Too late

Downtown Toronto condos, where overbuilding has the wheels coming off – except for new buyers who can get a free Honda car thrown in when they take the plunge.

Henry Paulson is a pretty bad liar. As a gonzo Wall Street merchant banker he was respected in the private sector for his forthrightness and drive. These days he’s the US Treasury Secretary, equivalent to Ottawa’s minister of finance. He was directed by the White House to get out in front of American network TV cameras this week to deliver two messages:

(a) Everybody chill. The banking system’s sound, but…
(b) expect more banks to fail and the coming months to be scary.

If he lied better, he’d probably have skipped the second part. To his credit, he didn’t. As Paulson plainly states, the real estate market has not yet hit bottom which means the economy will continue to weaken; financial markets will continue to stress as the credit balloon deflates; and high energy prices make it all worse, harder, deeper, longer.

As many as 90 US banks will go belly up, we expect. The banking system will survive, but America will not be stronger for it. Meanwhile mortgage giants Fannie Mae and Freddie Mac are probably just months away from being taken over by Washington, which will make the real estate crisis the worst in world history.

What does this mean for us?

Good news & bad. The bad part you already suspect – our housing market will follow the same trajectory, a fact which is becoming more obvious every day, despite the attempts by companies like Royal LePage to paper it over with saccharin-soaked MLS listings. Also bad is the loss of export markets thanks to a too-high dollar and a moribund America. This means more jobs will disappear and southern Ontario cities will have their industrial guts ripped out as more families meet financial crisis. And even if oil prices decline twenty bucks a barrel, energy costs have already done a number on inflation, which means interest rates may rise before long – just in time to mess up everything a bit further.

The good news is, well, sort of good news. If the situation in the States gets impossible (banks shut for several days to prevent a run on deposits, stock trading suspended to prevent a crash, the American dollar a basket case), some people believe commodity-rich Canada could do well. One is John Riley, head of US-based Cornerstone Investment Services who thinks gold, oil and agricultural commodities could become forms of alternative currency to the Yankee greenback – giving this country a kick while American takes a beating. Sort of.

In order to profit, of course, you’d have to maintain a stake in those things, through direct ownership (gold, for example), or the stock market (energy companies, ag products, resources). What this also suggests is, you don’t want to own bank stocks, US dollar-denominated securities or a position in any of the industrial giants. Ditto for non-essential retailers like Best Buy. Wal-Mart, on the other hand, will be beating business back with a pointed stick.

While a lot of this is conjecture and postering – both by politicians and financial forecasters – the fact remains Canada and the States have been on a years-long debt binge, now crashing. We put too much money in one asset class, real estate, and most of that cash was borrowed. Some consequences have arrived, more are coming.

I just spent time chatting with a gal recently out of her job as a credit officer with one of the major Canadian banks. Her role was to approve or reject applications for residential mortgages brought to her bank by Toronto mortgage brokers. Most of them, she said, were junk. Borrowers could not prove their incomes and many had revolting credit histories. But the bank’s policy was to lend money based on the asset, not the buyer. “As a result,” she told me, shaking her head, “I was instructed to approve at least $50 million in mortgages for people I knew would not be able to pay.”

By the way, did you know Canadian banks don’t bother sending appraisers any more to inspect most of the houses they finance? They just look up the postal codes, and approve on that basis. Even when it’s no money down. So much for conservative, buttoned-down Canuck bankers. Too bad they forgot this rule: All booms end badly.

Hard to believe our federal government spent three years watching this real estate disaster unfold in slow motion to the south of us, and did nothing until one week ago. When it was too late.

77 comments ↓

#1 pete on 07.22.08 at 10:14 am

This housing crash is going to hit and hit hard. People are going to see housing sales stall and then crash hard. First places to really start crashing hard are the suburbs like Brampton . The rest of the suburbs will follow as all those 40 year no money down people will not have a great fool. Many of these people are still waiting for their homes to be built. Can you imagine how many of them will walk away before they even move into an unside down mortgage? RE is dead and the pain is just starting and will get ugly as the months pass.

#2 $fromaSia on 07.22.08 at 10:20 am

The Government still hasn’t done enought.

They should of dropped ammortization to 30 year max.

They also should of reverted back to 10% down min.

Flaherty is a joke, this is one pig that should resign.

#3 CinToronto on 07.22.08 at 10:35 am

Thank you, Garth, for trying to disabuse people of the notion that Canadian banks are more conservative than those in the United States. Why would there be such a proliferation of mortgage brokers if there weren’t some dubious deals and fast money to be made? For a few extra bucks, many brokers were happy to push through a questionable mortgage. Your story suggests that our banks were happy to sign on the dotted line. Perhaps things aren’t quite as bad as they are in the US, but we shouldn’t kid ourselves.

#4 JB on 07.22.08 at 10:37 am

If historical Real Esate busts deflate by 30% (IMF) Then it would be prudent to never have allowed anything less the 25%, as a deposit on a home. We are only setting ourselves up for a banking crisis here in Canada.

