Look out below, part 2

Stockton, CA: Will Canada get a Ground Zero in 2009?

Exactly a year ago this week I started writing a book on why the Canadian real estate market would collapse in 2008. Five weeks later I was done, and the first copy sold in March. Sadly, it was prophetic. The housing market has followed the path I foresaw, which is a close parallel of the American one of about two years ago.

This means there’s more anguish to come. A lot more. The price decline in Canadian real estate in 2009 will at least match that of 2008, and sales volumes will continue to erode.

And while we’re in the crazy prediction business:

* The biggest house price drops will be in early summer. This will happen after tens of thousands of wanna-be sellers dump their houses on the market in late February and March, hoping to catch the Spring market. But, there won’t be one. When that sinks in, prices will crumble.

* A disturbing number of retail outlets will be closing in January. One of them (I’ll wager) was the ladies apparel store I bought Dorothy’s present in on Tuesday. After I wandered in a clerk told me the item in my hand was 50% off. “Actually,” she said, “everything in the store is 50% off the sale price marked on the tags.” So I bought three pairs of pants, four sweaters and three blouses. Next month, there will be a jarring red Available sign in the window.

* Most at risk are the Big Box operations. Linens ’n Things is already embroidery-side-up and you can certainly expect others in the home decor, furnishings and electronics sectors to follow.

* More than a few of the 60 car assembly plants across North American now closed will not be reopening. The auto bailout package will not work. None of the Big Three will be ‘viably restructured’ by the end of March, as they were asked. But then, who really expected that to happen?

* The biggest first story of 2009 will be unemployment, since so many job losses announced in the final months of 2008 will start to materialize. The biggest second story will be the impact of the financial crisis on government. In the US almost a third of all states have already started to cut back on social welfare payments – a hurtful thing punishing the poorest citizens after some of the wealthiest were bailed out. In Canada, the federal government will run a deficit of at least $20 billion, which could actually hit $30 billion the following year.

* Interest rates will remain at the lowest level in half a century all year. But it won’t help much.

* The media will be shocked to hear of negative equity and mortgage defaults in Canada. The potential exists for Canada to develop its own version of Stockton, California, the Ground Zero of foreclosures. One good candidate is Milton, Ontario.

* The new year will finish off the condo business for a long time, maybe a decade. A massive oversupply of new units will meet a crash in demand. Several landmark projects will never make it above the parking garage level, and tens of thousands of units that speculators never figured on carrying will hit the rental market, tipping the scales massively in favour of tenants.

* Stock markets will be choppy, volatile, dangerous and unpredictable, save for the underpinnings of a massive recovery rally. They will be in place by year’s end.

* Oil will be a major story, depending on how much below $30 it might touch. The Alberta Moment has passed, cowboys.

* It will be an important year to talk with your spouse about what’s really important; to be realistic and flexible; to work as hard as possible at taking back some control over your life; and to develop a sense of humour.

After all, whatever we have lost or are about to lose, the most precious and irreplaceable commodity is time.

95 comments ↓

#1 Observer on 12.26.08 at 9:53 pm

Hmmm, maybe sunday closures again? I’m at an age where I remember when the only things open on Sundays was 1 or 2 drugstores, theaters and gas stations. Could you imagine? And that was in Vancouver. Nothing to do except spend more time with your family, how absurd would that be?

#2 TheComingDepression on 12.26.08 at 10:02 pm

Actually Garth the US will have 50,000 retail stores closing . That would make at least 10,000 stores closing here.. minimum!
http://www.thecomingdepression.blogspot.com

#3 dotava on 12.26.08 at 10:28 pm

#1 Observer on 12.26.08 at 9:53 pm

Perfect observation Observer. :-)

#4 More predictions on 12.26.08 at 10:50 pm

One more prediction: After the Crash will be on the Canadian bestseller list in a flash.

I’m not sure if Xurbia will be as successful as Garth hopes – time will tell.

#5 Wealthy Renter on 12.26.08 at 10:59 pm

Hello Garth,

I was relieved to hear that you took a break from squirrel huntn’ to buy your wife a gift so EARLY in the Christmas season. :)

I counted about 25 empty stores in the Woodbine Mall when I went shopping there this weekend. It is a reasonably good and easily accessible mall, but save for a small mass of teenagers, it was a dead as a Conservative Party Economic Statement. Well, not that dead, but you know what I mean?

Beyond the big-box mania, it will be interesting to see the numbers this Christmas season.

#6 Gord In Vancouver on 12.26.08 at 11:04 pm

#1 Observer

I’m also old enough to remember that era.

Unfortunately for those who feel more time should be spent with family, Sunday openings are now a fixture in our society – the genie can’t be put back into its bottle.

The government is afraid that reintroducing Sunday closings will result in higher unemployment levels, a factor that will, possibly, give unions more power.

#7 confused and a little crazed on 12.26.08 at 11:05 pm

Uh…Garth

“The auto bailout package will not work. None of the Big Three will be ‘viably restructured’ by the end of March, as they were asked.”

Are you kidding? Am I reading this wrong? Not one will be viable? As I mentioned in an earlier post that is over 800 K employees , not including the supply chain connections it has with other businesses. The # will probably exceed 1 million if they were included. I looked at their profiles in a finance website.

You are talking depression here. If that’s the case why buy your jeep now when 3 monthes later, it will be cheaper. What you probably mean, they’re not viable now but will remain in existence.

A possible scenario would be GM aand Chrysler will join together, close off plants that make gas guzzling trucks/ vans. sell off the GMAC branch of finance with the bailout money and get key strategic alliances to strengthen their portfolio.

Regardless probably a 3rd of the employees with be let go and the GM/ Chrylser brand will be gone…totally remade to be something else.

If all 3 are gone over 45 Billion in bailout taxpaayer money will go with them. do you Think Obama will let that happen…after he promised more jobs for the american people…I don’t think so.

I can’t fathom that happening….can you…really?

#8 Wealthy Renter on 12.26.08 at 11:08 pm

“So I bought three pairs of pants, four sweaters and three blouses.”

Mr Turner,

I know that you are a financial guru, author, entrepreneur and teacher, but I respectfully submit that sensitive readers may not want to know EVERYTHING that you purchased for yourself.

This is a family blog, and you might be quoted out of context.

