The trap

reduced1

A month ago I needed a plumber in the worst way. Got one in a day. Then I needed a drain guy desperately. That took a week. The furnace guy took two.

Made a point of asking them all, while they were working, what the local economy was like. The answer was consistent. From Christmas to March, a depression. No phone calls. No income. And then, it popped.

This is the nature of work, often unpredictable, mostly out of personal control, even for a self-employed tradesman. So, imagine you’re a paint shop supervisor on payroll at an auto parts plant. Or an architect working for the company designing a landmark condo that’s just been cancelled. Or an Air Canada pilot, a press operator at the National Post, business editor of the Toronto Sun or a reporter at CHCH television news in Hamilton.

You may have had twenty years of faithful, productive and responsible service. Tough. One morning, no place to go. No employment income. And unlike the plumber or the drain guy, your work is dependent on an entire corporation feeling positive and profitable – not a handful of homeowners deciding to repair or renovate.

This is why a lot of jobs now being lost will not come back for a long time. Many, never.  It’s why employment is a lagging indicator, telling you where the economy’s been rather than where it’s headed.

Last month Canada lost another 63,000 jobs, most of them full-time. In fact, if you strip out the McJobs, there were 80,000 salaried, year-round positions gone. Over the last quarter, we have seen almost 400,000 jobs vanish from Canada, the bulk of them in manufacturing but with more now coming from the service sector. This is a far worse situation, on a per capita basis, than in the States.

In Canada, however, the feds started spending stimulus dollars just 11 days ago. In the US, they’ve been shovelling money out the door for six months. In Canada we have a handful of weeks of EI to give workers, then nothing but welfare. In the States, there is now mortgage assistance, social assistance, unemployment benefits and food stamps. However, we have universal medical coverage, while 15.4% of Americans have none.

Most economists agree that during a recession job losses in a branch plant economy (like ours) are always worse than in the mother economy (US). In this recession, it’s magnified as commodity prices drop. With oil down 70% from its peak, with lumber prices on the skid, jobs are now being erased in BC and Alberta as fast as in the Central Ontario rust belt.

So, what now? Even if your job is secure (fat chance), how does all this affect us? We’ve been shedding work at a hell of a clip and, even more significant, at least half of those still working are fearful. The national savings rate is zero. Most people under the age of 40 have nothing stashed for retirement, and 70% of Canadians have no corporate pension plan. In other words, the vast majority of the population live hand-to-mouth, with the biggest personal debt load in history, no backup and now stressed out about being laid off.

The implications are profound. It will take until 2014, at least, for the jobs lost in 2008 and 2009 to be returned or replaced. As I have said before, many Boomers will never work again. As a result:

* The housing market will not regain 2007 momentum again for at least a generation.

* Real estate valuations may stabilize, even increase a little due to cheap mortgage rates, but then resume a downward trend which will last for at least a year.

* After that, prices will flatline until buyer confidence rises with job prospects.

* Unprecedented government borrowing and spending to stop the recession from becoming depression will cause higher taxes, higher inflation and rising interest rates in the next decade – all of them negative for real estate.

* Some areas of the country are cooked. Those dependent on manufacturing industries which have vanished, for example, will be full of houses which will never again in our lifetime be worth what they were two years ago.

As I’ve said before, those waiting to sell their homes until prices rise will be idling for many years. So, sell now. Take the hit. Move on. Those rushing to buy a house because rates have crashed and prices have declined 15% or 20% will do much better in a year – lower prices and still cheap mortgages. Those young buyers gobbling up homes because loans are so cheap are gambling with their futures. Real estate will not have appreciated much (if at all) in five years, while mortgage costs could have doubled. This is how a home becomes a wealth trap.

Unless you’re a drain guy.

106 comments ↓

#1 Mike (authentic) on 04.11.09 at 10:50 am

The rush to buy houses will be the rush to sell them this late summer and into fall as hold outs will wake up and realise 2007 isn’t coming back anytime soon. It’s like Christmas day as a kid, you had it, it was awesome, Christmas gifts, dinner, Santa Claus, the rush and excitement… then next day you wake up and realise you have to wait what feels like forever for it to come again…

Mike

#2 International day of no bank bailouts on 04.11.09 at 10:58 am

Dear friends:

An international North American movement to save your jobs and KEEP YOUR MONEY FROM THE GREEDY is on the way.

DO WHAT YOU CAN.

http://anewwayforward.org/the_idea/

#3 Marc on 04.11.09 at 11:25 am

Watching some of the Question period circus a few weeks ago, would have been funny if it wasn’t sad. The opposition arguing that the 2 week E.I. holdback should be removed, so the unemployed can start recieving money right away. The same Liberal party who used the same 2 week holdback, are now upset about it? The Conservatives trumpeting that they extended E.I. benefits by 5 weeks. That is only great for the workers that need to use the max amount of time to find a job. It would have made more sense to extend E.I. 3 weeks, and get rid of the 2 week holdback, in my opinion.

Also the E.I. vacation pay hold backs are grossly unfair. I recieve my vacation pay bi weekly. When and if I need E.I. I get no penalty as I don’t have money owing, and I recieve benefits right after my 2 week hold back is up. For people who get vacation pay in an annual lump sum, E.I. deducts off benefits for the money owing. Is this in any way fair? We both get the same 4% added, I can generate interest off my vacation pay, leaving me with more money then the guy with his annual lump sum, and I get benefits quicker? Only a politician could havee thought up this plan.

One tradesman who really wishes I could opt out of the E.I. garbage, and am forced to buy insurance whether I want it or not. Free country? I think not.

#4 Herb on 04.11.09 at 11:28 am

Courtesy of Boyce Richardson, here is a link that shows some of the jiggery-pockery used in the States to pretty-up “America’s 20 Percent Unemployment Rate” –

http://www.truthout.org/041009LA

Anyone think we are far behind?

#5 Yves on 04.11.09 at 11:50 am

Toronto’s housing market is still, despite everything, pretty nuts. Not as nuts as before, but still nuts.

#6 Devil's Advocate on 04.11.09 at 12:06 pm

I don’t think the real estate sales volumes of 2007 will return in any long term foreseeable future. 2007 was the peak of the convergence of the two largest demographic groups in Canada representing a collective over 50% of the population. The Baby-Boomers, many of who still had children living with them and were reluctant to give up the family home, and Echo-Boomers, who were now starting their own families and needed a bigger home, together created a huge market developers, builders, tradesman banks and real estate speculators thought would never end. Baby-Boomers are moving to a new stage in their lives, one that does not require a 4 bedroom, three and a half bath, 4,000 sq ft McMansion. Unfortunately for them there are 50% fewer Echo-Boomers to which to sell those McMansions.

Where I live and practice real estate the numbers are worse. In Kelowna there are twice as many Baby-Boomers as there are Echo-Boomers. How possibly can they be expected to perpetuate our economy such as a demographic twice their size has of late?

We have no significant industry in Kelowna. We have orchards, vineyards and old folk’s homes. We have lots of golf courses. We have snow and water skiing. We have two months of glorious summer to look forward to after ten months of comparably bearable overcast winter. But we have no decent paying jobs to keep young people here. Nor, on the other hand, have we had such jobs to loose.

There is a saying in Kelowna “Wanna turn your bank balance into a million bucks? Come to Kelowna with two million.”

I don’t think anywhere else in Canada has seen quite the level of unbridled speculative greed that Kelowna has during the building of the real estate bubble. The first three predictions you make are completely to be expected and I believe a welcome reprieve. They are nothing more than to be expected and completely forecastable consequences of our markets returning to some sense of normalcy, balance and equilibrium.

It is the fourth point you make “Unprecedented government borrowing and spending to stop the recession from becoming depression will cause higher taxes, higher inflation and rising interest rates in the next decade” that has me most concerned. While I do not see them being good for real estate, nor do I see “all of them negative for real estate”. More concerning to me is the burden they will place on our future generations. We will leave these future generations a legacy of insurmountable burden of debt of which we were the beneficiaries. I think it is only fair than in doing so we suffer horrific losses in home equity so that at least they will be able to afford a roof over their heads.

#7 dekethegeek on 04.11.09 at 12:29 pm

Hi Garth, another timely post.
I have a friend who has been “hot and horny” to buy a house. “$600k is my top limit” . I recommended him to you website.
Lets see if he takes the hint.

#8 Devil's Advocate on 04.11.09 at 12:30 pm

I doubt the real estate sales volumes of 2007 will ever return the foreseeable future. 2007 was the peak of the convergence of the two largest demographic groups in Canada representing a collective over 50% of the population. The Baby-Boomers, many of who still had children living with them and were reluctant to give up the family home, and Echo-Boomers, who were now starting their own families and needed a bigger home, together created a huge market developers, builders, tradesman, banks and real estate speculators thought would never end. Baby-Boomers are now moving to a new stage in their lives, one that does not require a 4 bedroom, three and a half bath, 4,000 sq ft McMansion. Unfortunately for them there are 50% fewer Echo-Boomers to which to sell those McMansions.