#5 Peter Schiff on 07.22.08 at 10:40 am

Peter Talking to mortgage brokers in 2006. Part 1 of 8

http://www.youtube.com/watch?v=6G3Qefbt0n4

#6 confused and a little crazed on 07.22.08 at 10:55 am

Whoah guys,

I bought Fannie mae just yesterday hoping to catch it on the uptake because the impression is they are too big to fall. …in one day after i bought it. it dropped down to neg territory. Don’t want to hold it. Sold…lost 1 Grand. It ‘s just 2 volatile to hold. the best case case scanario around is at least $25 billion bailout. You know how overly optimist the recent predictions are…

fell into the greed…hoping for a quick gain… Should stick to the fundamentals…Finance is just not good right now… too much debt. thought I share. Still have holdings in gold and Potash…in postive territory and I think it will stay but no great gains …just holding its own . stocks aren’t good right now. I ‘m only positive because i got in on the jan/ march crash.

good luck all and stick to the fundamentals. trying the catch the uptrend in this volatility is the same as gambling

#7 SaskatoonNARI on 07.22.08 at 11:12 am

Hi Garth,

Would you short Canadian Banks with your own money at this time if you were into stocks? How much of the coming bad news you think is already discounted into Canadian Bank stock price?

#8 midas on 07.22.08 at 11:15 am

We are about to move into the REAL WORLD and the majority are not ready to be unplugged from the MATRIX but unlike Neo they may not have a choice. The Real Estate bust is the least of the problems that people worldwide will soon be confronted with – are you ready?

#9 Call_A_Spade_A_Spade on 07.22.08 at 11:54 am

hey confused

i pretty much did the same with the US financials, but i bought the UYG (US financials bull ETF) too early and got stopped out. i took a small lose.

however, i was able to catch the bounce on Canadian financials last week and bought the HFU (horizons betapro financials bull). i was outta there in 2 days and made some good money.

definitely, not for the faint of heart and you really really need to pay attention

i am looking to short the financials again in a month or so after this dead cat bounce. HFD (horizons betapro financials short in canada) or the SKF in the US.

good luck

#10 Mike.slob on 07.22.08 at 12:51 pm

NEW YORK (CNNMoney.com) — A good credit score doesn’t mean you can’t end up in foreclosure.

Many now troubled borrowers had excellent credit when they got their mortgages. But they took out loans that they couldn’t afford to buy homes that WERE TOO EXPENSIVE. Credit scores alone are no guarantee that borrowers will be able to keep up with their payments.
In September 2007, the most recent month for which data is available, more than 20% of mortgage borrowers with nearly perfect scores of between 840 and 850 were 60 days or more delinquent, according to First American LoanPerformance. That default rate was roughly equal to that of borrowers with much lower scores, in the 540 to 599 range.

There always has to be a certain balance between wages and house prices.But Income levels do not support the current house prices in GTA.

#11 Don't understand the problem on 07.22.08 at 12:52 pm

confused and a little crazed:

Should have held on to FNM.

A week ago last Friday, I bought a basket of financials on margin given opportunities of all the fools panicking, FNM at $9, FRE at $6, WM at $5, WB at $12 and AIG at $23. Went lower last Monday and Tuesday and up since. Still very very cheap. They will still be cheap at $20, $16, $10, $27 & $33 but I am risk averse and will sell out at that level with a quick profit of 50K.

#12 Paul in Vancouver on 07.22.08 at 1:00 pm

Garth, can you give us a source for the ‘free honda with condo purchase’ offer? A few minutes of lazy googling gives me nothing.

Go to the corner of Front & Spadina and look up. — Garth

#13 $fromaSia on 07.22.08 at 1:24 pm

‘free Honda?’

Is it a Hybrid, because if it isn’t I won’t have fuel savings to put against my massive mortgage!

#14 cool on 07.22.08 at 1:39 pm

is that a new Honda or a used Honda? If it’s new, i’m in!

#15 Mike.slob on 07.22.08 at 1:39 pm

“No tree grows to the sky”.
Past erosions in affordability are the main factor behind weaker sales in GTA.
Sales in GTA are significantly lower than in the banner year that was 2007, but they are also returning to before 2004-2006 levels between 78,000 to 81,000 sales in 2008.
Toronto Area is experience 13.8-per-cent lower sales for the first six months.”

About Residential ReSales in GTA in 2008:

Jan.2008 sales decreased 2.1%
Feb.2008 sales decreased 11.2%
Mar.2008 sales decreased 22.2%
Apr.2008 sales decreased 7.3%
May.2008 sales decreased 16%
Jun.2008 sales decreased 18%,avg.price up, and
a 22 per cent increase in inventory.

Residential ReSales in GTA from Jan. to June:

2008. 43,685 sales decreased 13.8%
2007. 50,648 sales
2006. 45,797 sales
2005. 44,771 sales
2004. 46,398 sales

In June, employment declined by 24,000 in Ontario, pushing the unemployment rate up 0.3 percentage points to 6.7%.
The unemployment rate in Canada edged up 0.1 percentage points to 6.2%.

“After 15th October, the new rules will likely contribute to the cooling of the housing market.”said TD Bank deputy chief economist Craig Alexander.
What,Again cooling after Millers’ new Tax in Toronto?
Remember, we are still at record inventory levels.
Toronto building permits down 12.2% in May/08.

My Real Estate prediction for July 2008:
Sales volume in GTA will be down between
17% and 21%.
So they’re holding at a steady decline with double digits?

#16 LAD on 07.22.08 at 2:17 pm

Garth,

I just finished your book and wanted to say a sincere thank you. Both 36 years
old, my wife and I currently rent in North Vancouver. We pay $1500 for a
fantastic worry free view of the city, but have been under pressure for the
past 2 years, from all sides, to get into the real estate market. This
includes the media, realtors, friends and family.

While looking at $750,000 – 980 square foot 2 bedroom condos, something didn’t
feel right. Talking, with a straight face, to banks about 35 and 40 year
mortgages, something again didn’t feel right. Watching friends gush about
spending $900,000 to commute 2 hours per day and talking, in the same breath,
about having kids, again didn’t feel right. Luckily we listened to our own
feelings and not the ones everyone wanted us to feel.

