2008: The sequel

Welcome to the second half of 2008. Hang on. It gets worse.

I have some ideas of where we’ll be soon, but first have a look at where we are. The economy of our friend and client is shredding, and we’re not immune.

• When Starbucks closes 600 stores and lays off 12,000 people, you know there’s something seriously wrong with consumerism.
• When monthly sales for Ford, Toyota and GM drop by 28%, 21% and 18%, you know heavy industry’s in big trouble.
• When Wall Street legend Lehman Brothers is shopping itself for pennies on the dollar, you know the banking industry is teetering.
• And when housing prices suffer the greatest annual decline since the Depression, you know the middle class is getting crunched.

As a direct result of all this, autoworkers in Canada – thousands of them – are losing their plants and their jobs. New home prices in a city in my riding have fallen $25,000 in the past ninety days. The tourism industry in Canada is being hit by a perfect storm, of higher operating costs, a crash in visitors and a too-high dollar. Cottage sales in toney Muskoka have plunged by 50% this summer, and prices are following suit. In most major cities, a stealth condo crisis is brewing. Eveywhere, recent buyers of SFH will be taking a haircut if they try to sell in the next couple of years. The US stock market has just had its worst month since the 1930s – a harbinger of days to come.

Is it any wonder the latest polling shows Canadians now put energy prices and the economy at the top of their list of worries? Granted, things are not as dire here as in the US – where thousands of families are losing their homes every day. In fact, mass foreclosures are unlikely because of our system. Far more certain is that everyone’s home will just lose value, bringing down the net worth of the middle class by 10%, or 15% or – depending on where you live – 30%. That’s bad news if you need the cash in your home to retire on, or if you’re a new homeowner with lots of debt and little equity. Soon you could have none.

Why is this happening?

The immediate disease is energy. That’s killed off the SUV and the pickup, idled factories, ambushed car companies and sucked off family cash flow that would have been spent at the mall instead of on gas. Thus, retailers are being nailed and more jobs lost – like those 12,000 people at Starbucks.

Beneath that is the collapse of real estate in the US, which is now happening in Canada – despite the anguished denials of the housing industry. That was created by absurdly low interest rates, easy credit, greedy owners, sellers, builders, agents and irresponsible bankers who created subprimes in the States and 40-year mortgages here.

Beneath that are federal government monetary and fiscal policies in both Canada and the US which have failed us. The US Fed should never have crashed rates to 1% following Nine Eleven, since that created an asset bubble which burst with predictable consequences. Today Washington is trying to export is orgiastic debt mess with a cheap dollar – which, in turn, is helping send oil prices to the moon, and killing off Canadian jobs.

In Canada the central bank slavishly followed the Fed, dropping mortgage rates to the point where we all lost our healthy fear of debt and house prices exceeded the ability of people to afford them. Then along came a federal government which thought a high dollar was a cool endorsement, and talked it up by 30% in less than a year. At the same time, it was spending more money than any other national government, and going from surplus to deficit territory in less than three years.

The combination was deadly, even before gas hit $1.40 a litre. We now have a deindustrializing ecoomy with an at-risk middle class, a housing market in trouble and a government which spent its cash and still can’t stop spending. For example, we are now shelling out more on the military than we did to win World War Two. It may be valid spending, but what are the consequences?

As a result, the Canadian middle-class is quite possibly screwed.

Household debt is at a record. The national savings rate is zero. Over 80% of family net worth is in real estate. Houses are coming down in value. Gasoline and energy costs are at a record high. Family income has stagnated. Income taxes have not come down one penny since Mr. Harper took office. (The GST’s been cut, but that matters less as consumer spending dries.) Jobs are being lost. The high dollar’s killed our competitive advantage. Wealth is polarizing.

And this is just the start. The endangered species now is the middle class.


#1 Anonymous on 07.02.08 at 2:17 pm

This is very scary….working in the Industrial sector with production demands tied closely to US our overall production has slowed to 1/3 of what it was just a few months ago. If in fact we will have a US style correction to our RE market, my predictions is that it will not take 2 years to unfold as it did in the US, but rather quickly as we align our economic engine to theres.

#2 Future Expatriate on 07.02.08 at 2:32 pm

“The endangered species is now the middle class.”

And with it, suburbia, soon to be the abandoned ghettoes of tomorrow. Inner cities may end up doing fine, and the gated estate communities for the uber-rich in the country; but kiss everything in-between good-bye. To eventually be razed and back to the farmland or desert it came from.

The suburban dream of post-WWII North America has shattered for the forseeable future.

#3 wolfey on 07.02.08 at 2:42 pm

Here is some news that gives more support on how credit crunch is effecting everyone and ” How India will take up the slack from the loss of US business”


#4 Mike From Ft Sask on 07.02.08 at 2:53 pm

Amen Garth. Alot of industry cohorts are still in denail that the crash is on its way etc. Realtors who run blogs in Calgary are still pumping stats (for example). One such realtor is pumping that June sales are up 5% compared to May sales volumes. Their one headline reads: “June sees reversal in trends.” You really have to give your head a shake.

#5 Crashing Yuppy on 07.02.08 at 3:31 pm

In my area ( North Pickering) there are 20-30 “Estate Homes” for sale on 1/2 Acre lots priced between $600,000-
$1.2M. Some have been on the market for 6 months without a sniff. The market for these has evaporated.

I can’t imagine why anybody would not want an overpriced, underserviced, home which costs thousands and thousands to heat and cool that is over a 50K commute to Downtown in a buyers market.

The herd is getting really restless and is going to stampede. You think the listing are high on MLS now….

Just wait

#6 Mountain Girl on 07.02.08 at 3:34 pm

As I am now on the endangered species list, what do I do to avoid extinction?
Even for those of us who are renting and saving and might be safer than the average member of the Incredible Shrinking Middle Class, we don’t live in a vacuum. A tanking economy will negatively effect everyone.
So is there a way to learn from the US and avoid the same mess? Or is it too late?
I can think of some obvious actions: write my MP and let him know how I feel about the above issues, exercise my right to vote, try to live sustainably, etc.
But otherwise, what do I do?
I’m not trying to be confrontational, either. I really don’t know if anything will make a difference at this point.
I guess what I’m asking is what am I supposed to do with the information in this post?
Just trying to sit back and protect myself from the trainwreck seems feeble and selfish. If things are this bad, what do we do about it?

#7 Michael on 07.02.08 at 3:40 pm

I think the housing slow down will be isolated to Eastern Canada. There is just too much of an economic boom going on in provinces such as BC, Alberta, and especially Saskatchewan to indicate that there is going to be any sort of slowing in the housing market. In the case of Saskatchewan, I just read that the most recent statisics indicate that the housing prices are going to jump by a further 36% just this year, so if one was looking to buy this would still be an excellent place to purchase as the massive equity gains in the first year will offset any sort of extra interest that would accrue should someone choose one of the new innovative 40 year mortgage systems. The way I see it, with the great inventory available in these Western provinces and prices that are still very reasonable by international standards, buying and starting to earn immediate equity (36% as mentioned before if purchasing in Saskatchewan) makes a heck of a lot more sense than waiting on the sidelines and just falling further and further behind while prices to continue to rise. I think its pretty much a fact that oil won’t be dropping below $150 a barrel again, and with provinces like Saskatchewan literally floating on this black gold the average income levels for the residents are going to soar and continue to drive up housing prices. Add in other demand resources such as potash and uranium, and you have potential to have one of the wealthiest populations of the western world. Can you say 0% income tax in the near future as the province pays off all of its debt? It’s in the cards my friends – just give the new government some time. So in short, would I buy in Ontario? Heck no. Would I buy more properties in booming western Canadian locations like Saskatoon? In a heartbeat. Even though prices have jumped somewhat over the past years, they are still a relative bargain and are a sure thing to appreciate in the coming years.

Just my two cents for what its worth.

#8 Kevin in Winnipeg on 07.02.08 at 4:48 pm

Garth, now you sound like a dooms day prophet. I enjoy reading about the payback to greedy real estate agents and home sellers as much as the next guy but this just becoming negative propaganda. Ever heard of a self fulfilling prophesy? I thought MPs are suppose to be encouraging to the country and people, not depress them into thinking Canada is collapsing into financial ruin.

