Denial

News: Alberta leads way in national housing plop

‘Hundreds of millions’ at risk in Calgary

Toronto home values ‘sink into the red’

The trend lines are irrefutable for those who care to look. Canada is in the early grip of the same real estate malaise which has decimated the American middle class. With luck, we will be spared the full force of this financial hurricane, but it’s simply impossible to tell. And some people are doing their damnedest to keep the truth from spreading.

To me, it’s simple. After seven years of non-stop real estate gains, our residential market reached an unsustainable crest in the last days of 2007. It was clear 2008 would bring falling sales, falling prices, idle construction sites and abandoned condo developments. This was even before the feds pulled the plug on those 40/0 mortgages which had helped turn a boom into a bubble. And while our own subprimes had to be eliminated, doing so at this time (October 15 is the midnight hour), will simply turn a correction into a freefall.

Real estate in our major cities is overvalued. No, not against the benchmark set by London, Hong Kong or Manhattan, but rather when measured against what Canadians can afford. The US real estate bubble burst with a messy vengeance when it took almost four times the average household income to buy the average home. The irrationality of this was masked for a while by a banking industry which lowered the bar for mortgage approvals – until having actual money, or even income, was irrelevant.

This is what our governments allowed to happen in Canada. Zero down payment, kids? No prob. No proof of income, self-employed dude? No prob. Can’t make traditional monthly payments on that McMansion you don’t need? No prob.

By the beginning of this year, we’d passed that affordability threshold in Canada, and were poised for a fall. In Calgary and Edmonton, as in Toronto, it took almost five times income to buy a home. In Vancouver, seven times. As a previous posting here forecast, this means a correction in values of between 15% and 50%, depending on city.

Sadly, though, many won’t get the message, and end up being the greater fools – the last ones into a market which is destined to fall hard and long. The reason is our MSM is still being pumped full of real estate bravado and wishful thinking, masquerading as news. Despite the obvious winds outside, the housing pumpers & dumpers continue to tell consumers it’s a great time to buy, and the housing market has already touched bottom.

This is eerily similar to what Americans heard in the early months of 2006. Many of those who listened, and bought, were set up for financial disaster. Will the same happen here?

Looks like it. Check this out. Or this. Or many other pieces being published by the Canadian Real Estate Association, the Toronto Real Estate Board, or the Gregory Klumps, Phil Sopers or Ed Jensens of this world. They have a job to do, I guess, and some good points to make. But what they say should hardly be the stuff reporters listen to. This is a time for realistic caution, least we see a herd of unsuspecting lemmings go over the cliff. The inevitable result of that will be a market decline much harder to climb back out of.

So, forget net population migration numbers, the price of oil, trade figures or even mortgage rates. The determining factors in the marketplace now are consumer confidence and investor psychology. Lame denials will do nothing but make the inevitable more shocking.

144 comments ↓

#1 Loren on 08.14.08 at 12:02 pm

i love you guys…you sure are trying to quicken this little correction! Even if only one home seller were to visit this site, you might just succeed in scaring their house out of them! So, thank you in advance (keep the lease options coming…)

I would like to suggest some research for the grizzliest of you bears (eventhough i’d probably make more headway explaining evolution to the evangelical):

– but how about some reading on Canadian (esp. provincial)/American demographics (ie. baby boomers/echo boom, peak earning years, and the effect oh…7 million Canadian 13-28 year olds will have on the economy over the next decade as they become li’l clones of their parents). Perhaps the amount of spending by peak-earning boomers and their children-becoming-adults-starting-families will affect things like real estate over the coming years?
– or how about some ‘peak oil’ study and how we’re one of the only countries increasing production of what the world desperately needs…perhaps that will benefit all of us in the coming years? (…and yes I’m well aware oil’s following it’s typical late summer decline … it might even go to last year’s low price of $60 a barrel ..for a whole month. I shall drive to Nantucket in November gas shall be so cheap)

Well, I could suggest other topics like wage inflation, capital investment, provincial debts (or lack thereof), corporate tax rates, in migration, Chindia… but they only really apply to a couple of our provinces. However… as grandma always said “sonny…people only see what they wanna see… so don’t go wasting your time trying to open their eyes!” …OH forgive me nanna, but i’ll leave you guys with one final tidbit – this ‘one’ ain’t the big one…it’s the next ONE (viva les retirees!) that’s going to get a li’l SCARY!

#2 Andrew toronto on 08.14.08 at 12:04 pm

If the u.s will be in a prolonged slump, Canada won’t be far behind from an article .. interesting read

http://www.marketoracle.co.uk/Article5793.html

The “L” Shaped Recession

In my opinion, the past 7 years have been among the most fiscally reckless ever in the entire history of the world. The hangover is going to be long and deep. I am sticking with my Case for an “L” Shaped Recession .

Ironically, clowns on CNBC are debating every day whether or not a recession has even started. The only way a recession hasn’t started is by using a definition of 2 consecutive quarters of declining GDP. That definition is widely used but it simply is not how recession calls are made.

What actually happens is the National Bureau of Economic Research (NBER)decides recessions using a wide range of data, not just quarter to quarter GDP.

The Library of economics has a discussion of the above as well as data on the average length of a recession . From 1920 to 1938 the average length was 20 months. The average length of a recession from 1948-1991 was 11 months. The longest was the great depression that lasted 43 months.

Given that this was the greatest global fiscal party ever, the likelihood that this will be one of the greatest hangovers on record is very high. In other words, this recession will neither be short nor shallow.

For the sake of argument consider the recession began in December 2007. If 20 months is the target, the recession still has another year to go. Those who think a depression is coming may wish to add another year or more to that. Another possibility is the US will slip in and out of recession for a number of years just as Japan did.

With the above in mind….

It’s Time To Think

Think foreclosures have topped? Think again.
Think housing has bottomed? Think again.
Think CEOs are being honest about forward guidance? Think again.
Think corporate earnings are going to improve? Think again.
Think the parade of bottom callers is correct? Think again.
The big irony in all of this is bottom callers are calling the end to a recession they claim has not even started. The truth of the matter is there is no reason whatsoever to think that the economy is remotely close to turning up. The teeth of this recession have barely begun to bite.

#3 blacksheep on 08.14.08 at 12:10 pm

The jig is up for this inflated housing market.

This housing correction is global, due to loose credit.

Canada & Vancouver are not special and some how

immune.

Out largest customer [U.S.] is in seve economic

trouble, despite manipulated stats by their goverment

#4 Bob on 08.14.08 at 12:57 pm

I went to look at a new condo in Winnipeg the other weekend and the price was $360K for 2 bedrooms, and around 1400sq ft. It was pretty nice, but I thought it was too expensive.

I asked the RE agent who can afford this, and she didn’t really have an answer, except to say that lots of young professionals live in this building.

That’s a lot of money for a condo in Winnipeg, don’t you think?

#5 Calgary rip off on 08.14.08 at 1:04 pm

Bob: $360K for a condo. Right. Insane. Enough said.

#6 pete on 08.14.08 at 1:10 pm

Loren you are either in denial or simply a RE propagandist. Prices are falling across Canada and will continue to fall back down to reality. The facts might be to much to handle for you or maybe you are the greater fool and now face the nightmare of being upside down on your mortgage?

#7 anonymous on 08.14.08 at 1:32 pm

Loren,

If you follow what happened in the states, then yes for the next year it will be a good time to be a landlord. Some people will wise up and sell much lower (sending house prices down).

Then the following ten years it won’t be so great for you. The Canadian economy isn’t doing so hot. People without jobs don’t pay rent.

Your facts are nothing more than old cliches. You must be from Calgary or something.

Hey, I’m a bull even an optimist, but even I’m not stupid enough to think that things go up 40-50% and don’t correct. I’ve been around too long.

BTW, bought in 03, sold spring 08. I’ve got boatloads of cash and no debt. While I am renting prices are dropping… I hope they crash through the roof and nobody can afford to buy a house. Then I’ll name my price. Maybe I’ll buy one of your homes.

That’s the way it’s suppose to be. Smart people always make money.

#8 Dawn in Calgary on 08.14.08 at 1:39 pm

The MSM has no choice but to pick up the news now…. it’s becoming a ubiquitous message — housing is falling. Even Calgary Herald housing shill Mario T can’t avoid it any longer

http://www.canada.com/calgaryherald/news/story.html?id=0cb12c49-a74f-4427-bcc3-3722221d9f2d

Calgary leads the country with a 30.1 per cent decrease in sales followed by Greater Vancouver at 24.0 per cent and Edmonton at 23.0 per cent. Nationally, the average sale price is up 2.2 per cent year-to-date to $338,586.

In Calgary, the year-to-date average sale price is down by 0.1 per cent to $414,213.

“The combination of a larger inventory of homes for sale and fewer home sales means less upward pressure on home prices in many markets,” said Calvin Lindberg, CREA president. “The challenge for many sellers is determining the right price for today’s market conditions. There is no doubt the Canadian real estate market is pulling back from the record sales and price increase levels of 2007.”

#9 Stink Boom on 08.14.08 at 1:44 pm

Loren:

You seem to indicate that high oil prices helps Canadians and Calgarians.

Can you please supply one iota of information that back that up?

High Oil & Gas prices hurts every canuck’s bottom line except the the top 1 or 2% who are immune thanks to their vast (realized) fortunes. The rest of us, aren’t there.

If you’re talking about oil revenues for the feds or Alberta, for instance. Do some research yourself, please. If you did, you’d know that Alberta has actually collected LESS royalties from oil & gas this year (to date) than it did last year (to date). The cost of oil basically doubled and Steady Eddy helped us Albertans collect nothing more.

So, I ask you, where is the benefit to Joe Canuck of ramping up oil if we’re not subsidized by our government?….and I’m not saying we should be either.

Please substantiate your claim.

I also beg to differ about your statements about people on here being a tad uneducated about all market forces. I think this might be the most intelligent bunch on the entire web. Sorry to disappoint.

#10 Stink Boom on 08.14.08 at 1:49 pm

Haven’t you heard, Winnipeg’s the place to be!!!

$360K for a condo in the ‘peg is a joke. Assuming a $300K mortgage (which is above avg. downpayment, I’m sure), we’re talking a $1,800 monthly payment. What were condo fees? $300/mo? More? That’s now $2,100 + taxes every month?

That makes the $15million condo sold in Calgary a couple of months ago look like a steal!

#11 FP on 08.14.08 at 2:02 pm

We’ve been looking at houses in Toronto’s East End since mid-2007. Badly built houses with major structural issues in “up-and-coming” neighbourhoods that still continue to hold major pockets of social housing. RE agents have pumped up prices by hyping up “trendy” Cabbagetown, Corktown, Leslieville, Upper Beaches, etc. Anyone who has gone down any of the streets in Leslieville (Ashdale, Craven, Rhodes, Greenwood, Jones, et al.) cannot possibly believe that idiots will continue to pay $50K over a $399K asking price for ramshackle semi-detached homes on 15×80 foot lots with no parking. We don’t care how many cosmetic renos have gone into the property or how much you want for your stainless steel appliances…no property with termite problems, crumbling foundation in basements, water damage, MOLD (!), 20+ year old roofs, missing mortar on bricks, missing bricks (!!), can POSSIBLY be worth $450K!! Are people insane or do they just have way too much money?
We did see a fully renovated house with no structural issues on Kingston Rd. and Woodbine sell for $80K below asking ($419K to $339K) after being on the market for a couple of months..it was literally 2 feet away from a social housing apartment…you opened up the back door and there were people from the apartment next door sitting on your back porch, smoking and drinking, walking their dogs in your “ravine-backed lot”. Was it worth $339K even in “Upper Beaches”? We didn’t think so but obviously someone did….
We’re not wishing anybody any ill…just want people and properties to return to some semblance or sane reality!