Ironically, as I turned the last few pages of your book, an email popped up on
my computer. A large north shore development we had looked at 6 months prior
had 12 units left and the prices had just been reduced to sell. Looking back I
remember being told that if we didn’t make an offer and put down a $20,000 by
8:00pm that evening, a full half a year ago, we would be surely be left out of
this unique investment opportunity. Wouldn’t we have been the greater fools
that day.

Secondly, your book has caused us to take a serious look at our investment and
RSP stratagies. Which we now know, and always did I guess, are too typically
Canadian for comfort. We are going to change that with the money we would have
sunk into real estate.

Thanks,
LAD in VAN

#17 pjwlk on 07.22.08 at 2:30 pm

Two days ago I spoke with a builder friend of mine in Calgary. Says he has two houses on the market and can’t get rid of them now. He complained that prices have gone down by at least 10%. “Get rid of them now before it’s too late!” I said… Not so long ago he was a non-believer, just like 95% of the others I’ve spoken to about a RE crash…

#18 confused and a little crazed on 07.22.08 at 2:47 pm

To spade guy/ problem guy,

You 2 are braving than I…there are still rumours of FNM and Freddie being nationalised…making their stock worthless. The 25 Billion won’t do anything compared with Trillions in Debt..
However I do agree with you…for the most paRT. Some banks will bounce and remain ok in the long run ..but I definitely not sure about the fred/ fan. I ‘m more of a long term kinda guy 2-3 yrs. I probably will buy again but not those 2

#19 Calgary Rip Off on 07.22.08 at 2:58 pm

Hi Garth:

Great site as usual. Your last couple blogs reflect it seems mostly what is happening in Ontario.

Do you believe what is happening there will similarly happen in Calgary? I only see house prices dropping by around $70,000 or so in NW Calgary over the last year. Some would say that is significant, but its not enough to be anywhere near baseline levels of when most of those houses were built, in 1997. It appears that most of the real estate in Calgary wont hit rock bottom. What are your stats/views on Calgary?

Thx.

#20 The Other David on 07.22.08 at 3:01 pm

hahaha this takes the cake, throw in a $15K car and suck you into 100Ks of misery for years to come. This is a pitch for those RE agents/speculators that can’t afford to put gas in their bimmers anymore.

…how low will they go.

#21 Rob in Madrid on 07.22.08 at 4:31 pm

very interesting serries in the NY times today, a life time of debt

The Debt Trap

Back in Canada in 3 weeks and looking forward to reading your book.

#22 Rob in Madrid on 07.22.08 at 4:33 pm

but I am risk averse and will sell out at that level with a quick profit of 50K.

BTW that’s an oxymoron, and I must say you are an even greater fool for buying on leverage. Good thing it’s your Las Vegas gambling money!

#23 jrochest on 07.22.08 at 4:42 pm

Well, this development in Calgary has had a ‘buy a condo/get a Smart car’ promo for quite a while now:

http://www.battistella.ca/directory.html

#24 Mark on 07.22.08 at 6:58 pm

Very smart man in this video!

http://finance.yahoo.com/tech-ticker/article/41423/Roubini%3A-More-Than-%241-Trillion-Needed-to-Solve-Housing-Crisis

#25 Keith in Calgary on 07.22.08 at 7:29 pm

And there is a cardboard condo on Mission Road in Calgary that has a free Toyota Yaris with every purchase.

Here you go…………

http://tinyurl.com/5wqucy

#26 Bruce on 07.22.08 at 7:33 pm

It’s interesting to note that before the markets opened today, Paulson was busy giving another bullshit speech on the state of the US economy. While the DOW initially opened sharply lower, it managed a turnaround midway through the trading day, to close at just over 130 points. Another sucker rally fueled by those bowing at the Fed’s feet, with Paulson, Bernanke, and SEC chairman Christopher Cox acting as the holy trinity of Wall Street. I’d say Paulson is a pretty good actor, Bernanke is the one pulling the strings, while Bush & Co keep the circus going…

Oh the irony and hypocrisy that abounds! Should be another fun day tomorrow…

#27 David on 07.22.08 at 7:58 pm

Estimating the number of bank failures in the USA at 90 is a fairly conservative number. I have seen estimates running as high as 300 plus and given the size of the USA market such a number does not sound implausible.
The idea of profiting from assets like gold, oil etc. is feasible if a person has a substantial net worth and can make a living collecting handsome dividend cheques and trading gains. The trick to becoming a wealthy investor is having wealth in the first place. For the normal Canadian middle class family in 2008 all hopes have been riding on the rising tide of real estate prices which appears to have crested. Now that the dream is dying, one has to wonder what will replace it.
With respect to real estate and financial equities it looks like the bears are getting hungry.

#28 brazer on 07.22.08 at 8:29 pm

Two Fed Myths That Need Debunking
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/21/AR2008072102491.html

“Since September, the Fed has reduced the federal funds rate by 62 percent — to 2 percent from 5.25 percent. But long-term mortgage rates are higher now than they were on Sept. 18, when the Fed began its rate cuts. “

#29 $fromaSia on 07.22.08 at 8:40 pm

Hey if I sell that apartment for a $70k loss in 10 days do I still get to keep the car?

#30 liverless on 07.22.08 at 10:00 pm

“I bought Fannie mae just yesterday hoping to catch it on the uptake because the impression is they are too big to fall. ”

I assume you meant fail. At any rate, Fannie and Freddie may be too big to fail, but they are not too big to dilute existing shareholders to zero. Buying either of those stocks is pure speculation, and not a very good one at that.