Sure, then. Everything is okay. Vote for me, sucker. — Garth

#9 Sold Out of Cowtown on 07.02.08 at 5:00 pm

I think we can thank Mr. Turner and his fellow politicians for killing off the middle class. What we really need in this country is a party who actually cares about it’s citizens and is not bought and paid for by big business and the global elite.

#10 Jon B on 07.02.08 at 5:19 pm

Definitely some sobering facts that may worry many middle class families.
I often read about the death of the suburbs at this blog and the related discussion. Can someone please school me on why this will happen? Where are all these families supposed to move to? Downtown condos? Will all the schools in the suburbs also shut down? This is crazy talk no matter what the cost of fuel is.

#11 Mike on 07.02.08 at 5:33 pm

Interesting about the reference to India… considered by many to be a place to park your money…”emerging markets”. REALITY… because of such enormous investment from outside the country when these investors get jittery and pull out the carpet is pulled out from under them. Witness ICICI bank…. Jan 10 at $73.. yes January of THIS YEAR… today around $27.50….. some emerging market. Kinda like saying ” I bought the house for 1.5 Million even though we can’t afford it ….because it is a great investment” “In ten years it will be worth double” Last time I checked a good investment was supposed to go UP not DOWN… unless you listen to the guy on the previous thread who thinks we are all crackers worried about nothing.
Manufacturing is the support for Ontario economy and that is slowing eroding….just go to areas where there is light industrial and see how things are very slow indeed…PolyWheels that closed a few days ago was relying on the car industry just went bankrupt just like that. These are structural fractures that can’t go unnoticed or ignored or swept under the rug. We are heavily tied to the U.S. who by their behemouth influence on the world can cause catastrophe with the slightest shift in economics. Starbucks has been suffering for quite awhile now and yet people just ignored and said that it would bounce back.. You don’t close 600 stores on a whim folks…
Stay tuned.. tomorrows jobs numbers may blow the estimates given by ADP out of the water, ADP well known to grossly understimate things, so those numbers could double …we’ll see tomorrow.

#12 wolfey on 07.02.08 at 6:49 pm

micheal ,

Have u looked at the stock prices recently on potash, oil etc?

#13 brazer on 07.02.08 at 6:56 pm

GM shares fall below $10 for first time since 1954

once the biggest company in the world…and now going down the tubes…

#14 brazer on 07.02.08 at 7:05 pm

TD Bank down 2.72%
Royal Bank down 3.99%
CIBC down 1.39%
Bank of Montreal down 2.54%
Bank of Nova Scotia down 1.74%


not a good day for canadian banks…

#15 Bruce on 07.02.08 at 7:28 pm

Bad news after bad news today. Global financial markets are in turmoil. TSX shed over 400 points. DOW now in bear territory. GM and Chrylser rumoured to be bankrupt, Ford sales tumble, a surprising drop in the world’s coal supply, defaults, bankruptcies, consumer debt that has tripled, soaring inflation, etc. I could go on and on. Things seem to be getting worse and worse with each passing day. I think the second half of this year is going to be a VERY interesting ride…

Admit it folks. The party is over. It was fun while it lasted, but we’re all lining up for a good healthy dose of castor oil now. It’s time to clean the system out. Nice knowing ya…

#16 For Shame on 07.02.08 at 7:28 pm


Your reply to Kevin in Winnipeg is unwarranted.

You are an MP for goodness sake. You should not be calling any Canadian a sucker.

Only a Canadian who thinks an MP’s job is to lie to them. For shame on him. You, too. This is a time for honesty and truthfulness, however distasteful they may be. — Garth

#17 ForlornIsMe on 07.02.08 at 7:41 pm

I am so sad. We are now caught in this turmoil, staring down financial ruin. And I never sucked on the sweet fruit of abundance!

I now know I should have listened to my mother and never married the lazy-ass man I call husband.

Always listen to your mama….

#18 wealthy renter on 07.02.08 at 7:43 pm

Jon B,

I don’t think that anybody knows what this oil shock will mean for suburbs.

Patriotz (SP?) made a good point in this blog some time back that many suburban Canadian cities (like Mississauga and Brampton) are true centres of commerce and industry, so I don’t think there will be a mass exodus from these places any time soon.

I think the suburban exodus theory is a lot of hogwash, unless we experience a foreclosure crisis similar in scope to the United States.

The reason is this:

While high gas prices may squeeze the middle class and motiviate surbanites to move closer to the core, the truth is, the average suburbanite with a young family cannot remotely afford a city home.

My work is about 12K from Mr. Turner’s riding office. My colleagues get angry when I talk about the cheap houses in Halton Hills. You can get a 2000 square foot home in Milton from 375K to 425K (I checked it on MLS.) A comparable house in a compariable neighbourhood (and a good school **key!**) will run from 600K to 900K in the city Toronto. In many parts of the city core, you cannot get a decent 2 bedroom plus den for 425K.

If commuters can tolerate the traffic, they will have to suck it up and pay the high gas prices.

The suburbs will not disappear. But they will devalue. — Garth

#19 zzz_ddd on 07.02.08 at 7:56 pm

keep up excellent job, on opening Canadian eyes to real estate and economical reality.
Suckers are suckers: you called them right names: and this is where your integrity and honesty as MP shows up.

I watched USA house bubble blogs for 2-3 years and saw exactly the same phases that we are just starting to begin to pass now.
We are repeating USA path, and our downturn may be faster and more brutal.(as other commentators here pointed out).

You have predicted crash in 1989 and you called it one of the first in again. Thank you for that.
Which other MP did that?
Who else has guts?

#20 brazer on 07.02.08 at 8:21 pm

“Garth, keep up excellent job, on opening Canadian eyes to real estate and economical reality.”


#21 jrochest on 07.02.08 at 8:25 pm

I no longer think that Michael-in-Saskatchewan is a flipper — I think he’s a cleverly constructed piece of performance art.

Such idiot positivity (36% gains! in the first year!) must be an aesthetic pose.

Two cents is about what it’s worth, at that.

#22 Chuck D on 07.02.08 at 8:32 pm

I agree with Wealthy Renter.
Also looking at suburbs in the traditional sense is too simplistic. They are no longer just places to sleep. People live and work in these areas as they have done a lot to attract business in addition to housing development. In Toronto these days during rush hour there is traffic everywhere going in different directions. It’s not just from the suburbs to downtown.

I think a lot of people who work in the city and commute would rather live in the city but for them they can’t get what they want or think they need for anywhere close to the same money. I don’t see families abandoning the suburbs to live in downtown condos anytime soon.

I do agree that some areas will be hit harder than more urban areas with the rise in energy costs. I just think that saying they will be abandoned and returned to farm land is silly.

Michael – Keep stocking up on those Saskatoon houses. You can float away on your sea of oil with your own little island paradise.

#23 Anonymous on 07.02.08 at 8:41 pm

You’d think Alberta would be on fire right now (esp. with $144 oil and $14 natgas)… but it’s not. It’s not slow, by any means, but it’s not going gangbusters. 2006 and 2007 had crazy amounts of car traffic, lots of out-of-province plates, busy stores, etc.

Restaurants, electronics stores, etc. are not as busy as they use to be. It’s almost as if all the idiot rednecks are spent-out.

Housing here is still falling. And I’m seeing more people trying to sell their trucks and RVs. Man, if oil prices fall, Alberta’s done.

I’d consider shorting a western bank, or buying western-based auction company stock. I bet you’d make a fortune over the next year or so.

#24 smwhite on 07.02.08 at 9:08 pm

Michael, what you think doesn’t mean shit, really, I don’t mean to sound mean but there is a difference between hope and reality, your still dealing with hope. You can’t separate your own personal situation with whats been going on for the past two years around the world, and not just USA.

Fact is Canada was different, we floated a housing bubble for two years after every other country hit the skids. Its over dude and if you want to throw the knife in the air and try to catch it, with all things, the RE market, wear a helmet and gloves.