Where I live and practice real estate the numbers are worse. In Kelowna there are twice as many Baby-Boomers as there are Echo-Boomers.

We have no significant industry in Kelowna. What we do have is orchards, vineyards and old folk’s homes. We have lots of golf courses. We have snow and water skiing. We have two months of glorious summer to look forward to after ten months of comparably bearable overcast winter. But we have no decent paying jobs to keep young people here. Nor, on the other hand, have we had such jobs to loose.

There is a saying in Kelowna “Wanna turn your bank balance into a million bucks? Come to Kelowna with two million.”

I don’t think anywhere else in Canada has seen quite the level of unbridled speculative greed that Kelowna has during the building of the real estate bubble. The first three predictions you make are completely to be expected and I believe a welcome reprieve. They are nothing more than to be expected and completely forecastable consequences of our markets returning to some sense of normalcy, balance and equilibrium.

It is the fourth point you make “Unprecedented government borrowing and spending to stop the recession from becoming depression will cause higher taxes, higher inflation and rising interest rates in the next decade” that has me most concerned. While I do not see them being good for real estate, nor do I see “all of them negative for real estate”. More concerning to me is the burden they will place on our future generations. We will leave these future generations a burdensome legacy of insurmountable debt of which we were the sole beneficiaries. I think it is only fair that in doing so we suffer horrific losses in home equity so that, at the very least, those expected to pay those debts will at least be able to afford a roof over their heads while doing so.

#9 "Sir" North Vancouver Citizen Jr. on 04.11.09 at 12:45 pm

dd & Muskoka Bill

…I am very flattered that you both find me attractive…I am sure you both are fine gentlemen, smart even attractive to many women…..you do realize that stalking my every post says loud and clear, you’re need to gain my approval and who knows what else.

Sorry to burst your bubbles but I am a straight male.

…So lets be clear, ok?….After I become Garth’s Federal Finance Minister my job will be to establish financial peace across the country.

I will be crisscrossing our fair country meeting our fair citizenry, getting feedback about our problems inorder to find the best solution.

I will be glad to meet you both wherever it is you live and discuss whatever is on your mind.

I love to wear a blue orchid, the latest style fedora, rings galore and i drink a gin and it. We can meet for tea and cucumber mint sandwiches.

so I hope that straightens things out.

btw, are either of you wealthy?

#10 David Bakody on 04.11.09 at 1:18 pm

Another good summation on Canada’s economy and words spoken that not one Harper loud mouth dare challenge.

This morning at Tim’s a lady mentioned her friend has lost just about everything, as her husband had sold his business to retire and lost big time on his investments. This also means the person who must have invested heavily to buy his business is SOL also, so I would think they are not alone. I mentioned to her that their are many others who will never work again and she said: yup, many senior baby boomers who moved early banking on their investments.

To-day the roads leaving to and from the malls are full, not because people are buying ….. they are escaping sitting at home thinking ….. perhaps these are the same type of people who grew up walking malls as kids, who knows? … but it ain’t good …. another point is the junk food courts are full …. eating junk food while depressed or in denial is not good either.

#11 Eduardo on 04.11.09 at 1:28 pm

Hey Garth,

I think you mean that inflation is bad because it will raise interest rates, but inflation is actually good for homeowners and people with debt if you are on a fixed rate for the long term. Obviously, if you are forced to renew at the top, you choose not to go fixed and go variable.

One thing you never talk about is the cost of renting.
-The cost of a 250,000 mortgage (2 bedroom condo in downtown calgary) at 4% is 1315 a month over 25 years.
-The current cost of renting a 2 bedroom condo in downtown calgary is 1200-1300 a month for a crappier place.

Let’s consider 5 years from today:
-Owning: you would have a balance of 217,xxx dollars remaining on your place, an interest cost of 46,xxx over 5 years, about 8,000 (?) property taxes, plus condo fees
-Renting: you would have paid 60,000 at 1200 a mo which is certainly a crappier place.

Even if you think that house prices are going down another 20% in the first year then your house is worth 200,000. Let’s say inflation kicks in 2 years from now and housing prices increase 3% a year for the next 3 of your term then you are at ~220,000 after your 5 years.

In this case it’s essentially a wash between renting and buying (maybe slightly more costly to own) if you assume:
-no rent increases
-20% decrease from here aka ~40% drop from the top
-flat second year
-modest inflation for remaining 3 years

If you tell me “well what if interest rates are through the roof when you renew?” then I’ll tell you “well that means rent is through the roof” and you’ll be saving money by owning.

I just think that by taking into account a reasonable downside, you are still breaking even.

Call me a Greater Fool I guess :)

#12 Brittanny on 04.11.09 at 1:45 pm

Going back to basics is going to be a hard pill for some to swallow, especially for those who have been living way beyond their means. Alot of these self indulgent, spoiled over spenders will kick and scream as they slowly learn the difference between “want” and “need.”
A lesson learned, I hope.

#13 dekethegeek on 04.11.09 at 1:53 pm

A bit off topic but here i go.
The papers are describing this latest recession as a “he-session” due to the inordinate amount of men losing their jobs. Ok , no arguement.
I look after several office buildings and I have had to interview potential applicants to fill a position which can best be described as “unskilled” ( unplugging toilets, changing light bulbs, that sort of thing.) .
The amount of people( young healthy men) that i have interviewed and or temporarily hired/fired over the past few weeks to try out in this ($15 per hour starting out ) has been ridiculous. We wanted to hire someone in their mid 20’s so that they would be a bit more mature dealing with commercial tenants.
Late, lazy, sarcastic describe but a few of the temp. staff that we have had to let go after no more than a few days. These guys were the ones that interviewed well?????
The ONLY thing good about this ever deepening resession will be the elimination of the arrogance and job entitlement of todays youth. I asked one kid to hand out memos to the tenants ( half hour job at the most)and he looked at the 40 sheets of paper like it was a pile of sh*t. Ten years of boom times have made todays youth EXPECT a good wage and an easy job. Where has the service sector work ethic in this country gone? China?
Some of these kids are going to be unemployable forever .
I have now hired a 6th applicant who is in his mid 30’s with a wife and kids who seems to be working out. I’m keeping my fingers crossed.

#14 Shawn on 04.11.09 at 2:13 pm

The good thing though, is that gutters still need to be cleaned and sometimes replaced.

The work that needs doing is always unlimited (look at your own life, any shortage of stuff needing to be done?)

Wants are unlimited and people will work fulfilling other peoples wants in order to get money to fulfill their own. That is the natural order of things. Occassionally frictions like a social phobia about pay custs get in the way and unemployment rises.

It is costly to fire someone, an unintended consequence of that is companies are loath to hire since it way later cost them to fire.

But the natural order is that there are jobs available for all who really want to work. But right now we have cycled up to higher unemployment. It will get worse and then it will get better.

As to press operators National Post has been circling the drain for years, it should die and then Globe and Mail can make real money.

Certain jobs will disapear for ever but new jobs appear.

Some perhaps many boomers will work forever by choice. Seniors are going back to work because their wants exceed their pensions.

But overall I don’t argue with Garth’s predictions, bubble house prices are still deflating.

#15 Steve on 04.11.09 at 2:26 pm

Garth, I recently heard that the banks in Canada are being forced to use a “Mark-to-Market” valuation for their assets, unlike in America where they’ve been allowed to use a “Mark-to-Model” method, (with lots of discretion being given to managers to the “value” of these assets). What does this change mean for Canada and Canadians? Thanks.

#16 Got A Watch on 04.11.09 at 2:30 pm

Garth – “Stimulus” financed by a budget deficit (aka borrowing and/or printing money) is a losing Keynesian proposition all around.

Sovietization of the economy will result, where the Government is responsible for well over 50% of all activity, directly or indirectly. Taxes rise, bureaucracy soars, and productive businesses flee. Taxpayer-money and credit addicted sectors will threaten to completely implode unless their cravings for more are met, and it becomes a spiral to economic oblivion and eventual Soviet Union-style total collapse.

The Federal “stimulus package” has already been eclipsed by the scale of GDP contraction, as a study inferred last week, and it has not even started yet. Plunging tax revenues will curtail future “stimulus”, it can’t be afforded anymore.

Rock, meet hard place.

#17 TheFirstRick on 04.11.09 at 3:08 pm

#13 dekethegeek on 04.11.09 at 1:53 pm
I have now hired a 6th applicant who is in his mid 30’s with a wife and kids who seems to be working out. I’m keeping my fingers crossed.
———-
You sound like an absolute peach to work for.