#31 Rick on 07.22.08 at 10:47 pm

#24 Keith in Calgary on 07.22.08 at 7:29 pm And there is a cardboard condo on Mission Road in Calgary that has a free Toyota Yaris with every purchase.

Here you go…………

http://tinyurl.com/5wqucy
=================================

Hilarious!! I’d love to be there on a cold winter Monday morning, watching the owners stumbling around trying to get into thier neighbours cars!! LOL

#32 brazer on 07.22.08 at 11:10 pm

Roubini: More Than $1 Trillion Needed to Solve Housing Crisis
http://finance.yahoo.com/tech-ticker/article/41423/Roubini-More-Than-1-Trillion-Needed-to-Solve-Housing-Crisis?tickers=FNM,FRE,XLF,WM,WB,WFC,BAC

1,000,000,000,000…that’s a lot of 0’s…

#33 Peter on 07.23.08 at 12:17 am

Remember that AURA story, people waited so long to wait to buy a unit ? Right now, story has been unfolded with some buyers wanted to get OUT of the market but they wont be able to do it because the developer say the bandwagon did not reach 80% sold status as of yet , so for these nice boys and gals who took their home equity outta their home to put onto this for their down payment, May God Bless You All & Hope You Dont Jump Off From There Once Built (People in Asia used to do that when they bought their nice condo at an over exaggerated price and find out their home has went down 30 % and hits NEGATIVE equity then they decided to jump off the floor or smoke themselves up with a bowl of charcoal so that they will live and died hard with their nice home)!!!

#34 Sponge Rob on 07.23.08 at 12:20 am

The bottom is NOT in. Bottom spotting is big in Calgary these days. It must be the summer weather! Seriously market bottoms don’t show up until people stop looking for them. That’s almost logical. Everyone here thinks “this time / place it’s different, sure we will get a slowdown but not like the US”. At work there are several “in the know” guys that I use as barometers of market changes. They discovered dot coms stocks in 1999. Sold for huge losses in 2001. Now they are into the pre sale condo thing. Do you think the drop in prices would make them question their decisions? Not a chance! They are fully invested, both monitarely and emotionally. These knife catchers are talking about taking advantage of the “bargains” and buying more! This is going to be a massacre! Buying over priced stocks without leverage is bad enough, but buying at a bubble top with 5 % down… I don’t know if you can ever come back from that. Right now I am renting a small basement suite and every month my savings creep up and house prices drop. When my canary buddies throw in the cards in disgust I will be buying a house, hopefully with all cash.

#35 Peter on 07.23.08 at 12:30 am

Garth, my couple of friends on facebook were showing their nice pictures of their homes (bought at the peak of last year at around 400 – 450K, plus 10K for furniture and decos) being built in Whitchurch-Stouffville, should i congratulate her or not for the dream home nightmare they should be encountering real soon ?

#36 USA is all the rage on 07.23.08 at 12:37 am

Garth,
why is it that when you go on youtube and put in “the dollar” or “Real estate bubble” or things like that, you can not find essentially anything relating to canada? Why is Peter Shiff and his opinions all over CNN and google and youtube, but you cannot find the Canadian equivalent who is out there posting there views…BESIDES YOU. I agree with what you say, but you dont go far enough to plead your case. It is frustrating trying to find some solid opinions about where Canada is heading, but you can find ENDLESS articles and video clips about the US.

Is our economy too small to make a difference in this world? Is that why there is no info, because no one cares about us because of our tiny economy and population? Why cant I find hundreds of clips about our real estate bubble? Doesnt any one here know whats going on? I feel like Canadians are SOOOO asleep at the wheel. I feel like our lifestyle, similar to our fat cousins in the US is coming to an end soon, and we never deserved it in the first place. At least you can hear arguments for bears and bulls regarding the US. You dont hear anything about Canada. What gives?

#37 USA is all the rage on 07.23.08 at 12:41 am

I guess my point is,
where are our leaders? What are thier real opinions? All I hear is a bunch of politic-ing, and our leaders are like soft serve ice cream, soft bellies, soft policies, soft ideas, soft on passion and emotion. F*CK! With all that is going on why the F*CK isnt any one PISSED OFF!

#38 Mike.slob on 07.23.08 at 1:38 am

END OF PERIOD:
CDA Overnight target rate(interest rates) prediction:
Sep/08- 3.00%
Dec /08- 3.00%
Mar /09- 3.25%
Jun /09- 3.50%
Sept/09- 4.00%

Given the BOC predicted in its latest Monetary Policy Report Update that headline inflation will temporarily peak at 4% in the first quarter of 2009 and sent strong signals it will maintain its neutral stance on monetary policy, HSBC Canada market strategist Stewart Hall said the high June reading is unlikely to provoke a change of heart. Hall said overall June inflation will likely hit 3% on annual basis.

“The fact that they indicated (headline) inflation is expected to rise to 4% certainly steals a lot of the thunder from tomorrow’s report,” he said noting the BOC suggests the increase in overall inflation will be transitory. “It suggests there is no policy prescription to come off this heightened inflation profile, in the short term anyways.”

#39 David on 07.23.08 at 4:59 am

Garth tends to be fairly conservative in his estimated price corrections and banks failure numbers.

http://www.thisislondon.co.uk/standard-business/article-23515972-details/Analyst+warns+300+US+banks+could+fail+in+next+three+years/article.do

#40 PBrasseur on 07.23.08 at 7:38 am

To people buying Fannie May.

If you want to buy into US financials at least get a good company (yes there are some) such as Wells Fargo.

Otherwise you are gambling, the worse investment strategy there is.

#41 Mylene on 07.23.08 at 10:34 am

Garth,

Do you still believe that interest rates will stay low and decline? Do you still maintain that the best way to go is variable?