This isn’t a matter of oil sky rocketing because of peak oil or even speculators as much as some woud like us to believe(OPEC), this is about the American dollar hitting the crapper, and because its priced in American dollars, we’re finally paying the global price for getting rid of the gold standard and trusting the competence of the American federal reserve. Just be thankful our dollar has gained 20%, imagine filling up at $1.80 to $2 a litre…

I’m sure Garth would agree, there is very little solace in being right about calling a RE induced recession, especially when it comes to calling a persons most priced asset over priced and due for a readjustment. You don’t make friends, your definitely not the guy people want to talk to at a party(trust me).

Seeing as I still and always will have money invested into the stock market, I’ve seen the pain over the past year, what do you think the odds are all that “Hong Kong” money invested in Vancouver will do now that the Hong Kong stock market has dropped just 10% this year.

C’mon RE champions, your the ones saying how all this foreign investment money has been an influx to the Vancouver market, what happens when their stock market goes down another 20%, its been 10% this month…

The Intergalactic Olympics won’t save the BC housing market.

Garth, as always, keep the info coming, much appreciated.

#25 brazer on 07.02.08 at 9:31 pm

Does GM bankruptcy loom?

“Credit option contracts on the Chicago Board Options Exchange that would pay out if GM or Ford default before September 2012 also ticked higher. The contracts, which remain lightly traded, point to a roughly 73 percent default risk for GM and a 69 percent risk for Ford over that period.”

not good.

#26 brazer on 07.02.08 at 9:37 pm

“…Add in other demand resources such as potash and uranium, and you have potential to have one of the wealthiest populations of the western world.”

you been watching POT the past few sessions?


not good.

#27 Whacked Out Winnipeg on 07.02.08 at 9:52 pm

Everybody there is no need for panic, markets go up and down. This is all part of the business cycle. When there is to much speculation in the markets and fundamentals are being ignored the market will return to balance. It can be painfull but it is a nessesary part of economics. People made a lot of money had a good party but now its time for a hangover. U.S will start raising interest rates and the rest of the central banks around the world will raise rates to fight inflation. All the stupid greedy people will get lose there shirts and regular people will suffer.

There is way too much doom and gloom here, a year ago oil was at $50 a barrel the market cannot sustain those prices for much longer. Investors have speculated on the price of oil, eventually the prices will come down as soon as the economy slows down enough and the oil supplies increase. Once all the speculators exit the market oil will be much lower and things will begin the improve.

That being said I still don’t like the outlook for the Canadian economy or housing market. Save your money now and buy LARGE CAP US STOCKS next year.
I believe smart money will start going to the U.S as the market starts to recover middle of 2009 while our market tanks due to lower oil and commodity prices. Canadian dollar will fall back below $.90 vs US dollar.

#28 Islander on 07.02.08 at 10:02 pm

…….Garth, now you sound like a dooms day prophet. I enjoy reading about the payback to greedy real estate agents and home sellers as much as the next guy but this just becoming negative propaganda. Ever heard of a self fulfilling prophesy? I thought MPs are suppose to be encouraging to the country and people, not depress them into thinking Canada is collapsing into financial ruin……

So, Kevin, as long as someone confirms your pre-conceived notions about people you obviously hate, he’s A-OK, but when he starts speaking truths that hit a little closer to home, he’s over-stepped? You want a cheerleader, not a leader, in other words.

And ForShame, who was offended that Turner satirically used the word “sucker,” you’re looking for a Kindergarten teacher whose main aim is to make sure all the children play nice.

We need more Garth Turners.

#29 byebye on 07.02.08 at 10:27 pm

Vancouver’s real estate market is running into a dead end. Inventory up 50% over last year and sales over the last 2 months down 30% & 40%. Whats happening in the West will trump any correction in the East. Mark my words Vancouver is in for a record drop.


#30 mike on 07.02.08 at 11:05 pm

Potash over 200 bucks…that’s more than Apple… Can’t see that sticking. If there is global setback nobody will be safe…even out west. The lumber industry in Nelson BC died due to the housing slowdown in US construction. Walmart is encouraging to buy local cutting transport costs. When Walmart chose bluray over hddvd the gig was up. Don’t discount US ingenuity.

#31 The Other David on 07.02.08 at 11:07 pm

‘Kevin in Winnipeg on 07.02.08 at 4:48 pm Garth, now you sound like a dooms day prophet.’

I think Mr Turner is the only one out there grabbing people by the collar and trying to talk sense into them, and like most kids some of the rebels start to pout.

When things do hit the fan, it will be people like Kevin crying in the streets complaining that politicians lied to them. Oh what short memories we have.

#32 Call_A_Spade_A_Spade on 07.02.08 at 11:16 pm

Mountain Girl – If you know a storm is coming, then be prepare for it. Get out of debt, cut back on spending, save some money if you can, invest some money if you’ve got it, then worry about the ones closest to you.

Its like the emergency procedures on airplanes, secure the oxygen mask on yourself first, then help the person next to you.

There is a storm coming, it will be unpleasant if you have raincoat, but at least you’ve got one. Most people will be left out in the cold.

Garth is right. Most people want politicians to tell them what they want to hear. And most politicians tell people what they want to hear to get elected. Give me truth and call a spade a spade. The sooner you recognize there’s a problem, the sooner you can deal with the issues. Unfortunately, it never works that way.

It’s like that Jack Nicholson movie, ” You Can’t Handle The Truth…”

Denial is not a river in Egypt. Unfortunately, we’re still in Denial. The next stages are Anger, Bargaining, Depression then Acceptance.

#33 michael-you lose on 07.02.08 at 11:32 pm

See above

#34 michael-you lose on 07.02.08 at 11:33 pm

Read it again

#35 michael-you lose on 07.02.08 at 11:33 pm


#36 michael-you lose on 07.02.08 at 11:40 pm

Michael works in oil in Sask
Michael got a raise
Michael got greedy, and convinced his parents to lend him some money for a down payment so he could “get in on the action”
Michaels Parents talked to the bank, they said, “yeah, buy now you will make money, everything is fine…sign here..look over there”
Michael is 25
Michaels realtor is new to real estate and is his “friend”
Michael has lived a charmed small town/city/farm boy upper middle class life, like in Nickleback videos (his favorite band)
Michael has been lied to
“Michael” is in the same position as tens of thousands, perhaps hundreds of thousands in Canada, certainly millions through out the world

Michaels are why we are screwed

Michael-you lose

#37 Kevin in Winnipeg on 07.02.08 at 11:48 pm

Garth, I never said I didn’t agree with you. Most intelligent people know what is coming. But instead of negativity and news paper clippings, how about some of your insight into fixing the problem.


I think your tone would be a lot different if your party were in power.

#38 Central Banker on 07.02.08 at 11:54 pm

smwhite said–This isn’t a matter of oil sky rocketing because of peak oil or even speculators as much as some woud like us to believe(OPEC), this is about the American dollar hitting the crapper, and because its priced in American dollars, we’re finally paying the global price for getting rid of the gold standard and trusting the competence of the American federal reserve.

Finally!!- someone hit the nail on the head

#39 Mountain Girl on 07.03.08 at 12:24 am

Call a Spade a Spade –
I’m not actually all that worried about myself economically. I’m not looking forward to a recession, but I am already doing all the things you’ve suggested and I think (hope) I’ll be okay.
I can handle the truth just fine. But I am not the type to sit back and watch my friends and neighbours get hit by a train while smugly telling them I told you so. I understand your analogy, but I do not agree. I am not okay with people being left out in the cold. Even if it was their own poor judgement that got them there.
Does the average debt-ridden Canadian need to learn a hard lesson? Probably. But are you the one to judge who deserves to be punished?
I don’t feel comfortable in that role myself.
It’s not just speculators that will be hurt by this. A lot of people believed what their mortgage brokers/banks/financial advisors told them about real estate. They trusted the professionals. And that advice was confirmed by all sorts of media reports that should have had a big fat “advertisement” label stamped across their headlines.
I think that is what bothered me about this post: it is almost reveling in the bad news and it does not offer any solutions. I know that Garth takes professional risks by being the bearer of grim tidings, and I respect that. But call me a flaming socialist – I don’t want to see the average person take a beating when there were some very sketchy and greedy things going on in the banks and the government that increased their vulnerability. I want some accountability for that.
I am so behind a strong movement to stop unethical lending practices and to demand full disclosure of bias in all these so called “reports” from the real estate market that we get from the mainstream media. Seriously, I’ll get the petitions going.
If that’s not dealing with the issues, then I don’t know what is.

