One little example of why this ain't over yet.
I expect my next book, due out in a couple of weeks, will earn me grief. The reason’s simple: I ‘m telling Canadians to prepare for a depression.
That doesn’t mean it’ll happen, or that I expect it to. It means the odds of one enveloping us are high enough that prudent people won’t risk doing nothing. And that’s what the book is about – doing something. More than 200 strategies, actually.
It all comes down to risk. If the risk of something bad happening is zero, well, you ignore it. If the risk is extreme, you do everything possible to avoid it. So, what if the risk is 20%? Do you ignore that, too?
Would you open a bank account that had a 20% chance of going to zero? Or move into a house that had a one-in-five chance of burning down?
Don’t think so. But if you did, you’d probably take out insurance against loss.
At the moment, very few people are doing anything concrete about the one-in-five chance we’re on the cusp of a deflationary spiral which could equal, perhaps surpass, the Great Depression. This time, of course, there would not be unemployed men riding the top of boxcars or families holed up in culverts on their way to work camps. But there would likely be massive unemployment, sharply reduced government services, sporadic food shortages, restrictions on bank withdrawals, a real estate price collapse and half a decade of corporate failures and stock losses. Some civil unrest is a possibility. Maybe a new war to get the economy moving again.
Is this an extreme view, even with only a 20% probability?
Robert Prechter doesn’t think so, and he’s one of the few people in North American who correctly forecast last autumn’s crash. The Elliott Wave Theorist publisher also say it’s not over yet. Oil will be $10 and there’s no market anywhere that will be immune. Compared to 1929, “This time, the engines of debt are far bigger; the debt balloon is larger; the pool of speculators is far larger; overvaluations among investments went far higher; US banks on average are flat broke; the manufacturing sector in the US has become aged; government is far more stifling.
“I can’t think of a single aspect of the situation,†Prechter says, “that is less bearish than 1929.â€
But maybe’s he extreme.
So, let’s go to Arizona.
Yesterday the Wall Street Journal reminded us all of why we’re in the soup.
In Avondale there was a 576-square-foot shack which was owned by a bankrupt woman with a history of substance abuse and was recently declared unfit for human occupancy. Less than two years ago a local mortgage lender arranged a $103,000 mortgage for the unemployed occupant, Marvene Halterman. The mortgage, of course, was destined to go into foreclosure because Halterman had no money and hadn’t worked in 13 years.
But the lender, Integrity Funding, which picked Halterman out of a phone book to cold call, didn’t care. That company made $9,000 in fees, and then sold the loan to Wells Fargo bank, which sold it to a unit of HSBC bank which packaged it into a securitization with 4,050 other mortgages and sold it to scores of investors, after Standard and Poor’s and Moody’s had given a Triple-A rating to the offering. One of the investors was the Teacher’s Retirement System of Oklahoma, which put half a million dollars on the line.
The Halterman property went into foreclosure, of course, was bought by neighbours for $18,000 and torn down. More than 1,000 of the mortgages that HSBC packaged and sold have turned to dust, which means tens of millions of dollars evaporated. Across the US, just over $4 trillion in similar loans were sold in a single year. Many investors are only discovering now, they – and the massive banks that financed these – are ruined.
Meanwhile in Avondale, where about 70,000 people live, one house in nine is now in foreclosure.
This is why you should be concerned. It’s not just Arizona, of course, where easy credit was extended to unworthy people. It’s not just that some of the world’s biggest banks trucked in these kinds of diseased assets. It’s not just that blue-chip ratings agencies certified them as investment gold. It’s not just that this greed, fraud and amorality has hobbled our largest trading partner, and seriously threatens us. It’s because we have done essentially the same here, allowing people without cash to buy houses. We have borrowed more money than ever, saved nothing, leveraged most of what we own and suspended common sense.
The greatest bubble economy in history is popping. Trillions of dollars are still sitting on the books of financial institutions in assets which are worthless, or nearly so. The odds of surviving that are slim for many of them. Without government bailouts, today the American banking system – and its auto industry, including three million jobs – would be gone. Sadly, that may still happen. Meanwhile every week Canadians are losing money in home equity, while unemployment rises and corporations shutter. It’s the greatest loss of wealth in a generation.
Realtors and bank economists are in the media now, saying it will all be over quickly. Perhaps they’re right. Hope so.
But I’m hiding the matches.
104 comments ↓
Another good reason for appraisals to be done on every home loan.
Edmonton Appraiser
– As long as the appraiser is not directly or indirectly in conspiracy with lending institutions, right?
I should point out that Robert Prechter has been predicting a deflationary collapse since 1987. He’s a good analyst in terms of fundamentals but a terrible market timer. Elliot wave is open to too many interpretations and the wave counts have a nasty habit of morphing and declaring false tops.
Today on the radio I heard this story about an owner of a small parts company who received this letter from:
Troy Clarke
President
General Motors North America
as follows: Abridged letter from Troy Clarke, President of General Motors
– followed by a response from our son, Gregory Knox:
Dear Employee,
Next week, Congress and the current Administration will determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation’s history. Your elected officials must hear from all of us now on why this support is critical to our continuing the progress we began prior to the global financial crisis…………………As an employee, you have a lot at stake and continue to be one of our most effective and passionate voices. I know GM can count on you to have your voice heard.
Thank you for your urgent action and ongoing support.
Here is the letter he wrote back: ( i will not paste it here, however, this is worth the read.) Point blank and in your face tell it like it is. (Roy Green radio show today interviewed Mr.Knox.) anyone who listened to the show will know that this is the real thing.
his response starts as follows….
“From Gregory Knox,
In response to your request to call legislators and ask for a bailout for the United States automakers please consider the following, and please also pass this onto Troy Clark, the president of General Motors North America for me.
You are both infected with the same entitlement mentality that has bred like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping the nation, awaiting our new “messiah” to wave his magical wand and make all our problems go away, while at the same time allowing our once great nation to keep “living the dream”.
The dream is over! ……
full letter – worth the read…
http://www.strangevehicles.com/content/item/145482.html
I agree Edmonton Appraiser.
Reminds me of a HUGE argument I had with a friend of mine. He, like alot of people out there is really bad with money – or more specifically, credit cards.
Racked up substantial debt, so he decided to refinance his home and wanted me to give him an evaluation of its market value. (This was last year)
I gave him a figure. He wasn’t happy with it and claimed over and over that I was wrong and that it was “worth” more. “Show me the sales figures to back that up” I told him. I had already shown him the actual sales figures I’d used – and sorry, that 10,000 bathroom you put in doesn’t add 10K to the “worthiness” of your home.
So the bank sent over an appraiser. He appraised it lower than the figure I gave him. Not satisfied with that he went to another bank and they sent someone who gave him a figure much higher than mine, by about 40,000.
Theres no way in hell that he’d get the figure they gave him, even before things started going into the toilet.
He’s thrilled. Has rolled all his credit card debt into his mortgage, including the second mortgage AND the penalty for early cancellation. Doesn’t see the forest for the trees.
He now owes about 20,000 more on his home than he’d get for it if he sold it today, and priced it to sell – this, after 8 years of mortgage payments and his downpayment.
FWIW Garth, some of us Realtors that don’t get any press agree with you. In fact I told someone today to price it aggressively and get their house on the market now, even if its not with me, and to stop thinking that they should wait for the “spring market”. Will they listen? Remains to be seen.
Meanwhile, GOLD was UP for the 8th year-in-a-row, turning in a 32.4% return in Canadian Dollars. James Turk is suggesting a Gold price in ’09 of $1800USD (and he’s not factoring the possibility of US martial law and/or an FDR style Bank “holiday”) .. read his commentary here: http://goldmoney.com/en/commentary.php
I can’t wait to read Garth’s new book.
You know it will be good.
I am even breaking my new year’s resolution of “not buying anything new” to get it.
Consumerism is out of control but I did order the book in 2008…
The Shape Of The Future
By Peter L. Bernstein
Three months ago, we wrote, “[T]he economic malaise will not be brief, even though its depth is uncertain. The process is going to be like water torture – drip by drip by drip over an extended period of time until all these excesses are squeezed out of the system and new and happier horizons can open up.” This metaphor should now form the basis for all decisions, strategies, and analysis. Recessions matter, but the important features of the problems faced by the American economy are not in the short run. The crucial issue is the nature of the new longer-run environment that we are convinced is now a reality. This environment is still in its infancy, but its principal features are already identifiable.
Too few people are thinking along these terms. The short run always tends to dominate mass thinking in any case, but in an odd way the short run is irrelevant to the current situation. The short run is a creature of the immediate past. The longer run will be a profound break from the past. Indeed, the longer run in this instance is going to evolve as it is going to evolve whether we have a perceptible recession in 2008 or whether we squeeze by with a minimum of negative numbers.