#12 David on 08.14.08 at 2:03 pm

Loren, I hope you have been reading ALL the posts and threads on this blog. Bubbles do not unwind with “little corrections” as you call it. All of us bearish “true believers” have fact proof mental screens that keep us from knowing the real truths about the residential real estate market.
Assuming the Fort Mac oil sands can ramp up production to 3 million barrels per day, that is nowhere close to making a dent in North American petroleum consumption and most oil will still have to come from offshore. And this is not saying anything about the complete environmental destruction of an area the size of Florida or the enormous greenhouse gas emissions resulting from the extraction of bitumen. You can review the demographics and see that there will be far more baby boomers wanting to exit home ownership in the next few years than there will be potential Generation XYZ or whatever they are called, engaging in new household formations.
Bob you should have asked the realtor more questions on the condo at $360K. The max rent on a 2 bedroom condo in Winnipeg is about $1500 per month. You should have asked the nice realtor lady to show you the cap rates on comps and most likely she would have started stuttering and changing the subject.

#13 Steve in Kitchener on 08.14.08 at 2:08 pm

I have to agree with Garth, I have just sold my condo in Toronto and I got a lot less then I thought I would. I brought back in 2000 so i did alright but the writing is on the wall. Talk to people in real estate and banking they will tell you what’s really going on. I worked at a couple of the bigger Banks in Canada and I can tell you a lot of people are in over there heads. I have seen some insane mtgs approved, ( I could not believe the credit dept let some of these thru.) Even the people that got turned down came back to me and told they got a mtg elsewhere(another major bank). Back two or three years ago anybody could have been approved for a mtg. A lot of people think we have a very low % of people who have sub-prime mtgs, I can tell you it’s higher then most people think. Just because someone has a mtg with a major bank it does not mean they are not sub-prime. I not saying every mtg at major banks is this way but it more then most people think. I have since moved to Kitchener and am renting. I have even noticed that there are more houses on the market here then last year and prices are already flat or coming down from last year in certain areas. I think people just have to see this for what it is. If you brought and can get out do so now. Otherwise you might have to wait a few years. Just my thoughts.

#14 Nicholai V on 08.14.08 at 2:09 pm

I’m starting to see what appear to be some “good deals” floating around the MLS in the Barrie/Simcoe areas. Prices are definitely falling. They may appear to be good deals in comparison to what they might have sold for this time last year, but I’m not biting.

Lots of inventory – nothing moving, except to the odd greater fool.

Everyone here in Barrie is still in wonderland – “Barrie won’t suffer like the rest of Canada”…”Prices aren’t out of control here, besides we’re the bedroom community to Toronto. This will keep our market strong!”.

Wakeup call – you’ve got your head in the sand.

There is a nice house on my street that was listed 3 months ago for $349. Its down to $299 and so far no takers.

#15 Phil on 08.14.08 at 2:24 pm

Does anyone understand what point Loren (above) was trying to make?

#16 Toronto Crash on 08.14.08 at 2:31 pm

Home prices continue slide

LORI MCLEOD

Globe and Mail Update

August 14, 2008 at 12:49 PM EDT

Weakness in the Canadian housing market deepened as resale home prices slid, sales fell and listings surged last month.

The 3.6 per cent drop in the average existing-home price is a continuation of a price decline that started in June, when the average price dropped by 0.4 per cent, the first decline in more than nine years.

The average price of a Canadian resale home stood at $327,020 at the end of the month, compared with $339,277 in July, 2007, according to the latest report by the Canadian Real Estate Association

“Canada’s housing market is running into some seriously foul weather amid the weakest affordability in nearly two decades,” Doug Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in a research note.

A sharp drop in consumer sentiment has helped drive sales activity down 10.9 per cent from the year before, and the latest figures drive home the impact that excess supply is having on prices, Mr. Porter said.

Prices fell by the most in Calgary, which experienced a 7.8 per cent drop over the year before. In Edmonton prices slid by 5.3 per cent. Other markets in which prices fell included Windsor-Essex, a region hard hit by the auto manufacturing sector slump, and Trois-Rivières, Que., which has a small sales base.

A notable newcomer to the list, however, was Greater Vancouver, where prices edged down 1 per cent last month compared with the year before to $575,256.

Prices in Victoria, by contrast, rose by 5 per cent, following a slight decline in June.

Sales levels have been edging up slightly since bottoming out in February, although activity stands below the levels hit in record-breaking 2007. Sales rose by 0.1 per cent month-over-month in July to 26,033 units on a seasonally adjusted basis.

Actual sales however, at 27,889 units, were down 10.9 per cent from the year before, which was the strongest July on record.

Sales fell in Montreal, Toronto, Victoria and Ottawa compared with the month before, but rose from June levels in Edmonton, Calgary, St. John’s, Saskatoon, Halifax and London, Ont. In Winnipeg, sales in July broke previous monthly records.

Listings also remained near record levels in July, with 50,782 properties for sale in major markets in July. That’s the second highest level on record, and down a slight 0.2 per cent from the peak hit in May.

Listings reached their highest level on record in the country’s largest market, Toronto, where prices rose by a scant 1.5 per cent from the year before. Listings were also near peak levels in Saskatoon, Montreal, Gatineau, Trois-Rivières, Montreal and Victoria.

Mr. Porter, who has raised concerns activity in Canada could be echoing that of the U.S. housing market, said the depth of the downturn is unlikely to mimic that south of the border.

“While we still doubt that Canada will stage an instant replay of the trauma in U.S. markets, even a mild version would be bad news,” he said.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080814.wmls0814/BNStory/Business/home

#17 Rob from Onterrible on 08.14.08 at 2:36 pm

Great post Garth. Nothing ever goes up forever. It can’t because working people can’t afford a home. I disagree with your price correction forecast of 15-50%. I think it will get much worse in some areas of the country.

Ontario’s manufacturing is finished, automotive is dying (I work in automotive and every day it gets worse). Just wait until the wave of unemployment hits as GM, Ford and Chrysler scale back production due to slow new vehicle demand in the US. I expect 100% price drops in places like Windsor…

#18 A reader on 08.14.08 at 2:40 pm

RE is damned:

http://www.reportonbusiness.com/servlet/story/RTGAM.20080814.wmls0814/BNStory/Business/home

#19 squidly77 on 08.14.08 at 3:00 pm

jim cramer on real estate
your gonna like this one

#20 Crikey on 08.14.08 at 3:15 pm

The point Loren is trying to make is:

1) He has one or more vastly overleveraged properties.
2) He is now so far over his head he can’t see a way out.
3) He might want to sell but can’t, so he thinks spewing propaganda on one website might help stem the tide of a global deflationary spiral.

Totally rational. ;)

#21 Stink Boom on 08.14.08 at 3:15 pm

You’re still making cars in Ontario?…wow!

100% price drop? Um, I’m not sure what you mean by that….are we talking Canada’s going back to settlement times?

I tend to think Garth’s numbers are in the right ball-park.
I’m in Calgary and although the average price has dropped about 10%, I think there’s another 20% to go. Heck, maybe more. The NEP caused a drop of 50% in a matter of weeks out here back in the early 80’s. Oil prices below $70 may do the same now.

If you guys are in tune with what the Calgary RE Board is putting out, and has been doing so for years, it is down right criminal.

Though sales are continuing to drop drastically, in the last month or two, the number of listings have decreased (ie. now they’re only 350% of what they were….not 400%…haha). CREB’s spin on this is that it’s a positve thing that listings are coming down…..despite the fact it’s only cuz they didn’t sell in 90-days. Ya, makes me want to jump right in.

I’ve resisted buying a house since moving to Calgary 2 yrs ago. Renting’s not the greatest, I’ll admit, but if I’m saving 10’s of thousands a year in net present value, it’s worth it.

It’ll be scary what would happen if interest rates went up. Really really scary. Gladly, I don’t think they will as our economy folds like a cheap rug (as long as the $CDN stays sub 95c.)

#22 prairiegopher on 08.14.08 at 3:16 pm

Hey Loren,
Check out Regina’s market. Everyone is gloating about high commodity prices, yet our market is beginning to tank. Buy someone’s house there and help out!!!!

#23 Stink Boom on 08.14.08 at 3:20 pm

I went to look at a house in Calgary the two weeks ago. It was listed at $375K. I proposed a preliminary offer of $300K.
The agent told me, no way, the owner just turned down an offer in the mid-3’s.

Two weeks later I see the house is now listed at $350K.

Either the agent was lying or the owner is an idiot.

That brings me to another point:
At what point do agents stop dealing with unrealistic home owners? I see SO many agents at open houses and home showings that know in their hearts that the houses are WAY over-valued, yet they stand there and show the place for hours on end….not an offer in site.

I know agent’s gotta eat and all (my father is one), but at what point do these guys sit down their clients and give them the true story as to what’s going on?

There are a TONNE of bad agents in the Calgary market….that’s what a boom does I guess.

#24 Front Row Seat in Victoria on 08.14.08 at 3:21 pm

Loren,

Ever wonder how Gen X,Y,Z (working in an expanding “service” economy versus the well-paying manufacturing economy their parents grew up in) will pay for the Boomers as they retire? I am just reading Garth’s 2015:After the Boom. It was written before 9/11 and the days of free money speculated bubbles and it is frightening.

#25 Rasputin on 08.14.08 at 3:45 pm

http://bloomberg.com/apps/news?pid=20601208&sid=axAqNUHb9pLI&refer=finance

A housing revival in this city of 438,000 on the shore of Lake Erie may portend deeper drops in U.S. markets. Prices for entry level homes in Cleveland had to tumble 37 percent from a September 2005 peak to an almost 11-year low in March before enticing first- time buyers. That may be a sign that U.S. markets with the biggest price increases during the 2000 to 2005 boom have much further to fall before stabilizing, said David Blitzer, chairman of Standard & Poor’s Index Committee.

”The areas of the country that saw prices go through the roof and then fall into the basement won’t be the first ones to see an upturn,” Blitzer said in an interview. ”It’s more likely to come in a place like Cleveland or other Midwestern cities that largely missed the boom.”

Hmmm. I’m not smart enough to know what this means. Wow 37%! Darn those picky first time home buyers! Perhaps a friendly Toronto or Calgary R.E agent can clairify (spin) this for me.

#26 Calgary rip off on 08.14.08 at 4:08 pm

Stink Boom:

Yes, the realtor was lying, AND the owner is GREEDY.

The boom didnt create the realtors in Calgary. The realtors created a false boom here.

Realtors per se arent evil. A geometric progression was the contributing factor in these home prices, kind of like being it traffic coming to a red light. The person ahead slows a little, and that little change there will affect the 10th person a great deal.

Unlike in traffic at lights, the 10th person at the receiving end of the geometrical real estate progression can refuse to buy into the hype and overvaluation in the current Calgary market.

That is exactly what is happening, and appears to for once be reflected more accurately by Mario T. at the Herald, perhaps because the icy coldness coming to the market is now palatable and vivid.

I am currently looking at houses too(to actually live in) but only looking, because those prices are still outrageous. Make sure you dont buy. If enough people refuse, real estate prices will come down to baseline.

#27 islander on 08.14.08 at 4:30 pm

The realtor wasn’t necessarily lying. When properties first get listed, vendors are full of optimism that they’ll get list price. They often turn down great offers, only to reduce their asking price two weeks later – when they’ve started to panic – to below what they’ve already turned down. I could fill a book with examples.

I turn regularly turn down listings. I flat-out ask a potential client what his price expectations are. If I can’t justfy that number by studying the data, I decline to take the listing. Hosting open houses for over-priced properties that nobody wants is a waste of time for everyone involved.