#18 Mike B on 04.11.09 at 4:00 pm

Yves 5 yes I agree t.o. is quite active but anything close to a million will just die… I have seen absolute junkers in north toronto sell for 700k that basically need to be torn down. Always one whack job out there. Come may 24 weekend all will change though …

#19 Mike B on 04.11.09 at 4:08 pm

The recent “bear” special on bnn had Eric Sprott of Sprott investments saying he felt unemployment was more a leading indicator these days rather than the widely held belief in it being lagging. They had some super serious things to say about where the economy is going…. none of it good to say the least. The unemployment number will spike hugely by mid year and surge by late year.
Toronto RE hangjng in there but poised IMO for a mid year thrashing

#20 Sean in E-Town on 04.11.09 at 5:13 pm

#11 You make a very convincing case, actually. Though I’d add a couple of factors that will put a damper on that analysis:

1. Garth’s predicting a fall of somewhere to 20-30% of values, plus NO increase for five years. I’m guessing, not speaking from experience that asking price less maybe one or two percent used to be the norm. With a little work right now 10-15% can be had if the seller isn’t in Candyland with their personal valuations.

2. You still would have a lot of trouble getting a mortgage for 4% right now. Most banks are now charging prime + 1 on their variable rates. Yet another reason that the bank rate is losing traction as a determinant of the money supply and (sorry to differ, Garth,) a reason that interest rates may not spike as sharply as some think, though I can easily see a 5 year fixed costing 8%, I don’t see us hitting 10.

3. The concern isn’t that you might lose your job and get nothing, but that you might lose your job and find yourself bringing in 25K with a lot of sweat. At that income, you’ll regret having gotten yourself upside down for a couple of years if you’re carrying a home built for a 60,000 income, as you’ll have lost all flexibility.

Co-incidentally, I’m not so worried about #3 myself as I can still carry my not yet gotten mortgage and afford food if under-employed to the tune of earning $12K a year, so, if need be, I can bag groceries for 24 hours a week and make ends meet until I find something better with which to build some more equity. Can you say the same about your quarter million dollar mortgage in Calgary?

But the key point that underlies, I think is very accurate. A house is not an income vehicle, beyond the money you save on rent. House prices traditionally track inflation, and I think will continue to do so for a very long time. A house, or condo, in my case, is a place you live. It’s a place that should work for you for years, the location and the surroundings should complement your sensibilities, not your balance sheet.

#21 Bill-Muskoka (NAM) on 04.11.09 at 5:47 pm

I see at least our resident Wacky Weed Driven Caesar is enjoying the holiday weekend! LMAO!

Garth, The Bubble, i.e., balloon has BURST! While you forecast a generation for it to return, I would say it NEVER will. But then, returning to the complete insane idiocy that got us here is to be expected…like a dog returning to its vomit! They will DO IT again or try too at least!

As to EI, it is f**cking joke in Ontario. My wife worked for the same company for almost 20 years, got ‘laid off’ (read that F**ked for Profits) last year by the mighty TorStar corp, received a legally mandated severence package, and then was told she got too much to be elgible for EI after the package ran out until this Fall.

Will she be able to complete her working career as a professional? Probably NOT because she is now too old, not really, but cheap and inexperienced labour trumps experience, hard work, and dedication in the market place.

What is the future going to be? Well, we will figure that out as goes along. I can assure you we Boomers are preparing to upset the Apple Cart and when we do. Just Stand the F**K By Arseholes!

There is going to be a revolution and when it comes there will be many smiling Francophones because Madame Guillotine will seem quite a humane choice.

The pot is almost to a boil and when it reaches that point everyone will know! No violence required, we are a Helluva lot smarter than that.

#22 Kash is King on 04.11.09 at 6:27 pm

Here’s a wonderful page that has a video on it that really does a wonderful job of explaining just what went wrong with mortgages/housing/credit:

“The Crisis of Credit Visualized”

http://crisisofcredit.com/

#23 Just a Carpenter on 04.11.09 at 6:32 pm

“And unlike the plumber or the drain guy, your work is dependent on an entire corporation feeling positive and profitable – not a handful of homeowners deciding to repair or renovate.”

I never regretted the decision to learn and practice my trade! Not always glamourous but managed to raise four kids and live a comfortable life.

#8 commented that “We have no significant industry in Kelowna. We have orchards, vineyards and old folk’s homes. We have lots of golf courses. We have snow and water skiing.”

So…. whats the problem? I moved here cause I love fresh fruit, red wine, golfing, snowboarding, and boating. The first years were tough getting established but 2002 to 2007 were unbelievable! Alot of us were surprised by the abrupt end to the good times but we all have to admit it was just a matter of time. There is still opportunity, the difference is once again again we actually have to earn it.

#24 Roger on 04.11.09 at 7:04 pm

I don’t believe prices will go any lower in Winnipeg. Relative to te rest of the country, RE prices are low. The economy here really never boomed with good jobs (lots of $10-$12/hr jobs) to begin with.

We have money coming in from the Feds in the form of tranfer payments and money that goes to our large Aboriginal population. Say what you will but the high ratio of Native-Canadians in Manitoba’s population is what keeps our have-not province afloat.

I just don’t see how RE prices would drop all that much given that the Feds make up about 50% of our budget. They might stop sending money, but given the debt they are looking to generate with new spending, I hardly see that happening.

Someone prove me wrong, otherwise I’m probably going to give in and buy this fall.

#25 dd on 04.11.09 at 7:12 pm

#9 “Sir” North Vancouver Citizen Jr.

Oh, you so fit the Vancouver scene.

#26 dd on 04.11.09 at 7:19 pm

#11 Eduardo on

“One thing you never talk about is the cost of renting.
-The cost of a 250,000 mortgage (2 bedroom condo in downtown calgary) at 4% is 1315 … own calgary is 1200-1300 a month for a crappier place.”

Eduardo,

Firstly $250k is still not going to buy much in Calgary today. Maybe in a year or two.

Second, how about the $400+ monthly condo fees and add on taxes. So right there it is costing $500 more monthly.

3rd, prices are still coming down. Why buy something today and within a year or two is will be 20% cheaper

4th, your 4% mortgage will be 8% in 5 years. So your interest cost will double … interest rates are going up.. this is the lowest they wil go

#27 dd on 04.11.09 at 7:27 pm

#11 Eduardo

“If you tell me “well what if interest rates are through the roof when you renew?” then I’ll tell you “well that means rent is through the roof”

Are you kidding? It is all about supply and demand. People that are renting out their investment properties (because the can’t sell them) are renting them out at the going rate – not even close to covering your mortgage and mantenance costs. Prices are falling because housing is still too expense. What is the rush? Sit back and the natural course of events unfold.

#28 dd on 04.11.09 at 7:28 pm

#11 Eduardo

PS
“I just think that by taking into account a reasonable downside, you are still breaking even.”

How want to breakeven? It is not worth the pain.

#29 George Popovic on 04.11.09 at 7:32 pm

In a galaxy far away there was demographic storm brewing. People were living longer but retiring earlier and then playing golf in Florida while being supported by a dwindling generation of young people. Seeing how this could not be sustained, the masters of the universe devised a clever but devious plan to fix this problem. Knowing human nature of greed they lowered interest rates. The people promptly borrowed and bought until they could buy no more and along the way created a huge inflation in all kind of assets. They borrowed against their future and ended up with unprecedented amount of debt.

Then the music stopped.

As the air started escaping from all the assets they accumulated, the only thing that remained constant was their debt. No amount of wishing and hoping from the gold bugs and those hoping to be set free from their burden thought hyper inflation helped at all, the debt was there to stay.

The masters have created a perfect choke collar. No more early retirement, no labour shortages, no supporting the unproductive retirees playing golf. They had to shut up and do as they were told and keep on working.

And if by chance they managed to get ahead, raising the interest rates by a few points would tighten that debt choke collar once again and all would be well again.

Am I ever glad that galaxy is far, far away.

#30 Future Expatriate on 04.11.09 at 7:56 pm

Unemployment can also be a leading indicator, especially in Depression dead cat bounces.

Must watch a handful of folks much smarter than I:

Bear Attack

My favorite part: US stock market bottoming at 1000. Gold at $4000/ounce. Unemployment as a leading indicator.

Paralleling the Great Depression almost exactly.

Calls afterward in Part III are also interesting, with realists outnumbering optimists about 5 to 1.

FANTASTIC show. Couldn’t have even got on the air in the US.

#31 Da HK Kid on 04.11.09 at 7:59 pm

That sums it up Garth, global reset under way. Welcome to the new world.

Keep your heads up and your powder dry!

#32 Jack the Lad on 04.11.09 at 8:11 pm

The equities market sure has taken off.

Garth was certainly right when he said that equities would rally massively all the while more people where losing their jobs.

