Delusion City

Hi Garth,

I just read your book “Greater Fool” and I agree with your conclusions and forecasts for the Canadian Real Estate market. It was an amazing read with so much data to back up your conclusions. Thank you for your insight.

I live in Vancouver. As you know, we have been watching real estate prices climb steadily and aggressively over the past few years. However, there are a record number of listings on the Vancouver market right now. But, there are still crazy sales prices happening every day around us. We live near Point Grey, one of the most affluent and central areas in the city. In Point Grey (an area near UBC), a 33 foot * 122 foot new build just sold for $2,330,000. As you can see, inflated prices are still happening here. I agree with your theories in the book and we believe house prices will have to start coming down eventually. We just do not know when this is likely to happen in Vancouver. If you do have time, I have four questions for you:

1) Do you see the market in Vancouver taking longer than other Canadian cities to correct? We still have a strong economy and whether the upcoming Olympics will affect house prices or not (I personally believe they will not), the fact is that most people believe the Olympics will affect house prices and so people continue down the path of paying increasingly higher prices for houses.

2) Because Vancouver is much more of an international destination compared to other major Canadian cities (i.e. many affluent Asian people buy in Vancouver), how do you think this will affect the Vancouver real estate market? Will it be more tempered or more extreme because we have so much more of an international influence on our market?

3) We recently sold our house and we are considering renting. But, let’s face it – it’s scary. We watched friends do the same two years ago and that wasn’t such a good idea. Do you strongly recommend renting now in Vancouver instead of buying a new property?

4) I completely agree with your prediction of the declining market in the suburbs and for the McMansions. Do you think a central property in Vancouver is in as much danger? Or is it possible that these central properties will simply flatten?

Thanks Garth. I have no idea if you reply to these e-mails, but I thoroughly enjoyed your book, your insight into the market, and I would very much value your more specific insight into the Vancouver market. Thank you.


Vancouver‘s been a popular topic here. And with reason. It’s delusional.

Average Van house prices now exceed $700,000, which is a $300,000 over similar housing in Toronto or Calgary. The average Van bung is over $900,000, and yet the average family income in the city is the same as the rest of Canada. This means Vancouver buyers, on average, are committing 73% of their income to home ownership, compared with about 50% in Toronto and a national average of less than 40%.

Two conclusions: The premium to live in Vancouver is extreme and the ocean-mountains-US border thing, as well as this fantasy about being an international city and the Olympic effect have been fully factored in. I mean, in many ways Vancouver is a dysfunctional city, without a highway to the airport, a rampant wave of human misery on the lower east side and one of the continent’s worst disparities of wealth. Oh yeah, and the average family can’t afford the average house.

Second, the only possible reason to buy in that market is the expectation of a whopping capital gain that will compensate for the financial misery home ownership demands. In my view, you can expect exactly the opposite. Rent.

Hi Garth.
I am looking for some advice and I like you straight ahead ways of communicating.
Give it to me straight.

Here is the scene: My partner and I have an opportunity to buy a house in a private sale. I have been renting a floor on this house for 2 years and the landlord has just died leaving his properties to his children who want to sell. They are looking to get 600,000 – a house across the street that is much smaller with way less potential just sold for 513,000.

This beautiful solid brick building is in a very desirable neighborhood in down town Toronto very close to subway etc….

It now has 4 apartments. The plan is that we would move into the top 2 floors after some renovations. We would keep the 2 income rental units that now get 2100.00 a month in total.

The cost of running the building including heat/water/insurance and some hydro is around 14,000 a year not including the inevitable maintenance on an old building.

As I rent this apartment my boyfriend’s mortgage has just come up and he is able to pay off this little house that is also downtown but too small for the 2 of us. His house is now worth about 320,000.

Are we crazy to think about buying a big property at this time????
Should he sell his house and we rent for a few years and have the money in the bank?
Thanks for your time

Depends on you, and how much time and inclination you have to be a landlord and the custodian of an old house. From a financial point of view, your boyfriend will have 300K clear, which is half the purchase price, and rent from the existing two rental units will pay the rest of the mortgage. So, you will be out the utilities and maintenance, plus property tax and the lost earning power of the $300,000. Add that up and compare it to your existing rent, then decide if the property is capable of giving a capital gain going forward (remember that half of it will be taxable, unlike a single-family home).

Two more things: Get an appraisal, or at least a wad of comparables, before you buy. Second, get your boyfriend to marry you. Real estate is serious.