#40 calgary on 07.03.08 at 12:37 am

This is a normal correction. A vision of the future. Prices are going to correct itself. When you have that much growth in that short of time, do you think its going to keep going up. Wages have not kept pace with home price increases. The incentives to pay more is starting to catch up, 0 down, borrow against RRSPs, 40 year mortgage, low interest rates. It is not mean, unfair, or personal… unless your the greater fool. When you invest that much money into a home, planning is needed, If the market goes down, you only loo$e when you sell (at the discount).

#41 Al on 07.03.08 at 1:11 am

All is not lost. There is a pile of cash to be made shorting the TSE. Take a look south, we have a long way to eye level with the DOW!

#42 Jon B on 07.03.08 at 1:20 am

Hey Garth, a suggestion: how about adding an entry to your blog that explains why “The suburbs will not disappear. But they will devalue.”?
Perhaps the details of your theory are available in your book. Apologies, but I have not read your highly regarded publication. I am simply at a loss to understand such nonsense. The single family home (ie detached house) has been the coveted asset of Canadian families for decades. I believe that most of these SFHs are located in the suburbs. To suggest that somehow the SFH will suddenly lose appeal if its not located in the bowels of a heavily populated major center begs an explanation.
If properties in the suburbs devalue, surely it would be the result of an overwhelming number of families choosing to live in high density urban centers that are currently chalked full of 650 square foot “units”. So what type of property will the average middle-class family seek in the future? Do these properties exist today?

#43 David on 07.03.08 at 1:35 am

The middle class is at risk, largely due to housing costs and consumer debt. Garth has now been elevated to the level of doomsday prophet. That also makes Garth’s USA contemporary Elizabeth Warren from Harvard University a doomsday prophetess.
Canadians can certainly stick their heads in the sand and pretend all is well or we can adapt to the post real estate bubble world. The bubble broke everywhere else before it did in Canada and at least all of us can learn from the mistakes of others who blundered through a crisis.
The American experience might teach us a few things as we prepare for the future. One scenario would be an “own to rent” policy where monthly payments are tied to fair market rents. The families can stay in the house until the property is sold and the financial institutions are allowed a fair market write down against losses. If the property sells for a profit then the bank pays taxes on the gains. The alternative is millions abandoned homes inhabited by crack heads and derelicts. There goes the neighbourhood for other folks nearby will no longer be a cliché.
Some people love to bring up the BRIC economies argument (Brasil, Russia, India and China). India has an economy roughly equal to Florida. The Chinese economy is roughly the size of the combined economies of Texas and California. Canadian businesses invested about twice as many times in tiny little Ireland as they did in the total BRIC economies in the past decade.
When houses trade at 25 times annual rent, there is big problem. The best way to keep the Canadian middle class alive is to keep non discretionary expenses like housing low.

#44 Cam on 07.03.08 at 1:57 am

Anyone out there still think it’s different in Canada this time?

Check out Vancouver’s June stats

Sales down 41% and listings up 53% over last year… the graphs are pretty startling.

#45 Another Albertan on 07.03.08 at 2:25 am

As for uranium, that bubble burst in 2007, principally due to speculation by American hedge funds. They bid the equity prices up as well as the spot price on the metal and they sold anything that wasn’t nailed down in order to generate cash when the blow-offs occurred in August, October and January. Anyone else holding those stocks was decimated.

Interested parties can lookup BAY, CHX, DIT, LAM, LV, MAW, MGA, PNP, RGT, SAN, UPC, amongst a long list of others. Check out a 5-yr graph on any and all of those. Tell me if you see a recurring pattern.

Wait until the US banks have to start writing off corporate bond defaults, HELOC defaults, credit card defaults, car loan defaults, student loan defaults and commercial building loan obligations. There’s at least $500B worth of losses waiting in the wings over the next 12 to 18 months. It used to be that you had to try really hard to default on a corporate bond. I believe the last count in the US was 19 companies so far this year.

You also have a US Fed that isn’t likely to intervene until February unless a massive crisis is dropped in their lap. You have a presidential election in November (can’t look partisan), Christmas in December (don’t want to look like Scrooge) and two new incoming, voting Fed presidents in the New Year. At the same time, you have the ECB taking its own actions to combat inflation and essentially showing that the Americans have no credibility.

Trust me – the impact will be felt here in a myriad of ways. I don’t want a set of painful implications more than anyone else but it is naive to believe that we as a nation are going to simply skirt this with only a few scratches.

If some of Garth’s and other anonymous posters’ comments cause readers some visceral discomfort because you start thinking about “bad stuff”, good. Life isn’t always a Hollywood movie with a happy ending. Every once and while it may be necessary to take a few hard punches. I think we’re headed for a period (of unknown duration) where, as a society, we are going to be for a few unpleasant shocks.

I do not consider myself the least bit pessimistic. I do consider myself pragmatic, though. Everyone else’s mileage may vary depending on their life situation, means, age, etc.

#46 Mike.slob on 07.03.08 at 2:51 am

Realtors don’t care about economy and decline of sales in GTA. For example West Region of Toronto Area (Mississauga,Brampton,Oakville,Milton,Burlington), has decline of sales 13.1% and avg. price increased 17.8% from 2007 (or avg.price is up $ 57,000.)
Avg. price in East,Central, and North regions of GTA are up between 1.5% and 4.4%. Can somebody explain to me WHY?
I can’t understend market in GTA at all, because East Region has decline 14.1% and avg. price increased from 2007 only 1.5 % ( or avg. price is up $ 5,500)?
So west suburbs did “amaizing fake job”,even when sales had declined on the market….

#47 Mike.slob on 07.03.08 at 2:56 am

Answer is follow:
70 per cent of new immingrants in GTA live in Mississauga and Brampton…

#48 Future Expatriate on 07.03.08 at 3:42 am

Michael, what do you think is going to happen to Alberta’s oil market/demand when the US finally bites the bullet and turns whole parts of Colorado, Wyoming, and Montana into shale oil fields (already starting)? What do you think that is going to do to the price of Albertan shale oil?

One word for you, Michael; BUST.

#49 Future Expatriate on 07.03.08 at 3:45 am

Jon B, they will move to the same places where people moved to in California when they walked away from their mortgages… into their cars or into tent cities, or perhaps squatting in all those lovely deserted crack towers we used to call condos…
The ones that still have jobs will rent, mostly in downtown areas.

#50 patriotz on 07.03.08 at 4:22 am

I think the suburban exodus theory is a lot of hogwash, unless we experience a foreclosure crisis similar in scope to the United States.

The places that are getting clobbered in the US are the “exurbs”, far-flung places like Stockton, CA where people drive to the Bay Area to work, or towns in West Virginia (!) where people drive to DC. Suburbs which are closer in or which have their own job base are doing better. Prices are falling, but there are no “ghost towns”.

Places like Mississauga not only have a strong local job base but they have good public transportation into Toronto.

What you are going to see as a result of increased energy costs is densification of Canadian suburbs to make them more efficient, not any “exodus”. There is no reason for more than a few people to move that makes economic sense and nowhere for most people to go to.

I not arguing at all that suburban RE prices won’t go down, just that you are not going to see a situation where everyone abandons the suburbs to live in Toronto proper. Rather the suburbs will have to become more like the core over time.

#51 John on 07.03.08 at 7:10 am

Further to the comments about “disapearing suburbs”:

Frankly, I’d rather be living in the suburbs if economic conditions ever deteriorated to the point of civil unrest. Places like Mississauga don’t have the population density for mass rioting, and those big underutilized front and back yards would sure come in handy for market gardens should a food shortage ever materialize. (Try growing corn on a condo balcony.)

And those large roofs could hold lots of solar panels. Maybe one could keep a horse in a garage? ;)

Seriously though, I agree with Garth. Suburbs might devalue, but never disapper.