#33 CS on 04.11.09 at 8:12 pm

To #11 – Eduardo – let’s take a look at a real life example – my mortgage is at $210,000 @ 3.5% variable. Five years from now, I’ll owe around $180,000 if I’ve kept rates at approx 4.5% or under. I’ll have paid taxes for five years too, and I’ve paid upkeep. I’ve replaced the appliances if needed, re-done the deck, the landscaping, re-painted the shed, etc, etc. ALOT more to owning than just that mortgage. Let’s say the job goes south and I can get another one 200 miles away – stuck – what about the house. Let’s say it’s time to retire and we break even on selling – maybe. Or as is looking more and more, we sell and we still owe. And CMHC comes after us – there’s a nice retirement present! And just for the record, where I live, I could now rent the equivalent or better than my house for an equal amount as far as mortgage payment vs rental. Plus I could start saving all the upkeep, repairs and tax money. And be free to downsize even more on one month’s notice, or leave town, should the job disappear. We will be listing and hopefully selling very shortly and will find the cheapest rental we can and start saving every cent. If the job is still there and there’s great houses to be had in a few years, we know we can jump back in. If things keep bottoming out and we continue to own, we don’t know that we can sell without taking a huge loss in those next five years and that’s a very large gamble we won’t take at this point unless forced into it by being unable to sell now.

Obviously no one knows for sure but we feel Garth’s advice to get out now, cut your losses and move on the smartest right now.

#34 MBS-guru on 04.11.09 at 8:18 pm

March was an impressive month to say the least, given all that was happening in the previous 5 months. From the front lines, apps came flying in during Feb-Mar and most were quick closes. The disturbing thing is, our volume pipeline dropped off a cliff at the end of March, so it looks like a sharp drop in sales from Mar to Apr and it goes off a cliff in May. The explanation was simply pent up demand from the previous 5 months from the sidelines finally caving in (Mostly first timers) and once that is done, we’re back to the downward trend again.

#35 john m on 04.11.09 at 8:23 pm

Great post Garth..you tell it like it is….most of my life i have made a living off of real estate development…it has been my cash cow….it is no more!In fact there is no security in anything anymore,a turnaround in the near future is not possible,too many “domino’s falling around us” in every sector. My only hope for the future is that our Government will start facing reality…stop the vote buying schemes,the bailouts,and concentrate on maintaining our necessary services and weather the storm……..without that we are lost…..a meal on the table for all is better than trying to maintain a lifestyle for a few…………your the best Garth!

#36 lgre on 04.11.09 at 8:46 pm

I found it very odd that houses that I wouldn’t allow my dog to live in sold as soon as March hit, I don’t work in the banks but it does make sense what MBS is saying. I personally know someone who just bought, they were itching for the last 6 months and they just caved. They were going to buy in the fall but I guess another 6 months was too long to wait.

#37 john m on 04.11.09 at 8:57 pm

Jobs and the unemployed—The province of Ontario brings in at least 20,000 migrant farm workers every year….the farmer pays them minimum wage,pays their plane fare and provides them with housing (inspected).Takes them shopping and whatever their necessities are……WHY?–because they can not find suitable or willing employees in Canada. When one combines the cost of housing plane fares etc it would probably be cheaper to pay $15 an hour to an unemployed Canadian –Minimum wage in Ontario right now is over $9.00 an hour……..they employ more people than the big three auto companies…………something to think about! …..im working for one right now!He pays me more than $15 an hour im not humble but im proud!

#38 Grumpydawgs on 04.11.09 at 9:03 pm

The great Canadian recession is a strange beast . In Kelowna for example there is a 61 year ( no typo) supply of homes prices of more than $1,000,000 dollars. There is a 93% drop in housing starts in Kelowna but no great number of foreclosures or blow out sales. But prices are described as ‘stable’.

Prices of SFH’s in Vancouver are priced at 10.66 X’s average incomes and signifagant inventory piling up and again there is no signifigant price reductions. The market is very sticky. The news of layoffs and retail downturns seemingly have no effect on prices here. There have been reductions on the stated pre sale prices of condo offerings but not on SFH which are not builders inventory. There is no more negotiating latitude on new homes than at any other time.

The idea that this is a good time to buy is really just a myth, the prices are exactly the same as before. The only change is the volume of sales is down and there is no line ups but in fact no price reductions. The only change has been in the intrest rates.

This all seems conterintuitive. How does a population manage to refute market forces like this? Is it coming, is it not? Why? The advertising has been been very effective it seems. People have been fooled into thonking thats theres a few ‘deals’ to be had. In fact theres been no real substantive change.

You say

“* Real estate valuations may stabilize, even increase a little due to cheap mortgage rates, but then resume a downward trend which will last for at least a year.”

Why a ‘year’? Why only a year? And based on negligable price reductions so far, then will prices simply flatten out, stay in the current price range, and will the smart thing to do will be to simply wait the negative press of the recession out.

Where is the benefit of a crashing employment market and recession if real estate prices maintain thier bubble prices? Are the bubble prices going to stick? There certainly don’t seem to be any deals showing up. The downturn has all been big phony ploy and a hype to spur the sheeple to get back out there and shop.

So far that is whats happening. Sellers have not been raising prices but there is no obvious reduction. The published ‘median price’ has gone down but as you all know that just means fewer more expensive houses have sold causing the median number to scew down rather than up. It does not infer that prices have gone down, just the type of sales that are taking place.

People are being conned into thinking that prices have gone down and that generates intrest in getting out there and shopping around. But once you get out there it becomes obvious that prices have not gone down, they’ve just stopped going up.

You also refer to intrest rates rising in the next decade. Why a ‘decade’ long period. The current inflation in food prices is raging now? In a decade a chicken will cost $50 at the current rate of food inflation. Do you really think inflation can run at this pace before rates are adjusted to market conditions?

At this rate the Purchasing Parity of the buck will be less than .50 cents on the dollar in five years.

#39 hal on 04.11.09 at 9:26 pm

#38 Grumpydags : Wait until October when the EI starts to run out, that’s when you will see the sh*t start to hit the fan.

#40 Charles T. on 04.11.09 at 9:33 pm

The following link will take you to an editorial in today’s Prince George Citizen. The title of the editorial is Phony Money Real Headache. It is about quantitative easing.

Phony money real headache

#41 Ultraman on 04.11.09 at 9:38 pm

MBS-guru, as a lender for a large CU here in Vancouver I have experienced the same thing. It totally took me by surprised how quickly the cat bounce hit the ground. Probably a bit early to confirm that the sucker rally is over but over it will be eventually and then…PLUNGEEEEEEEEE.

#42 john m on 04.11.09 at 9:46 pm

38 Grumpydawgs on 04.11.09 at 9:03 pm ……BC is living in a myth of denial..i built houses in BC for 20 odd years and bought renovated and sold…6 years ago i moved back to Ontario because i knew the average income could not sustain the prices of housing nor were spec houses any longer feasable (the investment and the gamble were too great).I came back to Ontario on a holiday and bought a house on 3 acres of land (beautiful property..fixer upper) for $60,000 ………..the same property in BC would cost $500,000…..BC is living in a dream world and the crash will be devastating. IMO

#43 jess on 04.11.09 at 9:52 pm

cities creating new fees –
have an accident in florida and be prepared to get a bill when the police and firefighters show up

http://www.nytimes.com/2009/04/11/business/11fees.html?partner=rss&emc=rss

#44 vantown on 04.11.09 at 10:01 pm

Grumpydawgs #38, you are totally right. The Vancouver market seems to have been defying logic. I don’t think prices have really gone down anywhere near the claimed 15% YOY. The frankly condescending tone of the articles and posts on this blog are starting to wear thin for someone living in a real estate market that is simply not responding the way it “should.” I’m waiting to buy but I am beginning to become skeptical that the “great real estate crash” is actually going to hit, at least here on the Wet Coast.

#45 dd on 04.11.09 at 10:12 pm

#30 Future Expatriate

“My favorite part: US stock market bottoming at 1000. Gold at $4000/ounce. Unemployment as a leading indicator.”

Seam to me that the 1,000 Dow comment wasn’t backed up by any stats. This Guy was just looking at the Dow in 1932 and pulling it forward to 2009. Lazy workmanship.

#46 john m on 04.11.09 at 10:17 pm

Future,survival and quality of life and employment are all sustainable in southern Ontario,(if you have read my previous posts).The west is heading for serious bad times… do the math!

#47 Billy - Scared like hell on 04.11.09 at 10:44 pm

Guys, I just had a revelation: the suckers in power, can totally destroy the planet, I mean through it out of rotation, or smash it with the new weaponery —if they were so retards to let greed rule, they will let same greed literally destroy the world. Talk about controlled earthquackes and tsunamis. We gotta wake up and spread the word. It might help before they push the ‘button’….otherwise: see you next world around

#48 sam on 04.11.09 at 11:24 pm

Using pre-Clinton methodology is the only way to compare current unemployment with past unemployment. The numbers we get from the government today do not count those have become discouraged and stopped looking for a job. How does 20% unemployment sound?

I do not believe we will see any recovery in the economy until we see a recovery in employment. Employment will be a leading indicator of economic recovery.