CMHC has a report saying rates will be around 7-8% in 2009. This could be a conservative estimate given all factors involved. I imagine 10% is not unlikely by the beginning of 2010.

I’d appreciate your thoughts.

Canada Inflation Quickens to 3.1%, Fastest Since `05 (Update2)

By Greg Quinn

July 23 (Bloomberg) — Canada’s inflation rate in June was the highest since September 2005 as energy costs surged, forcing companies such as Air Canada to raise fares.

Consumer prices rose 3.1 percent from a year earlier, as gasoline increased 27 percent, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News expected inflation would accelerate to 2.9 percent from May’s 2.2 percent pace, according to the median of 21 estimates.

Quicker inflation may not lead Bank of Canada Governor Mark Carney to raise interest rates this year, according to economists polled by Bloomberg. Carney said last week that inflation will peak at 4.3 percent in the first quarter of 2009 on energy costs, and his benchmark interest rate of 3 percent is “appropriate” because economic growth is slowing.

“The sting of the steep pickup in headline inflation is lessened by the fact that the Bank of Canada was already so public in calling for an eventual peak of more than 4 percent,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. “There’s really not much to chew on here from a monetary-policy stance.”

Consumer prices rose 0.7 percent in June from May, faster than the 0.5 percent economists predicted. The previous monthly inflation rate was 1 percent, the biggest jump since January 1991.

Canada’s dollar was little changed at C$1.0067 per U.S. dollar at 9:23 a.m. in Toronto, from C$1.0084 yesterday. One Canadian dollar buys 99.28 U.S. cents.

Core Inflation

Excluding eight volatile products such as gasoline, inflation rose 1.5 percent in June from a year earlier, and 0.1 percent from May.

Economists said the so-called core rate would gain 1.6 percent from a year earlier and 0.1 percent on a monthly basis. Governor Carney said June 20 he may rely less on core inflation as a guide to future trends during a “super cycle” of rising commodity prices.

The cost of buying food in stores climbed 3 percent, faster than May’s pace of 1.9 percent. Bakery products jumped 12 percent, slower than May’s 13 percent surge, which was the fastest since October 1981. Mortgage interest costs increased 9 percent, the fastest since April 1991, Statistics Canada said.

The Bank of Canada sets interest rates to keep inflation between 1 percent and 3 percent, with an optimal target of 2 percent. The central bank cut interest rates four times between December and April to fend off an export slump before pausing in June and again on July 15. Policy makers say the economy will grow just 1 percent this year.

Higher Rates

“The Bank of Canada had already anticipated this steep climb in its last rate decision, but will be hiking come 2009 in order to prevent a greater spillover,” Avery Shenfeld, a senior economist at CIBC World Markets in Toronto, wrote in a note today.

Record gasoline costs are also starting to erode consumer and business activity.

Air Canada, the country’s biggest carrier, adds a C$40 fuel surcharge on one-way flights of more than 1,000 miles (1,610 kilometers). Rival WestJet Airlines Ltd. charges as much as C$45. Airline fares rose 14 percent in June from a year earlier, the most since May 2002, Statistics Canada said.

Canadian Pacific Railway Ltd., the country’s No. 2 railroad, said yesterday that second-quarter profit fell 40 percent and cut its full-year profit forecast as fuel costs soared and a slumping economy reduced traffic. The Calgary-based company said its fuel costs jumped 34 percent to C$490.5 million from a year earlier.

Tembec Surcharge

Montreal-based forest-product company Tembec Inc. said July 15 that it will add an energy surcharge of $100 per metric ton for dissolving pulp.

Canada Post wants to raise the price of a stamp by 2 cents a year until 2011 to cover higher transportation and labor costs, from the current price of 52 cents.

Statistics Canada said yesterday that retail sales increased just 0.1 percent in May after excluding price changes such as higher gas costs. Overall sales rose 0.4 percent.

The average cost for a liter of gas in Canada was a record C$1.39 last week, according to Bloomberg figures, up from a recent low of C$1 in October.

Canadian households are still faring better than other Group of Seven countries. Consumer prices in June rose 5 percent in the U.S. from a year earlier, and in Italy they gained 3.8 percent.

To contact the reporter on this story: Greg Quinn in Ottawa at [email protected].
Last Updated: July 23, 2008 09:48 EDT

Bloomberg.comNEWS | MARKET DATA | INVEST

#42 $fromaSia on 07.23.08 at 12:25 pm

Garth, Inflation hasn’t just hit us recently.

It’s been going on largly unreported, it really makes me want to puke every time in the past between 2005 till now how may price increases I’ve seen from menu price increases while eating out to general cost of food, fuel, building materials, etc, etc.

Go get a medium coffee at Tim ho’s it looks like a small!

I have noticed the only thing get cheaper is the price of tools. Perhaps this means more and more factories moving to China to compete?

#43 Mr.Simpleton on 07.23.08 at 1:42 pm

Breyers ice cream’s price remains unchanged… just the size got smaller (from 1.89l to 1.66l) The thing is, hardly anyone notices these things… and the inflation is kept at bay.

Our company here in Vancouver used to manufacture products 100% in house. Right now it’s just assembly. Every single component is made in China.

#44 smwhite on 07.23.08 at 1:58 pm

Mr. Simpleton

There are a lot of fat asses that that sort of “inflation” actually will help out. :)

Inflation is kept in check via governments not directly reporting the necessities of life because they are “too volatile”. Good reasoning!

What makes everything even more confusing is the name of they give inflation that contains non-volatile consumer goods, they call it “CORE”.