WR

#9 happy renter on 12.26.08 at 11:15 pm

Well said, Garth. Rental market is already softening, and 2009 will be punishing for landlords … the days of $2000/mo 2bed+2bath downtown Toronto condos are over!

As you said, no matter what happens, the most precious and irreplacable commodity is time! I’ve always been appalled by the socially sanctioned cult of shopping in the west … I for one am glad that the coming depression will perhaps force people to actually think about something other than what to buy and which glitzy new restaurant to try!

#10 ThumbsUp on 12.27.08 at 12:01 am

Went to Bestbuy this morning at 6:00am, the number of shoppers is around 75% of last years.

When will the next 0/40 come back to Canada?

#11 Vancouver_Renter on 12.27.08 at 12:45 am

I know a number of financial services employees who earn shockingly high incomes for effectively taking the deck and reshuffling it. In other words, they are salesmen who don’t create wealth, they just take a big cut of it.

I figure that we’ll know we’re in a true depression when most of these people get a reality check and either lose their jobs or experience significant cuts in income.

Other signs that we are truly hitting the wall will be:

– Significantly lower incomes for CEOs and other corporate officers, professional athletes, and union employees (primarily due to businesses shutting down)
– Pension funds, previously thought to be too big to fail, becoming insolvent.
– Real estate will be assumed to be a BAD investment by the masses. (It will probably take a generation to make this change).
– Shopping and consumption of manufacturer junk that we all don’t really need will go out of favor. Thrift will replace consumption.
– Large houses will fall completely out of favor. (I told a builder friend of mine that I’d like to build a 2500-3000 sq ft house. He raised one eyebrow and said, “You have to think of what people WANT. You need at least 4000 sq ft!” I replied with, “I AM thinking of what will be in demand… in the future.”)

#12 islander on 12.27.08 at 1:41 am

“The biggest house price drops will be in early summer. This will happen after tens of thousands of wanna-be sellers dump their houses on the market in late February and March, hoping to catch the Spring market. But, there won’t be one. When that sinks in, prices will crumble.”

I’ll back that prediction 100%. A lot of my sellers are in denial about current realities. I have to assume I’m not the only one experiencing this.

But I don’t see a return to Sunday closings. That was a religious thing, not an economic thing. Not even pandering politicians/parasites can put that horse back in the barn. When the Brick challenged the Lord’s Day Act in Alberta and prevailed, it signaled the end of Sabbath closings.

#13 dd on 12.27.08 at 1:43 am

* Oil will be a major story, depending on how much below $30 it might touch. The Alberta Moment has passed, cowboys.

Yes … but no. In the short term yes the moment has passed. However the solution to low oil prices is low oil prices.

You are being very short sighted.

#14 Skye on 12.27.08 at 2:21 am

This may be a good time to pursue a life of simplicity, voluntary or otherwise. I think we can expect to see a lot of social movements, some good, some bad – think fundamentalism, cults, doomsday prophets. Like the old Chinese curse – “May you live in interesting times”

#15 Anon on 12.27.08 at 2:35 am

Garth, when do you expect to find something positive to write about?

#16 Laos Moray on 12.27.08 at 2:57 am

Oil ain’t getting anywhere near $20, and will settle back much closer to $45 by late spring. It has already been oversold, and to imagine cheap oil through this recession is pure fantasy.

#17 real estate expert on 12.27.08 at 3:13 am

The Ultimate Bailout: Why Nationalized Health Care Is Coming to the U.S.

http://clusterstock.alleyinsider.com/2008/12/the-ultimate-bailout-why-nationalized-health-care-is-coming

(btw…Canada’s health care spending was $142.0 billion in 2005…and over $160 billion in 2007…and expected to reach North of $170 billion in 2008…we have about 33mm people in Canada…thats over $5000 per person.)
————————————————————-

…So will the U.S. copy Canada’s Health Plan?…If so, will they then simply amalgamate/conquer Canada?..Manifest Destiny and all that nonsense.

If they do, we wont have to worry about home prices in Milton…will we.

#18 rup on 12.27.08 at 3:35 am

Canadian sup-prime mess.Read below for all those who think U.S style meltdown still not possible in Canada.

http://www.theglobeandmail.com/servlet/story/RTGAM.20081212.wmortgage13/BNStory/Front/home

#19 rup on 12.27.08 at 3:40 am

Canadian sup-prime mess.Read below for all those who think U.S style meltdown still not possible in Canada.

http://www.theglobeandmail.com/servlet/story/RTGAM.20081212.wmortgage13/BNStory/Front/home

The untold story of how elements of the first Conservative budget in 2006 encouraged big U.S. players such as AIG to make a push into Canada, creating our version of subprime mortgages

#20 Smith on 12.27.08 at 9:44 am

My Spouse and I have been looking for our first home for months. Knowing the market is conditions are in the favour of the few buyers left we’ve made what we believe to be reasonable offers on a few listed homes. Reality has yet to sink in for most sellers and their agents. In Southwestern Ontario these sellers are unwilling to budge from their listed price which is already 6 months old.

I am glad my first home purchase wasn’t last year.

#21 lgre on 12.27.08 at 9:51 am

I agree with the big 3 going down regardless of the bailout, although ford is in a better position then the other 2. They have built poor quality vehicles for decades and they expect to turn their business plan around in 3 months…it must be an april fools joke.

Don’t tell anyone in Milton about their house being worth less in the upcoming year, they are all in denial, Miltonians believe that Milton is the new Paris. I love all the excuses they make when Mattamy drops the price of a house by $10g every couple of months..lol

#22 real estate expert on 12.27.08 at 9:53 am

25% of Retailers May Go Bankrupt

U.S. article…

Retailing has always been a tough business. Now it’s a brutal business. Some observers now predict that more than 25% of retailers may go bust in the the next two years.

http://clusterstock.alleyinsider.com/2008/12/25-of-retailers-may-go-bankrupt

#23 Darryl on 12.27.08 at 10:04 am

Today is the first day for returns and exchanges at retailers.I’m kind of expecting retailers to reneg on their return policies this year.Followed by a quick store closing early next year. Has any body had this experience yet?

