The frost of Spring

Signs of slowdown appearing in Victoria


Hi Garth
Not sure if you will answer this given your schedule and all. But anyways here goes.
We sold our paid off house in central Toronto to a developer over a year ago and closed at the end of Sept of 2007. We currently rent back from the developer but that comes to an end in 4 months. We’ve been looking for a replacement but still find house prices ridiculous even with the lump of cash we got from the developer. Been beaten out of homes but now are deciding whether to buy or rent and wait it out. Hate moving but hate paying too much and seeing it drop in price even more.



Rent, of course, for another year or so. The easiest course of action is to stay where you are, since the lease with the developer is meaningless. Under Ontario’s rent laws, you are automatically deemed to be a monthly tenant at the end of your lease, and cannot be put out on the street unless the developer can prove he/she will be moving in personally. If conflict does not suit you, then move and lease another property and wait for prices to adjust. A big story in this week’s Toronto Star should not have escaped your notice, “Chill felt in Toronto real estate” (above).

Hi Garth,
I just finished reading your book – thanks for putting the time in on that (various family members are now proud owners of their own copies). I was wondering if I could get your feedback on the real estate situation in Ottawa. My wife and I moved here from Calgary about 5 years ago. We’ve rented our entire lives (I’m 36, she is 34), and we have a good deal on rent ($1100/mo+bills) where we are today, for a 3 bedroom duplex in Ottawa’s Island Park/Westboro district.

Here’s the issue – this past December, we had a baby boy. Suddenly, what was a comfortable abode for two is now astonishingly cramped with baby swing, playpen, high chair, etc etc! And the hardwood floors we used to enjoy suddenly only seem to creak louder underfoot, waking up the little one.

Six weeks ago, we paid off a debt consolidation loan, which took us several years! (Our spending habits now are nothing like they were ten years ago, thank heavens.) Now our long-dreamed-of search for a house has begun. While we have no down payment (every nickel has gone towards our debt), we do have $250K saved in RRSPs. I am also fortunate to have a good income over $100K/yr as an employee of a Fortune 500 software company and my wife, currently on maternity leave, will resume earning $60K/yr when she returns to work at a large government-funded agency after Christmas.

Our banker, and a mortgage broker we saw, both assure us our relatively high income and stellar credit will allow us to get a Zero-down mortgage for $800K with a 40-yr amortization, but I didn’t need your book to tell me that would be a bad idea! We plan to spend no more than $400K, and would do a 25-year amortization with accelerated payments to pay off in 21 years, all while continuing to save 15% of my income in RRSPs and employee stock purchase plans.

Garth, we can stay put, but not for much longer. We’ve sacrificed a lot to get this far, and the practical needs of our new life are calling for change. The only way we can see to put off our dream of home ownership is to move and rent a larger place for around $2000/mo, only 30% less than our anticipated mortgage+property tax payment.

So my question is this: Is it still a bad idea to buy in Ottawa specifically, where house prices have increased in a relatively more conservative manner over the last few years?

We would find it easier to ‘dig deep’ and stay put a little longer if we still lived in Calgary with house prices actually falling now vs. still increasing slightly here in Ottawa. But this house will be as much an investment in our own quality of life as anything else. Oh, and just in case it matters, we would buy an older 4 bedroom home not far away in Nepean and stay put for 10 years or more… perhaps this is long enough to come out OK in the end? Any advice or insight you can offer is appreciated.

Real Live vs. Real Estate

Okay, let me rephrase this: You have no downpayment, and want to buy a house with 100% financing in order to get more space. You currently rent for a dirt-cheap $1,100 a month plus utilities. You could rent what you want for $2,000 a month. Instead you want to buy a house in a declining real estate market for $400,000 in new debt, which will cost $2,462 a month in financing (5.5%, 25-year am), plus property taxes, insurance, utilities and maintenance. Oh yeah, and there will be about $60,000 in closing costs – land transfer tax, legals, moving etc.

So, to get what you could rent for $2,000 a month, you will buy the same house for $3,000 a month – after spending $60,000 in cash (new debt? Raid your RRSP and pay tax?) – and have zero equity. To top it all off, the house will probably be worth less next year than the mortgage.

I hope your kid doesn’t take after you.

Dear Garth,

Thank you very much for writing your book on the (Canadian) future of real estate.

Well written and clear examples. I finished it in two days.

Within my family and circle of friends the real estate boom topic comes to the table every time we meet. Having witnessed the excessive condo developments and the sad spread of suburbia into the green and fertile grounds of Ontario we all hope this wild development speculation comes to an end.