#28 CinToronto on 08.14.08 at 5:05 pm

Hello folks: Watch this real estate agent squirm when I challenge him on his data. I thought he was brighter than most agents, but his responses show he’s either happy to hide information that isn’t optimistic about the RE market, or completely clueless. I never want to challenge people about their intelligence, but really . . .
http://www.movesmartly.com/

#29 lgre on 08.14.08 at 5:18 pm

when I sold back in May, I interviewed a couple of realtors prior, one lady asked me what I wanted for my house, I already knew what the house was worth because of the exact same houses being sold in the area, I gave her a number $20k over what it was worth, she told me that we can get that, when I really started to question her on it with some relevent data she became very quiet and I never heard from her after that..lol

#30 Mountain Girl on 08.14.08 at 5:20 pm

Loren –
If my demographic (comfortably middle-class professionals in early 30s starting a family) finds balancing student loans and the cost of living enough of a challenge without taking on a mortgage, how do you figure the next wave of kids 10 years younger are faring?
I can tell you because my siblings are in that category. They are in no shape at all to buy and have no intention of doing so. They are doing exactly what I am doing: paying down existing debt, saving, and living as cheaply as possible. Unless real estate affordability comes more in line with that reality, home ownership isn’t a consideration. It would be foolish and irresponsible to suggest that this demographic assume massive debt to give the boomers some of the theoretical equity locked in their houses. Those who did go that route are part of the wave of Canadians that we are supposed to be worried about: those with negative savings and massive, insupportable debtloads. That’s why we are facing a global recession, in case you haven’t heard: it’s strongly connected to a little problem called the credit crisis – a complex issue, but one undeniably linked to the average household taking on debt that could not be reasonably serviced.
So thanks for your glib advice, but I think I’ll stick with having a critical faculty and continuing to make my own choices on this one.

#31 Expat in NC on 08.14.08 at 5:30 pm

There was a house in the Durham region that came on the market 2 1/2 months ago when I was there visiting.

It was listed for $365k. I offered $352k. They countered with $363k. I countered back at $355k. They said they wouldn’t reduce anymore because they said “they are sitting on a gold mine”. I wasn’t about to play any games and withdrew my offer.

So, guess what? 2 1/2 months later it’s still on the market!! Their agent told my agent, “we should have taken their offer” (that offer being mine). Well, if I ever put in an offer to that house again, I can tell you it’ll be at least 10% to 15% less than my previous one, but it is highly unlikely I’ll be doing that now considering what I am seeing in the market.

I love hearing other people’s real-world examples…keep them coming.

#32 Expat in NC on 08.14.08 at 5:31 pm

I also want to add the obvious, but real-world examples are harder to refute than speculation.

#33 squidly77 on 08.14.08 at 5:34 pm

“Let’s say there’s a new pyramid scheme hitting town and J.Q. Citizen is itching to join the immensely profitable fun. But dang it, he doesn’t have any money to speculate with. If only somebody would loan him some capital to play with…. “
the biggest ponzi scam that mankind could create

#34 Bobby in Victoria on 08.14.08 at 5:42 pm

Realtors don’t lie, they just don’t tell the whole truth.

It is not uncommon to list at what the seller wants, just to get the listing, then say the market has changed a short while later. Sure, the seller may lose $100k but for the agent it is only a $1500 commission reduction.

Remeber selling real estate is about creating hype. If the prospective buyers don’t buy, then the realtors don’t get paid. And no one will buy something today if they believe it will be significantly cheaper next month.

I still recall, with a chuckle, a realtor telling me that 350 people were lined up to buy new condos on a ski hill on Vancouver Island. Ironically, over 3 years later, many of these units still remain unsold.

Yes, it’s going to get ugly.

#35 Should I, in Calgary? on 08.14.08 at 5:52 pm

I’m in a position to own. The question is, should I?

My fiancee and I (getting hitched in the Fall) have nearly $170K saved. We own 2 used cars and have Zero debt. We’re both turning 30. (We’re good savers & investors)…never been over our heads. We pay $1200/mo rent in Calgary for a 900sqft bungalow…..not bad, but not great. Our savings per annum are in the $30K+ ballpark.
She wants to nest (buy) and I want to accumulate wealth for another couple of years and then buy.

The main risk for us buying a place is losing net worth….almost immediately if we put the majority of savings into a house. All Calgarians here, do you guys think the market will correct another 10-20%? We’ve already seen 10% for sure.

Personally, I can’t see Calgarians/Albertans walking away from too many houses while they still have a job and while interest rates are at historic lows. Well, maybe not for another couple of years at least.

My dream is to live a comfortable life, but to be mortgage free by 35.
I’m now gathering that others do not dream like that?

#36 Rob on 08.14.08 at 6:21 pm

#25 CinToronto

re: movesmartly, John is generally little bit better than your average shill or at least is open to discussion points other RE blogs are not. I wouldn’t confuse the matter with a lack of intelligence. Remember he is on the RE side of things and therefore predisposed to at least a certain amount of ‘professional disbelief’ that the market has peaked and is on it’s way down. In his own mind and views, he probably is taking everything with a grain of salt…at least for now. It’s a sign of wisdom, normally.

The better among RE agents, and bankers etc. are steeped in the sell-speak of ‘moderation’ ‘cooling’ ‘sideways’ these days because it’s not in their interest to tell people to run to the hills is it? Besides the mania is so ridiculous, clients aren’t interested in straight ahead advice — let them all learn the hard way in each market. The data will soon speak much louder…

#37 Nickolai V - Should I take the plunge???? on 08.14.08 at 6:23 pm

I live in a “starter” home in a nice neighborhood in the North End of Barrie, On. We bought the house 3 years ago on a single income. Now we are a two income family with very secure jobs and we can easily afford twice the house, so we’ll be looking to upgrade very soon. We’re thinking of selling now, cashing out what we can an renting until next year when “theoretically” there should be loads of homes on the market – all at 10-15% off. Renting anything decent will be twice as much as my current mortgage payment, taxes etc. Renting is also a pain in the ass when it comes to kids etc. (I’ve got two under 5yrs). (I guess loosing $40K off the value of your home is a pain in the ass too). What’s a guy to do? Any else out there in a similar predicament who’s seriously considering selling and renting?

N

#38 Keith in Calgary on 08.14.08 at 7:31 pm

Stink Boom said “either the agent was lying or the owner is an idiot”.

Both……but you can rest assured that the realtor will always lie……

#39 dawson on 08.14.08 at 8:07 pm

Interesting to read:
http://www.detnews.com/apps/pbcs.dll/article?AID=/20080813/METRO/808130360/&imw=Y

#40 Toronto Crash on 08.14.08 at 9:19 pm

Ontario house prices set to follow Western drop

Globe and Mail Update

August 14, 2008 at 5:25 PM EDT

Ontario will likely follow major cities in Western Canada into a house price decline, but while its slide should be shallower it will also be more worrisome due to the province’s weaker outlook, an economist says.

Last month the average price of a resale home in Canada fell by 3.6 per cent, continuing a decline that started in June when prices lost ground for the first time in more than nine years, according to data released Thursday by the Canadian Real Estate Association (CREA).

So far the drop in average home values has mainly radiated from Calgary and Edmonton, where prices fell by 7.8 per cent and 5.3 per cent respectively in July from the year before.

But it wouldn’t be surprising to see prices in these and other large Western cities slump by as much as 20 per cent in the near term, in a correction of markets that got ahead of themselves, said Benjamin Tal, senior economist at CIBC World Markets Inc.

“You don’t have to be an economist to predict that prices will go down in Saskatoon and Regina, but in terms of the fundamentals, all the pieces there are still fine – a healthy economy, energy boom and rising food prices,” Mr. Tal said. “Other than people who bought last year thinking prices would keep doubling over breakfast, most people there [the Western provinces] should still end up ahead.”

More concerning is the softening real estate market in Ontario, he added.

Hard hit by the auto sector slump, Windsor-Essex became the first major market in the province to post year-over-year house price declines. Now Toronto also appears headed for a drop, with prices rising a scant 1.5 per cent last month, while sales fell by 12.4 per cent and new listings surged by 17.8 per cent.

“The concern here is that the potential decline in Ontario would not reflect overshooting, but instead the further slowing of an economy that is probably already in recession,” Mr. Tal said.

“While I would expect a more modest drop in prices of about 5 per cent in Ontario and the GTA, prices have not risen as much here and the decline would be more painful.”

In July the average price of an existing home fell by 3.6 per cent from the year before, building on a 0.4 per cent drop in June, according to CREA.

The average price of a Canadian resale home stood at $327,020 at the end of last month, compared with $339,277 in July, 2007.

A sharp drop in consumer sentiment helped push sales activity down 10.9 per cent from the year before, and the latest figures drive home the impact that excess supply is having on prices, Doug Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in a research note.

“While we still doubt that Canada will stage an instant replay of the trauma in U.S. markets, even a mild version would be bad news,” Mr. Porter said.

Listings also remained near record levels in July, with 50,782 properties listed for sale in major markets in July. That’s the second highest level on record, and down a slight 0.2 per cent from the peak hit in May.

A newcomer to the list of markets experiencing price declines was Greater Vancouver, which had a 1 per cent year-over-year to an average of $575,256 in July.

While nationwide sales levels have been edging up slightly since bottoming out in February, activity stands below the levels hit in record-breaking 2007. Sales rose by 0.1 per cent month-over-month in July to 26,033 units on a seasonally adjusted basis.

Actual sales however, at 27,889 units, were down 10.9 per cent from the year before, which was the strongest July on record.

Sales fell in Montreal, Toronto, Victoria and Ottawa compared with the month before, but rose from June levels in Edmonton, Calgary, St. John’s, Saskatoon, Halifax and London, Ont. In Winnipeg, sales in July broke previous monthly records.

Listings reached their highest level on record in the country’s largest market, Toronto. Listings were also near peak levels in Saskatoon, Montreal, Gatineau, Trois-Rivières, Montreal and Victoria.

The government’s recent decision to crack down on mortgage lending rules has likely fed the cooling of the real estate market, helping Canada avoid a U.S.-style bubble, Mr. Tal said.

Most Canadian cities are now in, or on the cusp of, being in buyers’ territory, he added.

While home prices are softening, however, this is not expected to offset rising inflation, he said.

“If food and energy continue to rise, housing will not save us,” Mr. Tal said.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080814.wmls0814/BNStory/Business/home

#41 CinToronto on 08.14.08 at 9:30 pm

Hey Rob: I know what you mean about John at MoveSmartly. That’s why I told him I found him more analytical than most realtors. However, I was a bit shocked at how poorly he handled the info I gave him. I honestly don’t know if he realizes that we have the lowest sales/inventory ratio since the 1990s. It can’t be *impossible* to be a salesperson and still be willing to face the facts. That’s why I started to wonder if he was understanding everything. It’s a pretty crappy situation when it’s better to be thought of as a liar than being poorly informed about your own trade!

#42 My_view on 08.14.08 at 9:40 pm

Should I Calgary

I take profit over debt any day.

Factoids: Maybe a little off the rails. However, you got to know.

1931- For every 1 retiree, they’re 7 taxpayers working. 1:7

1991- 1:5

2031 – For every 1 retiree, only 2 taxpayers.

Cash Is King

#43 pete on 08.14.08 at 9:54 pm

If anyone wants a clear ViSuAL how it will unfold in Canada this fall/winter all you have to do is draw the parallels north from this 3 month US house price index map:

http://www.loanperformance.com/assets/images/pr0408_3mo.jpg

Crazy how safe places like Texas are…. anyone got any theories on that? All i could find is that their exports have doubled lately.. of what i have no idea?? ..cows maybe

#44 squidly77 on 08.14.08 at 10:16 pm

mania panics and crashes
soon to enter phase 3

#45 Jim on 08.14.08 at 10:17 pm

“pete” better yet is the 12 MONTH MAP

http://njrereport.com/images/pr0408_12mo_lg.jpg

me thinks BC and ONTARIO could be in ze troubles!!!!!