“The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated “discouraged workers” defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment. “

#49 MMMM Squirrel on 04.12.09 at 1:01 am

Drove past the mall today here in Kelowna. Not a single parking space could be seen. Recession? Yeah, right. It may be possible to suggest doom and gloom but it aint hitting the populace. Property in all the markets I am watching are pretty stable. SOLD signs going up in many places around Kelowna. Even saw an older style 3+1 bedroom house on a main road go for a shade under 450k.

Not sure what the benefit is of predicting lagging or leading indicators, but if the stock market is anything to go by we are back on our way up. Was a pretty short blip there folks, and all the talk of the hard times causing civil unrest and fighting in the streets (quick, buy an acreage because you’ll need land to grow your food while society deteriorates) is looking a little foolish now. Notice that even the tone of this blog has changed. No longer is buying a solar panel the solution, instead unemployment is a lagging indicator (which infers that we are already on our way out of this mess). Reminds me a little of Y2K, or more specifically, around January 5th, 2000 when people realized that all the hype about how bad things would get was exactly that.

Roll on summer……at least when people are spending time at the golf course, driving their 50k convertibles, sitting on their deck overlooking the lake, or waterskiing behind 100k boats, I might be able to find a parking space at the mall.

#50 Small Business on 04.12.09 at 1:13 am

I operate a small business in Alberta and make all attempts to purchase products that are made in Canada and owned by small business owners.

It is no sacrifice.

Almost all of the products made in Canada/America beat the snot out of China/India/Mexico.

I try to buy groceries from the farmers market. Inject as much capital as possible directly to the source instead of some turd in a differant country.

Cheers.

#51 Dave in Calgary on 04.12.09 at 2:47 am

#11 Eduardo

I rent in Sunnyside (stones throw from DT Calgary). $250,000 at best will get you a half decent 1 bed condo conversion… The kind you can rent right now for $900 – $1100.

So it’s more like $1350 + $400 condo fee = $1750
vs
$1000 to rent

(I rent a half decent basement suite with parking and a back yard for $800 a month and can walk to work downtown in 20 min)

I can get approved for a mortgage now of close to $500,000, but there is absolutely no way buying makes any sense whatsoever in Calgary right now…

#52 Informer on 04.12.09 at 3:43 am

To #37 – john m

I’m working for one right now too, and I do OK, but not enough OK to buy in this market (near Vancouver)… not nearly enough OK.

This is how I see it. Migrant farm workers know how to work hard, they did all their lives, thats why farmers choose to employ them. They show up for work most every day and want to work six or seven days a week, hours no limit. They do jobs that most employed or unemployed Canadians don’t like for a reasonable price all things considered. I don’t see this changing unless we enter a long depression… which we might. I mean really, when is the last time you saw a team of second generation Canadians tending crops for a living. Hahaha!

#53 David Bakody on 04.12.09 at 6:07 am

I suggest that we should be looking at what people do not have rather than what those of means have…. read the news from around the country and the world …. more unemployed and now daily news of up risings. If we here in Canada continue to report job loses each month and no hope what makes anyone think our sick and hungary will act any differently? Can slum areas not spring up just next door to those that have? The US of America is the most heavily individually armed country in the history of the world “AND WASHINGTON KNOW IT” and should unrest ever occur they know all hell will break out The Civil War would be picnic in comparison! Hello “Carpetbaggers” so that is why Obama is spending cash big time, here in Canada our Super Neo Con (Harper) wants to do what open the doors to assault rifles! and there is more much more and it is not just one issue or one avenue. And to think a mear 36% of approx, 60% eligible voters gave Harper/Flahrety free rein to reverse course from the positive future course we all paid for in balanced budgets and money in the bank. For what? a penny off a cup of coffee and War with no end! Happy Easter everyone, do enjoy your day I plan to surrounded with my family.

#54 Da HK Kid on 04.12.09 at 6:20 am

#30 Future xpat, very good video. Sums it up nicely for Canada!

#11 Eddy, feeling lucky? Take note or be a statistic!!!!

#55 David on 04.12.09 at 6:22 am

I could not agree more. The best time out of residential real estate is NOW! Hanging on for a better tomorrow might take a century.
A zero savings rate and part time McJobs equals much lower housing prices. Try Detroit sub prime house levels.

#56 Joe on 04.12.09 at 6:40 am

Hey Marc utopia is just South of the border get cracking. Garth why are we hearing all this talk of stimulus. I don’t think Steve is going create any. Just put out media releases about it. He looks like he is on the summer barbecue cuircuit already.

#57 Mike (authentic) on 04.12.09 at 6:55 am

#24 Roger on 04.11.09 at 7:04 pm I don’t believe prices will go any lower in Winnipeg. Relative to te rest of the country, RE prices are low. The economy here really never boomed with good jobs (lots of $10-$12/hr jobs) to begin with… tranfer payments and money that goes to our large Aboriginal population. Someone prove me wrong, otherwise I’m probably going to give in and buy this fall.”

#24 Roger, I think you answered your own question. You are saying that in Winnipeg “it’s Different here”… ok, so is LA, London, Toronto, Vancouver, Ottawa, Hong Kong…

If Winnipeg has “good jobs (lots of $10-$12/hr jobs)” then working those jobs can the average family afford the average Winnipeg house on that? (x3 income?)..

Mike

#58 Mike (authentic) on 04.12.09 at 6:59 am

#19 Mike B on 04.11.09 at 4:08 pm The recent “bear” special on bnn had Eric Sprott of Sprott investments saying he felt unemployment was more a leading indicator these days rather than the widely held belief in it being lagging. ”

I agree and feel the same way that unemployment numbers THIS TIME are a leading indicator (in Canada) as employers try to dump and re-org before the S–t hits the fan. In fact, Calgary did the same thing in the 80’s by dumping employees first.

Mike

#59 pbrasseur on 04.12.09 at 9:30 am

Happy Easter Garth and congratulations for all your efforts and for this nice blog.

#60 Bill-Muskoka (NAM) on 04.12.09 at 9:34 am

Well, they are finally acknowledging the true Chaos nature of the economy.

The ripple effect of 400 layoffs

A look inside … the ripple effect

And so many thought it was just ‘ME’ that was affected. The REAL reason regulation is a must in the so-called free-market. We are all interconnected. Welcome to the Village!

#61 "Sir" North Vancouver Citizen Jr. on 04.12.09 at 10:00 am

#186 Apocolypse Now

“””in the years ahead (no more than a decade) the middle class will be a distant memory, all that will be left will be the very wealthy few and many many serfs who will exist only to do their bidding.”””

….Apoc & Garth….

All classes of society no longer trusts the banks or governments…. it has become a level playing field for all.

Anyone can see Eastern Canada/US is transitioning to chaos….it is why Garth prepares to bunker down in his own self sustaining Gulag Archipeligo…

New York City bankruptcy…

http://www.businessinsider.com/mayor-bloomberg-warns-about-nyc-bankruptcy-2009-4

US Social Security mirage…

http://www.businessinsider.com/henry-blodget-the-social-security-bomb-2009-4

Leaves the Pacific Northwest as the safest place on Earth.

#62 Bill-Muskoka (NAM) on 04.12.09 at 10:12 am

#49 MMMM Squirrel on 04.12.09 at 1:01 am

I, too, noted the parking lots were filled to capacity yesterday at Home Depot, WalMart, the local Zehr’s (Loblaws) stores, etc. The thought that crossed my mind was ‘My God, ONE DAY without a fix and the addicts are at it like their lives depended on BUYING THINGS!

Yet, the days, weeks, before Good Friday the parking lots were pretty empty. It looks to me that people are trying to do what they have been trained to do Buy Happiness!

#63 Nathan in Edmonton on 04.12.09 at 10:19 am

#37 john m
Farm labourer will be a job for many of the former middle class in the years to come. As energy costs increase labour costs will decrease. I recently watched the film Days oF Heaven and coundn’t help but feel this could look more like the future than the past.

#64 Bill-Muskoka (NAM) on 04.12.09 at 10:20 am

#47 Billy – Scared like hell

Well, then you are going to love reading ‘The False Prophets’ by B. J. Boltauzer, about a group of madmen who create earthquakes and tsunamis to gain control of the world by 2012.

Then read about the HAARP Project (an actual, well-documented project in Alaska) in which the U.S. Government has been ‘tinkering’ with the weather using electromagnetic energy derived, in part, from Tesla’s experiments.

#65 Bill-Muskoka (NAM) on 04.12.09 at 10:39 am

#43 jess on 04.11.09 at 9:52 pm

That has long been a reality. The REAL reason police issue trafic tickets when people are already knocked down by an unfortunate accident. Those tickets fund the ‘system’ which is nothing more than a hidden tax atop all the others. Granted, there are times a ticket is warranted, but the cops tend to issue ‘Careless Driving’ citations for anything. They even came up with the ‘Victim Surcharge’ to rake in more cash to fund themselves.

They are TOLD to by their supervisors, which has led to a huge backlog in the courts, the rise of agencies like ‘X-Copper’ which fights the tickets and win most of the time, etc.