#24 Vic on 12.27.08 at 10:11 am

I know of an individual who has lowered their price twice in 6 months now. By a whopping $10 grand each time.
The second lowering finally broke the $400,000 mark by $10 dollars.
It still sits for sale.
LOL

#25 miketheengineer on 12.27.08 at 10:23 am

Good News

We all should be doing this….

http://www.thespec.com/News/Local/article/487482

If a 5 year old can do this, imagine what adults can do if they want to.

If we all did more of this, the world would be a better place. I put about 50 lbs of food to the food bank in my city before xmas.

What have you done?

Earlier in the year, we dropped off an entire minivan full of clothes, (our kids are growing) to the salvation army thrift store.

What have you done?

It is time to be proactive and help the people in our country, and in our city. Clean out your fruit cellar, clean out your closets, cause people are going to need your “old” stuff, and be very greatful to find it at the food bank and the salvation army store.

It is time to take a few more bags of clothes over. God the kids grow fast.

Happy New Year.

#26 john on 12.27.08 at 10:54 am

confused and a little crazed–If all 3 are gone over 45 Billion in bailout taxpaayer money will go with them. do you Think Obama will let that happen…after he promised more jobs for the american people…I don’t think so.

I can’t fathom that happening….can you…really?
>>> even Obama can not change reality! There is no future in a job that has no future–To make a profit marketing a product there has to be buyers,when a persons equity in their largest investment (their homes) is depleting and very uncertain employment i seriously doubt many will be in the market for a luxury item such as a new car.

#27 Future Expatriate on 12.27.08 at 11:12 am

#8 “Wealthy Renter”: That would have been a funny observation had Garth not said a mere three sentences above the one you quoted that he’d bought his Christmas presents there for “Dorothy”, who most people would assume would be wearing the blouses.

#28 dd on 12.27.08 at 11:27 am

#16 Laos Moray,

Who knows? Oil might hit $25 bucks. And it might sit there for a while, however, with this low oil comes less investment. And with less investments comes limiteds supplies coming on-line and higher and higher oil in the future.

#29 midas on 12.27.08 at 11:32 am

One issue not being addressed is the social consequences of economic failure. An instant gratification generation will have a tough time coping with the fact that there is no food on store shelves, there is no power when they turn on the switch, there is no water when they turn on the taps, there is no phone service and their blackberries and I-Pods are only good for playing solitaire as long as the battery lasts. Preparing for the worst, though unpleasant, will prepare us to survive the social shocks that must surely accompany this economic tsunami now confronting us.

It might also be a good time now to stock up on other essentials while a lot of stores will be shuttering their doors forever. Things such as kids boots, heavy duty parkas, blankets, sturdy clothes (forget the designer tags), Coleman lanterns, wind up flash lights and radios and anything else that you can think of to survive a tough winter if there is no heat or hydro for an extended period of time. Sadly this doom and gloom survival talk is fast moving out of the realm of talk only to a realm that will need fast and thoughtful action, be prepared!

#30 Rick on 12.27.08 at 12:00 pm

#27 FE–

Regardless of Garth’s previous statement, the statement about his purchases, as written, was correctly subject to the humorous interpretation WR gave it. Does WR really have to write in parentheses “tongue in cheek” after his word play?

#31 real estate expert on 12.27.08 at 12:43 pm

10 Reasons Vancouver will become the new Financial/Trade centre of Canada…

1/
Matts Sundin carries with him the Captaincy, the insignia of the new Leadership from Toronto to Vancouver.

2/
Vancouver has three ski mountains overlooking it’s city, Toronto has none.

3/
Vancouver never gets snow/rain and it’s always sunny/mild.
Toronto needs brick homes for winter and central air for humid summers.

4/
Vancouver has culture like Wreck Beach while Toronto can only attract Off Broadway.

5/
Toronto has a phony Greek Village, they serve Pork instead of Lamb with bread buns while Vancouver’s Stephos serves Lamb and properly oil smeared pita.

6/
Vancouver is closer to Maui whileToronto is closer to Saint Pierre and Miquelon.

7/
Vancouver has city casinos while Toronto has none.

8/
Vancouver has the Olympics…sorry Toronto.

9/
Vancouverites live to a ripe old age of 100 due to its healty climate…sorry Toronto.

and 10/
Vancouver has been quietly relocating all the power brokers from California and Toronto….shhhhhh

#32 The First Rick on 12.27.08 at 12:47 pm

#15 Anon on 12.27.08 at 2:35 am Garth, when do you expect to find something positive to write about?
=========
Break your pills in half and meet the rest of us in reality.

#33 roy on 12.27.08 at 1:15 pm

If you want to see a real estate market that is truly in denial take a look at Victoria. Leaky ,moldy, 1 bedroom condos still sitting at $199.000+ Now add to this cost $50.000 for the repairs ( not covered by the strata ) the highest gas prices in Canada, shipping costs to get everything over to the island, costs to get on and off the island, and lets not forget the cost that will be passed onto the taxpayers for the fiasco olympic games. Oh what fun it to live in the best place on earth!

#34 chaser on 12.27.08 at 1:28 pm

Garth says:
Oil will be a major story, depending on how much below $30 it might touch. The Alberta Moment has passed, cowboys.

You are so wrong about this. Have you heard about peak oil Garth?

You better stick with predicting what will happen in Canada based on what is happening in the states. It’s much easier to be “prophetic” that way.

Did I not indicate this was a 2009 prediction? Care to wager? — Garth

#35 W.D. on 12.27.08 at 1:44 pm

If only Walmart and Superstore went out of business quickly many of the other retailers could hang on for at least another year. New businesses woud then have a chance which means more hiring. Ten years ago we had twice as many stores to choose from and way more people working in them as well as a choice between junk and better quality items.

Too bad the public is too stupid to stop shoping for all the junk they don’t need in those stores because they are the main cause of tight sales in the rest of the industry besides the economic downturn of course.

#36 Gord In Vancouver on 12.27.08 at 1:44 pm

#15 Anon

Garth, when do you expect to find something positive to write about?

It’s all about perspective. Those who managed their careers/money properly and didn’t make impulsive real estate purchases see Garth’s posts as being very enlightening, educational, and entertaining.