Texas’s safety is probably its oil and gas (and methane from cows arses) cus checkout montana and whatever’s to the east of it (that new ?Bakkan oil find is on montana border)

#46 Jim_s on 08.14.08 at 10:43 pm

#32 Should I, in Calgary?

Two things you need to really consider:

1) As an investment, smart money never invests in something on a downward trend, let alone potential future downward spiral. If you just examine the numbers aside from lifestyle and comfort, buying now is completely stupid, no bones about it.

2) If you buy now, you are agreeing that the house you buy is “worth” what you and the seller arrive at for price. So buying now redeems the value, and you can’t turn back the clock to reconsider or revalue it if it falls.
But waiting now doesn’t redeem anything for you, so it keeps you most flexible.

My honest response to you, based on what’s happening to a few speculator friends of mine, is DON’T BUY now.

Waiting will not cost you.
Buying now potentially (and probably) will tax your wealth portfolio bigtime.

->

#47 pete on 08.14.08 at 11:03 pm

Here’s the Merrill Lynch report aired on the media lately case anyone missed it (still can’t believe they have cities like Montreal and Calgary overvalued 14%):

http://cfcr.ml.com/GetDoc.aspx?e=8pG0MM1yAlglSDwesEp6D0oMzsadHinm%2fpLZFcAYgGmM4GK9MUc22fLarWBn4e5eIeALda5cCmh4eo3LtXlJew%3d%3d&ctbDocIDs=10755267&v=1&m=pbZihNY3cWeyGu8PsB6YYaVVyaY%3d

#48 Jim_s on 08.14.08 at 11:18 pm

Ontario set to follow Albertas housing decline.

->

#49 Republic of Western Canada on 08.14.08 at 11:18 pm

#32 Should I, in Calgary?

Tell the chick that she either gets married, or a new house now. Not both.

Odds are you’ll continue to bank more cash & rent for a while yet :)

#50 squidly77 on 08.14.08 at 11:22 pm

Nearly one-quarter of Canadians do not agree with the federal government’s mortgage lending crackdown, a proportion that rises to nearly a third among non-homeowners. Many Canadians oppose tougher mortgage rules. a calgary realtors site
here are the results

#51 squidly77 on 08.14.08 at 11:35 pm

Garth..you might consider running a similar pole
you might even suggest that the rules are tightened even further, perhaps a 10 15 or 20% down payment and a maximum 25 year amortization might be the popular choice of Canadians.

after all, it is the people of Canada who through CMHC guarantee these mortgages.

#52 JO on 08.14.08 at 11:49 pm

This is the first inning in the price drop game. I work for a FI and speak with loan officers on a regular basis and in most locations in GTA there has been a sharp, protracted decline in # of mtg applications and clients indicating that home are on the market much longer. In a popular suburb east of TO, clients that used to sell within a month have been waiting 3-5 months. We need to remember that much of the developed world’s economic “boom” of the last 5-6 years was based on several factors, none of which are sustainable and have never created true wealth creation. This crisis is in my opinion being completely under-estimated by most mainstream “experts”. The foundation of the economy/housing market is the sea of credit and in many cases, debt on debt. A blow off top in credit creation over the last 5-6 years played a major role in creating the illusion in the housing market / economy. And now, the most overleveraged society of modern times, with much of the credit / debt being tied to housing valuations which are far out of sync with reality, faces rapidly increasing unemployment, a major decline in global growth, and a negative social mood that is rapidly spreading and resulting in rising savings rates and an inclination to reduce debt. The world has never seen something like this. It is a haphazard gues, but from my years of reading and researching most past financial crisis, i think we have at least 3-5 years of “de-leveraging” ahead. Things that are not suppose to happen, likely will. If you do not need to buy and can wait, it would probably be a good idea. By renting now, it is much cheaper and you face no risk in your net worth. I have noticed a tendency in the past that when assets start dramaticallyy outperforming their long term average ROR, they usually take about the same amount of time deflating. It is entirely possible the housing market could decline for 6 years before touching the bottom, if we accept 2002 as the start of the sharp rise in prices. True wealth creation in not achieved in a major credit inflation. They are always destroyed through periods of deflation and eventually inflation.

#53 jelly on 08.14.08 at 11:57 pm

Should I, in Calgary?
I would definitely wait on buying a house at the moment! What do you have to lose? You would
pay more monthly for owning then you are now, along with a huge risk you would lose money in the future becausewe are certainly still high on the peak of Calgary real estate. A lot of people are in a panic and
as you probably are aware, real estate is highly emotional-not looking good for next year, no matter how you look at it!
I am with you on living mortgage free.
My husband and I were renting until we were 30 years old and once Calgary prices were ridiculous, we started looking in small towns as houses were cheaper a couple of years ago. We bought a beautiful character home with a huge yard for $70,000 and are now mortgage free. I cannot tell you what a great feeling it is to know that I can stay at home caring for our newborn for the next 5 years if I choose while a lot of my friends HAVE to return to work because of their house payments.
All because they HAD to have that big house with granite countertops.
I also must say it feels great to know we are not lining the banks pockets with our hard earned cash!
The bank made barely any $ off of us…
Not bad for a couple of renters that felt like we would be paying off our mortgage forever as we felt we joined the property ladder late! I hate debt and it gives such a peace of mind that we will not have to give housing expense much thought. So you are not the only ones
out there! I would recommend doing this if possible,
even if you have to live in a further away, smaller house because in hard times, this breathing room could save you from disaster!

#54 EverythingZen on 08.15.08 at 12:01 am

#10 FP on 08.14.08 at 2:02 pm

It’s not the house that’s worth $450,000. It’s the house and the property combined. I’m certain you know this already, but when you pause for a moment to consider it you will realize that it is not so outrageous for a desirable area such as Leslieville. Although not my personal preference, the market is clearly showing strong interest in this area and I suspect it has to do with the proximity to downtown, the lake, the streetcar, and the emerging retail scene.

It doesn’t hurt that the comparable house in Cabbagetown would go for $800,000 either.

So either take the plunge or sit this one out. Either way Leslieville will continue to gentrify in my opinion.

#55 anonymous on 08.15.08 at 12:30 am

#32 Should I, in Calgary,

If you were a good investor as you claim you are, you wouldn’t be stupid enough to consider buying in Calgary right now. It would be obvious to you and you wouldn’t be asking for advice from a forum.

But I like you because you are young and have done a good job of saving up some cash. So, here’s some free advice for you.

YOU ARE FORBIDDEN FROM BUYING FOR AT LEAST 1 YEAR. Got it? No exceptions, that’s a hard and fast rule for Calgary. And that’s just the minimum amount of time. I’m thinking two years would be ideal. Don’t overthink it. The trend is broken, and it’s broke big time… don’t fall for dead cat bounces along the way.

Next time you are in traffic and some jerk cuts you off, he’s part of the “housing market”. And some moron lady is in line at Tim Hortons and can’t make up her mind what to buy, she’s part of the “housing market”. This is the most unsophisticated market in the world… it will obey trendlines… and the trend is down, down, down.

But you MUST buy something at the bottom which could be anywere from 2-4 years away. That’s going to be the tricky part. When all your moron friends are talking about the horrors of real estate, you will swoop in and start making lowball offers to desperate sellers. And remember to be ruthless.

Good luck. And I hope your wife understands why you are forbidden from buying right now.

#56 Bluesman on 08.15.08 at 12:47 am

I posted this on Vancouver Condo Info earlier:

Some cool graphs from the IMF comparing the housing debt to GDP for various countries:

(This one is more current – April 2008)

“The sharp weakening of the housing sector
in several advanced economies over the past
couple of years, and especially the financial turbulence
triggered by increasing defaults in the
subprime mortgage market in the United States,
have raised concerns that, as a result of innovations
in mortgage markets, the housing sector
could be a source of macroeconomic instability.”

http://tinyurl.com/5akhnb

#57 Another Albertan on 08.15.08 at 1:19 am

@40:

Texas didn’t go overboard on property valuations. I’ve spent enough time in Houston and outer areas to have seen that firsthand.

People near Houston buy McMansions in Katy because they want more house per unit dollar. There isn’t an expectation that they will be able to sell for integer factor gains. There are massive tracts of land all over the place. Even within Houston proper, the prices in many areas are comparatively reasonable.

There are always pockets of idiocy to be found in every jurisdiction, though. Some areas will always have an over-inflated sense of self that is reflected in valuations.

#58 squidly77 on 08.15.08 at 1:28 am

please help me..buy a house

#59 Bailing in B.C. on 08.15.08 at 2:37 am

#28 Expat in NC. I have a nice example of the same thing here in a bedroom community outside of Vancouver. I looked at a house listed for $659,000. 40 yr old house, hideous interior work done to the point where it was lol funny (I joked that the family room, which was covered in various types of rock work, was like the grotto at the playboy mansion, but crap-tacular). However the house had nice bones in a great location. As soon as it was listed I offered $650,000 subject to sale. My offer was “Respectfully Declined”, no counter offer being made. 6 Weeks later the sellers wanted to know if my offer was still good! I offered $630,000 they countered at $650,000. I offered $635,000, they countered at $650,000. At that point I decided that if they didn’t want to play nice, it was time to take my ball and go home. Approx 6 weeks later they dropped their price to $639,000. Eight weeks have passed since the drop and it’s still on the market….

I have since bailed on my revenue property in Kamloops (and by revenue I mean that it actually made me money from the rents, what a concept!). I have decided, that since no one ever went broke collecting a profit, that I should take mine and wipe out my debt completely.

Now I wouldn’t touch that house with a 10 ft pole. I bet if I made them a cash offer of $600,000 they’d grab it, but I think I’ll wait 2 years and offer them $400,000;-).

#34 Nickolai V. I too am thinking of sell my principle residence, but it’s a big scary/pain in the arse thing to do. With no mortgage and $800 mth rent coming in from the downstairs suite, moving to a $2500 mth rental would be painful. The cash from my house (approx $600,000) would have to be earning 7% to cover the rent and the loss of income. So there’s likely not any savings in renting for me. However…….. if the market drops like I think it will, sometime in the future I can jump back in either cheaper and keep some cash, or get a lot more bang for my buck.

So here I sit in my $600,000 crapbox (bought for $270,000 and probably what it should be worth) pondering….. Sorry did I say $600k… I mean $580…errr $560…..$540 please!

Time is money!

#60 David on 08.15.08 at 2:44 am

Should I in Calgary, what do you do when you see a red light flashing at an intersection?
An increasing number of properties hitting the market, fewer qualified buyers and the prospect of ever lower prices, one would think that would suggest extreme caution. Risking a substantial portion of your personal equity contribution in a market entering the initial panic phase sounds risky. The 0/40 spigot of nothing down easy money is officially over on October 15/08 and about the only thing the unlucky can have in their future is double digit annual price declines.

#61 Al on 08.15.08 at 8:55 am

#32 Should I,

It may not be a bad idea to buy now *IF* you can get the right price. There is an expectation that prices will drop by 10-30% more (or however much) but there is no reason why the price can’t drop that much on the house you want now. Go fishing and make offers at your price. Just make sure you and missus are on the same page about expectations, and be ready to walk away.

A bit of math might help.

Money thrown away while renting:
Rent

Money thrown away while buying:
Interest + property taxes + insurance + maintenance + depreciation

Interest can be easily calculated. Property taxes and insurance can be confirmed before a purchase. Maintenance isn’t huge and can be reasonably estimated. Depreciation is tougher, but that’s why you walk away if you don’t get the price you want.

With a good down payment and healthy incomes, you can minimize the interest componeny by having a relatively small mortgage with a short amortization (never underestimate the value of a short amortization to long term wealth accumulation). If you haven’t done so, use one of the online calculators that shows principal and interest components and runs a bunch of scenarios. It’s very educational.

#62 POL-CAN on 08.15.08 at 9:29 am

Garth….