Why are we so emphatic about this viewpoint? As Goldilocks shreds,
DELETED. This post was over 1,000 words. As interesting as it was, long articles must be posted as links, and be accompanied by source information if it is not original. Please rspect your fellow visitors. — Garth
Hi guys!
Again I’m here and I can’t see defflation at all.
Gold price hit $ 886/oz and Oil is over $ 48/barrel.
FED Interest rates in USA is 0.25% and in Canada 1.5%-very soon in Canada will be less than 1%.
Garth, how much was interest in Recession during 80’s.
I think about 18% or 20%.
TSX stock market did amazing gain from Nov/08 from
7700 points now is alredy 9200. I can’t see any RE Crash in Oakville,Burlington,South Mississauga.
New Builders houses are even more expensive than 2007 and 2008. Welcome in 2009.
DEFLATION in 2009?
Every thing is more expensive than 2008,2007.
Food 10-20%, Transit 10%, Property taxes 10% in Mississauga, Health Services and drugs 10%, and all other services 10% prices are up. Yes,houses are little bit cheaper about 5-10K. But I could get the same price if I canceled service from my real estate agent any time within last 3 years.
So where is Defflation guys?
Where is prediction that Gold price will be $500-600/oz and oil price $10-20. Cash is king?
Yes,$ US and $ CAD will going in toilet when in 2010,
Gold Price hit over $ 2000-$ 3000 and Oil price $ 200.
You have to pay for one coffee $ 5 and houses will be over one million (avg. Price in GTA).
Old fashion Recession is GONE. Period.
Now you’ll see even worst Hyper-Inflatory Depression.
Another “Great Leap Forward”.
I see a lot info about the USA.
Canadian banks loan money to people with jobs.
NINJA loans are an American product. Made in the USA.
Canada isn’t America.
Yes, we are being brought down to a degree by the Americans need for greed but this is not America.
Can we understand that Canadians?
Life is good….. if you don’t live in Miami or Avondale.
Happy 2009
Appraisals were done.
An appraisal is just the price of what the latest greater fool was willing to pay for a similar property. Or worse, whatever the bank has told the appraiser to report.
The maximum amount that the banks are allowed to lend, and CMHC is allowed to insure, should be the economic value of the property based on what it can rent for, not bubble market prices.
The results of the poll in the link below is an eye opener. The majority believe that markets will be higher in a year. I’m betting that, by the end of 2009, the masses will be cluing in that this is not just a short-term – yet violent – correction like we had in 1987.
http://money.cnn.com/POLLSERVER/results/44322.html
I was born at the very end of the Baby Boomer generation (1964). I’ve watched my older siblings and their friends, on average, live kind of a fairytale life compared to friends my age. If you were born in the late 1940s, you had it made every step of the way because you were first to get the jobs, assets, and opportunities.
If you were born in the 1950s, all you had to do was “go with the flow” and you’d do fine. The jobs were not hard to find. The first house was inexpensive and there were federal and provincial grants to help you out (these grants were eliminated for my generation even though we had to pay 3x more for the same house). And if you actually stood out from the crowd and worked hard and strategized, you’d do very well.
In contrast, my life experience is the equivalent to getting to the grocery store a little too late whenever there was a run on food. All that would remain on the shelves would be stale twinkies and dealcoholized beer. Meanwhile, the Baby Boomers would be out in the parking lot loaded up with prime rib and fine wine, all high-fiving each other and taking great pride in their good fortune, which they of course attributed to their own personal skills.
I’ve always wondered if the Baby Boomers would make it through to their graves as winners every step of the way. It’s finally starting to look like that won’t happen. I can just imagine the collective, “Hey, this what’s happening here?” confusing from that generation as, suddenly, luck turns against them – their houses plunge in value, their pensions become insolvent, and the government isn’t there to save them.
I actually feel more sorry the the children of the Baby Boomers because the Boomers have taught them few survival skills. The Boomers never needed them, so why teach their children concepts such as thrift, prudence, non-materialism, community cooperation, etc? Instead, the Boomers’ children were taught two destructive lessons:
1. Whatever you want, you get.
2. To make yourself happy, spend money, buy stuff… lots and lots of stuff.
With my own children, I’ve tried hard to keep alive the stories and lessons from my father, who grew up in the prairies during the Great Depression. In those difficult times, clothes were hand made from bleached potato sacks. Spilled grain was gathered from railroad tracks to feed the family. People made due, repaired, and took care of the things they owned. And even then, people made sure they lived below their means.
The next few years should be very interesting to witness.
Garth,
I think your right in saying that if there is a decent % possibility of a depression, we should be prepared. The problem with this site is, too many people take that concept and turn it into the sky is falling. I have no doubt we are on the edge of a cliff (if not already over it), but I think there are still some life lines out there. I’m hoping they translate to a bungee cord around my waist if in fact we are over the edge, or some really good brakes if were not.
I think your spot on with real estate prices, 20 points in Vancouver is about right. I asked someone in vancouver who I respect a great deal (his company is worth about $500m and he believes we could go as low as 2001 pricing. That’s more than 20 points, but it supports what you are saying as a minimum (also, he was saying overall vs just 09).
I think the mentality will change in the next 3-6 months, significantly. The party of 08 and Christmas is over and people will start to clue in. I noticed on MLS.ca that listings nationally went from about 230,000 in December, to about 190,000 now. Those places did not sell, they were just pulled off the market. That is a significant number being pulled off and speaks volumes re people’s attitudes. I hope 40,000 people do not believe thiings will be rosy in the spring, ain’t gonna happen. I do see some people in the vancouver market starting to discount to get out, at least in the burb’s.
I don’t think we are going to crash and burn overall, just sink at a medium pace for the next 2 years, minimum. As a result, I will buy your book and be prepared. Like many others, I have already put a padlock on the wallet. I know I overdid it a bit at Christmas, but it was a bit of a last hurrah, no it’s penny counting time.
good luck everyone
Derrin… you seem to be implying everything is hunky dory in Canada (“Life is good”) and that this is only a U.S. problem (“Can we understand that Canadians?”)
Canada is part of the global real estate bubble (contrary to the media’s oversimplification of things, this is NOT simply a U.S. subprime problem), so NO everything is not good here.
From a housing perspective, Canada is not in as bad off as the US. That said, we’ve had crazy excesses here and now our economy is shedding proportionately more jobs than the U.S. Further reductions in plunging commodity prices will be devasting to the economy).
By way of reference, please see the following Canadian centric data, first posted in May 2008:
a) the fact housing affordability is at its worst level since the last housing bubble burst [RBC. Housing Affordability. Mar-2009, p.1]
b) the fact that real housing prices have increased substantially more than during the last three housing cycles dating back 40-years (all of which ended badly) [Scotiabank. Real Estate Trends, 26-Feb-2008, p.2]
c) the fact that real housing prices in Canada have risen more from trough to peak than in the U.S., where prices and the general economy are now tanking [Scotiabank. Real Estate Trends, 26-Feb-2008, p.2]
d) the fact that Canada’s housing prices-to-rent ratio is higher than in any other OECD country save Spain and 90% higher than the long-run trend [OECD Economic Outlook No. 82, December 2007. Data table can be found in the housing price ratio tab of http://www.oecd.org/dataoecd/6/5/2483894.xls
e) the fact that Canada’s housing prices-to-income ratio is 32% above historic trends and substantially above the ratio which prevailed when the last housing boom bubble popped in the late 80’s / early 90’s [same source as (d)]
f) the fact that the unprecedented run-up in prices have been fueled by a proliferation of risky lending practices such as (i) a decrease in the required down payment from 10% to 0%, (ii) an increase in the allowed amortization from 25-years to 40-years, (iiI) the proliferation of 7% cash back mortgages and other lending gimmicks (teaser rates, step mortgages, skip a payment, builder rate buy downs, etc.), (iv) the proliferation of home equity lines of credit, and (v) lenders not being on the hook for the vast majority of risky loans they write (CMHC guarantees low-down payment and/or extended amortizations)
g) the fact that studies show typical consumers do not fully understand the implications and risk of low down payment, long amortization and gimmicky (e.g. 7% cash back) mortgages. How many consumers do you think have run a scenario analysis which asks, “what would happen if interest rates went to 8%, 10% or even 12%? What would happen if my partner or I lost our job? What would happen if real estate prices dropped by 10%, 20% or 30%? What impact will extending myself for this house have on my retirement plans?â€
h) the fact that housing bubbles around the world are beginning to deflate. By way of example, the UK (admittedly a worse market then ours) mortgage lending in the first quarter is down 40% to the lowest level in 33-years and things are only beginning to get rolling there. In New Zealand housing sales are down 53% year-over-year. And we all can see what is going on in the U.S.