#52 Mylene on 07.03.08 at 9:53 am

some looked ahead…others didn’t…

Bungalow will be the home of your future
Independent, The (London), Oct 23, 1999 by Clifford German

THE MOST popular home in 25 years will be a bungalow, shows a MORI poll. It would be the choice of 23 per cent of almost 2,000 homeowners MORI asked for Alliance & Leicester.

The poll also found almost 50 per cent of people thought the best way of adding value to their home in 2025 will be installing high- tech burglar alarms and security systems, and 54 per cent thought solar panels to generate electricity for the home would be the most desirable add-on feature.

The second choice is a new Brookside-style starter home in a suburban close, favoured by 18 per cent. Converted barns appeal to 14 per cent and former farmhouses 13 per cent. Victorian mansions were the first choice of 11 per cent, and 9 per cent prefer a thatched cottage.

At the bottom the scale, only 2 per cent fancied an inter-war semi and only 1 per cent could see themselves in an old-style terraced house, two of the most numerous housing types available. Predictably, no-one wanted to live in a high-rise council flat, although one in a 100 said they would enjoy living on water, underground or in a tree.

The favourite mortgage will be a flexible loan where payments can be accelerated or slowed to suit the borrower’s lifestyle and life experiences.

#53 Mylene on 07.03.08 at 10:01 am

Urban Home of the Future
January 2008


By Stephanie Jackman

urban-home-of-the-future.jpgDrop the term netzero energy home into a conversation and you might get a quizzical look in response. It’s not widely understood. But Gordon Howell believes it will be. And after talking with him, I think he’s right.

Howell’s company, Howell-Mayhew Engineering, is helping build the Riverdale NetZero Energy (NZE) House in Edmonton. It’s part of the CMHC EQuilibrium Housing Initiative. When completed in February, it will be one of 12 such homes across Canada, four of which are in Alberta.

NZE homes generate all their own heat and electricity. They still use energy, but they get it from renewable sources. The goal is to balance the electricity imported from the grid with the electricity exported to the grid, so the net impact is zero.

Howell says the Riverdale home, using off-the-shelf technologies combined in new ways, will actually exceed the NZE goal by exporting 500 kWh of surplus electricity back to the grid. So it’s not only a home. It’s a net power plant.

How is this possible?

They start with the most efficient EnerGuide-rated electrical appliances available (fridge, stove, freezer, clothes washer, and clothes dryer). Task lighting with compact fluorescent and LED bulbs further reduces electricity requirements. So do bigger windows that maximize use of natural light, as do energy efficient motors for heating and venting. Controlling phantom electrical loads slashes the home’s consumption by more than 50% to 4383 kWh per year versus 9058 kWh per year for this home built with conventional choices.

Heat energy efficiency is the next consideration. Highly insulated and air-tight ceiling, walls, floor, windows and doors are the key. Where cold spots and drafts occur, energy is lost. This is why 16″ thick double 2 x 4 wall construction, a much higher R-value in the ceiling, walls, basement walls and basement floor, and triple and quadruple glazed windows are used. The house’s ventilation system ensures great air quality in the house and at the same time recovers 80% of the heat from the air exhausted.

Through electricity and heat efficiency alone, the Riverdale home achieves an EnerGuide rating of 86 out of 100, which is four points more than the R-2000 standard.

The average house uses six times more heating fuel than electricity, so heating is the primary challenge to efficiency. That’s why the Riverdale home has three heating systems: passive solar heating, active solar water heating, and active solar home heating.

Passive solar heating is supplied by the sunlight that comes in through 17 square metres of south facing windows, equal to 10% of the floor area. Additionally, 20,000 kg of thermal mass is created by two concrete feature walls, concrete counter tops and extra drywall, which provides daily solar energy storage. This raises the EnerGuide rating from 86 to 93. The energy efficiency and passive solar heating eliminates the need for a natural gas line to the house and the $350 per year associated with connection charges.

Water heating and active solar home heating, supplied through an active solar heating system, further increase the EnerGuide rating to 96. Seven high-efficiency flat-plate solar heating collectors provide heat to a 300-litre “daily” hot water storage for domestic water heating and then to a 17,000-litre “seasonal” hot water storage for home heating.

The house’s heating is through a conventional forced-air system, though the heating/ventilation ducts are towards the interior of the house and not the walls. This is because the highly insulated walls and windows remain so warm that they don’t need to be swept with warm air from the ducts. The solar heating system provides 92% of the remaining hot water heating and 65% of the remaining home heating requirements. The remainder of the heat is provided by an electric heating element.

All of the home’s domestic electricity and the reminder of its heating are supplied by the electricity grid at night and a solar photovoltaic (PV) system during the day. The PV system exports excess electricity back to the grid every day of the year (even on cloudy days), re-supplies the grid with all electricity used at night, and generates an annual electricity surplus of 500 kWh. Solar electricity nudges the Riverdale home’s EnerGuide rating to just over 100.

Residential electricity consumption contributes enormously to greenhouse gas emissions and global warming, so it’s encouraging to learn that reducing a home’s impact to zero is actually possible. This is what can be accomplished by an integrated engineering effort.

“The Riverdale NZE project isn’t just about building a house,” said Howell. “It’s about helping society prepare for the energy and environmental issues confronting us.”

The final building costs are unavailable because the home is still under construction, but Howell anticipates it will cost $48 to $56 more per square foot than a conventional home.

“This is what is possible,” said Howell. “Many people can easily afford NZE homes if they want them. It’s a question of will, not economics.

“People buy all kinds of things, like cars, with no hope of them ever being economically justifiable. They buy them simply because they want to. Building a NZE house can easily be economically justified now if our utility bills weren’t so highly subsidized. It is just a question of when we are going to face the real costs of energy.”

NZE homes are like supremely expensive organic produce. A fortunate few can afford them now and those buyers are doing the right thing, contributing to the movement, and adding to the critical mass that will make NZE homes economically viable for more of us in the future.

1. Learn more about CMHC’s national sustainable housing initiative. Find out how your next home can reduce environmental impact, conserve resources, and save you money. Visit http://www.cmhc.ca for more information.
2. If you’re in the market for a new home, consider Echo Haven, the Calgary project for CMHC’s EQuilibrium Initiative. Lots are available now. Visit http://www.echohaven.ca to learn how you can build and live sustainably.
3. If NZE construction is not within your means, build a NZE-ready house – one that is energy efficient and suitable for a solar PV system in the future.
4. Not planning a move anytime soon? Make your current home as energy efficient as possible. Read our tips for reducing your ecological footprint in this month’s environment article titled Bigfoot.

#54 smwhite on 07.03.08 at 10:45 am

I read an article the other day where the ECB was “recommending ” that the US federal reserve start raising rates sooner then later. Looks like the ECB isn’t going to wait for Bernake to make a decision.

Why would they, he’s done nothing but make the wrongs ones up to now. C’mon Canada get into the game and help fight inflation…


This is a big reason you should be diversifying and making sure your have a little euro action in your portfolio.

PS The Hang Seng down -461.67 (-2.13%) last night to 21,242.78, it was up to 24,000 end of May 2008…

#55 Jon on 07.03.08 at 10:47 am

More likely than suburbs disappearing, I think we will see more flexible working options in the short-term. It’s already happening as working from home makes complete sense in an era of high fuel and housing costs and ridiculous traffic. The idea that everyone should drive to and from work at the same day every day is outdated and leads to more stressed employees. It could also lead to better family relationships and less stress and obviously would be better for the environment. We have the technology already to make video conferencing, etc very easy. Most companies have a percentage of jobs that can easily be done from home; they just have to start trusting people. Some will take advantage, but most would appreciate it. I would imagine it’s also easier for companies. Virtual offices are the way to go.

#56 Jon on 07.03.08 at 10:48 am

Sorry, I would imagine it’s also cheaper, not easier, for companies.

#57 Mark on 07.03.08 at 11:00 am

Perhaps oil is not the be all and end all in terms of killing the suburbs. There will be advances in technology, i.e. electric cars and renewable energy, that will mitigate the problem and perhaps represent a paradigm shift. As for the correction what I’m finding in the north west corner of Brampton is that those who need to sell have slashed prices aggressively on MLS and those who don’t need to sell are taking their houses off the market because they don’t want to loose money. I think the suburbs will remain but the correction in the unrealistic/unaffordable value of those houses is already taking place from what I have seen. I don’t by any means know the future but the numbers and facts are hard to ignore.