I found this yesterday and reading it scared the living crap out of me…. If what the writer proposes is even partly true (the fraud), I wonder if anything like that could/has happened here in Canada…. I know corruption is everywhere but this really blew my mind…. Thoughts?

http://news.goldseek.com/GoldSeek/1218694140.php

#63 Calgary rip off on 08.15.08 at 10:10 am

Should I?:

I am 6 years older than you and my wife is 41. We have been in Calgary for about a year and a half. I work, she doesnt.

She has seen some properties in SE Calgary(not Forestlawn, I assure you) with big yards in a good area and wants to go looking on this weekend.

Im in a better spot than you in that I hardly have any down payment and the monthly payments on some of those properties are ill affordable, so although she has seen houses SHE likes, we arent necessarily in a position to buy.

So what am I doing? I am going to stall as long as possible, continuing to pay around $1600 for rent on a house(not including utilities) while the market crashes around me.

When prices hit around $230,000 for a 1500 square foot home with a decent yard(not too big though I hate lawn mowing) then we’ll start seriously considering.

Question is to you: Do you wear the pants or does she? Women in general like to manipulate men one way or another even if they argue they dont, the proof is in the behavior. Im the one working, so if I dont think its reasonable it wont happen. And if she makes more money than you, if you do as she says, you might as well be her child. Nada, net, nope to that idea.

#64 Danny on 08.15.08 at 10:17 am

This sight is full of ranters who (A) have lost bids on multiple offers or (b) other who didn’t have the stones to get into the market 4 years ago when they thought prices were inflated then.

I live in Toronto and know that if your waiting on the sidelines for the ” big collapse ” to buy a house near the downtown core, beaches, riverdale, or any other of the dozens of pockets of Toronto for a song. Guess what ? It’s not going to happen.

So wait another few years for the next doom and gloom turner theory

#65 Housing Bear on 08.15.08 at 11:00 am

Danny:

You remind me of someone I met in 1987 who said the exact same things…

HB

#66 Dave on 08.15.08 at 11:25 am

Danny,

This site is full of people who know the difference between site and sight, between other and either, and your and you’re.

#67 Should I, in Calgary? on 08.15.08 at 11:42 am

Calgary Rip Off and others, thanks for the advice.
I know the market is going down, and I know that prices are still somewhat stupid in Calgary (I saw a “handyman’s dream listed for $425K in Bowness last night – Their description, not mine!). So, I know the right thing to do is wait. I’m feeling the heat like nobodies business about buying a place….I with it was just the woman. To date, I’ve tried some real low-balling on a couple of houses and had to walk away. For me it’s business, but to any woman, it’s emotional crap.
It’s just insane though that two professionals with good careers and good savings feel that they can’t buy the house that they want in any major market in Canada. And we don’t even want that much. I’m talking 1,500sqft and something wider than a gawdaweful 25ft wide piece of crap infill lot. Those are horendous.
It’s going to be hard to tell the woman to hold off nesting for another year (or two), but I guess it’ll have to be done.

Danny (#60), your comments are neither factual, nor interesting. I had and have the stone to buy a place (and have for years), but my head controls my stones.
Sucks to be a bagholder on an overpriced house, eh? Thought so.

#68 Should I, in Calgary? on 08.15.08 at 11:44 am

Additional Question:

How much more do you think the average price in Calgary will drop? I don’t have to catch the bottom to be a happy guy, I just don’t want to be near the top.

When I see 90% of the houses in Bowness (800sqft bungalows in mostly – but not all – pretty bad areas) going for $400K+, I know things are still out of whack.

Those in the know about CGY, how much do you think it’ll drop? Remember, I moved here two years ago and have seen nothing except stupidity.

#69 brazer on 08.15.08 at 11:52 am

Yikes!

http://yourhome.ca/homes/article/478851

“Canada’s housing market is running into some seriously foul weather amid the weakest affordability in nearly two decades,” said BMO Capital Markets senior deputy economist Doug Porter in an economic note. “The steady drum beat of double-digit sales declines this year is beginning to weigh more heavily on prices.”

#70 RJT on 08.15.08 at 12:07 pm

Danny said: “I live in Toronto and know that if your waiting on the sidelines for the ” big collapse ” to buy a house near the downtown core, beaches, riverdale, or any other of the dozens of pockets of Toronto for a song. Guess what ? It’s not going to happen.”

This argument lacks logic Danny. “It’s not going to happen” is a conclusion, not an argument. WHY is in not going to happen? Have you thought it through? Have you done any fundamental analysis? Or is it just a “feeling”. kind of like “I feel the Toronto Maple Leafs will win the cup this year!”

#71 Calgary Rip Off on 08.15.08 at 12:12 pm

Danny:

This site also consists of people who 4 years ago werent even in Canada and werent sitting still. There’s always exceptions to what you may think.

As far as thinking things wont drop, maybe you should go hang out with Mario T. at the Herald in Calgary who is being paid the big bucks to continue his propaganda about how Calgary single family house prices wont plummet.

Please explain to me who the loaded buyers are who will choose to buy in Calgary.

#72 Should I, in Calgary? on 08.15.08 at 12:42 pm

“And the average MLS sale price in the Calgary area is expected to rise from $414,066 in 2007 to $418,000 this year and $430,000 in 2009.”

http://www.canada.com/calgaryherald/news/story.html?id=6b0a4233-a684-4d83-a755-c93db2fe1418

Wow, I think the statements in this Herald artical are very overly ambitious. The article is laden with terrible data like sales, immigration and housing starts PLUNGING, and then they say that sale prices will remain on an upward trend. WOW. That takes some funny math.

Thoughts?

#73 Rob on 08.15.08 at 12:43 pm

#60 Danny

Oh Danny – you’re only partially right and nice generalization BTW. Toronto will see it’s share but some neighbourhoods will likely withstand the brunt sure.

Not everyone believes a ‘big collapse’ is coming – some of us are waiting for a ‘correction’ which is certain. If the roller coaster continues on and specs get the yips, well we’ll see.

But to address your ignorance, it takes ‘stones’ to be the contrarian, hold off and not buy with the unthinking herd when the market is not pricing properly [read: insane].

Keep trying.

#74 Keith in Calgary on 08.15.08 at 12:55 pm

Should I in Calgary……

Considering that the avergae household income in Calgary can only support a $285K mortgage I’d say we have another $150K to drop in value before you should buy a house. It could take 2-3 years to get to that level….but the money you will have by renting and saving the differnece will make a nice down payment.

In 2004 houses here were around $250K…….today they are $435K…….the only thing that changed is greed got a foothold here. Logic did not.

#75 pete on 08.15.08 at 12:59 pm

to #64 ‘Should I, in Calgary?’

Merrill Lynch says Calgary’s overvalued 14% – which would equal approximately a 10% drop. Unfortunately most of their research was done before it dropped 7% in the last few months. So at least try and low-ball 5+% on your offers.

#76 WetCoaster on 08.15.08 at 1:05 pm

Bravo Garth! You have a way with words that cuts to the bone. Well said. The sooner we recognize the reality of the situation, the better off we’ll be. Thanks.

#77 Jim_s on 08.15.08 at 1:08 pm

Too high, pete. She’s dropping like a bag of hammers in Edmonton right now and Calgary will fall much further than another 5%.

Don’t succumb to pressure, “Should I?”

She wants to entertain friends on the deck, not fully realizing the life-long serfdom you face.

I believed a forecast once….. lost of ton of money too. NEVER, EVER will I do so again. Especially from those that have a financial interest. Realtor forecasts are pure, 100% garbage. A bank is not far behind.

->

#78 Blown Away on 08.15.08 at 1:17 pm

I’ve just spoken to an Independent Financial Advisor who I know quite well. He told me Calgary will not depreciate given the economy it has to support it. I then spoke to someone who has a relative who works in the petroleum industry and is currently buying up condos as prices are just going to go up. Apparently, there’s a 100,000 people in Calgary making over a million a year according to this petroleum worker.
While I understand that the petroleum worker has his head in the sand and doesn’t understand how fragile the underlying global economy is, I was shocked at the comments from this financial person.
What planet are these people from? I’m not an economist, but things are on their way down, Calgary included. This is the worst time to buy and it is so scary to think people that should “get it” just aren’t capable of doing so!

#79 Dawn in Calgary on 08.15.08 at 1:27 pm

Should I, in Calgary;

“And the average MLS sale price in the Calgary area is expected to rise from $414,066 in 2007 to $418,000 this year and $430,000 in 2009.”
http://www.canada.com/calgaryherald/news/story.html?id=6b0a4233-a684-4d83-a755-c93db2fe1418
Wow, I think the statements in this Herald artical are very overly ambitious. The article is laden with terrible data like sales, immigration and housing starts PLUNGING, and then they say that sale prices will remain on an upward trend. WOW. That takes some funny math.

Thoughts?

++++++++++++++++++++++

I was just coming here to post that ridculous article and ‘new math’ from RE shill Mario T — he’s back with a vengenance. On one hand there’s a slowdown, pullback, listings rising, condos sitting empty, but yes, folks, house prices WILL rise in 2009.

Ridiculous.

Also, Should I — it’s obvious your partner is feeling emotional about this purchase/pressure to buy. One year will not make that much difference. Sit her down and show her this blog and articles. Try to discuss it rationally.

And to others– as a woman who has been a participant and contributor to the blog for months now, I really don’t appreciate the tone it’s taken over the last couple of days. The comments about ‘being a man’ and ‘wearing the pants’ have nothing to do with a discussion on RE bubbles.

You can’t tell me that all the emotional buyers and recent speculators are women, nor do I believe women are behind all of the purchases – so please, keep the sexist comments to yourselves.

#80 pjwlk on 08.15.08 at 1:36 pm

‘Should I, in Calgary?’

Before you get married you might want to have a look at this video…lol
http://www.youtube.com/watch?v=ddqx_cWUN-g

Danny, Danny Danny… Bare your buns my friend and let us all have a kick at that rosey coloured ass of yours… Seems like you really want/need it… I can’t imagine any other reason you’d write a posting like that…

#81 Mike on 08.15.08 at 1:38 pm

If Loren isn’t the ULTIMATE greater fool I can’t imagine who is. Talk about folly. Even with oil dominating things you must be aware that all products need a buyer to have any value. Oil and gas has the whole world as a buyer who are “over a barrel” if you will. Real Estate…. people have other choices like renting or moving to more economical area. Plus RE is just not liquid enough. If you have a 3 million dollar home with buyers who can only afford 700K you have missed your market. Kinda like having a shoe store that only sells size 16. One size does not fit all. There will be province wide corrections in prices and that will accelerate in the third quarter as this slowing in commodities abates and inflation, real inflation , rears its ugly head.

#82 Jim_s on 08.15.08 at 1:38 pm

Blown Away;

How will you and I be able to lever this market in the future if everyone was a cautious as us?

I see people with their head in the sand as not only ignorant, but totally ripe for the picking in a few years. And I shed no tear today, or in the future, for someone that is financially irresponsible in todays’ lightning fast world of information.

If 100,000 people (about 1 in 11 in Calgary) made $1M a year, and the other 1,000,000 only earned $20K per year, average salary in Calgary would be in excess of $105K per year. Your petroleum friend has been drinking.

->

#83 Call_A_Spade_A_Spade on 08.15.08 at 1:49 pm

JO, I always like your comments & big picture views.

I’ve been a big Gold bull and I am definitely rattled with recent action. August is always a disaster for Gold, so the next several weeks is crucial.

If I am wrong, it’s better I recognize it earlier than later.