i) the fact that housing construction is far in excess of household formation. CMHC data shows housing starts averaging 226,000 units per year from 2003 through 2007, 33% per year above the roughly 170,000 net new households formed each year [as estimated by TD Economics and others]. Based on housing permits and starts, this trend is expected to continue well into the future.
j) the fact that Canadian MLS housing inventory is at record highs while at the same time the number of sales is dropping dramatically [Canadian Real Estate Association (CREA)]
k) the fact consumer indebtedness is at record highs relative to disposable income [Vanier Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.28]
l) the fact that savings rates are close to nil even though the baby boomers should be saving for retirement [Vanier Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.9]
m) the fact that Canadian incomes have stagnated. Statistics Canada recently reported “that adjusted for inflation the earned income of the ‘average’ Canadian — the so-called median income – was the same in 2004 as in 1982â€
n) the fact that the economy is bordering on a recession. The high Canadian dollar has pounded exports and the U.S., which absorbs some 70% of our exports, is likely in a recession. And what would happen if the rose comes off the construction and commodity bloom? Heresy I know, but both of these sectors are well above trend and are the only real source of strength in the Canadian economy.
o) the fact that inflationary pressures are building, raising the prospect of higher interest costs for borrowers.
I was wrong about (o) as the massive wealth ($30 TRILLION in global stock markets alone) and credit destruction is proving deflationary even in the face of massive government intervention.
Globe and Mail had a write up with past weekend and the majority of the predicitors or economist were looking at mid 2009 as the uptick.
If the real estate price floor is established then I could see a slim chance of this. However people still have to work through their massive debt loads with should take about 5 years at min.
The economy will nto rebound in mid-09, and the forecasters did not say that. They were talking about finding a bottom for the stock market – which is normally a leading indicator. — Garth
#12 Vancouver_Renter,
Interesting post.
I just got back from spending the Christmas holiday at Disney World in Florida with my wife and three kids. On the way down, we wondered what the crowds would be like considering what’s happening in the States. Based on what we witnessed, you would never guess there was a recession going on. Massive line-ups for everything. Souvenir stands jammed with eager shoppers. One hour waiting times to be seated in restaurants. Everything was quite alright in Mickey’s house. As long as these people (vacationers) are not racking up credit to do these types of things, I applaud them for putting their money in circulation.
The bailouts won’t help us if the citizens are scared to spend. When the people (middle class and upper middle class) start spending their money – is when we’re going to stimulate the economy. The top 20% of income earners can get the ball rolling.
As far as jobs go, Canada (namely Ontario) was already dealing with the realization that we needed to shift from a manufacturing society to a-something-else society! We started dealing with that dilemma when our dollar was recently worth more than the greenback.
Yes, we have some problems to deal with and the ensuing corrections will certainly be painful for more than a few. Market corrections are always ugly for those affected. However, the sky is not going to fall and the rest of us (that are not directly affected) should stop dwelling on the negatives. Instead, we should be living our lives and moving forward toward the better days that are to come.
I agree that things will get worse but don’t think we’ll get a depression. Today’s economists and politicians, unlike those in the 30’s, are less stubborn and better educated on how to avoid the ultimate disaster.
However, it looks like some people in BC already feel like they’re going through a depression:
“Because of the rise in house prices and the overall upswing in the economy over the past few years, Hannah said the vast majority of consumers were more focused on maintaining their lifestyle than reducing their debt.”
http://www.cbc.ca/canada/british-columbia/story/2009/01/04/bc-debt-counsellors-2009.html?ref=rss
I enjoy this Blog because it keeps us informed of the current events that are unfolding before us. Many who post are in denial of what is to come. Garth is keeping us bloggers in a “forward thinking” mode to keep us prepared. I don’t know about you but I saved a lot of money and fustration in knowing well ahead what to prepare for. It’s only Doom and Gloom for the trapped Bulls. The rest of us still have our freedom in Xurbia.
The sad truth is that there were many Marvene’s in Canada, which the real estate industry conveniently chose to never mention, the press ignored and the banks gleefully underwrote the over valued mortgages to book upfront profits.
The idea of a depression is naturally enough plain scary. Depressions as a rule, follow in the wake of periods of financial product innovation, excessive leverage and declining family incomes. One can hope Garth is all wrong, but all this financial recklessness will have a price tag attached and the conditions that lead to depressions are certainly all in place.
Marvene is but a very small footnote in the housing asset bubble, but this does underline a financial system that was rational, but no longer sane. I would love to know how and why this company was called Integrity Funding, the name ultimately proving to be a ridiculous oxymoron.
Prechter is so right on this one. Most people review previous recessions and speculate that this one will follow a similar path . The US is at record debt levels much worse than the depression of the 30’s. Just printing money and giving world wide investor absolutely nothing for their money is no monetary policy in my mind.
Tons of real stats point to a global correction of many many years. US housing still plunging, Case Shiller numbers.. ISM manufacturing data… lowest since 1980…Consumer confidence…. china manufacture sector contraction for 5th straight month. I really don’t know what info people need to be concerned about the next few years.
What will Obama do ? Not much considering what he has to work with…
Canadian real estate. You must realize that realtors are commissioned so there is no incentive for prices to drop.
They will say black is white if it means a sale. Sellers are still asking for the moon in Toronto and many are relisting in the spring in hopes of some rebound. Lower interest rates might help but I feel that as more bad info comes out this will spook people from buying anything never mind getting a mortgage at a low rate today that might go up a couple points in a few years. A house is a very long term investment and if you hold on long enough and buy at the right time with the right down payment and debt schedule you may survive.
Even if you draw a line between Garth and Prechter you will still have a very bad scenario for the majority of people save for those 60 plus who are sitting on a ton of wealth. Alot of 25 year olds are still living with their parents because the job market is so bleak.
I do agree with Vanc Renter # 12… you need to be born at the right time . If you are at the end of the boomer balloon and didn’t buy RE some 16 or so years ago you are basically cooked unless you have money now. There will be an interesting social outcome from this depression… an older group of 60 plus will have a ton of dough and no debt to worry about.
55 and under will have a much tougher time because their burden with kids, even older kids with expensive college tuitions ,and taxes and mortgages and leased vehicles not to mention no savings.
If you draw that line between Garth and Prechter I think you will have a very accurate view of what will be here for many years to come.
While you are waiting for Garth’s new book, pick up a copy of Jared Diamonds “Collapse, How Societies Choose to Fail or Succeed”. If you aren’t worried now, you will be before you finish the book.
#2
“As long as the appraiser is not directly or indirectly in conspiracy with lending institutions, right?”
What a stupid comment. Every profession has less than desirable people working in it, even yours, whatever that is. Most of us, as in yours I assume as well, do our jobs correctly and with integrity.
What you (and most people out there) don’t realize is that lenders rarely have appraisals done on properties anymore. That’s why mortgage insurers have become so large.
Not only is an appraisal a smart thing to determine values but it’s also good to have someone walk on site to confirm the home actually exists and the condition it is in.
Did you know that CMHC does not have appraisals done? How do you feel about your tax money guaranteeing mortgages with no third party confirmation? I think the last # is 70% of insured mortgages in Canada are CMHC (not verified).
I’d rather take my chance with an appraiser. Even if they are shady they have to hold liability insurance which covers any losses.
$10 dollar a barrel oil is a probable as the Toronto Maple Leafs or Ottawa Senators winning a Stanley Cup this year. Its almost as asinine as predicting that Vancouver will become the next financial capital of the milky way…
How is everyone’s grocery bill looking lately, probably the same as when oil was $125? What little relief that was provided to manufacturers via low fuel and energy costs is being used to shore up the bottom line. No savings to the consumer, yet…
One minute its “peak oil” (which the only worry is really refining capacity) the next is that oil is so invaluable that its going to go to less than ten cents a litre.
Coke costs approximately .25 a can if you buy the 24 fatso pack. That’s .75 a litre, with 116 litres in a barrel, a barrel of coke costs around $85.
With all these government “infrastructure programs” planned to boost the economy with money coming from thin air, good luck on massive deflation.
Governments benefit from inflation, the hidden tax, so I’ll put my money on those in government to do what it takes to cover their own asses; or deficits(pretty close to the word defecate).
Also last night on CTV Jim Flaherty was talking about the tax free savings account, and the first three areas he used, in order, as examples for reasons to “save” were for, single family homes, RESALE homes and CONDOS…
This guy just doesn’t get it, the banks can’t stuff anymore people into over priced homes, enough already!