Good Day Garth

My wife and I were very close to buying recently but after doing the math and looking around we soon realized that it is a fools market. Currently we are paying $1000 a month rent for a $300,000 condo. Property taxes and Condo fees total $600/month so someone somewhere must be losing money. We have saved a sizable downpayment but still the math is bad. And we have a double income, no kids and no debt. How do people do it?

Although Ottawa has lots of Government Jobs and may not see the full effect of this down turn, I do not believe we are immune. Please add to this list if I have forgotten anything.

Tourism is huge in this town and when that dries up (Border woes, Ontario recession) there will be very little restaurant and hotel work available.

Government Salaries are lower compared to private sector and will not rise if market conditions change.

Property Taxes are going to rise a huge amount to pay for the high price of oil and projects being undertaken.

Condos are being built at a furious pace and it seems there are more projects on the horizon than ever before.

Ottawa has very little industry and it is isolated so when jobs are lost people will have to move away.

Commutes in Ottawa can rival any big city because of poor urban planning and lack of rapid transit.

A huge percentage of government employees are going to retire soon and be replaced with “Temp” positions.

I would appreciate your feedback because we both want to buy so we can start to settle, but we are afraid of loosing everything we have worked for.



Where does your fear come from? You are living well, and having some idiot investor subsidize you. Why not milk that situation for as long as possible, and bank savings while you are at it?

The Ottawa market has already softened, and even the best condo units are being reduced in price weekly. Suburban particle board mansions continue to be thrown up in the sprawling suburbs and the city has been touched by the declining high-tech sector and our looming recession (you are quite right about the over-inflated influence of government jobs).

Stay where you are. Change attitudes, not accommodations.


#1 jalarmo on 06.09.08 at 12:20 pm

Vancouver is GROUND ZERO for the Canadian real estate meltdown.

People talk up “wealthy Asians” and “the Olympics” as though they are magic beans that make economic fundamentals irrelevant. The trouble is that no one can actually point to a solid *reason* why “wealthy Asians” will prevent a housing price collapse. Wealthy Asians got that way because they don’t throw their money away on stupid speculative gambles such as buying a $1.2MM bungalow in a bad neighborhood in a city whose average take-home income is 60k per *family*.

Nothing can make economic fundamentals irrelevant. Not our nice view, not “The Olympics,” not “the Asians,” not the lump on my dog’s leg that he’s always chewing on. Vancouver is a speculator’s city and Bob Rennie is the Pied Piper who is leading its’ residents to economic ruin.

Prices here are flattening, inventories are skyrocketing and sales are plummeting: things have gotten so bad that it’s even hit our mainstream news outlets.

Even Ozzie is scared, and Ozzie has never said anything but “Buy More Houses ASAP!”:

And some graph porn:

The Vancouver bubble burst 60 days ago folks… keep your powder dry and watch the carnage from the sidelines.

#2 jalarmo on 06.09.08 at 12:36 pm

PS I’m reminded of the classic South Park episode with the Underpants Gnomes. The Underpants Gnomes’ business plan was:

Step 1) Collect underpants
Step 3) Profit!

In Vancouver, it’s:

Step 1) Buy staggeringly overpriced shoebox in the sky that’s not even built yet
Step 3) Profit!

The same fundamental question applies in both cases: What the heck is Step 2?

In Vancouver, Step 2 is apparently “Olympics and wealthy Asians”. Which is just about as nonsensical as Underpants Gnomes.

#3 brazer on 06.09.08 at 2:35 pm

Canadian housing starts up 3.5% in May

Your take on this Garth?

It’s Spring. What did you expect? — Garth

#4 wayne on 06.09.08 at 3:54 pm

Garth, I’ve lived in Vancouver all my life, I’m 58. I haven’t seen the pitiful state of Vancouver in 2008 summed up better in so few words. Good job.
I know you were in town a couple of weeks ago so you’ve seen the construction cranes for yourself. I couldn’t understand 10 years ago who was going to buy all these condos and I still can’t make any sense of it.

#5 Lawrence on 06.09.08 at 4:20 pm

Canadian house prices to double over 20 years: study

CIBC’s chief economist Benjamin Tal in his new anaylsis on the future of Canada’s housing market, he makes a bold forecast that house prices in Canada are expected to double over the next 20 years.