I call it bullshit.

Would could be more core then fuel and food?

Don’t get me started on GDP…

#45 Dawn in Calgary on 07.23.08 at 2:03 pm

Just checked rental listings on craigslist — 85 properties listed in two days. It used to take a week to generate that many listings.

http://calgary.en.craigslist.ca/apa/

I smell desperation in the air.

#46 Future Expatriate on 07.23.08 at 2:08 pm

“USA is all the rage”, here are a couple of 2007 estimated figures for you right out of wikipedia; I must admit, the first time I learned this I couldn’t believe it, but here it goes.

Population of Canada: 33,326,000
Population of California: 36,553,215

Unfortunately, they don’t show Gross Domestic Product figures for individual states on Wikipedia, but just the population alone should give you an idea why global media attention is focused on the US right now. The single state of California alone has 3 MILLION+ more people than Canada.

Really, in my mind, I thought Canada had maybe a third the population of the US, or perhaps a fifth because of land mass alone, but as you can see the reality is far less.

I know. Shock to me too. But it explains why relatively little attention is paid to Canada.

#47 brazer on 07.23.08 at 2:25 pm

CIBC faces class-action lawsuit
http://www.reportonbusiness.com/servlet/story/RTGAM.20080723.wcibc0723/BNStory/Business/home

“The lawsuit likely won’t be the last for Canadian banks tied to the credit crisis, suggested Chris Blumas, a bank analyst at Morningstar.”

#48 brazer on 07.23.08 at 2:30 pm

Ford cancels 350 new jobs at Ontario plant
http://www.reportonbusiness.com/servlet/story/RTGAM.20080723.wford23/BNStory/Business/home

“But the 350 new hires, who were due to start training July 28, have been notified that this is no longer the case, Mr. Keeney said.”

#49 keesio on 07.23.08 at 4:27 pm

Future Expatriate – US has roughly 10x the population of Canada.

California, by itself, would have the 8th largest GDP in the world if it was counted as a country, just ahead of Canada (Canada is 9th)

#50 Michael on 07.23.08 at 4:39 pm

Well, I hate to say it, but you guys may have been right. I just got back from my trip out west to take a look at my property in Saskatoon I bought this spring. To make a long story short, Pleasant Hill isn’t very pleasant, and the only way the frigging dump I bought is going to be worth an extra $100,000 by next spring is if I dig up the porch and find some ex drug dealers stash. The youths in the house next door to us seemed quite unfriendly, and when we went over to introduce ourselves they seemed to take particular offense to the red ballcap I was wearing and requested I remove it while in the neighbourhood. Me and my wife were not aware there was such a strict fashion code in parts of Saskatchewan! The general condition of the house was also upsetting. The yard around the house was quite a mess, as it appears the previous owners must have left in a hurry left all their lysol and other cleaning supply bottles just strewn on the lawn prior to their departure. :( What really upset us, besides my wife being propositioned by a rather strange fellow while on our search of a trendy nightclub or Tapa’s bar in the area (no luck here either) , is that when we awoke next morning to load the van up for the ride back home we found that some smart aleck had spray painted Snoopcherry, our french poodle, with blue paint. After loading up my traumatized wife and my new punk rock looking dog, we headed back in the van for the relative sanity of Ontario.

If this thing appreciates by even $50,000 this fall, I am going to sell and get the heck out of this market. Can’t say you guys didn’t warn me.

#51 neutral on 07.23.08 at 4:46 pm

He-he. There are two teams on this blog: recent buyers who wish to believe the prices will go up or at least stay and prospective buyers who rip the hairs on theirs asses, as they did not buy 3-5 years ago and all the way being in expectations for prices to come down. Second team is in major here, as Garth’s info accords to theirs wishes. But this team is not a winner yet. Will see. I’m neutral, as I bought 5 years ago. Either way is good to me, in terms of switching to another property (which I plan): if I sell for less – will buy for less – there is nothing to loose in my case. Garth’s universal suggestion does not work for me. Keep fighting…

#52 Islander on 07.23.08 at 5:00 pm

$fromaSia, good observation.

The other day I bought some contact lens fluid. The bottle used to be 480ml. Now it’s down to 300ml.

On the packaging, the manufacturer brags: Same great product at same great price, now in convenient new bottle.

#53 Calgary overpriced on 07.23.08 at 5:01 pm

Dawn:

Calgary doesnt seem too desperate. Look at Hidden Valley for example: Prices in one year have only dropped $70,000. Those prices there were ridiculous to begin with and they are still overpriced compared to what they were when they were built, therefore I dont see desperation…yet. It will probably get much better for prospective homebuyers, hopefully, although I dont see things declining as much as I want to buy yet. Most of the homes in Calgary are probably worth half of what they are listed for, but market value determines price.

#54 jrochest on 07.23.08 at 5:50 pm

Somebody’s pretending to be Michael: I call foul.

Amusing, though. And probably not too far from the truth.

#55 michael-you lose on 07.23.08 at 6:02 pm

Michael, your joking right? Are you saying you bought this house without SEEING IT FIRST? Oh god…you….are…an….idiot. Oh yeah, i forgot Michael is not real. SNOOPCHERRY? NO ONE, not even a low life, greedy loser spec names thier dog SNOOPCHERRY. Lysol? Obviously a shot at the natives in Sask. Tapas house, night club comparable to something in T.O.? GET REAL. So lets see the guy who pretends to be michael
A)lives in Sask
B)Hates the greedy, posh, Tommy Hilfiger wearing speculators from T.O. who are the kind of guys who would buy a house in sask without seeing it because they read a news story about a hot market
C)Is racist
D) Is a great satirist

Oh god Michael please prove to us you are real so we can laugh laugh laugh in your face. Your posts are f-ing Shameless…

#56 rant in Calgary on 07.23.08 at 6:12 pm

Lots of Calgarian’s on the Blog, maybe because we have been bamboozled the longest.