Compared to other countries there is no incentive to save in Canada. Interest rates on savings are so low and are being driven lower.. And the current state of other investment options.. And also the value of the currency itself with bailouts being done with it.. I guess no option but to sit on cash.. When the system needs expenditure..
#4 kc:
Thanks for posting – I hadn’t heard about this. The letter by Mr. Knox is an excellent summary of the “big 3’s” issues and explains why so many people have refused to buy local for years.
Cheers,
vtj
Garth, what do you make of the following, it seems to contradict your forecast for housing in 2009
http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/gross-national-income-and-house-prices-and-in-canada-and-the-us.html
although housing is extremely unlikely to be a source of growth for the Canadian economy for 2009, it’s hard to see how it’s going to be a drag of a size comparable to what’s going on in the US. As I mentioned earlier, any prediction of a severe recession in Canada has to have a home-grown component: I don’t see how the housing sector is going to provide it.
It does not contradict it at all, since Canada is tracking the US experience, with a lag of about two years. Want to see what’s coming here? Look in the American rear view mirror. — Garth
Hi Garth, thanks for your response to my previous post.
Just finished reading the Greater Fool. It was a great read, and I encourage all to go buy it. It is still very much relevant, it reads as if it were written yesterday, and makes a great case for renting (especially in the current market conditions).
I especially liked the fact that you included a significant discussion on climate change, as well as posting some comments made on your blog (haha, be careful what you write here folks, Garth may just make you famous!).
I believe you have saved many individuals thousands of dollars, and regarding my circumstance as a ‘thinking to be a first time buyer’ you have definitely made me seriously consider what I would be getting into, and what type of place to look for, and to be prepared that there could very well be 5-15 years of stagnating real estate prices. My parents and friends still believe that real estate is a ‘great investment’ but the next few years are likely to prove otherwise.
In the late 1970s when the Dow was approximately 700 and Robert Prechter predicted it would go over 3,000, his views were seen as “extreme” then.
Funny clip on youtube from the trailer park boys, describes what is coming in terms of real estate.
WARNING, very liberal use of the word sh*t
http://www.youtube.com/watch?v=WAJjM4aRniE&feature=PlayList&p=8A56E2706C51B69B&playnext=1&index=6
Tony says “As far as jobs go, Canada (namely Ontario) was already dealing with the realization that we needed to shift from a manufacturing society to a-something-else society! ”
The last 30 years we have said goodbye to our factories (sent most of them to Asia) all thanks to NAFTA and globalization. Now what did we get in payment for our factory jobs?
1. cheap imported goods (i.e., junk)
2. an economy almost completely based on paper shuffling and burger flipping jobs
Was it worth it? Do you think we have a sustainable nation anymore? Any one with any sense will tell you that China and other factory-based nations will come out on top over us paper shufflers/burger flippers.
The world used to have developed nations and undeveloped nations. We’re now entering an era that may see nations like the United States or Canada become “dissolved nations” … countries that had it all and gave it all away. Ignorance is not a bliss.
Regarding the deflation and auto manufacturers…I was quite excited to see the 1/3 off calculations on Garth’s new purchase of a Jeep (Liberty?). In fact it got me looking for a similar deal. Looking around the same town that Garth resides…I couldn’t get much of a reception from Dodge dealers…either of them. So my questions:
1) Garth…can you tell us which dealership you worked with to get your deal…and I guess in the same breath “Can I quote you on it?”
2) Has anyone else had similar experiences to mine or Garth’s when shoping for vehicles?
Thanks!
Email me: [email protected]. — Garth
It’s about time the orgy of easy credit and false richness ends. We live in a society of entitlement rather then need. I’m finaly seeing the start of the unwind here in Calgary.
Garth, so by 2010 we should be in the same situation as the usa housing maket? if we lag 2 yrs behind
Far, FAR better to warn and err on the side of caution then on the side of “ah what the heck, they’ll fix it” carelessness.
So WHAT if the entire “future of the world” rides on the confidence of consumers and investors in the system… isn’t that exactly the quintessential definition of “con game”?
Pins and people don’t burst bubbles; greed coming home to roost in human nature and reality does.
If the system was sound, people would have confidence in it no matter what doomsayers predict.
There is absolutely no reason whatsoever for a shred of confidence in the fiat money system. This Ponzi scheme has reached terminal velocity and the black hole is very, VERY hungry.
Absolutely, Edmonton Appraiser
As an appraiser in the west coast, this is what has happened here as well. Probably 70 percent of home purchases and refinances are not appraised by an unbiased third party. Most CMHC mortgages are approved by a computer programme, developed by CMHC which is given to brokers and lenders to input the data. A case of conflict of interest? The programme can be easily manipulated to approve all most all of the applicants. Speed and not accuracy is the mantra. What ever you do, never let the applicant get out of their chair and go to another broker.
When appraisals were done away with, then this problem really escalated. There was no longer any limit to how the system could be manipulated – as no one was checking anymore.
#24, re: $10 a barrel oil being impossible.
Yep, that’s exactly what they said the last time around when OPEC and Big Oil jacked the price up to the stratosphere… remember gas lines? Getting gas on either odd or even days? Rationing? The political death of Jimmy Carter in the US? The late 70’s?
Yep, back then Hummers and SUV’s would NEVER exist and oil was never coming down again either.
Except… it did. WAY down. Which is what the Saudis and OPEC and Big Oil ALWAYS do when they finally realize they’ve gouged and obfuscated and not drilled for too long and North America is fed up and finally ready to look for new sources and politically, to get of foreign oil altogether.
So what do they do? They lower the price again. Just like what a GD drug pusher does when their best customer comes out of rehab… here comes the FREE stuff again to hook them again.
SO oil at $10 a barrel? A sure thing. Deja Vu, peak oil be damned.
Fool me once; shame on you. Fool me twice…
“It does not contradict it at all, since Canada is tracking the US experience, with a lag of about two years. Want to see what’s coming here? Look in the American rear view mirror”
So you think that Canadian housing prices are going to increase 20-30% faster than nominal incomes over the next couple of years to get those price-income ratios up to where they were in the US?
We exceeded them in 2008 in Toronto, Calgary, Edmonton, Vancouver. Kelowna and points inbetween. That was a smart ass question. — Garth
I would hate to see where we would be without the massive government bailouts.
I wonder if that guy on 60-minutes was right. That Alt-A’s and ARM’s worth 1.6 trillion that are going to start resetting in 2009 and that 70% of home owners will default on these?
Just returned from my Bank branch in Vancouver. The banker told me those who purchased homes off plan at serious risks.
If home values fall below the original purchase price before assuming the mortgage, the home buyer will need to plunk down the difference in order to qualify for the original pre approve mortgage.
Speculators who over leveraged and/or purchased multiple units are in deep trouble!
So, if I have the correct take on all of this we have allowed commission sales people with little or no regulation to provide financing to people who can’t pay. Then the financial institutions re bundle the crap and sell it to unsuspecting investors who think the investment is sound because it’s rated triple A. Now after this revelation someone actually thinks they can say ” trust me”, I think not. I have never been so convinced that this system is so broken that it will take a very long time for the fix.
#32 Tom of Milton
(And anyone else thinking of buying a car): Check out APA if you haven’t heard of it. (Automobile Protection Agency). It is a non-profit group who will find you the lowest price on a car in your area and give you the name of the dealer and person who will sell it at that price.
We used it a few years ago and got an amazing price on a Honda Civic. The membership is $70.00 and they will give you five price quotes. A number of my friends used this and also got great prices. I took the quoted price to my local Honda dealer to see if he would match the quoted price (so I wouldn’t have to drive out to Scarborough from Brampton) I remember he was so angry and said “What, you want a two thousand dollar discount!?” Another friend had a buddy who is an actual car dealer who couldn’t match the APA price either.
Definitely worth checking out….
http://www.apa.ca/template.asp?lang=english
#29 olives,
So Robert Prechter is right once … has this prediction held water since?
#33 Larry – Me too. I’m just starting to see the very beginnings of reality intruding in Calgary. This city is full of people who are very smart but not very wise. Wisdom is going to come with a large price tag and possibly brass knuckles…
#24 smwhite,
Totally agree on your Flaherty take.
One side of his mouth is saying “save” and the other side is pleading with banks to lend so that consumers can spend.
The guy actually believes this will keep the phony bubble afloat a few more minutes.
The piper has to be paid and sooner we have to own our mistakes and choose the more painful solutions over the stack of quick fix bandaids.
What’s next?
Banks legislated to increase all consumer overdraft and credit card limits to a bazillion dollars.
(lol) I’m sure that would get the drunken sailors (consumers) to sign on for another bogus voyage.
Joking aside…
Not many would want to take that ride all over again.
Consumers are maxed out. That’s the real issue.
There is no juice left to squeeze out.