Here are a few highlights of the study:

– instead of falling, house prices in Canada are more likely to double in the coming 20 years
– when it comes to demand for housing in the upcoming cycle, the data does not support the big drop feared by many
– inflation will remain low in the foreseeable future
two-thirds of population growth since 2001 was due to immigration, it is clear that the pace of growth in immigration will be a major force that will impact housing demand
– another important potential driver will be the growing pace of mortgage innovation in the Canadian Market
house prices in Canada, instead of falling, will in fact double by 2026
– with large cities seeing even larger increases in home valuations

In conclusion, the study says:

Few economic relationships are linear. Housing market activity in the coming 20 years will fluctuate and swing in both directions. Cyclical forces will continue to influence housing demand and prices in the near and medium term. But looking at the full cycle, our finding is that the widely held fear of a softening in housing market activity and structural downward pressure on prices due to the changing Canadian demographic landscape, are largely unsubstantiated.

Our analysis suggests that when compared to the previous housing cycle, the projected demographic changes in the coming 20 years will not be large enough to dramatically alter housing market conditions — and can be completely offset by a relatively small adjustment in the number of housing starts.

Accordingly, from a full cycle perspective, we project that the average real house price in the coming 20 years will mirror the performance of the past 20 years. And assuming a 2% annual inflation rate, this means that house prices in Canada, instead of falling, will in fact double by 2026. This increase, of course, will not be symmetrical — with large cities seeing even larger increases in home valuations.

I’d expect no less of Benny, a bank economist. — Garth

#6 David on 06.09.08 at 5:08 pm

CIBC is perhaps the most exposed of the Canadian banks to the downside of the breaking bubble. That type of hack propaganda is worthy of 1930’s Stalinist bureaucrats trumpeting the record grain harvest in the Ukraine. It is a good thing that Mr. Tal’s paycheque is not a function of actual honesty in what he writes.
Even though oil is above $140 a barrel there is no inflation. Great news!! No mention whatsoever about the record number of Canadians carrying the highest level of personal indebtedness in this country’s history in the article. Since no one needs to make any equity contribution to get a 40 year mortgage Mr. Tal does not even bother mentioning the negative savings rate. A mysterious group of landed immigrants eager for a new home in the Garden of Eden known as Canada will ensure house price buoyancy for the next two decades. Real family inflation adjusted incomes relative to house prices don’t matter too much either. The fact that there are already millions of Canadian families who can barely pay the mortgage now is also a concern of little consequence. They will be paying even more for something they can not afford down the road.

#7 Rob M on 06.09.08 at 5:52 pm

I realize Mr Tal may be playing a little [okay a lot] loose with his ‘analysis’, but calling him an apologist and dismissing him really isn’t going to cut the mustard — it’s tantamount to ‘because I said so’ and fuels the ‘Darth’ fire.

I say this is a respectful RE bear, but how about something that can confront his views on the long term?


#8 moxie on 06.09.08 at 5:54 pm

asking price for a 1900 sq ft SFH around the corner from me:

week 1 open house: $ 549,800
week 2 open house: $ 539,800
week 3 open house: $ 529,800
do i see a trend here? $ 30K asking price drop in 3 weeks = – 5.45%, but who’s counting? :-)
i’m looking froward to week 4 open house.

#9 Rob M on 06.09.08 at 6:02 pm

Canadian housing starts up 3.5% in May

Your take on this Garth?

It’s Spring. What did you expect? — Garth

>> In response to this, is not an economic byproduct of an at-par Cdn dollar making it very cheap to build like crazy until the markets actually nosedive and the cows come home?


#10 peter on 06.09.08 at 7:03 pm

wasn’t that article made in 2006? It is a couple of years old for sure. I live in Saskatoon and the average price for a house 2 years ago was 152k in the winter. So if we reach 304k by 2026, I think he could be right.

Oops, we hit 305k last month. Was I in a coma for 20 years, what happened?

#11 m. on 06.09.08 at 8:10 pm

CIBC: Canadian house prices to double over 20 years

This is hilarious and sad at the same time. Two years ago CIBS did not see the mortgage tsunami coming and lost 6.7 billion in the process. Now they are making predictions 20 years into the future.

It’s hilarious because they expect people to believe that. It’s sad because many people actually do believe that.

#12 SSS on 06.09.08 at 8:12 pm

Vancouver! No panic. Even in US prices fell not in all places. Vancouver is a “special” place. Well, making this place “popular” is another bubble, but that one will not burst (thanks to Chinese and other folks plus Olympics).
Yes, RE in ugly and remote places must go down, but not much in Vancouver. Another thing – in US RE has average drop only 13%. Mr.Garth just gives the worst examples of 30-50% price drop in particular places of US. Are there any places, where prices stay? Yes, of course. So, I may guess the prices drop in Van by about 10-15% max. in worst case.