#58 marc on 07.03.08 at 11:34 am

Dear Mr.Garth, I read your each article very carefully. It’s very helpful and I appreciate everything you did for us. Now I’m loving in Montreal QC. How do you think about the RE market in QC, is it different from the east parts or everything will be same? You know, the price of house here is lower than Vancouver, Toronto a lot. Thank you for your works!

#59 Mike.slob on 07.03.08 at 11:37 am

open the link bellow:

#60 patriotz on 07.03.08 at 3:56 pm

those who don’t need to sell are taking their houses off the market because they don’t want to loose money.

It’s the people who hang on to their houses in a declining market who lose money, just as those who hang on to their stocks in a declining market lose money.

They are missing the chance to sell at just under peak prices.

#61 Calgary's Fools on 07.03.08 at 4:12 pm

Interesting views Garth. There are many suckers from 2005-2007 that have purchased homes for outrageous sums of money. Unfortunately correction is in the making in that due to a disparity of wages vs. cost of housing. It’s not a big deal, people, just be prepared to lose lots of money when, not if, you lose value on that house you just bought. You should have waited.

#62 kabloona on 07.03.08 at 5:19 pm

To paraphrase patriotz:

a) nobody ever went broke taking a profit, and…

b) crystallizing a capital gain is rarely a bad idea.

Probably why I’m seeing all these “For Sale” signs popping up like weeds.

#63 SaskatoonNARI on 07.03.08 at 6:04 pm

Garth, THanks one more time for your book… very enlightening!

BUT! I keep reading these blogs / conversations and I feel some people really think whoever who owns house or invested in real estate is gonna go broke. That does not seem reasonable to my view… It really depends where in this whole boom you bought in. If you bought a place in Calgary for 200k, and was 450k 6 months ago, now it is down, say, 10%. It is still 400k which is some 200% Gain… And since real estate purchase is generally leveraged, return is higher… Only if you got in and bought that place at 450K is when you may be in trouble…

#64 dotava on 07.03.08 at 6:20 pm

Congratulation Mountain Girl – I feel the same way as you do. I am sick and tired seeing us humans as worst animals on the planet.

#65 lgre on 07.03.08 at 6:31 pm

SaskatoonNARI – I don’t think people are saying that, what they are saying is like in the U.S many people bought over there heads and when the mortgage is more then the house and they are barely affording it as it is, walking will be an easier option.

There is truth to your example but there are people who bought for $450 with no down/40 years, so what happens to them if the house falls to $350? Would you want to pay for something that you can barely afford and then on top of that just depreciated $100k.

I know what I would be doing.

#66 David on 07.03.08 at 6:52 pm

Inflation is running rampant in Canada right now. At some point, the Bank of Canada will say enough and start racketing up interest rates to combat inflation. The housing market is far more fragile and less robust than most of the greater fools were led to believe.
Many those overvalued mortgages probably would go swiftly into default with something as simple as 2% rate hike. If the central bank gets serious about the inflation problem there will be a truly Biblical style plague in the Canadian housing market and the all housing is local theoreticians might wind up having to recant.
Shiller said that housing markets do correct, by reversion to the mean prices in inflation adjusted dollars. The unwinding process takes about 10 years. Reverting back to the mean prices of 2007 would probably take a generation. For those with lots of time on their hands and for those who overpaid on houses hang tough for the next 20 years and you will be right back up to 2007 price levels.
Oil at $150 and an overvalued Loonie will not in the end get this country very far except for completely hollowing out manufacturing and export related industries. There is a big difference between passive rentierism from commodities and active entrepreneurship.

#67 EJ on 07.03.08 at 6:59 pm

Mike.slob: What a bizarre article. It’s almost as if someone mixed up the headline for it with another RE piece.

The title claims, “Calgary Single Family Home Sales Holding Steady in June”

Then in the body of the article it states, “The MLS report shows that single family homes sales in Calgary came in at 1,439 in June, a decline of 18.1% in year-over-year sales. Condominium sales came in at 556 in June, a 29.8% decline from the 792 sales made in June 2007.”

So they’re holding at a steady decline? Is that what the article is getting at?

#68 calgary on 07.03.08 at 7:20 pm

Bubble? What Bubble? Kapow! What was that?
The bubble popping. Take cover.
The Calgary Herald July 03, 2008 Business section headline “Once-hot housing market feels chill” , “Prices stable as sales take steep decline” (Morio Toneguzzi).
How stable is it when you bought your home in June 2007,(average single family home was $496,890 down to June 2008 $473,774) http://www.creb.ca. I am always curious to see how they spin the story. Yes, he is correct with YTD sales are up .2 % over last year. With less demand and increased supply for 08, I dont think they will be ahead of last year by the middle of July. July 07 the average S.F. home was $505,920 good luck beating that with July 08 staring at at $472,437.
Garth, I think they are taking quotes from your book. “There is no better time to buy, Good selection, buyers market”. My all time favorite “Balanced market”.
The scary part of all this, if the experts were to confront the issue and meet it head on. Take some pro-active actions instead of trying to paint a rosey picture, maybe they can let some pressure off slowly, instead of a pop.

#69 Popping Bubbles on 07.03.08 at 8:29 pm

Agree with EJ, the article posted by Mike.slob is bizarre to the point of being outright misleading.

The article leads off with saying “Single family homes sales in Calgary grew 5.2% in June over the last month”, yet due to seasonality June sales are typically always higher than May sales. What matters is seasonally adjusted sales (for example, June 2007 sales versus June 2008 sales).

The article then goes on to discuss the supposedly modest increase in listing in the first half of 2008 relative to 2007, but tries to mask then massive increase in inventory year-over-year by talking about how inventory dropped slightly from May to June of 2008.

Then the Realtor has the balls to say that all this is great news, that the great news is attributable to the fact that “sellers are listening to their realtors”, and that the plunge in sales actually means that “more buyers are finding a home that fits their family’s needs”.

The true take-away of the article is that realtors are self-interested, unethical scumbags who shouldn’t be trusted.

#70 Ali on 07.03.08 at 8:40 pm

Hi everybody

I’m confused, I’ve been watching a Bungalow in Calgary closely and it was priced for 465 K, it was one of the best in the market but there has been no buyer for long time, they reduced the price by 15k and now my realtor just said there are “6″ offers on the property !!!!!!!

they bought the house for 375K last year and did a lot of renovations.

It seems if the property is in a good shape, there are always buyer out there…

should a first time buyer look at the real estate as a nice shelter rather than investment ?

any comments ?

#71 lgre on 07.03.08 at 9:08 pm

I doubt that vey much, maybe if the decrease was $100k in the curent market then I can see 6 offers..but I cant see $15k reduction bringing that many fools to the table.

#72 toby on 07.03.08 at 10:17 pm

the numbers speak for itself. can anyone say freefall?


#73 calgary on 07.03.08 at 10:37 pm

Read “Greater Fool” (no I dont work for Garth)
If you feel comfortable after reading it, then go ahead buy your shelter. If you can hold off (at least) until December- January, where prices seasonably come down anyway.
As for the 6 offers for a $15k reduction, ask to see them… when the dust settles… I doubt it.
As for that bunglow,… purchase price of $375 a year ago… with carrying costs, legal, renovation costs (?) and realtor fees. Let someone else be the “greater fool”.
Sure Alberta is going great guns, but that does not mean you should over pay. (look at Microsoft, one of the most cash flush companies they even refuse to be taken advantage of by yahoo)

You’ll get your castle.

#74 patriotz on 07.03.08 at 10:45 pm

I feel some people really think whoever who owns house or invested in real estate is gonna go broke

Nonsense. Nobody who bought a house before 2001 is going to go broke.

Whether a house, or anything else, is a good investment depends on how much you pay for it.

Got that?

#75 ON THE SIDELINES on 07.03.08 at 10:54 pm

I work in the oil and gas sector, and after a time abroad I’ve come back to Calgary. I’m tired of hearing that Calgary is ‘different’…Having crunched the numbers, I am better renting than buying , and I work in oil and gas. Consulting. In effect one of those people they point to as the fall guy for the high cost of everything in Calgary. If I don’t see any reason to jump into the market given the marginal gap between renting and buying what I want, who is buying in Calgary?

