Merchant of debt

carney1

The lead story on the supperhour news in Calgary TV land Tuesday was (and I quote), “Condo market collapses in Alberta.”

Meanwhile in Toronto economists were clucking over the latest new housing stats. Disaster city. The pace of construction in the first three months of the year plunged by over 60%, while condos crashed almost 80%.

About this time, in Ottawa, came a stunning admission the feds are losing control. The talking was done by the Bank of Canada which tripled its estimate of how bad the economy will be in coming months, while slashing its interest rate in half. It’s now a quarter of one per cent, considered to be virtually zero, and at the lowest point in history.

Obviously cheap money’s intended to goose borrowing and spending. The effects of this were detailed here in the previous blog, with young, hormone-drenched buyers flocking to grab homes they think are bargains but which are likely to blow up. The sad fact is that tricking people into more debt seems to be the best policy Canada has right now. Of course, we’ll regret this. Big time. The seeds are being sown for a second leg down for housing.

Money from Ottawa’s stimulus program – announced in January – started flowing just 20 days ago. In the meantime close to 200,000 jobs have been lost. Despite the rhetoric, there have been no direct rebates to families, no middle-class tax cuts, no more cash for the unemployed and no assistance to struggling small business guys. So, it’s been left  to the central bank to save us with 3% mortgages, 2.25% lines of credit and its bold plan to throw the kids under the debt bus.

But it won’t work.

Debt started the dominoes falling, and piling on more is insanely dangerous. Already the average household debt load in Canada equals 127% of income, virtually equal to the US. Mortgage and credit card debt are at record levels, while the savings rate is zero and more than half the population has put away absolutely nothing for retirement.

We already know the government has gone from a $12 billion annual surplus three years ago to a $30 billion deficit now. And we know the consequences – higher taxes, higher inflation and higher interest rates. There’s absolutely no question that the cost of money will be going up, since it can’t go lower. We know people borrowing today will be renewing at far higher loan costs in five years. And we know what that will do to disposable income.

Meanwhile in the States, Obama is radically increasing the size of government, without paying for it. Trillion-dollar deficits as far as the eye can see also spell higher taxes and a far weaker country. Now in its fourth year of real estate meltdown, America has many more to come. As do we.

What to do?

* It’s still a time to be selling, not buying. Take advantage of this real estate bear rally to unload. Then pray for the buyer.
* Want to vulch? Wait.
* Pay off debt, especially floating rate debt.
* Prepare for a lot less government in the years to come, just as energy prices rise and a climate crisis replaces the financial one.
* Buy a timeshare in my new bunker.
* Get self-employed.
* Challenge conventional wisdom. No nation ever spent its way to health. No family prospered through debt. There is still only one path to security.

The real estate market cannot collapse and boom at the same time. The government can’t lead and follow. Down is not up.

117 comments ↓

#1 ca on 04.21.09 at 10:37 pm

What does “vulch” mean?

From the ancient Greek verb, “to vulture.” — Garth

#2 Grantmi on 04.21.09 at 10:41 pm

I just loved watching BCTV tonight… Buy, Buy, BUY!! Best time ever, Low rates, low prices… buy, buy, buy.. Yummm Yumm Yummm!!

Mean while the real estate signs at condo and apartment blocks are starting to pile up on each other like piles of wood.. so that they have to get bigger poles with reinforce it with concrete to hold them up.

But can’t happen here in BC!! No! We have the Olympics!!!

“Move along.. nothing to see here!!”

#3 Donald on 04.21.09 at 10:44 pm

An interesting article on the effects of migration on real estate prices in Alberta

http://tinyurl.com/c8vxsk

#4 Da HK Kid on 04.21.09 at 10:56 pm

Again, strong reasoning Garth, I dont know how much more clearer these points could be.

Why Housing Is Not Coming Back (April 21, 2009)

The financial MSM and government officials alike are looking for a recovery in the housing market to bubble valuations to “restart the economy.” That is not going to happen–not this year, not in five years or even in ten years. Here’s why.

The entire world is hoping that housing is about to “recover” and re-ascend its glorious bubble-era heights of valuation. But it’s not going to happen.

Why not? For several fundamental reasons:

http://www.oftwominds.com/blogapr09/housing-not-coming-back04-09.html

#5 Da HK Kid on 04.21.09 at 10:59 pm

Here it is again in edited format.

http://www.businessinsider.com/5-reasons-why-house-prices-may-never-recover-2009-4

#6 Romeo Vitelli on 04.21.09 at 11:01 pm

So how much is that bunker time-share?

#7 Increasing that 1% on 04.21.09 at 11:09 pm

In the lurches now of trying to sell. Actually surprised at slow response as I think my house is great price. Gosh, it sure looks good now, wish I had lived in it like this.

Once this is sold, I’ll start looking into that timeshare Garth, if it’s not all sold out by then! And then, work on that self-employed thing.

BTW, my agent stressed the importance of not asking for too large of a deposit on the listing, saying that there are still those buying with no money down…who won’t have much for a deposit and we don’t want to turn them off.
I know I can change that if (I mean when) an offer comes in, but agent talked about can only get $ via court order anyway, so at that point would just be sueing to get anything, and lawyer would cost more than small deposit…

#8 dd on 04.21.09 at 11:10 pm

Pat Carney … don’t worry Canada will be fine.

In the mean time he is dropping the bank rate to near zero and is floating a plan to print money (buy back debt).

Mark Carney. Pat was a Mulroney-era cabmin. — Garth

#9 Zoronqueen on 04.21.09 at 11:32 pm

Garth wrote:
* Buy a timeshare in my new bunker.
Ha Ha….Is it blocked off during natural disasters, bank holidays or war? Does that come with meals or a la carte?

Thanks for the reassurance that we followers have been getting that this is a dead cat bounce.

Also the new gen X, I being one takes a different look at money. Credit-debit=networth

but it should be, Debit-credit=net worth

We are so conditioned to be slaves to the bank that we are blind to what’s really happening. You wrote “average household debt load in Canada equals 127% of income”

I suspect that the upper middle class of Gen X are worse of than the 127%. Any one in the 6 figures area is living large. Wonder how they are going to cope if interest rates go to even 6-7%.

For example a couple making 200K decides that a 400K mortgage, with a 100K downpayment would be grand,
at a interest rate of 2.75%, monthly payment would be $2,216.30 at $797,867.30
Total of 360 Payments.

If interest rates rose to 6%–monthly payment would be $2,981.54 at $1,073,352.76
Total of 360 Payments

According to http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html#

buying is never better than renting over 30 years if annual house appreciation is 0% and annual increase/decrease is 0%

Yet we are told we are building equity into this house. Even if the couple rented at $2200 per month

#10 North Vancouver Citizen Jr. on 04.21.09 at 11:54 pm

Garth writes…

1/* Buy a timeshare in my new bunker.
2/* No nation ever spent its way to health.

1-…The Muskokas are nice enough in the summers…it’s the winters, it is too isolated there and too cold too…We can have marshmallows roast campfires for only so long.

2-…I guess that leaves only New Zealand who are heeding fiscal conservatism…

Garth, time to stop worrying about Alberta’s condominiums…instead best to tell Ontarians that things will be the absolute worst in Upper Canada and that anyone who is able, should emigrate away from Ontario and immigrate to BC.

#11 Jay Currie on 04.22.09 at 12:40 am

Condos will crash simply because there is so little reality to their pricing and what you actually get. Granite countertops only take you so far in a place which was shown with 3/4 sized furniture.

The BOC is doing what comes naturally to central banks and my bet is that there will be some “quantitative easing” as well.

The Canadian problem is that our problem is mainly employment driven rather than finance driven. It is attached to the reality that banks lend to people who have decent jobs and when those jobs go the banks and the rest of the economy is screwed. Making lending easier is not going to solve the problem of the guy laid off from a $40.00 an hour job.

At the same time, governmental intervention to protect those jobs makes little sense if we are propping up industries in which we cannot be competitive or which are in massive decline in any event.

If government has a useful and efficient role to play it is as a safety net and as a facilitator to an economy in transition. Canadians can and will do jobs where we are not trading on wages but rather upon skill. A big hint: if a robot can do it you are better off building the robot than competing with it.

