Entries from May 2008 ↓

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.

Ya think?

Big news: Royal Bank says housing boom is ‘over’

Canada’s long-running housing boom has ended, with the formerly bubbling markets of Calgary and Edmonton already having gone from hot to not, and with the current hot spots of Saskatoon and Regina to follow, a major Canadian bank says.

Mortgage-market innovation delayed the inevitable but couldn’t prevent it, Royal Bank of Canada said in its analysis of major urban real estate markets Thursday.

“After yet another blockbuster year for Canada’s housing markets in 2007, the much-anticipated housing market slowdown in Canada has arrived,” RBC said.

“The delayed arrival of softer housing markets can be partly attributed to recent mortgage innovation that has seeped into the Canadian market during the last two years,” it said, citing higher loan-to-value ratios and longer amortization periods of up to 40 years, which opened the market to a wider range of buyers and prolonged the housing boom.

The mortgage-market innovations, which make housing more affordable in the short term, also heighten the risk of default in the long term, it said.

Markets in the West, which have risen the furthest above their underlying values, are the most at risk of an increase in defaults as a result of recent mortgage innovations, the report’s author, RBC economist Amy Goldbloom, said in an interview.

However, there will not be a U.S.-style correction, despite such concerns in markets like Calgary and Edmonton, said the report, released amidst further evidence of the depth of the U.S. housing market meltdown – a record drop in a government index of housing prices in the first quarter of this year.

“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.

Still, after six years of 10 per cent or better house price increases in major markets and four years of annual construction starts of more than 220,000, Canadian housing markets are now on a clear cooling path with resales last month being down six per cent from a year earlier, price gains from a year earlier slumping to the three per cent range, and the number of homes being listed for sale surging by 18 per cent.

“For the year ahead, we’re looking at price gains to converge across the country to a much slower pace, with the West cooling off from double digits and central Canada cooling off further to the low single digit range,” Goldbloom said. “By year end we expect most markets will be eking out mild price gains.”

“The markets that soared well above their underlying economic fundamentals are the very ones with the most downside potential,” the report said. “Calgary and Edmonton have moved from chart-toppers to bottom-of-the heap in only a matter of months on a range of key housing market indicators, including house prices and sales.”

Saskatchewan has since jumped into the housing market spotlight as its commodity-led economic expansion has attracted an influx of migrants and led to a major housing market boom, it said.

“Regina and Saskatoon continue to clock year-over-year price gains that are several multiples above the pace of their local wage growth,” it noted. “This lends evidence that current momentum is unsustainable, with a similar fate to Alberta’s likely for both of these cities in a year’s time.”

Meanwhile, many of the middle-of-the-pack markets, such as Toronto, Ottawa and Montreal, are maintaining their slow and steady growth, with housing prices across much of central and eastern Canada still five to 10 per cent above year-earlier levels, it said. However, more moderation is in the cards for those markets as well this year as sales slow, prices continue to cool, and new-home construction levels off from extremely elevated levels.

The bottom line is that while prices will still post modest gains this year, after a six-year run sellers will lose some bargaining power with the degree of power lost varying from region to region, RBC said.