#13 Rick on 06.09.08 at 8:35 pm

Vancouver. No one seems to hit the nail on the head. What is driving the insane housing costs with high paying jobs almost non existant? BC Bud.

#14 David on 06.09.08 at 10:04 pm

There will never, it seems, be any shortage of real estate true believers. These are the folks with the fact proof screens and innerrant belief systems to arm themselves against the empirical facts of the real world. The Olympics is a one time two week event. Calgary had the Winter Olympics a couple of decades ago and other than Eddie the Eagle folks don’t remember much about the event these days. There are no mysterious real estate investors from China to push the price of Vancouver real estate to yet higher plateaus. Back in the 1929 there was a financial expert named Fischer who claimed that the stock market had reached a permanently high level of equilibrium pricing. He turned out to be very wrong.
People like Tal and his ilk should be dismissed as the complete sycophantic hack economists they are when they write complete fish wrap about the glorious future of real estate not only now but 20 years henceforward.
A 15% correction will not hammer out much blubber from such a bloated and flaccid market so completely disconnected from fundamentals and discipline.People said the same things a few years back when the dot bombs were going through a succession of beatings.
For some good video entertainment here is a really good clip on the nature of the real estate crash.

#15 patriotz on 06.09.08 at 10:18 pm

Are there any places (in the US), where prices stay?

Yes. The cheapest ones.

The most expensive cities in the US are taking the biggest losses, and exactly the same thing is going to happen in Canada.

#16 vultur on 06.09.08 at 11:02 pm

Double over 20 years translates to a 4% compounded return.

Hardly outstanding and less than you’d get from government debt over the period.

#17 nonplused on 06.09.08 at 11:15 pm

I think house prices could very well double over 20 years. Always have. It’s inflation. The government prints money to cover it’s deficit and this causes a slow loss of purchasing power that we call inflation. Even 2% inflation will double the price of everything in 20 years.

20 years is a long time. The question is, what happens over the next 5 years, when the price of houses has increased over the last few years not at the inflation rate of 2% or so but at 30% or more??? On an inflation adjusted basis, the price of houses is now way way way above trend. That isn’t sustainable until wages catch up. in 20 years, minimum wage might be $30/year, a cup of coffee at 7/11 might be $5, and maybe crude oil is $400/bbl, so yes houses could double. But first they go back in line with the state of income today.

The 3.5% increase in housing starts is interesting but I didn’t get whether it was over April 08 or May 07. I bet April 08, with May 07 being extremely negative.

#18 Toronto Bear on 06.09.08 at 11:51 pm

SSS, pleeeeease tell me your post was sarcastic.

The reason why he gives “the worst” examples of price drops of 30-50% are because those same places that are experiencing the huge drops are the ones that had huge increases in the first place.

Vancouver’s price increases have been amongst the highest in Canada and the total amount of after-tax income required to “own” a home in Vancouver is in fact the highest.

Those are the reasons why Vancouver will almost certainly drop further than most other cities in Canada. My predictions for price depreciation would probably be something like this: Vancouver, Saskatoon, Edmonton, Regina, Calgary, Toronto, Ottawa, Winnipeg. I’m not sure how “bubblicious” the rest of Canada has been, but I’m pretty sure most of these cities (plus several more) are in for pretty severe corrections.

Vancouver actually requires a 50% drop in prices to get home values aligned with historical norms (~30-32% of gross income needed for home-related monthly payments on conventional (20%down, 25 year) mortgages! Ouch, can you talk about net-worth evaporation!!

#19 confused and a little crazed on 06.10.08 at 1:36 am


i was one of those who sold 2 years ago and now it is 100 k more. howeveri did invest in some of it tech and banks and got a return of 50 k in 1 yr 8 monthes. I sold before the drop around August 2007… so u can say I 50 k down if i were to buy a similar house now. But there are a number of factors you must consider … house maintenance, carry costs and quality of life. I would like to buy eventually to like everyone else here. But it just doesn’t seem logical financially. I pay $ 1200 rent for a 3bd basement suite in a better local and my investments have brought alittle over 25 k a year therefore I making 10 K every month after rent costs and I get to keep all of my salary as opposed to paying a mortgage. . I max out my RRSP s and i saving money to boot. who to say 10 years tfrom now he econ will continue to be so robust…nothing lasts forever. You might not want to be even in Van at that point in time. THe Van now is not the same Van I grew up in when i was a kid. I didn’t had the sheer disparity and hopelessness around D/t eastside. it was vibrant when I was a kid.