#37 maritimer on 12.27.08 at 1:45 pm

Bankrupt big box retail locations? One can only hope.
North America is over-retailed and the Mall Warts et al are the epitome of poor shopping habits. Really, who needs another .79 cent plastic spatula that won’t last the week?
Get back to shopping on Main St. Need something? Hit the smaller independant retailers who actually know their stuff and sell value and quality.

#38 The First Rick on 12.27.08 at 2:24 pm

#32 The First Rick on 12.27.08 at 12:47 pm #15 Anon on 12.27.08 at 2:35 am Garth, when do you expect to find something positive to write about?
=========
Break your pills in half and meet the rest of us in reality.
=============
(Except Real Estate Expert, he remains WAY out there)

#39 nonplused on 12.27.08 at 2:59 pm

#34 Chaser,

Peak oil will undoubtedly be the story of the 21’st century, but that doesn’t mean the price must always go up just like houses. At some price, for both houses and oil, marginal demand is priced out of the market. Demand cannot exceed supply, the price arbitrates who gets the oil and who does not.

At his point what we know for sure is that huge never before seen asset price bubbles in at least 3 major markets are collapsing simultaneously, taking a lot of supposed wealth with them and shutting down all the factories. This reduces demand. And it turned out to be fast. Collapse like fast. Oil prices will not recover until there are enough people who can afford to buy all of the current supply.

I think Garth’s forecast for deflation in the near future, including oil prices are definitely in the cards and could last 6 months to 2 years. But the government response is sowing the seeds for uncontrolled inflation after that so there is good reason to view this as the last opportunity to protect yourself at affordable prices.

But that doesn’t mean oil prices will necessarily remain high compared to the cost of other items. Unemployed auto workers who have to pay $10 for a loaf of bread probably won’t be joy riding in their Hummers all that often.

In the “anything the government does will only make matters worse” department, that’s why all the infrastructure spending being planned here and in the US will be so tragic. A population that can no longer afford to drive their cars is going to be taxed to death to pay for all kinds of road improvements and new bridges to nowhere. Yet mass transit isn’t really on the agenda in a big way. In Europe you can live your whole life without need of a car because they built decent infrastructure years ago. Now, when we have a crises big enough to actually motivate us to do the same, we are going to just build more of the same old stupidity that got us into this trouble in the first place. Historians are going to look back at these times and laugh through their tears.

#40 PKS on 12.27.08 at 3:15 pm

To #34 – Chaser:

Yes, peak oil, if we haven’t got there yet, is very close.

But, remember, most peak oil theories predict extreme volatility close to the peak.

Speaking as somebody who’s a great big “peak oil nerd”, there’s nothing in peak oil theory that rules out fluctuation from $150 to $30 in under a year.

Doesn’t mean we’re not close to or past peak oil production. It’s more of a symptom of the havoc peak oil wrecks on markets in general.

#41 Blacksheep on 12.27.08 at 3:20 pm

Real estate expert, #20

I understand these are tongue in cheek comments but,

“Vancouver has the Olympics…sorry Toronto”

This event is rapidly loosing public support,
wait till the full tax bill comes due.

Don’t get me wrong, i love Vancouver, but your
repeated Pro Van. cheerleading will not stop your realestate investments from correcting by a least 40%.

I suggest you change your name or your shctick, as your embarrassing yourself.

take care
BS

#42 Babak on 12.27.08 at 4:06 pm

peak oil !! LoL Thanks for the laugh. This myth has been bandied about every time oil goes up. But then everyone “forgets” about it when oil goes down.

:-)

#43 Smitty08 on 12.27.08 at 4:21 pm

Garth:

Where do you see real estate headed in the Maratime provinces? They have not seen the same acceleration in prices as the west coast. Although unemployment is higher.

Far more stable. Some slippage on the pricier bits of the South Shore of NS and, of course, don’t expect a recovery in St. John’s. RMH will slide a bit, but nothing too severe. — Garth

#44 real estate expert on 12.27.08 at 5:50 pm

#41 Blacksheep

“Vancouver has the Olympics…sorry Toronto”

…My friend, I would not be at all disappointed if the Olympics were cancelled…spend the money saved on security, the pomp and VIP freebies towards improving more infrastructure instead…I’m already on record for that here.

For those in the know, Vancouver’s infrastructure remains pitifull for a city of its calibre.

lol….GM and Nortel are the two largest Vancouver Olympic corporate sponsors…yikes…they are both bankrupt.

(Lived in TO for 40 years and out here for nearly 20.)

…tongue in cheek?…Me?

The Danforth greek village serves Pork and bread…ITS CRAP!
Stepho’s is the best value Greek restaurant hands down…Torontonians would consider moving to Vancouver simply because of Stepho’s.

more later….

#45 Rob in Onterrible on 12.27.08 at 7:07 pm

Peak oil is real but I will be honest and confess that I listen to Jim Puplava over at financialsense.com. Jim also predicted a US dollar currency crisis in August and was totally wrong. Instead the US dollar rallied. He is right about peak oil, totally wrong about the timing. As people lose their jobs, they won’t need to fill up as often = less demand for oil. China is slowing a lot, too because they focused too much on the US. That meas less trucks will be driving goods to the ships = less demand for oil. Initially, I thought Garth was wrong about the low prices but I see that he’s factoring in a huge decline in demand because of the coming economic slowdown while the peak oil die hards ignore or downplay this demand drop. I agree with Garth on this one but oil is oversold so I believe oil will rally to around $40-42 a barrel and stay there for a while.

#46 Kevin on 12.27.08 at 7:08 pm

Garth,

I agree with “More Predictions” – Exurbia might not be the best place to be. Have you read the book “The Long Emergency – Surviving the Converging Catastrophes of the 21st Century” by Kunstler? It covers the squirrel scenarios that you describe. Kunstler makes the case that the best place to be is towns or suburbs that are left over from the early 1900s, where you had easy access to a small grocery store, butcher, hardware, etc. (when people were nearly self-sufficient) There are still places like that. In any case, it is good reading.

You have just described exurbia, as it is now defined. — Garth

#47 Kelowna Gal on 12.27.08 at 7:31 pm

I hope everyone had a great Christmas. The New Year is fast approaching and I find myself being very thankful for lots this year. Thankful for health, family, friends and for the insight that Garth has shared with us through this blog. Thanks again for your advice in your last book “Greater Fool.” As I have told you before, we would have bought right at the very top had we not read your book. You saved us a lot of heartache. It’s interesting that you believe that Kelowna prices will go down by a further 38%. This is GREAT news for us.