#84 Mountain Girl on 08.15.08 at 1:51 pm

Calgary Rip Off and Should I Buy –
Why did you have go and start spewing sexist garbage like that?
“Show her who wears the pants”? “For me it’s business, but to any woman, it’s emotional crap”?!!
Hey boys, I’m the one in my family who deals with all of the finances. I pay the bills on time, I put together the financial plan, I’m the one who does the financial homework and shares it with my husband.
And guess what? I’m a woman!
Most of the women I know are the ones who manage the finances in their relationships. That’s my experience and reality, but I’m not assuming that’s how it is for everyone and making asinine comments based on sex.
Do you hear me talking about how men are all bad with money or how they all buy cars to make them feel better about their dick-size or any sexist crap like that?
No, because that would be making an ignorant and stupid generalization. So please return the favour.
Financial sense doesn’t depend on gender and I’d appreciate it if comments here kept that in mind.

#85 Mike on 08.15.08 at 1:52 pm

Danny the Dummy…. Sorry dude….many of us sold a year ago and are sitting on cash. We have all witnessed a decline in sales and an increase in the number of listings in Toronto. No need for a degree in economics or algebra to know that too much product for too few buyers ends up in lower prices EVEN IN TORONTO. Just go to mls.ca and check out C4 and C12 for detached homes… 22 pages and 19 pages … there’s over 400 homes in those two areas alone. Many many for over a million… most can barely afford 600K.
Supply and demand dude. Other problem with T.O. is that there are thousands of agents and speculators churning the market making stuff look rosier than they really are… Gonnna happen….!!!! Is happening !!!!

#86 Blown Away on 08.15.08 at 2:09 pm

Jim_s
Thanks for your comments. Please note that this petroleum dude is no friend of mine – he is a friend of someone I was speaking to. It is the financial expert that I know.
Please also note that I am acutely aware of what is going down out there – just noting how frightening it is that other supposedly educated people don’t know any better.
I agree with your comments – trust me I know they’re both seriously off the mark!

#87 WetCoaster on 08.15.08 at 2:10 pm

You can’t tell me that all the emotional buyers and recent speculators are women, nor do I believe women are behind all of the purchases – so please, keep the sexist comments to yourselves.

Agree 100%. I’m a wife and as much as I want a place to settle down and call home…it would be financial suicide.

My husband was even calling me a tin-foil hat wearer, and figured he knew better. My homebody feeling is out-weighed by pure common sense. Don’t pay for someone else’s retirement while totally ruining your own. It’s quite logical and has nothing to do with gender :)

#88 Should I, in Calgary? on 08.15.08 at 2:49 pm

Though I can take the heat from these lads, the sexist crap is uncalled for, I agree.

I will say that women, generally, are nesters. That’s the battle I’m fighting right now. My woman’s average (in that respect only) I guess. Not a bad trait. It’s just tough being a renter when you’re a nester I guess. You don’t really enjoy your home. It saves you a tonne of money, though, this I can attest to first hand.

With that said, the writing is on the wall. I don’t really see us buying a house short-term unless one of our low-ball offers hits the mark.

#89 Calgary_Rip_Off on 08.15.08 at 3:14 pm

Looks like some females took comments the wrong way. Like to rephrase things: Manipulation can be done by BOTH genders(look to your neutered or spayed realtor for advice). However, as a guy, I chose to marry a woman, so she has her agenda, I have mine. She deals with the financial accounting, which I cant be bothered with. As far as sexism goes, its ironic that guys who state what they want and arent pushovers(take note “Should I?” you posting that crap means you’ll get walked all over by her: time to grow jewels dude) generally are called swear words by women, who then later end up with the guys they swore at earlier. Very logical, really, however it doesnt always happen that way. And its OK to say that guys arent always good with finances and they buy Ferraris to augment their girth, guess what, thats a reality in many cases, doesnt make you sexist by saying so! If you earn the money(irregardless of which gender earned it) spend it, just dont spend it on houses!!! By the way, guys buy on emotion too, that privelege isnt owned by women. Buying on emotion is what makes people human, and unfortunately Mario Toneguzzi at the Herald and Ed Jensen ad infinitum ad nauseaum would have you believe that Calgary real estate has hit rock bottom.

For further education, contact Mario T. via email at the Herald, they are trying to help the deflated Viagra bubble in Calgary.

#90 Crikey on 08.15.08 at 3:37 pm

“please, keep the sexist comments to yourselves”

Wow, this website was great until the Cro-magnon men took over.

For the record, I also talked my husband out of buying a house and paying off any remaining debt.

Luckily, he quickly realized he was not fit to be “wearing the pants”, and I wan’t into all that “emotional crap”.

By the way, I make more money than he does, too. He’s fine with that.

#91 Shifty on 08.15.08 at 3:58 pm

Mountain Girl
Well said!!!!!!!!!!

#92 David on 08.15.08 at 3:58 pm

Even with a substantial down payment of 25% or more, folks like Should I actually need to be more careful about what they pay for house. The 0/40 crowd had no need to be prudent when prices were out of control and there was absolutely no personal skin in the game. Factor in an effective negative interest rate and sure enough there were a few big winners.
What worked in the past is no guide to what will work in the post real estate bubble world. To make things simple about property pricing, one has to look at the potential for rising interest rates and sinking property values. The proverbial nuke proof mortgage.
The bare minimum cap rate on a property is a good yardstick in setting price for the buyer. The minimum cap should be 5% above nominal yields on 25 year Government of Canada Treasury Bonds (risk free rate) or alternatively 30 year fixed rate mortgage rates (slightly higher than risk free rates). Easy enough to figure out the correct denominator (read price).

#93 mattbg on 08.15.08 at 4:23 pm

Don’t worry too much, because the CMHC says that house prices will outpace inflation this year and next.

http://www.canada.com/topics/news/national/story.html?id=de5e2269-a1cb-4a18-82ac-facb5046ab93

A Crown corporation… shouldn’t they be doing better than this?

#94 JO on 08.15.08 at 6:00 pm

Call a spade a spade,
Thanks for the comment. I did write the comment for this piece that you allude to but i notice their is someone else with small cap jo posting too. I always post in cap letters. I am no gold bug but i have tremendous respect for its purity as money. I do think it is much more likely to continue to drop over the next 18-24 months considering the amount of bad debt and asset liquidation occuring and accelerating in the world, but make no mistake, i plan to start building a strategic allocation to bullion on sharp declines in the 700’s as i think there may be elevated inflation (worse than what we’ve seen with low but still real chance of outright “printing” happening in the final hours of the crisis – whenever that is) to try and “get out” of the issues. Gold is where you want to be when that happens. It should move explosively just before the actual “printing” and silver may outperform gold as another sign of “printing”. I am keeping a close eye on the base money and TMS money figures to see if/when the real printing will begin. You can count on the Fed being interested in printing only after sliding into what hindsight will show to be the beggining of deflation. They show up after the party has left. And by the way, Bernanke is not the chief i am concerned about. Public disclosure (see Bloomberg article) shows he has large portion of his NW in TIAA Cref annuity and Canadian T Bills with smaller holding in a blue chip fund. Why would this guy “print” and make himself poor? It is the next chief you have to watch closely. And then after him, I am guessing the Fed will be altered or even shut down in terms of currency management. Cheers.

#95 Should I, in Calgary? on 08.15.08 at 6:44 pm

Does anyone have the text from the article linked above that’s titled, “‘Hundreds of millions’ at risk in Calgary”??

The link doesn’t work for me. If it works for you, please post the text here.

Thx.

#96 JC on 08.15.08 at 7:35 pm

Regarding Gold bulls, be wary history has shown gold as a good hedge with inflation, but not when interest rates are also high.

Rates will rise in the USA, this will strengthen the US dollar and kill gold…and oil short term as we are seeing it happen now.

PS, Garth I read your book on sunday a good read, i couldn’t put it down, allthough I kind of lost interest when I hit the environmental section. I think I will grab some of your others.

I like gold too, but I am really concerned, that rates have to rise in the USA… this too will be bad for housing in the USA. OUCH!

#97 Another Albertan on 08.15.08 at 7:40 pm

100,000 people in Calgary making over $1M?

If this were true, it would make the ranks of a well-cited and backed-up piece of Canadian trivia. All of every newspaper’s front page.

How do those numbers work out? Anyone? Anyone? Arc Financial Corp. puts 2007 capital inflow at just shy of $110B and after-tax cash flow at just over $50B. Anyone see the flaw in the personal income numbers yet? Anyone?

The honest to goodness fact of the matter is that non-executive, downtown professionals (engineers, geologists, accountants, etc) typically top-out at the $10k to $15k per month salary level. Anyone hitting this range is max’ing out their base salary. Anything else will come in the form of bonuses and stock options.

JUST ABOUT NOBODY MAKES MORE THAN THIS RANGE. If they do, it is an atypical arrangement and generally involves some form of significant risk-reward incentive or a personal services contract. And we’re talking about less than the top decile of the top decile of the population already!

Given the dismal state of drilling this year, guys working the rigs aren’t making enormous dollars (by comparison to past years) through completion bonuses, etc because 40% average rig utilization is a far cry from the 65-68% seen in 2005 and 2006.

Personally, I choose to believe my consulting colleagues in the compensation and re-organization fields who are doing very brisk business. They are brought in to be the 3rd parties who do the hatchet work. And there is plenty of work culling 10, 20, 50 people from their jobs.

People wanting some additional anecdotal evidence can chew on this: Back in the prime time of 2005 through mid-2007, I had numerous crews of electricians doing work for me on a new oilsands facility located literally in the middle of nowhere. The contracted rate that their employer invoiced for, based on multiple-thousand-hour blocks of guaranteed work and factoring in the work location, was $65/hr for journeymen. Grossing $50/hr for gruelling outdoor work with bugs and bears in the summer and -40 in the winter will make you $100k/year if you are willing to physically sacrifice yourself.

Anyone throwing around grandiose numbers should actually have a trivial time defending those figures if they are in fact true. Why? Because everyone will want to work at a shop that will guarantee them $250k/yr. Everyone in town will know the name of these companies and they will have people camping out in order to have a chance at an interview. But, alas, I never seem to be able to get any shred of evidence that these companies exist because no one ever seems to know who they are! Nameless, faceless people working for companies with no legal names, addresses or contacts! I’ve heard of a friction-free economy, but nothing approaches this.

#98 jelly on 08.15.08 at 7:43 pm

Wow, this world is way too PC for me, it get’s so over the top at times. I am female and I could understand the offense if some of the guys were implying that we were too emotional in business etc. But to generalize that women want the security of their own home and would be nesting more than their male counterpart makes perfect biological sense. Sure, it does not apply to all women but certainly a sociology professor would agree to this blanket statement? I do not even see the negative aspect of this as it makes sense that women
would value their home very much, particulary with children in the picture.
However, I am glad one of the bloggers said that both sexes manipulate. Men and Women just manipulate different things and different ways in a relationship. If you try and say you do not “manipulate”, that is a crock. It may be a stronger word than necessary but we certainly interact on a daily basis, compromising with the other partner and making decisions together.
Often, the male or female will defer to the other because they are not as bothered about the issue as the other person. No biggie, as long as it works…
I was suprised at the negative response but I guess you also have to take into consideration the type of women blogging here, they are obviously interested in real estate investment and are probably more savvy than most “typical” women as they are business minded and may be into real estate strictly as investment. They may be as business minded as the next guy, maybe more.
Sorry for the off topic, but I could not resist
defending the guys a little bit as we all observe things in our lives that we generalize about even if it may not be typical of the population at large. For instance, myself and many of my female friends do all the real estate investing and our husbands are all conservative and do not want to take the risk. In fact, our husbands have cost us millions of dollars as they talked us out of buying properties and we turned out to be right.
This is probably not typical of all men and women, but in our situation we have come across this a lot.
Anyways, I am getting off track a bit…
Have many people noticed a lot of price reductions
in outskirt areas of Calgary already? (towns or acreages within an hour of Cgy)

#99 Republic of Western Canada on 08.15.08 at 8:17 pm

The house-pumpers are already resorting to arson:
http://www.canada.com/calgaryherald/news/story.html?id=8e5037ca-c897-4a52-afa5-4b1fd007566c

#100 jo on 08.15.08 at 8:50 pm

There is still some value out there and it will get a lot better for buyers very soon- it will be bargain city. Go to mls.ca, and in some areas of Toronto you can see a few solid brick bungalows under 300k on 40 or 50ft fronts. It would be difficult to find a builder to replace the house for that price. My definition of “True value” is lot value (what a builder would pay), plus replacement cost of structure (you could ask your insurance company or a builder). This idea of “value” has nothing to do with financing costs or future appreciation, or depreciation. IMHO most subdivisions have lot values of zero

#101 Republic of Western Canada on 08.15.08 at 9:02 pm

#76 pjwlk – That is just TOO funny! :) :) :) Priceless, in fact.