Money $$$ provides options …Housing is kinda stagnant. Educate yourself There are many ways to achieve financial freedom. ie maybe with a little professional growth you land a sweet job in Toronto and it is still cheaper than here. In the end of the day it is your family and friends that make you happy. If you had a huge ass house and you are all alone would that make you happy. Count your blessings if you really want a house still go on…just try to keep everything in perspective.

Bon chance!

#20 Future Expatriate on 06.10.08 at 2:00 am

Oh, Canadian houses will double in the next 20 years, that’s a no-brainer.

Here’s how it will happen, too:

First prices will crash to 50% of current levels. And then remain flat. For about 15 years. IN SPITE of spiraling skyrocketing inflation and a devaluing Loonie and USD.

And then, in the 15th year, a climb will start. Slow at first, then exponentially increasing as another bubble starts and more investors pile in and the real estate industry piles on the BS. By year 20, the top will be in, prices will have doubled from current levels today, and another generation of suckers will have once again proven they never ever learn anything from history.

#21 Brent on 06.10.08 at 3:25 am


Saskabush is always late to the party.

#22 brazer on 06.10.08 at 9:36 am

So much for the quarter point drop everyone was expecting…

#23 jalarmo on 06.10.08 at 11:43 am

Vancouver! No panic. Even in US prices fell not in all places. Vancouver is a “special” place. Well, making this place “popular” is another bubble, but that one will not burst (thanks to Chinese and other folks plus Olympics).

This is a perfect illustration of my comment at the top.

Allow me to summarize your post:

Step 1) Buy Vancouver property
Step 2) Asians + Olympics
Step 3) Profit forever!

Everyone parrots this absurdity, but nobody can explain it.

I have news for you, mr. SSS:

(Presence Of Asians) + (Olympics) does not create a market that ignores all economic fundamentals until the end of time. Because NOTHING does that.

#24 Internal Exile on 06.10.08 at 12:28 pm

SSS – has a tone vaguely familiar to Krsh or Krash or any number of other aliases he travels under from Vancouver Condo Info. If you want some real laughs check out his/her posts there! The bad grammar and nonsensical arguments are a dead giveaway. Do yourself a favor: don’t even TRY to argue with him – he makes absolutely no sense at the best of times.

#25 jalarmo on 06.10.08 at 12:45 pm

Also, do not forget that The Olympics is a TV event. Only 1 in 10 000 viewers of an Olympic event is actually present in the host city. Almost all of the money that an Olympics makes is through TV licensing, and will not go to Vancouver’s economy.

Yes there will be a lot of tourists milling about for 2 weeks. But there’s only so much each tourist can spend in 2 weeks on hotels, restaurants, taxis, and souvenir trinkets.

And while those tourists are here spending money, remember that the city’s normal economy will be effectively shut down. Driving or commuting in any way will be impossible, our streets will be locked down by military checkpoints and roving squads of soldiers and police, and the airport and ferries will be unusable.

Finally, the hundreds of billions of dollars in construction work will be finished in 2009, and those workers will either go home or go on EI.

Where in all of that our fine citizens find the message “real estate will go up at 20% per year forever” I do not know.

#26 David on 06.10.08 at 1:39 pm

It would be arithmetically correct to say doubling prices over the next 20 years would represent growth in prices of at 3.5% annually. Those assumptions in the argument while not necessarily sound or factual are in the safety zone. In other words all of us can bank on housing following things like the nominal rate of inflation. Nothing too profound in that argument.
Here is the problem, current house prices in the real existing world of today are totally out of line with family incomes and the only price support mechanism is increased family debt loads and ever more exotic mortgage instruments. When banks introduce these exotic mortgages essentially the consumer bases the buying decision on how much family income can be applied to meet the monthly payment schedule. Never mind the unpleasant facts of potential interest rate resets or overpaying for 80 year old homes.
With the exceptions of Thunder Bay and Windsor, the rest of the Canadian real estate market has experienced price escalation seldom seen in the past 5 years

#27 Rob M on 06.10.08 at 2:57 pm

To play devil’s advocate a little, what a lot of folks in this forum are not factoring into all this, is just how powerful perception is to the economy and by extension, housing – the market we’re seeing shouldn’t exist but it does. Heck the incredibly high quality of living we’ve had for the past 20 years shouldn’t exist or continue, either, but it does, defiantly.