I am interested in purchasing your next book. Would I be able to buy a signed copy as well? Can you please tell me how to go about it? We cannot wait to read it. Thanks so much Garth. I look forward to reading more of your blogs, etc.

To everyone reading this blog enjoy the holidays. Happy New Year! Remember knowledge is power. It’s the people walking around in denial that are going to be hit the hardest through all of this.

#48 Jimster on 12.27.08 at 7:32 pm

Peak Oil, Ha!
Wasn’t that theory brought to us by the ones that said fractional reserve banking is safe, C02 will kill us all and there are WMDs in Iraq?

If you look around and dont see any suckers….

#49 dd on 12.27.08 at 7:41 pm

#34 chaser,

The market can be wrong longer than your pocket book can be right.

Peak oil … yes. Short term fluations yes. Long term prices increases … yes.

#50 dd on 12.27.08 at 7:42 pm

#42 Babak,

Garth is a big believer in peak oil too.

#51 Vankover on 12.27.08 at 7:43 pm

With the coming recession I’m glad to see Christmases and holidays that can be more opportunities for fun, laughter, and being thankful for what we already have.

#52 Greg in Victoria on 12.27.08 at 8:52 pm

#42 Babak

Peak oil is a geological reality – only so much oil is in the ground and there is no price for oil that can produce more of it. It wil peak and decline, the only real question is when.

#53 Ron on 12.27.08 at 10:18 pm

This is a song that struck me as appropriate,

http://www.youtube.com/watch?v=vTdC11JaO9A

#54 pjwlk on 12.28.08 at 1:00 pm

I visited my daughter at her new townhouse in Milton over Christams. Not only is the one TH on her right side up for rent and one TH on her left side up for sale, but the two town houses across the street are now on the market. One for lease and the other for sale with a nice big “reduced” sign across the top. I think we’ve found the melt down epicentre…

#55 Just a Girl on 12.28.08 at 1:31 pm

To add to the peak oil discussion … take a look at where you live right now. Is your only transportation route home a series of paved roads and highways, to support single vehicle transportation? What is your area’s current transportation options, do you have easy access to public or mass transit? What are your city’s future projects?

Our economy is based on our dependence on cheap oil, and the days of cheap oil are coming to an end. So what if oil is $30-40 barrel for the next two years. This is not a permanent condition. When oil leaves the double digits forever, what will happen to freight? Air travel? Commuting? Think about it.

What about the size of your home? Are you prepared to pay double or triple the cost of your utilities, if the world changes again in 3 years? Who will want your big house then? (not me, not my kids, and probably not their kids either)

Exurbia has merit. Port cities have merit. Central urban living has merit. Living out in the ‘burbs, however, especially in a big house, will be less desirable in future. Just some food for thought.

I know, ”the suburbs are a great place to raise your kids.” I’m a Mom, I’ve made that choice, too … in a different world and time. I may not be educated not energy literate enough to make any reliable predictions, but a big house in the ‘burbs would be the last real estate purchase I would make right now … and if I had one to sell, I would get right on it.

#56 Strataman on 12.28.08 at 1:42 pm

Real Estate Expert “For those in the know, Vancouver’s infrastructure remains pitifull for a city of its calibre.”
Heh heh right on, after a week of snow and seeing Vancouver transit, airport and roads coming to a standstill I just would love to see the “world will be coming headlines”! How a bout 2010 Winter Olympics in Vancouver BC cancelled due to snow? :-)

#57 dboy on 12.28.08 at 2:23 pm

It’s easy to forget that the state of re decline is a global phenomenon and not just North American.

Check out this global report on the state of re. Very telling

http://www.menafn.com/qn_news_story_s.asp?StoryId=1093224292

#58 Prairie Larry on 12.28.08 at 3:26 pm

Garth, What do you see for Saskatoon?
There was a huge runup in prices in 2007, now huge inventory and low sales, with sellers in denial (Sounds familiar).

Saskabust. — Garth

#59 expedio on 12.28.08 at 4:26 pm

Garth,
In all your prophecies of doom and gloom, conspicuously absent from your comments is where a safe haven might be for individual wealth. As the stock market crash, housing bubble, car bubble, and all other bubbles that are popping right now are symptomatic of the real crisis – the ‘liquidity crisis,’ I’m surprised that you don’t comment on the only safe haven in existence. The currency of last resort and the ultimate store of wealth, physical gold.
PS I’m somewhat new to this blog, so if I’ve missed a comment on gold – I apologize in advance.

I deal with this in my forthcoming book. The safest haven possible for $21.95. — Garth

#60 Gord In Vancouver on 12.28.08 at 4:42 pm

Vancouver’s New Real Estate Selling Strategy – Make the Reader Dizzy

This way, the reader soon forgets about reality….

http://www.vancouversun.com/Homes/Great+deals+there/1117782/story.html

No – you didn’t just get out of a maze after drinking a six pack.

#61 Helmut on 12.28.08 at 5:08 pm

You better stick with predicting what will happen in Canada based on what is happening in the states. It’s much easier to be “prophetic” that way.

Did I not indicate this was a 2009 prediction? Care to wager? — Garth

Can I get in on this with perhaps issuing some Credit Default Swaps :)

#62 Helmut on 12.28.08 at 5:41 pm

Oops…my mistake. CDS es are not issued. They are tissued… like iou’s on the back of a piece of toilet paper. Garth you know how dangerous these babies are.
I also heard rumors that the Ontario Teachers Pension Fund is heavely into ” Shopping Centres”. What’s your sources saying?

#63 Peak Oil on 12.28.08 at 6:18 pm

Just a Girl

With peak oil comes innovation. As energy gets more expensive people will spend money on new technologies, ie geo-thermal, solar, etc. The more that is spent on any technology, the cheaper it gets, think calculators, computers, mp3 players, etc. So in the end those big houses will have inexpensive geo-thermal systems, led lighting and other forms of enegy efficient devices installed [opportunity]. This over time may solve the Peak oil crisis, but it won’t do much for the coming energy crisis. Don’t forget these devices still need energy and the world is going to need a lot more of it and from various sources to keep growing. Well unless you believe like some on this blog that we are headed for a recession or depression that is going to last forever.