#76 David on 07.03.08 at 10:56 pm

People love to forget how badly Calgary housing cratered in 1985. Interest rates had moderated from 1981 levels of 21.5% to a mere 13.5%. There were by all accounts up to 5000 abandoned quit claims pulled off the market by the banks and CMHC and a very well constructed bungalow could be had for about $70K with few takers. The city of Calgary relinquished most of its banked land in the boonies. The bust was huge, but this time it is different right? I also have friends there that bought into that tanked market.
Fast forward to 2008. The market is meeting price resistance, since family incomes did not keep pace with the so called boom. The exurban Calgary McMansion was constructed by some kids that used to deliver pizza, but found better paying jobs spraying stucco to cover sloppy workmanship. Alberta under Ralph Klein followed the stupid model of California style public utilities deregulation. Anyone out there cash the utility rebate cheques when Ralph was pandering for reelection ?
Even with $150 a barrel for oil, most of the windfall is going to corporate and government coffers in Alberta. Reality will set in and the wild party and great barbecue will be over.

#77 ON THE SIDELINES on 07.03.08 at 11:18 pm

David, I agree with everything you said except the Ralph Bucks, I got it and enjoyed it… remember Alaska has those royalty rebates all the time. I agree they could have better put it towards Education or Health, but I, like every other Albertan, didn’t complain when they got the cheque. YOU’RE just jealous me thinks..:-D

#78 Islander on 07.04.08 at 12:36 am

…….The true take-away of the article is that realtors are self-interested, unethical scumbags who shouldn’t be trusted………

I feel sorry for you.

#79 byebye on 07.04.08 at 12:53 am

Meltdown of the month has to go to Vancouver. Sales down 43%.

#80 Republic of Western Canada on 07.04.08 at 1:30 am


The majority of characters who are buying are those who absolutely-have-to-buy-now-because-everybody-else-is-buying
and they will miss out on being with the crowd and will never have meaning in their life every again because they’ll miss the last chance they’ll ever have to live in an overpriced piece of s**t.

And then besides it doesn’t matter how much hock they get into because life is so pointless anyway that they might as well live by consuming stuff to the max because in the end everyone is screwed anyway.

That’s the short-term view of the majority. There are a shrew few like developers and RE agents who take massive advantage of that twisted ‘hula-hoop’ mentality to make a bundle on cheap construction and big agency fees.

#81 Jas on 07.04.08 at 8:38 am

Real-estate ad offers buyer an opportunity to marry ‘Princess Lost in America’
Single mom selling Fla. home, heart online

Families turn to loans and credit cards to cover mortgage bills

#82 David on 07.04.08 at 10:02 am

Does anyone out there remember Enron? Smartest guys in the room, structured investment vehicles and Harvard MBA’s pleading incompetence before judges etc. None of the old weighted average cost of capital before the Public Utilities Board was good enough for these boys. Nice free enterprise Alberta gave them a chance to test their theories. Tough to run a home without utilities and even tougher when home owners get gouged by gangsters.
Owning a home in Calgary is huge risk in terms of both interest rates and utility costs.
For those who really want to see the great benefits of the Klein Revolution deregulation of public utilities read this.

#83 Calgary Rocks on 07.04.08 at 10:24 am

since family incomes did not keep pace with the so called boom

I believe average family income is 95K in Calgary. Ours is almost double that as is most people I know. We’re only middle class professionals, nothing special. (Not even in the oil field)

We would probably make nore money as trades people anyways. It’s hard NOT to make any money in Calgary. Even front desk clerks make 16$/hour.

The average family income is $90,700. By comparison, it is $84,000 in Guelph, Ontario, and $75,000 in Halifax. — Garth

#84 Mr.Simpleton on 07.04.08 at 11:14 am

I think we’re averaging around $65K in Vancouver… pathetic.

#85 Calgary Rocks on 07.04.08 at 11:17 am

Owning a home in Calgary is huge risk in terms of both interest rates and utility costs.

If you look at your energy bill you will see that you pay market price. Not more not less. Well, less if you sign for a 5 year plan. ‘Regulated’ energy prices means subsidized by the government which just makes it up with higher taxes. There’s no free lunch out there.

The portion of the bill that I consider ‘theft’ would the various fees & fees on top of fees and other misc. taxes which the government imposes and can be 30-40% of the bill.

But of course my property taxes are less than 1/2 a similar property anywhere in Canada. Land transfer taxes are probably 1/10th. Much lower income taxes, no sales tax, etc…

But, more important, let’s not forget the wicked ski/boarding in the winter. How about a season pass @ Sunshine for about 600$! Calgary really rocks!

#86 no_subprime_here on 07.04.08 at 11:24 am

Garth, the average income does not mean that much (you know, Bill Gates walks into a bar…)

The median income in Toronto was around 64K between 2000-2004 (probably slightly higher now).


#87 Brent on 07.04.08 at 11:35 am

Michael saying “I think the housing slow down will be isolated to Eastern Canada.” and saying “In the case of Saskatchewan, I just read that the most recent statisics indicate that the housing prices are going to jump by a further 36% just this year, so if one was looking to buy this would still be an excellent place to purchase as the massive equity gains in the first year will offset any sort of extra interest that would accrue should someone choose one of the new innovative 40 year mortgage systems”

What planet are you living on Micheal? You can have your 40 year mortgage on your 40 year old bungalow in nowheresville saskatoon. If you can’t pay the dump off on when your collecting CPP you can just pass the dump of debt onto your kids. LOL

#88 Calgary rip off on 07.04.08 at 1:33 pm

It’s very interesting to see the tone differential between owners and renters on here. Unfortunately it looks like the owners are in big trouble if they bought recently. What goes up must come down, its the law. What is further baffling that all of these homeowners support bullish views which drive away many people from owning homes. They simply cant afford it, which means that less people will live here to work, and with that, demand for services and goods will decline as people leave. Unfortunately it looks like oftentimes the greed of people cause their own self destruction which appears to be happening at many different levels in Alberta. There are many industries that have theoretical value but no real value.

#89 Calgary Rocks on 07.04.08 at 2:46 pm

It’s very interesting to see the tone differential between owners and renters on here.

What’s amazing is how many people hate where they live and yet sit on their ass complaining and hoping for an economic disaster to justify their bitterness.

Perhaps it would be best to go where the grass in greener. I hear that houses in Windsor are really, really cheap.

#90 Popping Bubbles on 07.05.08 at 2:48 am

Islander… Why should you feel sorry for me? I have a great job, health, family, friends, own my current house debt-free, and am privileged to sit with a mid six digit investment portfolio after dumping my real estate agent for being a Mercedes-driving pompous ass (“If this market keeps going like this for another few months I’ll be retired”, “There are 10 bidders, so you’ll need to come in about $125K above asking” or “With prices going up at 7% to 10% a year, you’d better buy as soon as possible or you’ll be priced out of the market”)

Please choose which of the following you disagree with, and I will be happy to provide data to the contrary:

a) Real estate agents selective emphasis certain statistics to convey that general perception that the market is healthy and now is a good time to buy

b) Real estate agents ignore the *global* nature of the housing bubble and pretend that the unprecendented run-up in Canadian real estate prices are “normal”.

c) Real estate agents tend to downplay the risk in the housing market, and

d) Real estate agents engage in many questionable or just plain unethical practices to inflate their own incomes at the expense of those for whom they are supposedly acting

e) Real estate agents are overpaid relative to the value they provide

f) Real estate agents have colluded to restrict competition so as to keep their commission rates unreasonably high

The Calgary Real Estate Board article and many other similar “marketing” pieces are designed to misleadingly encourage the public to make massively leveraged investments in a very unhealthy and dangerous market.

Why do you defend this type of behaviour? Why shouldn’t we all be angry about it?

It is you and your dishonourable profession I feel sorry for. Prepare for lean times my friend.