I am a happy renter and will get back into real estate when the sound balance between income and affordable housing returns.

Thanks again and I promote your readings to all my friends.


Bless you. A smart man.

Hi, Garth,

Your website was recommended to me by a friend and I have just finished reading your very timely analysis of the current market. I am, therefore, asking for some belated advice. My husband and I just bought a half duplex In Victoria, B.C., in March for $348,888. and while I put 25% down, the remainder is locked in for 5 years on a 40 yrs. amortization. I have it rented out for $1500./month which covers the mortgage payments but I’m funding the 25% down. Given what’s currently happening in the market, I guess we should have waited a year to purchase, correct? Was this a poor purchase and should I try to dump it or hold?

Wishing we had read your site a number of months ago,


Why did you buy half a duplex? Why not have purchased the whole thing, lived in one side and rented the other? Better question, why do it at all? There is absolutely no benefit to you whatsoever in financing a property which is just paying the mortgage. You still have taxes, insurance and maintenance to come out of your pocket. Plus, you are getting a zero return on the $100,000 you forked out in down payment and closing costs. That means an annual loss of at least $10,000. Some investment.

Sell the sucker now. It only gets worse.

Hi Garth,

I know you’re not an expert in construction but given you’re knowledge of real estate and given the fact that I’m not sure who else to ask for an honest answer I thought I would send you this email.

I live in west Scarborough (Birchmount and Danforth) in a solid brick construction bungalow. I have updated the house (furnace, roof etc), built around 1960, but it’s a bit small for me and my family and we are thinking of buying a larger home in the next two to three years. The house is solid but could be more energy efficient. My question relates to the best era for quailty construction in general terms. I read The Greater Fool and I know you feel that many new construction homes are poorly made using cheap materials.

I am more interested in properties built between 1965 and 1990 as I prefer to live in a developed area with big trees etc. We are considering the west Rouge area (Port Union and Lawrence) and the Bridlewood area (Warden and Shepherd). I’m looking for something well constructed with quality materials and a house that is reasonably energy efficient. In your opinion should we be looking for something 5 years old, 25 years old or 50 years old. Were houses built during the last boom (mid 80s) of equally questionable quality? Any builders I should look for or stay away from? I know things vary between builders but I’m sure there are commonalities during eras.

Thanks for your time,


Hey, Shaju, this is why God created home inspectors. Get a good one, pay the $300 and then make an offer.


#1 ottawa renter on 05.24.08 at 10:18 pm


Thanks for the insight, but would you care to explain how your arrived at $60,000 closing costs on a $400,000. house in Ottawa?

#2 Terry on 05.25.08 at 1:54 am

Canadians For Properly Built Homes
Great non profit web site dedicated to increase consumer awareness of the residential building industry standards and regulations and related issues.

#3 Islander on 05.25.08 at 3:26 am

Great website.
But I question the closing costs Garth is attributing to a couple of the buyers who sent in questions.
In BC, buyers pay legal fees and the outrageous property transfer tax, but (generally) they don’t pay realtor fees. That woman who bought a half-duplex for $348K likely had closing costs of about $8K, not $25K as implied in Garth’s reply.
The proprietor of the Housing Bubble Blog suggests that realtor fees should be attribute to the buyer because it’s the buyer who forks over the money at closing. But in order to square that argument you’d have to be in the camp that believes house prices are priced to account for fees. That’s just not a pricing model that works in a world where people can FSBO their houses. A house is worth what someone’s willing to pay for it; the realtor fees come out of the seller’s equity.
So I don’t see where Garth is getting his closing costs.

#4 Nick on 05.25.08 at 11:48 am

I think he is including the downpayment from the RSP’s (20,000×2) for 1st time home buyers and another $20k for land transfer, lawyer, moving ect…

#5 Leah on 05.25.08 at 12:22 pm

I was reading the Times Colonist article on Victoria Real Estate.

“Canada’s housing market is on much firmer footing than the U.S. market,” it said, citing more conservative mortgage lending practices, healthy household finances, tight labour markets and a manageable supply of homes on the market.

Just gotta love the spin. Mortgage lending practices (40 year mortgages, 0% down) Healthy Household Finances (Canadians are more in debt than ever with little or no savings), tight labour market (what about when the building stops as the highest employer in BC is construction and what is going on in Ontario eh?) and a manageable supply of homes on the market (take a look at all the condos built in Victoria, Vancouver and the sprawling subdivisions in Ontario).

Do they really think we are that stupid? Sounds to me like the same junk the sprouted in the U.S. when the market started to turn. Unemployment was low, the economy was not too bad but the fundamentals were not right and people were up to their ying yangs in debt.

