Case of the missing equity

Housing starts fall 19%, condos crash 29%

I’ve just received this letter, and thought you might be interested:

Hello Garth,

I have read your book,Greater Fool when it first came out,very informative and enlightening,good timing.The question I have is about the price of the townhouses here which has gone down 20,000 this month alone. My son and his fiancée will take possession of one on Jan 20th 09. Is there anything which can be done to have the builder lower the price to equal the present equity at the time of assuming the mortgage? They paid a downpayment of $20,000 a year ago for a 259,000 townhome. They have contacted the builder and they have said no. They are advertising up to $40,000 off on some.

Is there any other way to approach this problem? How does the bank give a 259,000 mortgage on a house worth 239,000 now? It will go lower of course but at least they will be starting even. They could walk but they want the home. They are first time home buyers 28,31 yrs old.


The townhouses in question are part of a huge development area on the west edge of the GTA, where one of the country’s largest builders dominates. The company has built thousands of units over the last decade, catering particularly to first-time buyers. Before Ottawa pulled the plug on zero down payments two months ago, like many competitors, it had a program of getting people into brand new houses for 1.5% down – just enough to cover closing costs.

Now, I have nothing against these guys nor can I blame the company now for selling units at discounts of up to $50,000 on the prices charged just six months ago.

So what about this story? Young couple buys a house with 5% down (with closing costs), and plans to take a 95% mortgage. They buy it from plans, which means they’re actually purchasing a highly-leveraged futures contract. But as the time comes for the goods to be delivered, the price falls to the point where they will be taking possession of something which is worth less than they paid. If they were to sell, and pay a standard realtor’s commission, they’d kiss off more than $30,000 – their down payment plus costs.

So, who’s to blame here?

The purchasers, of course. They gambled buying an unseen and unbuilt house. They bought at the top of the market. They did not take any steps in the contract to guard against builder price reductions. And, worst of all, they bought a house they couldn’t afford and in which they’d have basically no equity. This should be a lesson to every new home buyer. And, hey, what ever happened to ‘starter homes’?

This is also an example of how our credit-drenched and lax financing structure creates financial ruin in anything other than a rising market. So long as we allow people to buy houses with less than 20% down, and requiring more than a third of income to carry, we’ll reap a bitter harvest. Hell, we are now. Financing like this creates bubbles, allows prices to inflate when incomes do not, and then yields destructive results.

But James asks what the kids should do.

That’s simple enough. They should get a lawyer. That lawyer should demand the agreement of purchase and sale be amended to reduce the price upon closing, and that the financing be reduced accordingly, at the vendor’s expense. Failure to do so will result in an action and a media release.

That should take 15 minutes.


#1 fesnaris on 12.07.08 at 11:55 pm

That’s simple enough. They should get a lawyer. That lawyer should demand the agreement of purchase and sale be amended to reduce the price upon closing, and that the financing be reduced accordingly, at the vendor’s expense. Failure to do so will result in an action and a media release.
I completely disagree with your course of action. The couple agreed to a price they were willing to pay and signed a legally binding contract. If the price had gone up $40,000 would they before closing would they agree to a demand from the vendor to pay and refinance at the higher price on closing?

That’s what lawyers are for. — Garth

#2 Jon B on 12.08.08 at 12:04 am

There must be literally hundreds of stories like this in the Vancouver area with all those downtown condos being pre-sold. Perhaps the financial “products” that allow one to live well beyond one’s means will disappear one day. I can remember a long, long time ago when people needed to “save up” for stuff like down-payments.

#3 Aaron on 12.08.08 at 12:09 am

Either way, sounds like a gamble. To get a lawyer and try to get a reduction may result with nothing but additional lawyer fees. But hey, it’s worth a try.

What are the expectations on vacant acreage lots/rural area prices? I’ve noticed some around the Edmonton area stagnate on the market, but will there be a large drop in value on the lots as well?

#4 Gord In Vancouver on 12.08.08 at 12:32 am

But James asks what the kids should do.

That’s simple enough. They should get a lawyer. That lawyer should demand the agreement of purchase and sale be amended to reduce the price upon closing, and that the financing be reduced accordingly, at the vendor’s expense. Failure to do so will result in an action and a media release.

That should take 15 minutes.

The young couple should; however, be prepared for a mother of a legal fight from the developer as bending the rules for one party will create a ripple effect throughout the project – and industry.

We’ve all heard of developers postponing projects due to tight credit but don’t underestimate their ability to fight in court. If the developer in question can’t foot the legal bill, I’m sure they’ll get plenty of assistance from their industry counterparts.

Unless you had an opportunity to examine the mortgage that the young couple signed, I’m sure the developer covered his hiney many times over.

If the young couple loses in court, the incurred legal fees may guarantee that they’ll never recoup their real estate investment.

Don’t expect the media to sympathize with people who contributed to the real estate bubble as doing so will further anger viewers who acted responsibly.

A case like this would never see the inside of a courtroom. Get real. — Garth

#5 kitchener1 on 12.08.08 at 12:47 am

Sad story, guess its a life lesson learned the hard way. There will be thousands of these stories over the next few months.

I agree with #1 comment, they signed a contract and now they are stuck with it. Whose to say that the bank would even refinance and give them a new loan with the tight credit market now.

If I was the builder I would call their bluff, let the media cover the story- more free advertising for the builder.

Here is something to ponder for those nay sayers out there:
259 000 house w/
5% = 12 950
10% =25 900
15%= 38 850
20% = 51 800

If the banks tighten lending standards to require a 20% down payment the purchaser would need $51 800 plus closing costs to qualify.

How many people have 50k plus for a downpayment? How far in price do you think that 259 000 townhouse has to fall in price before people can afford a 20 % downpayment?

Since when is a owning a house a right? — Garth

#6 cmp on 12.08.08 at 12:48 am

I am preparing for my Professional Practice Examination(APEGGA) and today was reading a chapter on “Contracts and Breach of contract”.

Both parties agreed to the deal . The couple took the risk of variability in market prices.Builder built the house and now its couple’s turn to keep the promise (legally known as “consideration”) .This is a legally enforceable promise.