Garth

Getting $11,500 off of a Jeep is not deflation, it’s just how the market works when there is excessive inventory. Simply put “supply/demand”. Right now there is an excess supply of things, hence the great deals. You won’t be getting that same deal on a new auto next year because the inventory (supply) just won’t be there. Thats what this recessionary period is all about. It’s just an inventory re-adjustment period. Not deflation. That would only happen if everyone listened to you and stopped buying. Then we would would have deflation. (To all … That’s why Garth bought his Jeep now, he knows these inventory oversupply periods don’t last long)

As far as the housing market goes, the same holds true. Supply/demand. The only diffence is that the housing market inventory cycle moves a lot slower than the stock market or the auto market, ie can’t correct or shed inventory as fast.

PS: Thank you… “free market gods” for bring me this period. I will take advantage of it as it only happens once in a lifetime. Again thank you.

#64 ATM on 12.28.08 at 6:30 pm

Garth. What’s your outlook for commercial real estate.
So far much of the decline have been in residential?

I see many commercial real estate listings and very few have dropped their prices even whesn they are vacant.

Do you see commercial lagging the residentials and if so, how many months?

2009 will be the ICI Armageddon. — Garth

#65 Marv on 12.28.08 at 6:49 pm

I have to laugh at the “Peak Oil” enthusiasts that continue to post their pro Oil predictions. I used to be a staunch peak Oil believer but the one fundamental flaw with Peak Oil is it is based on the current rate of consumption and the belief that there is no more oil to be found. They never take into account that we will be moving out of the oil age into the new alternative energy age which will cut the demand for Oil considerably.

We currently have all the technology required to cut world oil consumption significantly, it’s just we are lazy and have grown used to Oil. We can already go to 100% electric vehicles to fill the majority of our daily commute. We can also go to alternatives such as ethanol. Don’t listen to the OIL industry anti ethanol smear campaign. It will not cause global starvation or any of the other calamities that the OIL PR people had the media believe. Do your own research and you will see. Brazil cut their oil imports from 100% down to zero all thanks to ethanol. It also created thousands and thousands of jobs as the wealth stayed in their country and did not go to overseas Oil producers. Why do you think Saudi Arabia is pouring tons of money into high efficiency low emission engine research??? Because they are scared to death that they may lose market share if alternatives start to replace the gas and diesel engine. They are trying to keep the world interested in “oil’ related technology. BTW, Saudi Arabia is almost ready to bring online into production 2 more huge oil fields. This will increase their daily production by 2 million barrels. So much for the theory that Saudi Arabia is at peak and cannot produce anymore. just another tale spun by the Peak oil enthusiasts.

#66 TheFirstRick on 12.28.08 at 9:12 pm

#63 Peak Oil on 12.28.08 at 6:18 pm Just a Girl
…….snippage……..
Getting $11,500 off of a Jeep is not deflation, it’s just how the market works when there is excessive inventory. Simply put “supply/demand”.
=========
Too funny! You say tomatoe and I say tomAtoe. Regardless, thanks for the laugh and my computer screen needed a wipe down anyway.

#67 Derrin on 12.28.08 at 9:26 pm

Maybe things are getting better.

http://ca.news.yahoo.com/s/capress/081228/business/poll_economy2009

#68 EJ on 12.28.08 at 10:34 pm

#67: Derrin

The article doesn’t state anything except that the majority of Canadians are “hopeful” going into 2009.

The majority of Canadians still have no idea how dire the situation actually is. Being ignorant about this problem doesn’t make it go away either. Once the layoffs start hitting hard (auto, oil, and construction will get it bad), the tune will change and you’ll have people crying that “nobody warned us!” and “who could have seen this coming??”

Me, I plan for the worst and don’t rely on hope to make it through the tough times.

#69 nonplused on 12.28.08 at 11:16 pm

There seems to be a lot of “peak oil deniers” that have come out of hiding since the oil prices have crashed. I believe that denial must be based on a misunderstanding of the facts and/or the physics. Peak oil is not just a theory anymore; even the IEA is talking about it, although they put it 20 years out. I am not one to argue with the expert opinions, as no one really knows the ultimate recoverable potential of the planet.

But not knowing where the edge of the cliff lies is not the same thing as there being no cliff.

Peak oil is a geological theory, based on the idea that all oil fields decline (fact) and that there are a limited but unknowable number of oil fields (also fact). But we don’t know how many more Saudi Arabias there are. Most people think that since we aren’t finding any more there aren’t any but that’s hard to say, exploration hasn’t been exactly robust since Saudi Arabia was discovered (why bother).

But what peak oil is not is a theory about how prices will react. Certainly, if the world had continued on it’s trajectory circa 2006, peak oil, if it is imminent, would have meant high prices. But if green technology, nuclear, or some other fuel source steps up, well that’s different. Also, price related models of peak oil do not account for economic collapse.

We are producing as much or more oil than at any point in history. Many people think that because we haven’t seen an increase in production since July 2006, we may be at peak. Perhaps. But we are certainly producing enough oil to support economic activity at 2006 levels, 2000 levels, 1995, 1982, 1975, 1969, 1945, 1914, and 1900 levels. There are all kinds of economic levels for which there is still enough oil being produced, some of which most of us lived through and it didn’t seem that bad at the time.

But an economic collapse of this magnitude has the potential to destroy demand even faster than production is falling (if it is currently falling, we still haven’t established peak has occurred, at least not conclusively).

Peak oil cannot be established or denied based on price. Only world production levels can be cited. So far, July 2006 has the record. Will there be a new record? Maybe. But not until there is a market for the oil.

#70 nonplused on 12.28.08 at 11:37 pm

Garth, $21.75?????

At that price I agree with you that it is secure beyond any possible question (and it would be all I owned, stuffed in cans in the garden, the safety deposit box, under the mattress, and I’d have a pair of skis made out of it!) But I think you have too much faith in paper money. This run of the US$ as a paper currency is 37 years long, which is longer than almost any other paper based currency has made it. And it’s been badly abused.