My rant is about bidding against RE agents who used(0/40) and waived their fee so they can flip the house personally.
My wife and I were bidding on a home against a RE agent who was “buying it for his newlywed daughter to live in”.
It was disclosed the agent was waiving his fee, which gave him a $10,000 wholesale advantage. We gave our best bid… we lost the house by $8000.
Fast forward a year, the house we bid on is now renovated and asking $150,000 more.
Why do retail commission paying clients, compete with wholesale RE agents?
I call unfair!

#57 dotava on 07.23.08 at 6:35 pm

neutral #50 – what U R not

If U upgrading – trend is working for U but if U downgrading sorry U R late.

#58 $fromaSia on 07.23.08 at 6:38 pm

Islander, Take a look at the Big Mac!!!

#59 $fromaSia on 07.23.08 at 6:44 pm

I seen some food products as well as dine out dinners go up about 30% over the last 3 years!

#60 brazer on 07.23.08 at 6:47 pm

#50 Neutral

“I’m neutral, as I bought 5 years ago. Either way is good to me, in terms of switching to another property (which I plan): if I sell for less – will buy for less – there is nothing to loose in my case.”

let’s not forget to factor in:

1) realtor fees for sale of present house
2) realtor fees for purchase on new home
3) land transfer tax on new home
4) legal fees
5) moving expenses

add that up, and perhaps things don’t end up so “neutral”?

#61 brazer on 07.23.08 at 7:03 pm

Chrysler to slash 1,000 white-collar jobs
http://www.reportonbusiness.com/servlet/story/RTGAM.20080723.wchrysler0723/BNStory/Business/home

“Chrysler LLC said Wednesday it will cut 1,000 salaried jobs worldwide by Sept. 30, and it’s expected that those cuts will affect the company’s Canadian operations.”

#62 Dawn in Calgary on 07.23.08 at 7:47 pm

Calgary Overpriced;

You misunderstood my point — go to craigslist rentals in Calgary and see dozens upon dozens of listings for condo rentals. Just today. I wasn’t addressing SFH purchase prices.

The desperation is of condo speculators trying to cover some, any, of their cost because they’re starting to sweat.

#63 Don't understand the problem on 07.23.08 at 8:02 pm

PBrasseur on 07.23.08 at 7:38 am

To people buying Fannie May.

If you want to buy into US financials at least get a good company (yes there are some) such as Wells Fargo.

Otherwise you are gambling, the worse investment strategy there is.

Agreed, Wells Fargo would have been a good investment (up 40% since July 11th), however, the valuations on FNM, FRE, WM, WB & AIG were more compelling. As a portfolio they are up 40% since July 11th with further upside.

The name of the game is buying low, selling high whatever the asset.

Seems that people on this blog are too busy whining about an impending 15 – 30% decline in housing prices. Big deal.

Neutral #50 makes a good point. If you own your home free and clear and bought it at half the current price whats the big deal. I don’t understand the problem.

#64 Prairie Boys vs Banksters on 07.23.08 at 8:29 pm

Looks like the financial institutions are starting to get what they deserve for their transgressions:

“CIBC faces class-action suit from aggrieved investors seeking billions”
( http://ca.news.yahoo.com/s/capress/080723/business/cibc )

They won’t be the last. And it’s time to stop the inherent leniency of the financial ‘self-regulatory organizations’.

#65 jo on 07.23.08 at 9:32 pm

Flaherty is negligent. Greenspan is a white collar criminal.
Here in Toronto, Mayor David Miller just wants to tax the residents out of their homes to finance his socialist shitopia. When Obama wins in the US, look out. Imagine Jack Leyton running a world economy, I know, you cant, but that’s what it will be like. Remember Bob Rae? White males to the back of the line please.

#66 pjwlk on 07.23.08 at 10:00 pm

Well Michael, at least you’ve got the balls to admit that you had your head in the sand and risked the possible onslaught of flamage. I admire that…

#67 Jas on 07.23.08 at 10:13 pm

OMG:
watch this- USA is headed for economic disaster

http://market-ticker.denninger.net/archives/525-RED-ALERT-RAPE-BY-CONGRESS-IMMINENT.html

#68 $fromaSia on 07.23.08 at 11:22 pm

Jas, I think Gold is going to go up even more since the value of money here has diminished!!!

Denninger.net CRAZY!!!

American people to pay debt?

Looks like the only way is to open up immigration so that theres immigrants to come in and buy these homes. Although at a discount, it’s still better than foreclosure and bankruptcy!!!

Whats your take Garth?

#69 jrochest on 07.23.08 at 11:45 pm

No, guys, I’m pretty sure that Michael is now definitively established as a clever piece of trolling/sock puppetry as performance art.

This is a piece of satire. Not necessarily *good* satire, but satire.

The ‘absentee speculator Michael’ is meant to be from Calgary, not TO. Although _are_ there many tapas bars in Calgary? They aren’t that common in TO. And poodles aren’t a hot dog: French Bulldogs, maybe.

To parse the fiction:

Red ball cap: clueless absentee speculator cannot recognize that he’s wearing Blood colours in Crips territory.

Lysol: clueless middle-class absentee speculator cannot recognize the signs of a meth lab.

Wife propositioned: yes, Pleasant Hill is a stroll.

Poodle: universal symbol of effete and probably French urbanism.

Painted blue: see Crips, above.

