah on 05.15.08 at 10:20 am

The RE industry and Banks are making the same sounds in Canada is they did in the states!

#12 Huy on 05.15.08 at 10:38 am


My only disagreement with you so far is “Step 3: Mainstream media gets it”.

Mainstream media doesn’t get anything! They are either pumpers or dumpers. They have no choice but to “report” the obvious, they can’t spin it anymore, the spin cycle is done and the next cycle will be to hang and dry.

#13 peter on 05.15.08 at 11:05 am

These survey’s that are done, are a crock. They do the survey and then ask Real Estate people about their input and it’s blah blah good time to buy. Using percentages are useless as well because nobody can predict the markets. In 2007 CMHC predicted a 7% increase for Saskatoon, and it experienced about 5 times that, maybe more. They don’t have a clue. They spend hundreds of thousands using numbers and trying to forecast what is going to happen. I’ll take a case of beer and tell them prices are going down on average %10 the next 3 years. And I’ll probably be closer than them .

#14 Andrew on 05.15.08 at 11:21 am

another aticle in todays globe and mail..

Cracks appear in the real estate market

Globe and Mail Update

May 15, 2008 at 9:39 AM EDT

The Canadian housing boom is ending, but there is no “major correction” in the cards – and buyers are unlikely to see anything near the bargain-basement prices that currently characterize the United States housing market, the Bank of Nova Scotia said Thursday.

“After many false calls, there is now convincing evidence that Canada’s housing market has come off the boil,” the Bank of Nova Scotia in a report on real estate trends.

Canada Mortgage and Housing Corp., in its second-quarter outlook, reported Thursday that new home construction will begin to slow in 2008, “but remain high by historical standards.”

Both Scotiabank and CMHC said the Canadian housing market is fundamentally strong.

Related Articles

Red-hot housing market loses its heat
Homes market flooded by sellers
However, higher mortgage carrying costs “will be a catalyst for the decrease in residential construction to 214,650 units in 2008, from 228,343 in 2007,” CMHC said in its second quarter housing market outlook.

Bob Dugan, CMHC’s chief economist, added that most of the pent-up demand that built up during the 1990s “had now been fulfilled and residential construction activity will gradually move in line with Canadian demographic fundamentals.

“These factors will continue to exert downward pressure on housing starts, which will decline to 199,900 units in 2009,” Mr. Dugan said.

Scotiabank, looking at the resale market, reported that home resales – having fallen for four consecutive months – are running about 15 per cent below last summer’s historic peak.

“Average annual home price appreciation has eased back into the mid single digits, as overall market conditions come into better balance,” according to the Scotiabank report.

“Adjusted for inflation, the average resale home price in Canada registered its first quarterly decline in seven years in the first quarter of 2008,” the bank said.

However, senior Scotiabank economist Adrienne Warren said in an interview that the softening market is due to a “cyclical slowdown,” and the Canadian housing market is “fundamentally stronger than the situation we’re seeing in the U.S.”

The cooling could bring eventually price relief to buyers, she said.

“The market is becoming better balanced, so there will be more homes listed, which takes a little bit of pressure off prices,” Ms. Warren said.

“But it will take some time, and a number of years of fairly soft prices, in order to bring affordability back to the levels” that are typically seen at the beginning of an upward cycle, she said.

CMHC forecast that existing home sales, as measured by Multiple Listing Service, will fall by 8.5 per cent in 2008 to 475,900 units, and the trend will continue in 2009, with a decrease to 465,000 units.

“Despite a slowdown in MLS(R) sales, demand remains strong by historical standards,” CMHC wrote. Average resale prices will increase by 5.1 per cent to $323,000 in 2008, and by 3.3 per cent, to $333,500 in 2009, CMHC projected.

In line with the CMHC report, Scotiabank noted that “cracks are appearing on the new home front as well.

“While housing starts in early 2008 are essentially tracking last year’s elevated levels, demand for new residential building permits has fallen sharply. Price increases for new homes are moderating, while inventories of unsold new homes are trending higher.”

Ms. Warren said she expects overall sales volumes in 2008 to be about 15 per cent below last year’s record levels, and home prices to increase on average by about five per cent.

“Price gains should slow further in 2009 with the return of a balanced market for the first time in a decade. Meanwhile, housing starts are projected to gradually moderate, returning toward underlying annual household formation levels of around 180,000 by the end of the decade, from the current 225,000 unit range,” Ms. Warren said.

The report also notes that the cooling in overall activity is most pronounced in many of Canada’s hottest urban housing markets in recent years, including Calgary and Edmonton.

“Both centres have officially moved into buyers’ territory as soaring prices weaken demand and fuel new listings. More generally, however, economic conditions continue to favour the resource-rich markets in the West over manufacturing-dominated centres in Central Canada. Regina and Saskatoon are currently in the strongest sellers’ position nationally, supported by good affordability, rising population inflows and tight supply,” according to the report.

However, risk of a major correction is low, Ms. Warren said.

“Home prices in Canada are not substantially overvalued. Our long-term housing price model puts average home prices in 2007 at about eight per cent above their long-term trend, compared with a premium of 12 per cent and 18 per cent, respectively, at the 1976 and 1989 housing cycle peaks. Recent International Monetary Fund (IMF) estimates placed Canada at the bottom rungs of international home price overvaluation.”

Scotiabank also said in its report that Canada’s real estate market is not overbuilt.

“While inventories of unsold homes are trending higher, the number of unabsorbed units, including condominiums, remains well below prior cyclical peaks in most major centres. Tighter lending guidelines and high construction costs have likely contributed to a more cautious approach among builders.

Overall mortgage quality is still sound, Scotiabank said.

“Canada does not have ultra-low teaser rate mortgages that have contributed heavily to U.S. defaults as they reset. Adjustable-rate mortgages, sub-prime lending, borrowing against home equity, and insured investor mortgages all account for a much smaller share of the Canadian mortgage market than in the United States,” the report said.

At the end of the day, we predict a soft landing for the Canadian housing market, with somewhat lower sales and construction, and a period of relatively flat inflation-adjusted home prices,” added Ms. Warren. “While underlying domestic housing fundamentals remain healthy, a major risk to the outlook would be a deeper and more protracted downturn in the U.S. economy, with more serious repercussions for domestic output, employment and income growth.”

#15 Dawn in Calgary on 05.15.08 at 12:00 pm

CMHC is still pimping the Calgary market…

Moderate increase in MLS sale prices forecasted for Calgary region
Mario Toneguzzi , Calgary Herald
Published: Thursday, May 15, 2008
CALGARY – The average MLS sale price in the Calgary region is forecast to increase by 3.6 per cent this year and another 4.9 per cent in 2009, according to Canada Mortgage and Housing Corporation.