If they go to court, the court will see that the risk of price variation was originally understood and accepted by the purchaser.Also, decrease in house price is not in the scope of the contract.Builder has no control over it.The court would ask the couple to pay the full price.

this is just my opinion….i may be wrong….

#7 Keith in Calgary on 12.08.08 at 12:51 am

Many real estate developers demand buyers pay higher prices at closing if property woes up in value between signing and possesion. They blame it on “construction costs”……screw them right back.

This couple should do exactly what Garth suggests…..I will bet anyone here $100 (and Garth can hold the funds) that they get the price cut to current levels.

This is “very quietly” happening here in Calgary to many new home builders on the receiving end of angry clients complaints……all the developer wants to do is close…..they do not want to be on the losing end of PR battles (god knows the reputation of the RE industry is already in the toilet), the legal costs and losses from a walk away……

#8 Havoc on 12.08.08 at 12:54 am

Can I guess the name of the town? Does it start with ‘M’ and end with ‘ilton’?

#9 Keith in Calgary on 12.08.08 at 1:01 am

FWIW I was standing behind an accountant from CARDEL Homes which is one of the biggest developers here in Calgary. We were at a glass shop getting our windshields done. He was telling that story to the manger of the glass shop… the record of course. I also heard it from two other developers who are clients of mine as well.

#10 Derrin on 12.08.08 at 1:20 am

# fesnaris

By the way developers take back projects and price them higher ……this happens.
Check out Calgary’s market or Vancouver. When the market was hot the developer would claim they can’t build the presold project at the original price and give back the security deposits. Then they market the project again at a higher price point……usually giving people that had security deposits down first option.
So, if developers can increase price in a hot market why can’t the consumer work the same magic. I agree with Garth.

Go for it…..get a lawyer.
You have them by the ****s …….they need to get rid of those units. Desperate developers have a completely different outlook. You are in the driver’s seat. They need the cash!

#11 kitchener1 on 12.08.08 at 1:25 am

Since when is a owning a house a right? — Garth

Owning a house is not a right. I agree with you that we should revert back to the 20% down 25 Y mortgage.

The point I was trying to make was that for houses to be afforbable to the average person they still have a long way to drop. 40-50%

Look back at the charts 1990-2000, before the days of easy lending, houses were afforable and increased with the rate of inflation. Real fundamentals when a house were you lived and not an investment.

#12 Wealthy Renter on 12.08.08 at 1:39 am

This helicopter parent appears to be awfully concerned about getting advice as to how the son can weasel his way out of a legal contract.

I would be willing to bet a Tim Horton’s coffee that said parent:

i) cut the cheque for the downpayment;
ii) made the calls to the builder for the reduction;
iii) pushed the young family to purchase the home in the first place.

So if the house falls below 200K, I guess the lawyer can call the originator of the mortgage and demand that the mortgage value be reduced to the market value of home? Better yet, if the house falls to 150K, some government body can buy up the mortgage and reduce the loan amount to 90% of the home’s value and cut the interest rate to 4.5%. Golly, we can be just like America in no time! Wouldn’t that be swell?

This is a useless rant, but this letter absolutely exemplifies the notion that people want all the “finer things” in life such as home, but they are unwilling to accept the responsibility and risks for adult decisions made, such as signing contracts.

And if they don’t get the price cut, just walk away from the home.

#13 Steve in Kitchener on 12.08.08 at 1:44 am

The one thing I have not heard much of these days is the “smith maneuver” (this is basically taking money from the equity in your home and investing it in the market. This way can make a mortgage tax deductible.) I have never been a fan of this although a lot of people got suckered into this play. When I worked as a FA at a bank I had people coming in asking me about this almost every week. There were radio commercials and flyers everywhere when things were good (both in real estate and equity markets). I feel sorry for people who have bought into this in the past couple of years. Their houses are worth less now and the prices are going down. Their stocks (or whatever else they brought) are most likely worth less and going down. That is a double loss. It’s bad when you investments decline but when borrowed the money to invest and it goes down that must be a crappy feeling. Needless to say I have not heard one radio ad or seen a flyer for a seminar on this for a while and I doubt I will. As for the story above, I feel for the couple but they made the choice to purchase at a price. If it had worked out that prices had gone up then they would be telling their friends how savvy they are (I have heard this from a lot of people). I am sure that Garth is right about the lawyer getting them out. Garth knows his stuff when it comes to real estate.

#14 Jelly on 12.08.08 at 2:00 am

There is another builder in trouble here in Alberta and I
heard they will be filing bankruptcy soon as the bank will no longer give them money. They have many basements poured. Tough shit for anyone who gives them a down payment. They can kiss that goodbye.
The home builders do not have a great reputation in Lethbridge, starts with an “A”.
By the way, there is a commercial that advertises cheap kitchen cabinets, flooring etc. that you pay a fee
for and then you can order as much as you want at a discount. I heard really bad things about it as they send out wrong things and then when they are called on it,
they say, “sorry, 30 day warranty is up”, even though it was their fault.
Beware of that all you home renovators, sounds like a scam to me…

#15 Simon on 12.08.08 at 2:33 am

No doubt the media would quickly find “victims” who claim that requiring a 20% downpayment is locking them out of getting a “foot in the door” of the housing
market. It really would make sense to set a bar of who should be buying what in housing however I think it’d be very difficult to wean folks, especially younger ones, off the idea that they’re entitled to whatever they want and if they can’t get it the system has screwed them.

#16 Blacksheep on 12.08.08 at 3:59 am


They paid a downpayment of $20,000 a year ago for a 259,000 townhome. They have contacted the builder and they have said no. They are advertising up to $40,000 off on some.

“If they were to sell, and pay a standard realtor’s commission, they’d kiss off more than $30,000 – their down payment plus costs”

“They could walk but they want the home. They are first time home buyers 28,31 yrs old”

Lets do some math,

Original price @ purchase $259k
Current discount available from builder -$40k
Todays current market value =$219k
Estimated value in 12-18 montths [best case] $175k?

Total loss whitin 18 months if purchsed $ 84k

I understand your son wants the house, i didnt want to sell my family home of 12yrs, but last spring we did.