Yet Flaherty is fixated in pumping more and more gas into a vehicle that has a seized engine.
Good luck with that Jimmy… and if you believe you have a “right” to manipulate the free market at least try looking under the damn hood.
We exceeded them in 2008 in Toronto, Calgary, Edmonton, Vancouver. Kelowna and points inbetween. That was a smart ass question.
I don’t know where you got those numbers, but that’s not what the Teranet-National Bank data – which uses the same methodology as the Case-Shiller indices – say.
If you’re not willing to predict that housing prices will increase by 30-40% or so in the next two years, I don’t know how you can predict a US-style catastrophe for Canada.
Tried to sell your house lately? — Garth
Popping Bubbles
As much as you identify with the American market I don’t.
Yes, real estate is overvalued anyone in their right mind could figure that out back in 2006.
But I just can’t see the same blood loss that the Americans are taking. Until you can show the banks in Canada giving out Ninja loans and collapsing of our major banks and Madoffs coming out of the woodwork you are out in outer space. Yeah…..you can see the big picture but you can’t see the fundamentals. If you buy into this fear mongering and some rejoicing in the decline. Well have a good time.
I don’t see any of it. I see that anyone who bought in 2006 will be waiting along time to see value again in their home. That’s happened many times before.
Cheers and enjoy the fear ……..the media has you captured.
Life is good………if you don’t live in Miami.
@32:
Used luxury cars are taking a beating as well. There are a ton of BMW 750Li uber-sedans across Canada that have come back after 24-month leases. Lease-backs go into auction pools when they are returned. These monsters were upward of $125k new in the fall of 2006. They are now going at auction for as low as $37k (working ADESA credentials are required to get into the not-for-public-consumption websites).
Bottom line: There are deals to be had in every market segment but it may take some time to uncover and leverage system inefficiencies to your advantage.
Amen, Garth. AMEN. I called this six years ago, when I started seeing all these half-million dollar homes going up and people spending more than my parents earned in their entire lifetimes. It’s absolutely astounding how we’ve reached this point, and why the sam hell nobody saw this coming remains a great mystery to me.
Just today I noticed something curious. Three homes in a ritzy subdivision not too far from here went up for sale. There was a moving van in the driveway of one of the homes, and a police cruiser parked on the curb. Foreclosure or just a co-incidence? You decide. I have to laugh at our elected officials who keep telling us to “spend” our way out of this recession. Oh Sure. How the hell can you spend money you don’t have? Credit? Bingo. There’s your answer. Except that nobody will qualify.
I predict a major event in 2009 that is going to bring people to their knees. 2008 merely set the stage for what’s to come. We enter the second act this year. And you ain’t gonna gonna like what the sequel to this nightmare is…
Thanks Garth for being one of the brave few who wasn’t fooled or deceived by the wild bash of the last decade. The party is OVER. There’s an old saying that a society reaps what it sows. When people finally start waking up and realize that the money they’re holding is nothing but worthless paper backed up with nothing, then the you-know-what is really going to hit the fan. Our entire banking system, in its present form, is nothing short of illegal. Enjoy the ride down, folks. It’s been great!
Just returned from my Bank branch in Vancouver. The banker told me those who purchased homes off plan at serious risks.
If home values fall below the original purchase price before assuming the mortgage, the home buyer will need to plunk down the difference in order to qualify for the original pre approve mortgage.
Speculators who over leveraged and/or purchased multiple units are in deep trouble!
****************************************
I work for one of the main banks in mortgages and you are mistaken my friend. Once a client has a mortgage final approval ( builder mortgage commitment) there is no re-appraisal prior to funding. We use the value as of the date of the approval. Some of these are valid up to 3 years.
currency thoughts
The governor of Kuwait’s central bank, Sheik Salem Abdul-Aziz al-Saud al-Sabah, said today that monetary officials of Persian Gulf states will meet in Abu Dhabi to discuss a common exchange rate. The meeting will bring together central bank governors and directors of monetary authorities in the six-nation Gulf Cooperation Council. Member nations in the group are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
$61,000 The cost of insuring $10 million in U.S. Treasury’s against default for five years. At the beginning of 2008, this cost was $6,000.
#10 Derrin on 01.05.09 at 12:55 am
So you think there are no ninja type loans in Canada. Well I think you need to do a bit more research.
How about those unscrupulous mortgage brokers who arranged mortgages for non-credit worthy Canadians by giving the banks false/doctored credit information in return for a cut of the proceeds?
Ask around the broker community and you will hear the stories. My prediction is this will become the next big twist in Canadian RE and mortgage scam saga.
“”2009 could be a year of trade wars and protectionism.””
http://clusterstock.alleyinsider.com/2009/1/desperate-china-to-flood-the-world-with-even-cheaper-goods
…as predicted in my previous posts…
Tried to sell your house lately?
*Sigh*.
Okay, whatever. People also pay real money for Harlequin romances, so they might as well give it to you.
If you want to believe a chart done by a bank that lends mortgages instead of stepping outside, be my guest. You might also want to crunch these numbers, prof. — Garth
PROHIX of Doom – Just returned from my Bank branch in Vancouver. The banker told me those who purchased homes off plan at serious risks.
If home values fall below the original purchase price before assuming the mortgage, the home buyer will need to plunk down the difference in order to qualify for the original pre approve mortgage.
Speculators who over leveraged and/or purchased multiple units are in deep trouble!
****************************************
fesnaris – “I work for one of the main banks in mortgages and you are mistaken my friend. Once a client has a mortgage final approval ( builder mortgage commitment) there is no re-appraisal prior to funding. We use the value as of the date of the approval. Some of these are valid up to 3 years.”
This is what the TD Mortgage person said to me. Either the Banker is misinformed or I ‘misunderstood the details.
Can some else please confirm the facts as I’m curious.
Thank you.
#46 Stephen Gordon,
Price in calgary….
Prices for my house hit $380k in early 2007. I sold in mid 2008. Now the same type of house in the same hood is being listed at $319k. Listed …. I bet if the seller gets $300k they will take it.
So $80k is about 21% decease in price.
I pitty the fools that bought in 2007 to 2008.
BUCK
I could have a lot of fun with your tag but I won’t.
Thanks but your post is related to fraud and that would be Madoff.
Fraud always exists and lenders know this and it is built into the lending equation.
I was in commercial finance. I am well aware of how it works.
Still show me a NINJA loan? Sorry, but you can’t. Didn’t happen in Canada.
Nice try though!
Life is good.
PROHIX of Doom – Just returned from my Bank branch in Vancouver. The banker told me those who purchased homes off plan at serious risks.
If home values fall below the original purchase price before assuming the mortgage, the home buyer will need to plunk down the difference in order to qualify for the original pre approve mortgage.
Speculators who over leveraged and/or purchased multiple units are in deep trouble!
****************************************
fesnaris – “I work for one of the main banks in mortgages and you are mistaken my friend. Once a client has a mortgage final approval ( builder mortgage commitment) there is no re-appraisal prior to funding. We use the value as of the date of the approval. Some of these are valid up to 3 years.”
This is what the TD Mortgage person said to me. Either the Banker is misinformed or I misunderstood the details.
Can some else please confirm the facts as I’m curious.
I put myself in the banker shoes, if buyer purchased a 400k home with 25% down and get’s pre-approved for a $300k mortgage and then 3 years later when the condo is complete and the value of home drops to $250K. Why would the bank provide the loan if there is negative equity? There is not even a cent to back the loan unless of course the buyer recapitalizes and adds 50K.
Thank you.
Tony writes: “As far as jobs go, Canada (namely Ontario) was already dealing with the realization that we needed to shift from a manufacturing society to a-something-else society! We started dealing with that dilemma when our dollar was recently worth more than the greenback.”
Ontario has been moving away from manufacturing for a long time now. Ontario just kept the cream of the crop in the manufacturing world: automotive and aerospace. We hung on longer than our US counterparts did because of the lower dollar, but even then, we can’t compete with China forever. However the service sector in Toronto is massive and makes up the largest percentage of GDP (80%) or so.
905er & Spouse writes: “Check out APA if you haven’t heard of it. (Automobile Protection Agency). It is a non-profit group who will find you the lowest price on a car in your area and give you the name of the dealer and person who will sell it at that price.”
I used CarCostCanada and it told me that at the time, the 2006 Civic only had a dealer markup of $1,300. Maybe in this market they would budge, but back then the new civic was just released. I got him to throw in some options like tinted windows, floor mats and a trunk liner. Stuff that was worth something to me that didn’t cost the dealer his profit.