The CMHC’s Spring 2008 Calgary Housing Market Outlook, released today, said the average residential price for a resale home in the Calgary Census Metropolitan Area will hit $429,000 this year, increasing from $414,066 in 2007. The average price is forecast to climb to $450,000 next year.

#16 Dom-GTA on 05.15.08 at 1:34 pm

Sorry Garth,

CMHC is predicting good years for Montreal:

LOL, this is too funny….Looks like we are all wrong!!!

#17 SMWhite on 05.15.08 at 2:16 pm


If you listen to the RE representative in the youtube video I posted in #8 she has the audacity to say:

“You can’t throw out numbers, we can’t really throw out numbers and I’m not going to throw out numbers really anymore because its to general”.

Numbers for the RE industry are apparently only valid when they are in their favor, when they aren’t the population should ignore them. If people had listened to this bimbo in January they’d be screwed.

But she is pretty…

#18 Adam on 05.15.08 at 2:22 pm

Inventory up and sales down equals price increases? I would love to have some of what these people are smoking. They call it a housing market but market fundamentals don’t apply?

#19 Keith in Calgary on 05.15.08 at 3:20 pm

Ms. Warren is a bald faced liar.

We have interest rate buydowns to 1-2-3% herein Calgary on several properties that are openly advertised by various builders. So much for her “teaser rate” lie……

We have adjustable rate mortgages. Every 1-2-3-4-5-7-10 years when your “term” expires your rate adjusts to the current market rates…..which incidentally, are up. Another lie dismissed by reality.

Sub-prime lending ? Don’t get me started. Zero down, no doc, bad credit, 40 year amortization loans were everywhere, and in some cases, still are. I qualified for one 4 years ago but didn’t buy.

Liar, liar, pants on fire……

#20 Crikey on 05.15.08 at 3:34 pm

Here’s an article from the Washington Post in 2005 (about Ben Bernanke in the U.S.) that sounds eerily familiar to what we’re hearing now:

Bernanke: There’s No Housing Bubble to Go Bust
Fed Nominee Has Said ‘Cooling’ Won’t Hurt

By Nell Henderson
Washington Post Staff Writer
Thursday, October 27, 2005; Page D01

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.

But we’re different from the rest of the world, right?! ;)

#21 Jim on 05.15.08 at 4:03 pm

> I qualified for one 4 years ago but didn’t buy.

– Ouch. That’s got to hurt, especially in Calgary. Are you hoping that prices fall 60% or more so that they come back to the 2004 level?

Or are you hoping that they will come back to pre 2000 levels where you could get a SFH for 120K?

Either way, it sucks that you’ve been paying rent all this time with nothing to show for.

#22 Michael on 05.15.08 at 4:13 pm

Hi Garth,

Do you have any thoughts on the Saskatchewan markets? Several friends of mine have been buying properties in this province as apparently they are going through a huge economic boom right now. They have been told that the Saskatoon and Regina housing prices in particular are going to climb through the roof, ultimately surpassing those in Calgary and Edmonton in value. They have been told by realtors that by the end of 2010 that the average home price will increase about another $150,000 as apparently these cities are now on the international radar and people from all over are looking to relocate in these Paris’ of the prairies. Due to the thriving natural resource industry in this province, I have been told that prices will peek at near or above Vancouver levels. I am currently renting right now, but have been looking to eventually buy here in Mississauga. A $150,000 cash in hand from selling a property in Saskatoon or Regina would go a long way to helping this dream become a reality. Unlike my peers, I would only be looking at buying one or two properties as I would want to minimize risk should prices appreciate slower than anticipated. What are your thoughts on these cities, are they a sound investment in the increasingly unsure spec market?

#23 Cam on 05.15.08 at 4:32 pm

I love subprimes! Everytime someone tells me it’s different here (Vancouver), it’s because we don’t have the subprime problem. Most of these people don’t have any idea what it means other than they’ve heard the term on the news. Here’s an interesting chart that shows the coming ARM resets…
Lots more problems coming ahead especially with the Fed set to begin raising interest rates to curb inflation (all those resets will be at higher rates). Will they call the next wave the prime meltdown?

This article was on msn this morning… hey Garth, they cited you!

So clearly we’re all wrong since subprime has nothing to do with Canada. Funny, I thought suprime added to the speculation and drive in demand that brought supply levels to record heights, like 2+ years in some neighbourhoods. Then when the buyers we’re already in the market or looking at a $500,000 shack and started thinking twice, they were hit doubly by falling demand. Rising supply, falling demand that sounds more familiar, but I guess supply and demand don’t apply because there’s no sub prime mortgages here.

#24 peter on 05.15.08 at 5:50 pm

I’m sure you saved a bunch of money by renting the last 4 years, but do you expect the average price in Calgary to reach 225k for a SFH? If prices went that low in Calgary, I would not want to live there. I believe that would be a fall from grace that would maybe rival Detroit especially when oil tanks.
I wouldn’t mind, I’m a Oilers fan!

#25 peter on 05.15.08 at 5:56 pm

I have two suggestions for you.

Invest in Saskatchewan real estate and then financially grab your ankles for the rest of your life.

Or make money the old fashioned way, WORK AND INVEST over time.

#26 Terry on 05.15.08 at 7:10 pm

It’s to bad first time home buyers are not required to take a course about home buying and debt before they take on something as massive as a mortgage. Maybe the government should require every new home buyer to take a course on debt, if we are required a license to drive a car maybe we should have a license to buy a house. What where seeing in Canada is the same as the US people taking on much more debt than they can handle and not understanding the long term implications of interest rates on both credit cards and mortgages. Sound stupid, I often wonder what the long term social cost to a country are as people spiral into a never ending financial problems that seem to destroy families every day.

#27 Sold Out of Cowtown on 05.15.08 at 7:10 pm

My parents are selling their home in Calgary to retire elsewhere, and their prospective RE agent admitted prices have been going down the past few months. If thats the case and everyone in the industry reports to the media that house prices are going up here, isn’t that fraud? Shouldn’t these people be held accountable for lying to the public? As an MP I would really like to hear Garths answer to this question. Plus couldn’t the government set up an unbiased agency to track housing prices to give the public an honest account of where the markets at?

#28 Keith in Calgary on 05.15.08 at 7:39 pm

Jim, Jim, Jim…….

Ever heard of saving the difference ?

$260K and counting…….

#29 Keith in Calgary on 05.15.08 at 7:45 pm


You can buy a incredible property, in a great country, and in an incredible climate for 1/3 to 1/10 the price in of any place in Canada……I am not even looking to buy in Calgary, as I own property elsewhere for my retirement.