Is this a question of getting a discount, after a binding
contract was sighned?

If yes, he should be buying the home @ full price.

If it is about avioding finacial ruin, i would advise taking any legal option available to cancel the puchase.

Take care,

#17 Mike B on 12.08.08 at 4:33 am

Yes… Worth getting some legal help PROVIDED you get the right lawyer and set some cost expectations for that lawyer. Pretty sure the builder won’t play chicken and will do a compromise but not likely the whole price difference. Life lesson indeed….shoulda woulda coulda…maybe they should have been more prepared for the builders contract and had a lawyer look it over before signing. Provided he/she was a decent lawyer they could have put some sort of clause in to protect their interests.
Get a lawyer…. See what happens

#18 crs on 12.08.08 at 5:14 am

“So, if developers can increase price in a hot market why can’t the consumer work the same magic?”

Simple, the developer writes a one sided contract favoring their whims, not their client’s. Most folks these days don’t even personally read over their contracts, never mind hiring a lawyer to do it for them.

I agree with Garth though, get a lawyer. Its worth the price. If there is any minor mistake the developer made in the contract, and they can take advantage to get any of their deposit back, they should. As for lowering the price, that should be the least of their concern at this point. Much, much worse prices are around the corner. They should walk away, and take their lumps now.

And what’s the worst case, they can walk away and take the $20,000 loss, right? Sounds like a good deal to me, all things considering.

#19 Kash is King on 12.08.08 at 7:37 am

kitchener1: ==> “How many people have 50k plus for a downpayment? How far in price do you think that 259 000 townhouse has to fall in price before people can afford a 20 % downpayment?”

Exactly, that’s why a “starter” townhouse anywhere should be worth (and probably will be worth)@$110k or so, 20% down would dictate a manageable $22k downpayment to save up for.

$259,000 before all this bubble nonsense would have bought a fairly large-sized SFH in most cities.

#20 eddy on 12.08.08 at 7:50 am

Garth is right, and the root of the problem is buying pre-construction. If the market was ascending and they flipped it for a fast 20k we wouldn’t even be talking about it

#21 JB-ott on 12.08.08 at 8:01 am

And, hey, what ever happened to ‘starter homes’?

Can you get a ‘starter home’ in Toronto for less than 259,000??

This was 50 km from downtown and, yah. But (horrors) it might not have granite countertops! — Garth

#22 Incognito on 12.08.08 at 8:48 am

Garth, I’m a lawyer who represents developers.

I’ve had to deal with purchasers in the same situation recently. The builders scooped the deposits, cancelled the deal and relisted the house for a lower price. And the builders reserved a right to bring an action against the purchaser for damages (which the builders won’t follow up with, but its always a threat).

The buidlers refused to shave the price down for the purchasers as that would have set a bad precedent for other purchasers in the development.

That being said – sometimes developers are desperate themselves and may cut a deal. Lots (and I mean LOTS) of developers are bordering on insolvency right now. You’d be surprised how unorganized and poorly capitalized some builders (in particular the novice builders) are. I could write a book about what poor business people builders are! And many would have no idea how to assemble a coffee table from Ikea, let alone build a 30 storey condo building. It’s incredible – astounding really. And ultimately, that will cause problems when the muck hits the fan in 2009. But I’m digressing.

Anyhow, if you’re a purchaser and in a jam. Do follow Garth’s advice and try to negotiate a deal first. Dont’ be cheap, though – use a laywer to do it and do it right.

#23 Stuff on 12.08.08 at 9:03 am

What eddy said was dead on. If it was worth 20K more the parents would be throwing a party. But 20K less and let’s find a way out of this.

Just like realtors who have no problem allowing buyers to get into a bidding war for a piece of crap home and pay 100,000 over asking but would not even dare insult the seller by accepting offers 100,000 under asking.

Screwed up. Greedy.

#24 JO on 12.08.08 at 9:46 am

As I have been writing over the last few months here, this exact situation is the most common application seen in the industry over the last 3-4 years. Typically, less than 5 % down is offered, often using cashback from the FI as the “downpayment” (borrowers have to pay posted rates in these cases) and the applications in many cases have debt servicing rations at or near the limits. These ratios are part of the problem because they are based on false assumptions. Although I have been out of it for a few years, CMHC counted only half a condo/maintenance fee and a small amount for heating as part of the underwriting process. Imagine, what would happen if you paid only half your condo fee (average $4-500/m in TO) ? Yet this is how it is accounted for in the application. Many weak/marginal borrowers are put into the largest debts of their lives under these supposed government insurance programs. In the end, it will be the responsible borrowers who put 20 or more down and paid off their home who suffer the most along with the people who were prudent enough to have savings in the bank – and those who put 5 or less down might be off the hook someday once a new government comes in and changes the rules on how these underwater mortgages will be treated (in response to the large number of herd follower buyers of the last 3-4 years who want to be bailed out of their recklessness/lack of financial management). As far as i am concerned, this couple should close the deal and carry on if the builder is not willing to amend the price and if their legal opinion recommends they do. Following the herd is an expensive lesson. The builder has no control over the housing prices in the immediate area as market forces determine that. The savers/depositors whose money was used to create the mortgage are the ones who I feel most sorry for.

#25 Trevor from Vancouver on 12.08.08 at 9:47 am

Well if you put 5% or $12000 down and are looking to lose over $50000 before you even get in the decision at least to me would be rather simple. Here are the options that I see:

1)You can hire a lawyer and pinch at the developer for the delta. The development will still fall in price as it is way out in the Burbs from the sound of it. If you press that you may walk away and they are stuck with the inventory with little interest in the project you may have some room as well.

2)Just the above comment, if you do not feel comforable hiring a lawyer I would suggest taking the down payment on the chin and walking away from the development. You lose the $12,500 but you have to read the pre-purchase contract heavily. Generally you can walk from the agreement while just losing the down payment. If you do this they may also re-negotiate as the inventory sitting for a long period will cost them more in the long run.