#6 wealthy renter on 05.25.08 at 1:01 pm

The $60,000 closing costs is a bit of head scratcher. I can only guess he means out of pocket expenses.

Year 1, the $400K, 25 year, 0-down home has $24,500 in interest payments + $7,200 in principal payments + $10,000 in carrying costs (gas, hydro, taxes, phone, internet, HD cable etc.) + ~ $8000 in closing costs. Add in your moving company, some new applicances, a couch and big screen tv, (which are entitlements these days) and I would guess a typical new $400K homeowner would face costs approaching $60,000 for the first year. If you sit on cardboard boxes, and use the 1970s Eaton’s Viking stove, it will still cost you 50K.

Rent for the family is $13,000.

#7 Terry on 05.25.08 at 1:30 pm

I listed my house in BC in 2006, it went unsold for close to a year. Fed up with real estate agents bull I listed privately at the same listing price minus realtor fees. The house sold in 60 days at listed price, this is when I started to question who is paying these outrageous fees. I believe the role of realtors will change as the internet allows sellers to show much more on private web sites with pictures and video then what MLS is now doing. As a seller I can spend much more time with buyers and give more informed info in regards to the house and area the house is located in. Make sure you educate yourself to all the legal aspects to selling a home and all the costs the buyer will have to deal with. A great tip to anyone buying a house, use Google Earth to give you a visual layout of the area you intend to buy in.

#8 vultur on 05.25.08 at 4:18 pm

That’s an interesting article Darth Mortgage. It certainly appears that the sales market for homes in Toronto is slowing. However, it also indicates that an average the price of homes in Toronto has risen over last year.

Where is this great housing market bust that you so desprately long for?

Thought you knew your stuff. Sales volumes declines always precede price declines.– Garth

#9 hal on 05.25.08 at 4:39 pm

Kelowna may be slowing down too. The townhouses in my complex usually sell in a week, two at the most. There are two units that have been for sale now for about 4 or 5 weeks with very few showings.

#10 Brent on 05.25.08 at 6:33 pm

Buffett sees “long, deep” U.S. recession
Saturday May 24, 7:30 am ET

BERLIN (Reuters) – The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday.

He said the United States was “already in recession” and added: “Perhaps not in the sense that economists would define it” with two consecutive quarters of negative growth.

“But the people are already feeling the effects,” said Buffett, the world’s richest man. “It will be deeper and last longer than many think.”

#11 Suzukimum on 05.25.08 at 6:34 pm

This is for Real Live vs. Real Estate

As you have been advised, rent for the next couple of years and save like crazy for your down payment while waiting for the prices to come down in Ottawa.

You can do it. I have 2 brothers-in-law who make less than you and their wives stay at home with their children. They live in single family homes. One of them just moved to Bridlewood after living in their townhouse for almost 3 years. My advice is buy resale. Find one with all the nice appliances, AC, etc. If you bought a brand new house you will still need $20,000 to furnish it.

As for builders in Ottawa, avoid those who build cookie cutter houses. See the Ottawa Citizen for their ads. every Saturday. Find a good, honest real estate agent who has lived in the area you are interested in living. He or she should be able to help you find out who the builders were and advise you on the quality of the houses they built. An of course, find a good house inspector as well.

I wished I could afford a house in the Island Park/Westboro area. Like you, we find our townhouse too small and have been looking for a house for about a year. But after reading Greater Fool, we have decided to wait and watch the RE market here. If you would like, email me at [email protected] and we can discuss some of the headaches of finding a house in Ottawa.

#12 Shawn on 05.25.08 at 6:59 pm

Hi Garth

I read your informative website and thank for the same, I am new to Calgary and once in a while I go and look at properties on the market,

I noticed there are good places that are selling even
15% below city assessment value now…

My question is that the pirce will come down even more ? and what is your take on the city assessment values ?

thank you!

#13 Popping Bubbles on 05.25.08 at 8:44 pm

Vultur… the real estate industry like to highlight year-over-year changes to delay having to give bad news to the market. Can you imagine if the TSX did the same thing?

Anyway, I know you have an aversion to data, but the fact is that Toronto prices have not been increasing for at least half a year. The cumulative price increases for the past 6-months is 0.3% (based on month-over-month increases of 4.8%, -0.5%, 2.0%, -5.2%, -0.3%, -0.2% as per the link below). This is less than the rate of inflation and less than you could earn on a GIC.

With transaction and carry costs, this will drive flippers and speculators out of the market. And, as Garth rightly says, first the number of sales decrease, then inventory builds, and then comes the price declines.