I lived in here during the 1982 crash, and I really think and believe that prices will hit the level you speak about.

Why not ?

Homes cost that much 4 years ago…….nothing material has changed since then………….but save for the “greater fools’ Garth speaks about.

#30 Terry on 05.15.08 at 7:51 pm

To Sold Out of Cowtown housing prices are falling. What you are seeing is the average price of homes being sold is increasing. When this happens it usually means more sales of higher priced homes and less sales in the lower price range. This is usually an indicator that first time home buyers are finding it harder to buy a home as either they are finding prices to high or banks are getting tougher on people applying for a mortgage.

#31 nonplused on 05.15.08 at 7:54 pm

“Plus couldn’t the government set up an unbiased agency to track housing prices to give the public an honest account of where the markets at?”

Probably not. Government statistics are usually worse than lies. Look at the CPI. How can the cost of housing double or triple and yet the cost of living is supposed to be rising at less than 2%???? I don’t buy it. If the government had thier way house prices would go up 10% per year.

#32 My_view on 05.15.08 at 9:27 pm


They will never teach you how to save. Our economy is built on growth. We can’t have people not spending like drunken sailors.

Sold out of Cowtown,

LoL, fraud, accountability and the government doesn’t lie.

#33 Bill K on 05.15.08 at 10:01 pm

Todays ScotiaBank “soft landing” forcast for Canadian Real Estate sounds errily familar to the US forcasts:

Economists Predict Soft Landing For Housing

WASHINGTON, D.C. – After soaring to record levels for three consecutive years, the single-family housing market is gliding toward a “soft landing” in 2006, as rising interest rates, affordability issues and a reduced role for investors/speculators contribute to a softening in demand, according to economists at the National Association of Home Builders (NAHB) Construction Forecast Conference in Washington, D.C

#34 Adam on 05.15.08 at 10:21 pm

re: Sold Out of Cowtown
Since when was it illegal for the press to lie? And please for the love of god DO NOT SETUP ANOTHER GOVERNMENT AGENCY to control our lives!

#35 Adam on 05.15.08 at 10:24 pm

Are you actually serious? Who in their right mind would want to live in saskbush?

#36 Terry on 05.16.08 at 3:19 am

Garth if you really want to look at a real estate bubble, than Kelowna prices makes Calgary look cheap. Baby boomers are pushing Kelowna to housing prices that have close to tripled in the last six years. Kelowna will see a major problems over the next 10-20 years as a ever increasing aging population keeps moving in placing greater strains on health care. Younger workers are being forced out leaving a shortage of workers in lower to medium paying jobs. For anyone thinking of retiring in the Kelowna area bring lots of cash as this has already become one of the most expensive place in Canada to live.

#37 Jim on 05.16.08 at 8:07 am

> Ever heard of saving the difference ?

As you know in Alberta there are no rent controls. Therefore rents have increased with the market and your rent on an appartment is most likely higher than my mortgage and taxes on a SFH.

I am not even comparing you renting a SFH like mine (which I should for apples to apples comparison) because then your rent would be higher for sure.

So there is no difference to save.

#38 Keith in Calgary on 05.16.08 at 8:33 am


My rent ($1,125 all in) is exactly 1/3 to 1/4 the cost of owning, if I was to go out the door today, literally walk 2-4 blocks away, and buy something identical in size and location, relative where I live and rent.

Back then (4 years ago) it was about 1/2 the cost of owning.

Feeling stupid yet ?

#39 Adam on 05.16.08 at 10:10 am

Anyone see the CTV national news last night? The cooling market led. The actual content was the usual soft landing talk but still I think the average joe can no longer deny what’s going on. Surely this will scare more buyers into not buying and scare more sellers into selling.

#40 Ron on 05.16.08 at 10:17 am

Jim…do you have any idea what is going on in Alberta right now? Your statement is beyond laughable. Anyone who believes this comment and is not too lazy to verify, just check out craigs list for either Edmonton or Calgary.

#41 liverless on 05.16.08 at 10:20 am

“Therefore rents have increased with the market and your rent on an appartment is most likely higher than my mortgage and taxes on a SFH…So there is no difference to save.”

What’s the proof? Look, I live in Alberta, I rent, I have saved money renting for 5 years, I have invested that money in the unprecendented bull market in commodities and have had returns far beyond what housing has had. That’s proof. Not some unsubstantiated comment about how rents are higher then home ownership in the city.

#42 Dawn in Calgary on 05.16.08 at 10:26 am

There is definitely a difference to save, as we’ve been doing it for two years.

We rent a two storey, three bedroom, 1.5 bath with double garage in an exclusive area of Calgary for $1500 per month. Not the $800 we’d pay in Moncton, but close to the $1300 we’d pay in Halifax.

If we had purchased instead when we moved here (at the height, in 2006), that home would have cost us a minimum of $450,000.

We’ve been pocketing the difference, and still are. You do the math.

#43 Mar on 05.16.08 at 10:34 am

Wow, does this ever sound familiar as the news in the USA was the same. Started out with “No housing bubble, slight bubble (“a little froth” as Mr. Greenspan said), some correction, major correction, recession, final outcome was bubble burst!

Anyway I’ll be buying at pre 2001 prices. Thanks Mr. Turner for saving so many peoples money.

#44 Andrew on 05.16.08 at 11:02 am

World economy on thin ice – U.N.
The United Nations blames dire situation on the decline of the U.S. housing and financial sectors.
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Don’t sweat financial bloodbath

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UNITED NATIONS (AP) — The world economy is “teetering on the brink” of a severe downturn and is expected to grow only 1.8% in 2008, the United Nations said in its mid-year economic projections Thursday.

That’s down from a global growth rate of 3.8% in 2007, and the downturn is expected to continue with only a slightly higher growth of 2.1% in 2009, the U.N. report said.

The mid-year update of the U.N. World Economic Situation and Prospects 2008 blamed the downturn on further deterioration in the U.S. housing and financial sectors in the first quarter, which is expected to “continue to be a major drag for the world economy extending into 2009.”

But the U.N. said developing countries will suffer as badly: They should grow by 5% this year and 4.8% next year, compared to a robust 7.3% in 2007, the report said.

The U.N. economists said the deepening credit crisis in major market economies triggered by the U.S.-led slump in housing prices, the declining value of the U.S. dollar, persistent global imbalances and soaring oil and commodity prices pose considerable risks to economic growth in both developed and developing countries.

“The baseline forecast projects a pace for world economic growth of 1.8% in 2008,” the U.N. report said.

However, it said the final figure will largely depend on developments in the United States.

Global growth this year could fall to 0.8% if the U.S. subprime mortgage market turmoil has a more serious impact on developing countries and countries in transition, the U.N. report said.