However my parents used CarCostCanada’s bidding service -where dealers bid for the lowest price. They got a great price from Erin Mills Toyota on a 4-runner. When they went to the dealership to get the vehicle, the sales guy treated them like crap, and said to them “let’s go outside and see some used cars that are in your budget instead”. He said they wouldn’t sell them the car that they had succesfully bid on. They felt completely degraded. It looks as if some dealerships use the bidding service , such as this Toyota dealerships, unethically in order to prevent their further use.
“Canada isn’t America. Yes, we are being brought down to a degree by the Americans need for greed but this is not America. Can we understand that Canadians?” — Derrin *** Well, if there is one thing that I have learned these last few years of dealing with Canadians, its the assumption that Canadians feel they are so much better, so much more refined, so much more cultured, and just plain better in every way then stinking, greedy, fat, warmongering American swine. Terribly convienient, if you ask me, because it allows Canadians to behave in ways that would put the average American to shame. Spend a few weeks in Calgary (circa 2005 of course) and that paradigm will be demonstrated in bright, vivid colors. In the end, its the (assumed) “Moral High Ground” that begets the greatest of falls. I have seen the enemy, and he is… American?!
#53 real estate expert
…as predicted in my previous posts…
You weren’t the only one…….
http://www.vancouversun.com/Homes/Real+estate+sales+dropped+cent/1144386/story.html
#38 Stephen Gordon,
Garth never predicted 30-40 % uncrease in home prices in the next 2 years. House prices have practically doubled in 5 years while incomes have increased maybe 4 % / year adjusted for inflation at best.
Cost of living vs income is severely skewed. Toronto and Calgary earnes higher incomes while Vancouver housing prices far exceeds both.
If you check with a realtor he can show you sold prices from 2007 and 2008 nov and you decide whether prices are going up or down. You don’t need Garth to tell you.
It’s just a matter of how far down it will go and how long it will take. I hope you didn’t over leverage yourself
appraisers are experts at the math formula called averaging, and they can estimate construction costs,
lot value plus replacement cost of structure (in ont 180-230 per sq ft is what a builder would charge)
it’s hard to put a value on a subdivision lot because they are generally worthless.
mpac in ont should be abolished. years ago i bought a shitbox for $207,000. two months after closing the new assessment comes in the mail at 218,000. i call the office and told the guy “i just paid 207! and that was too much, please come to the house and see for yourself” he refused, and after arguing with him he reduced it to 210,000- over the phone! he said that was my only option other than a formal appeals process. can you believe it?- an appraiser that refused a site visit!
this year there will be thousands of appeals of mpac appraisals, i think they took values at the absolute top of the market.
” if my house is worth what you say, cut me a cheque and i’ll sell it to the province of ontario!”
Want a ninja loan in Canada?
I know of one major bank that has a special program to ‘self employed’ individuals. Up to 65% loan to value with no supporting income documents required. You would need a NOA to show no taxes owing but that’s it.
Pretty easy to open a sole proprietorship and take some money from your home based on this.
Ninja = no income no job.
Lots and lots and lots of mortgages out there with ugly TDS/GDS ratios that were approved on an exception basis. Even some juicy ones on 40yr and 105% financing (once you factor in the CMHC/Genworth financing.)
put myself in the banker shoes, if buyer purchased a 400k home with 25% down and get’s pre-approved for a $300k mortgage and then 3 years later when the condo is complete and the value of home drops to $250K. Why would the bank provide the loan if there is negative equity? There is not even a cent to back the loan unless of course the buyer recapitalizes and adds 50K.
***************************************
My answer is directly form the underwriting department and I restate that the financing will still go through. Only a few of the main banks offer builder financing. The risk is assumed based on the day the mortgage is approved even though it may not fund (close) for another 2 years. As long as all approval conditions are met and the deal is final approved the deal will fund based on approved values (today).
Just got off the phone with a Vancouver realtor friend. Sales down to 7% of listings compared to last 2 years at nearly 70%. Looks like the “rats” are jumping ship, he predicts realtor workforce will shrink 50% within the next 2 years. Guess the gold rush is over, time to get a real job. Such as?
#27 Job, #38 Stephen Gordon…
I’ve often wondered. A while back I realised the RBC actually published these figures. So here you go. Percentage of household income taken up by ownership cost is well over 60% in Vancouver, toronto, Calgary, Edmonton…..
Here is the link: http://www.rbc.com/economics/market/pdf/house.pdf
Homes are already priced 20-30% above nominal income. You do the math.
However according to RBC, there is nothing to panic about. (wink* wink*)
Glenn
If you read my posts………. moral high ground is not the point.
American or Canadian or whatever your nationality. My reference is to the deregulation and do what you want to make a buck free wheeling market system that
exist(ed) in America. You watch this will be reigned in by the democrats to a degree.
This isn’t about Calgarians behavior after a hockey game.
My posts are about the fundamentals and please show me a NINJA loan.
Banks approve mortgages via their credit department via their underwriters………..NOT mortgage brokers.
Canadians vs Americans sorry I am not interested in the debate. Small people discuss small things.
That’s why they gave them TV shows like The Canadian Idol.
Life is good…….if you don’t live in Miami
a have always found to be a waste of time disagreeing on a blog..much easier to post a link
The i deserve™ mortgage, the first of its kind in Canada, allows clients to purchase a home without having to state their earnings. The only information to be provided is the applicant’s place of employment and field of work, which will be verified. The approved loan amount is based on the applicant’s credit rating and whether employment to service the debt is reasonable.
http://www.mortgageintelligence.ca/news_ektid271.aspx
of course we had no income no job or assets NINGA mortgages..verifying the information was optional for fraudsters
Squidly 77
What’s your point?
That cut and paste that you put up at #70 shows that you need a source of income.
And verifying is not optional ………if you want to keep your job in the credit department.
Dream on spin doctor.
Tony said “am I just got back from spending the Christmas holiday at Disney World in Florida with my wife and three kids.” “Based on what we witnessed, you would never guess there was a recession going on.”
Ya your right. It felt like a Depression as I was also their for the holiday and I was amazed how light the crowds was compared to the last time I went three years ago. That is the only good thing about this current recession/depression is the fact you can go out and much much less people will be there. Tony you can put out propaganda the everything is great and the economy is ok but the reality is much different.
#12 Vancouver_Renter on 01.05.09 at 5:39 am
===========
Good post, I agree 100%
#57 Derrin
No NINJA loans in Canada? Are you joking? I have family that works in banking as well as a few buddies of mine that used to be mortgage brokers. There are a slew of mortgages available through the likes of GMAC/Genworth that cater to that crowd such as the:
Self employed mortgage, the new immigrant mortgage, im sure there are bunch more that I am forgeting.
I work with a bunch of folks who in the last two years all brought houses in the 300K plus price range on yearly salaries of 35-45K, no $ down and a 40 year ammort. these folks even had to borrow to cover their closing costs. This is not uncommon, when the economy slows, these people will be forced to sell and will be wiped out
Hey all,
I worked for a builder at one time. He helped me get into one of the homes he built by signing a letter saying that I made $25/hour. I wasn’t making that, but he assured me that it was more of a projection of future income. He had his own banker that made things happen. He actually got a lot of guys to purchase his homes by playing with the numbers. He was also able to somehow give us a cut on the lots and make it look like a down payment. I can’t remember exactly how it worked. It worked though.
This other banker guy I know started buying properties in 2003 in southern Alberta. He would qualify for a mortgage and purchase a home only to let his buddy (business partner) assume the mortgage shortly after. He would then buy another property and his buddy would assume it (they got up to 10 or something). They placed renters in the properties and on and on it went. Guaranteed he was abusing the system he knew all to well.
One other thing that really annoyed me in 2007… My wife and I had just sold our house and were looking for a more affordable townhome. The realtor who represented the builder for a large project showed me around the six or so units that were still available. He told me that the price would be going up and suggested that I make my move. I later found out that he actually owned 3 of the six units, and his realtor sister owned the others. The actual builder didn’t even have any more for sale. The realtors were asking $30,000 more/unit…..annoying. Despite the 30K jump, we did take the plunge. In the spring of 2008 we had to sell due to a career change. When all was said and done, we were able to walk away only about a $1000 dollars or so in the hole. We paid our realtor $13000 for his few hours of service, and advertising. How do those guys sleep at night?
Ok, my ranting is over for the night. Greed definitely took over the system these last few years. I got caught up in it as well. Most of us can share some of the blame…….shady realtors and bankers deserve a lot of it though.
#47 Derrin:
“As much as you identify with the American market I don’t.†An interesting comment since I specifically go out of my way to provide CANADIAN data.