#66 Got A Watch on 04.12.09 at 10:44 am

#15 – Steve _ Canada has always used ‘Mark-to-Market’, the decision last week was to make no changes. I heard a radio report which quoted “This change (to follow the USA) was deemed not to be in the public interest”, which is true. This quote was not mentioned in the National Post, of course, which seemed more disappointed that we had not followed the USA over the cliff.

Score one for Canada. Our Banks do not need this regulatory fiction.This accounting change is just an enabler for loser American Banks to continue the illusion that they are solvent and viable. The USA is actually preventing their own recovery with policies like this, as without clarity financial markets will not recover to more normal functionality.

A prime reason why this Depression can drag on for many years is the reluctance of entrenched financial elites to recognize and deal with the losses from a decade of their own unbridled reckless financial engineering. They hope one day the values of their assets will come back, and everything will be fine. In the meantime, it is just stall and delay.

But a leaked Goldman Sachs report a couple weeks showed USA banks are still carrying trillions in assets at around 95% of ‘face’ value or what they paid for them. But in the real world, these “assets” are worth between 0 and 30% of ‘face’ value, and almost all are not coming back. The difference is enough to put every major Bank in the USA out of business, and probably wipe out even the Bond holders, who would normally become the shareholders through a bankruptcy reorganization process.

It is the reluctance of entrenched Bond holders, who do not want to admit they have lost almost everything, and have a lot of political power, that stands in the way of a meaningful recovery in the USA. In this dubious distinction, the USA is just about the last one still clinging to these delusional beliefs. Other nations have had to admit present Bank structures are finished, but not in America.

The rest of the world can see the Emperor has no clothes, it is widely recognized, except in Washington and on Wall St, that present financial titans are finished. Just an exercise in denial, it is a ‘Don’t Ask, Don’t Sell’ Policy attempting to preserve the status quo. With the rest of the world moving in the opposite regulatory direction, it won’t be sustained, and the reversals will be another crisis for America. The cure is not worth than the disease, it just seems like it to those who would be losing money in the process.

#67 Bill-Muskoka (NAM) on 04.12.09 at 10:49 am

#29 George Popovic

Very excellent analysis of reality George. However, thanks to the work of Einstein Space has now folded upon itself and that far, far away galaxy is HERE!

Think of it as ‘folded money’ stuck right here is all our pockets. Hence, the term ‘String Theory’ because, yes, there are strings attached! ;-)

#68 Got A Watch on 04.12.09 at 10:57 am

#37 john m – I believe farmers in Ontario pay the migrant farm labourers at a rate well below the normal minimum wage, they have a special rate, IIRC around $5-$6/hr. With no benefits.

There is a large tree farm near me that has a few hundred of these guys working each Summer. They used to be mostly Jamaican, now they seem to be Mexican and Costa Rican. They live in bunkhouse mobile trailer homes on the farm. It is brutal work, digging trees up by hand etc, they work all day in the hot sun without complaining and take few breaks in a long day.

The amount they earn over the Summer keeps them and their families fed and housed back home year round, with a few comforts like a TV etc. I have heard there is fierce competition for these jobs back in their home countries. The workers keep a very low profile while in Canada, any problem or incident will see them not called back next year, a financial disaster for them.

They have tried to hire locals to do this work, no luck. Some will say they can do it, but they don’t last more than 1 day, then quit.

The farmer is not happy with the situation, or so he says, but he is happy with the way they work. Productivity is high. I am not sure how much he saves, he has to run the bunkhouses and a fleet of vans and buses to move the workers around, but the work does get done. Probably not paying benefits saves him a lot over hiring Canadians.

I don’t know what the solution is, but as long as Canadians think they are too good for this kind of work, it will continue.

#69 Gord In Vancouver on 04.12.09 at 11:10 am

#44 vantown

The Vancouver market seems to have been defying logic. I don’t think prices have really gone down anywhere near the claimed 15% YOY.
_______________________________________

Next time, conduct your own research before posting facts that you want to see/hear. This link shows that the REBGV stated a 15.1% decline.

http://www.rebgv.org/housing-price-index?region=all&type=all&date=2009-03-01

#70 Strataman on 04.12.09 at 11:23 am

In 2002 I switched my business from construction to critical maintenance of high rise condo’s in Vancouver. Things like the heating systems, elevators, and building security. I watched and turned down many lucrative construction contracts instead opting for steady (lower paid) maintenance contracts. My friends thought I was nuts and a few times I also was of the same opinion. Those same friends are now looking for work with me.

#71 whateva on 04.12.09 at 11:52 am

interesting lecture on economic history (austrian school POV)

http://snardfarker.ning.com/profiles/blogs/economics-101tom-woods-has-a

#72 Bobby G on 04.12.09 at 12:06 pm

Don’t be fooled again
Been oversold for some time
200 day not even leveled off yet

http://www.nationalpost.com/story.html?id=1482509

http://globaleconomicanalysis.blogspot.com/

http://market-ticker.denninger.net/

#73 Bobby G on 04.12.09 at 1:01 pm

Protectionism
a big factor in the thirties

http://howestreet.com/articles/index.php?article_id=9178

#74 justjanice on 04.12.09 at 1:18 pm

RE is a suckers game right now. It will take a while to ‘deflate’ for a number of reasons, and it must deflate in most of the country, particularly in the West. I live in Victoria, (a place so heavily in denial, it’s almost funny). In the last year, inventories have swelled and sales have fallen, and prices have started to falter. In particular, we are starting to see price declines in terms of the properties that are actually selling but not in terms of the properties that are ‘on the market’. Potential sellers in Victoria are putting their places on the market at ‘fairytale 2007’ prices, then after not getting offers close to the fairytale, many of them remove the home from the market, deciding to wait it out. Those who actually need to sell read the writing on the wall and while asking for the ‘fairytale 2007 price’ they accept an offer that is less than the ‘fairytale’ and get out. We are seeing a bit of a spring bounce, but all bear markets have rallies but a bear rally does not a bull market make, bottom is a while coming yet.

In Victoria, we should just print ‘it’s different here’ right on our license plates we are so deep into denial, because from where I sit the only difference I see is a resounding inability to realize that ‘it’s different now’, but reality will eventually sink in. Our unemployment rate is climbing quickly, and will do so at an even greater speed after the election in May. Our steady influx of wealthy retirees from Alberta, Ontario and other places is probably about to dry up as the wealth they once had is no more. Tourism is also about to take a hit (read GLOBAL RECESSION). Meanwhile the US seems to be on the path of supporting ‘Zombie banks’ instead of doing the right thing by putting ailing institutions into recievership to be rehabilitated and sold back into the private sector and venturing on a path of sensible ‘re-regulation’. So this isn’t going to end any time soon. Once the Victoria market is left with just the locals to support it, it will move more quickly to a sensible equilibrium. Hawaii has many parallels to our little paradise.

#75 JoeCalgary on 04.12.09 at 1:27 pm

#50, Small Business, I’m with you, as are many Canadians who are a large part of the flight to quality.

When people realize that the more expensive made in Canada products last and are not toxic while the cheaper ones do not last and may be contaminated with their having no way of knowing, they move to what is, in fact, the truly cheaper item.

The new Made in Canada labeling with its required 98% Canadian content is still a concern; it’s the other 2% about which we need to worry. Gluten appears in very small quantities in most foods, yet if it came from elsewhere and is contaminated, it can still do damage, as can spices and other ingredients that come from contaminated soil.

I had to put-down a cat that had eaten melamine-contaminated food. The x-ray of the enlarged kidney partially wrapped around the spine stays with me as I enter each and every place of commercial food provision.

#76 confused and a little crazed on 04.12.09 at 1:33 pm

#11 eduardo,

longterm wise it maybe better to buy than rent that is of course based on location, economic times…blah..blah..blah.

I’m sure Ontario was a great place to buy 10 years ago but with manuafacturing going bust…no so anymore

In lower mainland all you need to to do is go d/t of either New WEst, Burnaby or esp Vancouver and Surrey. Look to either east, west , south or north and you will see at least one crane. TThe condos / townhouses will be finished either this year or next. The developers are trying to time the market for best return …just before and after the olympics. So for the short term( 2-3 yrs) at least the rental prices will be much favourable.

#38 grumpy dawgs and Van town,
In some ways, I agree with you. I woold hardly agree a sfh from 750 K to 660 K in a crash . The prices have not decreased much . The medium is probably skewed by condos and high priced west van homes. I wa looking at condos ..the same type in the same building in Burnaby dropped from 299 K to 230 k from 2007-2009. There are other discounts I see all ranging fron 60 k to 80 K, the selection is better to . In west end, I did a search list for under 1 million SFH( below 60 years old) in 2007 there was only 8 …now there is 32.

Correction yes…taking a freaking long time …totally but now employment is dropping, layoffs on the rise ,i personnally know 3 people in high tech, ( likeToshiba ) 2 in contruction/ heavy equipment) ,3-6 in coming monthes in biotech, 2 in food ; however the food group both of them found employment but one in a lesser position and the other required to move to the Van Isld.