But if the monetary and fiscal measures the U.S. government has taken to stimulate the economy – including tax refunds and lower interest rates – boost consumer spending and restore confidence in the business and banking sector, the world economy could only slow to 2.8% growth this year and 2.9% in 2009, it said.

The report, prepared by the U.N. Department of Economic and Social Affairs, forecast that U.S. economic growth will decline from 2.2% in 2007 to -0.2% this year, with only slight recovery in 2009 to 0.2% growth.

“At issue is how deep and long this contraction will be,” the report said. “As the housing slump continues and the credit crisis deepens, a broad array of … indicators are already hinting at a recession.”

It cited a decline in U.S. employment, consumer confidence at its lowest level in a decade, household spending growth slowing sharply and business equipment spending slowing alongside large inventories of housing and a 30% decline in residential investment.

This strongly suggests “that the implosion of housing activity will not stabilize until 2009,” the report said.

As for other developed countries, the U.N. forecast that Japan’s economic growth will decline from 2.1% in 2007 to 0.9% in 2008 and that Western Europe’s growth rate will drop from 2.6% last year to 1.1% this year.

Despite the slowdown in global economic growth in 2008, the U.N. said global inflation is expected to accelerate this year to 3.7%.

The report said the recent sharp rise in commodity prices and the continued rise in oil prices are key factors spurring inflation along with higher wages.

The growth of world trade also slowed from 7.2% in 2007 to 4.7% in early 2008, largely due to weak U.S. demand for imported goods, it said.

***should be an interesting fall (autumn that is)to say the least >> wait we are inmune this is Canada I keep forgetting..these things don’t happen here ****

#45 Jim on 05.16.08 at 12:26 pm

You can buy a incredible property, in a great country, and in an incredible climate for 1/3 to 1/10 the price in of any place in Canada……

Please share with us your incredible findings. I too am interested in buying such a place.

I love Canada myself and do plan on spending at least the summers here but I am not against finding a sunny place for the winter. Arizona & Nevada seemed to me like the obsious choices but I think that renting for 6 months at a time would be more flexible than owning it long distance, with all the hastles and expenses that it entails.

#46 Adam on 05.16.08 at 2:16 pm

Do you remember Tom Vu? He was the late night infomercial guy who promoted a zero down approach to making millions in real estate. Funny how his investment strategy ended up becoming the basis of a boom. We used to laugh at this guy.

#47 Cam on 05.16.08 at 3:16 pm

There is NO such thing as a soft landing when momentum has entered the equation. No matter which side of the coin you’re on, there’s no denying that an unprecidented amount of money has flown into real estate in Canada over the last 5 years.

The latest survey from CAAMP has a great graph on pg. 24. Roughly 400+Billion dollars in outstanding mortgage debt in 2000. There is now over 833 billion dollars in outstanding debt. That’s 400 billion dollars of momentum! Over half of all outstanding mortages have been assumed since 2000. Check out the growth rates on residential debts too.

Those aren’t just principle residences you know. Investors (if they’re smart) are going to start unloading their propeties. Afterall, who wants to hold an investment with carrying costs like a mortgage, taxes, maintenance etc. when the forecast is for a “soft landing”. No thank you, I’ll happily take my money out and move it to something boring like a savings bond before I do that. So what you’ve got to ask your self is, how much of that 400 billlion dollars are investors and how many of them are going to be putting their money somewhere else.

Does anyone know how to find out the percentage of homes that own more than one property (principle residence + investments)? I’d really like to see the amount of households and the amount of raw $$$ that is currently for investment purposes only. That would paint a great picture. It’s got to be out there since the would have to report for taxes.

#48 Jim on 05.16.08 at 3:27 pm

My rent ($1,125 all in) is exactly 1/3 to 1/4 the cost of owning,


Ah ok, you’re proving my point. My mtg & taxes on the SFH we bought in 2004 for 215K is 1090$/ month. Yes I feel really stupid, should have rented and saved the difference. Not. Since you say that you decided not to buy 4 years ago, it tells me that you are the smart one.

Good luck with your investments. I think that you will need it.

#49 Jim on 05.16.08 at 3:33 pm

Jim…do you have any idea what is going on in Alberta right now?

Not sure what you are talking about actually. Are you saying that it was smart to be a renter in Alberta for the past 5 years?

Because this is what I am talking about right now. Thanks for chiming in though.

#50 Jim on 05.16.08 at 3:36 pm

Not some unsubstantiated comment about how rents are higher then home ownership in the city.


No, what I said is that if you have been a renter for the past 5 years in Alberta, chances are that your rent right now is higher than the mortgage of someone that has bought 5 years ago.

I am not even talking about the fact that you could sell your home for x2 what you paid for. a 400% profit on a 25% down. (Tax free)

#51 Jim on 05.16.08 at 3:42 pm

Back then (4 years ago) it was about 1/2 the cost of owning.


Keith, you do understand that rents rise for the rest of your life but a mortgage remains pretty much constant and ends after 15-25 years (my pref 15). And also that a house allows tax free capital gains when sold?

You seem to be missing some very basic points especially when you proudly announce that you have been a renter in the biggest re boom in history.

#52 peter on 05.16.08 at 5:54 pm

are you talking about property in places such as Brazil or Central American country? I heard it is beautiful there, but I am kinda scared of those places with a feeling of being murdered in the middle of the night. They probably just get a bad rap. I guessing there must be a reason why investors and speculators won’t buy there. Let us know. Thanks.

#53 Sam on 05.16.08 at 5:58 pm

The spin machines may be telling the truth finally… :

Canadian housing boom over, but no bust on the horizon: CMHC …

Canada’s housing market expected to cool off:

Canadian Housing Boom over:

Reality Bites – Real Home Prices Decline for the First Time in Seven Years According to Scotia Economics:

#54 peter on 05.16.08 at 6:06 pm

looking back it is easy to say that, but if it was cheaper to rent than buy ( by half) and his main goal is to retire in a different country, I believe he made a safe decision. You are right he is probably out a hundred thousand or more but I think he was justified in his reasoning. Just to give you an example of how some people benefitted from Calgary’s boom. My brother bought a house in Calgary in 2003 for 250,000, finished the basement for 10,000( he did the work), sold in 2006 for 460,000 with the bidding wars and moved to back to Saskatoon and bought the same house for 275,000. Yeah, he is laughing, I’m still poor.

#55 My_view on 05.16.08 at 6:32 pm


Congrads, you the champ. Your right. The future will not be cheap. Expect to pay alot more for everything. Houses will go up in price forever. Your SFH will be worth 1 mill in a decade or so……

#56 My_view on 05.16.08 at 6:46 pm

Congrads to everyone who bought pre-boom. If you were smart, most will be mortage free in 5-10 years. But to buy now, me no fool…

In my case, 15% house hold income goes to my rent. The rest is savings, investments, nice cars, trips-vacations, electronics, restaurants and etc.