#26 squidly77 on 12.08.08 at 9:57 am

alberta is toast..
“It just cuts right through things,” said Alger, adding the current slowdown reminds him of the “atrocious” recession of the early 1980s.

a report by the federal Superintendent of Bankruptcy last week said total monthly filings in Alberta soared more than 50 per cent between October 2007 and this year. Nationally, bankruptcies were up 21 per cent.

Recently it has been oilfield workers and tradespeople who have been finding themselves in dire financial straits. Big project delays and cancellations in the oilsands has caused much of the work in the province to dry up.

Retail sales in Alberta are now the weakest in Canada. And the real estate market in Calgary has been cooling off tremendously, with nine listings for every sale.
“In the case of some of these tradespeople, they’ve lost their jobs. There’s no more home construction

there you go specs and realtors
you wished for fewer housing starts and now the market has given you what you wanted..oh but look at the job losses

theres so much bad news out there right now that its not worth sticking links here

but i found some good news for the the bottom of the link theres a mention of you fools

“There’s a portion of the population that are terminally optimistic.”

kinda like a deer in the headlights

#27 Chris L on 12.08.08 at 10:07 am

Who wants one of those ugly townhouses anyway…and at 250k plus to boot. Walk!

#28 Sphinx on 12.08.08 at 10:17 am

What if the builder had agreed to adjust the price $40k down, and a year from now that same builder put another agressive discount (say $40k from today’s price) on similar units, the buyers would have lost $40k (2nd discount)- $20k (downpayment)=$20k loss, so downpayment gone and they’re under water by $20k….where does this downward spiral ends??

I’d say just walk away now, wait for 2-3 yrs, and buy back, they’d save tons of $$$. Buying at the top was a bad decision, and $20k is the price to pay now, but buying later will make up the this loss.

This post was edited. — Garth

#29 Bobby in Victoria on 12.08.08 at 10:35 am

Hey, the precedent for this has already been set in Vancouver. I say throw it back at the developer and fight it out in court.

When the market was rising developers would say they couldn’t fill their contract obligations because of rising costs. Buyers either had to pony up more money or take back their down payment. What a winner for the sellers.

Now, the shoe is definitely on the other foot and buyers have the upper hand.

My guess is that there is going to be a tsunami of litigation coming as many take a closer look at what they have really bought. Unrealistic claims by realtors and others in the market will come home to roost. The term, buyer beware, will have a whole new meaning.

It’s going to get really ugly!!!!

#30 Jim_s on 12.08.08 at 2:26 pm

This was posted on the Alberta Bubble Blog…. VERY interesting.

Recent data suggests that many borrowers who received help with mortgage modifications earlier this year tended to re-default on their payments, a top U.S. banking regulator said on Monday.

“The results, I confess, were somewhat surprising, and not in a good way,” said John Dugan, head of the U.S. Office of the Comptroller of the Currency, in prepared remarks for a U.S. housing forum.

“Put simply, it shows that over half of mortgage modifications seemed not to be working after six months,” he said.


#31 pbrasseur on 12.08.08 at 2:49 pm

I’d say the best option now is to walk from that deal, even if it means losing 20K.

The price of that property is bound to tank more than that, whatever they lose now they can recoup (and then some) by buying later.

Garth I have a question for you

In a previous entry you pointed to the Bank of Canada that bought potentiallly toxic assets from Canadian financial institutions in exchange for secure government bonds. These “other assets” now form 42% of the BoC rerserves compared to less than 1% before.

In the US the percentage is even higher.

But I wonder if the Canadian situation is not in fact worse than it looks because those assets have been acquired by the government before they were devalued… Is that a possibility?

#32 Calgary Rip off on 12.08.08 at 2:58 pm

$250,000 on a townhome. That’s insane. Anywhere.

In Calgary, sellers want buyers to pay $200,000 more for a house that was worth $200,000 less than 4 years ago. That’s not real equity, that’s called bubble conditions.

Also, these homes arent even worth that. In Germany homes are made to such high standards that no air conditioning and or heating is required. The builders must commit to stringent building requirements. What is required in Calgary is about 5 feet between your house and the neighbors and hastily thrown together plywood, insulation and materials that make the place look expensive. Whether it is affordable and efficient to heat/cool is another matter. Then there is the dilemma of what to do if your neighbor elects self-arson. Your home may burn as well.

The realtors/sellers will need help as job losses mount in Calgary and oil approaches $20/barrel. The other help will be needed when the Coalition attains power in January, feb or march of 2009 and the oilsands are shutdown to a capacity of what they are getting now. Good luck Alberta and oilfolks, you should have voted NDP, you will need the bailout now.

#33 if you don't like it on 12.08.08 at 3:31 pm

Does it really matter that some person overpaid on a place?? At least they didn’t buy a detached home for $450,000.
Ya it was a dumb move, but oh well. Will it really matter in 15 years down the road? There’s so much more to life then stressing out about losing $. Just swallow the pill and enjoy life.

#34 Stu on 12.08.08 at 4:04 pm

“They paid a downpayment of $20,000 a year ago for a 259,000 townhome. ”

What’s the problem? I assume they did the math, factoring in possible eventualities such as falling house prices and economic difficulties, and decided they could afford that amount.

#35 Vancouver shuffle on 12.08.08 at 4:13 pm

Quest Capital sues Vancouver condo developer

2008-12-04 16:24 ET – Street Wire

by Mike Caswell

Quest Capital Corp. has filed a lawsuit seeking to recover $30.4-million it lent to Jameson House Properties Ltd. and Jameson House Ventures Ltd., the developers of a stalled Hastings Street condominium tower. Quest claims the loan is in default, and that it has demanded repayment.

The suit comes two weeks after construction was halted at the project. On Nov. 14, the developer, Tony Pappajohn, said an unnamed bank had withdrawn a $180-million loan.

Of the proposed 144 suites in the building, 105 have already been sold at an average price of $3-million. Buyers paid deposits of 15 to 25 per cent.

The tower stands at 838 W. Hastings St., the former site of the ramshackled Jolly Taxpayer pub, where the denizens of Howe Street once quaffed beer by the keg. It was designed by London architects Foster and Partners, and was to be a large glass tower at 838 W. Hastings St. Its parkade was to feature an automated conveyor that would place tenants’ cars into their spots. A computerized system would retrieve the vehicle when the owner wanted to leave. Other amenities were to include membership at the Terminal City Club across the street.