So let’s see what happens when EI runs out in septish, GM goes thru controlled bankrupcy in 30-60 days, CAn west Global and blockbuster…maybe bankrupcy soon about 90 days.

Just be glad you are not either demoted or let go by the end of the year. Even the politicians are saying 2009 will be the worst year….talk about a lagging indicator , Harpo and flatulance

#77 Eduardo on 04.12.09 at 2:05 pm

So, I’ve read everyone’s comments regarding post 11 and I have a bunch of comments.

You can certainly buy 2 bedroom condo conversions in the 250,000 list range. If you want to compare 1 bedroom apartments, there are many in the under 200k range.

Also, condo fees are more like 300-350$ for 2 bedroom places and 175-250 for 1 bedroom.

I looked at rentfaster.ca and it looks like there are a number of 2 bedroom places in the 1050-1250 range

If you consider my analysis again, and add in monthly costs the costs are:
-for owning 1320 (250k mortgage @ 4.xx%)+350 (condo fees with heat, electricity, water, insurance)+130 (property taxes) = 1800 a mo
-for renting an equivalent ~1100-1200 a mo

Regarding the calls for another 30% in Calgary, I think you might be mistaking Garth’s call (unless I am). Garth says 35-40% fro mthe top I believe. My assumption of another 20% drop in Calgary would leave the Calgary market at around -38% from the top in the market with the highest disposable income in Canada (by far).

On the whole, I understand the comments regarding condo fees, and no price rises for 5 years. IF you believe that prices will fall 20% and not increase at all and rent will not increase at all either then you are best to rent.

The reason I included modest increase in years 3-5 is Garth’s prediction for a modest return to inflation.

Regarding inventory of places to rent, I think it depends on the market but that is another consideration. As far as Calgary goes, it’s not like the whole city is unemployed like some of the places in the rust belt. I agree that many people are being forced to take jobs at 15$ an hour instead of 35$ though.

I guess it comes down to me not expecting rent/inflation to stay flat or down for 5 years. I also don’t expect a 38% drop in prices without a bounce of some sort.

Side note: RE #51, Sounds like a good deal at 800 a mo.

#78 EJ on 04.12.09 at 2:31 pm

#24 Roger:

I would agree with you only if RE prices hadn’t jumped an unrealistically large percentage in the past 3 years or so.

All of the factors you mention have always been there. They weren’t something the just appeared and caused the bubble. Therefore, their continued existence would be irrelevant to either propping prices/sales up or pushing them down.

You have to look at the underlying cause for the massive increase in demand, sales, and prices:

1. Cheap credit. Despite our “stronger lending standards”, you can’t deny that banks were throwing money at people like never before. 0/40 mortgages, stated-income for the self-employed, unusually low interest rates. The USA started this, and it spread to almost everywhere else in the world.

2. Industry spewed “RE never goes down”, other propaganda, and resulting public sentiment. People saw others making money and like every investment that undergoes mania, the general public jumped on board thinking (because they were told) that they’d miss the boat if they didn’t. Take a look at what has happened with every investment in history that the public latches on to thinking “it can’t lose”.

Those two factors were the basis for pretty much every massive RE rise around the world, Winnipeg included. In some areas, it caused a positive feedback loop with other industries like construction and energy. Now that the credit and sentiment are vanishing, those gains will revert and after an overshoot downward, a basis on fundamentals will return. Some places lagged in the boom, and they will lag in the bust. Even places that had reasonable prices and didn’t experience a boom are falling. Look at Houston, TX.

Like Mike said in #57, every city thinks they’re different, until it happens to them. It’s because they’re not focusing on the root cause of the bubble.

#79 David Bakody on 04.12.09 at 3:23 pm

Home buying was always a matter of living not an investment for me, good schools, handy to work and shopping. I was raised in the country in a time when one could stick out a thumb for a ride if needed …. those days are long gone. So buy what you can afford to live in and still treat your family with a good outing now and then making your home a happy home not a show piece with no fun times in it ….. and that ladies and gentlemen is the best bench mark during any market.

#80 nonplused on 04.12.09 at 4:08 pm

#15 Steve

It means Canadian Banks can’t tell quite as big of fibs about their balance sheets as US banks.

The US is allowing banks to model assets on the assumption that the assets really aren’t as bad as the market indicates and that they will recover. But it’s based on the assumption that the subprime market will recover, CDS losses will go away, and a return to the boom times is imminent. More likely the market is correct so the Canadian method is the better one.

#47 Billy – Scared like hell

“controlled earthquakes and tsunamis…” Um. No. Got to check the credibility of those websites before you put on the foil cap.

They do have enough nukes to fry everybody though, but that’s been going on for so long it seems hard to stay excited about it, even though rationally it seems like a pretty dangerous way to run a planet.

#49 MMMM Squirrel

It could be a bear market rally. I wouldn’t take a single data point (full shopping mall in Kelowna) as an all clear signal. The stock market rally is as hard to explain or predict as anything else but I’m putting my money on the financial sector profits this quarter as the ignition point. I’m also not willing to put an ounce of faith in the reported profits. The banks have been lying their way through this whole thing and I don’t see why they would stop now.

Y2K was averted because of a serious investment in fixing the problem ahead of time. But there were bazillions of lines of code that did have to be fixed. Just because they got most of it fixed ahead of time does not indicate there was never a problem. That’s like saying that because you didn’t get the flu this winter the shot was a waste of time and money.

#57 Mike (authentic)

I’ll venture a guess: Someone making $12/hour cannot afford to buy anything. Once groceries and all that are done I think that person would have to share an apartment with someone else.

But the bank would probably loan them $72,000.

#81 john m on 04.12.09 at 4:44 pm

#68 Got A Watch on 04.12.09 at 10:57 am

#37 john m – I believe farmers in Ontario pay the migrant farm labourers at a rate well below the normal minimum wage, they have a special rate, IIRC around $5-$6/hr. With no benefits……….Actually the farmer i work for pays them minimum wage and i believe all the local farmers do…he hires jamaicans and provides them with very nice living quarters (inspected),he also has to provide them with laundry facilities,take them grocery shopping etc.Its not terribly hard work and breaks are given as at any workplace.An official also stops in and checks on the welfare of the workers at times. They are good workers and they appreciate their jobs. He tried for a few years to depend on local labour …it was a disaster,never knew if they were going to show up for work etc.

#82 WillsDad on 04.12.09 at 5:44 pm

Re: Tree farmer-Canadians think they are too good for the work.

The thing you’re missing is, Canadians need a higher wage since they have to live year round in a high-tax, expensive country. You don’t think there would be a line-up a mile down the road if a Canadian could bust his butt for the summer and have enough money to live comfortably for the rest of the year? You’re comparing jalapenos to potatoes.

#83 Grumpydawgs on 04.12.09 at 6:08 pm

#69, sorry to burst your very correct attitudinal bubble but the REBGV publishes aggregate median statistics, not actual house price data. The reason you have assumed that SFH prices have gone down 15.1% is that the number of higher priced houses are not selling and that skews the median price down , it does not represent the price of houses themselves. The smoke and mirrors game is how the the REBGV fools the unwitting.

#84 Bottoms_Up on 04.12.09 at 7:19 pm

http://www.policyalternatives.ca/~ASSETS/DOCUMENT/BC_Office_Pubs/bc_2009/CCPA_growing_gap_full_report.pdf

Sorry if this has been posted before. Average family income in BC is less than the Canadian average.

#85 . . . fried eggs and spam . . . on 04.12.09 at 7:32 pm

In a weird part of Lotusland, this was news today . . .

Kelowna housing starts nose dive
by Castanet Staff – Story: 46207
Apr 12, 2009 / 11:00 am

March was a slow month for housing starts in Kelowna.

“According to Canada Mortgage and Housing Corporation, only 44 homes were built in March, down from 250 homes last year at the same time.

“CMHC market analyst, Paul Fabri, says first quarter housing starts dropped well below the record levels seen in 2008.

” ‘Demand for new homes has cooled off in response to strong price competition from a well supplied existing home market. Rising inventories of new, completed and unsold homes have also contributed to fewer housing starts this year’, says Fabri.

He says with sales of both new and existing homes moderating, home buyers will benefit from better selection and improved affordability in 2009.

“ ‘Kamloops, Vernon and Penticton housing starts were also down in March. Nationally, March housing starts increased to 154,700 units, seasonally adjusted at annual rates, from 136,100 units in February’.

Fabri says in B.C., the seasonally adjusted annual rate of housing starts fell to 10,000 units from 12,100 units the previous month.
——
The difference between 250 and 44 new homes is that there are a helluva lot of workers, either now on EI, moved to Voncvouer or gone somewhere else to shovel shit for a living.

In the US, it appears there is a second and larger wave of foreclosures, besides the fast-emptying strip malls and places.