If I buy a house, 70% household income, no savings, no investments, s*** box cars, no world travels, cracker diet, slave to bossman.

#57 vultur on 05.16.08 at 7:38 pm

They have been told by realtors that by the end of 2010 that the average home price will increase about another $150,000 as apparently these cities are now on the international radar and people from all over are looking to relocate in these Paris’ of the prairies.

Yes, it’s true. The world is watching Saskagina!

The economy certainly has ticked up in the past couple years but the giant leap in housing prices can be easily explained by the existence of Alberta speculator refugees.

#58 vultur on 05.16.08 at 7:53 pm

The guy who claims it’s a 1/3 of the cost to rent in Calgary-

A unit that rents for about $1,300 will sell for about between $200,000-$250,000.

Assuming 0% down, $250k @ 5% is $12,500, plus $3,000 for taxes, plus $2,000 for insurance, plus $2,000 for condo fees, plus $2000 for misc = ~$1,800/month. I think that most utilities costs are paid by the renter so that’s a neutral cost. Am I missing anything?

That’s about $500 more per month. It’s definitely cheaper but only by about five hundred per month. The benefit of owning is that you can renovate the suite to your liking and decide to build some equity by amortizing the loan. (I didn’t include amortization because it’s not a cost of owning). Also, you are able to fix the bulk of your costs (take a 10 year mortgage) but I agree that you can expect condo fees to rise and insurance and maintenance cost will probably more than keep up with inflation. Your rent will probably outpace inflation though because the pool of rental units in Calgary is actually shrinking with all the conversion. This is offset to some extent by the flood of new condo units coming to market but at $500-$600 per sq. ft. the owners will need much higher rents to cover costs. Also, as an owner you don’t have any risk that your landlord will kick you out at the end of your lease because he sold the unit or wants it for himself. That’s a big pain for anyone.

Overall there are advantages to both forms of residency and clearly renting is cheaper, but not as much as has been described. Keep renting though please! There’s a chance you’re paying me!

#59 wealthyrenter on 05.16.08 at 8:19 pm

“No, what I said is that if you have been a renter for the past 5 years in Alberta, chances are that your rent right now is higher than the mortgage of someone that has bought 5 years ago.”

Therefore, buy now because houses will appreciate the same way over the next five years. So says the realtor…..

Do understand that rents rise for the rest of your life but a mortgage remains pretty much constant and ends after 15-25 years (my pref 15). And also that a house allows tax free capital gains when sold?

Families starting out now can pay in 15 years because you prefer it and say it is possible?


You are either a realtor / specu-flipper, or you are simply looking in a rear view mirror. What applied to a young family (under any modern definition) in a major centre five years ago, no longer applies to today’s reality.

A good starter home in Toronto (and not always SFH) is $400K in Toronto. There are a lot of sh*thole neighbourhoods, but this amount will move you into a B- neighbourhood, and into some kind of dignified housing. Assuming a 20% down payment (impossible for new buyers,) the family is saddled with payments of $2100 per month for 25 years. More likely, it is close to $2400, with carrying costs over $3000. I have many professional friends in my cohort who pay close to $4000 per month to live in modest homes.

Do you understand the concept that the median family income in Canada is $63,715, and the median income for a couple with kids (the richest family group) is $82,943. Using a simple tax calculator (and assuming income is distributed evenly,) the couple pays 10K in provincial & federal taxes. Assume I am very liberal with deductions. Take home income is $73K

Assuming the young family meets the 73K threshold, they simply cannot afford $2100+ a month with gas taxes, gas, other consumptions taxes, phone, heat, water, property taxes, property upkeep, car license fees, home insurance, car insurance, cell phones, land lines, long distance, internet, medicine (if no benefits,) cable, 1 or 2 car payments, public transit, entertainment, car maintenance, new tires, babysitters/daycare, sports, dance lessons, simple vacations, clothing, food, education saving, RRSP contributions, Visa debt, school debt, other debt servicing.

It sounds like old J. Cash tune, “I’ve paid every tax man.”


The average homeowner cannot afford the average home in major urban centres in Canada. The proliferation of 40 year mortgages and sky-rocketing personal debt exemplifies this fact. There are links all over this blog, by mortgage professionals that admit freely this is the reality.

Markets are self correcting. The house market will correct at some point.

ANY mention that an average family starting out can pay a mortgage in 15 years is laughable.

Any illusions of future housing prices matching the run up of the last five years (so it is a good time to buy now arguments) is gut busting…until some dimwitted couple signs on the dotted line on a 0 down, 40 year mortgage.

Housing is a wonderful investment – if it is affordable with your income, and can be paid in 25 years. Many youngsters are double damned in this equation, but the “industry” is creative and ready to “help” them.

#60 Jim on 05.16.08 at 10:23 pm

Therefore, buy now because houses will appreciate the same way over the next five years. So says the realtor…..

Of course I never say that. The original poster said that 4 years ago he qualified for a no money down mortgage but that he never bought.

I then said ouch, that’s got to hurt, especially if you lived in Calgary where house prices have exploded in that time period. He then replied that he invested the difference between his rent and what his mortgage would have been had he bought 4 years ago.

Because of that, he said, he now has 260K sitting in his bank account.

I said, oh that’s great. I happened to buy in 2004 and I bet that the mortgage on that house is cheaper than his current rent, therefore the difference between renting and buying has gone to 0 in 4 years.

#61 Ron on 05.16.08 at 10:48 pm

Jim….were not going to buy any of your houses dude.

#62 Miker on 05.17.08 at 1:32 am

Vultur – You missed the 3.7% CMHC fee on your 40-year, 0% down (aka subprime) mortgage! Cost would be $9,250.

#63 vultur on 05.17.08 at 12:23 pm

Mike- so instead the buyer puts down 25% and avoids the fee and then we should impute an opportunity cost to the 25% down payment. I’m not saying the buyer needs such a high LTV mortgage, I was just trying to make things really simple for purposes of the calculation.

The CHMC fee is a one-time cost. The buyer can choose to be much more financial prudent and elect to amortize his loan based on 20 or even 15 years. That’s up to him but I don’t believe that amortization should be reflected as a cost of owning because it should rightfully be offest by the equity that is created.

Regardless, my point was that owning an apartment in Calgary today is clearly more expensive than renting an apartment in Calgary today (as it should be) but not nearly as much as the unaccountable posters here have suggested.