#12 asian immigrant on 04.22.09 at 12:54 am

I am trying to see the logic in what the authorities – pols, boc here & pols, fed, treasury in US have done so far.

trying to see the positives, i’m thinking what they are trying to do is like vaccination. the patient(economy) has the flu(debt) and the rate cuts, bailouts, tax cuts & quant easing is the vaccine. so if people renovate, buy houses/condos/cars etc then that creates demand which starts a chain reaction.

but on this blog and elsewhere its said that more borrowing(debt) isnt the answer as people are overloaded with debt already.

yes, but this debt isnt called now. will the lenders do a margin call on the people. the pols & boc know that if people have piled on more debt now on top of what they already have, and conditions become too onerous that it results in high rate of foreclosures/POS every year in the near future, there will be anarchy and that’ll be more difficult for them to handle.

so if all their actions lead to the start of another business cycle then it’ll be like any normal 12-18 mth recession and not a protracted one of 3-5 yrs.

garth, why wont this happen?

one factor that i think plays an imp part is whether the rate cuts are in concert in the major countries of the western world. if they are not then there will be imbalances in demand creation.

#13 . . . fried eggs and spam . . . on 04.22.09 at 1:03 am

“Disaster city.” — Is that the same as Gotham City, where Batman & Robin & Spiderman & Superman (a.k.a. Bob & Carol & Ted & Alice) all live, cuddled together in oodles of newly-printed debt, presided over by The Merchant Of Of Venice? Be sure nice to visit there someday!

Carney was never a merchant of debt, just a sergeant carrying out his orders from Paulson and Bernanke, who took over from their predecessors.

“. . . the feds are losing control.” Deliberately? I say yes, it is deliberate and there is nothing anyone can do about it — except tax revolutions.

What has caught most off-guard and flat-footed is the sheer speed at which everything is happening. Talk about Bamboozled In Bozoland!
——
In tandem with Garth’s current post are two links. First is an article on Mish’s site, second is from The Guardian. See if YOU can spot the cheat!

http://tinyurl.com/ch2crt and http://tinyurl.com/dk3ezp.

Strange how things go together, like Gin & Tonic, Cheeseburgers & Onions, hairy and Bigfoot. This planet’s a laugh every moment!
——
It stands to reason that no one, anywhere, has any idea of what’s going on anymore. — http://tinyurl.com/d97o86

#14 Coho on 04.22.09 at 1:16 am

As the saying goes, “When America sneezes, the world catches cold.” And Canada being its largest trading partner, will get the flu. But, the spinners will keep spinning that Canada is somewhat detached from what happens in the US. And it appears our “leaders” have decided to make things worse by following the US zero interest rate policy.

The misguided having been coerced to follow suit with America think these are desperate double or nothing decisions. They are half right…and that is, they are right on the double part, meaning their zero interest rate policy is going to make a terrible situation twice as bad for reasons Garth has pointed out.

Looks like each “leader” sitting at the table at the G20 poured a double-shot of lethal poison for the person sitting immediately to his left, as ordered by the unseen ruling elite. The “leaders” were of course, allowed their choice of tea to drink it with.

It is becoming more obvious by the day that those much more powerful than big banks, coporations, and governments have an agenda that runs contrary to the good of humanity.

When policies are made that appear totally wrong or even insane to the average person, let alone astute observers, and knowing that the controllers of this orb may be many things, but certainly not stupid, then we must ask ourselves what is the desired end result of those ordering these “insane” moves.

#15 ET on 04.22.09 at 1:17 am

THE Bank of Canada SAID WE WOULD ENJOY A GROWTH RATE OF 3% BY 2010. I MUST HAVE MISSED ALL THAT OR HAVE FALLEN INTO ACOMA AND IT’S THE NEXT RECESSION ALREADY. IT’S 2015 ALREADY RIGHT?
I AM VERY CONCERNED, THESE GUYS AT THE Bank of Canada HAVE NO IDEA REALLY ON WHATS GOING ON.

#16 lightning_kash3 on 04.22.09 at 1:18 am

* Want to vulch? Wait.

When will this mini bubble be over? once this mini bubble is over, then it’s a good time to buy?

#17 The End is not nigh on 04.22.09 at 1:31 am

“The real estate market cannot collapse and boom at the same time. The government can’t lead and follow. Down is not up.”

Excellent post Garth, I am one of the worried ones who is sitting on the sidelines waiting for the Real Estate pig to go to the bathroom, somedays I think it is not going to happen and I contemplate jumping in….. naaaaaahh not yet. Luckily I have time, I think I will sit tight a little longer. I really really wish I had a crystal ball though!!

Interest rates will surge at some point and while I am frustrated by the people using homes as investment vehicles, I may pity them when that big fat pig finally grabs the paper, closes the door and shits it’s guts out.
Anyone have any Pig laxative?

#18 Cameroni on 04.22.09 at 2:33 am

You are absolutely right Garth.

People borrowing today will be in deep sh** once interest rates rise. I talk about this to friends and family constantly and my warning is always similar to your recent remarks. “Interest rates have only one way to go..and that is up”

And yet there is still a pervasive sense of optimism that everything will be alright, that the government and the powers that be have a handle on the issue. It is as though they believe we cannot be harmed by higher rates,.or that somehow we will be sheltered from them. (I remember the 80’s though and not much has changed when it comes to false optimism)

I am frankly stunned by the level of denial. Out here in Saskatchewan, (North America’s last bastion of a booming economy), people tell me almost daily that we will not be affected by the trend of the US and what is clearly a global disaster. They steadfastly refuse to believe that we are also headed for hell in a hand-basket. Are they blind?

We are a little blessed out here though. Since our major exports of Potash, Wheat, Gas and Uranium are all holding up well in the big picture. And even at reduced prices we can continue to sell everything we produce. Net effect: no layoffs. The world is short Uranium, short Grains and (trending) short Gas. Insofar as Potash goes..you know the story. Six billion still need to be fed. The global economy will buy as much Potash as ever to forestall famine.

But we are still not an Island and eventually the facts will catch up with us. It is hard to argue against the logic of strategic resources at this juncture yet in my heart I know we will also have a downturn. It cannot be any other way. The writing is on the wall.

And higher interest rates may be the catalyst for that big reality check. But wait, where are those rates going to come from? The government has set rates low to stimulate the economy.

I think the mistake that so many are making is that they believe that the Government is in control of rates long term. Nothing could be further from the truth. Our rates can and will be affected by overseas markets, by the level of risk, by how much inflation is driven by debt monetization, by how our credit rating is affected by government policy. To sell debt into foreign markets we WILL be offering higher rates to lenders and those rates must ultimately be passed on to taxpayers.

This little interest rate stimulus holiday will end and it will end with disastrous results. My own market bets are on higher rates and I expect to do very well.

Why?

Because I am buying in at the bottom. And like you said yourself. Rates can only go one way from here, and that is up. So true and so well said.

Cam

#19 ralph on 04.22.09 at 3:01 am

Everybody thought that the Titanic was unsinkable. Most everybody was living the good life on that ship. Then it hit an iceberg.

Looks like we hit an iceberg again. This time the ‘berg is called debt.

#20 Sail1 on 04.22.09 at 5:42 am

Garth, haven’t we heard all this before?

#21 Jimster on 04.22.09 at 5:50 am

Garth, do you know why Canadian mortgage terms are typically 5 years while in the USA terms are 25 years?

TIA

#22 A. Parker on 04.22.09 at 5:51 am

‘Down is not up’. Right. But perhaps down is the *new* up!
http://www.youtube.com/watch?v=tQ9le9DMd4Q

#23 wjp on 04.22.09 at 6:14 am

No matter how convenient and inexpensive the government makes it to borrow, those who fear the loss of employment are unlikely to jump into the consumer cue. For the government, unless tax revenues match expenditures, the day of reckoning comes closer and closer. If unemployment figures to continue at the presence pace, the deficits will mount. Printing money is the beginning of the end. Living within one’s means is the only salvation. That goes for individuals and governments. Once Chrysler is no longer in Canada and GM is but a shadow of its’ former self, once unemplyment from supporting parts makers etc. hits main street, we will rue the day we supported stimulus and deficit spending as it will require double what we already have projected out there and still produce negative job figures.
How does this equate with buying real estate at this time?