#91 Calgary rip off on 07.05.08 at 5:32 pm

I hope for all the home owners that all the disgruntled and bitter renters do leave in Calgary. That way the owners can justify their falling home prices. Perhaps the anxiety that home owners display is related to their greed and lust for money on overrated houses which is too bad. Workers are needed in a vibrant city. These people have needs too. But of course the conservatives choose to avoid rent caps and instead tax the general public with innovative ways at increasing costs in such things as alcohol consumption. Perhaps home owners should stop their unlawful intercourse with realtors in fascistic fashion.

#92 GrandePrairiegirl on 07.06.08 at 10:36 am

To smwhite & Central Banker,
If OPEC decides to dump the greenback in favour of Euro’s for payments things will really start to get ‘interesting’.
As an aside to the RE dilemna, I have been living in my home since Nov.1995 however still have a mortgage. I’m a single female, no dependents except for one dog.
Would have sold last year but was doing some minor reno’s and updates throughout the year, house is only age 14, but there’s always something to do. Taking 2 weeks off work during this month and next to finish all minor details and then selling WITHOUT A REALTOR come late August early September. Will still see a substantial gain despite lower pricing. Back to renting for the next year or so at probably a somewhat higher than average rental rate as I’m not giving up the dog.
Anyways my question is this. I would like to put the proceeds in short term GIC’s or some equivalent for the duration, I’m not interested in the stock market whatsoever. I no longer have faith in our big 5 banks or ATB(ALberta Treasury Branch), this leaves the Credit Unions. Any thoughts on Credit Unions? Thank You.

#93 Sleepless in Vancouver on 07.08.08 at 5:15 am

Many people seem to be trying to rationalize current economic events by looking to the past and thinking, “this is just another market cycle like we’ve seen before”. It is not. There has never been such a series of cards stacked against us before as there are now. I agree that much of the discussion here sounds fairly apocalyptic but if we look to lessons from the past to guide us through these times then we are most certainly screwed.

For example, at today’s oil prices it may seem like the oilsands can solve all our energy problems (and Alta. & Sask. will be booming), but they require a huge amount of NG and water to process them. We have, maybe, a decade left of these resources.

We have terrorism, climate change, Derivatives and Credit Default Swaps worth more than the total wealth of the planet, consumer debt at historic levels, the US Treasury printing money with no asset backing. The list goes on.

Previous economic theories cannot be be modeled to deal with all this. It is going to get ugly, maybe catastrophic, unless our governments get their heads out of ….the sand very, very soon (and if they do it will still be ugly). I would say that Real Estate is the least of our worries at the moment.

#94 Wateredge on 07.08.08 at 6:01 pm

At the beginning of the year, the real estate industry still said there is going to be 5% appreciation this year. And now, they all changed the tone. Even the basher does not bash that hard any more. But it is very hard to tell the current. That is why we still see people in Calgary are still buying. They might think they got a bargain compared to 12 month ago. Today’s bargain may look like a horrible deal next year, a 20K hair cut will be really a hard pill to take.

#95 Wateredge on 07.08.08 at 6:02 pm

At the beginning of the year, the real estate industry still said there is going to be 5% appreciation this year. And now, they all changed the tone. Even the basher does not bash that hard any more. But it is very hard to tell the current. That is why we still see people in Calgary are still buying. They might think they got a bargain compared to 12 month ago. Today’s bargain may look like a horrible deal next year, a 20K hair cut will be really a hard pill to take.

Your comment is awaiting moderation.

#96 Rob M on 07.08.08 at 6:10 pm

“We have terrorism, climate change, Derivatives and Credit Default Swaps worth more than the total wealth of the planet, consumer debt at historic levels, the US Treasury printing money with no asset backing. The list goes on.”

>> Can you say self-fulfilling prophecy?
Get enough people to believe all of these are coming true and yeah, maybe they will. Apart from climate change, these are just retreads and the speed of information [spurious at best] on them only exacerbates the mania. The list you refer to has always existed in one form or another.

Remember nukes? SARS? ebola? the housing bubble? :>
Where did ‘history repeats’ or the ‘business cycle’ cliches come from?

Breath or as your moniker alludes to, get some sleep.
Life goes on.

#97 Stephen from Toronto, Ontario ,Canada on 07.10.08 at 7:12 am

To Sleepless in Vancouver:

I want to commend you for telling people in this post about how serious the credit crisis really is. I found out about this situation when 4corners.com (an investigative journalism group in Australia) reported on the real estate meltdown in late September 2007. When the Federal Reserve Board reduced interest rates from early 2000-to March 2002 it was to compensate for the loss of $8 trillion of wealth lost during the dot com crash and the events of September 11, 2001. Most of the money (or excess credit) did not go into rebuilding America’s infrastructure, or improving manufacturing technology , or providing better access to education and health care, but to fuel a housing and financial credit bubble that is currently unraveling right before our eyes.

When wall street created these financial instruments (thanks to the past performance of LTCM who used the Black-Scholes equation(to loose $1.5 trillion during the 1998 Asian financial crisis) lead to the creation of financial engineering dept in MBA programs in universities around the world.

One of these instruments is the adjustable rate mortgage (ARM) that was sold to minorities and poor whites in major cities in the states of Ohio, Pens, Michigan, Florida, Arizona and California. Many of the lending institution took advantaged of people who did not have the income to afford these homes by offering mortgages with low interest rates for 2-3 years not knowing that they would increase by over 40%.

To make matters worse, between 1999-2000 the US government loosened regulations governing the issuing of derivatives in which financial institutions were not required to even have reserves or annuities to back the credit default swap insurance. Second the repeal of the Glass-Stegal Act during the FDR Administration in the 1930 prevented banks from owning insurance companies & investment banks and vice versa.

The subprime mortgages were mixed with AAA mortgages and asset based commercial paper
(ABCP) and sold to Asian and European investors, Hedge funds and institutional investors. These investment funds had 10% cash and leveraged it between 30-50x

The use of credit default swaps was to protect investors from suffering financial losses if a small amount of the subprime mortgages defaulted. When defaults started to rise from late 2005 to the present due to the increase in ARM payments, forclosures started to happen and hedge funds from investment banks such as Bear Sterns, Goldman Sacks, Merryl Lynch, JP Morgan/Chase Manhattan, Bank of America, Citibank started to collapse. The value of the subprime mortgages and bad derivatives that are classed as level 3 assets legally by the SEC exceeds $5.4 trillion. When Bear Sterns collapsed between March 15-17, 2008, the Federal Reserve Board stepped in by allowing investment banks direct access to credit at 4% (only availible to commercial banks) to prevent the meltdown of the $750 trillion derivative market which has now exceeded $1.168 quadrillion. This little bit of information is not know to the public!

At present the credit bubble has led to the incredible expansion of residential and commercial real estate boom in the US. As of today housing prices have dropped at least 40% in Ohio, Florida, Arizona and California. Approximately 2+million home have been repossesed by banks and financial institutions such as countrywide. The Federal Reserve board has bailed out most of the mortgage companies and some of the banks. If they bail out Freddie Mac and Fannie May(student loans and public housing) it will cost the taxpayers over $300 billion and could downgrade the AAA credit rating of the US resulting in a lower dollar.
This sum would be added to the $1.2 trillion in losses from the subprime crisis.

Insurance companies such as PMI, MGIC, MBIA and Amback (all based in NYC) have to cover over $430 billion in subprime loan losses and do not have financial reserves to cover even half of the $2.5 trillion municipal bond market. This situation is forcing cities to cut back or suspend capital budget programs altogether. The US Govt through the Resolution trust corporation is considering taking over Amback and MBIA insurance companies.

To conclude part one of this discussion, the credit crisis is beginning to spread to the general economy in the US. It is starting to affect high yield bonds, commercial mortgages, leveraged loans, credit cards, car and truck loans and credit default swaps. The estimated size of the CDS is $62 trillion. Worldwide the insurance companies can only cover 5% of this total number or $4 trillion which would make them insolvent. Even the central banks cant cover this sum resulting in the collapse of the bond market and a meltdown of the financial system

Will this affect Canada? Absolutely. Garth Turner is correct in pointing out that real estate property values will fall 40-60% between now and 2013 due to contraction of credit for land development ,in major cities. More to discuss in Part 2 of my report

#98 Reece on 12.10.08 at 7:42 pm

to no. 10, watch the movie, “The End of Suburbia”.