It’s kind of cute, but don’t fall for it. :)

#70 Lorne on 07.24.08 at 12:12 am

Eventhough the bottom’s a couple years away in most parts of the country, i am surprised how seemingly quickly it came to cowtown (roughly a year from when MOI’s started surging)…

Sales continue to improve in Calgary
July sales are continuing the upward trend that started in June. Single family home sales volume, after being down 34% for the first five months of 2008, showed an 18% drop in June. July sales are down 12% compared to 2007.
The SFH median price for the first three weeks of July at $412,750 is up $4,750 from June, but down $27,000(6%) compared to July 2007.

#71 Gabby on 07.24.08 at 1:06 am

Poor Snoopcherry…but hey, it was nice to read something funny for a change. How many different ways can bear bloggers say that the party is over? we get it. It is over. Now make this forum more interesting or I will have to find some else to read each night.

#72 Mike.slob on 07.24.08 at 3:29 am

About housing crash in GTA, I still thinking that
we are too far.Look the new listings in Burlington and Brampton.For newer semi asking prices are between 340K to 360K(Insane).So when we can ecspect crash?
Never! Only if interest rates going above 8%, or unemployement in Ontario will going more than 8%.
Housing Prices will going up from September to December 2008. Also we can expect further double digits decline of Resales.GTA is strong sellers market and even resales drop 20% prices will going up.
Seven months is decline of resales in GTA but I can’t see any correction of prices.
About 2009 will see?

My prediction for july/08:
Sales in GTA will be down between
17% to 21%.

#73 patriotz on 07.24.08 at 9:08 am

“Imagine Jack Leyton running a world economy,”

Imagine George Bush and Alan Greenspan running a world economy. Except we don’t have to imagine.

#74 lgre on 07.24.08 at 9:11 am

hey Gabby read Mike.slob’s post, he seems to think that a townhouse will be $500g’s in september, there’s something different..lol

#75 lgre on 07.24.08 at 9:40 am

Mike.slob, it’s funny you mention Brampton, that is one place I have been following for a while. Several houses I have followed have declined in price by $20k-$25k asking price, while selling for the original price last year, so we are on a downward trend. These houses are in the 280-305 range so I’m not talking about $1 million dollar houses. There was a time when new houses cost a lot less to buy then a resale because of the bs you had to deal with afterwards but it looks like that trend turned, so if someone buys a semi from the builder for 320 then he will have to sell for around $345-$350 just to come out even. A friend bought a 2400sq ft detach dbl car for $357 2 months ago 2 years old, all open concept, stainless, hardwood and the works all in Brampton, the market is very staggered when a semi costs as much as a detach.

This is the beginning, where you expecting house prices to drop like the U.S at this stage? I suggest you watch the video from Jas#65. It will take some time, nothing happens overnight. It took 6 years for the prices to come to where they are.

#76 smwhite on 07.24.08 at 10:12 am

If they(Bernake, Paulson) print and pump in that extra trillion dollars, I can see another dramatic rise in inflation… Oil will go up worldwide (As its priced in USA dollars), gold will surpass $1000…

These actions of our southern cousins continues to put pressure on our dollar, trying to keep pace(or trying to keep our dollar as worthless as the greenback) so as we don’t completely destroy the manufacturing sector in Canada.

If you look at countries/nations like England, Europe and Australia with strong interest policies, it seems to be paying off in their stock markets…

For those sitting and waiting for Canadian housing (minus the West) to decline substantially in a short amount of time, good luck, this pig is going to slowly bleed for a long time…

I agree with Mike that a “trigger” event is required to put any substantial pressure on housing prices, how about this for a trigger Mike, rates at 7% this fall and unemployment at 7%.

http://www.bcrealtor.com/d_bkcan.htm#bkcanhist

If you look at the chart 2004 – 2006 rates were at their lowest levels ever(minus 2002), these mortgages come up in 2009 to 2011 for renewal, the 40year mortgages will come up in 2011 – 2013. I think we are still looking to the horizon for any major dip(then again if a house price stays flat a la 0% then its lost its yearly 4% – 5% average gain, isn’t that a loss of 4% – 5%, or do RE bulls consider that “flat”?

I’m sure Mr. Carney will be keeping a hand close to the red button. But if there is to be an event, it will be closer to the 2010 – 2011 time frame; and that is way to far in the future to make an edjamacated guess on what the hell will be going on south of the border with their magic money machine.

Canada looks to be starting to go through another stale 90’s type RE period in the next couple of years, fine if you live in your house as shelter, not so much if your a flipper holding multiple properties and no cash in the bank… Good luck to all…

#77 Popping-Bubbles on 07.26.08 at 10:34 pm

smwhite, I agree that it will take time before the full brunt of the repricing of Canadian mortgages will be felt. But that isn’t to say that there aren’t other catalysts which will push prices down sooner:

• New buyers and investors are immediately impacted by higher mortgage rates
• Housing prices are already at record highs relative to rents, incomes, and prior housing cycles
• There is already record housing inventory available for sale and housing construction far in excess of household formation, both in an environment of declining sales
• There is a decreasing pool of purchasers due to the fact that the CMHC has substantially tightened their criteria by now requiring 5% down, amortizations of less than 35-years, 45% maximum TDSR, 620 minimum credit score, and increased loan documentation standards. Plus there are the new money laundering regulations which were mysteriously thrust upon real estate agents a few months ago.
• We’re experiencing record high energy prices, surging inflation, increasing unemployment, a global banking crisis and declining stock markets

Indeed, housing prices are already dropping in Canada and, not surprisingly given that there is a global housing bubble, in markets around the world.