“Yes, real estate is overvalued anyone in their right mind could figure that out back in 2006.†Sadly the CMHC clearly must not have been in their right mind as this was when the geniuses decided to pour gasoline on the fire by offering to insure 0% down and 40% year amortization mortgages. And sadly we had shocking take-up of these Canadian subprimes mortgages, resulting in both record real estate prices relative to both incomes and rents, as well as record sales. Clearly the general public wasn’t in their right mind either and there is always a price to pay for collective insanity. The U.S. is paying theirs, and unfortunately now it is Canada’s turn. The price won’t be the same, but it will still be substantial.
“But I just can’t see the same blood loss that the Americans are taking.†Where did I say that we have the same problem as the U.S. or that the busting of our housing bubble would be as bad as in the U.S.? As a matter of fact, I explicitly said just the opposite. The U.S. market will experience peak to trough housing declines of roughly 50%, whereas in Canada it’ll be closer to 30%. Keep in mind that the 30% loss on the largest investment most families will ever make (a levered one at that!) is enough to wipe out the savings of most families.
“I don’t see any of it.†Finally something we can agree on – your poor eyesight! No popping of the debt-fueled global asset bubbles? No loss of $30Trillion of global stock wealth in 2008 (not to mention even larger aggregate global losses from housing, commercial real estate, debt holdings, derivates and the like)? No massive issues with our primary trading partner, which consumes over 70% of our exports? No impact from years of overbuilding in Canada? No impact from the deflating of the Canadian real estate and commodity bubbles? No impact from Canadian banks significantly tightening their lending standards? No impact from unemployment increases which have been proportionately larger than in the U.S. and which are far from peaking (particularly given our commodity, manufacturing, construction and financial services fueled economy)? And of course the fact that all of this is happening while Canadian consumer indebtedness is at record levels is minutiae on which your poor eyes can’t quite focus.
“If you buy into this fear mongering and some rejoicing in the decline. Well have a good time.†Admittedly I’m looking forward to more reasonable real estate prices and to useless real estate agents having to work for a living after shameless pumping the market for the past handful of years. Other than that I take no joy at all in the downturn. But I also take no joy in imbeciles peddling fantasies (Real estate prices only go up. If you couldn’t afford that house the bank wouldn’t have approved you for such a large mortgage. The Canadian economy is decoupled from the U.S. Canada has oil and commodities! Buy now, pay later. Life is good………if you don’t live in Miami.). I’ll take realism and an informed outlook over blind optimism and self congratulations any day.
â€Until you can show … you are out in outer space†Sadly my feet are firmly grounded in the reality of the situation while you toss around insults and reveal in your ignorance…. cheap and totally useless.
â€Cheers and enjoy the fear ……..the media has you captured.†How is it that the media has me scared when I was one of those warning about the coming pain well before the mainstream media? I cite analyst and industry reports, not the media. I provide DATA whereas you yammer stupidly that “Life is good… If you don’t live in Miami.†You’re operating from a vacuous position, while I’ve been able to educate and protect myself well before there was any reporting in the mainstream media of the pending real estate and equities dangers ahead of us. I’m sure you’ll be relieved to hear that I lose not a wink of sleep at night.
As Vacant Office Space Grows, So Does Lenders’ Crisis
http://www.nytimes.com/2009/01/05/business/05real.html
Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders.
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next stop will be the collapse in the commercial real estate market.
#64
Yes, the latest (2008) MPAC assessments are supposed to be the assessed value of your home as of January 1, 2008. The Peak? Maybe not the highest peak, but darn close.
I got my assessment and it was over 45K more than I paid for it 4 months after Jan 1. I requested a reassessment and they reduced it by about 45K. Still not what I think it would have been worth in January, but better than 45K more. Odd thing is that they over assessed a lot of the homes in my neighborhood. Many of us were adjusted downwards by over 10%.
If you don’t agree with your assessment, file for a reassessment request.
I still think the government should intervene here somehow. We’re going to be paying taxes based on assessments for the next 4 years on values that are already out of whack.
Things go up, things go down.
Nothing stays the same.
If you live in a house that has lost some or even all of its equity, you still have a place to live.
We used to call it a home, back before someone decided that it would be a good idea to turn your home into an ‘investment’.
We live in our house, and, like most people, we dont really care what its worth.
Condos arent homes, they are air spaces in the sky.
If there is less money around, there will still be enough for food. There will still be people doing things, and eventually, the world will forget this ‘recession’ fear-mongering and return to life.
911 – gone and hopefully forgotten.
War on drugs – what ever happened to that?
War on terror – whatever happened to that?
Global warming – not so interesting now…..not so real, is it?
Its just another piece of nonsense, because humans just carry on living and enjoying life.
Lots of whiners here, especially the ones who yap on about Baby Boomers and Generation Whatever. Get on with your lives and quit moaning.
Recession disaster? I dont think so – just work hard and stop spending money on crap like 52″ TV’s and maybe you will be fine.
Try saving – ‘I cant save because interest rates are too low’ – actually saving isnt about the rates of interest, its simply about putting money away and gradually watching it grow to a larger amount.
Interest? Thats just a bonus, if you get any. Its NOT necessary to the act of savings.
Most of all, stop believing that Bank Managers and politicians and CEO’s of companies are ‘clever’ or ‘smart’.
They are NOT. Just another bunch of unprincipled liars, like the salesmen in Future Shop, who will say anything to get a sale.
Turn off your TV, throw away your newspaper. They dont tell the truth.
I don’t know if you would call this a ninja loan or not.
I was called in to appraise a home for refinancing purposes by a mortgage broker who specialises in equity lending. I met the owner who was a university student . He did not have a job, but collected rents for the rooms in the house as his income.
So, would this be a ninja?
Want to see something funny. This is published in 2002…
Check out Chart #5 (Soundness of Banks).
http://www.fin.gc.ca/toc/2002/bank_-eng.asp
Looks like 2 of the top 4 “Sound” banks are faltering…. Hmmm….. Give it time. :)
There has yet to be a real estate bubble based on fundamentals. The shysters from the real estate and brokerage industry did not walk around wearing sandwich boards declaring the industry as fundamentally rotten, ethically challenged and devoid of prudent underwriting standards. The coming crash in housing will finally expose the unpleasant truths of the housing bubble in Canada.
When house prices were increasing at rates of 20% annually and family incomes were flat lining few bothered to question or notice that the bubble was being inflated by increased mortgage debt loads that are now proving to be unsustainable financially and in a declining market at risk of default or the negative equity trap. The future housing market will pretty much offer sellers the Hobson’s Choice of take it or leave it offers that are quite unattractive.
newsflash….. just released today in the vancouver sun paper….
“Real estate sales slide 35 per cent in ’08”
By Derrick Penner, Vancouver SunJanuary 5, 2009 10:04 PM
… “The so-called benchmark price for a typical home within Metro Vancouver fell by almost 15 per cent from its peak, hitting $484,211 in December, down from $568,411 in May.”
full article…. http://www.vancouversun.com/business/Real+estate+sales+dropped+cent/1144386/story.html
and to add insult to injury….. “Canadian housing market ‘totally different’ from U.S., say builders”
damage controll ??? “”The housing situation in Canada is totally different from that of the U.S.,” it said. “There will be some price moderation in some markets, but there is nothing to suggest that housing markets in Canada are vulnerable to the oversupplies and plunging prices that characterize many markets in the U.S.””
full article… http://www.vancouversun.com/business/Canadian+housing+market+totally+different+from+builders/1144397/story.html
MSM must be off the take in RE dollars…..
Derrin reminds me of the old joke about the Wall Street broker who jumps out of his 19th-floor window after the market crashes. As he passes the 11th floor, he thinks to himself, “Hey, this isn’t so bad after all.”
Not sure what your agenda is, Derrin, but your seeds are falling on rocky ground.
@O’really: a “real” job is any job where one person is willing to pay another person to perform a task. Therefore, being a realtor or appraiser or mortgage broker or banker is a real job. Care to state what you do for a living? Then we can all decide whether it’s real or not. Moralistic whiner.
squidly77 “The i deserveâ„¢ mortgage”
LOL! What a name for a mortgage. Now the bank should have said to the client “Why do YOU think you deserve it?” when you don’t show us how much you make or owe currently. Bank greed at its finest.
This mornings breaking manufacturing news:
Toyota announced Tuesday it will idle all 12 of its wholly owned factories in Japan for an extra 11 days in response to the slumping
Chrysler shut virtually all its manufacturing capacity in North America on Dec. 19, idling 29 plants for a month. Chrysler sales down an industry-worst 53 percent in December
Ford sales slumped 32 percent in December, while GM was down 31 percent. Toyota was off 37 percent, Honda was down 35 percent and Nissan fell 30 percent. Subaru was down 8 percent in December
In December, GM decided to idle 20 plants temporarily, resting 30 percent of its capacity in the first quarter, and Ford took down 10 plants for a brief period.