The construction site is currently idle. Workers had dug a 100-foot hole in the ground, and laid a concrete foundation for the building. On Wednesday, the spotlights were still on and the construction crane was still overhead, but the site was quiet.

Quest Capital’s lawsuit

Quest filed its suit in the Supreme Court of British Columbia on Dec. 1, 2008. It names as defendants Tony Pappajohn, a local real estate developer, and John Pappajohn and Thomas Pappajohn. According to the suit, the three men personally guaranteed a $32-million loan for the project.

Quest Capital says it agreed to the loan on July 2, 2008. It would bear interest at 12 per cent per year until Jan. 5, 2009, and after that at 18 per cent.

As of Nov. 17, 2008, the amount owning on the loan was $30.4-million, the suit states. Interest was accruing at $10,018 per day.

Quest says it demanded repayment on Nov. 17, 2008, and delivered a notice to the guarantors that same day. “The Defendants have each failed, neglected or refused to pay the amount demanded …,” the suit states.

The company is seeking judgment of $30.4-million, a declaration that the indemnity agreement is in default and appointment of a temporary receiver.

Quest is represented by Shelley Fitzpatrick of Davis LLP.

#36 Larry on 12.08.08 at 4:18 pm

Calgary, rent for my 2 br appart will increase to $1150 as of 2009. A 47% increase in 3 years. Our grocery bill has not decreased since june when the price increases were blamed on hig oil prices. The only thing cheaper in this city is gas prices. Sadly our choice to come and live here in 2006 was the biggest mistake of all. I feel no pity for the couple that bought the townhouse, i had to listen to these same people bragging at a house party when the prices had went the other way.

#37 DANNY on 12.08.08 at 4:20 pm


#38 DANNY on 12.08.08 at 4:26 pm

Housing sales fell by 50 per cent last month, board report shows
Article Comments (8) KATE HAMMER

Globe and Mail Update

December 5, 2008 at 2:07 PM EST

The numbers could curdle a homeowner’s eggnog: The Toronto Real Estate Board reported yesterday that within the 416 area code, almost 50 per cent fewer housing units were sold in November compared with the same month last year, and that the average price dropped by more than $40,000.

In 2007, 3,426 housing units changed hands at an average price of $433,859. In 2008, only 1,523 changed hands were sold at an average price of $390,225.

In the entire GTA, the TREB recorded 3,640 sales in November, 2008, compared to 7,313 sales the previous year.

But according to experts, most buyers and even some sellers have a few reasons to be jolly this season about the city’s real-estate market.

“This might be a decent time to get in the market because sellers are more agreeable,” said William Strange, a professor of real estate and urban economics at the University of Toronto.

The commonplace bidding wars of recent years have ended, he said, and buyers are more likely to find what they’re looking for at affordable prices.

He cautioned against waiting for the market to “bottom out” because “nobody knows, [U.S. Federal Reserve chairman] Ben Bernanke doesn’t know when” the market will recover.

“A lot of people act in the housing market as if what you’re doing is you’re playing this big speculative game,” Prof. Strange said.

“But eventually we will be back in a market that’s a seller’s market and there are likely to be people who wish that they had gotten in when the getting was good.”

Real-estate board president Maureen O’Neill said housing-unit sale numbers for November of 2007 may have been artificially elevated by the flurry of transactions completed before the city’s land transfer tax was to be implemented.

The average selling price of housing units in Toronto last month was still about $9,000 higher than it was in November of 2006, and the year-to-date sales price remained fairly steady between 2007 and 2008.

Andrew Zsolt, president of Coldwell Banker Terrequity Realty, said it’s an excellent time for first-time buyers and homeowners who are looking to “move up,” although people who only recently purchased their homes may want to hold off on selling.

The report also says the number of properties on the Toronto Multiple Listing Service was up last month to 27,037 compared with 18,309 in November of 2007; and homes were on the market an average of 41 days, compared with 32 days.

#39 Darryl on 12.08.08 at 4:59 pm

A 20 percent down payment is not enough with home prices where they are. If you paid 80k down on a 400k home.(which will get you a medium sized older home on a small lot on Mississauga) you have a mortgage of 320k??? Thats still a large mortgage.

#40 dd on 12.08.08 at 6:47 pm

Why even buy in this market? 20% or 100% down people are just going to lose money.

Wait until some sort of price stability is established.

#41 dd on 12.08.08 at 6:51 pm

#36 Larry,

Coming to Caglary was the best decision of my life. It is a young city and opportunity was everywhere.

Time to tighten the belt, like always. It will be the first city to come out of the recession when oil heats up again.

Sold my house in the summer. I am paying $1500 to a 2 bed and 2 bath apartment downtown. Great value because I am not watching my equity go down.

#42 dd on 12.08.08 at 6:54 pm

#32 Calgary Rip off … always looking on the bright side of life.

It is nice to know if I am feeling good to log into this site and read your comments. Always brings me down.

#43 CalgaryRocks on 12.08.08 at 7:00 pm

CalgaryRipOff, must you alway post the same whinny, message over and over again.

Are you a middle child or something?

Btw, I am looking forward to my ndp bailout. I hope they do as well nationally as they have done in BC & Ontario.

If they do you’ll see that your job is not as secure as you think.

#44 BC Resident on 12.08.08 at 7:00 pm

Gold dropping to $450 beginning Wednesday…..–dump—Is-this-guy-for-real-Thom

IMF selloff will be followed by India, Arab states and other emerging economies who have been hording gold for a rainy day.

I posted this possibility earlier.

UK/Europe currencies are also in deep doodoo.

Did I ever mention Vancouver would become the new North American capital one day soon?

#45 dd on 12.08.08 at 7:06 pm

Calgary Rip off

“In Germany homes are made to such high standards that no air conditioning and or heating is required. The builders must commit to stringent building

Just googled house prices in Germany and
“for Take the example of a typical detached, one family house of average size; one with about 125 square meters (ca. 1,345 sq. ft) of living space, including garage. Such a place in the former West Germany cost about €255,000. But prices varied considerably by region. Such a house in the north cost only about €185,000. In the west the price was about €235,000, and in the south it was significantly more, coming in at just under €310,000. In cities of more than 500,000 population the price was about €300,000.”