#102 Keep Dreamin' on 08.15.08 at 9:05 pm

Looks like you bears are wrong about house prices falling. CHMC predicts house prices will outpace inflation over the next few years

#103 squidly77 on 08.15.08 at 10:00 pm

bubble bubble on a wall..whos got the biggest bubble of them all
CALGARY

#104 Toronto Crash on 08.15.08 at 10:08 pm

Keep Dreamin…..

Yes, your name says it all “Keep Dreamin”….

CHMC also said that house prices would never fall yet they did.

If you believe anything CHMC says I got some magic beans to sell you.

#105 Calgary rip off on 08.15.08 at 10:14 pm

Jelly:

Airdrie has become more affordable in the past year. Reasons for this include: 1)Deerfoot trail is not seen as a desirable commute, 2)Part of Airdrie is in a swamp, 3) there is no view of the mountains like Cochrane, 4) it has the reputation of a small town.

If not for a window to callbacks(45 min to get to the hospital) I would buy a house there because the prices are reasonable now, although still dramatically higher than what homes there were originally worth. For example, $278,000 for a single detached home with a nice yard, built in 1978 I believe is within reasonable limits. It is just not feasible for me due to work time constraints, and there is no way around it(I risk dying from the stress of a heart attack trying to get to the hospital via McKnight-John Laurie-14th or 19th south to 16th west). Im sure if I really wanted to do that I could, especially with the new loop circling the city(similar to the Beltway in Houston Texas) which is presently being built.

Other desirable places like Cochrane have come down probably 5%, but a decent home(not a condo which isnt really home ownership unless you are fortunate to live in the land of Putin) is generally $375,000. Cochrane probably isnt likely to come down much, unfortunately.

Again, if a person can stand the commute, Airdrie may be an option due to reasons listed above, primarily cost, and earlier blogs indicated that overbuilding may have occurred in Airdrie.

Best to wait for 1.5-2 years now and see what happens in Calgary, starting after the October 15th blessing.

#106 Brent on 08.15.08 at 10:31 pm

Has anybody got a link to past CMHC reports. Now that would be a comedy.

#107 Zebedee on 08.15.08 at 10:45 pm

The crash only gets better from here in Calgary. As more people wake up, they start putting their homes on the market to try to cash out. From my front door, in a very good area, I can see five homes battling it out. Today one finally took down the realtor sign as the contract must have expired. The two that have been on the market almost all year so far have dropped their prices by 10% but still don’t seem to be selling. The other two have now come on the market at the price that the first two started at. We got out of the market probably a little too soon, but I have no regrets. This is going to be fun to watch.

#108 anonymous on 08.16.08 at 12:52 am

Should I,

I think, if you are patient and aggressive enough, that you will be able to find a property for half the price that it’s selling today two years from now.

That’s how hard Calgary will crumble.

You’ve been renting this long, you can’t buy now. That would be a waste of your savings.

I know your situation. I have friends like this… they have the money and it’s burning a hole in their pocket. All their friends already bought homes (including me back in 2003… I sold this year for a nice tax-free profit) and they capitulate. Buying near the top. And it’s painful when we visit them now. We are the renters and they are stuck in a big mortgage and a depreciating house.

How do you feel when your investments lose +40% of their value? Do you sleep at night? Do you want to kill yourself? Can you deal with that kind of loss. And you might not make it back for 30 years.

For godsake, we are in a freakin’ bear market. You DO NOT take on NEW debt! That was what you needed to do back in 2001-2003. It’s over (for now).

By the way, watch the suicide rates in Calgary… when they peak, you’ve got yourself a bottom. It happened in the 1980’s. Too many 50K millionaires realized that they didn’t own anything of value when the market tanked.

#109 peng on 08.16.08 at 2:00 am

Calgary rip off,

What do you mean : “not a condo which isnt really home ownership unless you are fortunate to live in the land of Putin”?

#110 Nuck Palas on 08.16.08 at 2:01 am

Real Estate is cyclical, boom then bust. It has been like that for the last 100 years. Back in 1989 Canada had no subprime, no 40year/0 down mortgages, yet our Real Estate Market Crashed. Currently Canadas lending practices are MUCH MUCH worse than they were in 1989! “Canadas subprime” was our 40 year/0 down mortgage introduced in 2006 which created the Canadian Bubble. Whats also troubling is that according to a report by Meryll Lynch the debt to income ratio is now 4:1, higher than it was before the last crash which was 3:1 in 1991. Months ago there were many people that believed “Canada was different” and “prices would never drop in Canada”. Well, the question is now no longer will Canadian house prices drop but how bad will the fall be? This is a story which has just begun…

Nuck Palas

#111 Mike.Slob on 08.16.08 at 2:04 am

It’s coming RE crash in GTA,soon

#112 Bailing in B.C. on 08.16.08 at 3:12 am

Just got access to the link above labeled “Hundreds of Millions a risk in Calgary”.

How disturbing that it lends to an article titled “Condo Market cool down”

sounds like we’re all going to get snow cones! Harrah!

#113 Mike.Slob on 08.16.08 at 3:38 am

A little grandson asked his grandfather,

‘GrandDaddy, how much does it cost to be homeowner?’

Grandfather replied, ‘I don’t know son, I’m still paying 40 years mortgage.’

#114 David on 08.16.08 at 3:39 am

Calgary Rip Off, Airdrie might be relative to Calgary a good buy during a bubble, same as Stockton was in California. Crashes have a tendency to be very cruel to fringe areas and marginal properties. The weak hit the wall first and hardest. It won’t be much of a bargain if there are blocks and blocks of vacant and abandoned homes 35 miles from work or you wind up cutting the grass for three homes on your days off.
The only real alternative is to hold out for an affordable home that does not use huge amounts of energy, has the adequate yard space for a kitchen garden and can be improved at nominal cost to you. If Airdrie is relatively cheap in a bubble market, what will it be like in a collapsed market?
You can play with the numbers and see that the floor is a ways off yet.

http://www.ushousingmeltdown.org/home-price-floor-calculator.aspx

#115 i'm_debt_free on 08.16.08 at 5:31 am

How U.S. banks sold home equity loans

http://tinyurl.com/62yau5

same happened in canada too.

#116 squidly77 on 08.16.08 at 11:15 am

history is your friend..alwaysA nation that forgets its past is doomed to repeat it. – Churchill

#117 Jim_s on 08.16.08 at 11:48 am

First denial, then desperation sets in when you owe more than the house is worth.

Calgary is set to tumble in starts, existing home sales, prices, and net migration….. yet, CMHC says prices will rise?????

Now there’s some idiocy at work.

->

#118 Keith in Calgary on 08.16.08 at 12:18 pm

Garth……

I wrote a letter top Mario T.oneguzzi and the editor in chief of the Calgary Herald today…….if they reply I will post it here…..read on…..

Sir,

I read with great interest today’s article that you wrote concerning housing starts and the overall state of Calgary’s real estate economy.

http://www.canada.com/calgaryherald/news/story.html?id=4a0e8903-07b2-439e-b0a6-87e4c263cd87&p=1

In said article you stated……

Housing starts in Alberta are forecast to plunge this year compared with 2007
the average price of a resale home is expected to increase slightly after two straight years of solid gains

Well Mario, I gotta tell you, housing starts are already off dramatically this year, not forecasted to plunge……..but already doing so.

Secondly, since our market high in July 2007 single family homes have dropped in price from $505,920 to $435,136……..a $70,784 loss. Gains ? What gains ? You wanna talk about condos too ? They are off $54,981 from their highs. Gains ? What gains ?

Source…… http://www.findcalgary.ca/

How about telling the truth instead of blatantly lying for months on end and being a property pimp for a newspaper that stakes it’s very survival on “REIC” (real estate industrial complex) advertising. In today’s edition which consists of 138 pages, they have 32 solely devoted to REIC advertising. Every weekend is like that. I know what a full page is costs as my company advertises in the Herald (not full pages mind you)……and without the REIC revenue you’d be walking the streets looking for work, which, quite frankly, is where you should be now given your propensity for journalistic deceit.

Here’s a story for you……lift up your skirt, grab you balls and write about it………people make life altering financial decisions based on what they read in the news, as well as from their own due diligence…..and my due diligence has told me that the integrity of the Herald is not worth the paper is is written on…..nor is this the time to buy a piece of real estate.

http://calgary.ctv.ca/servlet/an/local/CTVNews/20080814/CGY_condo_080814/20080814/?hub=CalgaryHome

Regards,

Keith in Calgary

#119 CalgaryRocks on 08.16.08 at 1:27 pm

Calgary is set to tumble in starts
===============================

Doesn’t that mean less inventory available in the future? It looks to me like builders got the hint and are slowing down dramatically until the market comes back to equilibrium.

This is different that what they did in the US where they simply built and sold to people that couldn’t afford the house if it wasn’t for the teaser rate.

#120 Danny on 08.16.08 at 1:42 pm

Again I am talking about Toronto, not Calgary who’s prices have risen by 150% in the last 3 years. Toronto’s prices have risen at alot slower and at a sustainable rate.

I agree things are flattening out, however the areas surrounding the downtown core of Toronto have not decreased at all, they keep going up. Location, Location, Location. The houses in Calgary were overpriced then and they are now I agree.

I am talking about TORONTO The hub of Canada!

If there are those out there that believe the more desirable areas will plummet in price and your waiting to grab that two storey, detached house in Riverdale for nothing lol That’s close to the Danforth, downtown, and subway etc.

I am laughing at you. IT’S NOT HAPPENING AND IT’S NOT GOING TO HAPPEN.

You’ve been Gartherized You are the greater fools !

Care to bet? — Garth

#121 jim on 08.16.08 at 4:13 pm

Keith

There’s only one slight flaw to your argument – the net effect of the drop off in new starts this year leads to a decrease in the supply of homes for sale (as resales still get bought up). Economic theory suggests as the supply of a product decreases, price increases.

#122 Keith in Calgary on 08.16.08 at 4:40 pm

My agrument is about media organizations passing off advertising as news. Try to learn reading comprehension…….it helps.

FWIW, in regards to what you said, this is easy……why is oil going down then ?

Demand……and affordability……are the two main drivers of a market. Not supply…..a basic economics might help you as well.

#123 pete on 08.16.08 at 4:41 pm

Here’s the best ‘picture’ i’ve found of how house prices will settle in Canada:

http://www40.statcan.ca/l01/cst01/famil108a.htm

As the bubble deflates the biggest factor determining house prices will remain median family incomes. If you look closely, some of the median provincial incomes are still growing at exponential rates. As of 2008 there’s now a 40,000 difference between eastern provinces and one of the western provinces. When you throw in things like income tax rates, PST differentials, gasoline prices (ie. net disposable incomes left over)… it becomes alot easier to see which prices will remain affordable. There are really only two provinces that will see significant price deflation.

#124 crashing yuppy on 08.16.08 at 5:32 pm

Danny,

I feel very sad for you.

You are obviously in a bad place. Probably leveraged to the max.