#24 Joanne on 04.22.09 at 6:29 am

This is exactly what happened when Greenspan artificially dropped the interest rates. Housing boom #1. However this time is much different . Housing is overvalued, wages haven’t increased or are falling. Companies are cutting jobs. We are waiting for the final shoe to drop on the canadian economy. Bankcruptcy of perhaps two major car companies. Finally we will all get rose coloured glasses from the banks. The banks will continue to lower their rates and will never have to worry about higher borrowing costs. Get ready Boomers, freedom 55 will have a high price to pay to Generation X.

#25 Maurice on 04.22.09 at 6:37 am

The only good news in that entry was the prediction of less government. With Elementary teachers in Peel getting $92,000, firefighters in Burlington $80,000 and the CEO of Joseph Brant Hospital $325,000, the problem is obvious. 30% of the population, government, getting 50% of the income shows, clearly where the problem is. When the unemployed are subtracted from the non government employees who are paying the bill, collapse is eminent. Taxes are going to sky rocket.

#26 Chris in England at the moment on 04.22.09 at 7:01 am

“Prepare for a lot less government in the years to come..”

A lot less government is what I have always hoped for, though somehow I don’t believe that less money in their coffers will mean a slackening of the stranglehold they apply. They will still find the money to try and control us (at the expense of any real help where it is clearly needed). Perhaps that is what you meant. Or maybe you meant a lot less goverment because there will be one world government? That could be cheaper! Time for us all to get as self-sufficient as we can be, with a network of people that have useful skills we can trade amongst each other. If there is to be less government of the kind we might hope for, and more government of the kind we don’t want, then time to turn our backs on it. [Chris hates government.]

#27 Chris in England at the moment on 04.22.09 at 7:05 am

Meanwhile, here is some comedy http://news.bbc.co.uk/1/hi/uk_politics/8011321.stm

#28 Toronto C9 Renter on 04.22.09 at 7:29 am

Garth, yesterday’s paper said “The central bank lowered its benchmark lending rate to by 0.25% to 0.5”. My thought — “Ho Hum”.

Your take — “slashing its interest rate in half” — was much more provocative. (to your credit, no exclamation mark). My thought, until I re-read it, was “Holy Crap!”

Similarly, on growth, MSM said: “BOC projects the economy to shrink 3% this year, with growth of 2.5% in 2010 — down from the initial call of a 1.2% drop in 2009 and 3.8%in 2010”. My thought – “ya think?”

The Turner spin: “BOC tripled its estimate of how bad the economy will be”

Conclusion, after reading your piece — wow, I guess the sky really IS falling!

#29 Kash is King on 04.22.09 at 7:31 am

Wowzers!

http://www.wcbs880.com/Freddie-Mac-Chief-Commits-Suicide/4249204

#30 Ray MacDonald on 04.22.09 at 8:07 am

We bought our first house in 1973. Now we are living in our 4th one. We’ve only owned the places we’ve lived in.
We lost money in Quebec in the late 70s, paid 13.25% interest at one time in the 80s, had the place paid off by 1984.
Now we live in a nice newer bungalow in a small town in Eastern Ontario.
Haven’t seen one penny of the cash invested in real estate yet. We get the imputed rent minus the costs of taxes and maintenance.
A house is a great place to live and raise kids, but as a serious investment – nah. I don’t see why everybody is so anxious to leverage up to the max in times of uncertainty.

#31 Rhino on 04.22.09 at 8:30 am

Yippee!

I have become a success in the “New Economy”.

Garth,
i have to put a major caveat on your item “* Get self-employed.”

After 6 years working to build up a decent lifestyle through self-employment, the facts are that self-employment is taking a MAJOR hit as well. Contract work is being cut back at a dangerous rate, as I have found my clientele have dropped by 1/2, and the remaining are holding on to their cash in fear of their own future.

After 6 years, i do not have ANY EI BENEFITS, no paid medical plan, no retirement fund and my savings are being slowly depleted to make up for shortfalls.

Yes, self-employment has its benefits, like being able to write off expenses and live better at lower wage, but it is a tough haul, and getting more competitive.

Consider the article in the G&M today:
“Jobless picture may be even worse”
http://business.theglobeandmail.com/servlet/story/RTGAM.20090421.wrjobs22/BNStory/Business/home

Which states how seriously understated the reality is, and STILL does not consider the impact on self employed nor contract workers.

Yet, “I am a success in the new economy”…

Gone is the stress of a corporate management position (in manufacturing) making six figure compensation.

Gone is the stress of fighting to gain new clients as a self-employed consultant.

Gone is the uncertainty of worry about paying a mortgage, losing the home, and too much KD.

Yesterday… I “landed a part-time job” at a local hardware chain making a little above minimum wage! Now I get to apply my university education, success record, and experience for 1/4 what I should be making.

But… at least I have SOMETHING!

AND, I get an opportunity to learn a new career at 55, in retail. Maybe it will help my consultancy…

LET US GIVE THANKS FOR WHAT WE ARE ABOUT TO RECEIVE….

#32 Jonathan on 04.22.09 at 8:32 am

Interesting to hear the IMF to take a couple steps backwards and warn countries that now is not the time to take on unnecessary debt, specifically countries like Canada and the United States.

We will find that our debt burden would have risen astronomically between 2010-2020 regardless of any financial crisis due to associated health costs, old age security and a shrinking tax base all due to the baby boomers retiring.

Taxes are going to have to increase and government will be laying off workers at the exact moment that we need the opposite. It’s going to be one rough decade and a half.

I think we are all really worried about the financial health of the United States. Of all things that confuse me is that the United States reported paying only 89 billion in interest payments. On debt of 10 trillion, that is only 0.089%. It doesn’t make any sense. It should be at least 400 billion. Something is up.

#33 CJ on 04.22.09 at 8:34 am

I just renewed a GIC and got a whopping 0.75% for one yr…no wonder people are jumping into housing!!

garth this is right up your alley..

http://www.chron.com/disp/story.mpl/front/6370000.html

#34 Central Toronto Homeowner on 04.22.09 at 8:38 am

The Bubble will be around as rates are low. I am beginning to believe that interest rates are the most important factor in Real Estate Bubbles.

The 1991 crash was the result of rates surging above 10%. If we had that now, things would be really bad. However with rates this low for at least a year, the bubble will continue.

#35 North Vancouver Citizen Jr. on 04.22.09 at 8:38 am

Ontario is on the brink of falling into the “Abyss”.

…Overpopulated and w/ what’s left of a manufacturing Province does not bode well for its citizens.

Ontarians, do not rely on your Brothers and Sisters who live in Quebec.

…You were there for them when their homes were flooded during Spring thaws…but the favour of Brotherly love will not be returned tomorrow…count on it.

Follow God’s chosen leader, Garth Turner…he lives amongst you, he will not desert you, he heals the sick, turns stones into bread…follow his lead….convert ypour nearest mine shaft into a multi family bunker…Collect snow for drinking water and grow potatoes in 4 X 4 frames…you can grow like, 120 lbs of the stuff.

or,

…move to BC ASAP…..anywhere in BC is good…though only the elite will find places in Vancouver.

good luck and may God Bless All

I also turn Pacific idiots into stone. Beware. — Garth

#36 Kash is King on 04.22.09 at 8:39 am

The heat was on?

http://www.thesarasotadeed.com/2008/10/fannie-mae-freddie-mac-under-investigation-for-possible-fraud/

#37 Kash is King on 04.22.09 at 8:44 am

Sorry for so many posts.

Comments about debt from Karl Denninger:

http://market-ticker.denninger.net/archives/979-Here-It-Comes-Prime-Delinquencies.html

#38 Gord In Vancouver on 04.22.09 at 8:59 am

What to do?

* It’s still a time to be selling, not buying. Take advantage of this real estate bear rally to unload. Then pray for the buyer.
_______________________________________________

Garth, I agree but be prepared for an avalanche of “HA !! HA !! Garth was wrong – real estate was just taking a breather” comments over the next three months.