So Riffoff you could be paying about $488k for a house in Germany if you live in a larger town.

Sounds expensive.

#46 rjag2034 on 12.08.08 at 7:09 pm

Does no-one take personal responsilbility anymore? Sounds like they got caught up in the frenzy, but whether its a house, the stock market or getting married, if youre old enough to make the decision then your old enough to accept that these are ll risks and buyer beware.

Doesnt do any harm to ask the seller if they would be willing to accomodate some discounting, but this should not be all on the sellers shoulders.

Smartest thing would be to walk away from the $20k as this may end up being cheaper in the long run. Learn from the lesson that 1st time homebuyers do not need granite counters, heated floors and new carpets and that they earn these things just like the folks did when they bought their 1st home and had to put sweat equity into it.

#47 Lothian Vasquez on 12.08.08 at 7:59 pm


How do you explain the fact that Winnipeg real estate continues to boom?

Multi-family housing starts increase

Work got underway on 90 new apartments last month as the Winnipeg CMA recorded its highest number of multi-family housing starts of any November since 1985.

New Canada Mortgage and Housing Corporation figures released today show there were 271 housing starts recorded last month in the Winnipeg Census Metropolitan Area (CMA), which includes the City of Winnipeg and 10 surrounding bedroom communities such as East and West St. Paul and Headingley.

That was a 23- per -cent increase from the 221 starts recorded in November of last year, and it included 135 multi-family units and 136 single-family homes.

CMHC said November’s multi-family starts total was more than double November 2007’s tally of 67 units, and marked the first time in seven months that the multi-family sector took centre stage.

“The unusually strong November results mean that multi-family starts have already surpassed CMHC’s forecast of 850 units by 15 per cent,” the housing agency said, although it noted this year’s total was still well off the pace set in 2007.

Last month’s single-family-starts total were down 12 per cent from November 2007’s tally of 154 units. It left single-detached starts running two- per -cent ahead of last year’s pace after the first 11 months — 1,781 units compared to 1,745.

#48 joseph on 12.08.08 at 8:24 pm

259K for a townhome? What a steal.
You’ll have to excuse me, I live in Victoria.

#49 CalgaryRocks on 12.08.08 at 8:28 pm

So Riffoff you could be paying about $488k for a house in Germany if you live in a larger town.

Sounds expensive.

Add sky high taxes, lower salaries and smaller square footage and it feels even more expensive.

I wonder why CalgaryRipOff doesn’t just move to some province where the NDP rules. Oh yeah, because there are no jobs there. Such a funny man.

#50 David on 12.08.08 at 9:17 pm

The biggest mistake was advancing those perfidious swine developers so much as a penny, never mind a $20K down payment. If you only lost $20K in this mess, consider it a blessing that can be recovered with a half years earnings. Run, do not walk away from that piece of crap town house development selling for $259K.

#51 brazer on 12.08.08 at 9:27 pm

Royal Bank to issue new shares

Royal Bank of Canada, the country’s biggest bank, announced Monday that it will be issuing $2-billion of common shares to boost its capital levels.


canada’s largest bank dilutes shareholders with this latest pp….and don’t forget folks….’canada has the strongest banking system in the world’.

#52 homeowner on 12.08.08 at 9:29 pm

In US people just simply walk away from their houses if the mortgage is higher than house price. Some do this not because they cannot keep up with mortgage payment, but because it makes financial sense. Banks are forced to repossess those houses and in many states ex-owners are not liable for bank losses.

Check link

What is the law in Canada? Can someone tell me the difference in Canadian and US law, please? What are homeowners options in Canada if they are under water?

Pay up, or go bankrupt. — Garth

#53 squidly77 on 12.08.08 at 9:31 pm

its not fair dude !! WAWAWAWA

#54 The First Rick on 12.08.08 at 9:37 pm

#45 dd on 12.08.08 at 7:06 pm
Germany has over 80 million people and takes up about 1/3 the size of British Columbia. What a loony toon analogy!!

#55 JET on 12.08.08 at 9:43 pm

The way I see it, this couple is between a brick and a hard place. None of the three options they have will give them the warm fuzzy feeling:

1. Hire a lawyer to try and get a reduction from the builder
– upside: get 40k reduction less legal fees
– downside: incur legal fees and still don’t get the reduction, but do get lots of frustration

2. Walk away
– upside: limit the loss to “only” 20k if builder doesn’t sue
– downside: get sued, incur legal costs and potential legal judgment, and still have to move in

3. Just move in
– Upside: enjoy the home and think of it as renting from the bank, with the knowledge that the rent will eventually come down to zero (not counting taxes and maintenance
– Downside: continue to pay into a declining asset and be stuck for the long haul (any need to move in the short term would surely mean financial loss)

#56 Confused Pegger on 12.08.08 at 9:44 pm

“How do you explain the fact that Winnipeg real estate continues to boom?”

Not sure what Kool Aid Lothian is drinking. Booming in Winnipeg? I get new listings emailed to me everyday and without a doubt at least 70-80% are “Priced Reduced” listings. Sounds like the attitude of a lot of Winnipegers, “not here”…right.

One little story to add. My realtor told me he has a listing for a 1200 sq ft bugalow that a widower listed @ 265k in September. She had a 250k offer but refused. After 2 price reductions, it’s still on the market for 229k.
A beautiful home that surely would have fetched her asking price(easily) in the Spring time/early summer when the 0/40 sharks were circling.

#57 Simon on 12.08.08 at 10:54 pm

It’ll be interesting to watch how far houses fall until they hit what is, arguably, a correct valur relative to what buyers can afford or are willing to pay. I saw a show a while back, Big City Broker ?, where people were falling all over themselves to drop deposits on condos that weren’t even out of the ground yet.

I think the whole real estate porn thing; amateur renovators, house flippers, blue collar workers playing real estate speculator, etc was a disaster in the making.

Still, who are the “victims”?