All fiat currencies throughout history (and there have been thousands) eventually revert to their intrinsic value: 0. It is just a matter of when, and it is almost always within a single generation’s lifetime. The US$ collapse will not occur after the baby boomers have gone to their happy place in that great suburb in the sky.

If the US$ manages to be different, it will only be because it’s also backed by enriched uranium enshrined by triterium. But eventually they will have to deliver the uranium to back the dollar and at that point all commerce will cease.

As Albert Einstein is (reliably) rumored to have said, “I don’t know what weapons will be used to fight the third world war. But the forth world war will be fought with sticks and stones”.

There will be a day when gold is all you want to own. Either that or there won’t be anything to own or anybody to own it.

http://www.youtube.com/watch?v=frAEmhqdLFs

#71 Mike, North of TO on 12.29.08 at 12:37 am

Sunday shopping is indeed “the genie out of the bottle” as mentioned earlier. No turning back. Our busy lives (working 8-7) require us to be able to now use our weekends to run errands. Relaxing on Sundays only happens during Football season ;)

Big retail stores will not die (some will). If anything they some will become more popular. If people were flocking to Walmart and Costco during the good times, where else exactly do you think they’ll go during the bad times to save a buck? If anything Walmart’s shopping visitors will increase with the bad times ahead. Yes, people will shop less as the purse strings tighten, but when they do big retail is where they’re headed.

I love the idea of a renters market…rubbing hands and in my best Monty Burns voice… “Excellent”

Best wishes for the New Year everyone…we’re gonna need it :)

#72 Investx on 12.29.08 at 12:43 am

From the Vacouver Sun article mentioned above:

“Perhaps the greatest advice one can receive is that there is never a bad time to start building equity into a home.”

Even when prices keep sliding?

#73 Investx on 12.29.08 at 12:54 am

From #63, Peak Oil:

“Getting $11,500 off of a Jeep is not deflation, it’s just how the market works when there is excessive inventory. Simply put “supply/demand”. Right now there is an excess supply of things, hence the great deals. You won’t be getting that same deal on a new auto next year because the inventory (supply) just won’t be there. Thats what this recessionary period is all about. It’s just an inventory re-adjustment period. Not deflation. That would only happen if everyone listened to you and stopped buying. Then we would would have deflation. (To all … That’s why Garth bought his Jeep now, he knows these inventory oversupply periods don’t last long)”
—————————————————

Interesting. With deflation, don’t the general prices of goods and services, including food, fall?

#74 Just a Girl on 12.29.08 at 2:15 am

#65 Marv wrote: “I used to be a staunch peak Oil believer but the one fundamental flaw with Peak Oil is it is based on the current rate of consumption and the belief that there is no more oil to be found.”

Oh, there is more oil to be found. It just won’t be the easy and cheap oil.

#75 Third Chimp on 12.29.08 at 2:15 am

#65 Marv
Where to start when every sentence is factually wrong.
“No more oil to be found” – PO says there is oil, but it is from increasingly expensive sources. Alternative energies in total cannot offset more than a fraction of the decline in petro energy. The 100% electric car, with elec grid supply problems and sourcing the electricity, again can offset only so much- car life as we know it is done. The UN studied ethanol and found that it does raise food prices, and if the whole US corn crop was switched to ethanol, we’re talking less than 10% of current US gas consumption. You need to spend some time over at theoildrum.com to get some decent information. Anyway, its so obvious that we’re in overshoot on every front, to narrow it to oil – as if solve that and we get to replay the last half century growth over again. But if there is lots of oil as you say, or some kind of techno-fix, does that mean we get to put up hotels and Wal-Marts on the last remaining vestiges of untouched soil on this earth ? Isn’t that what business-as-usual means ?

#76 Charles on 12.29.08 at 2:35 am

Garth, I can’t wait for your new book. Possible for you to apply some Dot’s lipstick and give it a big kiss mark for me please .

#77 Tom on 12.29.08 at 4:00 am

Garth – I’ve been a lurker and occasional poster on your blog for a while and read it as my main “alternative to the MSM” info source on the housing market as I hope to buy in a year or two.

Not sure if this is a comment or a message to you with an idea for a future post but…

Is one of the main drivers of the housing boom the fact that people have become more career (meaning money) focused and have been delaying marriage into their 30s, meaning more single people with decent incomes looking for homes?

People leave home now at 18-21 sometimes and expect to buy a place. In my parents day getting married in your early 20s and then buying a house together was the norm. So basically during the boom we’ve needed twice as many houses.

I think we’ll return to people buying when they get married or have been working for much longer as there will be fewer jobs to go around and fewer two-income households. Also, the renters market, and first-time buyer housing supply in general, is sure to improve as the singletons who bought condos couple up and realise they can’t live with someone in 550 sq ft boxes for very long.

So my prediction is that one bright spot in this whole mess is that we may go back to more single-income families through necessity, with one earner and one looking after the kids.

This will ease so many things – more housing supply, less pressure on transit, better childcare provision, fewer commuters each day. Also, the birthrate should rise faster when people get married earlier, easing the worry of getting enough people to cover essential jobs when all the late-boomers retire.

One thing’s for sure – we need a government with a plan to address these issues, including long-term labour needs and ensuring people get access to essential training rather than letting more Arts graduates into the market.

#78 Mario on 12.29.08 at 8:18 am

Yes, the best for Alberta is over, but we (in Ontario) should not be always envious about their wealth. It’s not their fault.
Our choice was high taxes, auto industry, lines for doctors etc. We are “have-not” province. It is in our interest that the others are wealthy, so that they can help us.

#79 real estate expert on 12.29.08 at 9:08 am

New currency planned for Western Canada.

…It will be called the Cascadia Dollar.

It won’t crash or burn like the Looney does..it elegantly sails or shushes.

You heard it here first.

#80 OttawaJen on 12.29.08 at 10:49 am

Garth,
Love your blog. And drinking heavily helps me deal with the worst case scenario fears ;)

On a serious note, where do you see ottawa real estate heading? We are renting a modest bungalow south of the city for 1300/mo. Given it is on a half acre lot, that’s a decent deal in the area. It’s a lovely 3 bedroom home, nothing extravagant. Our jobs in big blue high tech, are about as secure as we could hope, but we have no expectations of course. We are happy to stay renting this house, but the seller needs to sell it in 09. We have to make a choice, buy for low 300K range, or move again. Low 300K range currently buys you a townhouse in Ottawa, so that’s not too appealing. There’s at least room out here to plant a veggie garden and the squirrels are running rampant. Will the Ottawa market drop enough to make moving and renting elsewhere worth our time and money? I should mention we have a toddler and this area is a good family area for her to grow, with a good school and well priced daycare. Those things certainly are an influence but we won’t make a stupid financial decision based on it.