We can all proselytize on why or how things will change but if the greater market doesn’t believe or chooses to bury it’s collective head in the sand, the bubble will just get bigger and yes, eventually pop BUT I have to wonder if more of a very slow slowdown will happen in places like Toronto [not Oshawa, not Brampton] in 08/09 or if it’ll be a gut-wrenchingly slow, contracted slow leak? [more of a hiss than a pop?], even in the face of the world-wide housing slowdown. Not so much a tidal wave wiping out the village, as much as a gradual process where neighbourhoods lopped off and eaten up. No one wants to believe things are screwed, so they don’t and act like it.

With bad stats and poor leadership not willing to step up to the plate [under their rule and this goes for Garth’s Liberals too] this is 21c government and I can’t see it changing until things really go wrong .

Commence firing :>

#28 Andrew on 06.10.08 at 3:39 pm

More financial land mines ahead
The worst of subprime mortgage crisis may now be out in the open. But more problems are lurking in prime mortgages, credit cards and auto loans.

June 10, 2008: 12:36 PM EDT

NEW YORK ( — When Lehman Brothers reported a stunning $2.8 billion loss Monday, it was just the latest sign that bad mortgage loans continue to be a problem for the financial markets and the economy.

But subprime mortgages could only be the beginning. Many economists and market experts are worried that other problems are lurking that could cause a new credit crisis for consumers and businesses.

Meredith Whitney, the banking analyst for Oppenheimer & Co., estimates that the credit problems will continue to dog financial markets into 2009. She thinks future losses will dwarf the roughly $25 billion set aside by Wall Street firms so far to cover them — perhaps reaching $170 billion by next year.

Other experts agree that the worst is not yet over.

There are several types of loans raising concerns, ranging from prime mortgage loans to credit cards. Much like subprime mortgages, many of these loans were packaged into securities traded on Wall Street. And many of these loans are beginning to see rising defaults and delinquencies, just as subprime mortgages were a year ago.

These defaults are nowhere near subprime loan levels and few think they will ever get that bad. But if defaults keep rising, this can cause the same kind of problems in the markets for those securities, leading to widespread losses for investors.

“There are plenty of additional problems on bank balance sheets,” said Kevin Giddis, head of fixed income sales, trading and research for investment bank Morgan Keegan. “The bigger problem is we don’t know how far it goes. Those problems remain well hidden for a reason.”

But if they do eventually surface, it would mean higher costs and tighter credit for consumers. And that in turn could lead to an even longer slump for the economy than currently forecast.

Prime loans “the next shoe” to drop
Giddis worries most about prime mortgage loans, those made to borrowers with good credit histories.

A survey from the Mortgage Bankers Association showed that at the end of the first quarter, nearly 2% of prime loans were either 90 days or more past due, or already in foreclosure. That’s more than twice the rate from a year ago, an even bigger spike than the jump in subprime delinquencies during that period.

“We’ve pretty much gone to the wall on subprime,” said Giddis. “The problem that is going to face financial institutions now is the good borrower. It’s the other shoe to drop.”

Jay Brinkman, the MBA’s vice president for research and economics, said the problem for prime loans isn’t as much bad loans being made but a weakening economy causing job losses for borrowers. Making matters worse, many homeowners find it tough to sell because of a record drop in home values.

This unprecedented drop in home values is therefore likely to lead to record prime loan foreclosures, losses that were never forecast when the mortgages were written and then sold to Wall Street.

Will wheels come off of auto loans?
Prime mortgages aren’t the only part of the credit market showing early signs of rising problems. Auto loan defaults are also increasing steadily, according to figures from the American Bankers Association.

The delinquencies on the most prevalent type of car loan rose to 3.13% at the end of the fourth quarter of last year, according to the ABA, the highest rate since 1990. Delinquencies were up 22% from a year earlier.

In addition, high gas prices have led to a continued decline in the resale value of many light trucks, such as SUVs and pickups. That’s lead to a loan-to-value ratio of 94% for all autos in the most recent reading for April, up from 88% as recently as 2005.

John Silvia, chief economist with Wachovia, said this raises worries about consumers dumping vehicles they can no longer afford to drive in a period of $4 gas.

“If someone has a durable good that is inefficient, they’re going to be more willing to walk away from it,” he said.

Equity lines, credit card woes also rising
Credit cards and home equity line delinquencies are rising even faster than those of auto loans, according to the ABA figures. Nearly 1% of home equity lines of credit were delinquent in the fourth quarter, according to its report, up 68% from a year earlier. Delinquencies reached their highest level since 1991.

In addition, 4.5% of the money owed on credit cards was delinquent in the period, up from 3.54% a year earlier. James Chessen, ABA’s chief economist, expects that delinquency rates for credit cards and home equity loans will continue to rise throughout the year.