#58 TOguy on 12.08.08 at 11:24 pm

If the stock market keeps going up 5% every day, this whole crisis will be a distant memory by next year.

#59 David on 12.08.08 at 11:40 pm

Too bad for the widower that refused a gracious and exorbitant offer. Tell him to hang on until 2016 when the offers start coming in at $50-75K.

#60 Dave in Calgary on 12.08.08 at 11:58 pm

Calgary Rip off

“In Germany homes are made to such high standards that no air conditioning and or heating is required. The builders must commit to stringent building

Please give me one example of a home in Germany that does not need to be heated. An unheated home, regardless if the insulation is R20, R30, R50, R1000 would eventually reach ambient temperature without some source of heat within the building replacing the heat being lost through the buildings “skin” via conduction, convection, and radiation.

And, ambient tempertures in Germany frequently get below OC.

No home “needs” to be air conditioned (I grew up in southern Ontario with NO A/C… lots of sleepless nights as a kid sweating in my underwear on just the bedsheet) but any home in a sub zero environment needs to be heated or the domestic water pipes will freeze, and burst.

Even geothermal is a form of heating, and is needed regardless of how highly insulated, and thermally oreinted the building is.

I wouldn’t doubt for one second building codes are superior in Germany, but lets not stray into some fantisy world.

#61 eh on 12.09.08 at 12:03 am

Hey everyone…first time poster…although I have been reading for awhile…

Confused Pegger #56, nice post. Your story provides me with some hope. As Garth said way back, prices have gone up in Winnipeg 117% and yes, prices will drop.

Real Estate agents claim Winnipeg housing has increased in moderation in contrast to the rest of Canada. That argument is used over and over again when comparing to Vancouver, Calgary, Toronto, Regina etc. I am not saying Winnipeg is like those cities, however, we have experienced a bubble too.

If Calgary_ripoff ever decides to check Winnipeg out, I think he would have a few choice words for the housing market and prices here.

In reading the Winnipeg Free Press over the last several days… Real Estate won’t go down in Winnipeg (Friday), Manitoba is recession proof (Sun), Commercial Real Estate in Winnipeg is well positioned (Mon). It almost makes me think with all these articles that the housing market here will be toast soon.

BTW, guess who the authors of these articles are?

I too have checked out unbuilt properties…mainly condos. And yes, there are some beautiful condos being built absolutely…course the prices are not for me. When a condo in Winnipeg costs more than a condo in Florida…

This is rehash of what Garth explains in his book and a scenario many ppl here have probably gone thru. In viewing a unbuilt condo in Winnipeg in Dec ’07, the real estate agents had a large board on the wall which explained the availability of the units. Needless to say, the speculation was incredible. The board was updated with sold signs as ppl were checking out the display trailer unit. Better buy now! I do have to say it provided me with a few laughs as I walked out the door. The experience also saved me time and money, because I stopped seriously searching for a house/ condo soonafter. In ’08 I discovered Garth’s blog/ book. Now I await a more favorable entry point. I certainly can understand the pressure that the young couple felt when looking at that home described in Garth’s post…I hope it turns out well for them.

Garth, thanks for the blog and book. I was able to enjoy ’08 instead of running around like a greater fool and even had some fun looking at properties. As mentioned in your book, I noticed the differences between past years and this one (less multiple offers, financing problems, longer on the market, prices are “sticky” etc). Perhaps you could do a post on Winnipeg in the near future (for you consideration of course).

#62 crs on 12.09.08 at 12:48 am

It’s only a matter of time until this very problem starts rearing its ugly head at what I consider to be Vancouver’s greatest real estate follys… Woodwards.

Here’s a link to someone trying to sell off his assignments at Woodwards. For those of you that don’t know or remember, they sold those assignments for current Yaletown prices on the idea that Gastown was the next Yaletown.

What happens when every one pulls out?

#63 Blacksheep on 12.09.08 at 1:31 am

BC Res,

I hope gold hits $450 US, but really doubt it.

I would love to get some, if it could be found.

Van. will take the biggest % RE hit in Canada.

#64 islander on 12.09.08 at 2:30 am

Jelly, are you talking about the outfit that advertises heavily during the Saturday latenight CBC movie, where “real” people offer their testimonials?

@Stuff, if your realtor won’t present a lowball, stop whining and get a different realtor or present the lowball yourself.

#65 Mike B on 12.09.08 at 7:10 am

For the record … Townhouses are essentially “row houses” … an architectural import from the motherland England. I’ve always considered these the slumiest of houses and entry level. So 250k is actually alot for a low end product. The value comes based upon the location of the home. So a row house over 50 minutes from the city is hardly a bargain . Builder paid only 10k for the land at best and house/labour is likely under 100k. That is some margin.

#66 crashing yuppy on 12.09.08 at 7:23 am


Great Video.

I cant believe these losers. Wah Wah, someone got a better deal than me. These are the same blow hards who would have been crowing on on about how their investment has doubled if it were 2 years ago.

Two words Caviat Emptor.

#67 Brian on 12.09.08 at 7:58 am

It’s sickening and maddening to me that anyone is suggesting that the losers in this deal go get a lawyer involved. They signed a contract!

To Jamie’s kid and spouse: Take responsibility for your actions you two pissy little whiners and live up to your end of the “futures contract” you signed! Do you two think that futures traders in the stock market can just go get lawyers to get them out of the bad deals they made? The futures deal you made on a house is in absolutely no way at all different than trading pork belly futures.

To all those claiming that contractors routinely renege on their contract when values go up — the buyers in those deals are the ones who should get lawyers.

Lack of personal responsibility in this world is the root of so many other problems. Shame on you Garth for promoting such a lack of personal responsibility.

#68 Calgary_rip_off on 12.09.08 at 9:44 am

Dave, research your facts about housing codes before you make arbitrary assumptions about how things can be done. Research about homes not needing heaters and/or AC in Germany. It’s fact, not fiction.

#69 pjwlk on 12.09.08 at 11:16 am

#36 Larry: 47% rent increase in 3 years! That’s 2.5 times the legal rate increase here in Ontario. Don’t you have rent protection laws?