Much luck with the new book. I will buy it, and am slightly terrified to read it.

#81 Marcus Aurelius on 12.29.08 at 11:07 am

“The biggest house price drops will be in early summer. This will happen after tens of thousands of wanna-be sellers dump their houses on the market in late February and March, hoping to catch the Spring market. But, there won’t be one. When that sinks in, prices will crumble.”

Like islander (#12) – this was your most prescient comment. From the GTA perspective, the posters who note that agents (there are no ‘vendor’ or ‘purchaser’ agents – agents are parasites with only one focus – themselves) and vendors are resisting the fact of price declines are also highlighting the next great levee that will burst. By Summer, those who really want (need?) to sell are going to face some serious financial choices. The make-believe womb they are living in is going to pop like smelly sac of amniotic fluid, and with a swift smack on the ass, they will emerge into the real world – and that world will be grim for at least another 18 months. WAAAAH!!!!

(PS -Happy Renter #9 – those central downtown or midtown Toronto condos that ‘rent’ for $2K/mo. also have $800/mo. maintenance obligations and $400/mo. tax bills. While it would be nice to think that you could lease 800-1200 sq. ft in the best part of the best city for under $2K, don’t hold your breath. It will come off, but not by that much, given that Toronto (at least, the part east of Bathurst and west of Bayview called “Canada”) is still all that matters.

Upside? Think of the rats who run their race every day, knowing they paid $1.5Million in 2005-8, for a crapcan shack in that area with no more square footage than that condo.

#82 Peak Oil on 12.29.08 at 11:11 am

Investx your comment

Interesting. With deflation, don’t the general prices of goods and services, including food, fall?

Yes. But we can’t count excess inventory as deflation. If that was the case then all excess goods sold by liquidators would be deflation, which it is not, it just excess inventory. Deflation is when the cost of manufacturing/producing goods actually decreases, it’s not when the price drops due excessive inventory. I pretty sure it still costs the same to make goods today, so that means less goods will be made in the future, thus creating reductions in inventory. When less goods are made, recessions happen (that’s what’s happening now). If everyone quits buying for an extended period of time a depression happens. If a depression goes on long enough then deflation takes hold. No goods made/produced, no labour used, no commodities used, which mean lower prices for all, which causes deflation. That’s the short version, there is a lot more to deflation though. Get it now.

Marv

So depletion doesn’t exsist in your world. Oil is an infinite resource that once you drill a well it produces at the same rate forever. mmmmm…. interesting.

#83 Peak Oil on 12.29.08 at 11:25 am

Investx

One more thing. That difference between what it cost to make/produce a good and what it is sold for is called profit. So what you are seeing now is profits being hit [declining or negative margins], not deflation. Remember it still costs the same to make or produce a good only the profit margin is taking a beating. That’s why the stock market has sold off. Investors are worried about the outlook for future earnings protential of companies.

#84 Just a Girl on 12.29.08 at 11:47 am

#75 Third Chimp: “Alternative energies in total cannot offset more than a fraction of the decline in petro energy.”

Bravo. We are going to need everything: wind, solar, nuclear, geothermal, hydroelectric, all sources not yet ‘innovated’, and your grandmother’s wool socks.

#85 Just a Girl on 12.29.08 at 11:59 am

#69 and #70 Nonplused

Intelligent, factual, succinct, with a little black humour for comic relief … thank you!

#86 Just a Girl on 12.29.08 at 12:16 pm

So, who is holding the vision for Canada?

How Denmark Paved Way to Energy Independence
http://postcarboncities.net/node/141

#87 dd on 12.29.08 at 12:24 pm

#79 real estate expert,

Keep going Real Estate Expert … too funny.

#88 Paul johnston on 12.29.08 at 12:52 pm

I think a lot of agents went into this past Fall Market wondering what would happen. And the answer, it seems, was nothing. There was virtually no resale market to speak of in Ontario at least, and clearly there are a lot of sellers who are now waiting for Spring. If we have back-to-back “zero markets” a lot of the underpinnings of the market and consumer’s confidence in the equity in their homes locally, is going to be gravely undermined.

#89 Another Joe on 12.29.08 at 3:52 pm

Look out this article guys. The myth of peak oil busted!
http://www.321energy.com/editorials/bainerman/bainerman083105.html

#90 Jimster on 12.29.08 at 5:46 pm

Just a Girl:

Arn’t you more concerned about peak air or peak water?

#91 Just a Girl on 12.29.08 at 8:05 pm

#90 Jimster: “Arn’t you more concerned about peak air or peak water?”

Were you a fly on my wall last night? ;)

#92 Alex Curylo on 12.30.08 at 8:38 am

@ PeakOil (and all the rest of you)

“So depletion doesn’t exsist in your world. Oil is an infinite resource…”

Actually, that part’s correct. The wrong part is “drill a well”. People like Sapphire Energy are going to have biologic oil creation economically competitive long before we have to worry about the wells running dry.

#93 nonplused on 12.31.08 at 1:10 am

Biologically creating oil and stuff we want from oil (nobody buys oil, we buy gas and diesel) has been around for decades. The Germans were running their army on fuels made from coal during the second world war because Hitler went for I think it was Stalingrad rather than the oil fields as advised by his generals.

Problem is, like ethanol or hydrogen, these exotic ideas require a lot of energy as an input. Where is that energy to come from???? The second law of thermodynamics must be observed.

#94 Roy on 12.31.08 at 12:20 pm

The bank needs to raise and not lower its interest rates. This will be the only way to stop the borrow to spend cycle. I think the banks might be on to this . Borrowing money to pay off debt ,borrowing money to buy over priced real estate, borrowing money for things we don’t need. I guess we learned nothing from the U.S……..Think about it people………

#95 ZK on 01.02.09 at 12:58 am

Interesting video… http://www.iousathemovie.com/