“No relief for consumers is in sight as food and gas prices remain stubbornly high and income growth is anemic,” Chessen said.

And while credit card delinquency rates are not high by historic standards, the Federal Reserve’s most recent loan officer survey shows tighter credit standards for both those loans and home equity. That’s a sign that lenders and investors are trying to back away from those markets as well, said Scott Hoyt, senior director of consumer economics at Moody’s

Add all that up and it’s just more bad news for consumers, and the economy that depends on their spending.

“This obviously impacts their ability to spend, their confidence, their ability to service their debt and it’s going to continue even as the economy recovers,” said Hoyt.

#29 patriotz on 06.10.08 at 3:57 pm

I think house prices could very well double over 20 years. Always have. It’s inflation.

Only wage inflation supports higher house prices. Real wages in BC have actually declined since 1980 and there’s no reason to see this changing, given the dearth of high-paying jobs in BC today.

Consumer price inflation without wage inflation equals lower RE prices, as we can see clearly in the US.

#30 SSS on 06.10.08 at 7:34 pm

Why most of you are talking about hose affordability problem. Fairly enough, house (as itself) is for wealth people. If everybody could afford home, so everybody would live in home, so it would be no apartments out there. Mid class MUST appropriately buy and live in cheaper condos, not houses. And those types of property ARE affordable. Here is the deal: my friend bought a 315K condo in good Richmond area with 5% down. The previous tenant, who occupied it, paid 1250 monthly. The mortgage payments will be around 1300 monthly. Plus maintenance and taxes – works out just extra few hundred bucks monthly, comparably with rent. But living in own property worth it! Is that unaffordable, paying few hundreds extra? Yes that condo cost 150k 5 years ago. So, what? Well, if someone unconsciously bought 700k house not in accordance with the income – of course it will be unaffordable. For your consideration: 500K “overpriced” condo in downtown easy rents for 2000 per month. Do the math. Unless it is a cost of rent bubble. But nobody complains about that – the rent just goes up. So it still reasonable to buy. Depends on WHERE and WHAT.

#31 bighousesmallbrain(if your brain is your penis) on 06.10.08 at 7:36 pm


Its a fact, if you quantify the recent sales data and statistics you can extrapolate the compunding variables to come to a price point for your property 20 years from now. Of course, you have to factor in the the variables such as tax rate as a percentage of the economic -nondenominational transgenderificated compounding immigrational rationalizations. Multiply THAT number by the factor of the capitalization fornicatating interest rates of the subnational conglomeration and you have your MULTIPLIER. Furthermore, you would also have to (pull down the) short(s) (of) the bond market to realize the exponential of the capitalist gains you may or may not realize. Hither to, my prediction is 100% accurate and you can thank me for making you all rich. Screw you “smith manouver” bwah ha ha haaaaaaaaa. (ha)

#32 poorguy on 06.10.08 at 8:11 pm

Reduction in cottage prices has already started
Next :Suburban towns
Looks like its coming faster than lot of us were hoping.

#33 Dawn in Calgary on 06.10.08 at 9:13 pm

Reduction in cottage prices has already started
Next :Suburban towns

That explains why the push in Calgary the last few days has been ads around vacation properties and resort condos. You can really smell the desperation.

#34 Brent on 06.10.08 at 10:29 pm


If you wait a 6 months it will quintuple in 20 years.

#35 Terry on 06.10.08 at 11:45 pm

In 1998 on a trip to Vancouver’s Molson Indy I happened to met a young man in his mid twenties who I have to say has the strangest job that I have yet to encounter. It turns out as he told me he counts condo’s in Vancouver at night where the lights are off. I asked him why as I was taken back as to why anyone would pay a person to do this. My employer he said wants to know how many condo in a building have owners who are absent as most buildings where 100% sold. Over the next couple of nights from the height of my hotel balcony I began to notice condo buildings that where almost totally black except for a handful of condos. I still wonder if someone is counting the lights and who is paying the paycheck.

#36 Sam on 06.11.08 at 1:09 am


I am waiting for Toronto to be next! come baby come….

#37 patriotz on 06.11.08 at 1:17 am

my friend bought a 315K condo in good Richmond area with 5% down. The previous tenant, who occupied it, paid 1250 monthly. The mortgage payments will be around 1300 monthly. Plus maintenance and taxes – works out just extra few hundred bucks monthly, comparably with rent

Better take a course in remedial math pal, or just find an online mortgage calculator. No way does that mortgage work out to 1300/month, even at 40 years. You have also greatly underestimated the additional costs – like condo fees and special assessments.