All these mortgages have to be renewed or foreclosed at some point, but what will the banks end up doing with empty houses on which they have to pay property taxes? Trash the houses?

#86 "Sir" North Vancouver Citizen Jr. on 04.12.09 at 7:44 pm

U.S. Nationwide Tax Revolt Is Coming…

…Taxpayer Resentment Is Growing…

http://globaleconomicanalysis.blogspot.com/

#87 VivaViva on 04.12.09 at 7:45 pm

Garth, I truly believe many of the north american’s (employed ones or couples who just married and employed right now) will continue trying to LIVE LARGE & LIVE BIG, SPENT IT ALL until they hit the “STOP” sign (LAID OFF or SALARY CUT), espacially those ones who are VERY VERY AGRESSIVE to go out to buy HOMES now and being BRAINWASHED by the MEDIA ABOUT THE LOW MORTGAGE RATE SCHEME and LIQUIDATE YOUR BANK ACCOUNT EVENT !!!

#88 hagbard on 04.12.09 at 7:46 pm

Help Wanted: Spell checkers for Garth’s forum.

#89 squidly77 on 04.12.09 at 8:04 pm

eduardo besides vultur do you have any friends

trying to justify $250,000 for a renovated 30 year old crap apartment in calgary is futile
and btw 41,000 are currently collecting EI in calgary and there are many more not counted in the gubberments official numbers~contractors and those that have already exhausted there EI benefits no longer count
google it for yourself then go have a beer with your loyal friend

#90 squidly77 on 04.12.09 at 8:16 pm

eduardo do you ever think what the consequences of a 40% (to small) price crash would do to calgary ?

do you think that when the mortgage owners 5yr term is up that the bank will issue a $400,00 mortgage on a house thats presently worth only $240,000 ?

calgary has already seen a strong 20% price decline
another 20% is all but guaranteed and for my money we will see another 30% after that bringing the avg priced sfh to $160,000 a price that the average calgary family can afford

#91 "Sir" North Vancouver Citizen Jr. on 04.12.09 at 9:26 pm

#88 hagbard
Help Wanted: Spell checkers for Garth’s forum.

U.S. Ctiies Trun to Fees to Flil Bgduet Gpas…..

http://www.nytimes.com/2009/04/11/business/11fees.html?_r=2

Teh Vnashing Shppiong Mlal……

http://www.theweek.com/article/index/94691/The_vanishing_shopping_mall

#92 Chincy on 04.12.09 at 9:32 pm

Well worth the listen below;

http://www.pbs.org/moyers/journal/04032009/watch.html

#93 . . . fried eggs and spam . . . on 04.12.09 at 9:33 pm

This will cause a little kafuffle-duddle if the collapse of the US greenback comes to pass! — http://tinyurl.com/d9ag5g

“A great proportion of China’s foreign exchange reserves are invested in US treasuries and banknotes.”

#94 Eduardo on 04.12.09 at 10:22 pm

Squidly,

At 160,000 for an average SFH @ 8% (retardedly high rate if you think that there is also deflation and housing values are decreasing) a mortgage would be 1200 a month. A Condo would be what? 100,000?

A 160,000$ place would have a 930 a mo price tag @ 5% rates.

Tim Hortons workers will be owning 1500 sqft SFHs hahaha.

What is the average income in this mystical unicorn-laden world of yours? Has it also receded from 50,000 a year to 25,000? Alberta’s minimum wage is 8.80, so don’t count on less than 18,000, hahaha.

The average income in March 2009 was 24.30 an hour at a 5.8% unemployment after all the recent layoffs.

http://www.finance.gov.ab.ca/aboutalberta/labour_force/labour_stats.pdf

Regarding what the banks will do when people have to renew their underwater mortgages, are they just going to sell their houses under power of sale for 240,000?

At least in Alberta, people are on EI because they can collect it and they don’t want to go work at Timmy’s for 15 an hour even though there are jobs, as opposed to Ontario where there’s no jobs anywhere.

I’m glad I can crack you up squidster, cause I think you’re hilarious too.

#95 Eduardo on 04.12.09 at 10:34 pm

To be clear Squidster,

If the average income is 50,500 in Alberta right now, then if you have a family with 2 workers then you are at 101,000 per household.

250,000 for median condos and 375,000 for median SFHs is at 2.5 to ~3.75 income. That’s not pricey compared to other demographics where the net income from that gross income is much less (I’m referring to the 3x gross income rule).

A 160,000 SFH would be a price that a large group of bottle collectors could afford in Calgary, haha.

#96 Future Expatriate on 04.12.09 at 10:41 pm

#45- I vote amazing prescience, compared to all the ostriches and circus clowns on the other side.

#97 vantown on 04.12.09 at 11:26 pm

Gord in Vancouver writes,

Next time, conduct your own research before posting facts that you want to see/hear. This link shows that the REBGV stated a 15.1% decline.

http://www.rebgv.org/housing-price-index?region=all&type=all&date=2009-03-01

First of all, I don’t “want to” see/hear that prices are sticky in Vancouver–it’s bad news for me, because I want to buy.

Second, I know, I know, I have been following these statistics religiously for years. The trouble is, if you actually shop around there has been very little real change in prices. When someone has several offers at or over list, you can’t go to them with the REBGV Housing Price Index in hand and tell them they need to be charging less.

#98 Vancouver_Renter on 04.13.09 at 1:05 am

#88… “Help Wanted: Spell checkers for Garth’s forum.”

I’ll do it… if the job is unionized, pays $75/hour, allows me to snooze on the job, provides extended medical and dental, gives me 6 weeks of vacation each year, pays a multi-year equivalent severance package, and provides a healthy pension for life – all guaranteed by government bailouts if Garth runs into financial difficulties. If my demands aren’t met, I’m picketing this site and maiking shure mey speling iss atroshus.

#99 Informer on 04.13.09 at 1:34 am

Re: Tree farmer-Canadians think they are too good for the work.

#68 Got A Watch on 04.12.09 at 10:57 am
#82 WillsDad on 04.12.09 at 5:44 pm

PeFoCaHo

The answer is simple. I call it the Permanent Foreign Canadian Housing Plan (PeFoCaHo for short). Being a Canadian farm worker I should emigrate to Jamaica, Barbados, Trinidad-Tobago, the Eastern Caribbean (Antigua, Grenada, St. Kitts, St. Lucia, St. Vand Montserrat) or Mexico, raise my family there, and work my butt off in Canada as a temporary foreign worker like I do now anyway as a full-timer. Sounds like a sweet life, right now I work 12 months a year, but hell if I can take half or three quarters of the year off and live in a tropical country I’m game.

http://www.hrsdc.gc.ca/eng/workplaceskills/foreign_workers/ei_tfw/saw_tfw.shtml

#100 Mike (authentic) on 04.13.09 at 5:09 am

#95 Eduardo “If the average income is 50,500 in Alberta right now, then if you have a family with 2 workers then you are at 101,000 per household. ”

Eduardo, where are you getting your stats from because they are not from the Alberta Gov’t:

Most current stats for Alberta:
http://employment.alberta.ca/documents/LMI/LMI-WSI_2007_wss_summary.pdf

http://employment.alberta.ca/cps/rde/xchg/hre/hs.xsl/2653.html

$50,500 is closer to the TOTAL family income average, not $50,000 PER PERSON.

With that, Squidly IS right based on Alberta Gov’t stats. I think you owe him an apology.

Mike

#101 Gord In Vancouver on 04.13.09 at 10:28 am

#97 vantown

Thanks.

#102 dekethegeek on 04.13.09 at 4:31 pm

#17 The First rick
yeah i’m a “peach” because…..
i expect staff to show up on time.
I expect staff to be clean shaven
I expect staff to actually want to work.
i expect staff to take the iniative rather than be spoon fed work for the simplest of tasks

What a slave driver i am…………i should be in jail.

#103 Eduardo on 04.13.09 at 6:39 pm

Actually Mike,

http://www.finance.gov.ab.ca/aboutalberta/labour_force/labour_stats.pdf

is a government website which shows an average hourly wage of 24.30 which multiplied by 40 hours per week and 52 weeks in a year grosses 50500 and if you believe the total family income is that, then you are a complete fool.

#104 Eduardo on 04.13.09 at 6:43 pm

The funniest part Mike is that you posted a link showing a ~24$/hr wage which if you knew how to multiply is ~50k per year.

Back to grade 3 for Squidster and Mike

#105 Jimmy on 04.13.09 at 8:29 pm

Hey Garth,
What do I have to do to get a government job?

If I don’t get it, I’m gonna go collect welfare and drive a cab on the side

#106 DBG on 04.14.09 at 1:06 pm

Squidlly77

I am surprised you haven’t announced recently the Alberta market has CRASHED.
Is the dream still alive?

I miss that daily crash posting. Funny stuff.

20% isn’t a crash it’s a correction. Also, everybody didn’t buy at the top. Stats 101 ………you should really take a course just so you can keep up.