I have friends like you. Constantly remindind me that his miniscule semi in Leaside is worth 700K.

Judging his manhood on the what his house is worth and naively beleiving the max price that was ever sold for on his street is the starting price for his.

Wake up my friend.

Stop shooting your mouth off as the market forces are about to make you look silly.

#125 APCM on 08.16.08 at 5:37 pm

To #120 Danny,

Downtown is going to see a correction – there’s too many factors involved. Toronto has a lot of foreign investors in the market. The dollar is starting to drop again and I suspect these people are going to sell before they lose all the gains they made (if they purchased around 2005 when the dollar was around 65 cents) Ontario just got hit with huge job losses, including a lot of management jobs across all industries and sectors. Some examples are Bell, Celestica, not to mention the manufacturing jobs. In addition wages haven’t increased to keep up with the cost of living.
There’s been a huge dependence on credit for years and we’re just hearing about it now because with the job losses people are in over their heads.

I live just off Bay Street in Toronto in a condo I’m renting (about 640 square feet) The condo fees for the larger suites are half my rent. Throw in taxes and interest and why would I own? This is what people are getting wise to. I have enough sitting in the bank to buy a townhouse in GTA outright in cash. But I don’t want to move to the suburbs because I like to walk to work. I don’t buy because there’s nothing in it for me at this point.

#126 squidly77 on 08.16.08 at 6:10 pm

calgaryrocks
In the Calgary census metropolitan area, housing starts are forecast to drop from 13,505 units in 2007 to 12,200 this year and 8,400 in 2009.
nobody suggested that housing starts would go zero

heres a question for you..
when you curtail your building back 4,000 units how many direct and indirect jobs will calgary lose and where will those unemployed people go ?

danny..dont be so sure

#127 pete on 08.16.08 at 6:28 pm

Danny who are you kidding? Either you are a RE propagandist or a greater fool trying to sell before you lose your shirt? the fact is Riverdale , Danforth and many other GTA areas have seen falling home prices. Home prices in tjhe GTA are down 7% and flat for over a year. The trend is obvious down and everyone can see the fear in your post. There is always a greater fool it’s just this time that greater fool is you danny. Goodluck Danny in this housing crash.

#128 jim on 08.16.08 at 7:25 pm

As Alberta prices fell almost 10% since this RBC report was published, it stands to reason the province’s affordability index is presently around 35-36% (true, probably even in the low 30’s if you consider how much wages have gone up in that province since last year)

RBC’s Q4 ’07 Affordability Indices:

BC 68.5%
AB 39.7%
SK 40.4%
MN 34.6%
ON 38.6%
QB 37.7%
ATL 32.1%

http://www.rbc.com/economics/market/pdf/house.pdf

#129 Popping Bubbles on 08.16.08 at 7:27 pm

Danny… keep laughing, fool. Toronto being the supposed “hub of Canada” didn’t protect it during the last crash anymore than being the hub of the world economy has protected the U.S. housing market over the past three years. As for me, I prefer data to blind faith:

1) Toronto prices relative to incomes are 30% higher than the PEAK of the last bubble

2) There is RECORD inventory availalbe for sale. Inventory is up 28% year-over-year.

3) Massive overbuilding is occuring, with housing starts continuing to run far in excess of household formation

4) Interest rates are up, lending standards are tightening, and the CMHC has pulled its zero down, 40-year amortization subprime loands

5) Unemployment is up and will continue to rise as manafucturing, tourism, and the finance sector continue to suffer. The construction sector is already shedding jobs. Ontario lost almost 2% of its private sector employment in in June alone!

6) The GLOBAL housing bubble is now deflating in the U.S., UK, Spain, Australia, New Zealand, and other markets around the world. Canada will not escape unscathed. Nor will Toronto.

All of these forces will conspire together to hammer housing prices. Indeed, prices are down 7% in the last three months alone:

http://www.canadian-housing-price-charts.235.ca/

If you’d care to back your blind faith in Toronto real with a $10K bet? We can put the money in escrow with a reputable law firm.

#130 CalgaryRocks on 08.16.08 at 8:59 pm

heres a question for you..
when you curtail your building back 4,000 units how many direct and indirect jobs will calgary lose and where will those unemployed people go ?
================================

They can come to my house. I have a huge backlog of work to get done on the house but these people have been charging brain surgeon rates to put up drywall. Maybe now they’ll come back to earth.

By the way, to those that have been saving their house money in gold & commodities, like that guy a few weeks ago. How’s it going? Pretty rough couple of weeks, hein? Keep on hoping, I am sure it’ll go back up, at some point, maybe. Hope you weren’t leveraged.

#131 3rdman on 08.16.08 at 9:23 pm

#116 squiddly 77

history is your friend..alwaysA nation that forgets its past is doomed to repeat it. – Churchill

(?) History repeats itself..history is a filthy sow she overides us. – Madam Mao.

#120 Danny

I am talking about TORONTO The hub of Canada!

Your talking about the eclipsed.

#132 Jim_s on 08.16.08 at 9:27 pm

Toronto the hub of Canada? Maybe.

But what, then would you call the hub of global movie making?
Hollywood, CA.
What would be the hub for PanAsian travel?
Los Angeles, CA
What would be the hub for IP based companies?
Silicon Valley, CA

What’s the latest stats on CA housing?

Oops…. sorry danny.

->

#133 Jim_s on 08.16.08 at 9:30 pm

that should read “pan-pacific” travel

#134 rant in Calgary on 08.16.08 at 9:32 pm

Supply and Demand
Housing starts down.

If there is no demand for the supply of houses/condos built, developers will stop building.
Basic economic curve. Low supply + high demand = price increase and that translates to greater supply (profit). The opposite is also part of the model. High supply + lower demand = decreased prices that tranlates to lower supply (lower housing starts).
The Herald and CREB have their own S & D model?
The direct model?

#135 Bobby in Victoria on 08.16.08 at 9:39 pm

You can always spot the realtor. They are the ones that say real estate can never go down.

It’s going to get ugly!!!

#136 squidly77 on 08.16.08 at 10:20 pm

calgaryrocks..a totally predictable answer..you havnt a clue
to build 1 house when all is said and done takes 4.2 people 1 full year to build it start to finish
not just construction people mind you..the people that build the houses require services..store clerks..teachers for their kids etc..cutting back 1 housing start eliminates 4.2 jobs so cutting back 5,000 houses will eliminate 21,000 jobs..you gonna hire them rockman ?
not all of the tradesman are single..so you have the potential of effecting up to 50,000 calgarians or 5% of the entire calgary population

starting to get it yet rockman ?

its a self feeding cycle of doom at the end of a boom
everything unwinds backwards in exact reverse order to the way it came to be

#137 mike on 08.17.08 at 12:17 am

Danny …. Can’t you read or should we add that your obvious other list of shortcomings.. Having lived in Toronto for 45 years and having bought 17 years ago and sold just about a year ago AND having looked for a new house for about a year I can personally indicate to this blog that RE in Toronto has paced itself into oblivion.
I know of 3 properties that sold on muliple offers a year ago now be relisted this year, some after renovation, for higher prices sitting and having to reduce and still sitting
My observations are from personal experience and not from anytging Garth has written. Do your oen research Danny… You may actually get a clue.

#138 Blair on 08.17.08 at 12:45 am

I agree – the decline is here in real estate. In Vancouver we are seeing houses sit, the listing to sales ration really take off in favor of listings.. and the media is almost talking about it (we only really have one newspaper).

I wrote about the coming chill in property taxes a little while back. Vancouver has been living off of property appreciation and once it stops, home taxes will soar.

I am holding off buying for now – I am renting a 1 million house for 3K… 300x rent is obscene for a house.

#139 i'm_debt_free on 08.17.08 at 8:44 am

real estate can never go down

#140 CalgaryRocks on 08.17.08 at 10:54 am

not just construction people mind you..the people that build the houses require services..store clerks..teachers for their kids etc..cutting back 1 housing start eliminates 4.2 jobs so cutting back 5,000 houses will eliminate 21,000 jobs..you gonna hire them rockman ?
=============================

Would it be better to let these people build us a couple of ghost towns? I don’t think so. R/E bull cycles end with an oversupply of units and it is a good thing when builders stop building suff that they can’t get rid off.

Mr. Pessimist, last year this guy wanted 100$ just to come over and give me a quote. This year I brought down the price of re-doing the roof from 7K to 5K, and a free quote at that. :)

#141 Math Teacher on 08.17.08 at 9:10 pm

Blair… if you’re paying $3K per month, that is $36K per year. For a million dollar house, this implies a price-to-rean ratio of 28x. This is still crazy insane, but now believably so.

#142 patientbuyer on 08.18.08 at 10:50 pm

Danny,

You say that Toronto real estate has risen more slowly and at a sustainable rate. Yet this is my experience:

I am in my 30s and live in Toronto. I went looking for a condo two years ago. At that time, I was looking at 1 bedrooms, with 550-650 sq. ft. for between $180,000 and $200,000. Most of the units I saw were not that great… too old and worn out… or too small… or with a view of a concrete wall (seriously!), but at least they were fairly reasonably priced then, and a number of brand new 1 bedrooms were priced between $190-200,000, some with a small den and or locker and parking space (which I don’t require but would rent out).

I did manage to find a fantastic new unit with a big terrace that was listed in March 2006 for $197,500. Unfortunately, I didn’t get that one, as I was outbid by another buyer on the first day it went on sale.

So I’ve been renting a bachelor in downtown Toronto, a ten-minute walk from work, for $720 a month instead (vs. about $450 a month for condo fees and property tax alone in a condo). It’s okay for now. However, I’ve been keeping an eye on the market since I was actively looking and would still like to buy one day. What I have found, however, is, quite frankly, astonishing:

Units that were in my preferred price range just over 2 years ago are now priced between $235,000 (usually the lousiest ones, often without a locker let alone parking, and many basement or main floor units in plywood construction townhouses — no thanks!) to $300,000!!! That’s an increase of $55,000 to $120,000 in less than 2 and a half years.

New condo buildings are even worse. Pre-construction pricing (160,000-180,000 when I was looking a couple of years ago, and 140,000 a couple of years before that) are now routinely advertised, “from the low 300s”.

My salary of nearly $80,000 qualifies me for a mortgage of around $270,000 and I have about 20 grand saved up. I have decided, though, not to buy (as have a couple of my friends who’ve been through similar experiences) until the prices start to reflect reality, I’ve heard lots of stories of buildings that are half owned by investors, often sitting empty, etc., and the rental market is very soft here (for example, the free rental guide is about 2-3 times bigger than a couple of years ago and landlords are offering free TVs and/or a month’s free rent, etc. to move in).

So, when people say that the market is going to tank, at least for condos in Toronto, I definitely believe them. People have got too greedy and insist on getting a windfall amount for their condo rather than a reasonable return on their investment.

I feel sorry for anyone who’s bought a condo recently. I think they’re mostly a rip-off. And God help anyone with a 40-year no down payment mortgage. Once those buyers dry up in October, and with the new doubled land-transfer tax, there’s a serious correction coming.

#143 MBS-Economy on 08.19.08 at 4:12 pm

i did some number crunching, at our bank (all i can say) is that 25% of all mortgages on the book are 0 down 40 year ams. So if you think things are slowing now, check back in Nov/Dec and the real crash will begin. Almost all have 40 year am NOT because they want to but because they have to in order to qualify.

#144 dotava on 08.19.08 at 8:12 pm

#4 Bob on 08.14.08 at 12:57 pm

Hi Bob,

If you have that money and you like the place – pay it. If you are so DUMB do it – I just don’t understand how you can be professional in anything?!? Use common sense – “As a professional” can you pay your house in 10 years?

I really feel sorry for – unfortunately FEW – decent RE’s . I have to give a credit to “islander” at list he is smart not just RE.