Like that bothers me. — Garth

#39 john m on 04.22.09 at 9:02 am

Great post Garth….its reality…your advice and predictions are priceless and shockingly true. Thanks

#40 @Garth 2 on 04.22.09 at 9:14 am

Another good post. I *absolutely* agree on selling now while it’s good going but ONLY if you don’t actually need the house or you can realistically pay it off in 1-2 years.

I would say vulching is not a real prospect, unless you can buy virtually mortgage-free. Real price pressure will occur only as lending rates start trending upwards; so plan to buy with mostly cash, and then rates are meaningless. Vulching won’t work if you are leveraging.

Paying off debt is essential period! If you’re paying off debt, and it isn’t simply a mortgage, you don’t really want to own a house (as a speculative investment) right now.

The comments on government, self-employment, bunker timeshares, and being a maverick are mostly froth however. But it makes for good reading.

Now people! There is absolutely no surprise in what the BoC is doing. The BoC will attempt to artificially stimulate the economy until the US recovery takes hold. There is *massive* pressure on the BoC to do this, and I believe a contrarian move would not be positive for our trade position.

I expect rates to remain low until the US recovers–which should mean there’s no real rush to acquire mortgage debt. But people are doing it anyway. Too bad.

#41 @Garth 2 on 04.22.09 at 9:15 am

should be: can NOT realistically pay it off in 1-2 years.

#42 Rational purchasers on 04.22.09 at 9:24 am

Even though I agree with you and think that prices should be lower, all things being equal, people (at least in Toronto) aren’t behaving as irrationally as you might be thinking.

– Toronto average price: ~400K
– Toronto average household income: ~80K
– 5% down payment (20K)
– 5 year fixed @ 3.89%
– Mortgage qualification: $411,000 (from ING) with payments at $2033/mo

Pretty close to in line with reality, and even by historic trends.

No doubt, you’ll argue that rates will be higher in a few years — and they probably will be.

So let’s take that same house, and fast forward five years when that couple is up for renewal. The mortgage rate has spiked to more than double at 7%.

Assuming that income (for worst case scenario purposes) is taxable all in one person’s hands, which isn’t likely, the net income after tax for that household is ~67K and payments are still management at $2661/mo (albeit a bit more of a stretch).

#43 905er & Spouse on 04.22.09 at 9:25 am

Why is it that someone who waits to buy a house when it is cheaper is a vulture and someone who sells at the top of the market is some kind of hero.
A wise business person sells high and buys low. Both are good business people and wise investors.
If we are calling people who buy low vultures maybe we should call the people selling houses at the top of the market “selfish money grubbing scum”.

#44 Bill-Muskoka (NAM) on 04.22.09 at 9:27 am

The real estate market cannot collapse and boom at the same time. The government can’t lead and follow. Down is not up.

Garth,

Au contrare, all it takes is a newspaper, TV news, private publication to sway the masses. The only reality is there is no reality.

Perhaps there is a lesson in the old George C. Scott movie ‘The Flim-Flam Man? He understood how people truly are. Unfortunately, just when people think things are going great along comes REALITY!

#45 prairie gopher on 04.22.09 at 9:30 am

Hi Garth,

I will comment further on Cameroni’s post. Here in Saskatchewan we are being told that we are bigger than all of this gloom and doom. We have paid our dues over the years and now we own this era and all of Canada will envy us. Or was it the world? Anyway, according to our premier(pied piper) he will lead all of you Ontarians to the promised land where you will prosper and multiply and all will be good.

So Garth, when are you coming here to throw a bucket of cold water on all this hot air? I spoke to a lady yesterday who lives in an upscale area in Regina who pays $6k a year in property tax on her home. How many people have heard that little tid bit of info from the “come to Saskatchewan gang?” Tax is still the main issue in this Province. So when are ya comin??

#46 Bill-Muskoka (NAM) on 04.22.09 at 9:30 am

I bet the same people who view housing as an investment commodity to profit from bitch, moan, and complain about the price of oil? Same principle…You ARE the problem!

You refuse to see the effects of your actions on others, and then they fail to see the same when it is you who are affected.

#47 Nicholas P on 04.22.09 at 9:46 am

Garth;

Have you watched The Obama Deception yet?

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

Our “Merchants of Debt” in Ottawa are nothing compared to these guys.

#48 smwhite on 04.22.09 at 9:51 am

If you educate a population properly, then you don’t have to worry about gimmicky governments. Like Dave Chilton’s Weathy Barber, Paul Grignon’s Money as Debt should be part of the final high school year of any graduating class. Its even got cartoons so it should keep the Ritalin kids appeased…

http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=37138094

#49 PTDBD on 04.22.09 at 9:58 am

A message for the merchants of debt and the politicans that give them reign:


Ten principles for a Black Swan-proof world By Nassim Nicholas Taleb

another pebble, tossed into the void

#50 Anonymous on 04.22.09 at 9:59 am

The low interest rates are for banks, so they can make enough money on the spread to earn their way out of the hole. Think about the debt that Canadian banks are holding right now. Everytime your house goes down in value, the mortages become more toxic to the Canadian banks. And those assets are set to drop an additional 40-60%.

I don’t think it’s a bad idea. I’m not a big fan on handing over cash to the banks out of taxpayer coffers. So, let them earn their way out of this mess.

Remember that it’s the regular people who are to blame for bubbles. They bought dot-com stocks, then moved on to real estate, then oil, now they are in gold and so on…

It’s not just low interest rates that cause bubbles.

#51 Anonymous on 04.22.09 at 10:03 am

#43 905er & Spouse,

If you can buy a house at the low, I will call you a hero. Feel better? How’s your ego, doing champ?

Jeeze, people are so soft and weak these days.

#52 JoeCalgary on 04.22.09 at 10:14 am

“‘Deeper’ recession ahead says IMF”

http://news.bbc.co.uk/2/hi/business/8011907.stm

#53 smwhite on 04.22.09 at 10:15 am

#42 Rational purchasers

Perfect example, somebody squeezes into a mortgage at $2000, what happens in 5 years when you paid minimal on the pricipal and you payment is now at $2600 with rates at 6%.

Even at the lowest rates can go your still paying close to 45% of you income for a roof over your head once you factor in maintenence, property taxes and insurance. Five years later after minimal rate hikes as you pointed out, your paying almost 55% – 60%.

Then again, I recommend to anyone that can’t stand being a dirty renter to jump into the market, stop focusing on numbers and facts and take a good dose of the “Optimism Opium” and jump in.

Regardless, 5% – 10% gains a year are not sustainable along with only 2% gains in salary. And now salaries are going in reverse.

Buyers are drying up and sellers are growing.

#54 PTDBD on 04.22.09 at 10:17 am

Merchants of Debt – “I’ll gladly pay you next week for a hamburger today.”

Every day, billions of new paper is pushed out. The paper prestidigitizer is smoking! Consider our banks for example…how many preferred share offerings is that in the last few months? You’ve got the Preferred A, B, C, D, F, G, H, W share issues and more. An alphabet parade of borrowed hamburgers all supported by a trail of interest rates.

The piper is never paid…it’s like and individual repeatedly paying off a debt with yet another new credit card.

#55 Munch on 04.22.09 at 10:24 am

Great piece again, Garth!

I am asking all my friends to read your daily piece.

Much of what you write is universal, and applies to South Africa too.

Anyone here coming to the Soccer World Cup?

Regards

Munch

#56 From the Hip on 04.22.09 at 10:48 am

I really feel this is the last bullet the BoC has to fire. Interest rates at 0.25% is there last effort to lead the sheep to slaughter.

I genuinely feel bad for first time buyers being taken advantage of by real estate agents, banks, and our own government.

How do we get you a greater audience Garth? Your voice has to be heard by some of these buyers. Can you believe multiple offers are re-emerging in some areas. PLEASE tell your friends they are digging their own graves.

#57 Darryl on 04.22.09 at 10:50 am

NVC
“Ontario is on the brink of falling into the “Abyss”. ”

So is your hair brush!