#14 patriotz on 05.25.08 at 10:21 pm

“what is your take on the city assessment values ?”

The assessments are an estimate of the market price as of July 1, 2007, which also happened to be right around the top of the market in Calgary (how convenient).

Assessments are conservative (i.e. tend to be on the low side) because they don’t want to have people appealing them.

So put together a conservative assessment, and an asking price which is going to be less than the selling price, and you can see you’ve got a real market drop.

#15 peng on 05.25.08 at 11:35 pm

This chart is really interesting:

#16 David on 05.26.08 at 12:01 am

People can spin all they like, but my search neighbourhood is “liberty village”, toronto

Going back 12 months ago you could not find a 2br townhouse being listed for under 320k(some upwards of 360k), around the joe shuster/laidlaw sts area, today I am seeing lisitings for 2br+den for 290k and less, these are the cream of THs with rooftop terraces etc in that section of LV

Toy Factory was just completed, there are over 15 units listed.

Speculators and pseudo investors are starting to bail, however there are still morons out there will to buy at these wacked out prices, but the crap has hit the fan.

#17 patriotz on 05.26.08 at 2:47 am

Oops, I meant the asking price is going to be more than the selling price.

Thus the drop in market price will be bigger than assessment – asking price.

#18 Andy property on 05.26.08 at 8:40 am

Real estate investment comes in many forms. This one is for when you have some money to invest and want a great return.

#19 Peter on 05.26.08 at 1:07 pm

One very stupid idea that the bank and the real estate guys are mentoring to consumers is that RENT is expensive then BUY..That really leads to an illusion that people are buying expensive home and thought that they can use this strategy and thought they are finanically fit for that…

#20 David on 05.26.08 at 4:30 pm

What are the chances of the CMHC boys getting fired when the market crashes as opposed to their rosy predictions?

#21 vultur on 05.26.08 at 5:37 pm

Darth, I’m going to call you out on the carpet here. I want you to make a prediction for YEAR OVER YEAR house price changes in the GTA and then hold you to the fire when you are shown to be mistaken.

From the Chill article we find:

Average prices in 2008 of $377,688.

My prediction is that through April of 2009 average prices will be down slightly to $375,000. Does that scare the pants off anyone here? Will that stop anyone who is interested in owning a home from buying one? If I said up to $400,000 would you dive in?

OK, Lord Mortgage, let’s here your prediction.

Any decline is a disaster for young couples buying homes with nothing down and a 40-year mortgage. The problem is we have built an industry on the backs of fools like you who believe in ever-escalating values. This market will inevitably continue to correct. Enjoy the ride. — Garth

#22 vultur on 05.26.08 at 8:10 pm

Just a thought. Too much of a coward to make prediction.

You’re so obvious Darth Mortgage. I can almost hear you whispering, ‘YIELD TO THE DARK SIDE’

Have you bought my book yet? Prediction’s inside. — Garth

#23 sourgrapes on 05.27.08 at 2:36 pm

Garth said:”Any decline is a disaster for young couples buying homes with nothing down and a 40-year mortgage…..”

I disagree. They can walk away losing nil except their credit ratings.

My sympathy is with the buyers who DID invest a monetary downpayment. Those will lose their hard-earned tangible equity.

Funny how I don’t feel sorry for the flippers who are somewhat responsible for this mess

#24 vultur on 05.27.08 at 4:28 pm

sour, your username says it all.

Don’t expect too much excitement up here. I see a slowdown in sales and a leveling off of prices. Will that make you less sour? Why are you sour anyway? If you are renting you are probably savings lots of money so that should make you happier, right?

#25 sourgrapes on 05.27.08 at 7:00 pm


Why do I get the feeling that THIS part of my comment is what YOU find disturbing????

“……Funny how I don’t feel sorry for the flippers who are somewhat responsible for this mess….”

Does the shoe fit YOU?

If it does, don’t worry, this RE market needs optimists like you to keep on ‘going’

#26 vultur on 05.27.08 at 11:27 pm


My financial situation is quite firmly intact. I am no flipper in any sense of the word. I don’t begrudge those who derive returns from risk either- risk of any kind. It is their capital to risk and their profit or loss, not mine.

I wish all people uninterrupted success, yourself included. My situation is quite adequate and I am most greatful for the success that I have experienced.

Sour is an entirely pejorative term that manifestly provides you no enduring happiness or contentment. I suggest you begin to wrap your thoughts around the concept that to BE is far better than to HAVE. Material wealth bring you no happiness. To be truly content and at peace with yourself you need to spend your time and energy on something that you find rewarding and worthwhile. Focusing your energy on the failure of others bring you only negative energy and will ultimately prove to corrupt your thoughts and your behavior.