Changing topic, why must you and others vilify people that choose to amortize their loans based on 40-years? Why does that offend you so much? You don’t know their personal circumstances and it’s none of your business. Maybe they’re a young family and want to get in the market today to start building a nest but in 2-3 years the wife will go back to work and the household income to jump 50%?

People taking 40 year mortgages with 5 year terms are hardly criminals despite the fact that’s how you portray them here.

#64 Another Albertan on 05.17.08 at 2:50 pm

1) Liverless – hallelujah! The same bull market that was essentially invisible to the mass media and population for years… next time, don’t give up our secrets! :-)

2) A friend owns a 1950’s bungalow in Altadore (a nice neighbourhood in Calgary about 40 blocks from downtown). He moved into his wife’s house after they were married. It’s been “upgraded” but wouldn’t qualify as being “renovated” in people’s modern concept of “renovated”. There’s nothing wrong with the house – good size on a very large lot.

Similar homes within a 5-block radius were selling over 500k in 2007. We estimated the resale value of the house to be slightly north of 475k.

The last renter moved out in February. Currently, this is month #3 of the house being advertised for rental but that has remained empty.

The owner has dropped the rent from $1400 to $1300 to $1200. Still no takers. What’s even more interesting is that there are actually few inquiries, period… maybe 1 per week. The people who have looked at the place wouldn’t be considered “motivated” to sign up. A number spent between 5 and 10 minutes in the house before giving the owner a polite “thanks but no thanks”.

If a $1200/mth rental cannot be sustained, a $475k valuation for resale cannot be sustained.

#65 Jim on 05.17.08 at 5:49 pm

I rent, I have saved money renting for 5 years, I have invested that money in the unprecendented bull market in commodities and have had returns far beyond what housing has had.


Liverless, you da man. Unfortunately I don’t think my wife wants me to use the house money to speculate in the commodity markets. Women!

I got a sure fire system too. I have this software that has 3 lights. When all lights are green, I buy, 3 red lights I sell. God! So much easier than real-estate.

Oh well too bad. Do you want to buy my software? I won’t be able to use it. 5K and it’s yours. :)

Anyways, I’d rather go to Vegas and drop it all on the black. At least I get free drinks there.

#66 My_view on 05.17.08 at 6:57 pm

What kind of condo do you get for 250,000? I want a house not a box…..

#67 Miker on 05.17.08 at 8:05 pm

Vultur. My issue with 40-year mortgages is several-fold.

40-year amortization will lead many people to buy homes which in essence they can’t afford or are overpriced. This will leave many people paying off the house into their 60’s when they should have been saving for retirement. The Vanier Institute recently published a study which shows how little people understand the implications of a long amortization (the added interest) and the sensitivity of thier debt to even modest increases in interest rates (how much their payments might rise).

With 40-year amortizations and low down payment mortgages, after a few years a home owner has paid off so little of the house they aren’t truly invested yet. If prices drop even 10% (not at all unreasonable), many of these home owners will be left with no equity. Zero equity situations are exactly what is driving the US market downward – when mortgages principal owing exceeding the value of the house people walk away (or banks won’t continue to extend financing on reasonable terms). Allowing such complete and total leverage puts the entire housing market at risk.

If the housing market goes south, it is CMHC (the Taxpayer!) which will be on the hook.

There was a reason David Dodge, then the Governor of the Bank of Canada, went to the CMHC to give them crap when the announced the 40-year amortization. It basically amounts to injecting massive liquidity (and risk) into the market, in the end accomplishing little more than driving up housing prices and increasing indebtedness.

#68 vultur on 05.17.08 at 10:12 pm

>>40-year amortization will lead many people to buy homes which in essence they can’t afford or are overpriced.<<

Miker, who anointed you the final arbiter of the general public’s fiscal responsibility? Strangely I didn’t note the title Lord Mike of Canada in your alias.

more interest=more bank profits=more bank dividends=more money for fixed income retirees

RELAX. And, concern yourself with your own financial affairs and not that of your neighbor. CMHC has been generating record profits for more than a decade now. I think it can afford a couple leans years. And the oil/resource boom persists like many people it will, Canada will be overflowing with surpluses for many more years to come.

#69 Miker on 05.18.08 at 3:57 am

Vultur…. Don’t worry, I’m totally chill (I wouldn’t touch a 40-year amortization with ten foot pole and have plenty in the bank). That said, as a taxpayer and citizen I have every right to express my concerns. I’m in good company as both the current and former Bank of Canada Governors expressed substantial concerns — to the media no less. Heaven knows we can’t trust the real estate lenders, mortgage brokers, house builders, appraisers, real estate agents, lenders, politicians (generalizing!) and the CMHC to tell us the truth. Indeed, we should all worry just a little (but not too much) about…

a) the fact housing affordability is at its worst level since the last housing bubble burst

b) the fact that real housing prices have increased substantially more than during the last three housing cycles dating back 40-years (all of which ended badly)

c) the fact that real housing prices in Canada have risen more from trough to peak than in the U.S., where prices and the general economy are now tanking

d) the fact that Canada’s price-to-rent ratio is higher than in any other OECD country save Spain and 90% higher than the long-run trend

e) the fact consumer indebtedness is at record highs relative to disposable income

f) the fact that savings rates are close to nil even though the baby boomers should be saving for retirement

g) the fact that housing construction is far in excess of household formation. CMHC data shows housing starts averaging 226,000 units per year from 2003 through 2007, 33% per year above the roughly 170,000 net new households formed each year. Based on housing permits and starts, this trend is expected to continue well into the future.

h) the fact that Canadian MLS housing inventory is at record highs while at the same time the number of sales is dropping dramatically

i) the fact that Canadian incomes have stagnated. Statistics Canada recently “reported recently that adjusted for inflation the earned income of the ‘average’ Canadian — the so-called median income – was the same in 2004 as in 1982” The situation isn’t likely to improve with our friends to the south (who absorb some 70% of our exports) going through a recession. And what would happen if the rose comes off the construction and commodity bloom? Heresy I know, but both of these sectors are well above trend and are the only real source of strength in the Canadian economy.

j) the fact that it is now possible for homeowners to buy, using massive leverage and government guarantees, assets which by all reasonable measures are overvalued

k) the fact that studies show typical consumers do not fully understand the implications and risk of low down payment, long amortization and cash-back mortgages. How many consumers do you think have run a scenario analysis which asks, “what would happen if interest rates went to 8% or10%? What would happen if my partner or I lost our job? What would happen if real estate prices dropped by 10%, 20% or 30%? ” A few simple questions for the biggest financial decision most folks will ever make. A few simple questions to secure the financial security of your family.

l) the fact that the Canadian government, through the CMHC and despite items (a) through (k) ) above, has injected and continues to inject massive liquidity and risk into the bubbly housing market by way of allowing and guaranteeing 40-year amortization and 0% down mortgage. The fact is that sophisticated oversight of the CMHC is sorely lacking. Most politicians didn’t even know of or understand the implications of the CMHC movement to 40-year and 0% down mortgages. Have taxpayers (i.e. you or I) or any MP seen any analysis of what loses CMHC would endure if housing prices dropped 10%, 20% or 30%? Keep in mind that the U.S. banks and mortgage insurers were making record profits just a few short years ago too! Even if the CMHC has no fiscal problems, they will not have done the Canadian economy any favours. Highly indebted consumer heavily invested in non-productive (from an economic perspective) residential real estate is going to hold us back, not propel us forward.