#58 Bill on 04.22.09 at 11:03 am

For those with government jobs – not to worry, they are still secure, and are the most stable jobs out there.
I’d like to see anyone argue this.

#59 ralph on 04.22.09 at 11:07 am

“Freddie Mac CFO found dead

David Kellermann, 16-year veteran of mortgage finance giant, was named acting chief financial officer in September. Death was apparent suicide, police say.

The company was subpoenaed for documents relating to accounting, disclosure and corporate governance matters in September 2008, October 2008, January 2009 and February 2009. The filing also says that SEC staff was interviewing company employees.”

#60 Russian immigrant on 04.22.09 at 11:13 am

I have seen collapse. Economic collapse of USSR. Dead factories, banking system disappeared, inflation at 1,000% a year. Do not agree with Garth on minor things but applause in general! You are still better off in a big city. Moscow got through much easier than the rest of the country. But at the same time it is the opportunity time, start your own business, prosper. Because after rain it is always sunshine.

You do not have to be a rocket scientist to see what is happening in real estate. Just sit and look at simple fundamentals, like debt load, no increase in income per household and triple increase in house values. After thinking about it and remembering my previous experiences sold my 2 condos in fall of 2006! Paid off mortgage on my small apartment building and been renter since then. Did not regret doing that.

BUT anybody can go crazy when for more than 2 years everybody around you tells you that you are a fool. “Real estate will never go down” “Government will not allow another crush” “This is the best time to buy mortgage at 1.5%!” It is hard to stay sane and keep the course.
DO NOT WATCH TV! DO NOT LISTEN TO THE GOVERNMENT! DO NOT LISTEN TO REAL ESTATE AGENTS, MORTGAGE BROKERS and even your friends! Sit and think for yourself! Because it is you who will be paying the price for wrong decisions, not them!

There is an excellent strategy how to pay off your mortgage 2 or even 3 times faster with little to no change to your lifestyle. It is based on math. Just google “money merge account”. Had dozens of interviews with people and tried to explain this system. The main response: “Who needs to pay off mortgage at 2%!!!!” People WAKE UP!

#61 Keith in Calgary on 04.22.09 at 11:19 am

#7 said……..”BTW, my agent stressed the importance of not asking for too large of a deposit on the listing, saying that there are still those buying with no money down….…who won’t have much for a deposit and we don’t want to turn them off”

I wonder what percentage of these deals don’t close and fall apart.

#62 pbrasseur on 04.22.09 at 11:21 am

If you could summarize this crisis in one sentence: it’s about the fall of the shadow economy created essentially by an excess of money supply.

That excess of money generated artificial (shadow) wealth as opposed to true wealth created via productivity, shadow wealth is now evaporating and much of the economy associated with it is crumbling.

The excess of money did not generate inflation per say but went into various assets including cars but mostly it went to housing and surrounding industries.

It’s interesting to note that in Canada shadow wealth has not evaporated much so far and that does not bode well for the future of this economy.

Artificial wealth is … artificial and will disappear. That goes in Canada too AND for Canadian home prices.

#63 real estate timing? on 04.22.09 at 11:25 am

General thoughts about the direction of the market is one thing, but timing the markets, real estate or otherwise is always a fool’s game. Need to invest? Buy stocks when they represent a good value, not when you THINK it’s the bottom. Same goes for real estate, if you need a place to live, it doesn’t make much sense to keep paying someone else’s mortgage while waiting years to time the market.

Just my $0.02

#64 PTDBD on 04.22.09 at 11:26 am

The velocity of money – A lot of cartoon images are appearing lately of paper money blowing in the wind, lining the bottom of bird cages, etc.

The average man sees any savings blown away by zero interest rates. He is encouraged to go out and borrow because rates have never been this cheap. The car salesman points out that car prices are the least expensive in ten years as he stands before one showing a ticket price of $34,000.

Meanwhile, taxes go up, property taxes increase, utility bills refuse to decrease, water becomes a commodity and food prices skyrocket.

Those in the know, the connected, the insiders of political machinations make gigantic bets on those individual car companies and banks and nations that they know for sure won’t be allowed to go bankrupt. Imagine a Central Bank guaranteeing that interest rates won’t go up for at least a year? That’s unheard of!

Those in control can borrow a currency at super low interest rates and convert those $$$ in certain third world economies as long as they know that these will be protected and propped up using tax dollars from supporting nations. They key is control and certainty of knowledge. It’s called “The carry trade”. Guess who is doing the heavy lifting?

Meanwhile, the average man is left dangling, as his remaining cash blows in the wind and his taxes backstop the bets of the elite. The lender of last resort has become the bagholder and they won’t be satisfied until the taxpayer carries the weight of all those “toxic assets”.

What used to be called “Medicare” and “Social Security” is now termed as Entitlements. Pension plans are now based on the tilt of the gambling wheel.

The Masters of the Universe do have a plan, and the juggernaut grinds on, :-) going forward :-)

#65 Calgary_police_state on 04.22.09 at 11:28 am

Condo market has collapsed? Prices on mls.ca dont look like a collapse. One of those holes still costs around $300k. Is that a collapse? Hardly. Collapse against what? Insane prices? Collapse would mean that one of those holes in the wall were only $100K. Prices for condos(dumps) were around $100K in previous years, look at the Calgary mls stats. Once again the Calgary media and just about everyone in Calgary has their heads implanted where they shouldnt.

#66 North Vancouver Citizen Jr. on 04.22.09 at 11:30 am

#33 CJ

“”” I just renewed a GIC and got a whopping 0.75% for one yr…no wonder people are jumping into housing!!”””

You can’t eat a GIC, can’t eat a Gold Bar, or a Bank stock certificate.

…..So is it any wonder bricks and mortar reflect a solid alternative….last time I looked, everyone needs shelter.

…Furthermore, Western Canada’s wealth, safety from conflict, natural resources, agriculture and tiny population will attract the world, let alone skeptical “Centre of the Earth”, Ontarian’s.

Sorry Garth, much of your platform makes sense, but Ontario/Quebec and Western Canada are two different worlds.

#67 North Vancouver Citizen Jr. on 04.22.09 at 11:59 am

…U.S.’s Foreign Debt closer to being defaulted…

…”ALT-A” and “Prime” mortgages are the next delinquencies…

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

…The number of prime borrowers at least 60 days behind on mortgages owned or guaranteed by the companies rose to 743,686 in January, from 497,131 in December…

There is only one way to put the U.S. back on an even keel….The excess (foreign) debt must be removed from the system….There are only two ways to remove debt from the system:

1/Pay it down…2/Default it

That’s all there is for choices. If the debt cannot be paid down due to the lack of cash flow to do so, the only other remaining choice is to default it, and the sooner we face reality the better off our economy will be.

and imo…..Defaulting China’s and Japan’s foreign debt will lead to Wars.

#68 Cash is King on 04.22.09 at 12:07 pm

Garth suggests

* Buy a timeshare in my new bunker.
* Get self-employed

Time to register “Bunkers R Us” – Free quotes!

So Mark Carney came to the realization that his earlier economic forecast was “overly optimistic” How can Mr. Carney keep his postion with the Bank of Canada? Its one thing to be off with his figures, but to totally deceive Canadians with his rosey economic forecast. Another head must roll.

Saving Cash for the Crash!

#69 HuffPuff.HoeYerBlouseDown on 04.22.09 at 12:14 pm

#3 Donald –

Although there is a correlation between in-migration and house prices, there’s no evidence of a dependency between them. Prices spiked one way or the other because of better or worse economic and employment conditions. In-migration was more or less affected by the same conditions at approximately the same time.

However, any further in-migration and prices will be negatively affected by the vastly increasing commuting distance, time, and cost of getting to distant suburbia. Not to mention all the other sicknesses characteristic of it.

Further, Edmonton in the winter is a particularly nasty place to live for many, leading to all sorts of psychological problems if you’re not constantly submerged in your work. It’s no wonder that those Ontario immigrants Pocklington and Gretzky eventually fled to southern California. Same with living in Vancouver, insofar as 5 months in incessant drizzle and cloud are concerned.