Mike
Just browsing around on Realtor.ca and comparing prices to the city of Calgary’s assessment and came across this listing:
http://www.realtor.ca/propertyDetails.aspx?propertyId=7730789
Note at the bottom of the listing: “The seller is willing to let the mortgage be assumed.”
It’s starting here in Calgary where people are wanting to walk away from their house. (Just barely starting)
Ouch! BC Fraser Valley RE stats are out!!!!
http://www.fvreb.bc.ca/statistics/Package%20200812.pdf
Look at page 14 on the chart:
Annual Sales, New Listings, Average Price; All Property Types; Fraser Valley
Highest amount of listing since 1990 folks!
Does that top of the Average Price Line look like the peak of Whistler Mountain!
Snow boarding anyone??
an equity loan in canada with 35% down is not the same as a ninja loan. ninja loans in usa went to dead beats with no money. an equity loan is safe for the lender because the buyer is unlikely to walk from such a large equity stake.
im still in florida and all hotel rates and occupancies are down from feb 08, unfortunately our dollar is too
You sould like a good Canadian calling those who got zero-down loans, “deadbeats.” Got news for you, pal. We did it too. Still are. For example, how about this loan from CIBC, the “self-recognition” mortgage: “Approval is based on your self-declared income, strong equity and excellent personal credit history. Best of all, you don’t need to prove your income. If you’re self-employed, and you have 25% equity (or 5% equity for a high-ratio mortgage), this mortgage can provide an ideal solution for your home financing needs.” That is, self-employed, no proof of earnings and just 5% down and — bingo — you qualify. Is this not why we have a problem? — Garth
#72 Dave:
“Ya your right. It felt like a Depression as I was also their for the holiday and I was amazed how light the crowds was compared to the last time I went three years ago. That is the only good thing about this current recession/depression is the fact you can go out and much much less people will be there. Tony you can put out propaganda the everything is great and the economy is ok but the reality is much different.”
_____________________________________________
I’m certainly not putting out “propaganda” that the economy is OK. I was shocked at the huge number of people we saw there. If you say that Disney World was much more crowded three years ago, I’m sure you’re right about that since you were there. This was our first time there, so I can only go based on what I saw first hand. It’s hard to believe that it was like a depression there though, as there were many instances where we didn’t even have a place to stand for a minute to look at our park guide. I certainly would like to have a business that does that well during it’s slow periods.
#84 islander on 01.06.09 at 2:23 am
@O’really: a “real†job is any job where one person is willing to pay another person to perform a task. Therefore, being a realtor or appraiser or mortgage broker or banker is a real job. Care to state what you do for a living? Then we can all decide whether it’s real or not. Moralistic whiner.
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Actually for once Realturd, I agree with you. A “real” job is when others are willing to pay for ones services; hitman, pimp, pusher, hoe, realturd……..it really is all the same.
From the link in #87:
“Prices could not have continued to increase at the pace they were over the past six years,†says Kelvin Neufeld, President of the Fraser
Valley Real Estate Board. “The change in the real estate cycle has created tremendous opportunities for consumers right now and
they’re starting to recognize that fact.”
——————————
imagine the president 1 year ago saying “we don’t anticipate prices to continue going up”…he waits until after the fact!!
Also regarding the link in #87,
I like how they summarize the 2008 real estate market in one word: “change”.
Imagine they had chosen the correct word, something like “crapped-the-bed” or “fell-off-a-cliff” or “wouldn’t-touch-it-with-a-ten-foot-pole”.
Keep pulling the wool over the eyes…
In the early 60s a young man moved his family back to Vancouver. He and his wife a bought a piece of land in North Van, cleared the lot and built a 3 bedroom house in which they raised 3 kids. The land and the house cost about $42,000.00 to buy and build. His annual earnings back then were about $42,000.00 per year. Last year the taxman assessed the house and property at $1.2 million ($300k for the house, $900K for the property). The point of the story is that in the 60s it took the equivalent of one years wages to house a family. Today it takes 10 years or more. Something has to give … and it is!
What a joke!! When our the RE proffesionals going to come clean with us!! Lets be serious are they actually going to come out and say a crash is inevitable?? Probably not!!
http://edmonton.ctv.ca/servlet/an/local/CTVNews/20090106/edm_realestate_090106/20090106/?hub=EdmontonHome
#61 Glenn said:
“I have seen the enemy, and he is… American?!”
The Americans aren’t the enemy of Canada and Canadians Glenn… their government ABSOLUTELY is. As is the enemy of Americans as well as the enemy of the entire rest of the planet. Americans are ignorant unknowing (for the most part) victims duped by fake democracy and complacency.
And I can say that, as I AM American, soon to be Canadian. Because the Canadian Government, such as it is, can NEVER be the war profiteering corporate fascist disaster that will be the US Government from now until destruction from without and/or revolution from within.
Ways that Canada has resisted American biological, political, and economic “arm-twisting” DESPITE Harper have firmly convinced me of this.
#93 K-town Cowboy:
“In the early 60s a young man moved his family back to Vancouver. He and his wife a bought a piece of land in North Van, cleared the lot and built a 3 bedroom house in which they raised 3 kids. The land and the house cost about $42,000.00 to buy and build. His annual earnings back then were about $42,000.00 per year. Last year the taxman assessed the house and property at $1.2 million ($300k for the house, $900K for the property). The point of the story is that in the 60s it took the equivalent of one years wages to house a family. Today it takes 10 years or more. Something has to give … and it is!”
Bad example or you’ve made an error in your figures. An income of $42,000 back in the 60’s was A LOT and no where near average (to give you an idea, the average salary in the 60’s was about $5000 in the US – couldn’t find Canadian figures, but it can’t be that different).
If you want to believe a chart done by a bank that lends mortgages instead of stepping outside, be my guest.
Hahahahaha!!!
Because whatever some guy with a book to sell has to say is of course much more credible.
Just how do you get on this gravy train, anyway?
Do something useful like comment on the last link I provided. You are embarrassing yourself. — Garth
What comment can I make? No data source, no methodology, nothing. He could be pulling those numbers from his butt for all we can tell.
Full marks for the purple graphs though. And the purple prose.
Your email tells me you are an economics professor. What a waste. — Garth
Okay, so here’s the thing. If you want to claim that we’ve already hit the housing market peak, you have to back away from any sort of comparison with the US: the price-income ratios simply haven’t gotten out of whack as they did there. Nor is there any indication that foreclosure rates will get anywhere near what they are in the US, for reasons we all understand (right?):
– Mortgages are non-recourse in the US, but banks can and will go after Canadians who walk away from their houses.
– Mortgage interest payments are deductible in the US, so the very last debt US homeowners would pay off is the mortgage. The reverse is tru up here.
Etc. If the peak occurred a year ago, then it’s a short ride down. If you want to predict a US-style crash, you also have to predict a significant increase in housing prices over the next year or two, along with increasing interest rates (why would that happen?) and perhaps some other crisis.
Your email tells me you are an economics professor. What a waste.
Hey, someone has to do your homework.
Thanks 905er & Spouse
and Thanks Johnathan.
I’ve got to admit…unless a dealership is willing to talk about a deal that looks a bit more like the deal Garth received (See “It’s Here” from links on top right)…I don’t think I’ll bite. I’m talking price with a local dealer and they are niggling over $250 gas cards and other “Service Benefits” of buying from them…It makes me chuckle.
It looks like I’m going to have to travel to get a good deal…but even those guys are saying things like “well we have to look at the new factory incentives…” which sounds like they are preparing me for not getting as good a deal as Garth. *snicker* But you’d think the incentives would be better now. If not…I can wait.
Tom
I know nobody is going to read this ……..but anyway.
Can anyone say EQUIFAX. Yes, say it three times quickly.
Have you seen a credit report?
It shows what you owe. % of credit utilization
It doesn’t give high credit scores to those that abuse the system.
Garth’s divorced drug addicted NINJA loan lady would not qualify for a mortgage in Canada. Neither would many of the others that rec’d financing in “The Made in the USA” real estate meltdown.
Like I said with my first post “The Great Leap Forward”
Taking information from the USA dilemna and making a huge leap. Huge!
Cheers,
Obviously Real Estate is overvalued in certain markets.
But it’s not the same as the USA.
Islander
Your comment is funny …….but so is the fact that your joke references another great exageration. There were very few bankers that jumped out of windows after the crash.
Cheers,
This reminds of the saying that “Everyone wants to go to heaven, no one wants to die to get there”.
If posters on this site can predict the future as they claim (price of gold, oil, housing, toothpicks) and are so sure of it, they should be wealthy beyond their wildest dreams. Take your pet, gun and beef jerky and head for the hills.