P.S. Garth worries too!

#70 vultur on 05.18.08 at 11:35 am

Miker, can you please back in your statements a) through e)? I’m not so certain that your information is correct.

Leverage has always been available for qualified borrowers. CMHC is not a new entity. They’ve lowered the bar a bit in response to the competition from Genworth. It’s a stretch for some, but it’s not as if CMHC doesn’t do any underwriting. You can’t compare the loan origination process to what transpired in the US until the summer of 2007. The only securitized lender in Canada has virtually closed up shop. That means that all the mortgage debt in the country basically sits on the balance sheets of our big 6 banks, with maybe 10% or less (of the total, not the last 5 years) backstopped by CHMC.

If you believe your own rhetoric (and that of our much maligned alarmist host Darth Mortgage) then you should really be busy shorting all Canadian lenders furiously because if your wild projections come to live that would certainly be the easiest way to profit.

#71 Miker on 05.18.08 at 7:33 pm

Vultur… Sadly, this isn’t my “own rhetoric”, it is data, fact and analysis.

(a) RBC. Housing Affordability. Mar-2009, p.1

(b) Scotiabank. Real Estate Trends, 26-Feb-2008, p.2

(c) Scotiabank. Real Estate Trends, 26-Feb-2008, p.2

(d) OECD Economic Outlook No. 82, December 2007(Data table can be found in the housing price ratio tab of

(e) Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.28

(f) Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.9

(g) CMHC housing starts data (availabe from CMHC site). Household formation as per TD Economics and others.

(h) Canadian Real Estate Association

(i) Statistics Canada

As for CMHC, yes there has always been leverage in real estate. But this leverage was always consistent. Only in the last few years has the speculative real estate bubble been fueled by a drop in the required downpayment from 10% to 0%, an increase in the allowed amortization from 25-years to 40-years, the proliferation of 7% cash back mortgages, and the proliferation of home equity lines of credit. This massive injection of liquidity has fueled Canada’s version of subprime – individuals buying houses which they can’t afford given their incomes.

And no, CMHC doesn’t underwrite but yes they do guarantee the ‘riskier’ loans (< 20% LTV). So, as long as lenders can tick some boxes on a check list, they are happy to cut a cheque to any schmuck looking for a 40-year amortization, 0% down “Canadian Subprime Special”. Lenders don’t have to live with the consequences of this risky lending decisions… the Canadian tax payer does. Therefore the notion of shorting Canadian lenders makes little sense. You’d need to be able to short CMHC. You can be sure if CMHC were publically traded, its stock would be through the floor just like that of its U.S. comparables, Fannie Mae and Freddie Mac. Without government backing, CMHC and Genworth’s cost of funds and required loss reserves would be through the roof, they would then need to raise the prices of its insurance, and riskier loans would become more costly and less prevalent. This would particularly be the cause when the values of the assets being insured deviate so far from their historic norms and economic fundamentals.

As for Canadian mortgage lenders, more than one have closed shop or massively scaled back their operations. Just wait until the bubble pops. By way of comparison, the UK (admittedly a worse market then ours) mortgage lending in the first quarter is down 40% to the lowest level in 33-years and things are only beginning to get rolling there. In New Zealand housing sales are down 53% year-over-year. And we all can see what is going on in the U.S.

You are quick with your own rhetoric, but in fact seem to be busy looking in the rear view mirror admiring how great the past couple of years have been and how we’re muddling just fine right now, but without paying any attention to the cliff which lies ahead.

#72 Miker on 05.18.08 at 9:19 pm

My apologies. (e) and (f) should be say “Vanier Institute”

#73 vultur on 05.18.08 at 9:41 pm

This massive injection of liquidity has fueled Canada’s version of subprime – individuals buying houses which they can’t afford given their incomes.
Subprime refers to the ability of the borrower to repay the debt. It was originally modeled so that the higher yields would compensate for the higher defaults. That worked in theory until the US underwriting got so lose that the originators began to approve anyone who could fog a mirror. The rest is history.

Higher LTV mortgages in Canada with longer amortizations DO NOT by definition equate to subprime borrowers. In fact, if the borrower’s didn’t have sufficient creditworthiness they wouldn’t be approved by the Big Six lenders and would be funneled to the real subprime canadian lenders like Xceed and Home Trust. Xceed is practically winding down and I’m sure Home Trust is suffering as well. THAT’s your subprime market pal, not the CHMC loans.

I suspect you’ve never applied for a CHMC-insured loan before. If you had, you’d be familiar with the hoops that borrowers must jump through to get approved and not be so flippant with your tidy little gerrymandered statistics.

The fact is that the Canadian housing market has appreciated the LEAST in all the G-7 nations over the past 7 years. That despite the fact that it’s economic growth has led the pack. Just because prices rose does not imply that they shouldn’t have.

#74 vultur on 05.18.08 at 10:09 pm

Read this:

That’s a fine glance in the rear-view mirror. Make sure you post the same chart, updated, a year from now. — Garth

#75 Miker on 05.18.08 at 11:37 pm

Vultur… you have got to be kidding me. I have provided you with reams of sourced data, and the above is your rebuttal??? I guess I can’t blame you for wanting to ignore my “gerrymandering statistics” covering irrelevant topics such as near record unaffordability, stratospheric price-to-rents, record prices relative to incomes, record real prices increases relative to other Canadian housing booms which ended in major busts, greater price increases than in the imploding U.S. market, record debt levels, unprecedented relaxation of lending standards, sustained additions to the housing stock well above demographic fundamentals, declining sales levels, and record inventory for resale. And all this in the face of a weakening economy (think lower incomes and employment) and rising inflation (think higher interest rates). Talk about rose coloured glasses!

By the way, there is no one definition of prime or subprime lending. Basically prime is meant to be the lowest risk lending, and subprime is higher risk lending. Simply speaking, perfect prime would mean the borrower has all of a good credit history, proven income which can more than cover the loan repayments and a strong down payment so that you are actually invested in the asset. Perfect subprime would be the opposite of perfect prime.