“[Edmonton] Jasper Place made the national news in 1958 when Richard (Dick) Butler, councillor and publisher of the weekly Jasper Place Citizen, was shot and killed by a deranged gunman who had dug a series of trenches around his home and then barricaded himself inside. The incident began one August morning when the gunman, an elderly recluse who lived in a converted boxcar at 112th Avenue and 150th Street, pumped shots into a car and house across the street.

Two Jasper Place policemen tried to get him to surrender but without success and so more police officers and fire department backup were summoned. Streams of water from firehoses and tear gas grenades failed to flush him out.

The recluse was eventually captured with the assistance of a bulldozer, ending the six-hour siege. He was later declared insane and committed to the Oliver Mental Institute.”

#70 Slim on 04.22.09 at 12:17 pm

Can’t borrow forever

In UK – “Alcohol duties will go up by 2 percent from midnight tonight. There will be an increase in tobacco duty of 2 percent from 6 pm tonight. Taken together, these measures will raise over 6 billion pounds by 2012.”

http://www.cnbc.com/id/30346400

Similar measures to come in Canada?

#71 PTDBD on 04.22.09 at 12:29 pm

But, the damage continued.

Going into that last upswing, that last stock market crescendo of unbounded, crazy, canuck optimism, I knew we were in dire straits. Now they call it “uncharted waters” but I knew we were headed deep into the yawning belly of the Undertoad.

The chart spiked madly after one last frantic twist of the mad money throttle. I could only anticipate the extent of the damage, going forward, moving forward, or as CNN likes to say now, as we resist – pushing forward. The banks slid toward the edge of the cliff as I pleaded to finance FlimFlam man for help. He replied that the economy was as strong as the Canadian Shield.

The pinnacle of maximum danger was defined by the tipping point head of a PM who pronounced that if we are going to have a recession we would have had one by now. So confident, he was.

We flew over the crest with reckless abandon, our arms pinwheeling with panic.

In mid flight, the magician worked his prestidigitizer trance. He convinced us that we were not falling. That worthless financial instruments were to be counted as assets. That “holistic quantitative easing” would be the super elixir to give us everlasting wealth. Indeed, the magician and his court hung suspended in mid air, as if supported by invisible strings. “See”, he said, “- the natural laws of gravity no longer apply in the new global paradigm where everything is holisticly sublime.”

I also wanted to believe. I stared into his shoplifter eyes, but only witnessed the abyss, colder that a blackjack dealer’s heart. Busted.

Reality resumed. It will prevail, no matter how badly you want to ignore it. The willing suspension of disbelief evaporated and our plunge continued. It was relatively painless, as was the first episode.

We had not yet hit the ground.

#72 Rob in Onterrible on 04.22.09 at 12:31 pm

#31. I want to become self-employed myself because I can’t find another corporate management job. I’ve never made 6 figures, though. What did you do anyway?
#47. Yup, I’ve watched the Obama Deception a lot. I especially love Gerald Celente. That guy is not psychic but he’s gotta be 100% accurate. He says many of the things that Garth says except Gerald is totally bullish on gold.

#73 Bill-Muskoka (NAM) on 04.22.09 at 12:37 pm

I also turn Pacific idiots into stone. Beware. — Garth

Garth,

No real need for the extraordinary exhibitions of your Supreme Powers, a simple stoning will suffice! ;-)

#74 Bill-Muskoka (NAM) on 04.22.09 at 12:51 pm

#53 PTDBD

Oh thanks a lot! Now I have an urge to go to Wimpy’s for lunch! LOL

#75 SSS on 04.22.09 at 12:53 pm

#52 snwhite , #42 Rational purchasers, Garth
Question?
If the intrest rates rise, does your home loose value? I mean if I buy a 400K house today with lowest intrest rates, and after a few years with 6% intrest rate, is my house still worth 400K. Or depending on the intrest rates the market prices reallign so you pay about same but the house prices are reduced?

#76 Bill-Muskoka (NAM) on 04.22.09 at 12:55 pm

#52 smwhite

Careful, you are going to cause many to experience a brain haemorrhage with that Reality Check! ;-)

#77 David Bakody on 04.22.09 at 1:14 pm

Breaking New from the US

Police: Death of Freddie Mac’s Kellermann may be suicide

He was their ACEO …… sad news. We are more fortunate here as our Economy is: As strong as the Canadian Shield so sayeth Mr. Harper and Flaherty.

On another note: I was in to my bank yesterday and I saw that concerned look on a veteran loan manager when I spoke with her. I am not sure but I suspect with near zero rates not much money is being made as these people deal in Billions normally.

#78 Banks lying again on 04.22.09 at 1:16 pm

re #49: it’s not really the spread itself.

The banks don’t lend 1:1 based on deposits:
It is a Fractional banking system, which means they can lever their deposits 7:1, 10:1, or more!

So, if they have 1 billion in deposits, they lend 10+ billion, at whatever interest rates they choose.

So when banks say they have to raise rates, when prime is 1/4%, they’re lying (again)!

#79 Grumpydawgs on 04.22.09 at 1:17 pm

On gold

“The reason why you are under assault is because you have demonstrated by your purchase of gold or a gold-related investment that you do not trust the monetary policies of your nation’s central bank. If you are an American, this means you do not trust the monetary policies of the Federal Reserve System. You have taken a step that confirms your lack of trust in the government and its central bank. If you think the government and the central bank will sit quietly, while millions of citizens buy gold as a way to hedge against government and central bank policies, you are terminally naive.”

http://www.garynorth.com/public/4857.cfm

Just because you’re not paranoid, doesn’t mean they’re not after you.

#80 Banks lying again, 2 on 04.22.09 at 1:19 pm

btw, banks are in trouble Because they levered their lending 10:1 (probably much more)!

Since their mortgage (& commercial portfolios) are dropping, who knows how levered they really are. There would probably be a run on all banks if this info was made public.

Why did the banks do this? Because they are greedy.

#81 Bill-Muskoka (NAM) on 04.22.09 at 1:56 pm

#78 Grumpydawgs

Not to mention it is illegal in the U.S. to horde gold unless licensed and duly reported.

Here is what started it all Executive Order 6102

Then confusion was rampant What are the current laws concerning gold ownership in the USA?

And now some clarification REPORTING REQUIREMENTS

So, while you may have some now, if the S**t Hits The Fan, you may not be able to legally retain it or sell it. Think ‘Hotel California’ you can check it in, but it can never leave, at least not without incrring the All-Seeing Eyes of the I.R.S..

Things are in a state of flux RIGHT NOW! Actions of the US Mint Discourage Gold Ownership

#82 Bill-Muskoka (NAM) on 04.22.09 at 2:00 pm

Here in Canada we, of course, have the Bre-X option! LOL

#83 PTDBD on 04.22.09 at 2:09 pm

So bunky, if you’ve kept up with things, and not just TMSM…as you

;-) move forward ;-)

…as you look forward behind the curtain, as you realize that sub-prime mortgages was not the cause of this as advertised. If you agree that the real cause was the shadow banking system. Then these questions come naturally:

Did Canada also have a shadow banking system?

– Do we still have a Shadow Banking regime to escape the restrictive banking regulations that our politicians brag about?

– Why did Flaherty give the Bank of Canada historic unlimited latitude to buy anything in any amounts?

– Finally, why did Harper contract former Bush and Clinton press secretaries to orchestrate his American media appearances?

#84 Has on 04.22.09 at 2:30 pm

Garth,

Looking forward to hearing you this Sunday in Ottawa.

#85 dave99 on 04.22.09 at 2:54 pm

#79,

No, the banks do not do it because they are greedy. They do it because their shareholders (ie individuals, pension funds, etc) are greedy.

Why should a shareholder accept a 4% ROI when another bank is providing 6%? or 8%?

Of course, when the 8% ROI turns into a cratering share price due to overleveraging, well then the shareholder cries out about the evil banking system!

Boo-friggin-hoo!

I saw Jon Stewart the other day (and I love the Daily Show) and he was complaining about the injustice of regular people who lost 30%+ of their investments. But of course he never acknowledged that the lost 30% only existed in the first place because of a ponzi-like investment return over the past 15 years.

Like the wise man said….enlightenment sucks.