#70 Eric on 12.09.08 at 12:46 pm

Well – the $20k is just a deposit – so walk away from it. $20k on the chin is better than a $30k, $40k (and more in the next 2 years) loss. A home is not an “investment” – that is you should not count on it’s value appreciating – and you should expect to pay a few percent of it’s value per year in upkeep. Hell, this couple is likley to pay $3k/yr in taxes. There are serious long-term financial considerations with a home that very few people go into eyes wide open. Generally any one of these mass produced homes is about the same low quality (I’ve been in the custom building industry) and the only reasons for staying with a home are location (walking/biking distance to work and other important things) and and and. Hmm – nothing else comes to mind.
For my family we’re going to buy in about 2 years and build custom – straw bale sub 1,200 sq-ft for a family of 4 – minimize energy use (that’s radically different than being “efficient” after all you can make an “efficient’ jumbo jet or McMansion) that is close to everything we need.
Let’s see – it costs my family of 4 about $10/yr to live (maintaining a home and car). About $3k of that is home taxes, around $3k/yr is the car (cars typically are $4k to $5/yr though). We can live on a part time wage. How many people look at their finances that way?
The Financial Sense Newshour this past weekend had an interview with an author about the reptile part of our brain – and we’re sure seeing that – suckers who put down a down payment and are bullish enough to think that this is just a temporary blip – that they will buy and hold and ride things back up. Someone please point out how we’re going to go back up – with the massive job losses that are yet to come and the massive unsustainability of the past few decades and current lifestyle. We’ve not even see the real first wave of losses – when the “big 3” go to 1/2 their current size (if they are serious about staying in business – but the only way forward is bankrupcy though – they can’t have 4 retired workers for every one left)

#71 Eric on 12.09.08 at 12:52 pm

“Please give me one example of a home in Germany that does not need to be heated. An unheated home, regardless if the insulation is R20, R30, R50, R1000 would eventually reach ambient temperature without some source of heat”
Every home has many sources of heat – all electronic devices convert 100% of their electricity to heat – people are around 100W each. That can heat a building – in fact overheat it – esp. when one has passive solar heating in an all-glass structure.
Annualized geo-thermal can heat homes thru the winter – by using a >100 tons of heat storage in a sand bed under the home – or in dirt / rock; at least in more moderate climates. Where I live – cloudy winters and -30C – this isn’t exactly possible.
In labs which I run the heat is generated almost equally by people, computers and lights. Overheating in Feb (on an uninsulated 1960’s building) has happened. But office buildings typically have a much higher electrical draw – and self (over)heating as a result.

#72 Alex on 12.09.08 at 1:16 pm

Hire engineer to inspect the compliance of the house to the Ontario Building Code. Based on my experience with the builders, the list of non compliance issues will be longer than anyone on this blog can imagine (if the engineer is an expert in Part 9 of OBC).
Reinforce your lawyer with the engineer’s report.
If builder is rigid, submit the report to the Building Department. Building Dept will not issue occupancy permit unless Code non compliance is solved.
To rectify construction deficiencies (specially structural ones) may cost the builder tens of thousands of dollars.

#73 Dave in Calgary on 12.10.08 at 12:37 am

#71 Eric
“Every home has many sources of heat”
-I know

“all electronic devices convert 100% of their electricity to heat ”
– No. A portion goes to light. The rest, yes would be released as some sort of kinetic energy

“That can heat a building – in fact overheat it – esp. when one has passive solar heating in an all-glass structure.”
– Yes if we talking about an office building where the internal loads (people, electrical) and the solar loads coming through the south facing windows exceeds the amount of heat flowing through the building skin (roof, walls, floor) to the ambient. But what about at 3am when the computers are off, the people are home, and sun isn’t shining? You got it, the heaters turn on (whether that be geothermal, or a good old fashioned boiler).

“Annualized geo-thermal can heat homes thru the winter – by using a >100 tons of heat storage in a sand bed under the home – or in dirt / rock; at least in more moderate climates.”
– I totally agree. But, a home using geo-thermal heating is not considered a home that doesn’t require heating. It’s a form of heating. It’s not a magic… it’s a heater. Plus they don’t work well everywhere, and there is a pump on them that requires energy.

“In labs which I run the heat is generated almost equally by people, computers and lights”
– I am well aware of this from my HVAC classes in university, my co-op experience at NRC doing thermal testing of glazed window units, my reseach and CMHC, and from my professional experience as an HVAC engineer in Calgary, that larger office buildings need to be air-conditioned in the winter during the daytime (which requires energy to run the chillers, pumps, cooling towers, condensors what have you), but I cannot see how a German family is going to heat their home in the night, in winter, by inviting over 100 people, turning on all the lights, and having a huge amout of electronics running. The obvious solution is, and every German home has it, is to have a heating system.

That being said, German homes have heaters, whether it be district heating, or geothermal etc…

And I realize one can get passive solar gains in the winter, but not at night, when it gets REALLY cold, and you are going to have 15 kW of electronic equipment running just so you don’t freeze.

Sorry, I just don’t but an arguement that German homes are so fantastic they don’t need to be heated. They do, and they are.

#74 Dave in Calgary on 12.10.08 at 12:48 am

Calgary Rip Off.

I did google it for a while. Even the “zero energy homes” used geothermal heat pumps.

Sorry dude, not trying to pick a fight, but that’s a heater.

That being said, in my opinion, Germany is the world leader in energy efficiency in buildings, but they still have to obey science. Heat flows from hot to cold, so if it’s below zero outside, the heat will flow from the inside of the home to the outside (unless there is a perfect insulator, which is a vacuum, so that’s gonna work), and you will have to replace it with something generating heat from the inside. Solar heating only works in the day, when sunny and not overly coldy out.

Perhaps with enough PV panels to store electricity in batteries to run both the geothermal heat pump at night, and supply other forms of heat, you could have a house that doesn’t use fossil fuels, but there’s still heaters using energy.

#75 littleblackduck on 12.10.08 at 3:35 pm

To #5:

If a 20% deposit was a requirement all along, ‘starter’ townhouses would have never cost $250K plus to begin with. This whole price inflation of the past decade was fuelled by cheap credit and low deposits.