So while HomeTrust and Xceed tend to lend to the portion of the subprime segments that can’t document their income or have poor credit history, it is the CMHC (in partnership with the banks) which lends to the subprime segments that can’t afford a reasonable down payment or don’t really have the income to adequately cover the loan repayments (hence the 40-year amortization).

The fact that huge proportion of first time buyers are taking some combination of low down payment mortgages or extended amortizations implies that too many people are buying assets which they can’t adequately afford (affordability is a matter of degrees). This is risky (subprime!!) lending where the risk is:

* not adequately being charged for (CHMC is subsidized by their government guarantees)

* not being absorbed by the party making the lending decision

* not fully understood by borrows (see my point *in #69(k) above)

* masked by low interest rates (close to zero real interest rates)

* masked by lending gimmicks (7% cash back, teaser rates, step mortgages, skip a payments, builder buy downs, etc.)

* increasing dramatically as prices get further and further ahead of incomes

* willfully ignored or publically downplayed by industry participants

All of these are the same underlying causes of the U.S. market problems (although admittedly the situation is not nearly as bad here in Canada).

P.S. The market has imploded or is starting to implode in many of those OECD markets you sight! Just because other markets are worse doesn’t mean we should stick our heads in the sand (or, in the case of certain scavenging birds, up their arse)

P.S.S. You don’t happen to work for the CMHC, do you? At the very least, it is clear that you’re in the industry.

#76 Stephen Gordon on 05.19.08 at 7:51 am

That’s a fine glance in the rear-view mirror. Make sure you post the same chart, updated, a year from now. — Garth

There was another chart, suggesting that housing prices in Canada are pretty much at what market fundamentals would predict.

#77 David Smith on 05.19.08 at 8:35 am

There is no subprime in Canada? but we have something better.
The police investigation began with an anonymous tip and, by the end, had tallied $12.5 million worth of pot seizures, 3,288 marijuana plants and a 2005 Toyota Highlander, as well as the arrests of 31 people on more than 200 charges.

“For the first time, York Regional Police has targeted commercial businesses and individuals responsible for supplying materials required for marijuana grow operations,” La Barge said.

“We are committed to investigating every level of this illegal trade in our goal to eradicate marijuana grow operations in our region.”

Last week, Hang Thi Nguyen, 31, of Newmarket was charged with fraud and uttering forged documents in the mortgaging of a home used to grow marijuana.

#78 vultur on 05.19.08 at 5:39 pm

P.S. The market has imploded or is starting to implode in many of those OECD markets you sight! Just because other markets are worse doesn’t mean we should stick our heads in the sand (or, in the case of certain scavenging birds, up their arse)

P.S.S. You don’t happen to work for the CMHC, do you? At the very least, it is clear that you’re in the industry.
No public sector for me friend. I’m all about private pursuits.

You go to serious lengths to prove your point. I admire you researching abilities but am overwhelmed by your data stream at the same time. You appear to have caught my essential point above- we are in a far better state of affairs than literally all of the other G7 nations due to significantly better lending practices. If there is weakness going forward in the housing market it in insulated by severe consequence as you and Darth Mortgage shall soon see.

Better to direct your fervor at the pinpointed bubbles like Vancouver and perhaps Edmonton than the country as a whole. Your valiant efforts are truly wasted.

#79 vultur on 05.19.08 at 5:45 pm

That’s a fine glance in the rear-view mirror. Make sure you post the same chart, updated, a year from now. — Garth

Darth Mortgage, why can you just accept that Canada has been more fiscally prudent most of the western world? Is that too much of a nod to your opponents in government? Is that truly the basis for your little chicken-little manifesto- an attempt at unseating the present governing party by trying to lay blame on them for being asleep at the wheel during the Great Housing Bust? I suppose it’s a worthwhile gamble- if the market does crash then you are labeled a credible champion of fiscal oversight, but in the very likely chance that you are not correct and the market keeps humming along people will something lose interest in the subject and your text will quickly find its way into the bargains bins.

Not a bad strategy Lord Mortgage. Well played.

#80 David on 05.19.08 at 5:48 pm

The Edmonton housing market is already on the verge of a major price correction or possibly worse. Too many dodgy condo developments and too much old housing stock selling for vast premiums the past few years. There is a plethora of ads promoting yet more easy credit or refinancing to purchase that dream home. Developers are making lots available to willing buyers rather than pre-build unmarketable inventory. It really is a bad time in Edmonton to try selling a home and the asking prices are totally out of line with family incomes and comparable rents.

#81 vultur on 05.19.08 at 9:57 pm

^This is true Dave. Not so of Calgary however.

#82 David on 05.19.08 at 10:46 pm

The Edmonton housing bubble is at the breaking point now and the irrational exuberance has been replaced by fear and panic selling. The listings numbers are appreciably higher if one takes into account the other market outside MLS listings. The prospects of the big sale cash out are diminishing by the day. Calgary had much higher prices for comps relative to Edmonton, so the eventual crash will be bigger as well. Edmonton is coming to its senses earlier than Calgary.

#83 vultur on 05.20.08 at 8:31 am

^I think you’re wrong Dave. Calgary is a legitimate boomtown with enormous new commercial development activity and a steady flow of population growth. Calgary can support high prices b/c wages are growing. The trend in Calgary is very positive.

#84 jo on 05.22.08 at 2:07 am

thanks to the rodeo clown named mayor david miller “let me tell you how it will be”, resales in the beach area of toronto are down over 30% from last spring. Between the dual taxes of miller and mcguilty you need an extra mortgage to close the deal

#85 Mike on 05.22.08 at 7:02 pm

Love the comment by Jo. Although I don’t live in the beach area anymore I certainly know how pricey it was 15 years ago.
The thing that cracks me up about Real Estate is how cumbersome and fraught with error the process is to determine fair price for a house in Toronto. In a recent effort to purchase a house we were one of only 3 offers. Nothing on the street had been listed or sold ever for the asking price. The agent simply explained that he felt these properties were undervalued… based upon…. well nothing really except his opinion. The buyer refused all offers and the house sat. The wise agent called my agent to coax us back into the fray while calling the other agents and saying that there was renewed interest. Of course there wasn’t . Eventually the house sold for less than asking but much more than it should have based on condition and location.
This started the flood gates. The adjacent house, in need of tons of repair from roof to basement, went on the market asking a smidge below their neighbour. They had to reduce but did eventually sell. Another house down the street went up and sold for another crazy price. All these prices based upon ONE buyer out of 300 showings who was willing to pay an unreasonable price. This was the faulty foundation by which they determined what other houses were worth. If we were to pick stocks in companies like this we might as well be buying BreX. I think the industry must be regulated by a third party and be audited yearly like any public service.