I earn my living off real estate and that gives me tremendous comfort. I also get a lot of pleasure out of helping others less fortunate and I seek to continue to improve my contributions in this regard.

I hope you find your own path to glory and that you will one day consider returning here with a more positive nickname to demonstrate to us how you’ve reorientated your thoughts and mind for the better of yourself and humanity. We are all connected in mind, body, and spirit after all.

As far as the real estate market goes, as long as you aren’t overleveraged on your investments I wouldn’t worry too greatly about the short term fluctuations, particularly if you are a new homeowner looking to stay put for a long time. Use all your efforts towards repaying your mortgage faster but don’t stress the minute-by-minute trends too much as they have little affect on your lifestyle if you were wise enough to have locked-in your mortgage for the long term.

#27 Jeannie on 05.28.08 at 10:25 am

Vulture…is your nickname any more upbeat than
Nevertheless Interesting comments from everyone, whether sweet or sour.

#28 Vancity dude on 05.28.08 at 1:28 pm


#29 sourgrapes on 05.28.08 at 1:58 pm

Thanks, Vulture,
Looks like your prayers for me have already been answered. You said : ‘I wish all people uninterrupted success, yourself included……’

Is that why I have a 7-figure portfolio , but own ‘NO’ RE right now, not even a family home? Get with the program. Garth’s forum is mainly for info and exchange of ideas, yours and mine included.


#30 vultur on 05.28.08 at 3:43 pm

Fantastic to learn of your success!

I am quite opened minded Sour. Consider that boasting about your wealth is not a very productive use of it. Try and put it to some good use that doesn’t involve seeking to put down others who haven’t been as fortunate as yourself. Isn’t that the only point of boasting? Does any good really come to you or anyone when you boast? Think about it please.

I myself do own real estate assets. I think that real estate is a great asset class to invest in as it returns steady cash flow provided it is acquired at a fair price. Not many assets provide reliable cash flow these days. Also, when you own real estate directly you are captain of your ship and can carefully choose how to position your property to meet the market demand. You are better able to control your investment than say if you buy a bundle of Apple stock.

The topic here in probably more geared to residential real estate. I agree that a person should never put themselves in a position where they are stretched to own a home. If you find yourself looking down the barrel of a loaded mortgage that you may have trouble servicing then definitely consider holding off on that purchase. At the same time, however, if you can afford it and intend to reside in your home for a long period of time why hold off on a purchase? It’s not really an investment after all, it is your home, your sanctuary and your family’s nest. There are numerous intangible benefits associated with home ownership that transcend the basic equation of determining whether it’s cheaper or more costly than renting. If you timeline is 10+ years then it’s hard to imagine that you’ll be looking at a return much less than inflation and if you carefully amortize your debt you will have been able to create a nice nest egg for retirement. The fundamentals still exist, but again, don’t stretch yourself to the point where you can’t sleep at night to get into the market. There are plenty of desirable rental options in most major markets where you can rest until you feel more prepared to dive in.

#31 Edumacated on 05.28.08 at 8:23 pm

I was thinking. With gas prices approaching $1.30 and further increasing into the future, wouldn’t properties in Toronto near subway stations hold their value?

#32 Milorad on 05.29.08 at 3:21 am

Reports from Toronto Real Estate Board in 2008:
Mid-May 2008 decreased resales 12%
April 2008 decreased resales 7.3%
March 2008 decreased resales 22.2%
February2008 decreased resales 11.2%
January 2008 decreased resales 2.1%
Inventory listings increased more than 11%, and
“logic” trend again prizes still up 6% and alredy
hit over $ 400 000 per resale unit.
From last January 2007 to December 2007 average prize had jumped up more than $ 41 000,and prize is still going up,when resale is down,inventory is up?
Comments from presidents of TREB and CREA:
Currently buyers have more choises (Rip off choises)?
I don’t have any choise because the prize is too,too high and I’m desparete to find something cheaper but
RE Mafia and Banks still not released any sign that we can expected lower and affordablle prize. The prize correction will be at September 2009 but if they drop the prize for 10 to 20 k and until 2009 the prize will jump again 40K, so will be sellers market forever..

#33 Milorad on 05.29.08 at 3:43 am

Again one more statistic data:
For example if you buy now house for 400K and you put 100k down,with current interest 4.5% will be $1750 per month or if you buy the same house at November 2009 for 340k and again you put 100k down,interest will be at least 7% so again you will pay $ 1780 per month.
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