#86 smwhite on 04.22.09 at 3:03 pm

#74 SSS

Lets say you have to sell your $400K house in that 5 year time frame. Part of your “profit” on that sale will be eaten up by the increase in rates because it cost more to borrow.

As interest rates go up, “affordability” goes down and vice versa, agreed?

The same reason people are screaming in Ontario about the McGuilty HST. A rise in tax or interest rates eats away at the buyers affordibility and the sellers equity, meaning the buyer has to dish out more money for those interest payments and taxes and what they can afford after the neccesities are paid can be put toward the principal on a residence.

You have to ask yourself today a couple questions, first being do I think rates will be lower in 5 years; will taxes be lower in 5 years.

The higher the home price the higher the taxes(and every Canadian province will feel the tax pinch). So if your home value goes up 2.5% over the next 5 years(which it won’t) its value is $450K. If it averages -2.5% over the next 5 years(which it easily could) its value is $350K.

The danger of high-valued homes(and the average home is now 5 x the average family income), is a minimal drop becomes serious damage when salaries are stagnate. You don’t need 5 years of -10%, -2.5% will ruin many a new home buyer.

“Is my house still worth 400K?”

You house will be worth what people can afford to pay.

Think about how much “wealth” has been destroyed in the last two years.

Another great point(back pat, back pat) is that there are many new home buying “geniuses” that decided that they’d take on a jurassic mortgage because they were hedging bets on the mass exodus of boomers retiring, are going to learn the hard way about housing specualtion.

The majority of Boomers are going to be working for another 10 years, its not freedom 55 anymore, its freedom 65, 75 if you listened to the banks investment advice.

#75 Bill-Muskoka (NAM)

Bill, its about time a few people had an ice cream headache(or two) and stopped acting so spontaneously stupid!

#87 lgre on 04.22.09 at 3:10 pm

“If the intrest rates rise, does your home loose value? I mean if I buy a 400K house today with lowest intrest rates, and after a few years with 6% intrest rate, is my house still worth 400K. Or depending on the intrest rates the market prices reallign so you pay about same but the house prices are reduced?”

if you buy a house today, you bought too expensive..once rates rise house prices will sink..cant have high rates and high prices..one will give..guess which one?

#88 905er & Spouse on 04.22.09 at 3:15 pm

RE: #50 Anonymous

I’m just pointing out the double standard that exists. It’s got nothing to do with my ego…I don’t even know how reference to my ego got referenced.

Boy, point out a double standard in language and some people get so sensitive…..I just don’t get it.

#89 I call'em the way I see'em on 04.22.09 at 3:15 pm

“””The seeds are being sown for a second leg down for housing.”””

…Compared to the rest of the world we are getting off easy…

China & Japan holds @ 45% of U.S. foreign debt.

127 million aging Japanese who have no one to sell their manufactured goods

along w/ 1.5 billion Chinese who have no one to sell their manufactured goods.

…Soon enough, after the U.S. nationalizes its foreign debt, Japan & China go to war…they gotta keep their citizens employed, don’t you know.

and where will their wealthy relocate to?….Quebec?, the Maritimes?, Ontario?…..ummmmm anyone who says Vancouver/Hongcouver wins today’s door prize.

#90 RS on 04.22.09 at 3:36 pm

I’ll take a timeshare!

#91 Paul Fist In Your Face on 04.22.09 at 3:43 pm

#8 dd on 04.21.09 at 11:10 pm

Pat Carney … don’t worry Canada will be fine.

In the mean time he is dropping the bank rate to near zero and is floating a plan to print money (buy back debt).

Mark Carney. Pat was a Mulroney-era cabmin. — Garth
—————————————————-
I laughed so hard I was in tears. Getting one vacuous windbag confused with another is simply Freudian. Totally understandable dd. You’re still cool.

#92 Kash is King on 04.22.09 at 4:26 pm

Here’s an obervation: if the housing market is heavily reliant upon 1st time buyers…. does it not resemble a ponzi scheme?

First time debtors supply the liquidity ( escape hatch?)for earlier buyers.

When domestic first time debtors run out, I’ll bet we can count on a massive influx of fresh new first time debtors from other countries.

#93 SSS on 04.22.09 at 4:44 pm

#86 lgre, #85 snwhite,

Thaks for your answers. Its hard to figure out all these price variations. I am an immigrant and most of us immigrant still carry that back home mentality. Back home, things are not based so much on the intrest rates as many pay cash for their purchases. But I tell you most of my friends who bought houses are caught in this storm. As Garth said “Pray for them”.

#94 md on 04.22.09 at 4:46 pm

me and my wife have been waiting to buy a house now for a couple years. We have 140000 for a down payment and another 40000 locked in a gic and 17000 we plan to use for the house. were looking to buy a house in the 280000 to 315000 price range. we plan on staying in our first house for a good while so if price do go down over the next while i think we will still be ok, cause by the time were ready to sell prices will probably stablize. does this make sence or am i just fooling myself?

#95 SSS on 04.22.09 at 4:46 pm

Thanks to garth for eduating us, as very few peopel talk about these things. Mainly because media is not free here.

#96 Future Expatriate on 04.22.09 at 4:58 pm

“I also turn Pacific idiots into stone. Beware.” — Garth

So THAT’S what happened to Easter Island! (aka Vancouver Island 2025)

#97 Rhino on 04.22.09 at 5:31 pm

#71 Rob in Onterrible on 04.22.09 at 12:31 pm

(smile)

ONE WORD>>>> NORTEL!! Actually, salary just under 6 figures, but add in medical, benefits, stock purchase, etc., well… it added up rather nicely…

Before that… Education – the world of frustration for a “results guy”.

Before that… Pulp & Paper capital equipment – now dead or dying

Before that… instrumentation and controls – now dead

All high tech CANADIAN engineering & MANUFACTURING companies… All once world leaders, all now dead.

Right on about not finding corporate management jobs. Even with all the “right qualifications, B.Comm., and references”, I tried for 3 years to find work – even dropping requested salary to $50k did not help. BTW, even with outplacement services package, I hired a (reputable) high paid placement firm, and wasted $6k. Beware those who can “find you the right job”… Quite a scam.

Self employment became an accidental situation. Started with one small contract, and grew from there.

Then the crunch hit, and clients stopped spending…

No safety net. Ergo, retail slave wages…

Good luck. Self employment will test your cojones.

Save when you can, as it is up and down like crazy. Hard to spend in the good times, since you never really know when the next contract comes in. That is, until you get a good bankroll behind you. Even then… 6 bad months can eat your saving rather quickly…

#98 Chris in England on 04.22.09 at 6:06 pm

Slim #69: “In UK – “Alcohol duties will go up by 2 percent from midnight tonight. There will be an increase in tobacco duty of 2 percent from 6 pm tonight. Taken together, these measures will raise over 6 billion pounds by 2012.”

We won’t notice – too busy smoking and drinking.

#99 Jack Lovell on 04.22.09 at 6:13 pm

I agree that getting rid of debt should be #1 and continue to be amazed that the best solution underwater loans is hardly ever mentioned. For those who are covering their payments but are really irritated that they’ve ended up in an underwater (negative equity) situation, mortgage acceleration is the solution to recoup equity faster than any other method. Just do an online search for underwater mortgage acceleration to get some insight into this.

#100 @Garth 2 on 04.22.09 at 6:19 pm

Kash is King has the quote of the day: “Here’s an obervation: if the housing market is heavily reliant upon 1st time buyers…. does it not resemble a ponzi scheme?”

The answer of course is yes, and it brings into question many of the recent policy initiatives taken on by our government to save the economy. As it stands, this observation can transition seamlessly into one about the pension debacle that is stalking Canadians as closely as asset deflation.

Garth, this surely is a view that dovetails the entire subject of traditional wealth management (for the unwealthy): Asset bubbles, Pensions and Ponzi schemes.

Have you written about that?

#101 Rural Rick on 04.22.09 at 6:24 pm

Vultures are very intelligent, gentle, social animals. They soar effortlessly on the wind. Disposing of carrion they are the funeral directors of the natural world.