Condos are not worth over 100x monthly rent. They have no appreciable land value and will eventually become worthless.

#38 Peter on 06.11.08 at 1:23 am

Our neighbourhood just sold a 2500 sq ft. home, built already 10 yrs with 30 AMAZING offers for $ 600K..asking was 570K and sold for 615K , where that home was around $ 420K..3 years ago…People who bought that home was Chinese (probably new immigrant was thinking hmmmm…615K means 4 million RMB in China, its very very cheap to buy a 2500 sq ft home for 4 million RMB where he probably can’t get a home with the same size for 5 mil RMB or 6 mil RMB or even 10 mil RMB…. in China)….to me, this is a JOKE but for the realtors, hmmm…nice commission on this deal !!

#39 David on 06.11.08 at 1:39 am

One has to marvel at SSS and his thinking. When did houses become only for wealthy people?
The National rate of home ownership is 68.4%, so based on your line of reasoning that number of Canadians are wealthy merely by virtue of home ownership.
I actually did do the math on your $500K condo that rents for $2000 a month and the cap rate is craptacular. For $300K a person can buy a condo and pay $2001.32 on a 25 year amortisation at 6.37%. Your argumentation makes NO SENSE.
In order for the rent to equal the mortage payment of $1350 per month the outstanding principal would be about $200K for 25 years at 6.5%.
My only hope is that innumerate optimists like SSS are not actually advising Canadians on the virtues of home ownership.

#40 David on 06.11.08 at 4:37 am

Arithmetic is only a tough subject if one happens to be in the real estate business.
You presented a scenario of a $315K condo in Richmond with 5% down payment. That would mean a down payment of $15,750. That leaves an outstanding balance of $299, 250. The yearly principal and interest payments at 6.5% would be $24,246.69 for the property holder.The monthy mortgage payment alone would be $2004.45. The interest payments in year one would be $19,240.78. Rents as you said were $1250 per month prior to sale. That equals $15K gross rent. Your friend the landlord will have first of all a negative cash flow of $10 simply by purchasing the property and renting. Factor in taxes of about $3000 and maintenance of $1000. That is a first year cash outflow of nearly $25K.
Net operating income year 1 equals -$10K. Divide that by Fair market value of $315K and multiply by 100.
Your friend got took.

#41 sss on 06.11.08 at 4:12 pm

Heads up! The given rate was 4.25%. Personally, I don’t like to count others money. So I did not ask the details of the deal, but motgage calculator for that numbers shows the right answer.

#42 come back home on 06.14.08 at 11:12 pm

SSS, China even better return. Double your money in 1 monthe. Come, byi, byi, byi in China. Come back home.

#43 Jim on 07.06.08 at 2:10 pm

BUYER BEWARE… a few reasons BC’s BIG bubble is about to burst:
– Olympics venue construction complete as of spring ’08 (2+ billion of investment completed)
– Housing speculation rampant in BC in the past three years
– Widespread psychology of “things will continue to go up until well after the games”
– American speculators begin cashing out to cover their losses south of border
– Listings in the lower mainland triple in 2008 as speculators/investors try to sell
– With multi-billions in mortgage defaults at stake, Canada’s banks release weekly reports pleading Canada is separate from the US (‘Canada will withstand US meltdown’, ‘Canada does not have a subprime crisis’)
– Canada’s versions of subprime mortgages are 0% down, no income verification with 40 year amortizations (40 year mortgages merely inflated and prolonged the bursting of the bubble)
– Most Canadians are now heading south for recreational and/or winter homes rather than west to BC (with their at par loonies they are presently able to purchase new resort homes for a third of what they would pay in the Okanagan, Lower Mainland or Victoria)
– Forestry and tourism start to feel America’s economic pain
– Construction, one of the pillars of BC’s recent boom, dwindles as developers stall projects
– Possibility of NDP regaining power in the upcoming BC election erodes business confidence
– Interest (mortgage) rates begin rising in late ‘08 eroding affordability
– Housing affordability surpasses 70% of average incomes in many areas of the lower mainland
– Migration patterns intensify as oil-powered Alberta/Saskatchewan entice workers from across Canada with exorbitant salaries and low costs of living/tax environments
– Prices of energy (carbon taxes) strain potential buyers just as banks begin tightening their lending practices
– The ripple effect’s first wave of significant home foreclosures and price declines commence in Vancouver autumn ’08