#102 . . . fried eggs and spam . . . on 04.22.09 at 6:35 pm

A different take, as compared to Garth’s view. — http://tinyurl.com/d7lp8p

“The US economy right now is like Wile E. Coyote who runs right off a cliff but hasn’t yet looked down. Once the spell of a ‘deflationary spiral’ is broken by a full quarter of significant price hikes, there will be an avalanche as people come to their senses.”
——
#17 The End is not nigh at 1:31 am — “Anyone have any Pig laxative?”

Is this the main cause of all the bullshit flying around these days?!
——
#66 North Vancouver Citizen Jr. at 11:59 am — “. . . Defaulting China’s and Japan’s foreign debt will lead to Wars.”

Precisely. That is why China and Japan (especially China) is dumping the greenback, following Japan’s advice a few months ago), and has since moved quickly into commodities.

The US — and others, such as the UK — have caused this economic downturn, because most countries know they’re completely broke and have nothing to lose by taking part in WW3, except a major reduction in global population.

Say, isn’t that what the NWO wants anyway? Has anyone heard what is happening in eastern Europe, Thailand, China, etc.?

#103 #84... bankers, not shareholders on 04.22.09 at 6:59 pm

Bankers have always tried to maximize their profits, from the beginning of history. Way before shareholders & today’s competition.

Ever hear of shaving gold coins??

The bankers invented fractional banking, & anything else to grab money. Even TARP etc. If you remember, everything is hush-hush private. The only thing we know is that the profits remain private (to the banks) and the losses are public (ie taxpayers).

#104 gold bugger on 04.22.09 at 7:21 pm

Rhino, wow, it’s like you were writing my life story.

A career with benefits, take the package, pursue self-employment with all its benefits (most intangible) and all its drawbacks (some VERY tangible), and now a scrub job at a DIY store for what I was making 20 years ago as a U student.

But it’s a job and I’m glad to have it.

#105 lgre on 04.22.09 at 8:34 pm

“Thaks for your answers. Its hard to figure out all these price variations. I am an immigrant and most of us immigrant still carry that back home mentality. Back home, things are not based so much on the intrest rates as many pay cash for their purchases. But I tell you most of my friends who bought houses are caught in this storm. As Garth said “Pray for them”.”

Glad to help, that would make sense..interest rates would have no or very little effect on pricing if most bought cash. In Canada/U.S most can’t even buy a pair of shoes with cash never mind a house..

#106 Nostradamus jr on 04.22.09 at 8:44 pm

100 . . . fried eggs and spam

“”That is why China and Japan (especially China) is dumping the greenback, following Japan’s advice a few months ago), and has since moved quickly into commodities.””

…China is hoarding commodities …that is called “preparing for war”…..Can’t have a war without armaments…can you.

“””The US — and others, such as the UK — have caused this economic downturn………except a major reduction in global population.”””

…Only half correct on this one…..China caused the economic downturn…they have been manufacturing at just 10% of the free worlds labour costs and now that has come back to bite them…in their proverbial U.S. owned debt that will become worthless.

….and China has what…50 million unemployed roaming China’s city streets…as we speak.

…Japan needs to trim down by a few folk…..guessing India is gonna be a wannabee too.

and, ummmmmm, where will all the rich Asian nationalists wanna stay safe during all this turmoil?…..St John New Brunswick?…Quebec City?…Toronto/Detroit/Chicago(frigid winters)?…New York City/Boston (North American culture centre)?Winnipeg/Regina/Calgary/Alberta?…Miami/LA?(hispanic culture)….or maybe Vancouver/Hongcouver?

….I’m giving another door prize away tonight…

#107 Tony on 04.22.09 at 9:04 pm

I remember back to the last crash in housing in southern Ontario. The third week in the year 1987 yes ’87 not ’89 when mortgage rates hit 14 percent and the housing market crashed almost to the day of September 25th 1987. I sold everything in the summer of that year and moved to Elliot Lake. I bought heavy there and reaped a fortune. Now i’m nitpicking at the west and south west areas of Edmonton. Why? I’ll tell you why they have nowhere else to go. They don’t speak french very few will move to the east coast because well no jobs. I just get the line of credit and write-off the interest payments at 3 and a quarter percent. If rates go up well i just pay them all off. Meantime rents are tight in those areas. Oil will rebound to at least 100 bucks a barrel US in the next 5 years. Knowing what and where to buy during a recession is how you get wealthy.

#108 grandeprairie girl on 04.22.09 at 9:15 pm

#77/79 Banks lying again.

I came across an article awhile back on fractional reserve banking. Here’s some numbers for you.

Canada 18:1
USA 26:1
Europe 60:1 !!!!!!!!!!!!!!!!

#109 grandeprairie girl on 04.22.09 at 9:24 pm

600,000 U.S. foreclosed homes sitting on bank inventory and not the market.

http://www.globalresearch.ca/index.php?context=va&aid=13283

#110 eddy on 04.22.09 at 9:58 pm

many people buy houses with no regard to market trends. it’s more of a “life decision”. you know, they are more like ‘home buyers’ rather than ‘day traders’

#111 . . . fried eggs and spam . . . on 04.22.09 at 10:01 pm

#104 Nostradamus jr at 8:44 pm — “….I’m giving another door prize away tonight…”

Any prizes being doled out in the Okanagan? Sure, we have a brutal night ahead of us, with flurries in the forecast, but we’ve had worse, so will we be able to cope tomorrow? Probably not!

Points noted. China may indeed have caused the economic downturn, but the west has more than contributed to its’ own demise via the reckless spending of dubya and co. for those false and illegal wars here, there and everywhere.

Forgotten whether it was Trotsky, Lenin or Stalin who said something to the effect that “. . . we won’t have to do anything. By their greed, the west will destroy itself.”

Or something similar.

#112 BigAl on 04.22.09 at 10:11 pm

My wife and I live in one of the ‘nicer’ townhomes in the Erin Mills area of Mississauga. We pay $1400 rent plus all utilities – gas, electricity, AND water.
But within a space of two months four of the town homes adjacent to us have given notice and are leaving. One moved to BC. Two find they can get more house for about the same rent close by. And us, we’re downsizing to a nice one-bedroom basement in nearby Meadowvale for $750 all inclusive (and there isn’t even a landlord living upstairs – just another renter, which is ideal).

But with 4-in-a-row giving notice like that, it makes me wonder how many more in our complex are moving out/downsizing/getting more for their money.

Our situation is that I’m waiting for a transfer from my London, Ont. office to the GTA, so I live in two cities right now. We’re just going to wait it out unil the ‘Bottom’.

#113 Eduardo on 04.22.09 at 10:12 pm

I thought Canada’s tier 1 capital was 9.9% and it’s regulated at 7% or something?

#114 taxpayer like you on 04.22.09 at 10:26 pm

86 Igre said:

“..once rates rise house prices will sink..”

So how does that explain 1981? Or even 2007?

Sorry SSS – there are other factors at work. It may not
be as simple as Igre is saying.

#115 Bill-Muskoka (NAM) on 04.23.09 at 9:19 am

Vultures are very intelligent, gentle, social animals. They soar effortlessly on the wind. Disposing of carrion they are the funeral directors of the natural world.
#101 Rural Rick

True enough, but they also have a wee bit of seagull in them ‘MINE! MINE! MINE!’ LOL

I know a few human funeral directors with the same traits. LOL People are dieing to meet them all the time.

#116 Bill-Muskoka (NAM) on 04.23.09 at 9:21 am

#96 Future Expatriate

ROFLMAO! Good one!

#117 Rob in Onterrible on 04.23.09 at 11:19 am

@97, Rhino. You’re right about Canada’s HIGH TECH dying. I worked for Measurex for 11 years, then moved to Europe, where I worked in the automotive sector, then moved back to Canada and worked in automotive before getting laid off. Canada will only be a wheat and base metal supplier to China in 10 years time.

Here are some lesser known job sites for you:

http://www.eluta.ca for jobs and also this site for government jobs:
http://jobs-emplois.gc.ca/index-eng.htm

Me, I’m 48 and too overqualified, too fat, etc. so self employment is the only option and that’s why I asked.

Best of luck in the future.

Rob